[Federal Register Volume 85, Number 38 (Wednesday, February 26, 2020)]
[Rules and Regulations]
[Pages 11184-11236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03373]
[[Page 11183]]
Vol. 85
Wednesday,
No. 38
February 26, 2020
Part II
National Labor Relations Board
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29 CFR Part 103
Joint Employer Status Under the National Labor Relations Act; Final
Rule
Federal Register / Vol. 85 , No. 38 / Wednesday, February 26, 2020 /
Rules and Regulations
[[Page 11184]]
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NATIONAL LABOR RELATIONS BOARD
29 CFR Part 103
RIN 3142-AA13
Joint Employer Status Under the National Labor Relations Act
AGENCY: National Labor Relations Board.
ACTION: Final rule.
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SUMMARY: The National Labor Relations Board (NLRB or Board) has decided
to issue this final rule for the purpose of carrying out the provisions
of the National Labor Relations Act (NLRA or Act) by establishing the
standard for determining whether two employers, as defined in Section
2(2) of the Act, are a joint employer under the NLRA. The Board
believes that this rulemaking will foster predictability and
consistency regarding determinations of joint-employer status in a
variety of business relationships, thereby enhancing labor-management
stability, the promotion of which is one of the principal purposes of
the Act. Under this final rule, an entity may be considered a joint
employer of a separate employer's employees only if the two share or
codetermine the employees' essential terms and conditions of
employment, which are exclusively defined as wages, benefits, hours of
work, hiring, discharge, discipline, supervision, and direction.
DATES: This rule has been classified as a major rule subject to
Congressional review. The effective date is April 27, 2020. However, at
the conclusion of the congressional review, if the effective date has
been changed, the National Labor Relations Board will publish a
document in the Federal Register to establish the new effective date or
to withdraw the rule.
FOR FURTHER INFORMATION CONTACT: Roxanne L. Rothschild, Executive
Secretary, National Labor Relations Board, 1015 Half Street SE,
Washington, DC 20570-0001, (202) 273-2917 (this is not a toll-free
number), 1-866-315-6572 (TTY/TDD).
SUPPLEMENTARY INFORMATION:
I. Background
A. The Act
The NLRA sets forth a number of rights and responsibilities that
apply to employers, employees, and labor organizations representing
employees, in furtherance of the Act's overarching goals of promoting
labor relations stability,\1\ protecting employees' right to designate
representatives of their own choosing ``for the purpose of collective
bargaining or other mutual aid or protection,'' \2\ and preventing
unfair labor practices by employers and labor organizations.\3\
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\1\ Section 1 of the Act, 29 U.S.C. 151.
\2\ Section 7 of the Act, 29 U.S.C. 157.
\3\ Section 8 of the Act, 29 U.S.C. 158.
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The NLRA also defines the terms ``employer'' and ``employee.''
Under Section 2(2) of the Act, ``the term `employer' includes any
person acting as an agent of an employer, directly or indirectly,'' but
excludes certain governmental entities, entities subject to the Railway
Labor Act, or any labor organization (other than when acting as an
employer). Section 2(3) of the Act provides that ``the term `employee'
shall include any employee, and shall not be limited to the employees
of a particular employer, unless this subchapter [of the Act]
explicitly states otherwise . . . but shall not include . . . any
individual having the status of an independent contractor. . . .'' 29
U.S.C. 152(3).
The text of the Act and its legislative history further establish
that, in determining whether an employment relationship exists between
a putative employer and employee, common-law agency principles are
controlling. See, e.g., NLRB v. United Ins. Co. of America, 390 U.S.
254, 256 (1968). Thus, in making this determination, the Board is bound
by common-law principles, which require that it focus on the control
exercised by a putative employer over a person performing work for it.
Id; see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-323
(1992).
The Act does not contain the term ``joint employer,'' much less
define it. As discussed below, the Board and reviewing courts have
developed that concept in adjudication over the years to address
situations where two or more separate entities engaged in a business
relationship jointly affect the terms and conditions of employment of a
group of employees. See Boire v. Greyhound Corp., 376 U.S. 473 (1964)
(holding that Board's determination that bus company possessed
``sufficient control over the work'' of its cleaning contractor's
employees to be considered a joint employer was not reviewable in
federal district court); Indianapolis Newspapers, Inc., 83 NLRB 407,
408-409 (1949) (finding that two newspaper businesses, Star and INI,
were not joint employers, despite their integration, because ``there
[wa]s no indication that Star, by virtue of such integration, t[ook] an
active part in the formulation or application of the labor policy, or
exercise[d] any immediate control over the operation, of INI'').
Consistent with the statutory requirement that the common law of agency
be applied, joint-employer determinations have focused on the extent to
which the separate companies exercise control over the persons
performing the work. Id.
As also discussed below, Section 6 of the Act authorizes the Board
to ``make, amend, and rescind . . . such rules and regulations as may
be necessary to carry out the provisions of this subchapter.'' See
American Hosp. Ass'n v. NLRB, 499 U.S. 606 (1991) (affirming authority
of NLRB to enact rules establishing bargaining units for acute care
hospitals). The Board has determined that it is appropriate to do so
now in order to define who may be a joint employer under the Act.
B. The Development of the Joint-Employment Doctrine Under the NLRA
The general formulation of the Board's joint-employer standard is
firmly established. ``The Board will find that two separate entities
are joint employers of a single work force if the evidence shows that
they `share or codetermine those matters governing the essential terms
and conditions of employment.' '' CNN America, Inc., 361 NLRB 439, 441
(2014) (quoting TLI, Inc., 271 NLRB 798 (1984), enfd. mem. sub nom.
Gen. Teamsters Local Union No. 326 v. NLRB, 772 F.2d 894 (3d Cir.
1985)), enf. denied in part 865 F.3d 740 (DC Cir. 2017). This standard
derives from language in Greyhound Corp., 153 NLRB 1488, 1495 (1965),
enfd. 368 F.2d 778 (5th Cir. 1966), and was endorsed in NLRB v.
Browning-Ferris Industries of Pennsylvania, Inc., 691 F.2d 1117, 1122-
1123 (3d Cir. 1982). It is rooted in longstanding Board precedent and
has been consistently approved by reviewing courts.
Notably, however, the Board has never attempted to comprehensively
define the ``essential terms and conditions of employment'' that are
relevant to the joint-employer inquiry, even though the standard itself
inherently implies that it is control over those terms and conditions
of employment that is determinative of joint-employer status.\4\ And
even when a term or condition of employment is deemed ``essential'' for
the purpose of
[[Page 11185]]
determining joint-employer status, the joint-employer standard
described above does not specify the extent of control that must be
shown before the two entities may be found to ``share or codetermine''
that essential term or condition. As fully described in the Notice of
Proposed Rulemaking (NPRM), the Board's treatment of the latter issue
has evolved over the years.\5\ Nevertheless, for at least 30 years
(from no later than 1984 to 2015), evidence of indirect control was
typically insufficient to prove that an entity was the joint employer
of another employer's workers. Even direct and immediate supervision of
another employer's employees was insufficient to establish joint-
employer status where such supervision was ``limited and routine.'' \6\
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\4\ The Board has held that a joint-employer finding requires
``a showing that the employer meaningfully affects matters relating
to the employment relationship such as hiring, firing, discipline,
supervision, and direction.'' Laerco Transportation, 269 NLRB 324,
325 (1984); accord TLI, Inc., 271 NLRB at 798-799. But this list did
not purport to be exhaustive.
\5\ As more fully described in the NPRM, the Board has
consistently recognized that direct control of essential terms and
conditions is relevant to this determination, while the extent to
which indirect control was a factor has changed over time. Compare
Floyd Epperson, 202 NLRB 23, 23 (1973) (dairy company was the joint
employer of truck drivers supplied to it by an independent trucking
firm based on evidence of both direct and indirect control over the
working conditions of the drivers), enfd. 491 F.2d 1390 (6th Cir.
1974), with Airborne Express, 338 NLRB 597, 597 fn. 1 (2002)
(holding that ``the essential element'' in a joint-employer analysis
``is whether a putative joint employer's control over employment
matters is direct and immediate'' (citing TLI, Inc., 271 NLRB at
798-799)); see also NLRB v. CNN America, Inc., 865 F.3d 740, 748-751
(D.C. Cir. 2017) (finding that Board erred by failing to adhere to
``direct and immediate control'' standard); SEIU Local 32BJ v. NLRB,
647 F.3d 435, 442 (2d Cir. 2011) (``An essential element' of any
joint employer determination is `sufficient evidence of immediate
control over the employees.'' (quoting Clinton's Ditch Co-op Co. v.
NLRB, 778 F.2d 132, 138 (2d Cir. 1985))).
As also described in the NPRM, the relevance to the joint-
employer determination of an entity's contractually reserved but
unexercised authority over another company's employees has also
changed over time. See Hychem Constructors, Inc., 169 NLRB 274
(1968) (petrochemical manufacturer was not a joint employer of its
construction subcontractor's employees even though their cost-plus
agreement reserved to the manufacturer a right to approve wage
increases and overtime hours and the right to require the
subcontractor to remove any employee whom the manufacturer deemed
undesirable); Jewel Tea Co., 162 NLRB 508, 510 (1966) (department
store was a joint employer of the employees of two independent
companies licensed to operate specific departments of its store
based on its reserved contractual authority). In AM Property Holding
Corp., the Board found that a ``contractual provision giving [a
property owner] the right to approve [its cleaning contractor's]
hires, standing alone, [was] insufficient to show the existence of a
joint employer relationship.'' 350 NLRB 998, 1000 (2007), enfd. in
relevant part sub nom. SEIU Local 32BJ v. NLRB, 647 F.3d 435 (2d
Cir. 2011). The Board explained that ``[i]n assessing whether a
joint employer relationship exists, the Board does not rely merely
on the existence of such contractual provisions, but rather looks to
the actual practice of the parties.'' Id.
\6\ See, e.g., AM Property Holding Corp., 350 NLRB at 998;
Airborne Express, 338 NLRB at 597; TLI, Inc., 271 NLRB at 798.
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The law governing joint-employer determinations changed
significantly in August 2015. At that time, a divided Board overruled
the then-extant precedent described above and substantially relaxed the
requirements for proving a joint-employer relationship. Specifically, a
Board majority held that it would no longer require proof that a
putative joint employer has exercised any ``direct and immediate''
control over the essential terms and conditions of employment of
another company's workers. Browning-Ferris Industries of California,
Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB 1599, 1600 (2015)
(Browning-Ferris), affd. in part, reversed in part and remanded 911
F.3d 1195 (D.C. Cir. 2018). The majority in Browning-Ferris explained
that, under its new standard, a company could be deemed a joint
employer even if its control over the essential working conditions of
another business's employees was indirect, limited and routine, or
contractually reserved but never exercised. Id. at 1613-1614. At the
same time, however, the Browning-Ferris majority stated that ``[e]ven
where the common law does permit the Board to find joint employer
status in a particular case, the Board must determine whether it would
serve the purposes of the Act to do so. . . .'' Id. at 1610 (emphasis
in original); see also id. at 1614 (``[I]t is certainly possible that
in a particular case, a putative joint employer's control might extend
only to terms and conditions of employment too limited in scope or
significance to permit meaningful collective bargaining.'').
In December 2018, the United States Court of Appeals for the
District of Columbia Circuit issued its decision on review of the
Board's Browning-Ferris decision. See Browning-Ferris Industries of
California, Inc. v. NLRB, 911 F.3d 1195 (Browning-Ferris v. NLRB).
Consistent with the principles stated above, the court held that the
Board was required to apply the common law of agency in determining
whether an entity was a joint employer of particular employees. Whether
proceeding by adjudication or rulemaking, then, the Board ``must color
within the common-law lines identified by the judiciary.'' Id. at 1208.
The court upheld the Board's longstanding right-to-control standard as
``an established aspect of the common law of agency.'' Id. at 1209. In
addition, the court also concluded that the common law ``permits
consideration of those forms of indirect control that play a relevant
part in determining the essential terms and conditions of employment.''
Id. at 1199-1200. The court therefore affirmed Browning-Ferris's
``articulation of the joint-employer test as including consideration of
both an employer's reserved right to control and its indirect control
over employees' terms and conditions of employment.'' Id. at 1200. In
so holding, the court recognized that Browning-Ferris did not present
the issue of whether either indirect control or a contractually
reserved but unexercised right to control can be dispositive of joint-
employer status absent evidence of exercised direct and immediate
control. Id. at 1213, 1218.
The court, however, faulted the Browning-Ferris Board for failing
to confine its inquiry to ``indirect control over the essential terms
and conditions of the workers' employment.'' Id. at 1209. Specifically,
the court found that, in considering the factor of indirect control,
Browning-Ferris failed to
hew to the relevant common-law boundaries that prevent the Board
from trenching on the common and routine decisions that employers
make when hiring third-party contractors and defining the terms of
those contracts. To inform the joint-employer analysis, the relevant
forms of indirect control must be those that ``share or co-determine
those matters governing essential terms and conditions of
employment.'' By contrast, those types of employer decisions that
set the objectives, basic ground rules, and expectations for a
third-party contractor cast no meaningful light on joint-employer
status.
Id. at 1219-1220 (internal citations omitted). The court remanded the
case to the Board, and the Board accepted the remand.\7\
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\7\ The court also found that the Browning-Ferris Board had
neglected to apply the second step of its newly-fashioned standard,
under which, ``even if it finds that the common law would deem a
business to be a joint employer, the Board will also ask whether the
putative joint employer possesses sufficient control over employees'
essential terms and conditions of employment to permit meaningful
collective bargaining.'' Id. at 1221 (internal quotation omitted).
The court directed the Board to address this issue on remand as
well.
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C. NPRM
On September 14, 2018, the Board issued its joint-employer NPRM.
There, the Board proposed the following rule:
An employer, as defined by Section 2(2) of the National Labor
Relations Act (the Act), may be considered a joint employer of a
separate employer's employees only if the two employers share or
codetermine the employees' essential terms and conditions of
employment, such as hiring, firing, discipline, supervision, and
direction. A putative joint employer must possess and actually
exercise substantial direct and immediate control over the
employees' essential terms and conditions of employment in a manner
that is not limited and routine.
[[Page 11186]]
83 FR at 46696. The proposed rule also included a number of
hypothetical examples illustrating how it would apply to particular
scenarios.
In the NPRM, the Board acknowledged that the Agency historically
has made major policy determinations through adjudication, but stated
that it interpreted Section 6 of the Act as authorizing the Board to
engage in this rulemaking, adding that rulemaking on the issue of
determining joint-employer status was preferable to adjudication in
order to provide clarity and stability to this area of the law. The
NPRM further stated the Board's preliminary view, subject to potential
revision in response to comments, that a joint-employer doctrine under
which the duty to bargain is imposed only on entities that have played
an active role in establishing essential terms and conditions of
employment best serves the Act's purposes of promoting collective
bargaining and minimizing industrial strife. The NPRM invited comments
on these issues and, indeed, on all aspects of the proposed rule,
including input from employees, unions, and employers regarding their
experience in workplaces where multiple entities have some authority
over the workplace.
The Board set an initial comment period of 60 days, with 7
additional days allotted for reply comments. Thereafter, the Board
extended these deadlines three times, including an extension to allow
interested parties to comment on the impact of the D.C. Circuit's
decision in Browning-Ferris v. NLRB.\8\
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\8\ See Order dated January 11, 2019. The NPRM set the deadline
for initial comments as November 13, 2018, and comments replying to
comments submitted during the initial comment period were due
November 20, 2018. On October 30, 2018, the Board extended the
deadlines for submitting initial and reply comments for 30 days, to
December 13, 2018, and December 20, 2018, respectively. On December
10, 2018, the deadlines were extended for an additional 30 days, to
January 14, 2019, and January 22, 2019, respectively. After the D.C.
Circuit issued its decision in Browning-Ferris v. NLRB, the Board
extended the deadlines a third and final time to permit commenters
to address issues raised by the court's decision. The deadline for
initial comments was extended to January 28, 2019, and for reply
comments to February 11, 2019.
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II. Summary of Changes to the Proposed Rule
In this section, we provide a summary overview of changes to the
proposed rule.
A. Overview
The final rule, like the NPRM, provides that an entity is a joint
employer of a separate employer's employees only if the two employers
share or codetermine the employees' essential terms or conditions of
employment. However, the Board has modified the proposed rule to define
``share or codetermine'' as the possession and exercise of ``such
substantial direct and immediate control over one or more essential
terms or conditions of their employment as would warrant finding that
the entity meaningfully affects matters relating to the employment
relationship with those employees.'' The Board has also modified the
proposed rule to factor indirect control over essential terms or
conditions of employment, contractually reserved control over essential
terms or conditions of employment, and control over mandatory subjects
of bargaining other than essential terms and conditions of employment
into the joint-employer analysis, ``but only to the extent [they]
supplement[] and reinforce[] evidence of the entity's possession or
exercise of direct and immediate control over a particular essential
term and condition of employment.''
Consistent with these provisions, evidence of contractually
reserved control over an essential term or condition of employment is
probative for the purpose of determining whether an entity possesses or
exercises direct and immediate control over that essential term or
condition. Plainly, the fact that an entity has a contractually
reserved right to control an essential term or condition is probative
of whether it possesses control over that term. Such evidence may also
be probative of whether the control possessed and exercised is
``substantial,'' as that term is defined in the final rule (see Sec.
II.E, `` `Substantial' direct and immediate control'', infra).
Similarly, evidence of indirect control over an essential term or
condition of employment may be probative of whether the control
possessed and exercised is substantial.
Depending on the circumstances of a particular case, evidence of
control over a nonessential term or condition that nonetheless
constitutes a mandatory subject of bargaining may be probative of
whether an entity possesses and exercises substantial direct and
immediate control over an essential term or condition of employment.
One can readily foresee cases where the parties dispute the
significance or sufficiency of evidence that an entity exercises
substantial direct and immediate control over an essential term or
condition of employment, such as by claiming that the evidence is not
credible or is too isolated or sporadic to meet the substantiality
standard, but where the entity's control over one or more related
nonessential terms may tend to support a finding of substantial direct
and immediate control over an essential term or condition. For example,
an entity's control over grievance adjustment or drug or alcohol
testing might be probative of its direct and immediate control over
discipline or supervision, and an entity's control over dress codes or
attendance rules might be probative of its direct and immediate control
over discipline.
Evidence of an entity's contractually reserved or indirect control
over an essential term or condition of employment, or its control over
mandatory but nonessential subjects of bargaining, is not, however,
otherwise probative of whether the entity ``meaningfully affects
matters relating to the employment relationship.'' Under the final
rule, a putative joint employer reaches that threshold only through
possession and exercise of substantial direct and immediate control
over one or more essential terms and conditions of employment.
B. Indirect Control
The Board has modified the proposed rule to factor indirect control
into the joint-employer analysis, but not to find it sufficient without
more to make an entity a joint employer. Accordingly, the final rule
provides that evidence of indirect control over essential terms and
conditions of employment is probative of joint-employer status, but
only to the extent that it supplements and reinforces evidence of
direct and immediate control over essential terms and conditions.
The definitions of the several essential terms and conditions of
employment include statements of what does and does not count as direct
and immediate control over the essential term and condition being
defined. These statements may bear on indirect control, since what does
not count as direct and immediate control may count as indirect
control. However, consistent with the D.C. Circuit's decision in
Browning-Ferris v. NLRB, the definition of ``indirect control''
excludes ``control or influence over setting the objectives, basic
ground rules, or expectations for another entity's performance under a
contract,'' and evidence of control that by definition does not count
as direct and immediate control may fall within this exclusion and so
not constitute indirect control, either. For example, the definition of
``[h]ours of [w]ork'' states that ``[a]n entity does not exercise
direct and immediate control over hours of work by establishing an
enterprise's operating hours or when it needs the
[[Page 11187]]
services provided by another employer.'' But establishing an
enterprise's operating hours may not be evidence of indirect control,
either. A business that contracts, for example, with a food service
contractor to staff its employee lunchroom surely sets ``basic ground
rules or expectations'' for that contractor by specifying the hours
when the lunchroom will be open. Thus, specifying those hours would be
neither direct and immediate control nor indirect control. In other
instances, however, what is excluded by definition from direct and
immediate control may constitute indirect control. Accordingly, what is
indirect control over an essential term and condition of employment
versus what is merely a setting of objectives, basic ground rules or
expectations for a contractor's performance is an issue of fact to be
determined on a case-by-case basis.
C. Contractually Reserved But Unexercised Right To Control
The final rule recognizes contractually reserved but unexercised
control as a potentially relevant consideration. It provides that
evidence of an entity's contractually reserved but never exercised
authority over the essential terms and conditions of another employer's
employees is probative of joint-employer status, but only to the extent
it supplements and reinforces evidence of direct and immediate control
over essential terms and conditions of employment.
In addition, although not stated explicitly in the regulatory text,
the distinction drawn between indirect control that may be relevant to
a joint-employer determination and ``decisions that set the objectives,
basic ground rules, and expectations for a third-party contractor''
\9\--i.e., the ``routine components of a company-to-company contract''
\10\--also applies to contractually reserved but unexercised control.
That is, if a contract reserves to an entity a right to control one or
more matters involving the objectives, basic ground rules, or
expectations for a third-party contractor, such evidence will not be
probative of joint-employer status. For example, contractual safety,
performance, and quality standards are generally ``routine components
of a company-to-company contract'' \11\ and do not support a finding of
joint-employer status. This necessarily follows from the final rule's
definition of indirect control. If actual influence over the
objectives, basic ground rules, or expectations for a third-party
contractor is not probative of joint-employer status, as the D.C.
Circuit held in Browning-Ferris v. NLRB, then necessarily a contractual
but unexercised right to control such matters cannot be probative of
such status, either. See Browning-Ferris v. NLRB, 911 F.3d at 1221
(``[A] joint employer's control--whether direct or indirect, exercised
or reserved--must bear on the essential terms and conditions of
employment, and not on the routine components of a company-to-company
contract.'') (emphasis added; internal quotation and citation omitted).
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\9\ Browning-Ferris v. NLRB, 911 F.3d at 1220.
\10\ Id. at 1221.
\11\ Id.
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D. Limited and Routine Control
The proposed rule stated, in relevant part, that ``[a] putative
joint employer must possess and actually exercise substantial direct
and immediate control over the employees' essential terms and
conditions of employment in a manner that is not limited and routine''
(emphasis added). The Board has decided to revise the proposed rule to
delete ``limited and routine'' as a general qualifying term and instead
to use that term solely in the context of defining what is and is not
direct and immediate control over supervision. Thus, the final rule
provides that an entity does not exercise direct and immediate control
over supervision when its instructions are limited and routine and
consist primarily of telling another employer's employees what work to
perform, or where and when to perform the work, but not how to perform
it. The final rule does not otherwise use the phrase ``limited and
routine.''
E. ``Substantial'' Direct and Immediate Control
The final rule retains the requirement that direct and immediate
control over essential terms and conditions of employment be
``substantial'' to give rise to joint-employer status. The Board has
decided, however, to define ``substantial direct and immediate
control'' in the final rule. As defined, ``substantial'' direct and
immediate control means direct and immediate control that has a regular
or continuous consequential effect on an essential term or condition of
employment of another employer's employees. Such control is not
``substantial'' if it is only exercised on a sporadic, isolated, or de
minimis basis. Thus, the exercise of even direct and immediate control
may be so isolated, sporadic or de minimis that it fails to establish
that the putative joint employer meaningfully affects matters relating
to the employment relationship.
F. ``Essential'' Terms And Conditions of Employment
The proposed rule, in relevant part, states that ``[a]n employer
may be considered a joint employer of a separate employer's employees
only if the two entities share or codetermine the employees' essential
terms and conditions of employment, such as hiring, firing, discipline,
supervision, and direction'' (emphasis added). The phrase ``such as''
suggested that the specifically enumerated essential terms--hiring,
firing, discipline, supervision, and direction--might not be
exhaustive, but the proposed rule left unanswered whether additional
terms and conditions could be deemed essential, and if so, what those
terms and conditions might be.
The final rule expands the list of essential terms and conditions
to include wages, benefits, and hours of work. Additionally, to provide
greater certainty and remove a potential issue from litigation, the
final rule makes the list of essential terms exhaustive. Finally, the
final rule has been revised to provide that an entity's control over
other mandatory subjects of bargaining not considered essential terms
and conditions of employment is probative of joint-employer status, but
only to the extent it supplements and reinforces evidence of direct and
immediate control over essential terms and conditions of employment.
G. Hypothetical Scenarios in the NPRM
The proposed rule included a number of hypothetical scenarios,
termed ``examples.'' They were included to provide additional guidance
on the practical application of the proposed rule. The Board has
decided to omit the hypothetical scenarios from the final rule and has
instead provided more specific guidance in the text of the rule itself,
as discussed below.
III. Justification for Using Rulemaking, Rather Than Adjudication, To
Revise the Joint-Employer Standard
A. Authority To Engage in Rulemaking
Congress has delegated general rulemaking authority to the Board.
Specifically, Section 6 of the National Labor Relations Act, 29 U.S.C.
156, provides that the Board ``shall have authority from time to time
to make, amend, and rescind, in the manner prescribed by the
[Administrative Procedure Act (APA)], such rules and regulations as may
be necessary to carry out the provisions of [the Act].''
Although the Board historically has made most substantive policy
determinations through case
[[Page 11188]]
adjudication, it has, with Supreme Court approval, engaged in
substantive rulemaking. American Hosp. Ass'n. v. NLRB, 499 U.S. 606
(1991) (upholding Board's rulemaking on appropriate bargaining units in
the healthcare industry); see also NLRB v. Bell Aerospace Co., 416 U.S.
267, 294 (1974) (``[T]he choice between rulemaking and adjudication
lies in the first instance within the Board's discretion.'').
Further, Section 6 authorizes the final rule as necessary to carry
out Sections 2, 7, 8, 9, and 10 of the Act, 29 U.S.C. 152, 157, 158,
159, and 160, respectively. Specifically, Section 2(2) of the Act
defines ``employer'' and Section 2(3) defines ``employee.'' Section 7
of the Act defines the employee rights that the Act protects, including
the right to bargain collectively through representatives of their own
choosing, the right to engage in other concerted activities for the
purpose of collective bargaining or mutual aid or protection, and the
right to refrain from these activities. Section 8 of the Act defines
unfair labor practices under the Act. Of particular relevance is
Section 8(a)(5), which provides that it is an unfair labor practice for
an employer ``to refuse to bargain collectively with the
representatives of his employees'' (emphasis added). Section 9 of the
Act sets forth the Board's responsibilities for conducting
representation elections, and Section 10 of the Act provides the Board
with the authority to investigate, prevent, and remedy unfair labor
practices. The Board's joint-employer doctrine implicates each of these
provisions of the Act, and Section 6 grants the Board the authority to
promulgate rules that carry out those provisions.
B. The Preference for Rulemaking Over Adjudication
In the NPRM, we expressed a preliminary belief that rulemaking in
this area of the law is desirable for several reasons. Specifically,
the NPRM stated that rulemaking, rather than adjudication, would enable
the Board to gather information from a wide variety of interested
parties and to provide greater clarity to the joint-employer analysis.
Rulemaking would also respect the reasonable expectations of regulated
parties by ensuring that further changes to the law in this area would
only be made prospectively in a new rulemaking proceeding, whereas with
case adjudication, changes in the law may be made retroactively. After
carefully considering nearly 29,000 comments, the Board continues to
believe that rulemaking, rather than adjudication, is the better method
to revise and clarify the standard for determining joint-employer
status under the Act.
First, the Board has been well served by public comment on the
issue. The Board received numerous helpful comments from a wide variety
of sources, many with considerable legal expertise and/or a great deal
of relevant experience. Having considered these comments, the Board has
refined the proposed rule in several ways, outlined above in Section II
and discussed more fully below in Sections V and VI.
It is likely that the Board would not have received as much input
from revisiting the joint-employer standard through adjudication rather
than rulemaking. Rulemaking has given interested persons a way to
provide input through the convenient comment process, and participation
was not limited, as in the adjudicatory setting, to legal briefs filed
by the parties and amici. Further, the comments confirm that it was
especially important for the Board to receive feedback in light of the
recent oscillation on the joint-employer standard, after decades of
stability, beginning with Browning-Ferris, which overruled longstanding
Board precedent and substantially relaxed the evidentiary requirements
for finding a joint-employer relationship, and followed by Hy-Brand
Industrial Contractors, Ltd. & Brandt Construction Co., 365 NLRB No.
156 (2017) (Hy-Brand I), which restored the prior standard, but which
was then vacated for procedural reasons in Hy-Brand Industrial
Contractors, Ltd. & Brandt Construction Co., 366 NLRB No. 26 (2018)
(Hy-Brand II),\12\ resulting in reinstatement by default of the joint-
employer standard adopted in Browning-Ferris.
---------------------------------------------------------------------------
\12\ Mot. for reconsideration denied 366 NLRB No. 93 (2018) (Hy-
Brand III).
---------------------------------------------------------------------------
Second, rulemaking has made it possible for the Board to provide
greater clarity with respect to the standard than would likely be
accomplished through adjudication. Although the Board has decided, in
response to comments, to omit the examples that were set forth in the
text of the proposed rule, the final rule provides clarity by, for
example, setting forth actions that will and actions that will not
constitute direct and immediate control over each essential term and
condition of employment. This is regulatory guidance that could be
dismissed as dicta if set forth in an adjudicatory decision in a case
in which it was not essential to the outcome. By providing such
guidance, the final rule will comport with the Supreme Court's
instruction that the Board should provide parties with ``certainty
beforehand as to when [they] may proceed to reach decisions without
fear of later evaluations labeling [their] conduct an unfair labor
practice.'' First Nat'l Maint. Corp. v. NLRB, 452 U.S. 666, 679 (1981).
Third, the Board continues to believe, as discussed in the NPRM,
that by establishing the joint-employer standard through the Board's
Rules and Regulations, the final rule will enable employers, unions,
and employees to plan their affairs free of the uncertainty that
significant changes to the joint-employer doctrine could be made, and
retroactively applied, via case adjudication. NLRB v. Wyman-Gordon Co.,
394 U.S. 759, 777 (1969) (Douglas, J., dissenting) (``The rule-making
procedure performs important functions. It gives notice to an entire
segment of society of those controls or regimentation that is
forthcoming.'').
Finally, the decision to engage in rulemaking regarding the
standard for determining joint-employer status is consistent with the
similar determinations, by the United States Department of Labor (DOL)
and the United States Equal Employment Opportunity Commission (EEOC),
to similarly address this issue through rulemaking.\13\
---------------------------------------------------------------------------
\13\ See Joint Employer Status Under the Fair Labor Standards
Act, 85 FR 2820 (Jan. 16, 2020) (to be codified 29 CFR part 791);
Introduction to the Fall 2019 Regulatory Plan, 84 FR 71091 (Dec. 26,
2019) (listing EEOC Fall 2019 Unified Rulemaking Agenda, Joint
Employer Status Under the Federal Equal Employment Opportunity
Statutes (RIN: 3046-AB16)).
---------------------------------------------------------------------------
In sum, and as indicated in the NPRM with respect to the proposed
rule, the Board believes that the final rule will foster predictability
and consistency regarding determinations of joint-employer status in a
variety of business relationships, thereby enhancing labor-management
stability, the promotion of which is one of the principal purposes of
the Act.
IV. Recusal Issues
A number of commenters claim that Chairman Ring, Member Emanuel,
and/or Member Kaplan entered into this rulemaking with unalterably
closed minds as to the outcome and consequently that each should recuse
himself from participating in it. For the reasons that follow, the
Board rejects these contentions.
``[A]n individual should be disqualified from rulemaking only when
there has been a clear and convincing showing'' that the official ``has
an
[[Page 11189]]
unalterably closed mind on matters critical to the disposition of the
proceeding.'' Air Transp. Ass'n of America, Inc. v. NMB, 663 F.3d 476,
487 (D.C. Cir. 2011) (quoting C & W Fish Co. v. Fox, 931 F.2d 1556,
1564 (D.C. Cir. 1991)). Moreover, ``[a]n administrative official is
presumed to be objective and `capable of judging a particular
controversy fairly on the basis of its own circumstances.' ''
Steelworkers v. Marshall, 647 F.2d 1189, 1208 (D.C. Cir. 1980) (quoting
United States v. Morgan, 313 U.S. 409, 421 (1941)). Further,
``[w]hether the official is engaged in adjudication or rulemaking,''
the fact that he or she ``has taken a public position, or has expressed
strong views, or holds an underlying philosophy with respect to an
issue in dispute cannot overcome that presumption.'' Id. That
presumption is also not overcome ``when the official's alleged
predisposition derives from [his or] her participation in earlier
proceedings on the same issue.'' Id. at 1209. Expanding on the latter
point, the D.C. Circuit has explained that ``[t]o disqualify
administrators because of opinions they expressed or developed in
earlier proceedings would mean that `experience acquired from their
work . . . would be a handicap instead of an advantage.' '' Id.
(quoting FTC v. Cement Inst., 333 U.S. 683, 702 (1948)). More recently,
the D.C. Circuit has similarly emphasized that it would ```eviscerate
the proper evolution of policymaking were we to disqualify every
administrator who has opinions on the correct course of his agency's
future actions.' '' Air Transp. Ass'n of America, 663 F.3d at 488
(quoting C & W Fish Co., 931 F.2d at 1565).
Consistent with the foregoing precedent, each participating Member
has determined that there is no basis to recuse himself from this
rulemaking. Indeed, comparison of the final rule with the proposed rule
in itself clearly demonstrates that the Members did not engage in this
endeavor with ``an unalterably closed mind.'' After considering nearly
29,000 comments, the Board has revised the proposed rule in several
significant respects. Throughout this rulemaking process, the Board has
been willing to reconsider the preliminary views expressed in the NPRM
and to revise the rule as found appropriate.
One commenter raises arguments based on section 1, paragraph 6 of
Executive Order 13770, entitled ``Ethics Commitments by Executive
Branch Appointees,'' 82 FR 9333 (Jan. 28, 2017).\14\ As other
commenters correctly note, the cited provision is inapplicable.\15\
Section 1, paragraph 6 of Executive Order 13770 is a pledge that
states: ``I will not for a period of 2 years from the date of my
appointment participate in any particular matter involving specific
parties that is directly and substantially related to my former
employer or former clients, including regulations and contracts.'' This
paragraph, read together with the definitions of ``former employer,''
``former client,'' and ``directly and substantially related'' set forth
in Executive Order 13770, prohibits a Board Member from participating
in a ``particular matter involving specific parties'' in which his or
her former employer or own former client is a party or the
representative of a party. Section 2(s) of Executive Order 13770
provides that a particular matter involving specific parties has the
same meaning as set forth in 5 CFR 2641.201(h).\16\ 5 CFR 2641.201,
which contains interpretive guidance for the post-employment
restrictions found in 18 U.S.C. 207, states that ``only those
particular matters that involve a specific party or parties fall within
the prohibition'' of 18 U.S.C. 207(a)(1), and that
---------------------------------------------------------------------------
\14\ See comment of Service Employees International Union
(SEIU).
\15\ See comments of Ranking Member Virginia Foxx of the U.S.
House of Representatives Committee on Education and Labor (Ranking
Member Foxx); HR Policy Association.
\16\ Section 2(s) additionally states that the definition of a
particular matter involving specific parties shall also include
``any meeting or other communication relating to the performance of
one's official duties with a former employer or former client,
unless the communication applies to a particular matter of general
applicability and participation in the meeting or other event is
open to all interested parties.'' This portion of the provision does
not apply here.
[s]uch a matter typically involves a specific proceeding affecting
the legal rights of the parties or an isolatable transaction or
related set of transactions between identified parties, such as a
specific contract, grant, license, product approval application,
---------------------------------------------------------------------------
enforcement action, administrative adjudication, or court case.
5 CFR 2641.201(h)(1). Further, the regulation states that
``[l]egislation or rulemaking of general applicability and the
formulation of general policies, standards or objectives, or other
matters of general applicability are not particular matters involving
specific parties.'' Id. 2641.201(h)(2).
Here, the joint-employer rulemaking--unlike an administrative
adjudication of a case--is not a ``specific proceeding affecting the
legal rights of the parties'' to that proceeding. Rather, this
rulemaking is a matter of general applicability. See 5 CFR
2641.201(h)(1)-(2). Further, the phrase ``including regulations'' in
the pledge recusal provision in section 1, paragraph 6 of Executive
Order 13770 ``is not intended to suggest that all rulemakings are
covered,'' but instead is a ``reminder that regulations sometimes may
be particular matters involving specific parties, although in rare
circumstances.'' Ethics Pledge: Revolving Door Ban--All Appointees
Entering Government, DO-09-11 at 2 (Mar. 26, 2009) (``certain
rulemakings may be so focused on the rights of specifically identified
parties as to be considered a particular matter involving specific
parties''); see also Guidance on Executive Order 13770, LA-17-03 (Mar.
20, 2017). Because the joint employer rulemaking is not directed at
specific parties, the cited provision of Executive Order 13770 does not
apply, and arguments based on Executive Order 13770 are misplaced.
Citing Member Emanuel's participation in Hy-Brand I, one commenter
argues that Member Emanuel should recuse himself because ``[i]t is
clear where [he] stands on the important issues at stake in this
rulemaking'' and because he has ``expressed those strong views.'' \17\
However, the fact that Member Emanuel expressed views on the joint-
employer standard in Hy-Brand I is insufficient to demonstrate that
Member Emanuel has engaged in this rulemaking with an unalterably
closed mind. See Air Transp. Ass'n of America, Inc., 663 F.3d at 487-
488; Steelworkers, 647 F.2d at 1208-1209. Accordingly, the AFT's
argument is unfounded.
---------------------------------------------------------------------------
\17\ See comment of American Federation of Teachers (AFT) at 4.
---------------------------------------------------------------------------
Commenters also argue that Member Emanuel should recuse himself
because his participation in this rulemaking would ``accomplish the
same goals'' that he could not accomplish in Hy-Brand I, and this would
be inconsistent with his ``ethical obligations.'' \18\ As an initial
matter, Member Emanuel's disqualification from Hy-Brand I was unrelated
to the substantive issues in that case. It was based on the fact that
Member Emanuel had been a shareholder in the law firm that represented
Leadpoint Business Services, one of the parties before the Board in
Browning-Ferris; it had nothing to do with the substance of the case or
the joint-employer standard. See Browning-Ferris v. NLRB, 911 F.3d at
1205-1206. To the extent the AFT is suggesting that Member Emanuel
should be disqualified from participating in this
[[Page 11190]]
rulemaking because he has ``[policy] goals,'' neither Member Emanuel's
underlying philosophy, nor his previously expressed views, nor his
initial participation in Hy-Brand I constitute grounds for his
disqualification or establish that Member Emanuel has an unalterably
closed mind on matters critical to this rulemaking. See Air Transp.
Ass'n of America, Inc., 663 F.3d at 487-488; Steelworkers, 647 F.2d at
1208-1209.
---------------------------------------------------------------------------
\18\ Id.; see also comments of AFL-CIO; SEIU; Congressional
Progressive Caucus; Attorneys General of New York, Pennsylvania, et
al.; Center for American Progress Action Fund.
---------------------------------------------------------------------------
Moreover, and as emphasized above, the final joint-employer rule
applies prospectively only. Thus, the final rule will not effectively
reinstate the Board's vacated decision in Hy-Brand I, it will not
affect the outcome in Browning-Ferris (currently pending before the
Board on remand from the D.C. Circuit), and it will not affect
Leadpoint or any other party in Browning-Ferris.\19\
---------------------------------------------------------------------------
\19\ The question of what standard should apply in Browning-
Ferris on remand was not addressed by the D.C. Circuit, which
declined to rule on BFI's challenge to the retroactive application
of the Browning-Ferris standard in that case. See 911 F.3d at 1222.
---------------------------------------------------------------------------
Although the Board's Designated Agency Ethics Official (DAEO)
determined that Member Emanuel was disqualified from participation in
the Hy-Brand cases, the DAEO subsequently determined that Member
Emanuel was not disqualified from participating in this rulemaking and
provided guidance to all Board members with respect to general recusal
considerations. With respect to the DAEO's latter determination, one
comment faulted the DAEO's memorandum for purportedly failing to apply
the recusal standard for rulemaking ``in light of the NPRM's
particularly suspect history,'' asserting that there should be a ``more
fulsome'' public examination of the DAEO's opinion or memorandum.\20\
This vague claim does not undermine the DAEO's determination.
---------------------------------------------------------------------------
\20\ Comment of Chairman Robert C. ``Bobby'' Scott of the House
Committee on Education and Labor and Ranking Member Patty Murray of
the Senate Committee on Health, Education, Labor, and Pensions
(Chairman Scott and Ranking Member Murray) at 16.
---------------------------------------------------------------------------
Another commenter has suggested that the DAEO's memorandum is
flawed because it was issued while the Board's recusal procedures were
under review.\21\ The Board's report on those procedures issued on
November 19, 2019.\22\ Nothing in that report or in the fact that the
review was underway at the time the DAEO issued her memorandum
undermines the DAEO's opinion regarding Member Emanuel's participation.
---------------------------------------------------------------------------
\21\ Comment of Congressional Progressive Caucus.
\22\ See NLRB's Ethics Recusal Report, https://www.nlrb.gov/reports/other-agency-reports/ethics-recusal-report (last visited
Jan.15, 2020). The Board subsequently announced plans to modify
aspects of the report not material to the issues discussed here. Id.
---------------------------------------------------------------------------
One commenter also contends that Member Emanuel's participation in
this rulemaking creates an appearance of preferential treatment of a
client (Leadpoint) of his former law firm because the client would
``derive the same impermissible benefit as it would have from Hy-Brand
I.'' \23\ Accordingly, this commenter argues that Member Emanuel's
participation ``runs afoul'' of section 1, paragraph 6 of Executive
Order 13770, as well as 5 CFR 2635.101(b)(8) and (14). Id. 5 CFR
2635.101(b)(8) states: ``Employees shall act impartially and not give
preferential treatment to any private organization or individual.'' 5
CFR 2635.101(b)(14) similarly requires employees to ``endeavor to
avoid'' any actions that would create the appearance that they are
violating the law or applicable ethical standards, as ``determined from
the perspective of a reasonable person with knowledge of the relevant
facts.''
