Joint Employers: Latest from the NLRB, EEOC and … · • Joint employers may be liable for one another’s ULP’s and compelled to bargain with their employees’ union representative

© 2016. Archbright. All rights reserved

Kellis M. BorekVice President Labor & Employment Services

Joint Employers:Latest from the NLRB, EEOC and DOL


Who do you do business with?

• Parent Corporations• Temps• Outside workers • Subcontractors • Vendors • Licensor and licensees


Complications

• Joint employers may be liable for one another’s ULP’s and compelled to bargain with their employees’ union representative

• Joint employers are liable for one another’s alleged violation of employment laws – such as Title VII, OSHA, wage and hour, FMLA

• Joint employers are liable for one another’s contractual commitments, such as provision of benefits


Agenda


Definitions

• Joint Employer• Integrated Employer


Joint Employer

• Determination = Economic Realities Test• If an employee is jointly employed by two or more

employers, all joint employers must comply with the applicable minimum wage for the particular pay period

• Joint and several liability


Joint Employer

Joint Employers – No Common Ownership• Exists when:

– Different employers both employ same employee; and

– One employer is acting in the interest of the other or shares control (example: Staffing agencies)

• Size: All employees jointly employed are counted by all joint employers


Joint Employer Example

Joint Employers • Example: Small Biz, Inc. has 475 employees.

Occasionally Small Biz retains 30 temporary employees from Staffing, Inc. Schedule size for Small Biz, Inc. is 505 employees. Employees at Small Biz are entitled to minimum wage amount for employers over 500 employees.

• Staffing, Inc. is jointly liable for it’s 30 employees’ minimum wage for large employer.


Joint Employer

Franchisees• Independent Franchisees combine their employees

with employees of all other franchisees of same franchisor in U.S. to determine size (pending litigation)

• Examples: Pizza Hut, Taco Time, Subway• 600 Franchisees/19,000 franchise workers


Integrated Employers

Integrated Employers – separate entity controls operation of another entity.

1. Degree of interrelation2. Degree to which they share common management3. Centralized control of labor relations, and4. Degree of common ownership or financial control

When two or more entities are an integrated employer, the employees of all entities that form the employer are counted. No one factor determines inclusion.


Integrated Employer Example

Cold Storage Seattle, Inc. (300 employees) operates a warehouse in Seattle. Cold Storage Renton, Inc. (325 employees) operates warehouse in Renton. • Both owned a 100% by Cold Storage National • Separate Tax ID#s• HR and Labor relations are handled by Seattle Staff • Separate bank accounts, equipment and records• Cold Storage National oversees budgets for both

warehouses• Shared workers compensation account



Exceptions to Integrated Enterprise Test:• Share some degree of interrelated operations and

some common management, but• Separate legal entities and operate substantially in

separate physical locations• Each separate legal entity has partially different

“ultimate” ownership• Previous example but ownership is not 100%



Example: Family Biz, LLC owns a deli, bookstore and frame shop at three different locations in Seattle. Each business has separate tax id numbers and different employees. Some times employees are shared due to absences. Each business has a separate set of books and records.


State and Local Impact

• City of Seattle Labor Standards• Wage and Hour Laws• Discrimination laws• Fair Credit Reporting Act (FCRA)


National Labor Relations Board


It all started with….

• Browning-Ferris Industries of Ca. (August 2015) • (“BFI”) operated a waste recycling facility and

subcontracted employees from Leadpoint Business Services (“Leadpoint”) to sort recyclable items and to perform basic housekeeping functions.

• The Teamsters filed a petition to represent 240 employees under the theory that BFI and Leadpointwere joint employers. Teamsters already represented 60 employees at BFI.

• BFI supervision over the subcontracted employees was indirect.


BFI

• On September 4, 2015, a tally of ballots showed a 73-17 vote in favor of union representation

• The Teamsters were certified• Teamsters filed an unfair labor practice charge against

BFI, claiming that the Company was refusing to recognize or bargain with the Union

• The Board issued a unanimous decision, finding BFI and Leadpoint, as joint employers, had violated the NLRA

• BFI appealed the decision to the U.S. Court of Appeals for the D.C. Circuit on January 20, 2016


BFI

• NLRB rejected 30 years of precedent• It will no longer require joint employer to actually

exercise authority to control terms and conditions of employment, only that it has potential power to indirectly control such terms


BFI

• New “Modified” Joint Employer Standard: – (1) whether a common law employment relationship

exists; – (2) whether the potential joint employer “possesses

sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining”

– Control under the new standard can be direct, indirect, or even a reserved right to control, whether or not that right is ever exercised


BFI• User firm controls the premises, dictates nature of

work, contours of work• Supplier firm makes specific personnel decisions and

administers job performance on a day to day basis• “Employees working conditions are a by-product of

two layers of control”• Two or more entities are joint employers of a single

workforce if they “share or co-determine” essential employment terms such as:– Wages, hours, number of workers supplied, scheduling,

seniority, overtime, work assignments, performance, supervision and termination


Who is most impacted by BFI?

