Who's the Employer?

Who is an employee’s employer?  This seems like a simple question that should have a simple answer. However, the legal reality is much more complicated than merely looking at who signs an employee’s paycheck. Sometimes, the answer is that, legally, an employee has multiple employers. Despite the “gray” nature of the question and answer, the impact is black and white: it is significant to every business. Among other ramifications, whether a company is an employer, a joint employer, or “nothing” impacts whether a company could be deemed to have committed an unfair labor practice, be liable for an employee’s car wreck, or bear responsibility for any other number of adverse decisions.

Since the 1980s, the National Labor Relations Board (“NLRB”) has generally required that two employers “share or codetermine those matters governing the essential terms and conditions of employment” in order to be deemed joint employers. (To be clear, the NLRB has jurisdiction over the vast number of companies in the United States – not just unionized employers.) For joint employer status to exist under prior case law, there had to be a showing that an entity “meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.” In still other decisions, the NLRB required that an entity exert “direct and immediate” control over an employee before it could be deemed a joint employer. Further, NLRB historically considered the parties’ “actual practices” with regard to employee management as opposed to merely reviewing whether a party had a contractual right to exercise power, but did not do so. In August 2015, the NLRB rejected these long-time standards.

In Browning-Ferris Industries of California, Inc., the NLRB adopted a much looser standard for determining when an entity is to be considered a joint employer of an employee. Among other holdings, the NLRB expressly rejected prior requirements that a putative joint employer:

  • “Not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority.” According to the NLRB, “reserved authority” that has not been exercised is now going to be considered.
  • Exercise direct and immediate control. Rather, under the NLRB’s new standard, indirect control may be sufficient to establish joint employer status.

The NLRB’s decision in this regard represents a monumental shift. In making its rulings, the Board contended that the nature of employment has shifted a great deal in the last several years in that employees are now often procured through “staffing and subcontracting arrangements or contingent employment.” (Contingent employment includes temporary staffing services.) As such, the Board argued, the joint employer standard had to be broadened in order to more effectively govern employment relationships.

Consider a situation in which a business acts as the construction manager or general contractor on a project and has a number of subcontracts in place through which work is performed by subcontractors’ employees. The construction manager or general contractor undoubtedly has jobsite rules in place, generally manages the jobsite, and has general expectations of the work to be performed by each subcontractor. Now consider the NLRB’s language from its August 2015 decision:

Where the user firm owns and controls the premises, dictates the essential nature of the job, and imposes the broad, operational contours of the work, and the supplier firm, pursuant to the user’s guidance, makes specific personnel decisions and administers job performance on a day-to-day basis, employees’ working conditions are a byproduct of two layers of control.  (Emphasis added.)

This language seems to broadly describe many relationships between construction managers/general contractors and subcontractors. The key language appears to be what constitutes “user guidance” by the general contractor, construction manager, or any other entity alleged to be a joint employer.

For example, under this decision, what will happen if the general contractor reports a subcontractor employee’s failure to use personal protective equipment (“PPE”) to the subcontractor, and the employee is disciplined or fired as a result? Undoubtedly, such a report needs to be made to ensure the safety of the site and to comply with the general contractor’s OSHA obligations. But, is the NLRB going to use such evidence in attempting to establish a joint employer relationship between the general contractor and subcontractor over the employee? Likewise, what if the upstream contractor is conducting routine inspections of work and notices that the subcontractor’s employees are failing to install equipment correctly? Arguably, the NLRB will view jobsite directions on how to properly perform a task from the upstream contractor to the subcontractor’s employees as control over the subcontractor’s employees. These risks are real, and the likelihood of unintended employment relationships is far reaching.

Unfortunately, it is far from clear how such risks can be mitigated. One possible consideration is the use of contractual language clarifying what rights each party has with regard to the management of employees. The contract language should specify who has control over the means and methods of performing tasks, and an entity must be careful to not overstep its bounds. Additionally, parties should consider whether indemnity provisions can be utilized to help mitigate the costs of fines, penalties, expenses and damages in the event that a party is alleged to be a joint employer with the other. While such indemnification may not mitigate all risks, they may be a useful tool.

If you have any questions, please contact our Labor & Employment Practice Group. We encourage you to subscribe to our Labor & Employment E-Briefs to get the latest HR news, tips, and updates.