---------------------------------------------------------------------------
\23\ Comment of SEIU at 20.
---------------------------------------------------------------------------
As discussed above, section 1, paragraph 6 of Executive Order 13770
does not apply to this rulemaking and thus does not support SEIU's
claim. Further, because the final rule will apply prospectively only
and will not affect pending unfair labor practice cases such as
Browning-Ferris, and because there is no evidence that Member Emanuel
has acted other than impartially or given preferential treatment to
anyone through this rulemaking, there is no basis for finding that
Member Emanuel's participation is contrary to 5 CFR 2635.101(b)(8), and
no reasonable person with knowledge of the relevant facts would find
that Member Emanuel's participation in this rulemaking would create an
appearance that the law or ethical standards have been or are being
violated.
Two commenters argue that Chairman Ring and Member Emanuel are
``too biased to participate in rulemaking'' based on unfair labor
practice litigation involving McDonald's USA, LLC (the McDonald's
litigation).\24\ Those commenters cite Chairman Ring's and Member
Emanuel's former law firms' work in connection with the McDonald's
litigation and then-pending motions for Chairman Ring and Member
Emanuel to recuse themselves from that case. These commenters argue
that the participation of Chairman Ring and Member Emanuel in this
rulemaking is ``no less problematic'' because it would enable Chairman
Ring and Member Emanuel ``to tailor a rule for the McDonald's case that
would directly benefit their former firms' client.''
---------------------------------------------------------------------------
\24\ Comment of SEIU National Fast Food Workers Union at 2
(capitalization altered); see also id. at 3 (citing McDonald's USA,
LLC, a Joint Employer, et al. ``Charging Parties' Motion for Recusal
of Chairman Ring and Member Emanuel,'' Case 02-CA-093893 et al.
(Aug. 14, 2018)); see also comment of SEIU at 21.
---------------------------------------------------------------------------
The Board issued its decision approving a proposed settlement of
the McDonald's litigation on December 12, 2019. See McDonald's USA,
LLC, 368 NLRB No. 134 (2019). Chairman Ring took no part in the
consideration of the case, and the motion for his recusal was dismissed
as moot. Id., slip op. at 1 fn. 2. For the reasons explained in the
decision, the motion to recuse Member Emanuel was denied. Id. Moreover,
as discussed above, the final rule applies prospectively only and thus
will have no substantive effect on the now-concluded McDonald's
litigation.\25\ As such, there is no reasonable basis for concluding
that the participation of Chairman Ring and Member Emanuel in this
rulemaking would involve preferential treatment of any party to the
McDonald's litigation or create an appearance of partiality or
preferential treatment. Accordingly, the pendency of the McDonald's
litigation at the time the NPRM was published neither requires nor
supports Chairman Ring's or Member Emanuel's recusal from participation
in this rulemaking.
---------------------------------------------------------------------------
\25\ The fact that the Board had proposed a joint-employer rule
was taken into consideration in the decision to approve the
settlement in the McDonald's litigation, but only to the extent that
the Board recognized that the standard adopted in a final rule
``[would] likely supplant any standard arising from the [McDonald's]
litigation,'' and therefore ``a decision regarding joint-employer
status'' in that litigation ``may have limited precedential value.''
368 NLRB No. 134, slip op. at 7. Importantly, in weighing the risks
inherent in continued litigation, the Board observed that ``there
[was] no guarantee that McDonald's would be found to be a joint
employer with its Franchisees'' ``[e]ven under the joint-employer
standard articulated in Browning-Ferris,'' considering that the
Board ``has generally not held franchisors to be joint employers
with their franchisees'' and that ``the Board in [Browning-Ferris]
explicitly disclaimed an intent to address the joint-employer
standard in the context of the relationship between a franchisor and
a franchisee.'' Id., slip op. at 6-7.
---------------------------------------------------------------------------
Finally, to the extent that any commenter's argument regarding the
McDonald's litigation is based on 5 CFR 2635.502(a)-(b), the argument
is misplaced. 5 CFR 2635.502(a)(1) states that, unless he receives
prior authorization, an employee should not participate in a particular
matter involving specific parties that he knows is likely to affect the
financial interests of a member of his household, or in which he knows
that a person with whom he has a covered relationship is
[[Page 11191]]
or represents a party,\26\ if he determines that a reasonable person
with knowledge of the relevant facts would question his impartiality in
the matter. For reasons already stated, because this CFR provision
applies to ``particular matters involving specific parties,'' it does
not apply to a rulemaking of broad application such as this one. Id.;
see also Office of Government Ethics Legal Advisory, DO-06-029,
``Particular Matter Involving Specific Parties,'' ``Particular
Matter,'' and ``Matter,'' at 9 fn. 10 (Oct. 4, 2006) (``[R]ulemaking
`would not, except in unusual circumstances covered under section
502(a)(2), raise an issue under section 502(a)[.]' '') (quoting OGE
Informal Advisory Letter 93 x 25 (Oct. 1, 1993)).
---------------------------------------------------------------------------
\26\ Pursuant to 5 CFR 2635.502(b)(1)(iv), an employee is
considered to have a ``covered relationship'' with ``[a]ny person
for whom the employee has, within the last year, served as officer,
director, trustee, general partner, agent, attorney, consultant,
contractor, or employee.''
---------------------------------------------------------------------------
5 CFR 2635.502(a)(2) also includes a ``catchall'' provision, which
states: ``An employee who is concerned that circumstances other than
those specifically described in this section would raise a question
regarding his impartiality should use the process described in this
section to determine whether he should or should not participate in a
particular matter'' (emphasis added). But because the final rule
applies prospectively only and does not affect the outcome of any
pending litigation, no such concerns are present here.
V. Response to Comments
The Board received almost 29,000 comments from interested
organizations, labor unions, business owners, members of Congress,
state attorneys general, academics, and other individuals. The Board
has carefully reviewed and considered these comments as discussed
below.
A. Comments Regarding the Development of the Joint-Employer Doctrine
Under the Act
The Board received numerous comments on the development of the
joint-employer doctrine under the Act. In general, those comments
acknowledge the accuracy of the Board's description of that development
in the NPRM, which is briefly summarized above in Section I. As more
fully developed there, for at least 30 years (from no later than 1984
to 2015), evidence of direct and immediate control over essential terms
and conditions of employment was required to prove that an entity was
the joint employer of another business's workers. This requirement
disappeared in August 2015 with the issuance of Browning-Ferris, which
held that joint-employer status could be based on evidence of indirect
or reserved-but-unexercised control, without more.
Several commenters criticize the proposed rule's return to the
Board's joint-employer standard as it existed before Browning-
Ferris.\27\ These commenters contend that the Board cannot simply
revert to the pre-Browning-Ferris joint-employer standard because the
Board precedent upon which that standard was based--Laerco and its
progeny--departed without explanation from the standard articulated in
Greyhound Corp., 153 NLRB at 1488, by disregarding evidence of
contractually reserved authority and indirect control as evidence of
joint-employer status and discounting evidence of supervision and
direction that was ``limited and routine.'' See Laerco, 269 NLRB at
326; TLI, 271 NLRB at 798-799. In the view of these commenters, these
departures led to a narrowing of the joint-employer standard without
``the benefit of any explicit modification of the earlier Greyhound
standard.'' \28\
---------------------------------------------------------------------------
\27\ See comments of Laborers' International Union of North
America (LIUNA); International Union of Operating Engineers (IUOE);
AFL-CIO.
\28\ See comment of IUOE.
---------------------------------------------------------------------------
In addition, some commenters contend that the final rule's ``direct
and immediate'' standard was ``manufactured'' by the Board in Airborne
Express, with no explanation and no citation to the common law.\29\
These commenters point to Restatement (Second) of Agency (1958) Sec.
220(1), comment d, which states that ``the control or right to control
needed to establish the relation of master and servant may be very
attenuated.'' Some commenters argue that the proposed rule's
requirement that a putative joint employer must possess and actually
exercise substantial direct and immediate control over employees'
working conditions ``amounts to little more than a `categorical rule'
that drains reserved and/or indirect control of any relevance.'' At
least one commenter observes that the common-law ``right-to-control''
principle is consistent with Section 2(11) of the NLRA, which defines
``supervisor'' as ``any individual having authority, in the interest of
the employer,'' to perform one or more of 12 supervisory functions. 29
U.S.C. 152(11) (emphasis added).\30\
---------------------------------------------------------------------------
\29\ See comments of State Attorneys General; the AFL-CIO.
\30\ See comment of AFL-CIO.
---------------------------------------------------------------------------
Contrary to these comments, the pre-Browning-Ferris Board precedent
described above is consistent with the common law of joint-employment
relationships in the context of the Act. Even assuming that Laerco,
TLI, and Airborne Express did not adequately explain the basis for
requiring substantial direct and immediate control, the Board has
provided that explanation here.
As the D.C. Circuit has held, ``the common law inquiry is not
woodenly confined to indicia of direct and immediate control; an
employer's indirect control over employees can be a relevant
consideration.'' Browning-Ferris v. NLRB, 911 F.3d at 1209 (emphasis
added). And again, the court upheld ``as fully consistent with the
common law the Board's determination'' in Browning-Ferris ``that both
reserved authority to control and indirect control can be relevant
factors in the joint-employer analysis.'' Id. at 1222 (emphasis added).
The Board agrees that reserved authority to control and indirect
control are relevant considerations. To state the obvious, however, the
court also acknowledged the significance of direct and immediate
control to the common-law joint-employer analysis when it stated that
``the common-law inquiry is not woodenly confined to indicia of direct
and immediate control,'' id. at 1209 (emphasis added), and the court
expressly did not decide whether either indirect control or
contractually reserved but unexercised authority, without more, could
establish joint-employer status under the Act, id. at 1213, 1218.
Accordingly, the final rule makes evidence of indirect control and
contractually reserved but unexercised authority probative of joint-
employer status insofar as it supplements and reinforces evidence of
direct and immediate control over essential terms and conditions of
employment. The final rule is therefore consistent with the D.C.
Circuit's decision in Browning-Ferris. And by requiring evidence of
direct and immediate control, it is also consistent with Laerco and its
progeny.
The final rule, moreover, is consistent with the Board's pre-1984
precedent, which deemed indirect control relevant to joint-employer
status without holding that it was sufficient, standing alone, to
establish that status. For example, in Floyd Epperson, 202 NLRB at 23,
the Board considered the fact that the putative joint employer, a dairy
company, had indirect control over the wages of drivers supplied by
another employer. But the Board's conclusion that the dairy company was
a joint employer of the drivers relied on ``all the circumstances'' of
the case, including the fact that the company
[[Page 11192]]
dictated the specific routes that drivers were required to take when
transporting its goods, ``generally supervise[d]'' the drivers, and had
authority to modify their work schedules. Id. As explained in the NPRM,
in Floyd Epperson and like cases arising before 1984, the Board was not
called upon to decide, nor did it assert, that an entity's indirect
influence over another company's workers' essential working conditions,
standing alone, could establish a joint-employer relationship.
Some commenters argue that the rule conflicts with the policies and
purposes of the NLRA by purportedly diminishing opportunities for
collective bargaining and eliminating protections for those seeking to
exercise their rights under the Act.\31\ Another commenter argues that
while the Browning-Ferris standard facilitates collective bargaining
when chosen by workers, promotes enforcement of the Act, and provides
clear standards, the proposed rule fails on each of these counts.\32\
Other commenters take the opposite position, arguing that the proposed
rule encourages collective bargaining by fostering predictable joint-
employer determinations in a variety of business relationships, thereby
promoting labor-management stability, one of the principal purposes of
the Act.\33\ In agreement with the latter commenters, the Board
believes that the final rule promotes national labor policy by
appropriately imposing bargaining obligations solely on entities that
have actually exercised substantial direct and immediate control over
essential terms and conditions of employment.
---------------------------------------------------------------------------
\31\ See comments of National Employment Law Project (NELP);
Economic Policy Institute (EPI).
\32\ See comment of State Attorneys General.
\33\ See comments of American Supply Association; Chamber of
Commerce.
---------------------------------------------------------------------------
B. Comments Regarding Indirect Control
Many commenters support requiring actual exercise of substantial
direct and immediate control in order to establish joint-employer
status. In this regard, commenters assert, among other things, that
this requirement is practical; \34\ is long-accepted \35\ and has
always been a fundamental aspect of the joint-employer standard; \36\
is consistent with court precedent, the common law, the pertinent
Restatements, and/or congressional intent; \37\ appropriately assigns
unfair labor practice liability to the employer responsible for the
violation; \38\ and enables businesses to enter into a variety of
business relationships and to establish certain high-level requirements
(e.g., minimum training levels) with the confidence that they will not
be held responsible for another entity's employees.\39\ Further, some
commenters state that pre-Browning-Ferris precedent addressing the
meaning of direct and immediate control will provide helpful guidance
to parties.\40\
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\34\ Comment of International Foodservice Distributors
Association.
\35\ Comments of International Foodservice Distributors
Association; Restaurant Law Center.
\36\ Comment of National Retail Federation.
\37\ Comments of Coalition for a Democratic Workplace (CDW);
Chamber of Commerce; HR Policy Association; Ranking Member Foxx;
American Staffing Association; Council on Labor Law Equality
(COLLE); Restaurant Law Center.
\38\ Comments of COLLE; Americans for Tax Reform.
\39\ Comment of National Association of Truckstop Operators.
\40\ Comments of International Bancshares Corporation;
Restaurant Law Center; COLLE.
---------------------------------------------------------------------------
Relatedly, several commenters state that evidence of indirect
control may be ``probative,'' \41\ relevant, or permissibly considered,
but that the common law, the courts, and/or the Taft-Hartley Congress
would not support finding joint-employer status absent evidence of
direct or immediate control.\42\ In this connection, one commenter
states that the Board may choose to address whether indirect control
could be ``dispositive,'' noting that the D.C. Circuit in Browning-
Ferris v. NLRB left that question unanswered.\43\ However, another
commenter takes the position that the extent to which control is
exercised has limited or no relevance.\44\
---------------------------------------------------------------------------
\41\ Comment of CDW.
\42\ Comments of CDW; HR Policy Association; American Staffing
Association; Retail Industry Leaders Association (RILA).
\43\ Comment of Jenner & Block, LLP.
\44\ Comment of SEIU.
---------------------------------------------------------------------------
In contrast, several commenters say that consideration of indirect
control is consistent with the common law, the pertinent Restatements,
court decisions (including Browning-Ferris v. NLRB),\45\ and the
practices of other federal agencies that consider indirect control
under other statutes.\46\ One commenter asserts that considering
indirect control is necessary in order to capture how control is
actually exercised in the workplace.\47\ Some commenters state that
indirect control can be just as effective and significant as direct
control.\48\ Further, some commenters state that the Board failed to
adequately justify its ``preliminary belief'' in the NPRM that, without
requiring direct and immediate control, it would be difficult to police
the line between independent commercial contractors and genuine joint
employers.\49\
---------------------------------------------------------------------------
\45\ Comments of Southern Poverty Law Center; United Brotherhood
of Carpenters and Joiners of America; Congressional Progressive
Caucus; Greater Boston Legal Services; International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America
(UAW); AFL-CIO; International Brotherhood of Teamsters (IBT); United
Association of Journeymen and Apprentices of the Plumbing and Pipe
Fitting Industry of the United States and Canada, AFL-CIO (UA);
1199SEIU United Healthcare Workers East; LIUNA; Spivak Lipton LLP;
IUOE; Members of Congress; Chairman Scott and Ranking Member Murray;
Communications Workers of America, AFL-CIO (CWA); NELP; James van
Wagtendonk; SEIU; Attorneys General of New York, Pennsylvania, et
al.; SEIU Local 32BJ.
\46\ Comments of UA; James van Wagtendonk.
\47\ Comment of NELP.
\48\ See, e.g., Comment of Kelly Sagaser.
\49\ Comments of Chairman Scott and Ranking Member Murray;
Attorneys General of New York, Pennsylvania, et al.
---------------------------------------------------------------------------
Citing various sections of the Act, several commenters argue that
indirect control is either relevant to, or an independently sufficient
basis for finding, joint-employer status. Specifically, they cite the
definition of ``employer'' in Section 2(2),\50\ of ``supervisor'' in
Section 2(11),\51\ and of ``agent'' in Section 2(13),\52\ and the
policies set forth in Section 1.\53\
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\50\ Comments of A. Feola; AFL-CIO; UA; SEIU.
\51\ Comments of UAW; AFL-CIO.
\52\ Comment of SEIU.
\53\ Comments of IUOE; Members of Congress.
---------------------------------------------------------------------------
Under the common law, some forms of indirect control are relevant
to the joint-employer analysis. Consistent with this principle, the
final rule makes clear that evidence of indirect control over essential
terms and conditions of employment is probative of joint-employer
status, but only to the extent that it supplements and reinforces
evidence of direct and immediate control over essential terms and
conditions of employment. Nothing in the Act itself or joint-employer
precedent compels us to adopt a rule that permits a finding of joint-
employer status based solely on an entity's indirect control over
another entity's employees, and the Board declines to do so. With
regard to comments that cite various sections of the Act, none of the
cited sections requires a conclusion that one entity's exercise of
merely indirect control over another entity's employees is sufficient
to make the former entity a joint employer. Further, the Board believes
that the policies of the Act are furthered, not hindered, by requiring
only those entities to come to the bargaining table that have
sufficient control over essential terms and conditions of employment to
warrant a finding that they meaningfully affect matters relating to the
employment relationship, and that direct and immediate control over at
least one essential term is necessary to warrant such a finding.
[[Page 11193]]
Several commenters state that the term ``direct and immediate
control'' is unclear and will lead to uncertainty and litigation over
its meaning.\54\ Some commenters also state that the final rule should
define the term,\55\ and some propose definitions or advocate for
particular interpretations of that phrase.\56\
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\54\ Comments of UAW; 1199SEIU United Healthcare Workers East;
SEIU; Signatory Wall and Ceiling Contractors Alliance.
\55\ See, e.g., Comment of Restaurant Law Center.
\56\ Comments of SEIU; National Retail Federation; American
Hotel & Lodging Association.
---------------------------------------------------------------------------
For the reasons stated by many commenters, the final rule provides
guidance on distinguishing what does and does not evidence direct and
immediate control over each essential term and condition of employment.
We believe that that this approach helps clarify the meaning of
``direct and immediate control.'' Moreover, the several definitions of
essential terms and conditions of employment--specifically, of what
does not constitute evidence of direct and immediate control--also shed
light on the meaning of indirect control.
Many commenters are critical of the term ``indirect control,''
saying, among other things, that it is undefined, ambiguous, and/or
seemingly limitless.\57\ Some commenters note that there are different
types of indirect control, and they cite the Browning-Ferris court's
distinction between forms of indirect control that involve sharing or
codetermining those matters governing essential terms and conditions of
employment, which may be relevant to a joint-employer determination,
and employer decisions that set the objectives, basic ground rules, and
expectations for a third-party contractor, which are not.\58\
Relatedly, other commenters state or imply that joint-employer status
should not be found based solely on a business having the ability to
cancel a contract with a subcontractor or franchisee.\59\
---------------------------------------------------------------------------
\57\ Comments of American Staffing Association; American Action
Forum; International Sign Association; Restaurant Law Center;
American Hotel & Lodging Association; FedEx Corporation; HR Policy
Association; National Association of Home Builders; General Counsel
Peter Robb; Chamber of Commerce.
\58\ Comments of the American Hotel & Lodging Association;
COLLE; Restaurant Law Center.
\59\ See, e.g., Comment of Dean Johnson.
---------------------------------------------------------------------------
Further, several commenters propose defining, or describe,
``indirect control'' as involving or including control exercised
through intermediaries or controlled third parties,\60\ or some version
of that concept.\61\ Relatedly, other commenters state that, in
determining the meaning of indirect control, it may be useful to
consider the common-law ``subservant doctrine.'' \62\
---------------------------------------------------------------------------
\60\ Comments of Selby Schwartz; United Brotherhood of
Carpenters and Joiners of America; UAW; Spivak Lipton LLP; HR Policy
Association; SEIU; Wholesale Delivery Drivers, General Truck
Drivers, Chauffeurs, Sales, Industrial and Allied Workers, Local
848, IBT; Chairman Scott and Ranking Member Murray.
\61\ See, e.g., Comment of Kentucky Equal Justice Center (``via
supervisors and other lower-level direct overseers'').
\62\ See, e.g., Comment of SEIU.
---------------------------------------------------------------------------
Based on these comments, the Board has decided to provide more
clarity by expressly defining ``indirect control'' in the final rule in
a manner that largely tracks the distinction that the D.C. Circuit
articulated in Browning-Ferris v. NLRB. Thus, under the final rule,
``indirect control'' means indirect control over essential terms and
conditions of employment of another employer's employees, but not
control or influence over setting the objectives, basic ground rules,
or expectations for another entity's performance under a contract. In
defining indirect control, the Board has opted to focus on the
connection between the entity's actions and the employees' essential
terms and conditions of employment, rather than on how alleged control
is communicated. However, the final rule is not intended to immunize an
entity from joint-employer status based solely on how its control is
communicated, if the other requirements of joint-employer status
otherwise are met. In this connection, as the D.C. Circuit observed in
Browning-Ferris v. NLRB, the common law has never countenanced the use
of intermediaries or controlled third parties to avoid the creation of
a master-servant relationship, and we do not intend this rule to do so.
Relatedly, as Browning-Ferris v. NLRB discussed, the subservant
doctrine takes into account control exercised through an intermediary.
One commenter states that indirect control should be considered
along with all of the facts and circumstances, including how often
indirect control is actually exercised, how many employees are impacted
by the indirect control, and whether the indirect control governs a
significant number of essential terms and conditions of employment.\63\
In addition, several commenters propose examples of indirect control or
other arrangements that should not demonstrate joint-employer status,
such as determining the skills of the individuals who will perform
services; \64\ establishing conduct requirements to ensure that the
company's employees, property, and customers are protected; \65\
deciding that the services of temporary workers supplied by another
company are no longer needed at one's worksite; \66\ establishing the
amount that the customer is willing to pay for services; \67\ cost-plus
contracts; \68\ corporate social-responsibility policies; \69\ ensuring
compliance with regulatory obligations; \70\ permitting employees to
participate in basic benefit plans such as retirement, health, dental,
and life insurance; \71\ establishing minimum wages, where the direct
employer is permitted to pay more; \72\ and establishing requirements
concerning performance management, products, quality, or safety.\73\
---------------------------------------------------------------------------
\63\ Comment of Jenner & Block, LLP.
\64\ Comment of Restaurant Law Center.
\65\ Id.
\66\ Comment of Jenner & Block, LLP.
\67\ Comment of Restaurant Law Center.
\68\ Comments of Restaurant Law Center; COLLE.
\69\ Comments of COLLE; RILA; HR Policy Association.
\70\ Comment of HR Policy Association.
\71\ Id.
\72\ Comment of John B. Hirsch.
\73\ Comment of HR Policy Association.
---------------------------------------------------------------------------
The final rule incorporates several aspects of these comments.
Preliminarily and as a general matter, the rule states that joint-
employer status must be determined on the totality of the relevant
facts in each employment setting. More specifically, the final rule
provides guidance as to kinds of indirect control that may not be
probative of joint-employer status. It does so in the several
definitions of essential terms and conditions in stating what does not
constitute direct and immediate control of each essential term. Thus,
for example, the final rule provides that direct and immediate control
excludes setting minimal hiring standards; setting minimal standards of
performance or conduct; refusing to allow another employer's employee
to continue performing work under a contract; entering into a cost-plus
contract; maintaining standards that are required by government
regulation; and permitting another employer, under an arms-length
contract, to participate in its benefit plans. These same acts also
would not constitute evidence of indirect control to the extent they
involve setting the objectives, basic ground rules, or expectations for
another entity's performance under a contract.\74\ See Browning-Ferris
v. NLRB, 911 F.3d at 1220 (``[E]mployer
[[Page 11194]]
decisions that set the objectives, basic ground rules, and expectations
for a third-party contractor cast no meaningful light on joint-employer
status.'').
---------------------------------------------------------------------------
\74\ On the other hand, conduct excluded by definition from
evidencing direct and immediate control may evidence indirect
control where it does not involve setting the objectives, basic
ground rules, or expectations for another entity's performance under
a contract. See Sec. II.B, ``Summary of Changes to the Proposed
Rule: Indirect Control.''
---------------------------------------------------------------------------
While not specifically addressed in the text of the final rule, so-
called social responsibility provisions, such as contractual provisions
requiring workplace safety practices, sexual harassment policies,
morality clauses,\75\ wage floors, or other measures to encourage
compliance with the law or to promote desired business practices
generally will not make joint-employer status more likely under the
Act. Typically, such provisions will constitute the setting of basic
ground rules or expectations for a third-party contractor. We cannot
rule out the possibility, however, that a social-responsibility
provision may be probative of joint-employer status to the extent it
goes beyond merely setting basic ground rules or expectations for a
third-party contractor and evidences substantial control over one or
more essential terms or conditions of employment.
---------------------------------------------------------------------------
\75\ Morality clauses require employees to maintain standards of
behavior to protect the reputation of their employer. See, e.g.,
Galaviz v. Post-Newsweek Stations, 380 Fed. Appx. 457, 459 (5th Cir.
2010), and Bernsen v. Innovative Legal Marketing, LLC, No.
2:11CV546, 2012 WL 3525612 (E.D. Va. June 20, 2012), for examples of
morality clauses.
---------------------------------------------------------------------------
One commenter asserts that the NPRM created confusion by providing
that joint-employer status would be limited to entities that play an
active role in ``establishing'' essential terms and conditions of
employment.\76\ The commenter states that it would undermine the Act's
goals if the Board immunized from joint-employer status entities that
did not initially establish terms and conditions of employment, but
that were nonetheless instrumental in post-establishment interpretation
and implementation of those terms and conditions, in preventing
modifications of them, or in ``endorsing, ratifying, and
incorporating'' them.\77\
---------------------------------------------------------------------------
\76\ Comment of SEIU.
\77\ Id.
---------------------------------------------------------------------------
The proposed rule was not intended to limit joint-employer status
in this way. The text of the proposed rule did not thus limit joint-
employer status, and neither does the text of the final rule. Thus, an
entity may be found to be a joint employer where it possesses and
exercises substantial direct and immediate control over essential terms
and conditions of employment by maintaining or revising them without
having established them in the first instance.
One commenter states that we should rely on indirect control that
is ``actual and measurable''--i.e., indirect control would be probative
of joint-employer status if it can be readily identified and
objectively measured.\78\ While the final rule does not incorporate the
commenter's proposed ``actual and measurable'' standard, it does limit
the scope of probative ``indirect control'' evidence in other ways.
Consistent with the D.C. Circuit's decision in Browning-Ferris v. NLRB,
the final rule provides that control or influence over setting the
objectives, basic ground rules, or expectations for a third-party
contractor does not constitute ``indirect control'' for the purpose of
determining joint-employer status. Moreover, the several definitions of
essential terms and conditions of employment--specifically, of the
statements in those definitions of what does not count as evidence of
direct and immediate control--also furnish guidance on what may not
count as evidence of indirect control, either. Finally, as to evidence
of indirect control that may factor into a joint-employer
determination, the final rule provides that such evidence is probative
of joint-employer status only to the extent it supplements and
reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------
\78\ Comment of HR Policy Association.
---------------------------------------------------------------------------
Some commenters describe various fact patterns they said would be
problematic under the proposed rule, including a situation where an
entity uses a pretextual reason to ask an undisputed employer to
discharge an employee, where the request is unlawfully motivated.\79\
Rather than lengthening or complicating the final rule with a variety
of examples or fact patterns, the final rule clarifies that joint-
employer status must be determined on the totality of the relevant
facts in each particular employment setting.
---------------------------------------------------------------------------
\79\ See, e.g., Comment of LIUNA.
---------------------------------------------------------------------------
One commenter states that the Board should first conduct an
independent-contractor analysis to determine whether the Board has
jurisdiction before assessing whether direct and immediate control has
been exercised.\80\ But an entity alleged to be a joint employer of
another employer's employees will be the direct employer of its own
employees, and the Board's jurisdiction over that entity will be
established on this basis, provided the usual statutory and
discretionary jurisdictional standards are met. From that point
forward, the independent-contractor analysis has little if any bearing
on the joint-employer determination. As the Browning-Ferris court
discussed, the issue of whether a worker is an independent contractor
or an employee is distinct from the issue of whether a worker who is
undisputedly the employee of one employer also has a second, joint
employer. Accordingly, the Board has not amended the rule to make the
suggested change.
---------------------------------------------------------------------------
\80\ Comment of Employment Law Alliance.
---------------------------------------------------------------------------
C. Comments Regarding Contractually Reserved But Unexercised Control
Many commenters address the question of whether reserved but
unexercised control is relevant to the joint-employer analysis.
A number of commenters argue that the Board should not consider
contractually reserved but unexercised control in its joint-employer
analysis. One commenter argues that under the right-to-control standard
set forth in the Board's decision in Browning-Ferris, virtually all
user employers, franchisors, etc., would be joint employers simply
because their contracts with undisputed primary employers almost always
give them the potential to control the terms and conditions of
employment of the primary employer's employees, if only because such
user employers can simply cancel such contracts if not satisfied with
the terms and conditions of employment set by the primary employer.\81\
Another commenter argues that finding an entity to be an employer of
another entity's employees based solely on the conditions under which
the entities have agreed that they might terminate their relationship
unjustifiably restricts parties' liberty to contract and contravenes
private rights long recognized in Anglo-Saxon jurisprudence.\82\
Commenters also argue that a standard incorporating contractually
reserved control is vague, elusive, and uncertain, difficult to apply,
or unworkable, and that such a standard may be used in an outcome-
determinative manner to support a particular result.\83\ Another
commenter states that considering reserved control may inappropriately
or unfairly enmesh an entity, especially a franchisor, in another
entity's labor dispute.\84\ Finally, a commenter argues that extending
joint-employer status to entities on the basis of potential control
would conflict with other federal and state statutory schemes, creating
unwarranted
[[Page 11195]]
difficulties for businesses in their attempts to comply with various
federal and state employment-related laws.\85\
---------------------------------------------------------------------------
\81\ See comment of General Counsel Robb.
\82\ See comment of Chamber of Commerce.
\83\ See comments of American Hotel & Lodging Association;
International Bancshares Corporation; CDW; International Sign
Association; International Foodservice Distributors Association.
\84\ See comment of FordHarrison LLP.
\85\ See comment of General Counsel Robb.
---------------------------------------------------------------------------
In contrast, many commenters argue that the Board's standard should
give at least some weight to evidence of an entity's contractually
reserved control over essential terms and conditions of employment of
another employer's employees.\86\ These commenters argue that
contractually reserved rights are relevant because they impact and, in
some cases, set terms and conditions of employment and claim that the
common law deems reserved control relevant because an entity's
authority over the work, even if unexercised, prevents another from
deciding to render service in a manner different from that which serves
the entity holding the reserved control.\87\ Another commenter argues
that a contractual reservation of authority, particularly when paired
with a clause allowing for at-will termination of the contractual
relationship, gives the undisputed primary employer a powerful
incentive to comply with the wishes of the putative joint employer,
without the necessity of any actual exercise of control by the
latter.\88\ Many commenters argue that the common law, as reflected in
relevant Restatements and judicial decisions, permits or requires the
consideration of reserved but unexercised control.\89\ These commenters
argue that the D.C. Circuit's recent decision in Browning-Ferris v.
NLRB held that consideration of a company's reserved authority to
control terms and conditions of employment is an established aspect of
the common law of agency. Commenters also contend that the common law
permits or requires consideration of contractually reserved control
because the Second Restatement of Agency defines a master as, among
other things, someone who has the ``right to control,'' defines a
servant as someone subject to the master's right to control, and looks
to the extent of control that the master may exercise ``by the
agreement.'' \90\
---------------------------------------------------------------------------
\86\ See comments of IBT; NELP.
\87\ NELP cites Restatement of Employment Law Sec. 1.04.
\88\ Comment of CWA.
\89\ See comments of Chairman Scott and Ranking Member Murray;
Equal Justice Center; Spivak Lipton LLP; IUOE.
\90\ See comments of Chairman Scott and Ranking Member Murray;
AFL-CIO; IBT; IUOE; Attorneys General of New York, Pennsylvania, et
al.
---------------------------------------------------------------------------
Commenters further argue that the Act itself supports considering
contractually reserved but unexercised control, citing the Act's
purpose of promoting collective bargaining, which is expressly stated
in Section 1 of the Act, and the asserted need to adapt to changes in
today's workforce by extending the right to collective bargaining to a
wide variety of contingent workers as a matter of policy.\91\ Other
commenters claim that effective collective bargaining requires that all
entities with the ability to control workers' terms and conditions of
employment must participate in collective bargaining, thereby
preventing an entity with reserved but unexercised control from
upending, after the fact, collective-bargaining agreements made by the
primary employer of the employees over whom the entity possesses
reserved control.\92\ Another commenter argues that general statutory
requirements of good-faith bargaining require the presence at the
bargaining table of, for instance, an exclusive purchaser of a
manufacturer's products, or a major donor that conditions donations to
a nonprofit on specified terms and conditions for the nonprofit's
employees, each of which possesses effective control over employees'
essential terms and conditions of employment by virtue of its economic
relationship with their employer.\93\
---------------------------------------------------------------------------
\91\ See comments of IUOE; Professor Alexia Kulwiec.
\92\ See comments of IUOE; NELP.
\93\ See comment of International Brotherhood of Electrical
Workers Local 21 (IBEW Local 21).
---------------------------------------------------------------------------
Two commenters argue that a joint-employer standard that does not
consider reserved control would be inconsistent with Section 2(11) of
the Act, which defines who is a ``supervisor'' under the Act.\94\ These
commenters contend that established Board interpretations of Section
2(11) exclude individuals who possess supervisory authority as defined
in Section 2(11) from employee status under Section 2(3), whether or
not such authority is exercised.\95\ Thus, they maintain, it is
inconsistent to hold that a person may be a Section 2(11) supervisor
based solely on reserved but unexercised control, but not to find his
or her employer a joint employer of the supervised employee based on
the same reserved but unexercised control. For example, one commenter
argues that no one could dispute that a Director of Nursing in a
hospital is a statutory supervisor if the Director retains authority,
expressly or implicitly, to direct nurses supplied by a staffing agency
when the Director observes that the nurses are not providing services
correctly. In that commenter's view, a proper joint-employer framework
would provide that the hospital that employs the Director of Nursing
must be a joint employer of the supplied nurses.\96\ Other commenters
point out that the NPRM does not exclude consideration of reserved but
unexercised control, but merely clarifies that it is insufficient to
establish joint-employer status absent evidence of actual exercise of
such control.\97\
---------------------------------------------------------------------------
\94\ See comments of UAW; AFL-CIO.
\95\ AFL-CIO cites Yamada Transfer, 115 NLRB 1330, 1332 (1956),
and U.S. Gypsum Co., 93 NLRB 91, 92 fn. 8 (1951).
\96\ See comment of AFL-CIO.
\97\ See comments of Ranking Member Foxx; CDW.
---------------------------------------------------------------------------
Having carefully considered these comments, the Board has decided
to modify the proposed rule to provide that an entity's contractually
reserved but never exercised authority over the essential terms and
conditions of employment of another employer's employees is probative
of joint-employer status, but only to the extent that evidence of such
authority supplements and reinforces evidence of actually exercised
direct and immediate control.
The Board agrees with those commenters who suggest that an entity's
ability to cancel a contract or terminate a business relationship with
another entity should not be deemed reserved control relevant to the
joint-employer inquiry.\98\ As stated above, reserved or indirect
control is not relevant to the joint-employer analysis, whether such
control is exercised or not, where it bears on ``the objectives, basic
ground rules, or expectations for another entity's performance under a
contract.'' See text of Final Rule (Rule) Sec. 103.40(E), infra;
Browning-Ferris v. NLRB, 911 F.3d at 1221 (``[A] joint employer's
control--whether direct or indirect, exercised or reserved--must bear
on the essential terms and conditions of employment, and not on the
routine components of a company-to-company contract.'') (internal
quotation and citation omitted). Consistent with this principle,
entities' decisions about the conditions under which their business
relationships may end are ordinary incidents of contractual
relationships that are not probative of joint-employer status. Cf.,
e.g., First Nat'l Maint. Corp. v. NLRB, 452 U.S. 666, 677-679, 687-688
(1981) (company had no duty to bargain with representative of its own
employees over decision to terminate contract and discharge employees).
---------------------------------------------------------------------------
\98\ See, e.g., comments of General Counsel Robb; Job Creators
Network; Dean Johnson.
---------------------------------------------------------------------------
The Board agrees with commenters who observe that the common law
and the Act permit consideration of reserved control, the approach
adopted by the final rule. In response to commenters' concerns about
vague and unlimited
[[Page 11196]]
``potential'' control that might have been found probative of joint-
employer status under the Browning-Ferris standard, the final rule
defines and limits what will constitute probative evidence of
contractually reserved authority. Under the final rule, such
contractually reserved authority, to be probative of joint-employer
status, (1) means reserved authority over the essential terms and
conditions of employment of another employer's employees, and (2) must
supplement and reinforce evidence of direct and immediate control over
essential terms and conditions of employment of the other employer's
employees. Rule Sec. 103.40(F), (A), infra. It therefore follows that
an entity's contractual authority to cancel a contract or terminate a
business relationship with another entity is not evidence that the
former shares or codetermines matters governing essential terms and
conditions of employment of the latter's employees. Accordingly, the
rule's approach is consistent with contract-respecting principles of
Anglo-Saxon jurisprudence.
Similarly, and consistent with the congressional purpose expressed
in the Taft-Hartley amendments,\99\ an entity's reserved ``control'' in
the sense of its ability to indirectly affect the terms and conditions
of employment of another entity's employees as a matter of economic
reality--including by being the exclusive purchaser of a manufacturer's
products or by a donor conditioning donations to a nonprofit on changes
to terms and conditions of employment of the nonprofit's employees--
will not be the kind of control that is relevant to the joint-employer
analysis. As a matter of economic reality, an employer producing goods
or performing services under a contract that is terminable at will has
strong incentives to respond to any complaints, suggestions, or
requests that the contracting entity may have. The Board is, however,
precluded from taking such considerations into account in determining
employer status under the Act. See, e.g., Nationwide Mut. Ins. Co. v.
Darden, 503 U.S. at 324-325 (discussing Congress's 1947 amendments to
NLRA in response to Supreme Court's expansive interpretation of Sec.
2(3) in Hearst); NLRB v. United Ins. Co. of America, 390 U.S. at 254
(same). It necessarily follows that the Board cannot rely on such
considerations in determining joint-employer status, either.
---------------------------------------------------------------------------
\99\ See, e.g., Nationwide Mut. Ins. Co. v. Darden, 503 U.S.
318, 324-325 (1992) (discussing Congress's 1947 amendments to NLRA
in response to Supreme Court's expansive interpretation of Sec. 2(3)
``employee'' in NLRB v. Hearst Publ's Inc., 322 U.S. 111 (1944));
NLRB v. United Ins. Co. of America, 390 U.S. 254 (1968) (same).
---------------------------------------------------------------------------
For the following reasons, the Board is unpersuaded by the
arguments by analogy to the Board's analysis of supervisory status
under Section 2(11) of the Act.
First, determining supervisory status under Section 2(11) turns on
the interpretation of statutory language that differs from the
statutory language governing employer or employee status under Section
2(2) and 2(3), respectively. The history of interpretation of Section
2(11) has not been straightforward or free from controversy. See, e.g.,
NLRB v. Kentucky River Commty. Care, Inc., 532 U.S. 706, 712-721 (2001)
(discussing history of interpretation of parts of Sec. 2(11)). Given
the intricacy of Section 2(11) and its different purpose from Section
2(2), it should not be surprising that the Board applies different
standards to the analysis of supervisory status and joint-employer
status.
Second, while the commenters correctly observe that the possession
of authority under Section 2(11) establishes supervisory status, it is
well established that the Board looks beyond mere job titles or
conclusory statements of supervisory status in order to determine
whether an individual is actually a supervisor under Section 2(11).
See, e.g., Coral Harbor Rehab. & Nursing Ctr., 366 NLRB No. 75, slip
op. at 1, 17 (2018) (``[W]hat the statute requires is evidence of
actual supervisory authority visibly translated into tangible examples
demonstrating the existence of such authority.''). Accordingly, while
the Board need not apply congruent standards to analyze these different
statutory relationships, the legal tests are in fact less divergent
than the commenters suggest.
Finally, ``an individual must exercise supervisory authority over
employees of the employer at issue, and not employees of another
employer, in order to qualify as a supervisor under Section 2(11) of
the Act.'' Crenulated Co., 308 NLRB 1216, 1216 (1992) (citing cases).
Thus, an individual, employed by a hospital, who possesses
contractually reserved but unexercised authority responsibly to direct
nurses supplied to the hospital by a staffing agency would not, on that
basis, be a Section 2(11) supervisor, nor would the hospital, on that
basis, be a joint employer of the nurses employed by the staffing
agency. However, if the hospital, through the individual, possessed and
exercised substantial direct and immediate control over essential terms
and conditions of employment of the supplied staffing-agency nurses,
the hospital might well be found to be a joint employer of the supplied
nurses, and the individual might accordingly be found to be a statutory
supervisor. Accordingly, in practice, the legal tests for joint
employer and supervisory status are likely to converge on consistent
results in individual cases.
Many commenters provide examples of industries or business
relationships involving what the commenters identify as potential or
reserved control.\100\ The final rule incorporates the well-established
legal principle that joint-employer status must be determined on the
totality of the relevant facts in each particular employment setting.
Rule Sec. 103.40(A), infra. Accordingly, the outcome of a joint-
employer analysis in individual cases will not be determined based on
the industry or type of business relationship involved, but rather will
result from application of the standards set forth in the final rule to
the particular facts of the case. See, e.g., Boire v. Greyhound Corp.,
376 U.S. at 481 (``[W]hether Greyhound possessed sufficient indicia of
control to be an `employer' is essentially a factual issue.'').