• Franchise owners and franchisees• Hospitals, residential care facilities, home health

agencies – other businesses that subcontract labor through outside vendors

• Businesses that secure workers from third party staffing and placement companies

• Businesses that us vendor provided workers, believe that the relationship insulated them against liability


BFI

• Burning question: How much indirect control may be sufficient to impose joint employer status?


National Labor Relations Board

• McDonald’s franchisees– Should McDonald’s be held jointly liable for alleged labor

law violations by its franchisees?• 61 ULPs• 31 franchisees• 30 locations• 181 violations of the NLRA

– Franchisers often have too much control over the independent franchisees for them to be considered their own independent operations

– Trial scheduled for January 2016 delayed because of technical issues


CNN America , Inc. and Team Video Services, LLC, September 15, 2014

• Application of “share or codetermine” standard cited in BFI

• “Totality of circumstances” test• Joint employer status requires a showing that the

employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction– CNN had ability to hire, supervise, and discipline TVS

employees– CNN played a direct and key role in the alleged ULPs


Nutritionality, Inc., dba FreshiiApril 28, 2015

• NLRB General Counsel Advice Memorandum– Nutritionality and Freshii do not share or codetermine

matters governing essential terms and conditions of employment of Nutritionality employees

• Must meaningfully affect matters relating to the employment relationship, such as hiring ,firing, discipline, supervision, and direction

• “Industrial realities”• No significant influence of working conditions


OSHA


OSHA

• BFI may expand liability under the Occupational Safety and Health Act (OSHA Act)

• OSHA has long held that an employer can be cited for hazards to other employers’ employees if OSHA finds that the employer “created” or “controlled” the hazard

• OSHA internal memorandum advises OSHA investigators that “a joint-employer standard may apply where the corporate entity exercises direct or indirect control over working conditions, has the unexercised potential to control working conditions or based on the economic realities”


Equal Employment Opportunity Commission



• EEOC Compliance Manual– Two or more employers that are unrelated or that are

not sufficiently related to qualify as an integrated enterprise, but that each exercise sufficient control of an individual to qualify as his/her employer

• Integrated employer test– Asks whether two superficially separate entities should

be treated as one entity

• Joint employer test– Assumes that the alleged employers are separate

entities and assesses whether the degree of control is nevertheless sufficient to treat both as employers



• The EEOC filed an amicus brief in Browning-Ferris stressing that the Board’s joint employer standard will influence judicial interpretation of Title VII.

• Compensatory damages are capped under Title VII, and the caps generally increase as the number of employees increases. Thus, the plaintiff’s bar will be encouraged to establish joint employer status because doing so could increase the number of employees, thereby increasing the amount of available damages.

• Threshold coverage may impact the small business exception.



• EEOC will almost certainly see it as an opportunity to expand its own definition of joint employment and to take a more aggressive enforcement stance against potential joint employers. This would translate to significant expansion of investigations. It could also mean new EEOC-initiated and class/collective actions against employers that exercise little or no control over their contracted workforce.



• Matthew Faush v. Tuesday Morning, Inc., 3rd Cir. 2015– Adopted the test from Nationwide Mut. Ins. Co. v.

Darden, 503 US 318 (1992) (an ERISA case)– “We consider the hiring party’s right to control the

manner and means by which the product is accomplished.”



• Matthew Faush v. Tuesday Morning, Inc., 3rd Cir. 2015, cont.– Factors:

• The skill required; • The source of the

instrumentalities and tools; • The location of the work; • The duration of the

relationship between the parties;

• Whether the hiring party has the right to assign additional projects to the hired party;

• The extent of the hired party’s discretion over when and how long to work;

• The method of payment; • The hired party’s role in

hiring and paying assistants; • Whether the work is part of

the regular business of the hiring party;

• Whether the hiring party is in business;

• The provision of employee benefits; and

• The tax treatment of the hired party


OFCCP


OFCCP• OFCCP applies a five-factor test focusing on whether

the ownership, management and operations of the contracting and non-contracting entities are sufficiently related to warrant treating them as a single entity

• The test focuses primarily on whether the ownership, management, and operations of the separate entities are, in fact, sufficiently interrelated to warrant treating them as an integrated enterprise or a single entity

• A business or organization need not meet all five factors to be considered a single entity with a covered Federal contractor


OFCCP

• The OFCCP has expressed an interest, in light of Browning-Ferris, to expand its reach over organizations that provide services or supplies to federal contractors, even if that entity itself holds no federal contracts. The OFCCP plans to accomplish this expansion through the broadening of its “single entity” test.

