The Joint Employer Standard Still Causing Confusion

This month marks the one-year anniversary of the National Labor Relations Board’s (NLRB) Browning-Ferris decision, which radically redefined employment rules for businesses nationwide.

Under the new definition, which overturned 30 years of precedent, a company may be held liable for labor violations by other employers they contract with, by merely exercising indirect control or possessing unexercised potential control over work conditions like hiring, supervision, and wages. This is a far-reaching change from the prior standard on when two companies would be deemed a “joint employer.” The previous standard required an employer exhibit direct and immediate control over another company’s employees.

Labor regulators have a goal in mind: to make it far more likely that larger businesses are found liable for the labor violations of smaller businesses.

That means higher costs for larger businesses. The NLRB also desires to saddle larger companies with greater bargaining responsibilities of smaller businesses they contract with.  It’s an injustice that one business can now be charged with labor violations committed by another business - and be railroaded into bargaining with a union that is organizing another employer’s workers.

But even worse is the uncertainty caused by the vague and overly broad joint employer standard. The NLRB left open-ended what constitutes indirect and unexercised potential control. In Browning-Ferris, the majority at the NLRB explained that they will look at the facts on a case-by-case basis and would not “address the facts in every hypothetical situation in which the Board might be called on to make a joint-employer determination.” Nor has the NLRB issued any guidance in the year since to clarify the new standard. This leaves the business community near-clueless as how best to avoid joint employer liability.

Meanwhile, a recent case, in preliminary stages at the NLRB, indicates how unpredictably the Board’s joint employer standard can be applied. In September of 2015, President Obama applauded Microsoft for implementing a “supplier code of conduct”, which requires that the company only do business with suppliers that offer workers 15 days of paid leave.

No good deed goes unpunished. Shortly after that, in October, the Temporary Workers of America (TWA) requested Microsoft’s (NASDAQ:MSFT) presence at a collective bargaining meeting as a joint employer with Lionbridge, a supplier of Microsoft. The TWA cited the Browning-Ferris decision to argue that Microsoft placing eligibility criteria on suppliers establishes a joint employer relationship with LionBridge - despite Microsoft never exercising any control over LionBridge workers.

Never before would placing general standards to qualify as a supplier establish joint employment. But Microsoft recently noted that its supplier code of conduct has led “to substantial and growing legal expenses and great uncertainty.” And Microsoft may not be the only ones getting caught in the NLRB’s crosshairs. Facebook (NASDAQ:FB), for example, requires suppliers offer 15 days of paid leave, a $15 minimum wage, and a new child benefit for mothers and fathers estimated to cost the employer $4,000.

What will the Microsoft case reveal? Most recently, NLRB in July denied the company’s petition to revoke the Board’s subpoena seeking information on the relationship between Microsoft and Lionbridge. Incredibly, the Board’s majority notes that the NLRB may issue subpoenas without “an objective factual basis.” The Board does not need facts to subpoena Microsoft–TWA’s allegations are enough.

It is no wonder that the business community is up in arms over the Browning-Ferris decision. Even when businesses take actions that are praised by President Obama they cannot win. Many businesses will think twice about contracting with small businesses or placing any conditions on their suppliers. That can’t be good for small businesses or job creation, a consequence our slowly recovering economy does not need.

Trey Kovacs is a policy analyst specializing in labor policy for the Competitive Enterprise Institute, a non-profit public policy organization dedicated to advancing the principles of limited government, free enterprise, and individual liberty.