Court Upholds Joint Employer Rule, Leaves Room for Changes thorough Further Adjudication and Rulemaking

The National Labor Relations Board’s current joint employer standard has received a mixed review from a federal circuit court. The decision is disappointing to AGC, which sought reversal of the standard in an amicus brief in the case, but it provides some valuable guidance on how courts may evaluate the Board’s ongoing rulemaking efforts.

In general, joint employer status under the National Labor Relations Act (NLRA) exists where two otherwise separate employers co-determine some or all of the terms and conditions of employment for the employees of one of the employers. This typically arises in a situation where one employer retains the other employer to provide business services.

In a 2-1 decision in Browning-Ferris Indus. of Cal., Inc. v. NLRB, the U.S. Court of Appeals for the District of Columbia Circuit held that the joint employer test articulated in the Obama Board’s 2015 Browning-Ferris decision was lawful. The test considers both an employer’s unexercised “right to control” and its indirect control over employee terms and conditions of employment, in addition to the traditional consideration of active and direct control. The court stated that the Board’s consideration of the “right to control” and “indirect control” factors was consistent with common-law agency principles.

Notably, the D.C. Circuit was careful to limit the scope of its decision. The court explicitly said it was not addressing the question of whether a “right to control” alone or indirect control alone could be dispositive to a joint employer finding.  Instead, it merely held that such factors were relevant to the analysis, without making a judgment as to how much weight they should carry.

The court reasoned that the Board was obligated to apply common-law agency principles when crafting its joint employer test because Congress intended common-law to govern the definitions of “employee” and “employer” under the NLRA. The court then examined common-law agency and determined that both reserved control and indirect control were historically relevant to determination of an employee-employer relationship under the NLRA. Thus, the Board did not err by considering these types of control in its analysis.

Still, rather than uphold the decision entirely, the court remanded the case to the Board to clarify the types of indirect control that factored into the Board’s analysis. The court distinguished between indirect control over an employee’s essential terms and conditions of employment exercised through, e.g., an intermediary, and more attenuated indirect control that arises through routine aspects of business-to-business contracting. Because the Board failed to distinguish between these two types of indirect control, the court could not determine whether the Board’s decision relied on the proper factors in determining that Browning-Ferris was a joint employer.

The court also found that the Board failed to meaningfully apply the second step of its test, which considers whether the would-be joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.  The court noted that the Board never delineated what terms and conditions are “essential” to make collective bargaining “meaningful” and never clarified what “meaningful collective bargaining” might require.

The decision is particularly timely given the Trump Board’s ongoing effort to establish a joint-employer standard through regulation. The Board recently proposed a rule that seeks to return the standard to more closely resemble the test in existence before the 2015 Browning-Ferris decision, which considered only actual and direct control. Although the dissenting judge in the D.C. Circuit opinion argued the court should have withheld its decision until the Board completed the rulemaking process, the decision may help guide the Board to craft a judicially acceptable rule.

Importantly, the ruling appears to leave the Board with sufficient leeway in both crafting and justifying its proposed rule. The court’s holding that the Browning-Ferris standard was applied too vaguely arguably strengthens the Board’s argument that rulemaking is necessary to provide stability and predictability to the rule. Further, the court did not dictate the relative evidentiary weight to be given to indirect or reserved control, which will presumably allow the Board to draft a rule that fills in the gaps and brings the Board’s unique labor policy expertise to bear in deciding how much weight should be given to these factors.

For now, the Obama Board’s Browning-Ferris test remains the law of the land, subject to further clarification from the Board on remand in the case or through rulemaking. AGC intends to submit comments on the proposed rule before the public comment deadline.

Editor’s Note:  This article is based on a previously published article by attorneys Reilly C. MooreKurt G. Larkin, and Ronald Meisburg of Hunton Andrews Kurth LLP, who also drafted the amicus brief referenced in the article, and is reprinted with permission.

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