---------------------------------------------------------------------------
\100\ For example, commenters including International Bancshares
Corporation, Chamber of Commerce, General Counsel Robb, COLLE,
International Sign Association, Job Creators Network, FordHarrison
LLP, and Jim Steitz, discuss potential or reserved control in
business relationships including those between franchisors and
franchisees, contractors and subcontractors, parent and subsidiary
companies, and companies that generally provide and receive goods or
services, including labor, from one another. Commenters including
SEIU Local 32BJ, COLLE, Professor Kulwiec; National Association of
Home Builders, International Sign Association, American Hotel &
Lodging Association, and FordHarrison LLP discuss potential or
reserved control in industries including building cleaning and
security, food service and hospitality, home healthcare,
agriculture, home building, visual communications, and professional
employee organizations.
---------------------------------------------------------------------------
Further, many commenters provide examples of specific kinds of
contractual reservations of control that should or should not be
probative of an entity's status as a joint employer. As made clear
above, kinds of reserved ``control'' that are ``routine components of a
company-to-company contract,'' Browning-Ferris v. NLRB, 911 F.3d at
1221, will not be probative of joint-employer status under the rule,
and, when necessary, the Board will evaluate evidence of an entity's
alleged contractually reserved but unexercised control over another
company's employees within this framework. (Consistent with the
provisions of the final rule, such an evaluation need not be conducted
unless the proponent of joint-employer status proves that the entity
exercises direct and immediate
[[Page 11197]]
control over at least one essential term and condition of employment.)
More specifically, some commenters discuss whether the joint-employer
analysis can or should turn on contractual performance requirements and
general work standards,\101\ or contractually required compliance with
regulations or codes, including government-required nondiscrimination
provisions.\102\ These kinds of contractual requirements are ordinary
incidents of any contractual relationship, and they will generally not
be probative of joint-employer status under the final rule. See, e.g.,
Aldworth Co., 338 NLRB 137, 139 (2002) (``[A]ctions taken pursuant to
government statutes and regulations are not indicative of joint
employer status.''), enfd. sub nom. Dunkin' Donuts Mid-Atlantic
Distrib. Ctr., Inc. v. NLRB, 363 F.3d 437 (D.C. Cir. 2004).
---------------------------------------------------------------------------
\101\ CDW; General Counsel Robb.
\102\ National Association of Home Builders; Center for
Workplace Compliance.
---------------------------------------------------------------------------
Some commenters discuss whether the joint-employer analysis can or
should consider the ability of an entity that uses services provided by
another entity's employees to have input on who provides those
services, to monitor performance, to dictate times, manner, and method
of performance, or a user entity's reservation of the right to reject
individual workers provided by a supplier entity and to require that
supplied workers comply with the user entity's plant rules and
regulations.\103\ The final rule clarifies the conditions under which
such contractually reserved controls may be probative of a user
entity's joint-employer status.\104\ Thus, the contractually reserved
but unexercised right to have input on who provides services may be
probative of joint-employer status if the evidence demonstrates that
such input, if provided, would determine which particular individuals
another employer will hire and which it will not or would directly
result in the discharge of another employer's employee. Rule Sec.
103.40(C)(4) and (5), infra; see also NLRB v. Browning-Ferris Indus. of
Pennsylvania, 691 F.2d at 1125 (facts that BFI ``shared with the
brokers the power to approve drivers, and devised the rules under which
the drivers were to operate at BFI sites'' contributed to ``substantial
evidence which supports the Board's finding that BFI exerted
significant control over the work of the drivers'').
---------------------------------------------------------------------------
\103\ See comments of General Counsel Robb; Chamber of Commerce.
\104\ Again, in all cases, contractually reserved but
unexercised control is probative only to the extent it supplements
and reinforces evidence of direct and immediate control. Rule Sec.
103.40(A), infra.
---------------------------------------------------------------------------
An entity's contractually reserved authority to monitor performance
ordinarily will not be probative of joint-employer status. If, however,
the evidence were to demonstrate that conduct characterized as
``monitoring performance'' also encompasses instructing individual
employees how to perform their work or issuing performance appraisals
to individual employees, that conduct may be probative of joint-
employer status. Rule Sec. 103.40(C)(7), infra. And an entity's
reserved authority to dictate times, manner, and method of performance
may be probative of joint-employer status to the extent such authority
encompasses determining work schedules or work hours, including
overtime, of another employer's employees, instructing another
employer's employees how to perform their work, or assigning particular
employees their individual work schedules, positions, and tasks. Rule
Sec. 103.40(C)(3), (7), and (8); see also Cmty. for Creative Non-
Violence v. Reid, 490 U.S. 730, 751 (1989) (``In determining whether a
hired party is an employee under the general common law of agency, we
consider the hiring party's right to control the manner and means by
which the product is accomplished.'') (emphasis added); Restatement of
Employment Law Sec. 1.01(a)(3) (``[A]n individual renders services as
an employee of an employer if . . . the employer controls the manner
and means by which the individual renders services.'') (emphasis
added).\105\
---------------------------------------------------------------------------
\105\ Sections 103.40(C)(1)-(8), the definitions of the several
essential terms and conditions of employment, do not directly
address contractually reserved but unexercised control. Those
definitions specify what does, and give examples of what does not,
count as direct and immediate control. But as with indirect control,
so also with contractually reserved but unexercised control: In many
if not most cases, examples of what does not count as direct and
immediate control will also come within the scope of routine
components of company-to-company contracting and thus not be
probative of joint-employer status. However, we are unable to state,
a priori, that this will hold true in all cases. Ultimately,
therefore, whether a particular type of contractually reserved but
unexercised control that would not, if exercised, count as direct
and immediate control may nonetheless be probative of joint-employer
status is a question of fact to be determined on the evidence in
each case.
---------------------------------------------------------------------------
One commenter also questions whether the joint-employer analysis
could consider a user entity's reservation of authority to prevent
disruption of its operations or unlawful conduct by a supplier entity's
employees on its property, or the user's efforts to monitor, evaluate,
and improve the performance of supplied employees where such efforts
fall short of controlling the manner, means and details of their
performance.\106\ In general, policies prohibiting disruption of
operations or unlawful conduct constitute the type of basic ground
rules and expectations that ``cast no meaningful light on joint-
employer status.'' Browning-Ferris v. NLRB, 911 F.3d at 1219-1220.
Efforts to monitor, evaluate, and improve the performance of supplied
employees would constitute direct and immediate control of essential
terms and conditions if those efforts entailed a decision by the user
entity to actually discharge, suspend, or otherwise discipline another
entity's employees, to instruct them how to perform their work or issue
performance appraisals, or to assign them individual work schedules,
positions, and tasks. Rule Sec. 103.40(C)(5)-(8). Thus, contractually
reserved authority that, if exercised, would result in the foregoing
would be probative of joint-employer status to the extent it
supplements and reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------
\106\ See comment of General Counsel Robb.
---------------------------------------------------------------------------
Another commenter observes that many businesses outsource
janitorial and security services, or production, delivery, and
marketing functions.\107\ It suggests that any reserved control
inherent in such outsourcing should not establish a joint-employment
relationship. Under the rule, such ordinary contractual relationships
do not make the outsourcing company a joint employer so long as it does
not possess and exercise substantial direct and immediate control over
essential terms and conditions of employment of employees performing
the outsourced functions. Rule Sec. 130.40(A), infra. The commenter
further observes that companies have sound business reasons for
establishing operational, production, and safety standards in their
agreements with suppliers and contractors. For example, it suggests
that an aircraft manufacturer's contractual specification of timeframe
and production standards for a parts supplier and requirement that the
supplier certify that it has a drug and alcohol testing program in
place should not weigh towards finding the manufacturer an employer of
the supplier's employees. Under the rule, such standards are likely
ordinary incidents of contractual relationships that merely set basic
ground rules for the supplier's performance under the contract and are
therefore not probative of joint-employer status. Rule Sec. 103.40(E),
infra.
---------------------------------------------------------------------------
\107\ See comment of COLLE.
---------------------------------------------------------------------------
[[Page 11198]]
Two commenters suggest that the Board should clarify that an entity
does not exercise control over a term or condition of employment by
entering into a contract that dictates a particular employment term for
individuals performing services under that contract.\108\ To the
contrary, another commenter suggests that the Board should examine
whether an agreement between contracting parties sets wages and/or
other working conditions of one party's employees.\109\ The final rule
adopts the latter suggestion. Under the final rule, if a contract
between two employers actually sets essential terms and conditions of
employment for employees who will manufacture goods or perform services
under the contract, the two employers have shared or codetermined those
essential terms. In this regard, the rule is consistent with the
Board's pre-Browning-Ferris precedent and with the Third Circuit's
formulation of the joint-employer test in NLRB v. Browning-Ferris
Industries of Pennsylvania, 691 F.2d at 1124 (``[W]here two or more
employers . . . share or co-determine those matters governing essential
terms and conditions of employment--they constitute `joint employers'
within the meaning of the NLRA.'').
---------------------------------------------------------------------------
\108\ See comments of General Counsel Robb; Job Creators
Network.
\109\ See comment of IBEW Local 21.
---------------------------------------------------------------------------
One commenter suggests that the Board should require proof that a
joint employer exercises actual supervision and direction on an ongoing
basis.\110\ The final rule is partially consistent with this
suggestion, in that a finding that an entity exercises ongoing
supervision and direction (as the rule defines those terms) over the
employees of another entity will likely suffice to establish a joint-
employer relationship. However, because supervision and direction are
only two of eight essential terms and conditions of employment defined
by the rule, the final rule does not adopt the commenter's suggestion
to the extent it implies that control over supervision and direction
are necessary to a joint-employer finding. Evidence of control over
other essential terms and conditions of employment may suffice to
establish joint-employer status even absent supervision and direction.
---------------------------------------------------------------------------
\110\ See comment of HR Policy Association.
---------------------------------------------------------------------------
Many commenters suggest that if the Board decides to consider
indicia of reserved, unexercised control, it do so with specific
limits.\111\ The final rule makes clear that evidence of reserved,
unexercised control will only be found probative to the extent it
supplements and reinforces evidence of actually exercised direct and
immediate control. However, the Board finds it impractical to attempt
to quantitatively predetermine how specific factual evidence will weigh
in all future cases.
---------------------------------------------------------------------------
\111\ For example, Center for Workplace Compliance suggests that
the Board should accord reserved control less weight than actual
control, and quantify the weight that should be given. Relatedly, HR
Policy Association suggests specifically limiting the consideration
of reserved control to ten percent of the analysis.
---------------------------------------------------------------------------
Two commenters suggest that the Board should draw clear lines
between the kinds of reserved control it will not find probative of
joint-employer status (such as brand standards in franchise agreements)
and those it will find probative (such as contractually reserved
authority to codetermine essential terms and conditions of
employment).\112\ The Board agrees with this comment and has attempted
to provide the guidance requested in both the regulatory text and this
accompanying supplementary material.
---------------------------------------------------------------------------
\112\ See comments of Restaurant Law Center; International
Franchise Association (IFA).
---------------------------------------------------------------------------
Another commenter suggests that the Board should consider reserved
control probative of joint-employer status only insofar as it embodies
an entity's specific right to displace another entity and directly
control the other entity's employees, as opposed to possession by the
first entity of some economic influence over the entity that retains
day-to-day control over its own employees.\113\ The final rule adopts
this suggestion insofar as the rule will not permit finding joint-
employer status solely on the basis of an entity's economic influence.
However, the ``share or codetermine'' standard does not require
displacement by one entity of another company's control because the
underlying premise of that standard is that two entities together
determine the terms and conditions of employment of a single group of
employees. See, e.g., NLRB v. Browning-Ferris Indus. of Pennsylvania,
691 F.2d at 1125 (finding joint-employer relationship where ``BFI and
the brokers together determined the drivers' compensation and shared in
the day to day supervision of the drivers'').
---------------------------------------------------------------------------
\113\ See comment of RILA.
---------------------------------------------------------------------------
A commenter suggests that the Board should not consider reserved
control as a sufficient basis to permit, as primary, activity otherwise
prohibited as secondary under Section 8(b)(4) of the Act.\114\ The
final rule is consistent with this suggestion. Thus, under the rule,
Company A's contractually reserved but unexercised control over terms
and conditions of employment of Company B's employees will not,
standing alone, permit a union representing Company B's employees to
picket against Company A with an object prohibited by Section 8(b)(4).
However, under the final rule, evidence of Company A's contractually
reserved but unexercised control over essential terms and conditions of
employment of Company B's employees will be probative of joint-employer
status to the extent it supplements and reinforces evidence of
exercised direct and immediate control. Rule Sec. 103.40(A). If Company
A is found to be a joint employer of Company B's employees, action by
Company's B's employees' bargaining representative against Company A
that would otherwise be secondary and unlawful absent the joint-
employer finding would be lawful primary activity.
---------------------------------------------------------------------------
\114\ See comment of HR Policy Association.
---------------------------------------------------------------------------
Another commenter suggests that the Board should consider, in
individual unfair labor practice cases, whether a putative joint
employer actually controls the specific term(s) or condition(s) of
employment implicated in the case, whether or not it possesses or
exercises control over other terms and conditions of employment.\115\
In brief, the current rule does not change the Board's existing
policies with regard to the allocation of unfair labor practice
liability among multiple employers.
---------------------------------------------------------------------------
\115\ See comment of IFA.
---------------------------------------------------------------------------
Finally, a commenter suggests that the Board explain the term
``active role'' used in the NPRM and define the frequency with which an
entity must actually exercise contractually reserved control and the
scope of such exercise in order to be found a joint employer.\116\ The
final rule does not include the term ``active role,'' but it does
provide guidance on these issues. The rule requires possession and
exercise of ``substantial direct and immediate control over one or more
essential terms or conditions'' of employment, it specifies what will
constitute ``direct and immediate'' control over each essential term or
condition of employment, and it defines ``substantial'' direct and
immediate control. Rule Sec. 103.40(A), (C)(1)-(8), (D). The rule does
not otherwise specify predetermined thresholds of exercised control
that will be necessary to support a finding of a joint-employer status.
Rather, such status will be determined within the framework of the rule
based on the totality of the relevant facts in each particular
employment setting. Rule Sec. 103.40(A).
---------------------------------------------------------------------------
\116\ See comment of CWA.
---------------------------------------------------------------------------
[[Page 11199]]
D. Comments Regarding Actual Exercise Requirement
Many commenters present practical and legal arguments for and
against the proposed rule's requirement that an entity actually
exercise control over terms and conditions of employment of another
entity's employees in order to be found a joint employer of those
employees. As reflected in the final rule and discussed below, the
Board has decided to retain this requirement.
Beginning with practical arguments about an actual exercise
requirement, many commenters argue that such a requirement introduces
ambiguity into the analysis, makes outcomes less predictable, or
otherwise prejudices interested parties in any potential litigation of
joint-employer issues.\117\ These commenters argue that an exercise
requirement complicates the analysis because, unlike contractually
reserved control, exercised control cannot be analyzed simply by
reference to documents. In contrast, these commenters argue, a standard
that did not require evidence of exercised control would allow parties
to set expectations at the outset of their contractual relationship and
to allocate rights and duties in advance of any allegation of joint
employment. With regard to litigation, one commenter argues that an
exercise requirement introduces a ``worst evidence rule,'' where the
Board will ignore express language of the contract unless a party can
show that an entity has actually exercised control.\118\ Commenters
argue that an exercise requirement will subject the outcome to the
vagaries of the litigation process, with slight factual differences
leading to opposite outcomes, will require extensive mini-trials--which
may take place months or years after the fact--over individual
instances of alleged exercised control, and will impose an unfair
evidentiary burden on unions.\119\
---------------------------------------------------------------------------
\117\ See comments of IBT; SEIU Local 32BJ; Employment Law
Alliance; AFL-CIO.
\118\ See comment of LIUNA.
\119\ See comments of LIUNA; SEIU Local 32BJ.
---------------------------------------------------------------------------
Commenters also argue that an actual exercise requirement will
prevent effective collective bargaining, because an entity subject to
another entity's reserved authority will be unable to effectively
bargain over terms and conditions of employment subject to that
authority, and could allow an entity that had not participated in
bargaining to upend any collective-bargaining agreement covering terms
and conditions of employment over which the entity possessed
contractually reserved, unexercised control.\120\ Another commenter
suggests that just-cause provisions in collective-bargaining agreements
between a staffing agency and its employees would be meaningless if
entities to which the agency supplied services retained a contractual
right to exclude employees from the worksite without cause.\121\
Relatedly, commenters argue that an exercise requirement would erode
the duty to bargain under Section 8(a)(5) by allowing an entity to move
in and out of joint-employer status tactically by acting to control
employment conditions when it finds it necessary to do so, but
refraining from exercising its reserved control when it prefers to
avoid the legal obligations incumbent upon a joint employer.\122\
Finally, a commenter argues that imposing an actual exercise
requirement is not supported by the Board's expressed desire to avoid
involving uninterested entities in the bargaining relationships of
their business partners because an entity that contracts to reserve
control over terms and conditions of employment of another entity's
employees may be as interested in the employment relationship as is the
undisputed employer.\123\
---------------------------------------------------------------------------
\120\ See comments of LIUNA; IUOE.
\121\ See comment of IBT.
\122\ See comments of AFL-CIO; IUOE.
\123\ See comment of LIUNA.
---------------------------------------------------------------------------
Other commenters argue that an actual exercise requirement is a
bright-line rule that will make it easier for parties to predict
outcomes, encourage economically fruitful business relationships and
contractual arrangements, and promote stability by providing the Board
and the courts with a consistent standard.\124\ One commenter argues
that an exercise requirement ensures meaningful collective bargaining,
while a standard that permits finding joint-employer status based
solely on contractually reserved control does not.\125\ Finally, one
commenter seeks guidance as to how much weight, if any, the Board will
afford various factors evidencing reserved control, guidance that
assertedly was missing from Browning-Ferris.\126\
---------------------------------------------------------------------------
\124\ See comments of National Retail Federation; CDW; FedEx
Corporation.
\125\ See comment of CDW.
\126\ See comment of General Counsel Robb.
---------------------------------------------------------------------------
After carefully considering all of the commenters' arguments, the
Board has decided to retain the actual exercise requirement in the
final rule. Whether or not evidence of actual exercise of control was
required, it would clearly be relevant under any permissible joint-
employer standard. Accordingly, the Board disagrees with any contention
that requiring evidence of actual exercise of direct and immediate
control unnecessarily complicates the joint-employer analysis. For
similar reasons, the Board disagrees with the suggestion that the
rule's approach introduces a ``worst evidence rule.'' To the contrary,
an entity's actual exercise of direct and immediate control over
essential terms and conditions of employment of another entity's
employees is the best evidence that the first entity is a joint
employer of those employees and is properly subjected to the
consequences of that finding under the Act. Moreover, the rule does
take parties' contractual allocation of rights and responsibilities
into account as part of the totality of the relevant facts in each
particular employment setting. This approach is consistent with the
long line of Board and court decisions emphasizing the fact-dependent
nature of the joint-employer inquiry. E.g., Boire v. Greyhound Corp.,
376 U.S. at 481.
The Board has concluded that an actual exercise requirement will
provide businesses more certainty over whether the Board will or will
not find them to be joint employers of another employer's employees and
to conduct themselves accordingly. An actual exercise requirement is
also a bright-line rule that will make it easier for the Board, and
ultimately for the courts, to reach consistent decisions across a range
of individual cases. And the Board has responded to commenters'
requests for guidance about the meaning of contractually reserved but
unexercised control and the extent to which we will find it probative
of a joint-employer relationship in Part V.C, ``Response to Comments:
Comments Regarding Contractually Reserved But Unexercised Control,''
above.
The Board finds unpersuasive arguments that an exercise requirement
imposes an unfair burden of proof on unions. To the contrary, a
putative joint employer's actual exercise of direct and immediate
control is readily observable by employees, who can then share the
information with unions or others. Evidence of reserved but unexercised
control, in contrast, is more likely to be known only by the
contracting parties themselves. In any event, in unfair labor practice
cases, the burden in every case is on the General Counsel to establish
the complaint allegations,\127\ while in representation cases, NLRA
Section 9(c) instructs the Board to investigate a
[[Page 11200]]
petition and direct a hearing ``if it has reasonable cause to believe
that a question of representation affecting commerce exists.'' Section
11 of the Act further provides for the issuance of subpoenas on the
application of any party with respect to ``all hearings and
investigations.'' Accordingly, the rule's actual exercise requirement
does not unfairly burden unions.
---------------------------------------------------------------------------
\127\ See, e.g., Laborers Local 1177 (Qualicare-Walsh), 269 NLRB
746, 746 (1984) (``The burden of proof regarding jurisdiction, as
with all other elements of a prima facie case, is on the General
Counsel.'') (emphasis added).
---------------------------------------------------------------------------
Finally, the Board disagrees with arguments that an exercise
requirement will impede collective bargaining, interfere with the
formation of efficacious collective-bargaining relationships, or permit
entities to move in and out of joint-employer status and thus
selectively affect terms and conditions of employment of other
employers' employees without incurring obligations under the Act.
Nothing in this rule changes the ordinary rights and obligations of
employees, employers, and unions under the Act. Every employer remains
subject to all rights and obligations defined by Sections 8 and 9 of
the Act with respect to its employees. Thus, an employer that possesses
and exercises substantial direct and immediate control over employees'
terms and conditions of employment must, if those employees are
represented, bargain on request with their representative as required
by Section 8(a)(5). The rule does not excuse joint employers from that
duty, nor does it deprive represented employees of their remedies under
Section 8(a)(5) with respect to an employer that unilaterally changes
their terms and conditions of employment without first giving their
representative notice and an opportunity to request bargaining, or of
their remedies under Section 8(a)(5) within the meaning of Section 8(d)
with respect to an employer that fails to adhere to the terms of a
collective-bargaining agreement with their representative. Moreover, a
collective-bargaining agreement may, in certain circumstances, impose
restraints on an entity's exercise of contractually reserved authority
over essential terms and conditions of employment governed by the
agreement, though the entity is not party to the agreement. Cf.
Atterbury v. United States Marshals Serv., 941 F.3d 56, 62-64 (2d Cir.
2019) (U.S. Marshals Service acted unlawfully by requiring discharge of
security guards employed by a contractor without providing process
required by ``just cause'' provision of guards' collective-bargaining
agreement with contractor). Accordingly, an exercise requirement will
not prevent parties with an actual interest in controlling terms and
conditions of employment of another employer's employees from
safeguarding their contractually reserved authority to do so by
engaging in bargaining, either directly or through a representative.
Turning to legal arguments about an exercise requirement, some
commenters assert that the Board only began in 1984 to require evidence
that an entity had exercised control over another entity's employees as
part of the joint-employer analysis, and that, at that time, the Board
did not articulate a legal justification for doing so.\128\ Without
accepting the commenters' characterization of the Board's pre-Browning-
Ferris precedent, the Board has concluded that the final rule's
approach is warranted for the reasons explained herein.
---------------------------------------------------------------------------
\128\ See comments of Senator Murray and Representative Scott
(joined by numerous other Senators and Representatives); IBT.
---------------------------------------------------------------------------
Some commenters oppose an actual exercise requirement by arguing
that the common law, as reflected in judicial decisions, restatements
of the law, and elsewhere, requires giving contractually reserved but
unexercised control dispositive weight.\129\ Other commenters note that
contractual rights exist even if they have never been exercised, and
contend that an exercise requirement is inconsistent with court and
Board decisions recognizing that while highly skilled professionals
like nurses or low-skilled workers like janitors may require little or
only ``routine'' supervision, such workers nevertheless remain
employees of the employer providing that supervision.\130\ One
commenter further argues that imposing an actual exercise requirement
raises predictability concerns similar to those that motivated the
Supreme Court's rejection of an actual-control test in favor of a
reserved-control test in a dispute over copyright ownership in
Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989).\131\
Finally, commenters argue that imposing an exercise requirement puts
the Board's standard in conflict with other state and federal
standards, including Health Insurance Portability and Accountability
Act, Medicaid and Medicare, the Affordable Care Act, Title VII of the
Civil Rights Act of 1964 (Title VII), the Fair Labor Standards Act
(FLSA), and Uniformed Services Employment and Reemployment Rights Act--
and with guidance from the EEOC, Internal Revenue Service (IRS), U.S.
Citizenship and Immigration Services, and DOL.\132\
---------------------------------------------------------------------------
\129\ See comments of Julia Tomassetti; AFL-CIO; NELP; SEIU;
Attorneys General of New York, Pennsylvania, et al. Commenters cite,
inter alia, Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323
(1992) (quoting Reid, 490 U.S. at 751-752); Singer Mfg. Co. v. Rahn,
132 U.S. 518, 523 (1889); Garcia-Celestino v. Ruiz Harvesting, Inc.,
898 F.3d 1110, 1121 (11th Cir. 2018) (quoting NLRB v. Associated
Diamond Cabs, Inc., 702 F.2d 912, 920 (11th Cir. 1983)); Local 777,
Democratic Union Org. Comm., Seafarers Int'l Union of North Am. v.
NLRB, 603 F.2d 862, 874 (D.C. Cir. 1978) (quoting Williams v. United
States, 126 F.2d 129, 132 (7th Cir. 1942)), cert. denied 317 U.S.
655 (1942); Dovell v. Arundel Supply Corp., 361 F.2d 543, 545 (D.C.
Cir. 1966) (quoting Grace v. Magruder, 148 F.2d 679, 681 (D.C. Cir.
1945)); Restatement (Second) of Agency, Secs. 2(1), 2(2), 220(1),
220(2)(a), and 220 cmt. d; William A. Gregory, The Law of Agency and
Partnership 114 at Sec. 50 (West Group Hornbook Series, 3d ed.
2001).
\130\ See comments of LIUNA; AFL-CIO. AFL-CIO cites Holyoke
Visiting Nurses Ass'n v. NLRB, 11 F.3d 302, 307 (1st Cir. 1993), and
Syufy Enterprises, 220 NLRB 738, 740 (1975).
\131\ See comment of AFL-CIO.
\132\ See comments of Representative Scott and Senator Murray;
UA; Professor Kulwiec; James van Wagtendonk.
---------------------------------------------------------------------------
On the other side of the issue, commenters argue that an exercise
requirement is consistent with the common law as reflected in court
decisions, prior Board decisions, legislative history of the NLRA, and
relevant restatements of law.\133\ Other commenters argue that courts
have approved the Board's focus on actual control.\134\ Many of the
same commenters also point out that the D.C. Circuit in Browning-Ferris
v. NLRB held that reserved control was relevant to
[[Page 11201]]
determining joint-employer status under the common law, but the court
did not find that it was sufficient, in and of itself and absent any
actual exercise of control, to establish a joint-employment
relationship under the Act. 911 F.3d at 1213.\135\
---------------------------------------------------------------------------
\133\ See comments of HR Policy Association; General Counsel
Robb; CDW; IFA; RILA; Center for Workplace Compliance. Commenters
cite, inter alia, Kelley v. S. Pac. Co., 419 U.S. 318, 324 (1974);
Shenker v. Baltimore & Ohio R.R. Co., 374 U.S. 1, 6 (1963); NLRB v.
Pennsylvania Greyhound Lines, Inc., 303 U.S. 261, 263 (1938); Jones
v. Royal Admin. Servs., Inc., 887 F.3d 443 (9th Cir. 2018); NLRB v.
CNN America, Inc., 865 F.3d 740 (D.C. Cir. 2017); Butler v. Drive
Auto. Indus. of America, Inc., 793 F.3d 404, 409, 410 (4th Cir.
2015); Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 683 (9th Cir.
2009); Gulino v. New York State Education Dep't, 460 F.3d 361, 379
(2d Cir. 2006); Clinton's Ditch Co-op Co. v. NLRB, 778 F.2d at 138;
NLRB v. Browning-Ferris Indus. of Pennsylvania, 691 F.2d 1117 (3d
Cir. 1982); Zapex Corp. v. NLRB, 621 F.2d 328, 333 (9th Cir. 1980);
Herbert Harvey, Inc. v. NLRB, 424 F.2d 770, 776-777 (D.C. Cir.
1969); NLRB v. Greyhound Corp., 368 F.2d 778, 781 (5th Cir. 1966),
enfg. 153 NLRB 1488 (1965); Vernon v. California, 10 Cal. Rptr. 3d
121, 130-131 (Cal. Ct. App. 2004); SEIU Local 434 v. City of Los
Angeles, 275 Cal. Rptr. 508 (Cal. Ct. App. 1990); Airborne Express,
338 NLRB 597 (2002); TLI, Inc., 271 NLRB 798 (1984); Laerco
Transportation, 269 NLRB 324 (1984); Sun-Maid Growers of California,
239 NLRB 346 (1978); Clayton B. Metcalf, 223 NLRB 642 (1976);
Hamburg Industries, Inc., 193 NLRB 67 (1971); Greyhound Corp., 153
NLRB 1488 (1965); H.R. Rep. No. 80-245, at 18 (1947), reprinted in 1
NLRB, Legislative History of the Labor Management Relations Act,
1947, at 292, 309 (1959); H.R. Rep. No. 80-510, at 32-33 (1947)
(Conf. Rep.), reprinted in 1 NLRB, Legislative History of the Labor
Management Relations Act, 1947, at 505, 536-537 (1959); Restatement
(Second) of Agency Secs. 5(2), 226, 227 & cmt. d; Restatement of
Employment Law Secs. 1.01(a)(3) & cmts. a and c and illus. 5,
1.04(b).
\134\ See comments of International Foodservice Distributors
Association; National Retail Federation; CDW.
\135\ General Counsel Robb also advances this argument.
---------------------------------------------------------------------------
Finally, one commenter argues that the Board, as an executive
agency with subject-matter expertise, is not required to apply the
common law in its rulemaking, that nothing in the Act or in Supreme
Court precedent interpreting the Act requires the Board to follow the
common law, and that there are, in any case, no relevant uniform
common-law principles.\136\
---------------------------------------------------------------------------
\136\ See comment of General Counsel Robb.
---------------------------------------------------------------------------
After carefully considering all of the comments on both sides of
the issue, we conclude that the rule's approach falls within the
boundaries of the common law as applied in the particular context of
the NLRA.
We disagree with the argument that an actual exercise requirement
is inconsistent with Board and court cases finding employment
relationships where employees require little or only routine
supervision.\137\ Under the rule, supervision is only one of eight
essential terms and conditions of employment relevant to the joint-
employer analysis, and an entity that possesses and exercises
substantial direct and immediate control over other essential terms may
be found to be a joint employer absent evidence that the entity
exercises such control over supervision. In any case, in each of the
decisions the commenter cites in support of this argument, the Board
found that the entity at issue not only possessed but actually
exercised substantial direct and immediate control over terms and
conditions of employment of the employees at issue. See Holyoke
Visiting Nurses Ass'n, 310 NLRB 684, 685-686 (1993); Syufy Enterprises,
220 NLRB at 739.
---------------------------------------------------------------------------
\137\ See comment of AFL-CIO.
---------------------------------------------------------------------------
Nor is an exercise requirement inconsistent with Community for
Creative Non-Violence v. Reid, 490 U.S. 730 (1989). The issue in Reid
was who owned the copyright in a statue created by an artist on
commission. The Supreme Court reviewed several conflicting
interpretations of the statutory phrase ``a work prepared by an
employee within the scope of his or her employment'' in Sec. 101(1) of
the Copyright Act of 1976. 490 U.S. at 738-739. Possible alternative
interpretations included (1) ``that a work is prepared by an employee
whenever the hiring party retains the right to control the product,''
(2) ``that a work is prepared by an employee . . . when the hiring
party has actually wielded control with respect to the creation of a
particular work,'' and (3) ``that the term `employee' within Sec.
101(1) carries its common-law agency meaning.'' Id. at 739 (emphasis
added). The Court did not reject an actual control test (the second
interpretation) in favor of a reserved control test (the first
interpretation). Rather, the Court rejected both of these
interpretations as inappropriately focused on the relationship between
the hiring party and the product, while the statutory language at issue
focused on the relationship between the hired and hiring parties. Id.
at 741-742. Having concluded that the Copyright Act requires a court to
ascertain, under the common law of agency, whether a work was prepared
by an employee or an independent contractor, the Court proceeded to
analyze the record under the factors relevant to the independent-
contractor determination, set forth in Section 220(2) of the
Restatement (Second) of Agency. Id. at 750-753. The Court found that
``the extent of control the hiring party exercises over the details of
the product is not dispositive,'' but the Court's independent-
contractor analysis suggests that the hiring party there neither
possessed nor exercised any control over the manner in which and means
by which the independent-contractor artist produced the work. Id. at
752-753 (emphasis added). Accordingly, Reid is no more instructive on
the specific issue here than myriad other judicial decisions finding
that a worker was an independent contractor absent either reserved or
exercised control by a common-law principal.
The Board also disagrees with the numerous arguments that an actual
exercise requirement puts the Board's standard in conflict with other
statutory regimes. First, vastly different areas of law identified by
commenters involve widely different concerns and should not, as a
normative matter, necessarily require the application of identical
tests to determine joint-employer status. Second, to the extent that
different standards stem from different statutory definitions of
employment relationships, those differences reflect the judgment of
Congress that different standards should apply in those settings--
differences the Board is not at liberty to ignore.\138\ While the Board
recognizes that divergent standards may pose difficulties for
businesses seeking to achieve--or courts to enforce--compliance with
different statutory obligations, this is nothing new. Businesses and
courts are accustomed to this state of affairs. Moreover, it is likely
that no joint-employer rule the Board could adopt could achieve
uniformity with all the statutory standards identified by the
commenters. Thus, failure to achieve such uniformity cannot be a valid
criticism of the rule.
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\138\ Compare, for example, NLRA Sec. 2(2) (exempting ``any
State or political subdivision thereof'' from definition of
``employer'') with FLSA Sec. 203(d) (`` `Employer' includes any
person acting directly or indirectly in the interest of an employer
in relation to an employee and includes a public agency . . . .'').
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Finally, the Board agrees that it may reasonably expect some
deference from the courts with regard to our exercise, through
rulemaking, of Congressional authority delegated to us in Section 6 of
the Act. See NLRB v. Food & Commercial Workers, 484 U.S. 112, 123
(1987); Chevron, U.S.A., Inc. v. N. Res. Def. Council, Inc., 467 U.S.
837 (1984). But it is well established that where the Supreme Court has
determined the clear meaning of statutory terms, agencies, including
the Board, are not thereafter free to depart from the Court's
interpretation. Lechmere, Inc. v. NLRB, 502 U.S. 527, 536-537 (1992);
Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 131
(1990). Here--as the Board and the courts have previously recognized--
the Court has determined that the Taft-Hartley amendments reflect
Congressional intent that the terms ``employer'' and ``employee''
within the Act are to be given their common-law agency meaning.
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 324-325 (citing NLRB v.
United Ins. Co. of America, 390 U.S. at 254).\139\ And as stated by the
D.C. Circuit in Browning-Ferris v. NLRB, the Board ``must color within
the common-law lines identified by the judiciary.'' Browning-Ferris v.
NLRB, supra at 1208. The final rule respects this principle.
---------------------------------------------------------------------------
\139\ See also Browning-Ferris v. NLRB, 911 F.3d at 1206
(``Under Supreme Court and circuit precedent, the National Labor
Relations Act's test for joint-employer status is determined by the
common law of agency.''); id. at 1228 (Randolph, J., dissenting)
(``[T]he common law . . . is supposed to control our decision and
should have controlled the Board's.''); Browning-Ferris, 362 NLRB at
1610 (``In determining whether an employment relationship exists for
purposes of the Act, the Board must follow the common-law agency
test.'').
---------------------------------------------------------------------------
The Board is also not persuaded by the argument that there are no
relevant uniform common-law principles because the joint-employer
concept is foreign to the common law. As courts and the Board have
observed, ``[t]he basis of the [joint-employer] finding is simply that
one employer while contracting in good faith with an
[[Page 11202]]
otherwise independent company, has retained for itself sufficient
control of the terms and conditions of employment of the employees who
are employed by the other employer'' to permit a finding that the first
entity is also an employer of the employees. NLRB v. Browning-Ferris
Indus. of Pennsylvania, 691 F.2d at 1123 (citing Walter B. Cooke, 262
NLRB 626, 640 (1982)). Common-law principles governing the employer/
employee relationship, while sometimes difficult to ascertain with
precision, are far from non-existent.\140\ Finally, the Board is
unpersuaded by the argument that the Supreme Court's discussion in
Hearst, 322 U.S. at 125-126, warrants departing from the common-law
analysis in this area. See Nationwide Mut. Ins., 503 U.S. at 325 (``[A]
principle of statutory construction can endure just so many legislative
revisitations, and Reid's presumption that Congress means an agency law
definition for `employee' unless it clearly indicates otherwise
signaled our abandonment of Silk's emphasis on construing that term `in
the light of the mischief to be corrected and the end to be attained.'
'' (quoting Hearst, 322 U.S. at 124, and citing U.S. v. Silk, 331 U.S.
704, 713 (1947)).
---------------------------------------------------------------------------
\140\ Cf. Cimorelli v. New York Century R. Co., 148 F.2d 575,
577 (6th Cir. 1945) (``We are dealing here with a legal problem so
difficult that law writers were unclear and perplexed about it long
before we came on the scene and no doubt they will so continue after
we have gone, but there are extant certain intelligible, if
imperfect, legal rules by which there may be an ascertainment of
when a person is the employee of another, although his contract of
employment is not directly made with such person.'').
---------------------------------------------------------------------------
E. Comments About Limited and Routine Control
Several commenters state that treating limited and routine control
as irrelevant to determining joint-employer status is consistent with
and/or required by the Act, court decisions, the common law, and/or
pertinent Restatements.\141\ In this regard, one commenter notes that
the D.C. Circuit in Browning-Ferris v. NLRB did not hold that limited
and routine control could establish joint-employment status.\142\
Additionally, several commenters suggest definitions or interpretations
of the words ``limited'' and ``routine,'' or the phrase ``limited or
routine,'' and make arguments for or against the rule based on their
suggested definitions or interpretations.\143\ One commenter notes that
the NPRM itself suggested a definition of ``limited or routine'' by
stating: ``The Board generally [has] found supervision to be limited
and routine where a supervisor's instructions consist[ ] mostly of
directing another business's employees what work to perform, or where
and when to perform the work, but not how to perform it.'' \144\
Further, some commenters note that there is a body of case law to which
the Board, the courts, and parties may look for guidance regarding the
term's meaning.\145\
---------------------------------------------------------------------------
\141\ Comments of HR Policy Association; Chamber of Commerce;
National Retail Federation.
\142\ Comment of RILA.
\143\ Comments of 1199SEIU United Healthcare Workers East; SEIU;
AFL-CIO; UAW; NELP; CWA; IUOE; HR Policy Association.
\144\ Comment of AFL-CIO.
\145\ See, e.g., Comment of International Bancshares
Corporation.
---------------------------------------------------------------------------
On the other side, some commenters argue that failing to consider
limited and routine control as evidence of joint-employer status is
inconsistent with the Act, the common law, court decisions, and/or
pertinent Restatements.\146\ One commenter asserts that, in the common-
law master-servant relationship, the relevant question is whether the
entity can exercise meaningful control, not the extent to which that
control is exercised.\147\ One commenter notes that pre-Browning-Ferris
decisions did not adequately explain their holding that limited and
routine control does not tend to support a joint-employer finding.\148\
---------------------------------------------------------------------------
\146\ Comments of AFL-CIO; NELP; CWA; IUOE; IBT; UAW.
\147\ Comment of SEIU.
\148\ Comment of AFL-CIO.
---------------------------------------------------------------------------
Further, many commenters assert that the terms are vague,
undefined, confusing, or contradictory, and/or that their use in the
rule would create unanswered, potentially fact-intensive questions that
will require litigation to answer.\149\ Some commenters also state that
excluding ``limited or routine'' control as probative evidence of
joint-employer status creates a loophole that will enable entities to
exercise control over employees' working conditions while avoiding
responsibilities under the Act.\150\
---------------------------------------------------------------------------
\149\ Comments of SEIU Local 32BJ; SEIU; Southern Poverty Law
Center; Asian Pacific American Labor Alliance, AFL-CIO (APALA); CWA;
Texas RioGrande Legal Aid; IBT; AFL-CIO; Signatory Wall and Ceiling
Contractors Alliance; 1199SEIU United Healthcare Workers East.
\150\ Comments of SEIU; Equal Justice Center; Southern Poverty
Law Center; Labor & Employment Committee of the National Lawyers
Guild.
---------------------------------------------------------------------------
Upon consideration of these comments, the Board has decided to
modify the proposed rule to eliminate ``limited and routine'' as a
general qualifying term and to use that term solely in the context of
defining what is, and what is not, direct and immediate control over
supervision. Thus, under the final rule, an entity does not exercise
direct and immediate control over supervision where its instructions
are ``limited and routine and consist primarily of telling another
employer's employees what work to perform, or where and when to perform
the work, but not how to perform it.'' Rule Sec. 103.40(C)(7). This is
consistent with how the term was discussed in the NPRM's supplementary
information and the case law cited therein. See 83 FR at 46683 (citing
Flagstaff Medical Center, 357 NLRB 659, 667 (2011), enfd. in relevant
part 715 F.3d 928 (D.C. Cir. 2013); AM Property Holding Corp., 350 NLRB
at 1001; G. Wes Ltd. Co., 309 NLRB 225, 226 (1992)). None of the
authorities cited by commenters supports an absolutist position--i.e.,
as requiring the Board to treat limited and routine control of all
essential terms and conditions as either categorically irrelevant or
categorically relevant to determining joint-employer status. Indeed,
some of the cited authorities deal with the issue of independent-
contractor status, which is analytically distinct from joint-employer
status.\151\ See Browning-Ferris v. NLRB, 911 F.3d at 1213-1215.
---------------------------------------------------------------------------
\151\ See, e.g., comment of CWA (citing FedEx Home Delivery v.