• Federal contractors can have numerous relationships with subcontractors, suppliers and vendors, all of whom may now find themselves at increased risk of being classified a “single entity” with federal contractors and liable for complex and onerous compliance mandates like affirmative action requirements, data collection, reporting, auditing and more.


Department of Labor


Joint Employers


FLSA

• DOL Administrator’s Interpretation No. 2016-1 – Joint Employment Under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protect Act, January 20, 2016– When joint employment is found:

• The employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due

• All of the joint employers are jointly and severally liable for compliance with the FLSA


Administrator’s Interpretation

• AI in 2015 regarding independent contractors expanded the definition of “employee”

• AI in 2016 expands the definition of “employer” • Prior focus was on the horizontal employer, now the

focus is also on the vertical employer


Administrator’s Interpretation• Wage and Hour Administrator David Weil wants to

protect workers in “fissured workplaces”• Expanding the definition of employer both horizontally

and vertically • Fair Labor Standards Act defines employment “to

suffer or permit to work” – this definition was written to have as broad an application as possible

• Distinct from narrow definition of employment under NLRA

• AI is not the law but may be accorded deference by the courts


Horizontal Joint Employment


Horizontal Joint Employment

• Focuses on the relationship of the employers to each other– Arrangements between the employers to share or

interchange the employee’s services; – Where one employer acts directly or indirectly in

the interest of another employer in relation to the employee; or

– Parent Subsidiary Relationship – the employers are associated: one employer controls, is controlled by, or is under common control with the other employer


Vertical Joint Employment



• Where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider or other intermediary employer)

• Employees economically dependent on those potential joint employers and are thus their employees



• “Economic realities”– Factors:

• Directing, controlling, or supervising the work performed

• Controlling employment conditions• Permanency and duration of relationship• Repetitive and rote nature of work• Integral to business• Work performed on premises


Impact of DOL Position

• DOL’s interpretation of established law• Allows employers to predict focus of DOL investigation• Likely used by other agencies to expand the definition

of joint employment


SubwayAugust 2016

• Doctor’s Associates, owner and franchisor of Subway chain entered into voluntary agreement with DOL

• “Effort to promote and achieve compliance with labor standards for Subway’s own workforce and that of its franchisees”

• Develop wage hour compliance materials and technology so franchisees have access

• Agreement is silent on whether Subway is a joint employer with franchisees

• Unions and NLRB will use this agreement as evidence of sufficient control to find joint employer status


FMLA

• January 2016 DOL Issued Fact Sheet #28N• Joint Employment and Primary and Secondary

Employer Responsibilities Under FMLA • Definition of Joint Employment: exists when an

employee is employed by two (or more) employers such that the employers are responsible for compliance with the FMLA


FMLA Primary Employer

• The primary employer is responsible for: – Giving required notices to its employees;– Providing FMLA leave; and – Maintenance of health benefits– The primary employer is also mostly responsible for job

restoration


FMLA Secondary Employer

• A secondary employer is responsible for accepting the individual upon return from FMLA:– As long as the company continues to use an employee

from the staffing agency, and– The agency chooses to place this employee with the

company – As a secondary employer, the company would also be

prohibited from interfering with an employee's FMLA rights and also from discriminating against him/her for protected activities, even if the company is not otherwise a covered employer, as defined above, under the FMLA


Primary v. Secondary Employers

• Determining who is a primary and secondary employer: – Who has authority to hire and fire, – To place or assign work to the employee; – Who decides how, when, and the amount that the

employee is paid; and – Who provides the employee’s leave or other employment

benefits– In the case of a temporary placement or staffing agency,

the agency is most commonly the primary employer


FMLA Joint Employment

• Employees who are jointly employed by two employers must be counted by both of them in determining the employer’s coverage and employee eligibility under FMLA, regardless of whether the employee is maintained on one or both of the employers’ payrolls.

• The employees worksite is the primary employer’s office from which the employee is assigned or to which the employee reports. However, if the employee has physically worked for at least one year at a facility for a secondary employer, then the employee's worksite is that location.


