The National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., announced last week, dramatically expands joint employer liability under the National Labor Relations Act. A business can be found to be a joint employer of individuals, the Board concluded, even if the business has only unexercised potential power to control the individuals’ work indirectly. The Board argues that this broad concept of joint employment is necessary because otherwise an entity with real control over the economics of a business could insulate itself from the obligations of an employer by contracting with a third party to employ the workers who keep the business running. Seyfarth Shaw’s discussion of the ramifications of the Browning Ferris decision, for both unionized and non-unionized employers, is available here.
Wage and hour lawyers who treat the Browning-Ferris decision as simply a matter of traditional labor law overlook the potentially major significance of the decision for wage and hour law. Even though the NLRA and the FLSA embody different tests for identifying employer-employee relationships (common law v. eceonomic realities), the Wage and Hour Division will undoubtedly cite the NLRB’s expanded view of who can be a “joint employer” to support the Wage and Hour Division’s expected further efforts to expand the range of parties that may be found responsible for wage and hour violations.
The Wage and Hour Division is likely to argue that the NLRB’s increased readiness to recognize joint employers under the NLRA, which has always been understood to embody a more stringent common-law agency test for establishing joint employer status, supports a broad view of joint employment under the Fair Labor Standards Act’s “economic realities” test for whether an employment relationship exists. The NLRB’s majority labored to explain how its joint employer concept is consistent with the common-law agency test. The Wage and Hour Division is not constrained by the common law’s right to control test and is likely to be emboldened to adopted an expansive joint employer standard under the more flexible economic realties test.
Indeed, last month, the Wage and Hour Division issued an Administrator’s Interpretation addressing the distinction between employees and independent contractors under the FLSA. That guidance is noteworthy for emphasizing the importance of whether an individual’s services are an integral part of a company’s business and downplaying the importance of whether the business controls an individual’s work. The Administrator’s view of what constitutes an employment relationship–if the courts accept it–would potentially support a joint employer doctrine that is dramatically broader than employers have seen to date and that could be used by the DOL and aggressive plaintiffs’ lawyers to pursue businesses for wage and hour violations involving individuals with whom the defendant companies have never had a direct relationship.
The Administrator of the Wage and Hour Division has long expressed concern about what is termed the “fissuring” of the employment relationship. At the heart of this concept, is the notion that business giants profit from the services of individuals who are direct employees of third-party companies, usually lower on the economic totem-pole. For example, the employees who run hotels and restaurants are often employees of local franchisees, not of the well-known national companies whose names are on the door. Similarly, the employees who work in a call center or distribution center are often employees of a staffing company, not of the business whose customers they help or whose products they handle.
The Wage and Hour Division has adopted a strategic enforcement plan that seeks to hold top-level companies responsible for wage and hour compliance as to the individuals who work in their business sector–regardless of whether a direct employment relationship exists. As the Wage and Hour Division appears to see things, a broad joint employer theory is essential to its efforts to target supposedly deep-pocketed national companies. Businesses that could be vulnerable to joint employer claims include suppliers, contractors, lessors, private equity and venture capital investors, companies that outsource work, staffing agencies, franchisors, creditors, and parent entities that have subsidiary businesses.
The combination of the Browning-Ferris decision and the Wage and Hour Division’s recent independent contractor guidance should serve as a warning to businesses in general to assess their potential exposure to wage and hour claims based on a joint employer theory. Assessments of this type should start with a close examination of contractual relationships with third-party employers to determine whether changes can be made to those agreements to reduce the risk of joint employer liability under the expanded definition of that term adopted by the NLRB and likely on the horizon from the Wage and Hour Division.
We will continue to report in the months ahead on developments regarding the joint employer issue and its impact on wage and hour law.