NLRB, 563 F.3d 492 (D.C. Cir. 2009)); comment of IBT (citing McGuire
v. United States, 349 F.2d 644 (9th Cir. 1965)); see also Browning-
Ferris v. NLRB, 911 F.3d at 1214 (``[A]t bottom, the independent-
contractor and joint-employer tests ask different questions.'').
---------------------------------------------------------------------------
As noted above, the final rule defines ``substantial direct and
immediate control'' as ``direct and immediate control that has a
regular or continuous consequential effect on an essential term or
condition of employment'' and further provides that the exercise of
direct and immediate control over an essential term or condition of
employment is not ``substantial'' if it is ``only exercised on a
sporadic, isolated, or de minimis basis.'' This definition is necessary
to specify what constitutes ``substantial'' direct and immediate
control, and the inclusion of clear standards for determining
substantiality avoids the concerns identified by commenters with the
NPRM's exclusion of ``limited and routine'' control as evidence of
joint-employer status.
Several commenters provide examples of limited or routine control
that should not be deemed probative of joint-employer status. These
examples include contracted-for standards,\152\ requiring another party
to adopt corporate social-responsibility policies,\153\ timeliness-of-
completion requirements,\154\ statutory and
[[Page 11203]]
regulatory compliance requirements,\155\ isolated instances of
notifying a supplier company that certain employees are not welcome on
the user entity's property due to misconduct,\156\ a retailer
controlling the hours that a vendor can operate in the retailer's
store,\157\ requiring a contracting employer to provide services during
certain hours,\158\ and economic controls such as cost-plus contracts
or generalized caps on contract costs.\159\ Conversely, several
commenters provide examples of control that is not limited or routine,
such as setting employee pay and/or paying them directly,\160\ hiring
or being involved in hiring decisions,\161\ firing employees,\162\
disciplining employees,\163\ and directing ``the manner in which the
business shall be done, as well as the result to be accomplished.''
\164\
---------------------------------------------------------------------------
\152\ Comments of CDW; National Retail Federation; International
Bancshares Corporation.
\153\ Comment of National Retail Federation.
\154\ Comment of HR Policy Association.
\155\ Comments of HR Policy Association; National Retail
Federation.
\156\ Comment of COLLE.
\157\ Comment of National Retail Federation.
\158\ Comments of International Bancshares Corporation; National
Retail Federation.
\159\ Comment of CDW.
\160\ Comment of David Kaufmann.
\161\ Comment of HR Policy Association.
\162\ Comment of COLLE.
\163\ Id.
\164\ Comment of HR Policy Association.
---------------------------------------------------------------------------
The final rule incorporates many of the commenters' examples in
appropriate places. For example, most of the examples in the former
category--i.e., examples of control that should not be deemed probative
of joint-employer status--are identical, or nearly so, to examples
excluded by the rule from constituting evidence of direct and immediate
control of essential terms and conditions of employment: Various
standards set by contract, setting schedules for completion of a
project, setting standards required by government regulation, refusing
to allow another employer's employees to access one's premises or to
perform work under a contract, establishing an enterprise's operating
hours or when it needs the services provided by another employer, and
entering into cost-plus contracts. Rule Sec. 103.40(C)(1)-(8). Indeed,
those same examples involve setting the objectives, basic ground rules,
and expectations for another entity's performance under a contract,
which does not count as even indirect control of essential terms and
conditions and is irrelevant to determining joint-employer status. Rule
Sec. 103.40(E). With regard to examples in the latter category--i.e.,
examples of control that is not limited or routine--these are
incorporated in the final rule in provisions specifying what
constitutes direct and immediate control over the several essential
terms and conditions of employment. Rule Sec. 103.40(C)(1)-(8).
One commenter asserts that the common law requires the Board to
weigh ``all of the incidents of the relationship'' or to consider the
amount of control necessary for the particular work or workplace.\165\
The final rule clarifies that joint-employer status ``must be
determined on the totality of the relevant facts in each particular
employment setting.''
---------------------------------------------------------------------------
\165\ Comment of IBT.
---------------------------------------------------------------------------
One commenter states that the Board should consider that, in some
cases, a ``routine'' contractual term will directly implicate the terms
and conditions of employment, particularly in industries where the cost
of a contract is almost entirely the cost of labor, or where an entity
has only one customer.\166\ The proposed rule used the term ``routine''
to characterize a kind of control over terms and conditions of
employment, not a kind of contractual term. Thus, the comment has no
bearing on what role ``limited and routine'' control over terms and
conditions of employment should play in the joint-employer analysis.
Nevertheless, the final rule clarifies that the ``limited and routine''
qualifier applies only in the context of supervision. However, to the
extent that the commenter is suggesting that joint-employer status is
established based solely on the circumstances the commenter posits, the
Board disagrees. The final rule makes clear that entering into a cost-
plus contract, ``with or without a maximum reimbursable wage rate,'' is
not direct and immediate control over wages. In the Board's view, it is
improper to find a joint-employment relationship merely because one
entity, in an arms-length transaction, negotiates the maximum wage rate
that it is willing to reimburse under a cost-plus contract. While the
direct employer may face economic pressures that make it difficult to
negotiate a higher wage rate with its employees, this should not be
sufficient to make the other party to the contract a joint employer
with the direct employer. See Browning-Ferris v. NLRB, 911 F.3d at 1220
(``[R]outine contractual terms, such as a very generalized cap on
contract costs, . . . would seem far too close to the routine aspects
of company-to-company contracting to carry weight in the joint-employer
analysis.'').
---------------------------------------------------------------------------
\166\ Comment of SEIU Local 32BJ.
---------------------------------------------------------------------------
One commenter states that, in jobs where employees are rarely
directly supervised in their day-to-day tasks, the employer's level of
day-to-day supervision is less relevant.\167\ That may be true, but
substantial direct and immediate control in the area of supervision is
only one of the ways in which joint-employer status can be established.
In various workplace situations, one or another of the essential terms
and conditions of employment, such as supervision, may have greater or
lesser significance in making a joint-employer determination. See also
Supplementary Information Section V.D, ``Response to Comments: Comments
Regarding Actual Exercise Requirement,'' supra.
---------------------------------------------------------------------------
\167\ Comment of NELP.
---------------------------------------------------------------------------
One commenter states that much supervision by undisputed employers
is routine, and therefore the fact that supervision is routine should
not be a basis for declining to find joint-employer status.\168\ Even
assuming that some undisputed employers supervise their employees in a
manner that would not be sufficient, standing alone, to make a separate
entity a joint employer if the separate entity engaged in such
supervision, there is no support in the law and no sound reason to draw
the conclusion that a separate entity that engages in only limited and
routine supervision must be deemed a joint employer on that basis.
Moreover, even if an undisputed employer supervises its employees in a
routine manner, it exercises direct and immediate control over other
essential terms and conditions of employment, including wages,
benefits, hiring, and discharge. Thus, the comment posits a false
equivalency between the undisputed employer and the putative joint
employer.
---------------------------------------------------------------------------
\168\ Comment of CWA.
---------------------------------------------------------------------------
F. Comments About ``Substantial'' Direct and Immediate Control
Many commenters provide positive feedback regarding the requirement
of ``substantial'' direct and immediate control. Specifically,
commenters state that this requirement is clear, predictable, and/or
rational; \169\ is consistent with the common law and court decisions,
including Browning-Ferris v. NLRB; \170\ was the well-settled legal
standard before the Board's decision in Browning-Ferris; \171\ ensures
that entities are not forced into relationships as ``joint employers''
with
[[Page 11204]]
others they deal with only in arms-length transactions; \172\ promotes
collective bargaining by ensuring that only the necessary parties are
in attendance at the bargaining table; \173\ and preserves franchisees'
ability to run the day-to-day operations of their businesses without
compromising the brand standards required of the franchise model.\174\
Further, some commenters cite Section 8(b)(4) of the Act and argue that
entities with attenuated control over another business's employees
should not be deemed a primary employer and embroiled in that
business's labor disputes.\175\
---------------------------------------------------------------------------
\169\ Comments of then-Chairwoman Virginia Foxx of the U.S.
House of Representatives Committee on Education and the Workforce
and then-Chairman Tim Walberg of the U.S. House Subcommittee on
Health, Employment, Labor, and Pensions; General Counsel Robb.
\170\ Comment of Ranking Member Foxx; cf. comment of National
Retail Federation (discussing ``significant'' control).
\171\ Comment of American Staffing Association.
\172\ Comment of COLLE.
\173\ Comment of Restaurant Law Center.
\174\ Comment of Brian Carmody.
\175\ See, e.g., comment of General Counsel Robb.
---------------------------------------------------------------------------
In contrast, many commenters argue that the Board should not impose
the ``substantial'' qualifier, effectively advocating that any exercise
of direct and immediate control over an essential term, no matter how
limited, should render an entity a joint employer. Some argue that the
``substantial'' qualifier is contrary to the Act, the common law, court
decisions, and/or pertinent Restatements.\176\ Others assert that it
would impair employees' ability to engage in meaningful collective
bargaining.\177\
---------------------------------------------------------------------------
\176\ Comments of SEIU;IBT.
\177\ See, e.g., comment of UA.
---------------------------------------------------------------------------
For many of the reasons discussed in the positive comments, the
Board continues to believe that it is appropriate to include the
``substantial'' qualifier in the final rule. Contrary to some of the
negative comments, inclusion of the qualifier will not impair
meaningful collective bargaining. In fact, meaningful bargaining would
be impaired if the final rule dispensed with a substantiality
requirement, since the requirement ensures that only those entities
that meaningfully affect matters relating to the employment
relationship are present at the bargaining table. Rule Sec. 103.40(A).
It also would be contrary to the purposes and policies of the Act to
impose liability for another company's unfair labor practices on an
entity that does not exercise ``substantial'' direct and immediate
control over essential terms and conditions of employment of that
company's employees, or to subject that entity to secondary economic
pressure. Further, the substantiality requirement is consistent with
longstanding pre-Browning-Ferris Board precedent. See, e.g., Quantum
Resources Corp., 305 NLRB 759, 760 (1991) (relying on entity's
``substantial'' control over hiring, promotion, base wage rates, hours,
and working conditions of another employer's employees to find the
entity a joint employer). As discussed in the NPRM, prior to Browning-
Ferris the Board held that even direct and immediate control may not
establish joint-employer status where that control is too limited in
scope. See NPRM, 83 FR at 46686-46687 (citing Flagstaff Medical Center,
357 NLRB at 667; Lee Hospital, 300 NLRB 947, 948-950 (1990)). Nothing
in the critical comments cited above undercuts the reasonableness of
this precedent or of the substantiality requirement.
Several commenters contend that the term ``substantial'' is
undefined, vague, and/or will require litigation to clarify.\178\ Some
commenters pose specific questions about its meaning, such as whether
it is quantitative (i.e., whether it designates control over a large
number of essential terms and conditions), qualitative (i.e., whether
it designates ``massive'' control over just one essential term), or
both.\179\ Further, several commenters suggest that the final rule
should define the term and/or explain what is, and what is not,
substantial control, and many commenters suggest definitions.\180\ One
commenter claims that the NPRM's suggestion that controlling only one
essential term or condition is insufficient would permit the Board to
find not only that an entity that controls only wages is not an
employer, but also that employees have no employer at all where control
over essential terms and conditions is sufficiently splintered among
multiple entities.\181\ One commenter asserts that if the Board does
not find joint-employer status where control is ``exercised rarely,''
this would allow an entity that sets initial wages not to be an
employer, and it would also be inconsistent with the Act's definition
of ``supervisor'' in Section 2(11).\182\ The same commenter also
asserts that the NPRM's description of the term suggests that a
hospital whose employees are the sole supervisors of visiting nurses
would not be their joint employer, contrary to the Act and the common
law.\183\
---------------------------------------------------------------------------
\178\ Comments of SEIU; CWA; IBT; Center for American Progress
Action Fund; General Counsel Robb; LIUNA; AFL-CIO; SEIU Local 32BJ.
\179\ See, e.g., comment of Texas RioGrande Legal Aid.
\180\ Comments of Jenner & Block, LLP; International Franchise
Association; CDW; Restaurant Law Center; National Retail Federation;
Associated Builders and Contractors, Inc.
\181\ Comment of AFL-CIO.
\182\ Id.
\183\ Id.
---------------------------------------------------------------------------
In response to the comments, the Board has decided to expressly
define ``substantial direct and immediate control'' in the final rule.
Specifically, the final rule provides that ``[s]ubstantial direct and
immediate control' means direct and immediate control that has a
regular or continuous consequential effect on an essential term or
condition of employment of another employer's employees.'' The rule
further specifies that control is not ``substantial'' if it is
``exercised on a sporadic, isolated, or de minimis basis.'' The final
rule thus clarifies that a party asserting joint-employer status must
prove that the putative joint employer (i) exercises direct and
immediate control over one or more essential terms or conditions of
employment of another entity's employees, (ii) that the control
exercised over that essential term or those essential terms has ``a
regular or continuous consequential effect'' and is not ``sporadic,
isolated, or de minimis,'' and (iii) that the substantial direct and
immediate control thus exercised over that essential term or those
essential terms warrants finding that the putative joint employer
``meaningfully affects matters relating to the employment
relationship'' with another employer's employees. Of course, the final
rule is necessarily general, and future cases adjudicated under the
rule will give further meaning and guidance.
The example proposed by one commenter of employees with no employer
at all because control is divided among numerous entities no one of
which exercises substantial control over any essential term or
condition strikes us as unrealistic. The rule presumes that employees
have a direct employer, and the comment does not persuade us to abandon
that presumption.
Regarding the example of setting wages, the commenter seems to
assume that a one-time setting of initial wages would compel a finding
of joint-employer status. The Board would not make that assumption.
Suppose a user entity is party to a long-term contract with a supplier
employer. The user entity sets the initial wages to be paid the
supplied workers. Years go by, the user entity never exercises any
further control or influence over wages, and the supplier employer
repeatedly adjusts the supplied employees' wages. Whether the user
entity is a joint employer of the supplied employees based on that one-
time initial setting of wages does not have a self-evident affirmative
answer. On the other hand, where a user entity's one-time setting of
supplied employees' wages has a continuous consequential effect on
[[Page 11205]]
those employees' wages, such evidence may suffice to establish that
entity's joint-employer status. Finally, regarding the hospital example
and the interplay of Section 2(11) and joint-employer status, see the
discussion in Section V.C, ``Response to Comments: Comments Regarding
Contractually Reserved But Unexercised Control,'' supra.
One commenter states that the Board must clarify the relationship
between ``substantial'' direct and immediate control and ``limited and
routine'' control.\184\ The final rule provides the requested
clarification. It deletes ``limited and routine'' as a general
qualifying term and, instead, specifies that the phrase applies only to
supervision. It explains what limited and routine supervision means:
Telling another employer's employees what work to perform, or where and
when to perform the work, but not how to perform it. Rule Sec.
103.40(C)(7). And it contrastingly defines direct and immediate control
over supervision to mean actually instructing another employer's
employees how to perform their work or actually issuing employee
performance appraisals.
---------------------------------------------------------------------------
\184\ Id.
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Several commenters suggest examples of what should not be deemed
substantial direct and immediate control, such as establishing
eligibility criteria to provide services,\185\ requiring corporate
social-responsibility initiatives,\186\ and requiring supplier
employers to provide minimum amounts of leave to their employees.\187\
Many of the suggested examples have been incorporated in the final
rule. For example, in defining what is and is not ``direct and
immediate control'' over specific essential terms and conditions of
employment, the final rule excludes setting minimal hiring standards or
minimum standards of performance or conduct.
---------------------------------------------------------------------------
\185\ Comment of HR Policy Association.
\186\ Comment of RILA.
\187\ Comment of HR Policy Association.
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G. Comments Regarding ``Essential'' Terms and Conditions of Employment
In the NPRM, the Board proposed that ``an employer may be
considered a joint employer of a separate employer's employees only if
the two employers share or codetermine the employees' essential terms
and conditions of employment, such as hiring, firing, discipline,
supervision, and direction.''
The majority of comments concerning this aspect of the proposed
rule do not contest the overarching principle that the Board's joint-
employer standard should focus on a putative joint employer's control
over employees' essential terms and conditions of employment, such as
hiring, firing, discipline, supervision, and direction.\188\ A few
comments, however, contend that a joint-employer analysis should
examine whether an entity shares or codetermines any term or condition
of employment that is a mandatory subject of bargaining, whether deemed
``essential'' or not.\189\ Additional comments ask the Board to clarify
whether or not the proposed list of essential terms and conditions of
employment is exclusive, i.e., whether it consists of the enumerated
terms and conditions and no others.\190\ Still other comments ask the
Board to clarify the number of essential terms and conditions of
employment an employer must share or codetermine to be considered a
joint employer. Finally, the Board received comments proposing
expansion of the proposed list of essential terms and conditions to
include wages,\191\ benefits,\192\ hours of work,\193\ health and
safety,\194\ training,\195\ drug testing,\196\ and access for union
representatives,\197\ among others.
---------------------------------------------------------------------------
\188\ Comments of CDW (supporting the general framework of the
proposed rule's focus on essential terms and conditions of
employment); U.S. House of Representatives Committee on Education
and the Workforce (supporting a rule that examines an employer's
control over essential terms and conditions of employment); SEIU
(agreeing that the common law requires the Board to examine control
over essential terms and conditions of employment); United
Brotherhood of Carpenters and Joiners of America (same).
\189\ Comments of UAW; IUOE; AFL-CIO.
\190\ Comments of General Counsel Robb; IUOE.
\191\ Comments of National Retail Federation; United Brotherhood
of Carpenters and Joiners of America.
\192\ Comments of SEIU Local 32BJ; Jenner & Block, LLP.
\193\ Comments of General Counsel Robb; SEIU Local 32BJ.
\194\ Comments of 1199SEIU United Healthcare Workers East; IUOE.
\195\ Comment of IUOE.
\196\ Comment of SEIU Local 32BJ.
\197\ Id.
---------------------------------------------------------------------------
After carefully considering these comments, the Board has decided
to modify the proposed rule in several respects. Under the final rule,
essential terms and conditions of employment ``means wages, benefits,
hours of work, hiring, discharge, discipline, supervision, and
direction.'' Thus, the list of essential terms and conditions of
employment has been expanded and made exclusive. To be found a joint
employer under the final rule, an entity must possess and exercise such
substantial direct and immediate control over one or more essential
terms or conditions of employment as would warrant finding that the
entity meaningfully affects matters related to the employment
relationship, and joint-employer status is determined on ``the totality
of the relevant facts in each particular employment setting.'' Thus,
direct and immediate control over at least one essential term or
condition is necessary, but the final rule makes clear that it is not
necessarily sufficient. Moreover, under the final rule, control over
mandatory subjects other than essential terms and conditions may be
relevant to joint-employer status, depending upon the other evidence in
the case. As provided in the final rule, ``the entity's control over
mandatory subjects of bargaining other than the essential terms and
conditions of employment is probative of joint-employer status, but
only to the extent it supplements and reinforces evidence of the
entity's possession or exercise of direct and immediate control over a
particular essential term and condition of employment.''
The Board believes a standard that requires an entity to possess
and exercise substantial direct and immediate control over essential
terms and conditions of employment is consistent with the purposes and
policies of the Act, as discussed in greater detail below in the
justification for the final rule. The Act's purpose of promoting
collective bargaining is best served by a joint-employer standard that
places at the bargaining table only those entities that control terms
and conditions that are most material to collective bargaining.
Moreover, a less demanding standard would unjustly subject innocent
parties to liability for others' unfair labor practices and coercion in
others' labor disputes. A fuzzier standard with no bright lines would
make it difficult for the Board to distinguish between arm's-length
contracting parties and genuine joint employers. Accordingly,
preserving the element of direct and immediate control over essential
terms and conditions draws a discernible and predictable line,
providing ``certainty beforehand'' for the regulated community. See
First Nat'l Maint. Corp. v. NLRB, 452 U.S. at 679.
Turning to the merits of specific comments, the Board agrees that a
proper standard should not disregard control over mandatory subjects of
bargaining that do not qualify as essential terms or conditions, and
the final rule does not limit the joint-employer analysis to essential
terms. That said, the Board has long focused the joint-employer
analysis primarily on a putative joint employer's control over
essential terms and conditions of
[[Page 11206]]
employment. See, e.g., Browning-Ferris, 362 NLRB at 1613 (adhering to
the Board's traditional focus on ``those matters governing the
essential terms and conditions of employment''); Laerco Transportation,
269 NLRB at 325 (the ``joint employer concept recognizes that two or
more business entities are in fact separate but that they share or
codetermine those matters governing the essential terms and conditions
of employment''); Greyhound Corp., 153 NLRB at 1495 (finding joint-
employer relationship where an employer shared or codetermined
``matters governing essential terms and conditions''); Maas Bros., 88
NLRB 129, 135 (1950) (employees working for entrepreneurs that ran
individual departments within a larger department store not included in
a storewide unit where the entrepreneurs, not the department store,
controlled ``the essential terms and conditions of employment''
governing the employees).
Two commenters argue that the Ninth Circuit's decision in Sun-Maid
Growers of California v. NLRB, 618 F.2d 56 (9th Cir. 1980), supports a
standard that renders an entity a joint employer if it controls any
term or condition of employment, regardless of whether the term or
condition is deemed ``essential.'' \198\ The Board finds this argument
unpersuasive. To be sure, in Sun-Maid, the court stated that a ``joint
employer relationship exists when an employer exercises authority over
employment conditions which are within the area of mandatory collective
bargaining.'' Id. at 59. However, the court in Sun-Maid was not called
upon to decide whether joint-employer status may be established absent
control over essential terms and conditions, since the court found that
the putative joint employer in Sun-Maid did control at least one
essential term (hours of work) and possibly two (hours of work and
direction). Id. at 59 (finding joint-employer status where entity
controlled ``work schedules, assigned the work and decided when
additional electricians were needed''); see also Tanforan Park Food
Purveyors Council v. NLRB, 656 F.2d 1358, 1361 (9th Cir. 1981) (finding
joint-employer relationship where putative joint employer controlled
``wage rates, vacation, holiday, and work schedules, and employee
supervision[, which] lie within the core of mandatory collective
bargaining'').
---------------------------------------------------------------------------
\198\ See comments of UAW; AFL-CIO.
---------------------------------------------------------------------------
Moreover, several federal appellate courts have approved the
Board's longstanding insistence on control of essential terms and
conditions of employment to make an entity a joint employer. See Adams
& Assoc., Inc. v. NLRB, 871 F.3d 358, 377 (5th Cir. 2017); Dunkin'
Donuts Mid-Atlantic Distrib. Ctr., Inc. v. NLRB, 363 F.3d 437, 440
(D.C. Cir. 2004); Rivera-Vega v. ConAgra, Inc., 70 F.3d 153, 163 (1st
Cir. 1995); Carrier Corp. v. NLRB, 768 F.2d 778, 781 (6th Cir. 1985);
NLRB v. Browning-Ferris Indus. of Pennsylvania, Inc., 691 F.2d at 1124;
; see also Browning-Ferris v. NLRB, 911 F.3d at 1220 (`` `[G]lobal
oversight' is a routine feature of independent contracts. Wielding
direct and indirect control over the `essential terms and conditions'
of employees' work lives is not.'') (internal citation omitted).
Some commenters argue that the Board should require direct and
immediate control of all essential terms and conditions of employment
to subject an entity to the duty to bargain collectively as a joint
employer.\199\ The Board rejects this position. The Board has never
required direct and immediate control of all essential employment terms
in order to deem an entity a joint employer of another employer's
employees. Rather, it has consistently evaluated joint-employer status
based on the totality of the relevant facts in each case.
---------------------------------------------------------------------------
\199\ See, e.g. comment of General Counsel Robb.
---------------------------------------------------------------------------
Contrary to a commenter's contention, the Board's longstanding
requirement of control over essential terms and conditions of
employment, to which both the proposed and final rules adhere, is
consistent with the Supreme Court's decision in Boire v. Greyhound
Corp., 376 U.S. 473 (1964).\200\ In Boire, the question presented was a
narrow one: Whether an employer could challenge in federal district
court the Board's determination that two entities constituted a joint
employer of a group of employees and its direction of an election in a
unit composed of those employees based on a petition that named both
entities as the employer. See id. at 476-477. The Court held that
Congress had limited judicial review to the courts of appeals and that
Greyhound could not challenge the Board's decision and direction of
election in federal district court. See id. The Court did not reach the
merits of the Board's joint-employer finding, but it observed that
``whether Greyhound possessed sufficient indicia of control to be an
`employer' is essentially a factual issue.'' Id. at 481. The commenter
asserts that because the Court did not reference ``essential terms and
conditions of employment,'' the Board may not require control over
essential terms. However, the Court did not pass on the joint-employer
determination in Greyhound, much less preclude the standard adopted in
the final rule. Indeed, the final rule is consistent with the Court's
observation that joint-employer status is ``essentially a factual
issue.'' Under the final rule, ``[j]oint-employer status must be
determined on the totality of the relevant facts in each particular
employment setting.'' Rule Sec. 103.40(A).
---------------------------------------------------------------------------
\200\ See comment of UAW.
---------------------------------------------------------------------------
We also disagree with the assertion that requiring control of
essential terms and conditions cannot be squared with Management
Training Corp., 317 NLRB 1355 (1995).\201\ Prior to Management
Training, the Board asserted jurisdiction over a government contractor
only if the contractor controlled ``the entire package of employee
compensation, i.e., wages and fringe benefits.'' Res-Care, Inc., 280
NLRB 670, 674 (1986). In Management Training, the Board rejected this
standard. 317 NLRB at 1358. In doing so, the Board criticized the
``emphasis in Res-Care on control of economic terms and conditions [as]
an oversimplification of the bargaining process.'' Id. at 1357. The
Board explained:
---------------------------------------------------------------------------
\201\ See comment of AFL-CIO.
While economic terms are certainly important aspects of the
employment relationship, they are not the only subjects sought to be
negotiated at the bargaining table. Indeed, monetary terms may not
necessarily be the most critical issues between the parties. . . .
[I]t may be that the parties' primary interest is in the noneconomic
area. It was shortsighted, therefore, for the Board to declare that
bargaining is meaningless unless it includes the entire range of
---------------------------------------------------------------------------
economic issues.
Id.
The proposed rule was, and the final rule is, consistent with
Management Training. The Board in Management Training faulted Res-Care
for making wages and benefits the sine qua non of collective
bargaining. The proposed and final rules do not limit essential terms
and conditions to wages and benefits. Essential terms and conditions
include non-economic as well as economic terms, and joint-employer
status may be found under the rule based on an entity's control over
non-economic essential terms only.
Nothing in Section 8(a)(5) and (d) of the Act prohibits the Board
from promulgating a joint-employer rule that requires control over
essential terms and conditions of employment. Under Section 8(a)(5) and
(d), an employer is obligated to bargain with its unit employees'
representative ``with respect to wages, hours, and other terms and
conditions of employment,'' commonly
[[Page 11207]]
referred to as ``mandatory'' subjects of bargaining. NLRB v. Borg-
Warner Corp., 356 U.S. 342, 349 (1958). But there is no inconsistency
between this obligation and basing joint-employer status on control
over a subset of mandatory subjects, i.e., essential terms and
conditions. The two issues are widely different. Section 8(d) mandates
what the unit employees' undisputed employer must bargain about; the
instant joint-employer rule provides the standard for determining
whether an entity other than the unit employees' undisputed employer is
also an employer, i.e., a joint employer, with a duty to bargain.
Whether one has a duty to bargain is analytically prior to, and
distinct from, what one must bargain about if one has a duty to
bargain.\202\
---------------------------------------------------------------------------
\202\ This distinction was clearly recognized in Browning-
Ferris, where the Board majority stated:
For example, it is certainly possible that in a particular case,
a putative joint employer's control might extend only to terms and
conditions of employment too limited in scope or significance to
permit meaningful collective bargaining. Moreover, as a rule, a
joint employer will be required to bargain only with respect to such
terms and conditions which it possesses the authority to control.
362 NLRB at 1614.
---------------------------------------------------------------------------
That said, the Board believes, after considering the relevant
comments, that control over mandatory subjects other than essential
terms and conditions should play a role in the joint-employer analysis.
Accordingly, the final rule provides that evidence of such control is
probative of joint-employer status ``to the extent it supplements and
reinforces evidence of the entity's possession or exercise of direct
and immediate control over a particular essential term and condition of
employment.'' Rule Sec. 103.40(A).
Several commenters addressed whether the final rule should make the
list of essential terms and conditions of employment exhaustive--i.e.,
the enumerated terms and conditions and no others--and how many
essential terms and conditions an entity must control to be deemed a
joint employer. As to the latter, comments suggest a range of
possibilities--from any essential term and condition,\203\ to more than
one,\204\ a significant number,\205\ or all essential terms and
conditions of employment.\206\
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\203\ See comment of AFL-CIO.
\204\ See comment of American Staffing Association.
\205\ See comment of Jenner & Block, LLP.
\206\ See comments of International Warehouse Logistics
Association; Association of Corporate Counsel.
---------------------------------------------------------------------------
After careful consideration, the Board has decided to modify the
proposed rule in two relevant respects. First, the final rule makes the
list of essential terms and conditions of employment exclusive. This
will provide clarity and predictability for the regulated community and
remove an issue from litigation. Second, under the final rule, an
entity must ``possess and exercise such substantial direct and
immediate control over one or more essential terms or conditions of . .
. employment as would warrant finding that the entity meaningfully
affects matters relating to the employment relationship'' with another
employer's employees. This reflects the Board's recognition that direct
and immediate control over one essential term may warrant a finding of
joint-employer status--but on the other hand, it may not, and control
even over more than one essential term may fall short of the mark where
an entity has exercised such control so infrequently that the evidence
fails to support a finding that the entity meaningfully affects matters
relating to the employment relationship.
Finally, the Board agrees that wages, benefits, and hours of work
should be included in the list of essential terms and conditions of
employment. The language of the Act supports including wages and hours
of work. Section 8(d) defines collective bargaining as the
``performance of the mutual obligation of the employer and the
representative of the employees to meet at reasonable times and confer
in good faith with respect to wages, hours, and other terms and
conditions of employment'' (emphasis added). Section 9(a) provides that
``[r]epresentatives designated or selected for the purposes of
collective bargaining by the majority of the employees in a unit
appropriate for such purposes, shall be the exclusive representatives
of all the employees in such unit for the purposes of collective
bargaining in respect to rates of pay, wages, hours of employment, or
other conditions of employment'' (emphasis added). Congress clearly
understood that wages and hours of work would be central to collective
bargaining, and this supports adding them to the list of essential
terms and conditions of employment.
Board precedent likewise supports including wages, hours of work,
and benefits among the essential terms and conditions. See, e.g.,
Quantum Resources Corp., 305 NLRB at 760-761 (finding that entity
shared or codetermined ``those matters governing the essential terms
and conditions of employment'' based in part on evidence of its
substantial control over ``levels of compensation . . . hours . . . and
benefits''); Lee Hospital, 300 NLRB at 950 (corporation hired by
hospital to operate anesthesia department and recovery room not a joint
employer of nurses where hospital exclusively determined essential
terms and conditions of employment, including ``wages'' and ``fringe
benefit policies''); Pacific Mutual Door Co., 278 NLRB 854, 858-859
(1986) (finding joint-employer status based on entity's sufficient
control over essential terms and conditions of employment, including
hours, wages, and ``benefits received as paid holidays and paid
vacations'').
The courts, too, have understood essential terms and conditions of
employment to include wages, hours of work, and benefits. See Adams &
Assoc., Inc. v. NLRB, 871 F.3d at 378 (finding joint-employer status
where entity ``jointly developed the wage structure'' and exclusively
determined ``the holiday schedule'' for all employees) (internal
quotation marks omitted); Dunkin' Donuts Mid-Atlantic Distrib. Ctr.,
Inc. v. NLRB, 363 F.3d at 440-441 (finding joint-employer status where
entity determined ``employee wage and benefit rates . . . discontinued
an employee bonus program . . . [and set] rating categories used to
determine whether drivers received incentive awards''); Rivera-Vega v.
ConAgra, Inc., 70 F.3d at 163 (factors in a joint-employer
determination include ``ultimate power over changes in employer
compensation [and] benefits''); Carrier Corp. v. NLRB, 768 F.2d at 781
(finding joint-employer status where employer ``consulted the [putative
joint employer] over wages and fringe benefits''); Jefferson County
Cmty. Ctr. For Developmental Disabilities, Inc. v. NLRB, 732 F.2d 122,
127 (10th Cir. 1984) (employer maintained sufficient control over terms
and conditions of employment ``to be capable of effective bargaining''
where it had ``final decision-making authority over the essential terms
and conditions of employment, including wages [and] fringe benefits'')
(internal quotation marks omitted); NLRB v. Browning-Ferris Indus. of
Pennsylvania, Inc., 691 F.2d 1117, 1124 (3d Cir. 1982) (finding joint-
employer status where entity ``established work hours'' and
``determined [employees'] compensation'').
Two commenters contend that the list of essential terms and
conditions of employment must or should include each of the indicia of
supervisory status set forth in Section 2(11).\207\ The final
[[Page 11208]]
rule's list of essential terms and conditions does not include several
of these supervisory indicia,\208\ but there is no contradiction
between the final rule and Section 2(11) of the Act. Nothing in the
text of the Act or its legislative history links Section 2(11) and
joint-employer status. Nor does the Act or its legislative history
otherwise suggest that the Board must find that an entity is a joint
employer of another employer's employees based solely on supervisory
indicia such as the authority to lay off, recall, promote, etc. To the
contrary, under longstanding Board precedent, it is possible for two
businesses to remain separate employers despite the fact that employees
of the first business assertedly exercise Section 2(11) authority over
employees of the second business. Crenulated Co., 308 NLRB at 1216
(``It is well established that an individual must exercise supervisory
authority over employees of the employer at issue, and not employees of
another employer, in order to qualify as a supervisor under Section
2(11) of the Act''); Eureka Newspapers, Inc., 154 NLRB 1181, 1185
(1965) (finding that district dealers employed by newspaper were not
statutory supervisors despite alleged supervisory authority over
carriers who were not employed by newspaper). See also Section V.C,
``Response to Comments: Comments Regarding Contractually Reserved But
Unexercised Control,'' supra.
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\207\ See comments of AFL-CIO; UAW. Sec. 2(11) defines
``supervisor'' as ``any individual having authority, in the interest
of the employer, to hire, transfer, suspend, lay off, recall,
promote, discharge, assign, reward, or discipline other employees,
or responsibly to direct them, or to adjust their grievances, or
effectively to recommend such action, if in connection with the
foregoing the exercise of such authority is not of a merely routine
or clerical nature, but requires the use of independent judgment.''
\208\ The essential terms and conditions of employment set forth
in Sec. 103.40(C)(1)-(8) does not include transfer, lay off, recall,
promote, reward, or adjustment of grievances.
---------------------------------------------------------------------------
Two additional points should be emphasized here. First, as
described above, control over a mandatory subject of bargaining that is
not an ``essential'' term is relevant in a joint-employer analysis
under this final rule. Such control can supplement and reinforce
evidence of possession or exercise of direct and immediate control over
a particular essential term and condition of employment, as discussed
above. Second, when applying this final rule, the Board will not be
bound by a putative joint employer's characterization of its conduct.
For example, under the circumstances of a particular case, an
employment action codetermined by a putative joint employer and
characterized as a ``layoff'' could in fact be a discharge. Similarly,
``rewarding'' another employer's employee could, depending on the
circumstances, be tantamount to bestowing a benefit. Relatedly, if a
putative joint employer directly and immediately resolved (i.e.,
adjusted) another employer's employee's grievance over rate of pay or
suspension for misconduct, that would evidence direct and immediate
control over the essential terms and conditions of wages and
discipline.
H. Comments on Employer Status Under Other Statutes and the Common Law
Several comments address the doctrine of joint employment as it has
been interpreted under other statutes. In general, as explained below,
we believe that joint-employer determinations under other statutes are
instructive but of limited utility to the joint-employer inquiry under
the NLRA.
Several commenters observe that the FLSA broadly defines ``employ''
as to ``suffer or permit to work'' and ``employer'' as ``any person
acting directly or indirectly in the interest of an employer in
relation to an employee.'' \209\ But Congress defined ``employer'' in
the FLSA more broadly than under the NLRA. Joint-employer
determinations under the FLSA, therefore, are unreliable guides for
determining joint-employer status under the NLRA.
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\209\ See comments of NELP; UA; Professor Kulwiec.
---------------------------------------------------------------------------
Two commenters assert that courts consider evidence of indirect
control and the ``economic realities'' of the work relationship when
determining whether an entity is a joint employer under the FLSA.\210\
Again, however, joint-employer status under the FLSA is based on that
statute's expansive definition of ``employer,'' and has been based as
well on federal regulations providing that joint-employer
determinations under the FLSA may be based solely on evidence of
indirect control. See In re Enter. Rent-A-Car Wage & Hour Emp't
Practices Litig., 683 F.3d 462, 468 (3d Cir. 2012) (finding joint
employment ``[w]here the employers are not completely disassociated
with respect to the employment of a particular employee and may be
deemed to share control of the employee, directly or indirectly''
(quoting 29 CFR Sec. 791.2(b))) (emphasis added).\211\ The NLRA does
not define ``employer'' thus broadly.
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\210\ See comments of Greater Boston Legal Services; Justice at
Work.
\211\ On January 16, 2020, the Department of Labor issued a
final rule that made relevant revisions to the regulatory text
quoted above. See 85 FR 2820 (Jan. 16, 2020).
---------------------------------------------------------------------------
Other commenters point out that the Occupational Safety and Health
Administration (OSHA) applies a policy under which, on multi-employer
worksites, more than one employer may be cited for a hazardous
condition that violates an OSHA standard.\212\ See Solis v. Summit
Contractors, Inc., 558 F.3d 815 (8th Cir. 2009) (holding that OSHA
regulations (29 CFR Sec.1910.12) permitted the issuance of citations to
``controlling employers,'' even when they did not create the safety
hazard and when its employees were not exposed to the hazard).
Likewise, a commenter observes that IRS regulations provide that an
entity may be considered an employer based on the right to control the
way services are performed, and that the right need not be
exercised.\213\ The Board's task, however, is to formulate a joint-
employer standard based on the common law applied in the context of the
NLRA. Since a joint-employer finding under the NLRA entails a duty to
bargain, the Board must consider when a putative joint employer's
participation in collective bargaining is required for such bargaining
to be meaningful. And since such a finding renders otherwise secondary
activity primary, the Board also must consider Congress's concern with
limiting third parties' exposure to economic warfare in labor disputes.
These considerations have no bearing on joint-employer determinations
by OSHA or the IRS, which therefore shed little light on joint-employer
determinations under the Act.
---------------------------------------------------------------------------
\212\ See comments of NELP; UA.
\213\ See comment of UA.
---------------------------------------------------------------------------
Some commenters observe that the joint-employer inquiry under the
FLSA is performed on a case-by-case basis, and that this inquiry is
always fact-specific under the common law.\214\ Consistent with these
comments, joint-employer determinations under the final rule will be
determined on the totality of the relevant facts in each particular
employment setting.
---------------------------------------------------------------------------
\214\ See comments of NELP; SEIU.
---------------------------------------------------------------------------
Some commenters contend that the proposed joint-employer standard
will impact numerous areas of labor-management relations and federal
and state workplace laws.\215\ Such impact is the inevitable
consequence of any joint-employer standard, and the Board believes that
the final rule sets forth a standard that best furthers the purposes
and policies of the NLRA.
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\215\ See comments of NELP; Weinberg, Roger & Rosenfeld.
---------------------------------------------------------------------------
One commenter observes that indirect and reserved control are
relevant factors in joint-employer determinations under Title VII,
citing, inter alia, Myers v. Garfield & Johnson Enters., 679 F. Supp.
2d 598, 611 (E.D. Pa. 2010) (``[A]n
[[Page 11209]]
employee may be considered `employed' by a third party as well as by
the nominal employer if the third party has a right to control the
employee's conduct, either directly or through the third party's
control over the employer.''), and Virgo v. Riviera Beach Assocs.,
Ltd., 30 F.3d 1350, 1361 (11th Cir. 1994) (``We find that actual
control is a factor to be considered when deciding the `joint employer'
issue, but the authority or power to control is also highly
relevant.'') \216\ Under the final rule, evidence of indirect and
reserved but unexercised control are probative of joint-employer
status, but only to the extent that such evidence supplements and
reinforces evidence of direct and immediate control. To the extent the
latter proviso makes the joint-employer standard under the Act narrower
than the comparable standard under Title VII, our task is to formulate
a joint-employer standard based on the common law applied in the
particular context of the NLRA, as explained above. In any event, the
decisions in Myers and Virgo relied on evidence of direct and immediate
control over essential terms and conditions of employment. In Myers,
which was before the court on a motion to dismiss for failure to state
a claim, the court cited a complaint allegation that the putative joint
employer participated in the daily supervision of the direct employer's
employees. 679 F. Supp. 2d at 610. In Virgo, the court cited evidence
that the putative joint employer paid all costs and expenses related to
all the employees of the direct employer. 30 F.3d at 1361.
---------------------------------------------------------------------------
\216\ See comment of UA.
---------------------------------------------------------------------------
Several commenters cite the Restatement (Second) of Agency, in
particular Sections 2(2) and 220, for the proposition that an employee
is a worker who is subject to the employer's ``control or right to
control'' and complain that the proposed rule ``wholly discounts''
reserved control.\217\ These commenters also point out that Restatement
(Second) of Agency Sec. 220 cmt. d states that this right of control
may be ``very attenuated.'' Some commenters observe that in Browning-
Ferris v. NLRB, 911 F.3d at 1211, the D.C. Circuit stated that ``the
`right to control' runs like a leitmotif through the Restatement
(Second) of Agency (emphasis in original).'' \218\ Other commenters
contend that the ``right to control'' standard is a core component and
widely recognized feature of case law applying common-law agency
principles and assert that the right of control is sufficient to
establish a common-law master-servant relationship.\219\
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\217\ See comments of IBT; Greater Boston Legal Services; State
Attorneys General; AFL-CIO; SEIU (citing Sec. 220(1) (emphasis
added)).
