Why the Expanding Joint Employer Standard Could Create Liability

Employers are still feeling the shockwaves from the National Labor Relations Board’s recent expansion of what qualifies as a “joint employer” in a ruling that potentially alters longstanding business models. In a recent XpertHR webinar, Greenberg Traurig attorney Todd Wozniak  explored how the NLRB’s action and others could make a contractor, subcontractor or franchisor liable for employees they do not employ and workplaces they do not actually control.

Traditionally, an entity was found to be a “joint employer” under common law if it shared the ability to control or co-determine essential terms and conditions of employment, including hiring, firing, discipline and supervision. In addition, great emphasis was placed on whether such control was actual, direct and substantial.

But Wozniak detailed how the NLRB has turned that decades-long understanding of what makes a joint employer on its head. In Browning-Ferris Industries, the NLRB found that although a staffing agency handled all disciplinary concerns, set workers’ schedules and wages, paid them and provided wages, the facility nonetheless qualifies as a joint employer.

In its controversial ruling, the NLRB states that in finding whether an entity possesses “sufficient control” over employers to qualify as a joint employer, it will look to whether an entity exercised control over terms and conditions of employment indirectly through an intermediary, or whether it simply reserved the authority to do so.

Wozniak noted that employers should be aware that if courts and other agencies, including the Department of Labor (DOL), begin adopting the NLRB’s new joint employer test, employers could face expanded coverage and/or joint and several liability under many other laws that currently use the common law test to determine joint employer status. For example, an employer that doesn’t exercise control over an employee but merely reserves the right to do so may be at risk of being found to be a joint employer under the FLSA, FMLA, Title VII and the ADEA.

As Wozniak points out, the DOL made its own headlines on July 15 when it issued new administrative guidance on the FLSA with respect to the misclassification of workers as independent contractors. In changing its interpretation of “employee” and opining that “most workers are employees” under the FLSA, the DOL downplayed the control test and embraced the “economic realities test.” Under this new test, the DOL looks to several factors, including the extent to which the work performed is an integral part of the employer’s business and the permanency of the relationship.

Tips For Employers

In light of these developments, Wozniak urged employers, especially those who use staffing agencies, subcontract workers or are engaged in a franchise relationship, to take a very hard look at their contractual rights and obligations. And he raised some key questions to illustrate, including:

  • Do you reserve the right to ban a worker from your property?
  • Do you reserve the right to require drug testing of the workers?
  • Must the workers meet certain criteria?
  • Do you direct the workforce and/or dictate the schedule?

Wozniak cautioned that some of these conditions sneak into contracts over time so it is best practice to routinely review the language to ensure the entity is not left vulnerable to a joint employer allegation.

Employers should also seek to diagnose whether employees are properly classified as employees/independent contractors. Wozniak cautioned that misclassifying employees can result in back payment of unpaid income tax withholdings, unemployment insurance taxes, workers’ compensation premiums, sick and vacation pay, overtime compensation and other benefits. As a result, he suggests that employers should redocument and restructure independent contractors as employees if needed.

To hear more of Wozniak’s insights, listen to our free XpertHR webinar highlighting these and other emerging joint employer considerations.

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