Primary v. Secondary Employer Responsibilities

FMLA RESPONSIBILITIES OF JOINT EMPLOYERS PRIMARY EMPLOYER SECONDARY EMPLOYER

Count jointly-employed employees for coverage and eligibility determinations (Fact Sheet #28)

Yes Yes

For employee-eligibility determination, use its worksite for eligibility test (50 employees within 75-miles of the worksite) (Fact Sheet #28)

Yes, unless the employee has physically worked at the secondary employer’s facility for at least one year

No, unless the employee has physically worked at the secondary employer’s facility for at least one year

Provide FMLA notices to the jointly employed employee (Fact Sheet #28D) Yes No, however the secondary employer must

provide FMLA notices to its own employees

Provide FMLA leave to the jointly-employedemployee (Fact Sheet #28D) Yes

No, however the secondary employer must provide FMLA leave to its own eligible employees

Maintain benefits for the jointly-employed employee (Fact Sheet #28A) Yes

No, however the secondary employer must maintain benefits for its own employees who take FMLA leave

Restore the jointly-employed employee to work (Fact Sheet #28A) Yes

No, unless the secondary employer is continuing to use the placement agency and the agency places the employee with that secondary employer

Not retaliate, discriminate or interfere (Fact Sheet #28A and Fact Sheet #77B) Yes Yes

Keep records Yes, the primary employer keeps all required records

Yes, the secondary employer keeps payroll data and identifying employee information


Action to Minimize Joint Employer Status


Employer Documents

• Review handbook and internal policies for language referring to control or potential exercise of control over contractors

• Applications• Evaluations • Contracts with temp agency• Contracts with licensor • Lease• Corporate documents regarding parent and subsidiary


Employer Contracts

• Review to ensure that Company A is not a joint employer of Company B’s employees

• Some terms to consider for the contractor agreement– Company B’s employees are solely employed by

Company B – The parties do not intend to create a joint employer

relationship– Recite that Company B alone retains the sole right to

make employment decisions: hire, wages, benefits, schedule, assign work, train and discipline

– Include a statement that Company A shall not and does not have the right to make employment decisions


Contracts

• Company B has its own employment policies and procedures

• Minimize any control from Company A• Under BFI, DOL and EEOC realize that any control, or

right to control, retained may be used to support joint employer status


Contracts• Review indemnification language • Consider requiring Company B to indemnify Company

A for any costs incurred in opposing a joint employer claim

• Include language that Company B will cooperate with you in presenting your defense to the joint employer claim by making available management representatives to prepare for hearings and to testify at hearings, and to provide documents reasonably requested by Company A relating to this issue

• Should Company B reimburse Company A’s representative for the cost of bargaining?


Contracts

• Relinquish control that fails to support business objectives

• If reserved rights are not being exercised – remove them from the language


Employer Governance

• Rather than a VP or General Manager, implement a corporate structure with truly separate president, board and officers

• Board members unique to that company (no overlapping board members between sub and parent)

• Processes and presentations to report up to the board of parent

• Strict adherence to corporate formalities such as board meetings, keeping Minutes, and structured reporting mechanisms

• Sub should have its own policies, even if mirror those of the parent, and should be tailored for the subsidiary

• Contract between parent and sub (possibly a franchise contract) should make clear that parent is not a joint employer with the sub


Parent Subsidiary StructureSubstance over Form!

• Focus on employment, hiring, firing, reviews, discipline, supervision, pay decisions

• All HR decisions for the sub must be made locally • Employees at the sub only work for the sub and are paid by

the sub • If parent has employees in that jurisdiction, set up a new

payroll company • Move the employees of the parent to a different facility so they

are not in the same building • No cross-use of employees between parent and sub. Employee

works for one or the other• Sub should have separate connection to the payroll services

provider (could be in a Shared Services Contract ) • Sub takes physical possession of the personnel files and

maintains them (will need secure facility)


Parent Subsidiary Structure

• Check real and personal property leases so that only the sub is on the lease

• Consider your insurance policies – DIC (Difference In Coverage) insurance for your new officers and directors

• Develop Shared Services Contract (for services such as bank accounts, billing, marketing) shared with the parent.

• Accounting must be able to accurately track the credits and debits between parent and subsidiary

• Separate P&Ls


Legislative Response


Protecting Local Business Opportunity Act

• The Act seeks to amend the definition of “employer” under the NLRA. o “Section 2(2) of the National Labor Relations Act (29) U.S.C. 152(2)) is amended by adding at the end the following: – “Notwithstanding any other provision of this Act, two or

more employers may be considered joint employers for purposes of this Act only if each shares and exercises control over essential terms and conditions of employment and such control over these matters is actual, direct and immediate.”


BFI

• Appeal pending in 6th circuit• Presidential Election may influence viability of NLRB

decision


Thank You!

Contact Information:

• Kellis M. Borek – [email protected]• Archbright – 206.664.7278• Website – http://www.archbright.com

mailto:[email protected]

http://www.archbright.com/