\218\ See comments of State Attorneys General; Spivak Lipton
LLP.
\219\ See comments of SEIU; UA.
---------------------------------------------------------------------------
Initially, as explained more fully below, a master-servant
relationship under the common law of independent-contractor status is
not synonymous with joint-employer status.
In any case, the Board agrees with one commenter that, although the
court in Browning-Ferris v. NLRB stated that the Board is required to
``color within the common-law lines'' with respect to its joint-
employer rule, 911 F.3d at 1208, the final rule does not exceed the
bounds of common-law principles.\220\ Like that commenter, the Board is
aware of no court that has found that reserved, unexercised control,
standing alone, was sufficient to create a joint-employer relationship
under the NLRA. Moreover, the final rule does not ``wholly discount''
or otherwise exclude consideration of reserved, unexercised control.
Rather, it provides that contractually reserved but never exercised
authority over essential terms and conditions of employment of another
employer's employees is probative of joint-employer status, but only to
the extent that it supplements and reinforces evidence of direct and
immediate control. Again, the narrowing proviso reflects a joint-
employer standard based on the common law applied in the particular
context of the NLRA.
---------------------------------------------------------------------------
\220\ See comment of CDW.
---------------------------------------------------------------------------
One comment contends that consideration of indirect control over
employees' wages and working conditions is consistent with common-law
agency doctrine.\221\ The Board agrees, and observes that the D.C.
Circuit has likewise held that an entity's ``indirect control over
employees can be a relevant consideration'' in the common-law inquiry.
Browning-Ferris v. NLRB, 911 F.3d at 1209. Accordingly, under the final
rule, evidence of an entity's indirect control over essential terms and
conditions of employment of a direct employer's employees is probative
of joint-employer status to the extent it supplements and reinforces
evidence of direct and immediate control over a particular essential
term and condition of employment.
---------------------------------------------------------------------------
\221\ See comment of Labor Law, Antitrust Law, and Economics
Professors (Law and Economics Professors).
---------------------------------------------------------------------------
One commenter observes that Section 220 of the Restatement (Second)
of Agency includes many considerations that are broader and less
formalistic than the proposed rule, such as whether the one employed is
engaged in a distinct occupation or business and whether the work is a
part of the regular business of the putative employer.\222\ However,
these considerations relate to determining whether a worker is an
employee or an independent contractor. As explained more fully below,
they are instructive but of limited utility in the joint-employer
context.
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\222\ See comment of NELP.
---------------------------------------------------------------------------
Another commenter argues that when determining what the D.C.
Circuit and the common law mean by indirect control, it may be useful
to consider the so-called subservant doctrine, under which employer-
employee relationships are established by indirect control.\223\ See
Restatement (Second) of Agency Sec. 5(2); see also id., cmt. e. In
defining indirect control in the final rule, the Board has focused on
the connection between the entity's actions and the employees'
essential terms and conditions of employment, not on how alleged
control is communicated. However, the final rule is not intended to
immunize an entity from joint-employer status based solely on how its
control is exercised. Direct and immediate control exercised through an
intermediary remains direct and immediate. See Browning-Ferris v. NLRB,
911 F.3d at 1217 (``[T]he common law has never countenanced the use of
intermediaries or controlled third parties to avoid the creation of a
master-servant relationship.'').
---------------------------------------------------------------------------
\223\ See comment of SEIU.
---------------------------------------------------------------------------
I. Comments on Independent-Contractor Precedent
Many commenters address the relevance--or lack of relevance--of
independent-contractor precedent to the joint-employer inquiry. As
noted by one commenter, in NLRB v. United Insurance Co. of America, 390
U.S. at 256, the Supreme Court held that the determination of whether a
worker is a statutorily protected employee or a statutorily exempt
independent contractor is governed by common-law agency
principles.\224\ In Community for Creative Non-Violence v. Reid, the
Supreme Court listed common-law factors relevant to making the
employee-versus-independent contractor determination:
---------------------------------------------------------------------------
\224\ See comment of State Attorneys General.
In determining whether a hired party is an employee under the
general common law of agency, we consider the hiring party's right
to control the manner and means by which the product is
accomplished. Among the other factors relevant to this inquiry are
the
[[Page 11210]]
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.
490 U.S. at 751-752; see also Nationwide Mut. Ins. Co. v. Darden, 503
U.S. at 323-324. These so-called Reid factors are largely adopted from
Section 220(2) of the Restatement (Second) of Agency. As another
commenter notes, the Supreme Court has instructed that, in assessing
employee status, ``all of the incidents of the relationship must be
assessed and weighed with no one factor being decisive.'' United Ins.,
390 U.S. at 256.\225\
---------------------------------------------------------------------------
\225\ See comment of AFL-CIO.
---------------------------------------------------------------------------
Several commenters acknowledge that various elements of the
independent-contractor test are inapplicable to determining joint-
employer status.\226\ These commenters point out that where there is no
dispute that certain workers are employees of some entity, many of the
factors of the common-law test are already satisfied and provide no
meaningful guidance to help determine whether another entity
constitutes a joint employer. Cf. Clackamas Gastroenterology Assoc.,
P.C. v. Wells, 538 U.S. 440, 445 fn. 5 (2003) (explaining that the
independent-contractor factors ``[we]re not directly applicable'' in
determining whether physician shareholders who owned a professional
corporation were ``employees'' because the court was ``not faced with
drawing a line between independent contractors and employees'').
---------------------------------------------------------------------------
\226\ See comments of AFL-CIO; Restaurant Law Center; COLLE.
---------------------------------------------------------------------------
Moreover, as observed by one commenter, in Browning-Ferris v. NLRB,
911 F.3d at 1212-1213, the D.C. Circuit rejected the contention that
the independent-contractor and joint-employer inquiries are
``essentially the same,'' adding that the argument ``lacks any
precedential grounding.'' \227\ As noted by another commenter, the
court explained that although independent-contractor cases can be
``instructive in the joint-employer inquiry to the extent that they
elaborate on the nature and extent of control necessary to establish a
common-law employment relationship,'' the independent-contractor
inquiry omits the key questions, for deciding the joint-employer issue,
of who controls the workers and when and how that control is exercised.
Id. at 1215.\228\ ``In short,'' the court concluded, ``using the
independent-contractor test exclusively to answer the joint-employer
question would be rather like using a hammer to drive in a screw: it
only roughly assists the task because the hammer is designed for a
different purpose.'' Id.
---------------------------------------------------------------------------
\227\ See comment of State Attorneys General.
\228\ See comment of CDW.
---------------------------------------------------------------------------
Consistent with these commenters, the Board believes that the
common-law factors relative to determining employee or independent-
contractor status are instructive but of limited utility in the joint-
employer context. Application of those factors is appropriate to
determine whether a putative employer has the ``right to control the
manner and means by which the product is accomplished,'' Reid, 490 U.S.
at 751-752, and therefore independent-contractor principles assist in
determining whether a putative employer has such a ``right to
control.'' But they do not assist in answering the key questions in the
joint-employer inquiry: who is exercising that control, when, and how.
This is consistent with the court's decision in Browning-Ferris v.
NLRB, 911 F.3d at 1214-1215.
A commenter contends that the common law of independent-contractor
status is instructive in the joint-employer context to the extent it
assists in identifying the forms of control that are relevant to
employer status.\229\ In this regard, the Board agrees with a different
commenter that under the Reid factors, both indirect and reserved
control are relevant to determining employer status under the common
law. 490 U.S. at 751-752.\230\ The Board further agrees that
independent-contractor precedent also makes reserved control relevant
to determining employer status. Thus, under the final rule, evidence of
indirect control and of unexercised, contractually reserved authority
is relevant in the joint-employer inquiry to the extent such evidence
supplements and reinforces evidence of direct and immediate control
over essential terms and conditions.
---------------------------------------------------------------------------
\229\ See comment of AFL-CIO.
\230\ See comment of CDW.
---------------------------------------------------------------------------
One of the above commenters further argues that the common law of
independent-contractor status--specifically, the Restatement (Second)
of Agency--makes clear that contractually reserved authority, standing
alone, is sufficient to establish an employment relationship.\231\ The
commenter cites, inter alia, Sections 2 and 220, which define a
``master'' as someone who ``controls or has the right to control''
another and a ``servant'' as someone employed by the master who is
``subject to the [master's] control or right to control'' (commenter's
emphasis). But ``sufficient to establish an employment relationship''
under the Restatement of Agency, which summarizes the common law of
independent-contractor status, is not the same as sufficient to
establish joint-employer status under the NLRA for all the reasons
explained above.
---------------------------------------------------------------------------
\231\ See comment of AFL-CIO.
---------------------------------------------------------------------------
J. Comments About the Impact of the D.C. Circuit's Decision in
Browning-Ferris Industries of California, Inc. v NLRB
The Board received many comments regarding the impact of the D.C.
Circuit's decision in Browning-Ferris v. NLRB on this rulemaking.
Commenters debate whether the court's decision permits the proposed
rule, requires changes to the proposed rule, or removes the authority
of the Board to engage in this rulemaking at all. Those comments and
the Board's responses are described below.
Some commenters contend that the proposed rule is inconsistent with
the D.C. Circuit's conclusions in Browning-Ferris v. NLRB.\232\ They
point out that the court upheld the Browning-Ferris standard's
consideration of reserved and indirect control as rooted in the common
law and instructed the Board to color within common-law lines in the
joint-employer rulemaking. They argue that the final rule must include
consideration of reserved and indirect control, and they claim that the
proposed rule, which did not expressly acknowledge a role for those
forms of control, contradicts the D.C. Circuit's decision.
---------------------------------------------------------------------------
\232\ See, e.g., comments of Legal Aid Society; United
Brotherhood of Carpenters and Joiners of America; Congressional
Progressive Caucus; UAW; IBT; National Women's Law Center; United
Association of Journeymen and Apprentices of the Plumbing and Pipe
Fitting Industry of the United States and Canada, SEIU; 1199SEIU
United Healthcare Workers East; SEIU National Fast Food Workers
Union; LIUNA; IUOE; Senator Murray and Representative Scott; NELP;
AFT; James van Wagtendonk.
---------------------------------------------------------------------------
Some commenters, on the other hand, argue the proposed rule is
consistent with the D.C. Circuit's decision.\233\ One commenter, for
example, argues that although the court held that consideration of
indirect and reserved control is rooted in the common law, it did not
hold that the joint-employer standard must be coextensive with the
common law. To the contrary, the court acknowledged the Browning-Ferris
two-
[[Page 11211]]
step standard: A necessary-but-not-sufficient common-law analysis at
step one, followed by an NLRA-based analysis of whether the common-law
joint employer exercises sufficient control over the terms and
conditions of employment of another employer's employees to permit
meaningful collective bargaining. A second commenter also points out
that the proposed rule does not expressly prohibit consideration of
indirect or reserved control and therefore does not contradict the
court's decision.
---------------------------------------------------------------------------
\233\ See comments of Restaurant Law Center; CDW.
---------------------------------------------------------------------------
Another commenter argues that it is irrelevant whether the rule is
consistent with Browning-Ferris v. NLRB because the court's decision
does not control the Board's rulemaking.\234\ Because the propriety of
the rulemaking was not before the court, the commenter maintains that
the court's instruction that the rulemaking must ``color within the
common-law lines identified by the judiciary,'' 911 F.3d at 1208, is
dicta. The commenter also states that rulemaking is an executive
function, not a judicial one, and he concludes from this that the
judiciary cannot dictate what the Board's rule should say unless the
rule contradicts the Act or Supreme Court precedent, and the proposed
rule does not.
---------------------------------------------------------------------------
\234\ See comment of General Counsel Robb.
---------------------------------------------------------------------------
The Board believes that the final rule is consistent with Browning-
Ferris v. NLRB. It incorporates indirect and reserved-but-unexercised
control over essential terms and conditions and treats them as
probative of joint-employer status to the extent they supplement and
reinforce evidence of direct and immediate control. The latter
limitation serves a purpose similar to the second step of the Browning-
Ferris standard--i.e., to ensure that only those entities that
``meaningfully affect[] matters relating to the employment
relationship'' are found to be joint employers. Rule Sec. 103.40(A).
But whereas Browning-Ferris left the regulated community utterly at sea
as to what ``sufficient control . . . to permit meaningful collective
bargaining'' actually meant, the final rule provides ample guidance.
Moreover, the final rule's treatment of these factors as non-
dispositive does not contradict the court's decision because the court
did not decide whether either indirect or reserved-but-unexercised
control can be dispositive of joint-employer status. 911 F.3d at 1213,
1218. The final rule thus comports with the court's decision.
Commenters propose multiple changes to the proposed rule based on
the D.C. Circuit's criticisms of Browning-Ferris. Specifically,
commenters propose (1) to provide legal scaffolding distinguishing
between control over essential terms and conditions of employment and
control over the basic contours of contracted-for service; and (2) to
specify the terms and conditions that are essential to meaningful
collective bargaining, and to clarify what meaningful collective
bargaining entails.\235\ As explained below, we believe the final rule
appropriately resolves the court's critiques of the Browning-Ferris
standard.
---------------------------------------------------------------------------
\235\ See comments of CDW; RILA; HR Policy Association;
Associated Builders and Contractors Inc.; IFA; American Hotel &
Lodging Association; General Counsel Robb; Jenner & Block, LLP;
Restaurant Law Center.
---------------------------------------------------------------------------
The first set of comments responds to the court's criticism of the
Board's application of the indirect control factor in Browning-Ferris.
The court criticized the Browning-Ferris Board for failing ``to hew to
the relevant common-law boundaries that prevent the Board from
trenching on the common and routine decisions that employers make when
hiring third-party contractors and defining the terms of those
contracts.'' Id. at 1219. The court remanded the case with instructions
``to erect some legal scaffolding that keeps the inquiry within
traditional common-law bounds.'' Id. at 1220.
Commenters make various proposals for how the rule could erect the
``legal scaffolding'' the D.C. Circuit directed the Board to provide.
One commenter proposes that the Board list and define essential terms
and conditions of employment.\236\ Two other commenters propose that
the rule explain the difference between global oversight of a company-
to-company business relationship and actual control over the essential
terms and conditions of employment of another employer's
employees.\237\
---------------------------------------------------------------------------
\236\ See comment of Restaurant Law Center.
\237\ See comments of Job Creators Network; IFA.
---------------------------------------------------------------------------
Some commenters propose that the rule exclude from the joint-
employer inquiry specific actions they say fall within the routine
contours of most joint undertakings. One commenter, for example,
proposes the rule state that the following factors do not support
joint-employer status: Decisions that set the objectives, basic ground
rules, and expectations for a third-party contractor; use of a cost-
plus contract; routine contractual terms; supervision that is inherent
to any joint undertaking; global oversight; cooperation and
coordination between a service recipient and a contractor's employees;
and the basic contours of a contracted-for service.\238\ A second
commenter proposes that the rule define ``substantial control'' to
exclude control asserted for the following reasons: To achieve
compliance with legally mandated requirements, to enforce product and
service standards in the franchise industry, to implement corporate
social responsibility initiatives, to establish deadlines, to preserve
quality control, to protect the brand, to implement and enforce
employee uniform guidelines, to implement third-party delivery and
courier services, to provide optional training programs, and to
authorize multi-employer associations to bargain on behalf of employer-
members.\239\
---------------------------------------------------------------------------
\238\ See comment of RILA.
\239\ See comment of CDW.
---------------------------------------------------------------------------
The final rule provides the legal scaffolding the D.C. Circuit
found lacking in the Board's Browning-Ferris standard. It responds to
the Court's holding that indirect control over the basic contours of a
contracted-for service does not support joint-employer status by
defining ``indirect control'' to exclude ``setting the objectives,
basic ground rules, or expectations for another entity's performance
under a contract.'' It also addresses the D.C. Circuit's admonishment
that ``not every aspect of control counts. . . . The critical question
is what is being controlled,'' 911 F.3d at 1220 (emphasis in original),
by requiring that indirect control be asserted over essential terms and
conditions of employment and by listing those essential terms
exhaustively. The rule thus provides the legal scaffolding necessary to
keep the joint-employer inquiry within common-law bounds and to ensure
that routine control inherent to any joint undertaking does not support
joint-employer status.
The final rule should also provide a satisfactory response to the
specific exclusions sought by several commenters because it provides
examples of specific acts that will not constitute direct and immediate
control over essential terms and conditions.\240\ The rule provides,
for example, that allowing another employer's employees to participate
in benefit plans, establishing an enterprise's operating hours, setting
deadlines for services, setting minimal hiring, performance, or conduct
standards pursuant to regulatory requirements, bringing misconduct or
poor performance to another employer's attention, entering into a cost-
plus contract, or instructing employees regarding what work to perform
and where and when to perform it but not how to perform it, among other
similar actions, will not
[[Page 11212]]
constitute direct and immediate control. These examples provide the
specificity sought by some commenters and further clarify the
distinction between control over essential terms of employment that
supports joint-employer status and routine features of company-to-
company contracting that do not.\241\
---------------------------------------------------------------------------
\240\ See comments of RILA; CDW.
\241\ As explained above, however, not every instance of control
that fails by definition to qualify as direct and immediate control
necessarily also fails to qualify as indirect control as a routine
feature of company-to-company contracting. Although this will
typically be the case, it remains a question of fact to be resolved
on a case-by-case basis. See Sec. II.B, ``Summary of Changes to the
Proposed Rule: Indirect Control,'' supra; Sec. V.B, ``Response to
Comments: Comments Regarding Indirect Control,'' supra.
---------------------------------------------------------------------------
The second set of comments responds to the court's criticism of the
Browning-Ferris standard's second step, which requires consideration of
``whether the putative joint employer possesses sufficient control over
employees' essential terms and conditions of employment to permit
meaningful collective bargaining.'' Browning-Ferris, 362 NLRB at 1600.
Regarding this step, the Court criticized the Browning-Ferris Board on
two counts. First, it said that ``the Board never delineated what terms
and conditions are `essential' to make collective bargaining
`meaningful.' '' Browning-Ferris v. NLRB, 911 F.3d at 1221-1222
(quoting Browning-Ferris, 362 NLRB at 1600). Second, it said that the
Board failed to ``clarify what `meaningful collective bargaining' might
require.'' Id. at 1222.
In response to the Court's critique, commenters request that the
rule define the terms and conditions ``essential'' to make collective
bargaining ``meaningful'' and clarify what ``meaningful collective
bargaining'' requires. To that end, one commenter proposes the rule
identify the subjects over which a joint employer must negotiate and
specify that they do not include decisions to change aspects of the
contracting arrangement affecting employment terms, to reallocate
bargaining responsibilities between employers, or to end a service
arrangement.\242\
---------------------------------------------------------------------------
\242\ See comment of RILA.
---------------------------------------------------------------------------
The final rule addresses the shortcomings the court identified in
Browning-Ferris's treatment of the second step of its framework by
eliminating that step and returning to the traditional standard
requiring substantial direct and immediate control over essential terms
and conditions of employment. Moreover, the final rule lists the
essential terms and conditions, thus providing the definition the court
requested. The final rule also sheds light on what meaningful
collective bargaining requires by specifying that to qualify as a joint
employer of another employer's employees, an entity ``must possess and
exercise such substantial direct and immediate control over one or more
essential terms or conditions of their employment as would warrant
finding that the entity meaningfully affects matters relating to the
employment relationship with those employees.'' Rule Sec. 103.40(A).
Concerned that the court's decision in Browning-Ferris v. NLRB may
lead the Board to give indirect and reserved control too much weight,
several commenters propose that the rule limit the roles that these
forms of control play in the joint-employer analysis. One commenter,
for example, requests that the rule specify that indirect and reserved
control are relevant only insofar as they are asserted over essential
terms and conditions of employment.\243\ Another commenter proposes
limiting indirect and reserved control to a specific right to displace
a contractor and directly control its employees, or alternatively, to
decisions made by the putative joint employer and conveyed indirectly
using the contractor as intermediary.\244\
---------------------------------------------------------------------------
\243\ See comment of Associated Builders and Contractors, Inc.
\244\ See comment of RILA.
---------------------------------------------------------------------------
The final rule clarifies the contours and limits of indirect and
reserved control consistent with both the commenters' requests and the
D.C. Circuit's opinion. The final rule specifies that indirect and
reserved control are probative of joint-employer status only to the
extent they supplement and reinforce evidence of direct and immediate
control. However, for reasons explained above, the Board has not
limited indirect and reserved control to a specific right to displace a
contractor and directly control its employees,\245\ and has not
alternatively defined indirect control as control conveyed through an
intermediary.\246\
---------------------------------------------------------------------------
\245\ See Sec. V.C, ``Response to Comments: Comments Regarding
Contractually Reserved But Unexercised Control,'' supra.
\246\ See Sec. V.B, ``Response to Comments: Comments Regarding
Indirect Control,'' supra.
---------------------------------------------------------------------------
Other comments advance additional proposals based on Browning-
Ferris v. NLRB. One commenter, for example, proposes that the Board
create a two-part standard to comply with the court's decision.\247\
The first part would require the putative joint employer to be a joint
employer under the common law, and the second part would be the
standard in the proposed rule. The Board declines this proposal because
the final rule does not need to consist of a two-part standard to
comply with the court's decision. The court did not require a two-part
structure for the joint-employer standard. It held only that the
standard must stay within the bounds of the common law. Browning-Ferris
v. NLRB, 911 F.3d at 1208. As explained above, the final rule is
consistent with that holding.
---------------------------------------------------------------------------
\247\ See comment of World Floor Covering Association.
---------------------------------------------------------------------------
Another commenter requests that the Board add ``significant'' to
the rule to match the phrasing used by the D.C. Circuit where it stated
that ``for roughly the last 25 years, the governing framework for the
joint-employer inquiry has been whether both employers `exert
significant control over the same employees' in that they `share or co-
determine those matters governing the essential terms and conditions of
employment.' '' Id. at 1209 (quoting NLRB v. Browning-Ferris Indus. of
Pennsylvania, Inc., 691 F.2d at 1124).\248\ The Board declines the
invitation because the final rule already requires significant control
for joint-employer status. It requires an entity to share or
codetermine employees' essential terms and conditions of employment,
which is what the D.C. Circuit referred to as ``significant'' control.
Again, in the quote above, the D.C. Circuit explained that the
traditional standard required joint employers to ``exert significant
control . . . in that they share or codetermine those matters governing
the essential terms and conditions of employment.'' Id. (emphasis
added). The Third Circuit posited the same equivalence, stating that
``where two or more employers exert significant control over the same
employees--where from the evidence it can be shown that they share or
co-determine those matters governing essential terms and conditions of
employment--they constitute `joint employers' within the meaning of the
NLRA.'' Browning-Ferris Indus. of Pennsylvania v. NLRB, 691 F.2d at
1124. Thus, ``significant'' control means sharing or codetermining
those matters governing essential terms and conditions of employment.
The proposed and final rules require as much and thus require
``significant'' control as defined by the D.C. Circuit.
---------------------------------------------------------------------------
\248\ See comment of Jenner & Block, LLP.
---------------------------------------------------------------------------
Commenters also discuss whether the D.C. Circuit's decision affects
the Board's authorization to promulgate a joint-employer standard via
rulemaking rather than case adjudication, or at least the propriety of
doing so. Two commenters argue that by advising that the rulemaking
must color within common-law lines rather than directing the Board to
adopt a specific rule or no
[[Page 11213]]
rule at all, the court acknowledged the propriety of the
rulemaking.\249\ Another commenter notes the court appeared deferential
to the rulemaking process because it emphasized that it issued its
decision only after the Board specifically requested it to proceed
notwithstanding the rulemaking process.\250\
---------------------------------------------------------------------------
\249\ See comments of HR Policy Association; General Counsel
Robb.
\250\ See comment of Chamber of Commerce.
---------------------------------------------------------------------------
Other commenters argue that Browning-Ferris v. NLRB undermines the
authority of the Board to engage in rulemaking on the joint-employer
standard. One commenter, for example, argues that under the logic of
the court's decision, the Board's authority extends only to applying
common-law principles to specific facts, thus rendering the rulemaking
beyond its statutory authority.\251\ Another commenter argues that the
Board cannot engage in rulemaking regarding the meaning of Section 2(2)
of the Act because it does not have discretion to define the employment
relationship other than how it is defined by the common law, which the
Board must apply in adjudication.\252\
---------------------------------------------------------------------------
\251\ See comment of Paul Thomas.
\252\ See comment of Professor Michael Harper.
---------------------------------------------------------------------------
The Board does not agree that Browning-Ferris v. NLRB limits its
authority to engage in rulemaking on the joint-employer standard. That
issue was not before the court. Moreover, the D.C. Circuit did not
indicate at any point in its decision that rulemaking regarding joint-
employer status is inappropriate. If anything, the court's majority
decision implicitly accepted the rulemaking as appropriate by
acknowledging it and instructing the Board, in its rulemaking, to
``color within the common-law lines identified by the judiciary.''
Browning-Ferris v. NLRB, 911 F.3d at 1208. The dissent also
acknowledged that ``the Board may establish standards through
rulemaking or adjudication.'' Id. at 1226 (citing 29 U.S.C. 156). There
is thus nothing in the court's decision indicating that the Board does
not have the authority to engage in this rulemaking, and much to
indicate the opposite.
Moreover, the arguments against the rulemaking mistake substance
for process. The common law of agency must inform the substance of the
joint-employer rule, not the process by which it is promulgated. The
Board is free to establish the joint-employer standard through
rulemaking or case adjudication, so long as the substance of the
standard colors within common-law lines. The final rule stays within
those bounds and is therefore consistent with Browning-Ferris v. NLRB.
One commenter argues that any rulemaking is premature while
Browning-Ferris v. NLRB is pending and could still be reviewed en banc
by the full D.C. Circuit or appealed to the Supreme Court.\253\ The
Board does not agree that the status of Browning-Ferris v. NLRB
undermines the rulemaking process because, as the Board informed the
D.C. Circuit, the final rule will be prospective only and thus not
affect that case. Id. at 1206. Also, as explained in the NPRM, the
Board initiated this rulemaking to invite broad public participation in
formulating a joint-employer standard and to provide certainty and
stability that will allow employers, unions, and employees to plan
their affairs free of the fear that the standard may change at any time
through case adjudication, and possibly retroactively. See Standard for
Determining Joint-Employer Status, 83 FR 46681, 46686. Browning-Ferris
v. NLRB does not affect the validity of these reasons and therefore
does not affect the propriety of the rulemaking.
---------------------------------------------------------------------------
\253\ See comment of SEIU National Fast Food Workers Union.
---------------------------------------------------------------------------
K. Comments Regarding Empirical Data on the Joint-Employer Standard's
Impact on Workplaces With Multiple Possible Employer Entities
Many commenters cite the rise of contingent employment and
alternative workforce arrangements as a significant reason for opposing
the proposed rule, and many commenters have described this economic
trend in detail. For example, one commenter represents that the
percentage of U.S. workers who participate in flexible contract work as
their primary job increased 56 percent between 2007 and 2017, and that
roughly 10 percent of workers in 2017 were employed in ``alternative
work arrangements,'' including 10.6 million independent contractors,
2.6 million on-call workers, 1.4 million temporary help agency workers,
and 933,000 workers provided by contract firms.\254\ Another commenter
similarly asserts that 94 percent of the net growth in employment
between 2005 and 2014 involved alternative work arrangements.\255\ Many
commenters contend that contingent employment results in lower wages
and poor workplace conditions.\256\
---------------------------------------------------------------------------
\254\ See comment of SEIU.
\255\ See comment of Congressman Scott, Senator Murray, et al.
\256\ See comments of Law and Economics Professors; Congressman
Scott and Senator Murray; Legal Aid at Work; APALA.
---------------------------------------------------------------------------
Relatedly, other commenters argue that the increased outsourcing of
business functions to contractors and subcontractors has resulted in
the ``fissuring'' of the workplace, where two or more firms control the
terms and conditions of employment.\257\ Often, the commenter argues,
large corporations enter into contracts that restrict subcontractors'
ability to grant wage increases or institute other changes in the
workplace. The commenter further contends that for workers in such
circumstances to be able to engage in meaningful collective bargaining,
the law must bring large corporations that reserve control over or
indirectly control those workers' terms and conditions of employment to
the bargaining table along with the subcontractors. Without such a
requirement, it contends, companies can use alternative workforce
arrangements to evade liability for violations of labor standards and
avoid collective bargaining.\258\
---------------------------------------------------------------------------
\257\ See, e.g., comment of EPI.
\258\ See also comments of Attorneys General of New York,
Pennsylvania, et al.; AFT; Teamsters Local 848.
---------------------------------------------------------------------------
Other commenters argue that the Board's refusal to address these
issues would constitute a failure on the part of the Board to adapt the
Act to the changing patterns of industrial life.\259\ Numerous
commenters cite these trends as reasons why the Board should retain the
Browning-Ferris standard, arguing that it better enables workers to
bargain with entities like franchisors and contractors and hold them
accountable for labor law violations.\260\ Moreover, several commenters
argue or suggest that the Board should consider economic factors when
determining whether an entity is a joint employer.\261\
---------------------------------------------------------------------------
\259\ Comments of Congressman Scott and Senator Murray; see also
IUOE; Wimmer.
\260\ See comments of Members of Congress; EPI; Congressman
Scott and Senator Murray; Justice in Motion; Karyn Panitch.
\261\ See comments of Law and Economics Professors; Southern
Poverty Law Center; CWA.
---------------------------------------------------------------------------
After considering these comments, the Board is not persuaded that
the trend toward increased contingent or temporary employment
relationships warrants abandoning the initial proposal to restore to
the joint-employer standard the requirement that a putative joint
employer exercise substantial direct and immediate control over
essential terms and conditions of employment. Instead, meaningful
collective bargaining is best promoted by a standard that places at the
bargaining table only those entities that actually control, directly
and immediately, the essential terms and conditions of employment of
another
[[Page 11214]]
employer's employees. That said, the final rule makes indirect and
reserved-but-unexercised control over essential terms and conditions
probative of joint-employer status to the extent they supplement and
reinforce direct and immediate control. Accordingly, the final rule
does make indirect and reserved control relevant to the joint-employer
analysis.
Opponents of the proposed rule cite research purportedly indicating
that the proposed rule would have negative economic consequences for
workers. Specifically, one commenter contends that the proposed rule
would make collective bargaining among subcontracted and temporary
workers nearly impossible, and that this would result in an annual
transfer of $1.3 billion from workers to employers.\262\
---------------------------------------------------------------------------
\262\ See comment of EPI; see also comments of IBT; Equal
Justice Center.
---------------------------------------------------------------------------
In contrast, supporters of the proposed rule contend that Browning-
Ferris has had negative economic consequences, including causing
franchisors to ``distance'' themselves from franchisees so that
franchisors will not be found joint employers.\263\ One commenter cites
as an example a franchisee who stopped receiving employee handbooks,
job application materials, and recruitment assistance from the
franchisor.\264\ According to a study by economist Ronald Bird,
franchisor ``distancing'' has resulted in lost output of between $17.2
billion and $33.3 billion per year.\265\ Additionally, commenters cite
a study claiming that Browning-Ferris has caused job growth in the
hotel industry to slow.\266\ Many commenters argue that the Browning-
Ferris standard has subjected potential joint employers to higher
litigation costs.\267\ Against these negative consequences, one
commenter suggests that the Browning-Ferris standard would not
necessarily improve economic outcomes for workers.\268\ It also argues
that it is proper for the Board to rely on the experience of commenters
in this rulemaking, especially in the absence of comprehensive data.
---------------------------------------------------------------------------
\263\ See comments of IFA; Johnson and Graham.
\264\ Comment of Ranking Member Foxx.
\265\ Comment of Chamber of Commerce.
\266\ Comments of American Action Forum; U.S. Senate Committee
on Health, Education, Labor, and Pensions (Senate HELP Committee).
\267\ Comments of International Warehouse Logistics Association;
Competitive Enterprise Institute; Restaurant Law Center.
\268\ Comment of IFA.
---------------------------------------------------------------------------
One commenter contends that the negative economic and social
effects of outsourcing cited by critics of the proposed rule have to be
weighed against the economic opportunities that outsourcing
provides.\269\ The commenter also contends that the growth of
contingent employment was not a valid reason for adopting the Browning-
Ferris standard and is not a valid reason for keeping it. Further, the
commenter argues that a joint-employer standard based on economic
influence would be unworkable and would not necessarily result in
better outcomes for employees. The commenter adds that it is not the
purpose of the Act to support collective bargaining outcomes favoring
labor. Relatedly, another commenter points out that 500,000 SEIU
members provide security services and are employed by contractors, and
it argues this shows that outsourcing has not prevented unionization or
stifled collective bargaining.\270\
---------------------------------------------------------------------------
\269\ Comment of Chamber of Commerce.
\270\ Comment of FordHarrison LLP.
---------------------------------------------------------------------------
The final rule is not based on a prediction by the Board regarding
purported economic impacts, if any, on workers' wages or the economy
generally. Rather, as explained throughout, returning to the joint-
employer framework that predated Browning-Ferris--a framework that no
court has ever found impermissible on common-law grounds--is warranted
on policy grounds. Its requirement of direct and immediate control over
essential terms and conditions of employment will best promote
meaningful collective bargaining. That same requirement, plus the
rule's exhaustive enumeration of those essential terms and conditions
and its descriptions of what does and does not count as direct and
immediate control with respect to each essential term or condition all
draw clear and readily discernible lines. Thus, the final rule should
produce predictable outcomes, and accordingly provide members of the
regulated community with the ability to structure their affairs with at
least one contingency removed from consideration.
L. Comments on the Hypothetical Scenarios Contained in the Text of the
Proposed Rule
Many commenters write favorably regarding the hypothetical
scenarios--called ``examples'' in the NPRM--contained in the regulatory
text of the proposed rule, stating, among other things, that they are
helpful; \271\ address common situations that the Board has not
necessarily had the opportunity to address before; \272\ allow the
Board to advise, now, whether those situations satisfy the proposed
rule's standard rather than leaving them unresolved to some indefinite
future time; \273\ and provide the type of additional ``scaffolding''
that the D.C. Circuit in Browning-Ferris v. NLRB said was missing from
the Browning-Ferris joint-employer standard.\274\
---------------------------------------------------------------------------
\271\ Comments of the Restaurant Law Center; International
Bancshares Corporation; and Associated Builders and Contractors,
Inc.
\272\ Comment of COLLE.
\273\ Id.
\274\ Id.
---------------------------------------------------------------------------
By contrast, many commenters criticize the scenarios, stating,
among other things, that they are unhelpful; \275\ some of them are
inconsistent with the text of the proposed rule or the commentary in
the NPRM; \276\ many of them raise unanswered questions; \277\ the NPRM
failed to explain their regulatory force; \278\ they assume that
employers make explicit exercises of power that are not always made
explicit in the real world; \279\ they fail to consider the interplay
of multiple factors, which is what actual cases almost always involve;
\280\ and they suggest that exercising control over a single term of
employment, without regard to its significance, could create joint-
employer status.\281\
---------------------------------------------------------------------------
\275\ Comment of 1199SEIU United Healthcare Workers East.
\276\ Comments of 1199SEIU United Healthcare Workers East; SEIU;
Employment Law Alliance.
\277\ Comment of SEIU.
\278\ Id.
\279\ Comment of IBT.
\280\ Comments of General Counsel Robb; AFL-CIO; SEIU Local
32BJ; 1199SEIU United Healthcare Workers East; IUOE; SEIU;
Employment Law Alliance.
\281\ Comments of General Counsel Robb; SEIU; Employment Law
Alliance.
---------------------------------------------------------------------------
Having considered these comments and on further review, the Board
has decided not to include in the final rule the examples from the
proposed rule. As several commenters note, real-life fact patterns are
likely to be far more complex than those portrayed in the examples'
hypothetical scenarios, and therefore the scenarios are not that
useful. Nevertheless, as discussed elsewhere, the Board has sought to
clarify the joint-employer standard by adding definitions of its key
terms to the regulatory text. The Board believes that this captures the
benefits of the examples while avoiding the more negative aspects noted
by some commenters. The Board also believes that this approach helps
provide the ``scaffolding'' that the court in Browning-Ferris v. NLRB
found lacking in the Browning-Ferris standard.
Additionally, one commenter states that the Board should consider
the totality of the circumstances in each case, including both evidence
of a putative joint employer's control as well as evidence of its lack
of control.\282\
[[Page 11215]]
Consistent with this comment, the final rule makes clear that joint-
employer status ``must be determined on the totality of the relevant
facts in each particular employment setting.'' Rule Sec. 103.40(A).
---------------------------------------------------------------------------
\282\ Comment of the Employment Law Alliance.
---------------------------------------------------------------------------
The final rule also incorporates, in various ways, other feedback
received on the hypothetical scenarios from the proposed rule.
Specifically, one commenter notes that Examples 1 and 2 did not provide
any guidance as to the impact of a finding of control over the wage
rate.\283\ The final rule clarifies what ``direct and immediate
control'' over wages is and is not.
---------------------------------------------------------------------------
\283\ Comment of General Counsel Robb.
---------------------------------------------------------------------------
Regarding Examples 2 and 11, one commenter states that, in the
contract-security industry, a company must be able to impose certain
requirements and should be able to have a contract employee removed
from its property for poor or unprofessional performance or for
engaging in illegal activities.\284\ The final rule clarifies that an
entity does not exercise ``direct and immediate control'' where it
refuses to allow another employer's employee to access its premises or
to continue performing work under a contract.
---------------------------------------------------------------------------
\284\ Comment of John B. Hirsch.
---------------------------------------------------------------------------
Regarding Example 6, one commenter suggests making it clear that
Franchisor has not exercised direct and immediate control over
essential terms and conditions of employment of Franchisee's employees
to the extent Franchisor merely recommends or coordinates the
availability of certain benefits that Franchisee is not obligated to
offer to its employees.\285\ The final rule makes clear that an entity
does not exercise direct and immediate control over benefits by
permitting another employer, under an arms-length contract, to
participate in its benefit plans.
---------------------------------------------------------------------------
\285\ Comment of Polsinelli PC.
---------------------------------------------------------------------------
Regarding Example 2, one commenter notes that some employers may
use unfounded complaints from other entities to terminate employees'
employment.\286\ Regarding Example 3, one commenter asks whether a user
entity that makes use of coded language and thinly veiled complaints to
direct a supplier of temporary employees not to furnish African-
American employees would qualify as having exercised ``direct and
immediate'' control over those workers' terms of employment.\287\ The
final rule makes clear that joint-employer status will be determined
``on the totality of the relevant facts in each particular employment
setting.'' Thus, the Board will consider the facts of each case,
including the degree of control that the putative joint employer
exercises.
---------------------------------------------------------------------------
\286\ Comment of Wholesale Delivery Drivers, General Truck
Drivers, Chauffeurs, Sales, Industrial and Allied Workers, Local
848, IBT.
\287\ Comment of Legal Aid Justice Center.
---------------------------------------------------------------------------
One commenter states that the examples do not indicate how many
instances of direct and immediate control are required and that, while
several examples describe control that is ``direct and immediate,''
none explains whether an entity would be deemed a joint employer based
on the facts in those examples, or how many other ``essential terms and
conditions'' an employer must control.\288\ As discussed above, the
definition of ``substantial direct and immediate control'' in the final
rule states that the entity must ``possess and exercise such
substantial direct and immediate control over one or more essential
terms or conditions of . . . employment as would warrant finding that
the entity meaningfully affects matters relating to the employment
relationship'' with another employer's employees.
---------------------------------------------------------------------------
\288\ Comment of SEIU.
---------------------------------------------------------------------------
M. Comments Regarding the Propriety of Using Rulemaking To Revisit the
Joint-Employer Standard and of the Adequacy of the Rulemaking Process
The Board's general rulemaking authority has been recognized both
by commenters supporting the rule and by those opposing the rule.\289\
Several commenters favor using rulemaking to revise the joint-employer
standard. They contend that rulemaking will promote predictability and
stability in a way that ``sequential adjudications'' will not,\290\
that rulemaking allows for the submission of comments that are not tied
to the particular facts in a specific case,\291\ and that rulemaking
permits more thorough deliberation via the notice-and-comment
process.\292\ In addition, some commenters argue that the proposed rule
would further policy goals that have been stalled in Congress.\293\
---------------------------------------------------------------------------
\289\ See Comment of Senate HELP Committee; Society of Human
Resource Management; see also comment of IUOE (acknowledging as a
general matter that Sec. 6 authorizes the Board to engage in
rulemaking, but arguing that rulemaking is not necessary in these
circumstances).
\290\ Comment of Jenner & Block, LLP.
\291\ Comment of Restaurant Law Center.
\292\ Comment of Chamber of Commerce.
\293\ See comments of Members of Congress; Society of Human
Resource Management.
---------------------------------------------------------------------------
One commenter acknowledges that the Board has statutory authority
to promulgate a rule on joint-employer status, but urges the Board to
rely on several other provisions of the Act, as well as Section 6, in
promulgating this rule.\294\ As noted by that commenter, Section 6
authorizes the Board to make rules and regulations ``as may be
necessary to carry out the provisions of this Act.'' \295\ The
commenter cites Chamber of Commerce of the United States v. NLRB, 721
F.3d 152, 160 (4th Cir. 2013), where the court explained that Section 6
requires some other section of the Act to provide either explicit or
implicit authority to issue a particular rule. The court there found
that the Board had exceeded its statutory authority when it promulgated
a rule requiring employers to post in the workplace a notice informing
employees of their rights under the Act. As noted above, the Board has
determined that Section 6 authorizes the final rule as necessary to
carry out Sections 2, 7, 8, 9, and 10 of the Act, 29 U.S.C. 152, 157,
158, 159, and 160, respectively.
---------------------------------------------------------------------------
\294\ Comment of National Federation of Independent Businesses
(NFIB).
\295\ Comment of NFIB at 2. See also comment of Professor Harper
(arguing that the proposed rule was not within the Board's authority
because it purports to articulate an abstractly stated law defining
the employment relationship, rather than the relevance of that
relationship to particular provisions of Sec. 8 or 9 of the Act).
---------------------------------------------------------------------------
In contrast, other commenters oppose the Board's use of rulemaking
to establish the joint-employer standard. For the following reasons,
the Board finds these arguments unpersuasive.
