December 6th, 2022
Comments on NLRB Notice of Proposed Rulemaking:
Joint Employment Standard
The Honorable Lauren McFerran
National Labor Relations Board
1015 Half Street, SW
Washington, DC 20570
National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, appreciates the opportunity to provide comments on the recent proposed rulemaking on a new joint employer standard from the National Labor Relations Board (NLRB).
The current NLRB seeks to restore and broaden an Obama-era standard that offers crippling legal uncertainty for many small businesses. For 31 years, a bright line regulatory standard existed for determining the conditions under which two employers can be held jointly responsible for unionization and National Labor Relations Act violations. In the wake of continuing economic woes, the NLRB should return to clear guidelines and abandon their newest expansion of the joint employer standard.
From 1981 until 2015, the TLI-Laerco standard provided a clear guideline for businesses to comply with when creating contractual relationships, which provided stability and predictability in their business outlook.1 This long-standing rule depended on a finding of “direct and immediate” control over essential terms and conditions of employment.
That all changed in 2015, when an activist NLRB issued the seismic Browning-Ferris decision, upending the traditional joint employer definition.2 At the core of this decision is the idea that a contractor company can be held accountable for labor relations if there is a finding of their influence on the essential terms and conditions of employment. The terms and conditions of employment can non-exhaustively include: wages, benefits, hours, hiring, firing, and direction.3
This case invented a new standard - one where the NLRB could examine “indirect or reserved control” over these key factors of employment. Without clearly defined guidelines, this created a ripe opportunity for lawsuits and uncertainty for businesses. This new standard was incredibly broad and empowered the NLRB while putting many businesses at risk for joint employment relationships, particularly in hospitals, staffing agencies, and franchising.
In the fast-paced world of frontline health care, labor shortages often require the use of temporary and contract workers to fulfill critical needs in hospitals. The joint employer standard may open hospitals up for joint employment lawsuits with staffing agencies when costs are already threatening vulnerable hospitals in rural communities.4 This liability is particularly acute due to the nature of work performed in hospitals - guidelines and strict procedures can be crucial for sanitary standards or protecting patients’ health.
Similarly, this new rule could create myriad legal headaches for any type of business that utilizes staffing or contract services from outside vendors, or potentially even destroy contractors’ businesses. Companies of any size that use outside vendors for services may decide that the legal uncertainty of joint employment is not worth it and cancel their contracts. In many cases, these contractors are small businesses that rely on numerous clients to create a sustainable business model.
For franchising, this standard may destroy the independence of the local small business owner who has their own business under a franchise marquee. Although they may use some intellectual property of the brand, franchise business owners make decisions for themselves about how they run their businesses. If this proposed rulemaking continues, the entire franchise industry may suffer as a result. Potential outcomes include reduced opportunities for new franchise businesses, more legal costs for small business, or closure of franchise brands. According to the International Franchise Association, the expanded joint employer standard cost franchise businesses “$33 billion per year, resulted in 376,000 lost job opportunities, and led to 93% more lawsuits.”5
Due to its controversial nature, the 2015 standard was denied enforcement by the U.S. Court of Appeals for the D.C. Circuit and was replaced by a definitive NLRB rulemaking during 2020.6 7 The NLRB returned to the core of the 31-year long precedent with a rule centered on whether a putative joint employer “possesses and exercises substantial, direct and immediate control over the employees’ essential terms and conditions of employment.” This standard reflects historical precedent, case law, and would have continued a stable and predictable regulatory regime.
Unfortunately, only two short years after their last rulemaking, the NLRB announced a notice of proposed rulemaking that indicates an even more egregious expansion of the definition of joint employment. Going even beyond the Browning-Ferris standard, which did not present “indirect or reserved” right to control as a decisive portion of the fact-finding process, the 2022 proposed rulemaking changes this to a fundamental part of the test:
Possessing the authority to control is sufficient to establish status as a joint employer, regardless of whether control is exercised. Exercising the power to control indirectly is sufficient to establish status as a joint employer, regardless of whether the power is exercised directly.8
Clearly, the current NLRB seeks to supersize the joint employer test under this new rule. For hospitals, staffing, and franchised small businesses, this is even more whiplash for their business outlooks in only a few short years.
The NLRB should abandon this rulemaking and return to the 2020 rule, which provides a clear standard for companies to follow. This new rulemaking has not been properly justified, is a poor use of taxpayer funds, and will harm many businesses in a time of vast economic uncertainty. More than a third of U.S. small businesses couldn’t pay their rent on time in October, and this rule would further add to the challenges that these businesses are facing.9 From inflation to staffing shortages to supply chain issues, the last thing that Main Street needs are stacks of legal bills from trying to figure out if they’re a joint employer.