One commenter states that a desire by the Board to avoid policy
oscillation cannot serve as a proper basis for rulemaking because the
proposed rule would represent further oscillation with respect to the
joint-employer standard.\296\ However, the Board's desire is not to
avoid change in this area of the law altogether but to best effectuate
the policies of the Act, consistent with the common law and informed by
the comments we have received. Further, the Board believes that
rulemaking will provide greater predictability for members of the
regulated community than a standard established through adjudication,
where retroactive application of new policies and standards is the
Board's usual practice. See, e.g., SNE Enterprises, 344 NLRB 673, 673
(2005).
---------------------------------------------------------------------------
\296\ See comment of IUOE.
---------------------------------------------------------------------------
Some commenters argue that the Board's reference in the NPRM to
``continuing uncertainty'' in the labor-management community in the
wake of the Board's decision in Browning-Ferris was unfounded.\297\ The
Board disagrees. The continuing uncertainty referred to arose from the
adjudicatory shifts in the joint-employer standard that had taken place
within a relatively short period of
[[Page 11216]]
time beginning with Browning-Ferris, as noted above.\298\ Moreover, the
vacatur of Hy-Brand I in Hy-Brand II did not reflect a Board majority
to return to the Browning-Ferris standard on doctrinal grounds, and
this certainly prompted reasonable doubt among the Board's stakeholders
regarding the post-Hy-Brand II status of the Browning-Ferris standard,
which sprang back into place by default rather than conviction. It is
surely the case that this state of affairs was unstable and demanded
resolution.
---------------------------------------------------------------------------
\297\ Comment of Law and Economics Professors at 10; EPI at 2-3.
\298\ See Sec. III.B, ``Justification for Using Rulemaking,
Rather than Adjudication, to Revise the Joint-Employer Standard: The
Preference for Rulemaking over Adjudication,'' supra.
---------------------------------------------------------------------------
One commenter argues that rulemaking is inappropriate because the
reasons justifying past rulemakings by the Board--judicial rejection of
adjudicatory attempts to formulate a standard regarding bargaining
units in the healthcare industry; the purported need to provide a
comprehensive update of the Board's representation-election rules--are
absent here.\299\ But Section 6 of the Act broadly authorizes the Board
to make rules and regulations ``as may be necessary to carry out the
provisions of [the Act],'' and the Board has identified the provisions
of the Act that this rulemaking effectuates.\300\ Supreme Court
precedent also supports the Board's discretion to act through
rulemaking rather than adjudication. See NLRB v. Bell Aerospace Co.,
416 U.S. at 294 (``[T]he choice between rulemaking and adjudication
lies in the first instance within the Board's discretion.''). Nothing
in the Act or judicial precedent warrants a conclusion that the Board
may only engage in rulemaking for reasons the Board has cited in the
past.
---------------------------------------------------------------------------
\299\ Comment of IUOE.
\300\ See Sec. III.A, ``Justification for Using Rulemaking,
Rather than Adjudication, to Revise the Joint-Employer Standard:
Authority to Engage in Rulemaking,'' supra.
---------------------------------------------------------------------------
Another commenter suggests that rulemaking is suspect because it is
a ``purely political process'' and because adjudication is the Board's
``normal'' process.\301\ Preliminarily, it is not clear what the
commenter means by a ``purely political process.'' To the extent the
commenter refers to policy-based views that influence how a Board
member applies the Act and that tend to correlate with a member's party
affiliation, case adjudication is no less ``political'' than
rulemaking. No less than case adjudication, rulemaking involves
reasoned decision-making, conducted within the constraints of the APA
and subject to judicial review. As demonstrated below, the Board has
carefully considered all comments with an open mind, and the final rule
we have formulated represents our reasoned determination regarding the
appropriate standard for determining joint-employer status. The fact
that the Board has not routinely engaged in rulemaking in the past does
not preclude us from doing so now (see Bell Aerospace Co., 416 U.S. at
294), and while the Board typically makes substantive policy
determinations through adjudication rather than rulemaking, this has
been criticized by numerous commentators.\302\
---------------------------------------------------------------------------
\301\ Comment of Professor George Gonos at 2-3.
\302\ See R. Alexander Acosta, Rebuilding the Board: An Argument
for Structural Change, over Policy Prescriptions, at the NLRB, 5 FIU
L. Rev. 347, 351-52 (2010); Merton C. Bernstein, The NLRB's
Adjudication-Rule Making Dilemma Under the Administrative Procedure
Act, 79 Yale L.J. 571, 589-90, 593-98 (1970); Samuel Estreicher,
Policy Oscillation at the Labor Board: A Plea for Rulemaking, 37
Admin. L. Rev. 163, 170 (1985); Jeffrey S. Lubbers, The Potential of
Rulemaking by the NLRB, 5 FIU L. Rev. 411, 414-17, 435 (2010);
Kenneth Kahn, The NLRB and Higher Education: The Failure of
Policymaking Through Adjudication, 21 UCLA L. Rev. 63, 84 (1973);
Charles J. Morris, The NLRB in the Dog House--Can an Old Board Learn
New Tricks?, 24 San Diego L. Rev. 9, 27-42 (1987); Cornelius Peck,
The Atrophied Rule-making Powers of the National Labor Relations
Board, 70 Yale L.J. 729, 730-34 (1961); Cornelius J. Peck, A
Critique of the National Labor Relations Board's Performance in
Policy Formulation: Adjudication and Rule-Making, 117 U. Pa. L. Rev.
254, 260, 269-72 (1968); David L. Shapiro, The Choice of Rulemaking
or Adjudication in the Development of Administrative Policy, 78
Harv. L. Rev. 921, 922 (1965); Carl S. Silverman, The Case for the
National Labor Relations Board's Use of Rulemaking in Asserting
Jurisdiction, 25 Lab. L.J. 607 (1974); Berton B. Subrin, Conserving
Energy at the Labor Board: The Case for Making Rules on Collective
Bargaining Units, 32 Lab. L.J. 105 (1981).
---------------------------------------------------------------------------
Several commenters contend that adjudication is preferable to
rulemaking because adjudication assertedly permits the Board to develop
joint-employer doctrine more carefully, one case at a time.\303\ But
rulemaking enables the Board to provide the regulated community greater
certainty beforehand, as the Supreme Court has instructed that we
should do. First Nat'l Maint. Corp. v. NLRB, 452 U.S. at 679. The Board
also observes that in substance, the final rule codifies the Board's
joint-employer law as it existed before Browning-Ferris, and therefore
it reflects the Board's application of the joint-employer doctrine in
numerous pre-Browning-Ferris cases. Moreover, disputes over joint-
employer status will continue to arise and be resolved through
adjudication under the standard set forth in the final rule, and the
joint-employer doctrine will therefore continue to develop.
---------------------------------------------------------------------------
\303\ See comments of NC National Employment Lawyers
Association; UA.
---------------------------------------------------------------------------
One commenter argues that it is a vice, rather than a virtue, that
a standard codified in a regulation is more difficult to change than
one developed through adjudication, especially because a regulation
would, in its view, deprive the Board of the flexibility needed to take
into account ``ever-changing factors in our dynamic economy.'' \304\ As
discussed above, however, we believe that the comparative stability of
rulemaking over case adjudication as the means of establishing the
joint-employer standard is a virtue, as it will enhance labor-
management stability, the promotion of which is one of the principal
purposes of the Act. To the extent the commenter is arguing that the
Board should consider economic factors, the Board declines to base the
final rule on consideration of ``the wider universe of all underlying
economic facts that surround an employment relationship,'' as the Board
did in Browning-Ferris itself. Browning-Ferris, 362 NLRB at 1611 fn.
68, 1615. And the Board agrees with former Members Miscimarra and
Johnson that ``the inescapable conclusion to be drawn from the Taft-
Hartley legislation repudiating [NLRB v. Hearst Publications, 322 U.S.
111 (1944)] is that Congress must have intended that common-law agency
principles, rather than . . . policy-based economic realities . . .
govern the definition of employer . . . under the Act.'' Browning-
Ferris, 362 NLRB at 1625. Moreover, while the Board believes that the
stability and predictability provided through rulemaking is both
beneficial and consistent with the Supreme Court's guidance in First
National Maintenance, the final rule will not prevent the Board from
implementing change when appropriate, either through adjudication that
further refines the rule, consistent with its text, or through
additional rulemaking.
---------------------------------------------------------------------------
\304\ Comment of IUOE at 8.
---------------------------------------------------------------------------
One commenter argues that rulemaking is an inefficient use of Board
resources.\305\ While the Board has devoted significant resources to
this effort, we have done so efficiently and reasonably and have
concluded that the effort is worth the long-term stability and
predictability the final rule will provide.
---------------------------------------------------------------------------
\305\ Comment of Cohen.
---------------------------------------------------------------------------
Another commenter suggests that it would have been more efficient
for the Board to have engaged in interpretive rulemaking, as an
interpretative rule could accomplish similar goals and would not
require the Board to respond to comments.\306\ As an initial matter,
the commenter does not explain how an interpretive rule would be
appropriate
[[Page 11217]]
in these circumstances. ``[T]he critical feature of interpretive rules
is that they are `issued by an agency to advise the public of the
agency's construction of the statutes and rules which it administers.'
'' Perez v. Mortg. Bankers Ass'n, 575 U.S. 92, 97 (2015) (quoting
Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 99 (1995)). ``If the rule
cannot fairly be seen as interpreting a statute or a regulation, and if
. . . it is enforced, `the rule is not an interpretative rule exempt
from notice-and-comment rulemaking.' '' Catholic Health Initiatives v.
Sebelius, 617 F.3d 490, 494 (D.C. Cir. 2010) (quoting Cent. Texas Tel.
Coop., Inc. v. FCC, 402 F.3d 205, 212 (D.C. Cir. 2005)). ``Joint
employer'' is not a statutory term, and no Board rule or regulation
currently defines it, so interpretive rulemaking is not an option here.
Even if it were, the opportunity to receive input through the notice-
and-comment process was one of the reasons the Board decided to embark
on this rulemaking, and being able to receive, consider, and respond to
comments outweighs any efficiency that might be gained from foregoing
that process. Furthermore, an interpretive rule would not provide the
stability and predictability that will be provided by the final rule as
the culmination of notice-and-comment rulemaking. See Perez, 575 U.S.
at 101 (``Because an agency is not required to use notice-and-comment
procedures to issue an initial interpretive rule, it is also not
required to use those procedures when it amends or repeals that
interpretive rule.'').
---------------------------------------------------------------------------
\306\ Comment of Thomas.
---------------------------------------------------------------------------
One commenter asserts that the proposed rule runs counter to the
APA's ``presumption against changes in current policy.'' \307\ The
commenter further argues that an agency ``must provide a more
substantial explanation for a policy that departs from its former views
where `its new policy rests upon factual findings that contradict those
which underlay its prior policy.' '' Comment of Attorneys General of
New York, Pennsylvania, et al. (quoting FCC v. Fox Television Stations,
Inc., 556 U.S. 502, 515 (2009)).
---------------------------------------------------------------------------
\307\ See comment of Attorneys General of New York,
Pennsylvania, et al., at 8 (citing Motor Vehicle Manufacturers Assn.
v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)).
---------------------------------------------------------------------------
In Fox, the Court clarified that its ``opinion in State Farm
neither held nor implied that every agency action representing a policy
change must be justified by reasons more substantial than those
required to adopt a policy in the first instance.'' 556 U.S. at 514.
Moreover, the Court explained that while an agency must provide a more
detailed justification when, for example, ``its new policy rests upon
factual findings that contradict those which underlay its prior
policy,'' further explanation was needed ``for disregarding facts''
rather than for ``the mere fact of policy change.'' Id. at 515-516.
Because there is no heightened standard that must be met in order to
justify a change in the Board's joint-employer standard, and because
the Board has fully explained its reasoning and has not disregarded any
relevant facts, the claim of the commenter is misplaced.
In any event, the Board is firmly convinced that the final rule is
an improvement over the standard set forth in Browning-Ferris, for
several reasons. As discussed above, at the first step of the Browning-
Ferris analysis, where the Board considered the putative joint
employer's control over the terms and conditions of employment of
another employer's workers, the Board failed to draw meaningful
distinctions between direct control and indirect and/or reserved-but-
unexercised control, giving them equal weight. At the second step of
the Browning-Ferris analysis, the Board seemingly recognized that these
different kinds of control cannot be accorded equal weight by requiring
consideration of whether the putative joint employer's control is ``too
limited in scope or significance to permit meaningful collective
bargaining.'' 362 NLRB at 1614. However, Browning-Ferris provided no
guidance for determining when ``meaningful collective bargaining'' is
possible, and the Browning-Ferris Board neglected even to attempt that
analysis. Moreover, Browning-Ferris failed to provide meaningful
guidance on the definition of ``essential'' terms and conditions of
employment, and it also provided ``no blueprint for what counts as
`indirect' control.'' Browning-Ferris v. NLRB, 911 F.3d at 1220. As a
result of these flaws, the Browning-Ferris Board impermissibly based
its joint-employer finding on ``routine feature[s] of independent
contracts,'' precluding enforcement of its decision. Id.
The final rule comprehensively addresses all these shortcomings
more fully than would be possible in the adjudication of a case. It re-
establishes a commonsense hierarchy that recognizes the superior force
of evidence of actually exercised direct and immediate control as
compared with indirect and reserved-but-unexercised control. It
provides an exhaustive list of ``essential'' terms and conditions of
employment, and for each essential term it specifies what will and will
not count as direct and immediate control over that essential term. In
these ways, the final rule provides vital guidance regarding the
circumstances in which joint-employer status will and will not attach.
The final rule also erects the ``legal scaffolding'' demanded by the
D.C. Circuit in Browning-Ferris v. NLRB to ensure that the joint-
employer inquiry will be confined ``within traditional common-law
bounds.'' Id. And by defining the relative weight of direct and
immediate control and other types of control, the final rule eliminates
the cumbersome two-step Browning-Ferris analysis, with its standardless
inquiry into whether meaningful collective bargaining is possible.
One commenter argues that the Board has failed to adequately
consider the costs of the proposed rule relative to its benefits,
beyond mere costs to small businesses and labor unions.\308\ The
commenter argues that courts have required consideration of cost,
citing Michigan v. EPA, 135 S. Ct. 2699, 2711 (2015); Bus. Roundtable
v. SEC, 647 F.3d 1144 (D.C. Cir. 2011); and Corrosion Proof Fittings v.
EPA, 947 F.2d 1201 (5th Cir. 1991). The commenter also argues that the
Board is ignoring economic theory and research on the consolidation and
abuse of indirect power wielded by third parties over market wages and,
hence, direct employers' wage-setting decisions. In addition, the
commenter contends that the NPRM fails to comply with Executive Order
13725, ``Steps to Increase Competition and Better Inform Consumers and
Workers to Support Continued Growth of the American Economy,'' which,
the commenter asserts, encourages agencies to ``build upon efforts to
detect abuses such as . . . anticompetitive behavior in labor and other
input markets, exclusionary conduct, and blocking access to critical
resources that are needed for competitive entry.'' Law and Economics
Professors at 16 (ellipsis in original) (quoting Executive Order 13725,
Sec. 2(b), 81 FR 23417 (Apr. 15, 2016)). In this regard, the commenter
argues that the Board must at least explain why it failed to deem
franchisors that include no-poaching clauses in franchise agreements as
joint employers.
---------------------------------------------------------------------------
\308\ See comment of Law and Economics Professors.
---------------------------------------------------------------------------
Contrary to the suggestion of the commenter, and for reasons
already explained, it is inappropriate to base the joint-employer
standard on studies regarding economic impact because the Board is
constrained to base the standard on the common law, applied in the
particular context of the Act.
[[Page 11218]]
Moreover, the cases cited by the commenter involve statutes that,
unlike the Act, contain wording indicating that costs must be
considered. See Michigan v. EPA, 135 S. Ct. at 2704, 2707-2708, 2711-
2712 (finding provision of the Clean Air Act directing agency to
regulate emissions from power plants if the agency finds regulation
``appropriate and necessary'' indicated, when read naturally and in
context with related provision concerning costs, that agency had to
consider cost when making the finding); Business Roundtable, 647 F.3d
at 1146, 1156 (finding agency failed to adequately consider effect on
efficiency, competition, and capital formation, as required by Section
3(f) of the Exchange Act and Section 2(c) of the Investment Company Act
of 1940, in promulgating rule at issue); Corrosion Proof Fittings, 947
F.2d at 1207-1208, 1215 (finding agency failed to give adequate weight
to the requirement under the Toxic Substances Control Act that it
promulgate the least burdensome reasonable regulation required to
protect the environment). Accordingly, this argument is misplaced.
With respect to Executive Order 13725, that order encourages, but
does not require, independent agencies to comply with the order. Id.
Sec. 3(b). As the NLRB is an independent agency, see 44 U.S.C. 3502(5),
it is not required to comply with Executive Order 13725.
Finally, the Board does not agree with the notion that joint-
employer status should arise from the purported effect on competition
for labor from franchisor-franchisee no-poaching agreements. For one
thing, competition for labor is only one factor in the wage an employer
offers. Moreover, the disputed no-poaching agreements, as described by
the commenter, limit the ability of franchisees to hire employees of
the franchisor or other franchisees of that franchisor. Such provisions
place no limit on cross-franchise competition for labor. Regardless of
whether one fast food franchise can hire an employee away from another
franchisee of the same franchisor, a no-poaching agreement between a
franchisee and franchisor would not prevent the franchisee from hiring
an employee away from franchisees of a different franchisor. Whatever
highly attenuated influence no-poaching agreements may have on market
wages, it is a far cry from direct and immediate control over wages as
defined in the final rule--the kind of control that warrants placing
the entity that exercises it at the bargaining table.
One commenter argues that the proposed rule violates Executive
Order 13771, ``Reducing Regulation and Controlling Regulatory Costs,''
which requires that ``for every one new regulation issued, at least two
prior regulations be identified for elimination, and that the cost of
planned regulations be prudently managed and controlled through a
budgeting process.'' \309\ However, Executive Order 13371 does not
govern independent regulatory agencies, such as the NLRB, under 44
U.S.C. 3502(5). OMB Memorandum M-17-21-OMB, Guidance Implementing
Executive Order 13771, Titled ``Reducing Regulation and Controlling
Regulatory Costs'' (Apr. 5, 2017) at 3, 9. Accordingly, the Board is
not obligated to eliminate any regulations in connection with
promulgating this final rule.
---------------------------------------------------------------------------
\309\ See comment of Texas RioGrande Legal Aid at 4 (quoting
Executive Order 13371, 82 FR 9339 (Jan. 30, 2017)).
---------------------------------------------------------------------------
Several commenters argue that the Board failed to properly consider
the value of taking no action, or the value of promulgating a standard
that makes entities with sufficient market power joint employers,
because the Board did not base its decision on empirical data or
economic and public policy research.\310\
---------------------------------------------------------------------------
\310\ See comments of Law and Economics Professors; CWA; SEIU.
---------------------------------------------------------------------------
To the extent the commenters are contending that the Board failed
to consider alternatives, the contention is incorrect. The Board sought
comment on ``all aspects'' of the proposed rule, including whether the
common law dictated the approach of the proposed rule or of Browning-
Ferris or left room for either approach, and the Board has received and
considered thousands of comments concerning the proper joint-employer
standard. Standard for Determining Joint-Employer Status, 83 FR at
46687; see also id. at 46696 (noting that Board considered and rejected
possibility of taking no action).
To the extent the commenters are arguing that the Board should have
engaged in an economic analysis assessing the value of taking no
action, the argument has no merit. As stated repeatedly herein, the
joint-employer standard is governed by the common law as applied within
the context of the Act, not by broader economic factors. See, e.g.,
Browning-Ferris, 362 NLRB at 1611 fn. 68, 1615 (rejecting consideration
of ``the wider universe of all underlying economic facts that surround
an employment relationship''); id. at 1625 (dissenting opinion)
(indicating that common-law agency principles, rather than an expansive
policy-based economic realities and statutory purpose approach, govern
the definition of employer and employee under the Act).
One commenter asserts that the Board has failed to provide
sufficient time for comments.\311\ Specifically, it contends that the
NPRM provided only seven days after initial comments were due for the
filing of reply comments, and that this amount of time was insufficient
to review the 26,197 comments that had been submitted as of January 28,
2019.
---------------------------------------------------------------------------
\311\ See comment of AFL-CIO.
---------------------------------------------------------------------------
Contrary to this commenter, the time provided for comments was more
than sufficient. Preliminarily, the APA provides no minimum comment
period, and many agencies, including the Board in past rulemaking
proceedings, have afforded comment periods of only 30 days. Agencies
have discretion to provide still shorter periods and are simply
``encouraged to provide an appropriate explanation for doing so.''
Administrative Conference of the United States Recommendation 2011-2
(June 16, 2011), at 3.
The NPRM, which issued September 14, 2018, announced a deadline for
initial comments of November 13, 2018, and that reply comments needed
to be received on or before November 20, 2018. The Board then extended
the comment period three times, for a total of 76 additional days. This
included an extension the Board granted following the D.C. Circuit's
decision in Browning-Ferris v. NLRB in order to permit the public an
opportunity to address that decision. Ultimately, comments needed to be
received on or before January 28, 2019, and comments replying to the
comments submitted during the initial comment period needed to be
received no later than 14 days later, February 11, 2019.\312\ Although
the APA does not require this reply period, the Board provided it to
give itself the best opportunity to gain all information necessary to
make an informed decision. The nearly 29,000 comments submitted and the
depth of analysis many of them provide are ample testament to the
adequacy of the comment period.
---------------------------------------------------------------------------
\312\ NLRB Further Extends Time for Submitting Comments on
Proposed Joint-Employer Rulemaking in Light of D.C. Circuit's Recent
Browning-Ferris Decision, NLRB (Jan. 11, 2019), https://www.nlrb.gov/news-outreach/news-story/nlrb-further-extends-time-submitting-comments-proposed-joint-employer-1.
---------------------------------------------------------------------------
Several commenters argue that the Board should have held public
hearings in connection with this rulemaking, as it has done in prior
rulemakings. Commenters assert that hearings would provide more input
and would help dispel the impression that the outcome was
preordained.\313\ However, the APA
[[Page 11219]]
does not require public hearings. Further, while the Board understands
the value of public hearings and is willing to hold hearings in
appropriate circumstances, it has seen public hearings devolve into
nothing more than individuals reading their already-submitted written
comments aloud. In those circumstances, the Board gains little
additional information from a public hearing while expending
significant time and resources to hold it.\314\ In light of these
considerations, the Board decided not to hold public hearings in
connection with this rulemaking. However, as noted above, the nearly
29,000 comments submitted and the depth of analysis many of them
provide are ample testament to the adequacy of the opportunities for
public participation in this rulemaking process. In addition, the Board
stated in the NPRM that it would review the public's comments and
consider joint-employer issues ``afresh, with the good-faith
participation of all members of the Board,'' 83 FR at 46687, and has
done so. The Board thus rejects the suggestion that the outcome of this
rulemaking was preordained. Indeed, the several changes to the proposed
rule reflected in the final rule, based on comments received, clearly
demonstrate the contrary.
---------------------------------------------------------------------------
\313\ See comments of AFL-CIO; IUOE; Members of Congress; Cohen;
IBT.
\314\ See Letter from Chairman Ring to Senator Murray (Nov. 8,
2019), https://www.nlrb.gov/sites/default/files/attachments/news-story/node-7827/ring-murray-rulemakings-final.pdf.
---------------------------------------------------------------------------
The AFL-CIO argues that the Board violated the APA by relying on
arguments and evidence outside the rulemaking record \315\--
specifically, petitions for rulemaking filed by the CDW and other
organizations (including the HR Policy Association, the Restaurant Law
Center, and the IFA). The AFL-CIO notes that the Board did not mention
the petitions in the NPRM, that the petitions had not otherwise been
disclosed, that the AFL-CIO did not learn about the petitions until
December 6, 2018, and that the petitions were not made part of the
rulemaking record. Further, the AFL-CIO asserts that the Board departed
from past practice by failing to disclose the petitions in the NPRM.
Additionally, the AFL-CIO asserts that the NPRM did not explain the
change in practice.
---------------------------------------------------------------------------
\315\ The AFL-CIO contends that an agency ``cannot rely on
arguments or evidence that are not made part of the rulemaking
record.'' Comment of AFL-CIO at 59. For support, the AFL-CIO states
that 5 U.S.C. Sec. 706 ``direct[s] courts to `review the whole
record or those parts of it cited by a party' in determining whether
agency action was `arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.' '' Id. (quoting 5 U.S.C. Sec.
706).
---------------------------------------------------------------------------
The HR Policy Association counters that the Board did not act
improperly, and it asserts that (1) the Board did not rely on the
petitions; (2) the Board was not required to include the petitions in
the record; (3) by submitting the petitions with its comments, the AFL-
CIO has provided the public an opportunity to comment on the petitions;
and (4) many of the organizations involved issued press releases
regarding their petitions, and there was media coverage about potential
rulemaking. HR Policy Association at 3-5 and fn. 8 (citing June 2018
press releases and news reports regarding rulemaking petitions).\316\
---------------------------------------------------------------------------
\316\ Specifically, HR Policy Association cites the following:
Callie Harman, NAM Joins Business Groups to Petition NLRB on Joint-
Employer Rulemaking, National Association of Manufacturers (June 14,
2018), https://www.shopfloor.org/2018/06/nam-joins-business-groups-petition-nlrb-joint-employer-rulemaking/; Sean P. Redmond, Coalition
Files Petition for Joint Employer Rulemaking, U.S. Chamber of
Commerce (June 19, 2018), https://www.uschamber.com/article/coalition-files-petition-joint-employer-rulemaking; Joyce Hanson,
Restaurant Group Pushes NLRB on Joint Employer Issue, Law360 (June
20, 2018), https://www.law360.com/articles/1055108/restaurant-group-pushes-nlrb-on-jointemployer-issue; CDW Seeks Rulemaking to Remedy
BFI, CDW (June 13, 2018), https://myprivateballot.com/2018/06/13/cdw-seeks-rulemaking-remedy-bfi/; Industry Petitions NLRB for Joint-
Employer Rulemaking, Independent Lubricant Manufacturers Association
(June 18, 2018), https://www.ilma.org/ILMA/ILMA/ILMA-News/June/Industry_Petitions_NLRB_for_Joint-Employer_Rulemaking.aspx.
---------------------------------------------------------------------------
The Board has not relied on materials outside of the administrative
record in this rulemaking. The administrative record contains each of
the petitions for rulemaking, including those cited by the AFL-CIO. In
addition, the Board did not undertake this rulemaking based on any of
these petitions. Each of the petitions was filed after the Board had
publicly announced that it planned to promulgate a rule on the joint-
employer standard.
One commenter also argues that changes made to the proposed rule in
response to the D.C. Circuit's decision in Browning-Ferris v. NLRB
would likely result in a final rule that is not a logical outgrowth of
the proposed rule.\317\ In this regard, the commenter asserts that the
D.C. Circuit has held that ``a final rule was not a logical outgrowth
of the proposed rule because the court could not conclude `that
petitioners, ex ante, should have anticipated the changes to be made in
the course of the [2012] rulemaking.' '' Comment of AFL-CIO at 62
(alteration in original) (quoting Daimler Trucks North America, LLC v.
EPA, 737 F.3d 95, 103 (D.C. Cir. 2013)). The commenter asserts that
interested parties could not anticipate and meaningfully comment on
changes made in response to the D.C. Circuit's decision. In addition,
the commenter argues that `` `[a]gency notice must describe the range
of alternatives being considered with reasonable specificity.
Otherwise, interested parties will not know what to comment on, and
notice will not lead to better-informed agency decisionmaking.' '' Id.
at 63 (quoting Small Refiner Lead Phase-Down Task Force v. EPA, 705
F.2d 506, 549 (D.C. Cir. 1983)).
---------------------------------------------------------------------------
\317\ See comment of AFL-CIO.
---------------------------------------------------------------------------
Apparently assuming that the commenter's ``logical outgrowth''
argument concerns the role that indirect and reserved-but-unexercised
control may play in the final rule, other commenters counter that the
proposed rule did not require the Board to ignore indirect or reserved
control.\318\ One such commenter contends that Examples 4 and 11 in the
proposed rule concerned indirect control.\319\ Moreover, the commenter
argues that the NPRM asked for feedback regarding the common law and
thus indicated that such feedback could result in changes to the
proposed rule.
---------------------------------------------------------------------------
\318\ See, e.g., comment of CDW.
\319\ Id.
---------------------------------------------------------------------------
``To satisfy the [APA]'s notice requirement, 5 U.S.C. Sec.
553(b)(3), an agency's final action must be a logical outgrowth of its
proposed rule.'' Idaho Conservation League v. Wheeler, 930 F.3d 494,
508 (D.C. Cir. 2019). ``A final rule qualifies as a logical outgrowth
'if interested parties should have anticipated that the change was
possible, and thus reasonably should have filed their comments on the
subject during the notice-and-comment period.' '' Id. (quoting CSX
Transp., Inc. v. Surface Transp. Board, 584 F.3d 1076, 1079 (D.C. Cir.
2009)). ``On the other hand, a final rule is not a logical outgrowth if
`interested parties would have had to divine [the agency's] unspoken
thoughts, because the final rule was surprisingly distant from the
proposed rule.' '' Id. (quoting CSX Transp., 584 F.3d at 1080
(alteration in original)).
Here, the rule proposed in the NPRM relevantly stated: ``A putative
joint employer must possess and actually exercise substantial direct
and immediate control over the employees' essential terms and
conditions of employment in a manner that is not limited and routine.''
The NPRM stated that the proposed rule ``reflects the Board's
preliminary view, subject to potential revision in response to
comments, that the Act's purposes of promoting collective bargaining
and
[[Page 11220]]
minimizing industrial strife are best served by a joint-employer
doctrine that imposes bargaining obligations on putative joint
employers that have actually played an active role in establishing
essential terms and conditions of employment.'' The NPRM also stated
that the Board ``seeks comment on all aspects of its proposed rule,''
including whether ``the common law dictate[s] the approach of the
proposed rule or of Browning-Ferris.''
In Browning-Ferris v. NLRB, the D.C. Circuit partially affirmed the
Board's articulation of the joint-employer test in Browning-Ferris,
``including [its] consideration of both an employer's reserved right to
control and its indirect control over employees' terms and conditions
of employment.'' 911 F.3d at 1199-1200. The court expressly did not
decide, however, whether either reserved or indirect control, without
more, could establish a joint-employer relationship. Id. at 1213, 1218.
Consistent with the D.C. Circuit's decision in Browning-Ferris v.
NLRB, the final rule refines the rule proposed in the NPRM by providing
that an entity's indirect control and unexercised, contractually
reserved authority over essential terms and conditions of employment of
another employer's employees are probative of joint-employer status.
For the reasons explained herein, the final rule provides that these
factors are probative only to the extent that they supplement and
reinforce evidence of direct and immediate control over essential terms
and conditions of employment.
Although the final rule modifies the proposed rule in this and
other respects, the final rule remains a logical outgrowth of the
proposed rule. First, the final rule, like the proposed rule, requires
proof of ``substantial direct and immediate control'' to establish
joint-employer status. The final rule provides that indirect and
reserved control are also probative, but the proposed rule was merely
silent regarding those forms of control. The proposed rule did not
expressly exclude them. The proposed rule also made clear the Board's
understanding that the joint-employer standard had to be consistent
with the common law, and it referred to the Browning-Ferris standard
and requested comments regarding whether the common law dictated that
standard. Thus, the proposed rule reasonably signaled that inclusion in
the final rule of indirect and reserved-but-unexercised control was
entirely possible. Moreover, the NPRM described the development of the
joint-employer doctrine, including cases such as Floyd Epperson, 202
NLRB at 23, in which the Board considered evidence of both direct and
indirect control in finding joint-employer status. Given all this,
interested parties should have anticipated that the change was
possible, and thus reasonably should have filed their comments on the
subject during the notice-and-comment period. See Idaho Conservation
League, 930 F.3d at 508. In short, the final rule is a logical
outgrowth of the proposed rule.
N. Comments Regarding the Practical Consequences of Adopting the Final
Rule Versus Retaining Browning-Ferris
Many commenters argue that clarifying the joint-employer standard
as proposed in the NPRM will make joint-employer determinations more
predictable, and that greater predictability in this regard is
desirable.\320\ More specifically, commenters contend that businesses
desire guidance on this issue and have delayed plans to grow as they
wait for a ``permanent fix.'' \321\ On the other side, commenters argue
that retaining the Browning-Ferris standard will promote predictability
because it is a recent precedent that the Board has infrequently
applied,\322\ and it will continue to govern in pending cases given the
final rule's prospective application.\323\ Some commenters claim that
while the NPRM cited a need to counteract uncertainty, it cited no
evidence that Browning-Ferris actually created uncertainty.\324\
---------------------------------------------------------------------------
\320\ Comments of Senate HELP Committee; Polsinelli PC; Carpets
Plus Color Tile.
\321\ Comment of Tamra Kennedy, small business owner; see also
comments of Food Marketing Institute; IFA Franchisee Forum.
\322\ Comments of AFL-CIO; IUOE; CWA.
\323\ Comments of Attorneys General of New York, Pennsylvania,
et al.
\324\ Comments of AFL-CIO; Attorneys General of New York,
Pennsylvania, et al.
---------------------------------------------------------------------------
Having considered these comments, the Board believes that the final
rule will promote predictability and certainty and will do so more
effectively than retaining the Browning-Ferris standard. As recounted
in the NPRM, the last several years have seen oscillation in this area
of labor law, starting with Browning-Ferris's overruling of preexisting
precedent, the overruling of Browning-Ferris in Hy-Brand I, and the
vacatur of Hy-Brand I in Hy-Brand II, which reinstated Browning-Ferris
by default, not based on the doctrinal convictions of a Board majority.
See 83 FR at 46682. Thereafter, the D.C. Circuit remanded the Board's
decision in Browning-Ferris, citing its overbroad and erroneous
application of the ``indirect control'' factor and its failure to
explain or apply the second step of the standard announced in that
decision. In addition to the uncertainties created by this recent
history, there is the vagueness of the Browning-Ferris standard itself,
which failed to draw meaningful distinctions between direct control and
indirect and/or reserved-but-unexercised control. The final rule
addresses these shortcomings, better effectuates applicable common-law
principles, provides more guidance to the regulated community, and
prevents the unsettling of expectations that occurs when precedent is
overruled by adjudication and the new standard is applied
retroactively.
Commenters also variously claim that retaining or discarding
Browning-Ferris will have an adverse effect on the economy. Some
contend that Browning-Ferris encourages entities to bring job functions
in-house, which can increase costs.\325\ Others argue that Browning-
Ferris discourages entities from contracting with small businesses,
which may be owned by minorities.\326\ In contrast, some commenters
argue that exempting from joint-employer status entities that exercise
only indirect control will encourage ``fissuring'' of the workplace
through widespread outsourcing of contract work.\327\ Commenters argue
that such contracting shifts costs onto employees and unions,\328\
allows companies to evade their legal obligations,\329\ impedes
employees from organizing and engaging in other protected activities to
improve their working conditions,\330\ and harms minority workers
employed by subcontractors,\331\ among other deleterious
consequences.\332\ In addition, the one commenter contends that no
commenter has provided specific evidence of Browning-Ferris's adverse
economic impact.\333\
---------------------------------------------------------------------------
\325\ Comments of Competitive Enterprise Institute; American
Staffing Association.
\326\ Comments of Chamber of Commerce; IFA.
\327\ Comments of Law and Economics Professors; Attorneys
General of New York, Pennsylvania et al.; Southern Poverty Law
Center.
\328\ Comments of Law and Economics Professors; SEIU.
\329\ Comments of LIUNA; 1199SEIU United Healthcare Workers
East.
\330\ Comments of NELP; Jobs with Justice; Karyn Panitch.
\331\ Comments of APALA.
\332\ See, e.g., comment of Law and Economics Professors
(arguing that to protect competition in fissured labor markets, the
Board should retain Browning-Ferris or, alternatively, adopt a test
similar to those used by antitrust authorities that asks whether an
entity has sufficient market power to justify joint-employer
status).
\333\ See comment of AFL-CIO; see also comment of Pacific
Management Consulting Group (asserting the absence of reliable
evidence that Browning-Ferris negatively impacted the revenues of
publicly-traded franchise restaurants).
---------------------------------------------------------------------------
[[Page 11221]]
In determining the appropriate joint-employer standard, the Board
does not rely on the various purported economic effects that commenters
predict the final rule will have on the economy at large or on workers'
wages. The final rule is governed by the common law of joint-employer
relationships in the particular context of the Act and further based on
a policy judgment that it would frustrate, rather than promote,
national labor policy to draw into a collective-bargaining relationship
an entity that has never exercised any substantial direct and immediate
control over essential terms and conditions of employment of another
employer's employees. Thus, as it did in Browning-Ferris, the Board
rejects consideration of ``the wider universe of all underlying
economic facts that surround an employment relationship.'' 362 NLRB at
1611 fn. 68, 1615 (citing, inter alia, Hearst, 322 U.S. 111) (internal
quotes omitted). The Board also finds unpersuasive comments stating
that this approach will limit employees' rights under the Act when an
entity is found not to be a joint employer because it has not actually
exercised substantial direct and immediate control over the essential
terms and conditions of another employer's employees. In that
situation, the employees will still have a statutory employer, and they
will have all the rights safeguarded by Section 7 of the Act: The right
to self-organization, to form, join, or assist labor organizations, to
bargain collectively through representatives of their own choosing, to
engage in other concerted activities for mutual aid or protection, and
to refrain from any or all of these activities. None of those rights
will be forfeited. Again, the standard is based on applicable common-
law principles in the context of the Act, not on favoring more (or
fewer) statutory employers of a given group of employees as a matter of
socio-economic policy.
Some commenters argue that legally required actions franchisors
take to protect their trademark and service mark should not be
considered evidence of joint-employer status.\334\ Relatedly, some
commenters argue that corporate social responsibility standards, or
ethics-based policies that entities require their subcontractors to
follow, should not be considered evidence of joint-employer
status.\335\
---------------------------------------------------------------------------
\335\ Comments of HR Policy Association; Competitive Enterprise
Institute.
---------------------------------------------------------------------------
By contrast, the one commenter argues that the Board should not
disregard evidence of influence where it is subjectively motivated by
concerns such as compliance with the law or protection of a brand.\336\
The commenter also argues that any negative impact of Browning-Ferris
on franchising is minimal given that a franchisor can allocate
liability by imposing an indemnification clause on its franchisees.
Other commenters argue that, under a narrower joint-employer standard,
franchisors will exert more control because there is less risk of
liability, and this will undermine franchisees' independence.\337\ And
according to another commenter, Browning-Ferris or a similar standard
is necessary to countermand ``blatant restrictions'' on labor-market
competition in the franchising industry, such as franchisors' use of
``no-poaching'' agreements.\338\
---------------------------------------------------------------------------
\336\ See Comment of AFL-CIO.
\337\ Comments of Chairman Scott and Ranking Member Murray;
Franchisee Advocacy Consulting.
\338\ See comment of Law and Economics Professors; see also
comment of American Association of Franchisees & Dealers (arguing
that the Board should determine whether a franchisor's direct
economic control, such as over the cost of labor, undermines the
franchisee's equity ownership in the business).
---------------------------------------------------------------------------
As explained elsewhere, the Board has decided not to include in the
final rule any provisions that are tailored to particular industries or
business models. Instead, the final rule establishes a single,
generally applicable standard that assesses the ``totality of the
relevant facts in each particular employment setting.'' As appropriate,
the Board will take the nature of the particular business or industry
into consideration in applying the standard articulated in the final
rule to the facts of the specific case.
Importantly, however, we note that routine contracting practices of
independent businesses will not evidence joint-employer status under
the final rule. Such practices include provisions in business contracts
that set the objectives, basic ground rules, or expectations for
another entity's performance under a contract. As discussed above, and
in agreement with the D.C. Circuit, the final rule differentiates
``those aspects of indirect control relevant to status as an employer''
from ``those quotidian aspects of common-law third-party contract
relationships,'' which ``cast no meaningful light on joint-employer
status.'' Browning-Ferris v. NLRB, 911 F.3d at 1220. For example, a
franchisor's maintenance of brand-recognition standards (e.g., a
requirement that the employees of its franchisees wear a particular
uniform) will not evidence direct control over employees' ``essential''
working conditions. See Love's Barbeque Restaurant No. 62, 245 NLRB 78,
120 (1979), and cases cited therein, enfd. in part sub nom. Kallmann v.
NLRB, 640 F.2d 1094 (9th Cir. 1981).
Of course, the Board will examine the circumstances of the
franchisor-franchisee relationship in each particular case to determine
whether the franchisor has exercised direct and immediate control over
the essential terms and conditions of employment of the franchisee's
employees. Whether a franchisor exercises control over essential
working conditions is measured objectively and is not based on the
franchisor's subjective intent. The possibility that the franchisor can
``work around'' joint-employer liability by negotiating an
indemnification clause is not a sufficient reason to find that its
brand-protection measures should be considered evidence of joint-
employer status. Put somewhat differently, as between franchisors and
franchisees, we decline to put our thumb on the scale. That is exactly
what we would do if we imposed a joint-employer standard that compels
franchisors to contract around an otherwise forced choice between
protecting their brand and incurring joint-employer status, or avoiding
joint-employer status by abandoning their legal duty to protect their
brand.
Similarly, a variety of corporate social responsibility standards
are routine contracting practices and will not be considered evidence
of joint-employer status. Examples include an entity's requirement that
another employer adopt safety and quality standards \339\ or harassment
guidance.\340\ As to the claimed economic effects of no-poaching
agreements on market wages, the Board has addressed that comment
already.\341\
---------------------------------------------------------------------------
\339\ See comments of COLLE; Restaurant Law Center.
\340\ See comments of HR Policy Association; Center for
Workplace Compliance.
\341\ See Sec. V.M, ``Response to Comments: Comments Regarding
the Propriety of Using Rulemaking to Revisit the Joint-Employer
Standard and of the Adequacy of the Rulemaking Process,'' supra.
---------------------------------------------------------------------------
Commenters present conflicting views regarding the effect the
proposed rule would have on collective bargaining. Some contend that
Browning-Ferris improperly places at the negotiating table entities
with widely different interests or attenuated control over employment
terms.\342\ Others say that a more restrictive standard will impede
meaningful bargaining. These commenters argue that workers will be
unable to bargain with the entity that effectively controls their
working
[[Page 11222]]
conditions \343\--an entity that can terminate its contract with the
subcontractor without any legal consequences \344\--or that they will
be unable to bargain over a particular issue if the entity that
controls that issue and that issue only is not their joint
employer,\345\ among other things.\346\ And some commenters, citing
Management Training Corp., 317 NLRB 1355 (1995), argue that limiting
consideration of control to ``essential'' working conditions will
frustrate bargaining.\347\
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\342\ Comments of General Counsel Robb; CDW.
\343\ Comments of NELP; EPI; and SEIU Local 32BJ.
\344\ Comment of Professor Kulwiec (citing Local No. 447,
Plumbers (Malbaff Landscape Construction), 172 NLRB 128 (1968)); see
also James Hannley (noting that a franchisor can terminate its
relationship with the franchisee if employees of the franchisee
engage in organizing).
Professor Kulwiec also posits that the concern over having too
many employers at the bargaining table is overstated because the
existence of a joint-employer relationship does not require
bargaining unless the Board finds that the unit is appropriate for
collective bargaining.
\345\ Comments of AFL-CIO; SEIU Local 32BJ.
\346\ See, e.g., Law and Economics Professors (citing Sec. 1 of
the NLRA in arguing that the NLRA was designed to restore ``equal[ ]
. . . bargaining power between employers and employees'' and
``stabiliz[e] . . . competitive wage rates and working conditions
within and between industries,'' through bargaining between workers
with ``full freedom of association [and] actual liberty of
contract'' and employers ``organized in the corporate or other forms
of ownership association'').
\347\ Comments of AFL-CIO; SEIU Local 32BJ.
---------------------------------------------------------------------------
The Board shares the concerns of those commenters who observe that
the Browning-Ferris standard may place at the table entities that lack
sufficient control over terms and conditions of employment to warrant
their participation in collective bargaining. The Board recognizes that
the second step of that standard addressed that concern, but the
Browning-Ferris Board's failure to flesh out the requirements of that
step or provide illustrative guidance through application rendered that
step effectively meaningless. In contrast, the Board believes that the
final rule fosters meaningful bargaining by requiring that an entity
exercise such substantial direct and immediate control over one or more
essential working conditions ``as would warrant a finding that the
entity meaningfully affects matters relating to the employment
relationship.'' \348\ Contrary to commenters who cite Management
Training against the proposed rule, that decision supports the standard
adopted in the final rule. See 317 NLRB at 1355, 1357-1359. In
Management Training, a government entity that was exempt from the NLRA
had to approve certain economic terms and conditions before the
private-sector government contractor could implement them. However, the
contractor was able to effect noneconomic terms without approval.
Despite the government entity's control over some working conditions,
the Board found it appropriate to assert jurisdiction over the
contractor. The Board's decision in Management Training demonstrates
its conviction that employees can engage in meaningful collective
bargaining with their employer even though another entity controls some
essential terms and conditions and cannot be compelled to participate
in collective bargaining, whether on jurisdictional grounds as in
Management Training or because it is not a joint employer of the
employees at issue.\349\
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\348\ In this regard, we adhere to the view articulated in the
NPRM that the NLRA's ``policy of promoting collective bargaining to
avoid labor strife and its impact on commerce is not best
effectuated by inserting into a collective-bargaining relationship a
third party that does not actively participate in decisions
establishing unit employees' wages, benefits, and other essential
terms and conditions of employment.'' 83 FR at 46687.
\349\ See also Supplementary Information Sec. V.G, ``Response to
Comments: Comments Regarding `Essential' Terms and Conditions of
Employment,'' supra.
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One commenter contends that an entity's requirement that another
employer comply with government regulations should be considered
evidence of direct control, citing Watsonville Register-Pajaronian, 327
NLRB 957 (1999), and related cases.\350\ In those cases, the Board held
that an employer has a duty to bargain over ``discretionary action
taken to comply with [a government regulation].'' 327 NLRB at 959;
accord Dickerson-Chapman, Inc., 313 NLRB 907, 942 (1994); Long Island
Day Care Services, 303 NLRB 112, 116-117 (1991); Hanes Corp., 260 NLRB
557, 557, 562 (1982).
---------------------------------------------------------------------------
\350\ See comment of AFL-CIO.
---------------------------------------------------------------------------
This argument is misplaced. The rule does not provide that
employers have no duty to bargain over discretionary action taken to
comply with a government regulation. Rather, it addresses which
entity--the employees' direct employer, or a third party--must engage
in such bargaining. Requiring the direct employer to comply with
government regulations does not evidence joint-employer status because
requiring such compliance is part of the basic ground rules or
expectations for that employer's performance under a contract. Thus,
considering such requirements as evidence of joint-employer status
would be contrary to the common-law principles stated in Browning-
Ferris v. NLRB, 911 F.3d at 1219-1220.
Commenters argue that by eliminating the bargaining obligation of
an entity that exercises indirect control over the terms and conditions
of employment of another employer's employees, the proposed rule will
cause labor unrest, such as strikes.\351\ This concern is overstated.
The commenters present no evidence that there was more labor unrest
prior to Browning-Ferris, when indirect control alone was not
dispositive of joint-employer status. In any event, the Board has
modified the proposed rule to make indirect control of essential terms
and conditions probative of such status, provided it supplements and
reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------
\351\ Comment of UA.
---------------------------------------------------------------------------
Some commenters advance arguments related to Section 8(b)(4)'s
prohibition on secondary picketing. For example, the one commenter
contends that joint-employer status should not render an otherwise
neutral entity a ``primary'' employer lawfully subject to picketing
unless the entity is directly and substantially involved in controlling
the term or condition of employment in dispute.\352\ In contrast, some
commenters argue that by narrowing the joint-employer standard, the
proposed rule undermines First Amendment and other precedent that
grants employees wide leeway to engage in picketing.\353\
---------------------------------------------------------------------------
\352\ See comments of General Counsel Robb; World Floor Covering
Association.
\353\ Comments of SEIU Local 32BJ; AFT.
---------------------------------------------------------------------------
This rulemaking solely concerns the joint-employer standard, not
other legal doctrines. The Board therefore declines the request to
modify standards regarding secondary picketing. Certainly, as was
stated in the NPRM, a finding of joint-employer status may determine
whether picketing directed at a particular business is primary and
lawful, or secondary and unlawful. In that sense, the final rule's
clarification of the joint-employer standard should make it easier to
determine whether an entity is a joint employer and thus a lawful
target of picketing along with employees' direct employer. The Board is
not inclined, however, to rule that an entity may be a joint employer
and remain shielded from picketing under certain circumstances, as the
above comments effectively request. By the same token, the Board is
equally unwilling to use this rulemaking to narrow the range of
activity prohibited by Section 8(b)(4). Both goals are extraneous to
the task at hand.
In addition, commenters argue that narrowing the joint-employer
standard
[[Page 11223]]
will cause small employers to become solely liable for the NLRA
violations of larger contracting entities.\354\ However, this
rulemaking is not outcome-driven. The Board's task is not to craft a
rule that either maximizes or minimizes third-party exposure to unfair
labor practice liability. It is to ensure that a third party genuinely
is the joint employer of a separate employer's employees before
exposing it to such liability and to otherwise-secondary economic
pressures, and before imposing on it a duty to bargain with the
representative of those employees. For all the reasons stated herein,
the final rule fulfills that task and does so with greater clarity,
predictability, and fidelity to the purposes and policies of the Act
than did Browning-Ferris.
---------------------------------------------------------------------------
\354\ Comments of AFL-CIO; IUOE.
---------------------------------------------------------------------------
Finally, one commenter argues that eliminating the relevance of
contractually reserved authority, which is objective and documentable,
will engender litigation and impose recordkeeping and related
costs.\355\ However, the proposed rule did not eliminate contractually
reserved authority, and the final rule deems evidence of contractually
reserved authority probative of joint-employer status to the extent it
supports and reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------
\355\ See comment of AFL-CIO. Conversely, the IFA argues that
Browning-Ferris has increased legal spending by encouraging
individuals to pursue the ``deeper pockets'' of larger entities.
---------------------------------------------------------------------------
O. Comments Regarding the Circumstances Under Which a Joint Employer
Will Be Found Liable for Another Employer's Unfair Labor Practices
Many commenters favor the proposed rule to the extent it exposes an
entity to unfair labor practice liability as a joint employer only if
it exercises substantial direct and immediate control over another
employer's employees' terms and conditions of employment.\356\ These
commenters observe that the ``direct and immediate control''
requirement will allow their members, such as franchisors and large
retailers, to oversee the general performance of franchisees or retail
business partners without being held liable for events in workplaces
over which they have little or no control.
---------------------------------------------------------------------------
\356\ See comments of the Restaurant Law Center; National Retail
Federation; American Road & Transportation Builders Association.
---------------------------------------------------------------------------
Other commenters urge us to adopt a final rule that would further
limit unfair labor practice liability even when an entity is found to
be a joint employer of another's employees. One commenter, for example,
suggests imposing liability only where the joint employer is involved
in the unlawful act or controls the essential term or condition of
employment at issue in the unlawful act, or where the unfair labor
practice cannot be adequately remedied without its participation.\357\
Similarly, another commenter urges the Board to adopt an
``instrumentality test,'' under which liability would be imposed on a
joint employer only if it controls or has the right to control the
particular instrumentality alleged to have caused the harm.\358\ Other
commenters urge the Board to apply the standard set forth in Capitol
EMI Music, 311 NLRB 997 (1993), enfd. 23 F.3d 399 (4th Cir. 1994), and
impose liability on a joint employer for non-bargaining-related unfair
labor practices only where the joint employer knew or should have known
of the unlawful act and acquiesced in it by failing to protest or
otherwise resist it.\359\ Finally, some commenters request that the
rule eliminate joint-employer liability altogether and state that a
joint employer is not liable for actions taken by another
employer.\360\
---------------------------------------------------------------------------
\357\ See comment of Job Creators Network.
\358\ See comment of IFA.
\359\ See comments of General Counsel Robb; HR Policy
Association.
\360\ See comments of World Floor Covering Association; Glover.
---------------------------------------------------------------------------
The Board declines to expand the scope of the proposed rule to
change Board precedent regarding the joint-and-several liability of one
joint employer for the unfair labor practices committed by another
joint employer. Although joint-employer status is a predicate of joint
liability, the analyses of the two concepts have often been distinct,
each with its own considerations and caselaw. Capitol EMI Music, for
example, is longstanding precedent regarding an exception to joint-and-
several liability of the kind some commenters request, but it and other
precedent regarding exceptions to joint liability are not cited or
discussed in the NPRM. It is thus doubtful that the public has been
properly apprised that this issue could be addressed in the instant
rulemaking. See Idaho Conservation League v. Wheeler, 930 F.3d at 508
(``[A] final rule is not a logical outgrowth if interested parties
would have had to divine [the agency's] unspoken thoughts, because the
final rule was surprisingly distant from the proposed rule.'') (second
alteration in original) (internal quotation marks omitted).
Moreover, as explained in the NPRM, a significant motive for this
rulemaking is to resolve the recent oscillations in Board law regarding
joint-employer status that have occurred in the past several years. The
NPRM explained that the rule was necessary ``[i]n light of the
continuing uncertainty in the labor-management community created by
these adjudicatory variations in defining the appropriate joint-
employer standard under the Act.'' 83 FR at 46682. There has been no
recent oscillation in the law, however, regarding the issue of joint
liability, which the Board did not change or even address in Browning-
Ferris. Indeed, the Board majority in Browning-Ferris emphasized that
the decision ``[did] not modify any other legal doctrine, create
`different tests' for `other circumstances,' or change the way that the
Board's joint-employer doctrine interacts with other rules or
restrictions under the Act.'' Browning-Ferris, 362 NLRB at 1618 fn.
120.
The issue of joint liability is also best resolved on a case-by-
case basis. Determining whether one joint employer is jointly and
severally liable for the other joint employer's unfair labor practices
depends on the nature of the joint-employment relationship and the type
of violation alleged. As the Board explained in Capitol EMI Music,
``traditional'' joint-employment relationships, where each joint
employer has a representative at a worksite and shares supervision of
the employees, might call for a different analysis of liability than an
arrangement where one joint employer simply supplies employees to
another but takes no part in their daily direction. 311 NLRB at 1000.
The Board was also careful to limit the exception to joint liability
announced in Capitol EMI Music not just to a specific kind of joint-
employment relationship but also to a specific unfair labor practice,
one that depends on an unlawful motive. Id. at 1001. The Board also
observed that the result might be different where a purportedly
``innocent'' joint employer nevertheless benefits from a co-employer's
unlawful conduct, or where an employer arrangement allows a joint
employer to inquire into its co-employer's actions. Id. at 999. The
Board believes this case-by-case approach is sound, and therefore
decline the invitation to address joint liability in the final rule.
P. Comments Regarding Industry-Specific Standards
Several commenters discuss particular industries or business
relationships,\361\ such as home
[[Page 11224]]
builders,\362\ the contract-security industry,\363\ retailers,\364\ and
the franchisor-franchisee relationship.\365\ As to franchising, for
example, some commenters contend that legally required actions
franchisors take to protect their trademark and service mark should not
be considered evidence of joint-employer status.\366\ Commenters say
that franchisors protect their brand by providing franchisees, among
other things, training,\367\ information systems,\368\ and guidance on
marketing \369\ and customer service.\370\ The Board has decided not to
address particular industries or types of business relationships in the
final rule, because doing so would unnecessarily lengthen and
complicate the rule. Instead, the final rule provides definitions and
other clarifications that are intended to apply to a wide range of
industries and business relationships, and the final rule also
emphasizes that joint-employer status ``must be determined on the
totality of the relevant facts in each particular employment setting.''
The rule addresses contracting practices common to many industries,
such as the use of cost-plus contracts and control asserted pursuant to
regulatory requirements. The Board anticipates that any industry-
specific refinements will be developed case by case through
adjudication.
---------------------------------------------------------------------------
\361\ Comments of General Counsel Robb; World Floor Covering
Association.
\362\ Comment of National Association of Home Builders.
\363\ Comment of John B. Hirsch.
\364\ Comment of National Retail Federation.
\365\ Comment of IFA.
\366\ Comments of General Counsel Robb; David Kaufmann, lead
author of ABA Franchise Law Journal article (discussing the Lanham
Act, 15 U.S.C. Secs. 1051-1141, the FTC Franchise Rule, 16 CFR part
436, Secs. 436.1 et seq., and the FTC 2007 Franchise Rule Compliance
Guide); see also comment of Kaufmann (discussing various state
laws).
\367\ Comments of IFA; CDW; Polsinelli PC.
\368\ Comment of IFA.
\369\ Comments of Kaufmann; Keith Randall, franchise business
owner.
\370\ Comments of CDW.
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VI. Justification for the Final Rule
The joint-employer doctrine plays an important role in the
administration of the National Labor Relations Act (NLRA or the Act).
Most notably, the doctrine determines when an entity other than the
direct employer of certain employees has a duty to bargain with the
representative of those employees, may be liable for unfair labor
practices it did not directly commit, and may be targeted as a primary
employer in a labor dispute. The joint-employer analysis set forth in
this final rule is based on the common law as applied in the particular
context of the NLRA. Certain considerations must be taken into account
under the Act that may not apply in other contexts. The Board must
consider when an entity's participation in collective bargaining is
required for there to be meaningful bargaining over the terms and
conditions of employees directly employed by another employer. The
Board also must consider under what circumstances it is appropriate to
impose liability on an entity that did not directly commit an unfair
labor practice. And the Board must consider Congress's concern with
limiting third parties' exposure to economic warfare in labor disputes.
The Board intends in this final rule to return, with clarifying
guidance, to the carefully balanced law as it existed before the
Board's departure in Browning-Ferris. Before, the Board found joint-
employer status only when the additional entity had direct and
immediate control, as opposed to indirect influence or unexercised,
contractually reserved authority, over one or more of the most
contextually meaningful, essential terms and conditions of employment
such that, considering all of the circumstances, the entity
meaningfully affected matters relating to the employment relationship.
Indirect influence or unexercised, contractually reserved authority
were considered, in weighing the circumstances, as supplementing and
reinforcing evidence of direct and immediate control, but neither was
dispositive. The Browning-Ferris Board disrupted this precedent--
without due regard to issues of liability and limiting the scope of
labor disputes, and with inadequate consideration of meaningful
bargaining--to establish that indirect or unexercised, contractually
reserved control could alone be dispositive.
As noted above, in reviewing the Board's Browning-Ferris decision,
the United States Court of Appeals for the District of Columbia Circuit
held that, under the common law, indirect and unexercised reserved
control can factor in the Board's joint-employer analysis, but the
Board exceeded the bounds of the common law by ``failing to distinguish
evidence of indirect control that bears on workers' essential terms and
conditions from evidence that simply documents the routine parameters
of company-to-company contracting.'' Browning-Ferris v. NLRB, 911 F.3d
at 1213, 1216. The court did not pass on whether indirect or
unexercised reserved control could ever alone be dispositive.
By returning to the Board's prior precedent, this final rule
answers that open question. In applying the common law in the context
of the NLRA, the Board will not find indirect or unexercised reserved
control, alone, dispositive, but such control will be relevant to the
extent it supplements and reinforces evidence of direct and immediate
control. The Board's analysis here, in the words of the D.C. Circuit,
``color[s] within the common-law lines identified by the judiciary.''
Id. at 1208. The standard we adopt in this final rule dates back at
least to the Board's adoption in Laerco Transportation, 269 NLRB 324
(1984), and TLI, Inc., 271 NLRB at 798-799, of the United States Court
of Appeals for the Third Circuit's explication of the joint-employer
doctrine in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc.,
691 F.2d 1117, 1124 (3d Cir. 1982). In the ensuing decades, no
reviewing court ever suggested the Board's standard was at variance
with the common law, or that it must be extended to the outer bounds of
the common law. Nevertheless, the Board's 2015 Browning-Ferris decision
departed from this established body of precedent.
With this final rule, the Board has endeavored to provide greater
clarity, guided by the many comments received, as to how it will
determine joint-employer status. Joint-employer determinations have
always been fact-intensive, and they will continue to be so. The Board
is confident, however, that a more precise definition of the key terms
and analytical points will facilitate consistent application of the
standard across a broad spectrum of industries and business-to-business
relationships. This specificity stands in contrast to the uncertainty
the Board's Browning-Ferris decision created and that the D.C. Circuit
justifiably criticized, including by its failure to stay within common-
law bounds in its treatment of indirect control and to give any content
whatsoever to the second, NLRA-based step of the standard announced
therein.
Broadly, an entity shares or codetermines the essential terms and
conditions of another employer's employees--that is, may be considered
a joint employer of those employees--when it possesses and exercises
substantial direct and immediate control over the employees' essential
terms and conditions. The final rule's definitions of ``essential terms
and conditions of employment,'' ``direct and immediate control,'' and
when direct and immediate control is ``substantial'' are explained
below, as is the final rule's treatment of indirect control and
unexercised, contractually reserved authority and of certain common
business practices.
[[Page 11225]]
A. Essential Terms and Conditions of Employment
In Laerco Transportation, the Board first described the essential
terms and conditions of employment in the joint-employer analysis as
including, non-exhaustively, ``hiring, firing, discipline, supervision,
and direction.'' 269 NLRB at 325. Browning-Ferris aside, the Board has
repeated this non-exclusive list ever since, including in the NPRM. The
final rule adds wages, benefits, and hours of work to this list, and it
makes the list of essential terms and conditions of employment an
exclusive, closed list.
First, the inclusion of these three terms and conditions, urged by
many commenters, is a commonsense addition. ``Wages'' and ``hours''
feature prominently in the NLRA. See Sections 8(d) and 9 of the Act.
And Board precedent has assumed wages, benefits, and hours of work are
essential terms and conditions of employment for purposes of the joint-
employer analysis. See, e.g., Quantum Resources Corp., 305 NLRB at 760-
761 (wages); G. Heileman Brewing Co., 290 NLRB 991, 1000 (1988)
(benefits), enfd. 879 F.2d 1526 (7th Cir. 1989); Gourmet Award Foods,
Northeast, 336 NLRB 872, 874-875 (2001) (hours of work).
Second, setting essential terms and conditions of employment as
including only wages, benefits, hours of work, hiring, discharge,
discipline, supervision, and direction brings much needed certainty to
the joint-employer analysis. An entity's control relating to these
matters, moreover, has proven most relevant, in the Board's experience,
in determining when it is warranted to find a bargaining obligation,
liability for unfair labor practices, and status as a primary in a
labor dispute. Indeed, no Board case has been identified where control
over any other term or condition of employment carried the day in a
joint-employer analysis. As provided in the final rule, however,
control over other mandatory subjects of bargaining is also probative,
but only to the extent it supplements and reinforces evidence of direct
and immediate control over essential terms and conditions of
employment.
B. Direct and Immediate Control
Direct and immediate control distinguishes the obvious, meaningful
control exercised over employees from attenuated indirect and
unexercised reserved control, which is much less significant in
identifying a joint employer, and from routine features of company-to-
company contracting that are not relevant to joint-employer status at
all. The final rule defines direct and immediate control with respect
to each of the eight essential terms and conditions of employment based
on lines drawn in the Board's pre-Browning-Ferris precedent. The Board
determined that this approach provided better and more precise guidance
than the hypothetical factual examples in the proposed rule, which were
widely criticized in the comments.
Over wages, an entity exercises direct and immediate control if it
actually determines the wage rates, salary, or other rate of pay that
is paid to another employer's individual employees or job
classifications. See, e.g., Quantum Resources Corp., 305 NLRB at 760-
761 (finding the user employer jointly employed the supplier employer's
employees in part because the user employer designated wage rates,
authorized changes in wage rates, and pushed through raises for
employees). But it does not exercise such control by entering into a
cost-plus contract (with or without a maximum reimbursable wage rate).
See, e.g., Goodyear Tire & Rubber Co., 312 NLRB 674, 678 (1993) (a
cost-plus contract setting forth the wage reimbursement is not evidence
of a joint-employer relationship); see also Browning-Ferris, 911 F.3d
at 1220. Over benefits, an entity exercises direct and immediate
control if it actually determines the fringe benefits to be provided or
offered to another employer's employees. This would include selecting
the benefit plans (such as health insurance plans and pension plans)
and/or level of benefits provided. Compare G. Heileman Brewing, 290
NLRB at 1000 (finding joint-employer status in part because the user
employer exercised authority over granting benefits), with TLI, Inc.,
271 NLRB at 798-799 (attendance of the user employer's representative
at bargaining sessions and outlining the user employer's need to cut
labor costs did not show direct control over terms and conditions
because the representative made no specific proposals; it was up to the
supplier employer and union to work out needed savings from wages and
benefits). An entity does not exercise direct and immediate control by
permitting another employer, under an arm's-length contract, to
participate in its benefit plans.
Over hours of work, an entity exercises direct and immediate
control if it actually determines work schedules or the work hours,
including overtime, of another employer's employees. See Gourmet Award
Foods, 336 NLRB at 874-875 (finding joint-employer status in part
because the user employer determined hours of work and work schedules,
including overtime); G. Heileman Brewing, 290 NLRB at 1000 (finding
joint-employer status in part because the user employer set work
schedules). An entity does not exercise such control by establishing an
enterprise's operating hours or the times when it needs the services
provided by another employer. See Service Employees Local 254 (Women &
Infants Hospital), 324 NLRB 743, 749 (1997) (``The contractual
provisions affecting when work must be performed are not indicia of
joint employer status. It is not surprising that [the user employer]
would require that cleaning be done at times most convenient for the
college, or that a cleaner be available at all times to handle
emergencies.'').
Over hiring, an entity exercises direct and immediate control if it
actually determines which employees will be hired and which employees
will not. Compare Le Rendezvous Restaurant, 332 NLRB 336, 336 (2000)
(finding joint-employer status in part because of the user employer's
active involvement in hiring a nonunion workforce to replace its
existing workforce), with Flagstaff Medical Center, 357 NLRB at 667
(interviewing candidates and making recommendations on whom the primary
employer should hire did not prove joint-employer status; the direct
employer retained final authority over hiring decisions and, in fact,
did not follow all the recommendations), and AM Property Holding Corp.,
350 NLRB at 1002 (not indicative of joint-employer status for the user
employer to suggest individuals for the supplier employer to hire whom
the supplier employer independently interviewed before making hiring
decisions). An entity does not exercise such control by requesting
changes in staffing levels to accomplish tasks or by setting minimal
hiring standards such as those required by government regulation. See
Aldworth Co., 338 NLRB at 139 (``[A]ctions taken pursuant to government
statutes and regulations are not indicative of joint employer
status.'').
Over discharge, an entity exercises direct and immediate control if
it actually decides to terminate the employment of another employer's
employee. See, e.g., Whitewood Maintenance Co., 292 NLRB 1159, 1162-
1163 (1989) (finding joint-employer status in part because the user
employer made the decision to discharge the supplier employers'
employees, which the supplier employer carried out), enfd. sub nom.
Texas World Serv. Co. v. NLRB, 928 F.2d 1426 (5th Cir. 1991). An entity
does not exercise such control by bringing misconduct or poor
performance to the attention of another
[[Page 11226]]
employer that makes the actual discharge decision, by expressing a
negative opinion of another employer's employee, by refusing to allow
another employer's employee to continue performing work under a
contract, or by setting minimal standards of performance or conduct,
such as those required by government regulation. See Aldworth Co., 338
NLRB at 139 (``[A]ctions taken pursuant to government statutes and
regulations are not indicative of joint employer status.''); Southern
California Gas Co., 302 NLRB 456, 462 (1991) (not evidence of joint-
employer status for the user employer to indicate it no longer wanted a
particular employee to work at the facility; the user employer was only
``exercis[ing] . . . the right of an owner or occupant to protect his
premises''); Chesapeake Foods, 287 NLRB 405, 407 (1987) (user employer
did not exercise control by referring complaints about supplied
employees to the supplier employer, and the supplier employer made the
decision whether to discharge an employee); H&W Motor Express, Inc.,
271 NLRB 466, 468 (1984) (not evidence of joint-employer status for
user employer to ask that certain employees to be removed from work
under its contract).
Over discipline, an entity exercises direct and immediate control
if it actually decides to suspend or otherwise discipline another
employer's employee. See Hobbs & Oberg Mining Co., 297 NLRB 575, 587
(1990) (finding joint-employer status partly in reliance on the user
and supplier employer jointly giving a supplied employee a written
reprimand), affd. 940 F.2d 1538 (10th Cir. 1991), cert. denied 503 U.S.
959 (1992); G. Heileman Brewing, 290 NLRB at 1000 (finding joint-
employer status in part because the user employer exercised authority
over discipline). An entity does not exercise such control by bringing
misconduct or poor performance to the attention of another employer
that makes the actual disciplinary decision, by expressing a negative
opinion of another employer's employee, or by refusing to allow another
employer's employee to access its premises or perform work under a
contract. See TLI, Inc., 271 NLRB at 799 (finding the user employer did
not control discipline because ``[w]hen a driver engages in conduct
adverse to [the user employer's] operation, [it] supplies [the supplier
employer], not the employee, with an `incident report' whereupon a
[supplier employer] representative investigates. Disciplinary notices,
or necessary actions, are issued by [the supplier employer]. In
addition, although accidents on the road are reported to [the user
employer], it is [the supplier employer] which investigates and
determines whether or not the accident was preventable and whether
further action is necessary'').
Over supervision, an entity exercises direct and immediate control
by actually instructing another employer's employees how to perform
their work or by actually issuing employee performance appraisals. See,
e.g., International Transfer of Florida, Inc., 305 NLRB 150, 150 (1991)
(finding the user employer jointly employed the supplier employer's
employees because the user employer exercised exclusive daily
supervision and direction over those employees, including as to the
manner and means of performing the work). An entity does not exercise
such control when its instructions are limited and routine and consist
primarily of telling another employer's employees what work to perform,
or where and when to perform the work, but not how to perform it. See
AM Property Holding Corp., 350 NLRB at 1001 (supervision is ``limited
and routine where a supervisor's instructions consist primarily of
telling employees what work to perform, or where and when to perform
the work, but not how to perform the work''); see also G. Wes Ltd. Co.,
309 NLRB 225, 226 (1992) (concluding user employer's day-to-day
supervision was limited and routine where employees were not told
``specifically how to do the work or the manner in which they were to
perform the assigned tasks . . . . [they] were told what areas were to
be worked and with whom the employees were to work, and the work was
then left to the employees to perform''); Southern California Gas, 302
NLRB at 462 (finding that the ``[r]espondent's orders and directions to
the day-shift employees were in the nature of routine directions of
what tasks were required and where they were to be performed . . . such
direction [was] consistent with [r]espondent's object of obtaining
results, i.e., the work it contracted for''); Laerco Transportation,
269 NLRB at 326 (finding only limited and routine supervision where the
user employer resolved ``minor problems such as employee personality
conflicts'' and its involvement was ``limited both as to the nature and
number of employee problems''; major problems were referred to the
supplier employer).
Over direction, an entity exercises direct and immediate control by
assigning particular employees their individual work schedules,
positions, and tasks. See, e.g., G. Heileman Brewing, 290 NLRB at 1000
(finding joint-employer status in part because the user employer
assigned work and schedules). An entity does not exercise such control
by setting schedules for completion of a project or by describing the
work to be accomplished on a project. See Chesapeake Foods, 287 NLRB at
407 (finding it was not significant control for the user employer to
``schedul[e] . . . the farms to be worked''); TLI, Inc., 271 NLRB at
799 (finding it was not evidence of joint-employer status where ``[t]he
Crown foreman instruct[ed] the drivers as to which deliveries [were] to
be made on a given day,'' but ``the drivers themselves select[ed] their
own assignments, on a seniority basis''); Laerco Transportation, 269
NLRB at 325-326 (finding it was not evidence of joint-employer status
where the user employer set routes to be followed and the supplier
employer provided drivers for those predetermined routes).
C. When Direct and Immediate Control Is Substantial
It is a well-settled principle in Board law that ``[t]o establish
joint employer status there must be a showing that the employer
meaningfully affects matters relating to the employment relationship.''
Laerco Transportation, 269 NLRB at 325. This has required careful
consideration of the totality of the relevant facts in each particular
employment setting. Boire v. Greyhound Corp., 376 U.S. 473, 481 (1964)
(``[W]hether Greyhound possessed sufficient indicia of control to be an
`employer' is essentially a factual issue.''); AM Property Holding
Corp., 350 NLRB at 1000 (``The question of joint employer status turns
on the facts of each particular case.''); Southern California Gas, 302
NLRB at 461 (``Primarily, the question of joint employer status must be
decided on the totality of the facts of the particular case.''). Under
precedent predating the sharp departure in Browning-Ferris, the Board
reasonably found entities meaningfully affected matters relating to the
employment relationship only where they had direct and immediate
control over at least one essential term or condition of employment.
Depending on the circumstances, however, direct and immediate
control over only one essential term or condition of employment, or
even more than one, has sometimes been found insufficient to
meaningfully affect matters relating to the employment relationship.
The direct-and-immediate control may be too isolated or sporadic to be
meaningful for purposes of imposing bargaining obligations and
potential unfair labor practice liability.
[[Page 11227]]
See G. Wes Ltd., 309 NLRB at 225 fn. 5 (one isolated incident of user
employer interviewing employee whom the supplier employer later hired
insufficient to prove that the user employer controlled hiring);
International Shipping Assn., 297 NLRB 1059, 1067 (1990) (finding
evidence insufficient to prove a joint-employer relationship where the
``few occasions when [the user employer] asked certain [supplied]
workers to do certain tasks were isolated,'' and there was ``one
isolated, vague incident'' of the user employer telling an applicant he
should tell the supplier employer he should be hired, and he was).
Likewise, the direct and immediate control an entity exercises may fall
short of meaningfully affecting the employment relationship in the
context of other control not exercised. See Flagstaff Medical Center,
357 NLRB at 666-667 (the putative joint-employer's limited direct and
immediate control was insufficient to establish joint-employer status
under the circumstances); AM Property Holding Corp., 350 NLRB at 1001-
1002 (user employer's direct and immediate control regarding hiring and
setting the wages and benefits of one particular employee and
``occasional assignment of work'' to other employees was not enough to
establish joint-employer relationship under the circumstances); Women &
Infants Hospital, 324 NLRB at 749 (recurring direction by the user
employer necessitated by the lack of a supplier-employer onsite
supervisor was not itself enough to warrant a joint-employer finding
absent other meaningful evidence); Pitney Bowes, Inc., 312 NLRB 386,
387 (1993) (user employer's issuing undocumented verbal warnings and
routine instructions did not meaningfully affect the employment
relationship in light of the supplier employer's ``nearly complete
control over all other significant aspects of the employment
relationship, such as hiring, wages, benefits, work rules, assignment
of tasks, transfers to other [supplier-employer] customers, and
termination'').
The final rule reflects this precedent by providing that the Board
will consider the totality of the relevant facts in each particular
employment setting and that ``[s]ubstantial direct and immediate
control'' means ``direct and immediate control that has a regular or
continuous consequential effect on an essential term or condition of
employment of another employer's employees. Such control is not
`substantial' if only exercised on a sporadic, isolated, or de minimis
basis.'' The final rule also specifies, as has always been the case,
that the party asserting joint-employer status bears the burden of
proof. See, e.g., Hobbs & Oberg Mining Co., 297 NLRB at 586.
D. The Role of Indirect Control and Unexercised, Contractually Reserved
Authority
As referenced above, indirect control and unexercised,
contractually reserved authority generally reference control that is
not direct and immediate. However, the final rule specifies that,
within the meaning of the rule, indirect control does not encompass
indirect control or influence over setting the objectives, basic ground
rules, or expectations for another entity's performance under a
contract. This distinction is discussed further in the following
section on business practices that are not probative of joint-employer
status. By contractually reserved authority, the final rule means the
authority that an entity reserves to itself, under the terms of a
contract with another employer, over the essential terms and conditions
of employment of that other employer's employees, but that has never
been exercised.
Under Board law as it existed prior to Browning-Ferris, indirect
control and unexercised, contractually reserved authority were not
alone dispositive of joint-employer status. See AM Property Holding
Corp., 350 NLRB at 1000, 1002 (``We find that the contractual provision
giving AM the right to approve PBS hires, standing alone, is
insufficient to show the existence of a joint employer relationship. In
assessing whether a joint employer relationship exists, the Board does
not rely merely on the existence of such contractual provisions, but
rather looks to the actual practice of the parties . . . . The Board's
inquiry with regard to the direction and supervision of Servco
employees is properly focused on the practice of the parties, not the
language of the contract.''); National Metal Processing, Inc., 331 NLRB
866, 869 (2000) (finding user employer was not a joint employer where
it only affected unit employees indirectly and had unexercised
contractual authority to suspend employees up to 3 days); J. P. Mascaro
& Sons, 313 NLRB 385, 389 (1993) (``Respondent of necessity may
exercise some implicit or indirect control over the operations of [the
subcontractor] at the facility to ensure against disruption of its own
operations or to assure it secures the services promised, but this is
no basis to find the customer-employer is a joint employer of its
contractor's employees.''), enfd. sub nom. NLRB v. Solid Waste
Services, Inc., 38 F.3d 93 (2d Cir. 1994); Goodyear Tire & Rubber, 312
NLRB at 677 (contractual provision reserving operational control,
including over direction and supervision, ``in and of itself, was not
evidence of joint employer status . . . . [I]t was more appropriate to
look to the actual handling of day-to-day business''). But the Board
did consider such evidence insofar as it supplemented and reinforced
evidence of direct and immediate control over essential terms and
conditions of employment. See, e.g., Le Rendezvous Restaurant, 332 NLRB
at 336 (considering evidence of contractually reserved authority in
conjunction with user employer's exercise of direct and immediate
control over hiring and discipline); M.B. Sturgis, Inc., 331 NLRB 1298,
1301-1302 (2000) (finding that the contract's broad grant of authority
to the user employer over supervision and direction supported evidence
of exercised direct control over supervision, direction, and
discipline). The final rule is in lockstep with this approach. Indirect
control or unexercised, contractually reserved authority cannot alone
be dispositive, but either or both are probative of joint-employer
status to the extent they supplement or reinforce evidence of direct
and immediate control over essential terms and conditions of
employment.
E. Business Practices That Are Not Probative of Joint-Employer Status
The Board is mindful, as was implicit in its pre-Browning-Ferris
precedent, that there are business practices that are merely
``quotidian aspects of common-law third-party contract relationships''
that do not make joint-employer status any more or less likely.
Browning-Ferris v. NLRB, 911 F.3d at 1220. A contracting entity
commonly seeks to ``set the objectives, basic ground rules, and
expectations for a third-party contractor,'' and doing so is not
indicative of joint-employer status. Id. This includes contractual
provisions obligating the third party to maintain certain practices to
comply with legal requirements or for corporate social responsibility
reasons. See Doe I v. Wal-Mart Stores, Inc., 572 F.3d at 680-683
(contracts that contained a code of conduct requiring Wal-Mart's
foreign suppliers to comply with foreign labor laws and permitting Wal-
Mart to monitor compliance, and that set forth ``deadlines, quality of
products, materials used, prices, and other common buyer-seller
contract terms'' were not evidence that Wal-Mart was a common-law joint
employer of its suppliers' employees); Aldworth Co.,
[[Page 11228]]
338 NLRB at 139 (``[A]ctions taken pursuant to government statutes and
regulations are not indicative of joint employer status.'').
Accordingly, under the final rule, the Board does not intend the
following to be evidence of joint-employer status: Entering a cost-plus
contract (with or without a maximum reimbursable rate); setting minimal
standards for hiring, performance, or conduct, such as those required
by government regulation; requiring the contractor to institute safety
or sexual-harassment policies; a franchisor's protection of its
trademark or service mark; or anything else that promotes legal
compliance or sets the objectives, basic ground rules, or expectations
for a contractor's performance.
VII. Other Statutory Requirements
A. The Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980, as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (RFA), 5 U.S.C.
601-612, requires an agency promulgating a final rule to prepare a
Final Regulatory Flexibility Analysis (FRFA) when the regulation will
have a significant impact on a substantial number of small entities. An
agency is not required to prepare a FRFA if the Agency head certifies
that the rule will not have a significant economic impact on a
substantial number of small entities. 5 U.S.C. 605(b). In the NPRM,
although the Board believed that this rule would not have a significant
economic impact on a substantial number of small entities, the Board
issued its Initial Regulatory Flexibility Analysis (IRFA) to provide
the public the fullest opportunity to comment on the proposed rule. See
83 FR at 46693. The Board solicited comments from the public that would
shed light on potential compliance costs that may result from the rule
that it had not identified or anticipated.
The RFA does not define either ``significant economic impact'' or
``substantial number of small entities.'' \371\ Additionally, ``[i]n
the absence of statutory specificity, what is `significant' will vary
depending on the economics of the industry or sector to be regulated.
The agency is in the best position to gauge the small entity impacts of
its regulations.'' \372\ The Board anticipates low costs of compliance
with the rule for small entities, related to reviewing and
understanding the substantive changes to the joint-employer standard.
---------------------------------------------------------------------------
\371\ 5 U.S.C. 601.
\372\ U.S. Small Business Administration (SBA) Office of
Advocacy, A Guide for Government Agencies: How to Comply with the
Regulatory Flexibility Act (SBA Guide) 18 (Aug. 2017), https://www.sba.gov/sites/default/files/advocacy/How-to-Comply-with-the-RFA-WEB.pdf.
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1. Statement of the Need for, and Objectives of, the Rule
The final rule establishes the standard for determining, under the
NLRA, whether a business is a joint employer of a group of employees
directly employed by another employer. This rule is necessary to foster
predictability and consistency in joint-employer determinations under
the NLRA, particularly in light of considerable uncertainty regarding
the status of the current standard, which was established through
adjudication. The guidance furnished by the final rule will enable
regulated parties to determine in advance whether their actions are
likely to result in a joint-employer finding, which entails or may
entail significant consequences under the NLRA: A duty to bargain
collectively, exposure to what would otherwise be unlawful secondary
union activity, and derivative unfair labor practice liability.
Accordingly, a final rule setting forth a comprehensive and detailed
standard is vitally important to businesses covered by the NLRA,
employees employed by those businesses, and labor organizations that
represent or seek to represent those employees. Defining the joint-
employer standard through rulemaking also permits the Board to provide
more guidance than would be readily achievable through adjudication.
The final rule accomplishes these objectives by defining critical
elements of the joint-employer standard that have heretofore been
undefined and by focusing the inquiry on the factors most relevant to
joint-employer status in light of the policies and purposes of the
NLRA.
2. Statement of the Significant Issues Raised by the Public Comments in
Response to the Initial Regulatory Flexibility Analysis, a Statement of
the Assessment of the Agency of Such Issues, and a Statement of Any
Changes Made in the Proposed Rule as a Result of Such Comments
a. Response to Comments Concerning Economic Impact on Small Employers
As stated in the Board's IRFA, the rule ``will only be applied as a
matter of law when . . . businesses are alleged to be joint employers
in a Board proceeding.'' 83 FR at 46693. After analyzing recent case
statistics, the Board found that only .028% of all 5.9 million American
business firms with employees (both large and small) found themselves
in that position between 2013 and 2017. Id. Because a significant
number of these Board proceedings involved large employers, the IRFA
concluded that ``an even lower percentage of small businesses [would]
be most directly impacted by the Board's application of the rule.'' Id.
The Board also examined less direct impacts to small entities--that is,
impacts that might arise ``[i]rrespective of an Agency proceeding,''
id.--but found those impacts to be very limited in scope or modest in
size. For example, the Board acknowledged that a variety of small
entities would bear compliance costs related to reviewing and
understanding the rule but found that those costs would not be
considered ``significant'' under the RFA. Id. at 46693-95 (estimating
compliance costs of $80.26 for unions and $124.37 for small employers).
Some comments criticized the Board's IRFA for finding that the
businesses ``most directly impacted by the proposed rule'' are those
alleged to be joint employers in a Board proceeding. 83 FR at 46693. By
measuring ``most direct[] impact'' in this manner, one commenter argues
that the Board has ignored that businesses structure their transactions
based in part on the applicable legal costs of compliance and that
workers and small businesses bear these costs when the indirect
employers have substantial market power, whether or not they are
subject to a Board proceeding.\373\ Another commenter believes that the
Board's approach fails to account for the current, stable joint-
employer bargaining relationships that might be disrupted by the
rule.\374\ Thus, that commenter's view, the proposed rule would cause
prolonged labor disputes because larger entities with control over
certain terms and conditions of employment would no longer be at the
bargaining table.
---------------------------------------------------------------------------
\373\ See comment of Law and Economics Professors.
\374\ See comment of AFT.
---------------------------------------------------------------------------
Other comments similarly criticized the Board for failing to
analyze whether the proposed rule would cause competitive harm to small
businesses on a broad basis. According to these comments, because the
proposed rule allows indirect employers to avoid the cost and
responsibility of complying with the NLRA, the rule places small
employers at a competitive disadvantage to larger employers.\375\ For
example, a commenter argues that the revised definition will provide
indirect employers that possess substantial
[[Page 11229]]
market power greater leverage in their contracting arrangements with
businesses that supply labor.\376\ Accordingly, larger indirect
employers will use this added leverage to siphon off profits from
smaller direct employers, limiting the ability of those small
businesses to grow. As a result, the commenter argues, the rule will
cause a further shift in market power away from small employers. It
states that harm to the competitive ability of small businesses, vis-
[agrave]-vis larger firms, is a direct, cognizable economic impact
under the RFA that the Board should have considered.
---------------------------------------------------------------------------
\375\ See Center for American Progress Action Fund; CWA; NELP.
\376\ See comment of Law and Economics Professors.
---------------------------------------------------------------------------
Respectfully, the foregoing commenters do not raise direct economic
impacts under the RFA. The RFA does not require an agency to consider
speculative and wholly discretionary responses to the rule, or the
indirect impact on every stratum of the economy. What the statute
requires is that the regulatory agency consider the direct burden that
compliance with a new regulation will likely impose on small entities.
See Mid-Tex Elec. Co-op v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985)
(``[I]t is clear that Congress envisioned that the relevant `economic
impact' was the impact of compliance with the proposed rule on
regulated small entities''); accord White Eagle Co-op. Ass'n v. Conner,
553 F.3d 467, 478 (7th Cir. 2009); Colorado State Banking Bd. v.
Resolution Trust Corp., 926 F.2d 931, 948 (10th Cir. 1991).
This construction of the RFA, requiring agencies to consider only
direct compliance costs, finds support in the text of the Act. Section
603(a) of the RFA states that if an IRFA is required, it ``shall
describe the impact of the proposed rule on small entities.'' 5 U.S.C.
603(a). Although the term ``impact'' is undefined, its meaning can be
gleaned from Section 603(b), which recites the required elements of an
initial regulatory flexibility analysis. One such element is ``a
description of the projected reporting, recordkeeping and other
compliance requirements of the proposed rule, including an estimate of
the classes of small entities which will be subject to the requirement
and the type of professional skills necessary for preparation of the
report or record.'' 5 U.S.C. 603(b)(4) (emphasis added). Section 604
further corroborates the Board's conclusion, as it contains an
identical list of requirements for a FRFA (if one is required). 5
U.S.C. 604(b)(4).
Additional support for confining the regulatory analysis to direct
compliance costs is found in an authoritative guide published by the
Office of Advocacy of the SBA. In the SBA Guide, the SBA explains that
``other compliance requirements'' under Section 603 include the
following examples:
(a) Capital costs for equipment needed to meet the regulatory
requirements; (b) costs of modifying existing processes and
procedures to comply with the proposed rule; (c) lost sales and
profits resulting from the proposed rule; (d) changes in market
competition as a result of the proposed rule and its impact on small
entities or specific submarkets of small entities; (e) extra costs
associated with the payment of taxes or fees associated with the
proposed rule; and (f) hiring employees dedicated to compliance with
regulatory requirements.
SBA Guide at 37. These are all direct, compliance-based costs.
In the IRFA, the Board noted that the only identifiable compliance
cost imposed by the proposed rule for entities not named in a Board
proceeding related to reviewing and understanding the substantive
changes to the joint-employer standard. 83 FR at 46695. Otherwise,
there will be no ``reporting, recordkeeping and other compliance
requirements'' for these small entities. See 5 U.S.C. 603(b)(4) &
604(b)(4). The same is true of the final rule. And the final rule
imposes no mandatory capital costs, no mandatory costs of modifying
existing process, no costs of lost sales or profits, and, as discussed
further below, no appreciable changes in market competition. See SBA
Guide at 37. Lastly, for small entities not party to Board proceedings,
there are no costs associated with taxes or fees and no costs for
additional employees dedicated to compliance, as no compliance
requirements exist. Id.
Consistent with these principles, the Board rejects the view that
it must analyze how indirect employers exercise market power within
their contracting arrangements to determine the impact upon small
businesses, as suggested by the comments discussed above. The D.C.
Circuit has firmly rejected the notion that a regulating agency must
analyze every indirect and remote economic impact. See Mid-Tex Elec.
Co-op., Inc. 773 F.2d at 343 (``Congress did not intend to require that
every agency consider every indirect effect that any regulation might
have on small businesses in any stratum of the national economy.'').
``[R]equir[ing] an agency to assess the impact on all of the nation's
small businesses possibly affected by a rule would be to convert every
rulemaking process into a massive exercise in economic modeling, an
approach we have already rejected.'' Cement Kiln Recycling Coal. v.
EPA, 255 F.3d 855, 869 (D.C. Cir. 2001) (citing Mid-Tex Elec. Coop.,
773 F.2d at 343).
But a massive exercise in economic modeling is exactly what the
commenter asks the Board to undertake. The rule does not require
contracting parties to alter their arrangements now or in the future.
If indirect employers with market power drive harder bargains with
direct employers than they do now, as the commenter predicts, such
outcomes will result from the individual choices of economic actors,
not from actions required to comply with the rule.\377\
---------------------------------------------------------------------------
\377\ According to the Law and Economics Professors, large
indirect employers with substantial market power will have greater
leverage to artificially suppress workers' wages and capture these
asserted monetary losses experienced by workers affected by the
rule. Assuming solely for the sake of argument that this is true, it
would not constitute an RFA concern because such transfers would not
result in changes to small direct employers' bottom-line
profitability.
---------------------------------------------------------------------------
Notwithstanding the indirect nature of the potential impacts raised
by these comments, the Board also disagrees that the rule will upset
existing collective-bargaining relationships. The Board believes that
the rule will promote labor-management stability because it simplifies
the test for joint employment, provides for a more consistent standard,
and ends the unpredictable oscillations between differing tests for
joint employment.
Furthermore, the Board finds no evidence to support the notion that
the rule places small employers at a competitive disadvantage to large
employers. Employers of all sizes routinely enter into service
contracts, and all have an interest in the applicable joint-employer
standard. Those private-sector employers that exercise substantial
direct and immediate control over the essential working conditions of
employees maintain the same legal responsibilities under the NLRA as
they had before the rule. And while the rule does decrease liability
and responsibilities of employers that do not exercise such control
over those essential terms and conditions of employment, the rule does
not intrude upon the contractual liberties of direct and indirect
entities. Those employers may negotiate contractual terms of their
choosing without the undue burden of a complicated joint-employer
standard. Accordingly, this rule would provide no additional leverage
for employers of any size to manipulate the supply of and demand for
labor, nor interfere with market access.
One commenter argues that ``[u]nder the proposed narrow standard,
small businesses that can't afford to
[[Page 11230]]
subcontract out operations will be at a competitive disadvantage to
large corporations that can and do outsource.'' \378\ The commenter
presented no evidence to support this conclusion. And other comments in
support of the proposed rule note that there is no empirical evidence
supporting the proposition that the new rule will place small
businesses at a competitive disadvantage to larger companies just
because the latter are better situated to subcontract their
operations.\379\ Absent empirical evidence, the Board is not persuaded
that the new standard impacts outsourcing in this manner.
---------------------------------------------------------------------------
\378\ See comment of NELP.
\379\ See comments of Chamber of Commerce; IFA.
---------------------------------------------------------------------------
Many critics of the Board's IRFA contend that the Board did not
fully consider the impact of requiring direct employers, including
small businesses, to bear the full cost of liability under the NLRA.
For example, one commenter contends that, since the rule applies to
business relationships where the larger entity contracts for services
of the smaller employer, the smaller employer will shoulder all
liability under the NLRA.\380\ This increased legal exposure, says
another commenter, will cause significant harm to small businesses
because their large customers or franchisors will not be jointly
responsible for bargaining, or jointly and severally liable for unfair
labor practices. Many other comments offered the same argument.\381\
---------------------------------------------------------------------------
\380\ See comment of IUOE.
\381\ See comment of AFL-CIO; see also comments of AFT; SEIU;
Congressmen Scott and Senator Murray; EPI; CWA; Texas Rio-Grande
Legal Aid.
---------------------------------------------------------------------------
In the NPRM, the Board noted that liability and liability insurance
costs may increase for small entities because they may no longer have
larger entities with which to share the cost of any NLRA backpay
remedies ordered in unfair labor practice proceedings. There, the Board
further stated that these costs could arguably fall within the SBA
Guide's category of ``extra costs associated with the payment of taxes
or fees associated with the proposed rule.'' \382\ Having reviewed the
comments and further considered the subject, the Board no longer
believes that these can be characterized as direct compliance costs
since these costs are not directly mandated by the rule. Unfair labor
practice liability is the cost of not complying with the NLRA, not a
cost of compliance with the Board's joint-employer rule.\383\
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\382\ The Board also observed that it is without the means to
quantify such costs. The RFA explains that in providing initial and
final regulatory flexibility analyses, ``an agency may provide
either a quantifiable or numerical description of the effects of a
proposed rule or alternatives to the proposed rule, or more general
descriptive statements if quantification is not practicable or
reliable.'' 5 U.S.C. Sec. 607 (emphasis added).
\383\ Likewise, liability insurance is also a cost not mandated
by the rule. In response to the NPRM's statement that there may be
compliance costs that are unknown to the Board such as potential
increases in liability insurance costs, one comment states that on a
local level even minimal impacts on insurance rates could hurt small
businesses. The commenter did not provide any supporting data, and
the Board believes any potential increases in insurance rates would
be minimal and not a direct impact of the rule.
---------------------------------------------------------------------------
Even if increased unfair labor practice liability were a direct
cost attributable to the rule, those costs would not impact a
substantial number of small entities. As the Board explained in the
NPRM, only .028% of all 5.9 million business firms in the United States
were alleged to be joint employers in Board proceedings from 2013 to
2017. See 83 FR at 46693. And since the data counts only allegations,
not prosecutions or Board decisions, the number of employers who were
actually impacted by the Board's joint-employer standard in recent
years is even smaller. Accordingly, the Board is not persuaded that any
changes to unfair labor practice liability arising from this rule will
impact a substantial number of small entities.
Nor does the Board believe the rule creates the prospect of added
liability for direct employers subject to organizing campaigns or
engaged in collective bargaining. These direct employers have always
been the primary target of union organizing aimed at their workers by
virtue of their direct control over payroll and other essential terms
and conditions of employment. And as the Board stated in the NPRM, the
proposed rule may make it easier for employers to collectively bargain
without the complications of fragmented bargaining while providing much
greater certainty as to their bargaining obligations. See 83 FR at
46695. As was also pointed out there, for at least 30 years (from no
later than 1984 to 2015) evidence of indirect control was typically
insufficient to prove that one company was the joint employer of
another business's workers. See id. at 46693. And the contrary
Browning-Ferris standard was under challenge for the entirety of its
relatively brief existence and, therefore, shrouded in uncertainty.
Given this history, the possibility of disturbing existing labor
relations for direct employers is very small. But again, the Board
believes that these types of costs, if any, are indirect; they arise
from a series of subsequent decisions made by individual actors that
are not compelled by the rule itself.
b. Response to Comments Concerning Economic Impact on Small Labor
Unions
Several comments assert that the Board should have provided a more
detailed consideration of the impact upon labor unions, a specific
category of small entities directly impacted by the proposed rule. One
commenter, for example, believe that the alleged shift in market power
away from direct employers will reduce employment and suppress pay and,
in turn, cause a reduction in dues contributions to labor unions.\384\
Another commenter similarly predicts that, by removing franchisors and
larger indirect employers from reach of the NLRA, the proposed rule
might frustrate collective bargaining and, thereby, alienate
employees.\385\ These comments assert that labor unions will find it
more difficult to organize employees and maintain existing membership,
which will adversely impact dues income. Thus, one commenter contends
that the Board should estimate the additional organizing,
communications, and bargaining costs imposed upon small unions.\386\
Other labor organizations offer similar comments.\387\
---------------------------------------------------------------------------
\384\ See comment of Law and Economics Professors.
\385\ See comment of AFL-CIO.
\386\ See comment of AFT. Comments offered in support of the
proposed rule suggest just the opposite--that the narrower standard
could be beneficial to labor unions because they will no longer be
expending resources seeking to establish bargaining relationships
with larger indirect employers that have thousands of employees.
\387\ See, e.g., comments of CWA; AFT.
---------------------------------------------------------------------------
The comments on this issue present no reliable empirical evidence
to show that the rule would have a significant economic impact on a
substantial number of small entity labor unions. One commenter
estimates $1.3 billion in yearly transfers from workers in contract
firms and temporary help agencies to employers as a result of the rule,
and argues that this $1.3 billion annual transfer will necessarily
reduce union dues since dues are often calculated as a percentage of
gross pay.\388\
---------------------------------------------------------------------------
\388\ See comment of Law and Economics Professors. This estimate
is based on information from the comment submitted by EPI.
---------------------------------------------------------------------------
The Board finds this analysis unreliable because it makes several
critical and unsubstantiated assumptions.\389\ Based on the disparity
in pay between union and nonunion employees in the economy as a whole
(from other research), the comment first assumes that union-organized
workers in contract firms and temporary help
[[Page 11231]]
agencies, on average, earn $146 more per week (or $1.3 billion per year
on an aggregate basis) than their nonunion counterparts in these same
industries. Then, without any empirical evidence, the comment assumes
that the new rule would automatically eliminate the higher pay afforded
unionized workers and transfer the $1.3 billion to employers. The
stated rationale for taking this analytical leap is that ``the narrow
proposed joint-employer standard will make collective bargaining among
subcontracted and temporary workers nearly impossible.'' \390\
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\389\ We refer here to the analysis contained in the comment of
EPI, on which the Law and Economics Professors rely.
\390\ See comment of EPI.
---------------------------------------------------------------------------
This analysis is flawed. Initially, it assumes that a pay disparity
exists between union and nonunion workers in these industries, that the
assumed disparity is consistent in magnitude with the disparity that
exists in the overall economy, and that the impact of unionization (and
not, for example, cost of living differentials) is the sole explanation
for any pay disparity. The commenter presented no evidence to support
these assumptions. But, most troublesome, the comment assumes that the
new rule will cause union workers to automatically lose their union
wages because, in its view, subcontracted and temporary workers will
immediately forego union representation rather than bargain with just
their direct employers. There is no reason to accept the proposition
that workers in these industries will abandon collective bargaining en
masse. At the very least, the comment presented no evidence to back it
up. The contract firms and temporary help agencies that directly
control employee payrolls and other essential terms and conditions of
employment will continue to do so before and after the rule takes
effect. Since the relationships between direct employers, their
employees, and employee bargaining representatives will remain intact,
there is no reason to assume that unionized employees will
automatically lose their union wages. The Board, therefore, rejects
this comment's prediction and the corollary assertion advanced by
another commenter concerning union dues.\391\
---------------------------------------------------------------------------
\391\ See comment of Law and Economics Professors.
---------------------------------------------------------------------------
In the NPRM, the Board's IRFA assumed for purposes of analysis that
a substantial number of small entity labor unions would be impacted by
the rule. See 83 FR at 46693. But the Board also stated its belief that
the cost of compliance with the rule would be very low, related to
reviewing and understanding the substantive changes to the joint
employer standard, meaning that there would not be a significant impact
on a substantial number of small unions. See 83 FR at 46693 and 46695.
In reviewing the comments on this subject, the Board finds no other
compliance costs to labor unions, and no evidence showing a significant
impact. Labor unions certainly have an interest in the rule, as with
any other standard or substantive application of the NLRA, but the
negative economic impacts on labor unions raised by the comments are
wholly speculative and based upon perceived indirect consequences of
the rule.
In fact, the rule leaves undisturbed the statutory duties and
bargaining obligations of those employers that directly control payroll
and other essential terms and conditions of employment for employees.
As such, labor unions will still be able organize the workforces of
direct employers, engage in collective bargaining with direct
employers, and file unfair labor practices charges against direct
employers. And the Board has made clear that the new standard will
foster predictability and consistency regarding determinations of
joint-employer status in a variety of business relationships, thereby
promoting labor-management stability. Hence, the Board finds that there
is no reliable evidence to support the proposition that the rule will
have a significant impact on union organizing or union membership.
c. Response to Comments Concerning Reporting Requirements
The Board's IRFA stated that the Board did not believe that the
rule would impose any new recordkeeping or reporting requirements on
small entities. See 83 FR at 46695. One commenter speculates that the
rule will actually impose more onerous recordkeeping costs because
small businesses will be required to maintain more detailed records of
the actual control exercised upon their employees (by those small
employers and their larger business partners).\392\ The commenter
further suggests that the proposed rule may increase litigation costs
to small businesses and labor unions because they would have to invest
more resources in developing witness-intensive facts in support of a
joint-employer theory. But the commenter has not identified cognizable
recordkeeping requirements. The RFA defines a ``recordkeeping
requirement'' as ``a requirement imposed by an agency on persons to
maintain specified records,'' 5 U.S.C. 601(8), and the rule imposes no
such requirement. Additionally, these suggested costs are speculative.
There is no reason for direct employers to maintain more detailed
records of their work with indirect employers as a result of this rule
than the records that they already keep in the normal course of
business. In fact, the opposite would be more likely given that the
rule will foster predictability and consistency in determining joint-
employer status and will reduce the incentive for indirect employers to
maintain records solely for the purpose of defending themselves against
liability premised on the existence of an alleged joint-employer
relationship.
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\392\ See comment of AFL-CIO.
---------------------------------------------------------------------------
Nor is the Board persuaded that any changes to the evidentiary
burden placed upon parties to establish a joint-employer relationship
will meaningfully affect the cost of litigation. Assuming an increase
in litigation costs for a particular case, the commenter makes no
effort to analyze the impact in order to assess the significance. The
Board also expects that the new rule will decrease the overall amount
of litigation involving the joint-employer standard, which would also
decrease litigation costs to unions. In any event, beyond
familiarization costs, the Board finds that the new rule imposes no
additional costs for reporting, recordkeeping, or other direct
compliance requirements, and none of the comments present empirical
evidence to the contrary.
d. Response to Comments Concerning Duplication, Overlap, and Conflict
With Other Rules
Some comments contend that the Board has failed to identify all
relevant rules and regulations which may ``duplicate, overlap or
conflict with the proposed rule,'' as Section 603(b)(5) of the RFA
requires.\393\ These comments argue that the proposed rule is
discordant with the standard under the FLSA,\394\ or inconsistent with
the definition of ``employer'' used by other agencies such as the
IRS.\395\ These contentions stretch ``duplicate, overlap or conflict''
beyond their intended meanings.\396\ The rule does not duplicate or
overlap with any other rule for identifying joint employers under
[[Page 11232]]
the NLRA, and, in fact, will be the only joint-employer standard
maintained by the NLRB. Nor does the rule expose regulated entities to
conflicting obligations, even if other agencies apply different
standards for determining when a joint-employment relationship exists
under other statutes.
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\393\ See Comments of AFL-CIO; United Association of Plumbers
and Pipe Fitters (Plumbers).
\394\ See Comment of AFL-CIO.
\395\ See Comment of Plumbers.
\396\ According to the SBA Guide, at 40:
Rules are duplicative or overlapping if they are based on the
same or similar reasons for the regulation, the same or similar
regulatory goals, and if they regulate the same classes of industry.
Rules are conflicting when they impose two conflicting regulatory
requirements on the same classes of industry.
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e. Response to Comments Concerning Public Outreach
One commenter argues that the Board failed to conduct sufficient
outreach to small businesses, including small local unions, that will
be impacted by the rule. 5 U.S.C. 609.\397\ But there have been no
surprises: the issues addressed by this rule have been the subject of a
robust public debate for several years. And in conjunction with the
official publication of the NPRM, the Board worked to widely publicize
the proposed rule. Upon issuance, the Board published the NPRM and
facts sheets on its website. See The Standard for Determining Joint-
Employer Status, NLRB, https://www.nlrb.gov/about-nlrb/what-we-do/national-labor-relations-board-rulemaking/standard-determining-joint-employer (last visited Feb. 11, 2020). On September 13, 2018, the Board
issued a press release, which was published on its website and
distributed by email to subscribers, notifying the public of the
proposed rule. See NLRB Office of Public Affairs, Board Proposes Rule
to Change its Joint-Employer Standard (Sept. 13, 2018) https://www.nlrb.gov/news-outreach/news-story/board-proposes-rule-change-its-joint-employer-standard. The press release was also shared on social
media through the Board's official Twitter and Facebook accounts. The
Board members themselves have also discussed the proposed rule at
various public speaking engagements, including the annual meeting of
the Labor and Employment Law Section of the American Bar Association.
Given the foregoing efforts and the thousands of comments the Board
received in response to the NPRM, the Board believes that the public
has been well informed, the pros and cons of the rule have been
thoroughly examined, and the impact of the rule on the full range of
business entities governed by it have been brought into sharp focus by
individuals, businesses, labor unions, and industry trade groups.
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\397\ See Comment of AFL-CIO.
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3. Response of the Agency to Any Comments Filed by the Chief Counsel
for Advocacy of the Small Business Administration in Response to the
Proposed Rule, and a Detailed Statement of Any Change Made to the
Proposed Rule in the Final Rule as a Result of the Comments
The Chief Counsel of Advocacy of the Small Business Administration
did not submit comments in response to the NPRM.
4. Description and Estimate of Number of Small Entities to Which the
Rule Applies
In order to evaluate the impact of the proposed rule, the Board
first identified the entire universe of businesses that could be
impacted by a change in the joint-employer standard. According to the
United States Census Bureau, there were approximately 5.95 million
business firms with employees in 2016.\398\ Of those, the Census Bureau
estimates that about 5,934,985 million were firms with fewer than 500
employees.\399\ While this final rule does not apply to employers that
do not meet the Board's jurisdictional requirements, the Board does not
have the data to determine the number of excluded entities (nor was
data received on this particular issue).\400\
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\398\ ``Establishments'' refer to single location entities--an
individual ``firm'' can have one or more establishments in its
network. As we did in the NPRM, the Board has used firm-level data
for this FRFA because establishment data is not available for
certain types of employers discussed below. Census Bureau
definitions of ``establishment'' and ``firm'' can be found at
https://www.census.gov/programs-surveys/susb/about/glossary.html
(last visited Feb. 10, 2020).
\399\ The U.S. Census Bureau does not specifically define small
business, but does break down its data into firms with 500 or more
employees and those with fewer than 500 employees. See U.S
Department of Commerce, Bureau of Census, 2016 Statistics of U.S.
Businesses (SUSB) Annual Data Tables by Establishment Industry (Dec.
2018), https://www.census.gov/data/tables/2016/econ/susb/2016-susb-annual.html (from downloaded Excel Table entitled ``U.S., 6-digit
NAICS''). Consequently, the 500-employee threshold is commonly used
to describe the universe of small employers. For defining small
businesses among specific industries, the standards are defined by
the North American Industry Classification System (NAICS), which we
set forth below.
\400\ Pursuant to 29 U.S.C. 152(6) and (7), the Board has
statutory jurisdiction over private sector employers whose activity
in interstate commerce exceeds a minimal level. NLRB v. Fainblatt,
306 U.S. 601, 606-607 (1939). To this end, the Board has adopted
monetary standards for the assertion of jurisdiction that are based
on the volume and character of the business of the employer. In
general, the Board asserts jurisdiction over employers in the retail
business industry if they have a gross annual volume of business of
$500,000 or more. Carolina Supplies & Cement Co., 122 NLRB 88
(1959). But shopping center and office building retailers have a
lower threshold of $100,000 per year. Carol Management Corp., 133
NLRB 1126 (1961). The Board asserts jurisdiction over non-retailers
generally where the value of goods and services purchased from
entities in other states is at least $50,000. Siemons Mailing
Service, 122 NLRB 81 (1959).
The following employers are excluded from the NLRB's
jurisdiction by statute:
Federal, state and local governments, including public
schools, libraries, and parks, Federal Reserve banks, and wholly-
owned government corporations. 29 U.S.C. 152(2).
Employers that employ only agricultural laborers, those
engaged in farming operations that cultivate or harvest agricultural
commodities or prepare commodities for delivery. 29 U.S.C. 153(3).
Employers subject to the Railway Labor Act, such as
interstate railroads and airlines. 29 U.S.C. 152(2).
---------------------------------------------------------------------------
The final rule will only be applied as a matter of law when small
businesses are alleged to be joint employers in a Board proceeding.
Therefore, the frequency with which the issue comes before the Board is
indicative of the number of small entities most directly impacted by
the final rule. A review of the Board's representation petitions and
unfair labor practice charges provides a basis for estimating the
frequency with which the joint-employer issue comes before the Agency.
During the five-year period between January 1, 2013, and December 31,
2017, a total of 114,577 representation and unfair labor practice cases
were initiated with the Agency. In 1598 of those filings, the
representation petition or unfair labor practice charge filed with the
Agency asserted a joint-employer relationship between at least two
employers.\401\ Accounting for repetitively alleged joint-employer
relationships in these filings, the Board has identified 823 separate
alleged joint-employer relationships involving an estimated 1646
employers.\402\ Accordingly, the joint-employer standard most directly
impacted approximately .028% of all 5.95 million business firms
(including both large and small businesses) over the five-year period.
Since a large share of our joint-employer cases involve large
employers, the Board expects an even lower percentage of small
businesses to be most directly impacted by the Board's application of
the rule.
---------------------------------------------------------------------------
\401\ This includes initial representation-case petitions (RC
petitions) and unfair labor practice charges (CA cases) filed
against employers.
\402\ Since a joint-employer relationship requires at least two
employers, the Board has estimated the number of employers by
multiplying the number of asserted joint-employer relationships by
two. Some of these filings assert more than two joint employers;
but, on the other hand, some of the same employers are named
multiple times in these filings. Additionally, this number is
certainly inflated because the data does not reveal those cases
where joint-employer status is not in dispute.
---------------------------------------------------------------------------
As discussed in the NPRM, irrespective of an Agency proceeding, the
rule may be more relevant to certain types of small employers because
their
[[Page 11233]]
business relationships involve the exchange of employees or operational
control.\403\ 83 FR at 46693. In addition, labor unions, as
organizations representing or seeking to represent employees, will be
impacted by the Board's change in its joint-employer standard. Thus,
the Board identified the following five types of small businesses or
entities as those most likely to be impacted by the rule: Contractors/
subcontractors, temporary help service suppliers, temporary help
service users, franchisees, and labor unions.
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\403\ The Board acknowledges that there are other types of
entities and/or relationships between entities that may be affected
by this change in the joint-employer rule. Such relationships
include but are not limited to lessor/lessee and parent/subsidiary.
However, the Board does not believe that entities involved in these
relationships would be impacted more than the entities discussed
below.
---------------------------------------------------------------------------
(1) Businesses commonly enter into contracts with vendors to
receive a wide range of services that may satisfy their primary
business objectives or solve discrete problems they are not qualified
to address. And there are seemingly unlimited types of vendors who
provide these types of contract services. Businesses may also
subcontract work to vendors to satisfy their own contractual
obligations--an arrangement common to the construction industry.
Businesses that contract to receive or provide services often share
workspaces and sometimes share control over workers, rendering their
relationships subject to application of the Board's joint-employer
standard. The Board does not have the means to identify precisely how
many businesses are impacted by contracting and subcontracting within
the United States, or how many contractors and subcontractors would be
small businesses as defined by the SBA.\404\
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\404\ The only data known to the Board relating to contractor
business relationships involve businesses that contract with the
federal government. In 2014, the DOL reported that approximately
500,000 federal contractor firms were registered with the General
Services Administration. Establishing a Minimum Wage for
Contractors, 79 FR 60634, 60697. However, the Board is without the
means to identify the precise number of firms that actually receive
federal contracts or to determine what portion of those are small
businesses as defined by the SBA. No comments were received on this
topic. Even if these data were available, the Board does not have
jurisdiction over government entities, and therefore business
relationships between federal contractors and the federal agencies
will not be impacted by the Board's joint-employer rule. The
business relationships between federal contractors and their
subcontractors could be subject to the Board's joint-employer rule.
However, the Board also lacks the means for estimating the number of
businesses that subcontract with federal contractors or determine
what portion of those would be defined as small businesses, and no
comments were received on this subject.
---------------------------------------------------------------------------
(2) Temporary help service suppliers (NAICS #561320) are primarily
engaged in supplying workers to supplement a client employer's
workforce. To be defined as a small business temporary help service
supplier by the SBA, the entity must generate receipts of less than
$27.5 million annually.\405\ In 2012, there were 13,202 temporary
service supplier firms in the U.S.\406\ Of these business firms, 6,372
had receipts of less than $1,000,000; 3947 had receipts between
$1,000,000 and $4,999,999; 1639 had receipts between $5,000,000 and
$14,999,999; and 444 had receipts between $15,000,000 and $24,999,999.
In aggregate, at least 12,402 temporary help service supplier firms
(93.9% of total) are definitely small businesses according to SBA
standards. Since the Board cannot determine how many of the 130
business firms with receipts between $25,000,000 and $29,999,999 fall
below the $27.5 million annual receipt threshold (nor were any comments
submitted on this topic), it will assume that these are small
businesses as defined by the SBA. For purposes of this FRFA, as in the
NPRM, the Board assumes that 12,532 temporary help service supplier
firms (94.9% of total) are small businesses.
---------------------------------------------------------------------------
\405\ 13 CFR 121.201.
\406\ The Census Bureau only provides data about receipts in
years ending in 2 or 7. The 2017 data has not been published, so the
2012 data is the most recent available information regarding
receipts. See U.S Department of Commerce, Bureau of Census, 2012
SUSB Annual Data Tables by Establishment Industry, NAICS
classification #561320, https://www2.census.gov/programs-surveys/susb/tables/2012/us_6digitnaics_r_2012.xlsx.
---------------------------------------------------------------------------
(3) Entities that use temporary help services in order to staff
their businesses are widespread throughout many types of industries and
include both large and small employers. A 2012 survey of business
owners by the Census Bureau revealed that at least 266,006 firms
obtained staffing from temporary help services in that calendar
year.\407\ This survey provides the only gauge of employers that obtain
staffing from temporary help services, and the Board is without the
means to estimate what portion of those are small businesses as defined
by the NAICS. Nor were comments received on this topic. For purposes of
this FRFA, the Board assumes that all users of temporary services are
small businesses.
---------------------------------------------------------------------------
\407\ See U.S. Department of Commerce, Bureau of Census, 2012
Survey of Business Owners, https://factfinder.census.gov/bkmk/table/1.0/en/SBO/2012/00CSCB46 (last visited Feb. 11, 2020).
---------------------------------------------------------------------------
(4) Franchising is a method of distributing products or services in
which a franchisor lends its trademark or trade name and a business
system to a franchisee, which pays a royalty and often an initial fee
for the right to conduct business under the franchisor's name and
system.\408\ The nature and degree of control exercised by franchisors
over franchisee operations vary widely and may, depending on the
circumstances of a particular franchising relationship, render the
relationship subject to application of the Board's joint-employer
standard. The Board explained in the NPRM that it does not have the
means to identify precisely how many franchisees operate within the
United States, or how many are small businesses as defined by the SBA.
A 2012 survey of business owners by the Census Bureau revealed that at
least 507,834 firms operated a portion of their business as a
franchise. But only 197,204 of these firms had paid employees.\409\ In
the Board's view, only franchisees with paid employees are potentially
impacted by the joint-employer standard. Of the franchisees with
employees, 126,858 (64.3%) had sales receipts totaling less than $1
million. Based on this available data and the SBA's definitions of
small businesses, which generally define small businesses as having
receipts well over $1 million, the Board assumes that almost two-thirds
of franchisees would be defined as small businesses.\410\
---------------------------------------------------------------------------
\408\ See IFA FAQs, found at https://www.franchise.org/faqs-about-franchising (last visited Feb. 10, 2020).
\409\ See U.S. Department of Commerce, Bureau of Census, 2012
Survey of Business Owners, https://factfinder.census.gov/bkmk/table/1.0/en/SBO/2012/00CSCB67 (last visited Feb. 11, 2020).
The Board received comments from the IFA and Chamber of Commerce
stating that there are 233,000 small business franchisees in the
United States. However, the Board is unable to verify the
methodology of the underlying study producing that number.
Nevertheless, the statistic supplied by these commenters is not far
off from Census data showing the total number of franchisees with
paid employees in 2012. In the Board's view, Census data is more
reliable than a number that is derived from unknown means.
Therefore, the Board has decided to rely on the Census's data in
performing this analysis.
\410\ See 13 CFR 121.201.
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(5) Labor unions, as defined by the NLRA, are entities ``in which
employees participate and which exist for the purpose . . . of dealing
with employers concerning grievances, labor disputes, wages, rates of
pay, hours of employment, or conditions of work.'' \411\ By defining
which employers are joint employers under the NLRA, the final rule
impacts labor unions generally, and more directly impacts those labor
unions that organize the specific business sectors discussed above. The
SBA's ``small business'' standard for ``Labor Unions and Similar Labor
Organizations'' (NAICS #813930) is $7.5
[[Page 11234]]
million in annual receipts.\412\ In 2012, there were 13,740 labor union
firms in the U.S.\413\ Of these firms, 11,245 had receipts of less than
$1,000,000, 2022 labor unions had receipts between $1,000,000 and
$4,999,999, and 141 had receipts between $5,000,000 and $7,499,999. In
aggregate, 13,408 labor union firms (97.6% of total) are small
businesses according to SBA standards.
---------------------------------------------------------------------------
\411\ 29 U.S.C. 152(5).
\412\ 13 CFR 121.201
\413\ See U.S Department of Commerce, Bureau of Census, 2012
SUSB Annual Data Tables by Establishment Industry, NAICS
classification #722513, https://www2.census.gov/programs-surveys/susb/tables/2012/us_6digitnaics_r_2012.xlsx.
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Based on the foregoing, the Board assumes there are 12,532
temporary help supplier firms, 197,204 franchise firms, and 13,408
union firms that are small businesses; and it further assumes that all
266,006 temporary help user firms are small businesses. Therefore,
among these four categories of employers that are most interested in
the final rule, 489,150 business firms are assumed to be small
businesses as defined by the SBA. The Board believes that all of these
small businesses, and also those businesses regularly engaged in
contracting/subcontracting, have a general interest in the rule and
would be impacted by the compliance costs, discussed below, related to
reviewing and understanding the rule. But, as previously noted,
employers will only be most directly impacted when they are alleged to
be a joint employer in a Board proceeding. Given the Board's historic
filing data, this number is very small relative to the number of small
employers in these five categories.
Throughout the IRFA, the Board requested comments or data that
might improve its analysis, 83 FR at 46693, 46695-46696, but no
additional data was received regarding the number of small entities to
which the rule will apply, other than the comments referenced in n.
409, above.
5. Description of the Projected Reporting, Recordkeeping and Other
Compliance Requirements of the Rule, Including an Estimate of the
Classes of Small Entities That Will Be Subject to the Requirement and
the Type of Professional Skills Necessary for Preparation of the Report
or Record
The RFA requires an agency to consider the direct burden that
compliance with a new regulation will likely impose on small
entities.\414\ Thus, the RFA requires the Agency to determine the
amount of ``reporting, recordkeeping and other compliance
requirements'' imposed on small entities.\415\ In providing its FRFA,
an agency may provide either a quantifiable or numerical description of
the effects of a rule or alternatives to the rule, or ``more general
descriptive statements if quantification is not practicable or
reliable.''\416\
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\414\ See Mid-Tex Elec. Co-op v. FERC, 773 F.2d at 342 (``[I]t
is clear that Congress envisioned that the relevant `economic
impact' was the impact of compliance with the proposed rule on
regulated small entities.'').
\415\ See 5 U.S.C. 604(a)(4).
\416\ 5 U.S.C. 607.
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The Board concludes that the final rule imposes no capital costs
for equipment needed to meet the regulatory requirements; no costs of
modifying existing processes and procedures to comply with the final
rule; no lost sales and profits resulting from the final rule; no
changes in market competition as a result of the final rule and its
impact on small entities or specific submarkets of small entities; and
no costs of hiring employees dedicated to compliance with regulatory
requirements.\417\ The final rule also does not impose any new
information collection or reporting requirements on small entities.
---------------------------------------------------------------------------
\417\ See SBA Guide at 37.
---------------------------------------------------------------------------
Small entities may incur some costs from reviewing the rule in
order to understand the substantive changes to the joint-employer
standard. The Board estimates that a labor compliance employee at a
small employer who undertook to become generally familiar with the
proposed changes may take at most one hour to read the summary of the
rule in the introductory section of the preamble. It is also possible
that a small employer may wish to consult with an attorney, which we
estimated to require one hour as well.\418\ Using the Bureau of Labor
Statistics (BLS)' most recent estimated wage and benefit costs, the
Board has assessed these labor costs to be $144.69.\419\
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\418\ The Board does not believe that more than one hour of time
by each would be necessary to read and understand the rule. This is
because the new standard constitutes a return to the pre-Browning-
Ferris standard, with which most employers are already familiar if
relevant to their businesses, and with which most labor-management
attorneys are also familiar.
\419\ For wage figures, see May 2018 National Occupancy
Employment and Wage Estimates, found at https://www.bls.gov/oes/current/oes_nat.htm. The Board has been administratively informed
that BLS estimates that fringe benefits are approximately equal to
40 percent of hourly wages. Thus, to calculate total average hourly
earnings, BLS multiplies average hourly wages by 1.4. In May 2018,
average hourly wages for labor relations specialists (BLS #13-1075)
were $34.01. The same figure for a lawyer (BLS # 23-1011) is $69.34.
Accordingly, the Board multiplied each of those wage figures by 1.4
and added them to arrive at its estimate.
---------------------------------------------------------------------------
As to the impact on unions, the Board anticipates they may also
incur costs from reviewing the rule. The Board believes a union would
consult with an attorney, which is estimated to require no more than
one hour of attorney time costing $97.08 (see fns. 418 and 419))
because union counsel should already be familiar with the pre-Browning-
Ferris standard. Additionally, the Board expects that the additional
clarity of the final rule will serve to reduce litigation expenses for
unions and other small entities.
The Board does not find the estimated $144.69 cost to small
employers and the estimated $97.08 cost to unions in order to review
and understand the rule to be significant within the meaning of the
RFA. In making this finding, one important indicator is the cost of
compliance in relation to the revenue of the entity or the percentage
of profits affected.\420\ Other criteria to be considered are the
following:
---------------------------------------------------------------------------
\420\ See SBA Guide at 18.
--Whether the rule will cause long-term insolvency, i.e., regulatory
costs that may reduce the ability of the firm to make future capital
investment, thereby severely harming its competitive ability,
particularly against larger firms;
--Whether the cost of the proposed regulation will (a) eliminate more
than 10 percent of the businesses' profits; (b) exceed one percent of
the gross revenues of the entities in a particular sector, or (c)
exceed five percent of the labor costs of the entities in the
sector.\421\
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\421\ Id. at 19.
The minimal cost to read and understand the rule, $144.69 for small
employers and $97.08 for small unions, will not generate any such
significant economic impacts.
In the NPRM, the Board requested comments from the public that
would shed light on any potential compliance costs, 83 FR 46693, and
considered those responses in the comments section above.
6. Description of the Steps the Agency Has Taken To Minimize the
Significant Economic Impact on Small Entities Consistent With the
Stated Objectives of Applicable Statutes, Including a Statement of the
Factual, Policy, and Legal Reasons for Selecting the Alternative
Adopted in the Final Rule and Why Each One of the Other Significant
Alternatives to the Rule Considered by the Agency Which Affect the
Impact on Small Entities Was Rejected
Pursuant to 5 U.S.C. Sec. 604(a)(6), agencies are directed to
examine ``why each one of the other significant
[[Page 11235]]
alternatives to the rule considered by the agency which affect the
impact on small entities was rejected.'' In the NPRM, the Board
requested comments identifying any other issues and alternatives that
it had not considered. See 83 FR 46696.
Several comments suggest that the Board withdraw the proposed rule
and leave in place the Browning-Ferris joint-employer standard.\422\ We
considered and rejected this alternative for the reasons stated in
Sections V.N and VI, supra. The Board finds it desirable to revise the
Browning-Ferris standard and to do so through the rulemaking process.
Consequently, the Board rejects maintaining the status quo.
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\422\ See comments of Law and Economics Professors; AFL-CIO;
CWA.
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One comment proposes two additional alternatives.\423\ It suggests
that if the Board is to depart from the Browning-Ferris standard, the
final rule should expand the definition of ``joint employer'' to
explicitly include indirect employers ``with sufficient market power in
the direct employer's product market or the relevant labor market to
determine workers' wages and/or terms and conditions of work.'' The
comment further suggests that the Board should, at a minimum, include
franchisors that include no-poaching, non-compete, and similar clauses
in their franchise agreements, since those provisions restrict labor
market competition. The Board discussed these alternatives in Section
V.M and V.N and rejected those alternatives for the reasons explained
above.
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\423\ See comment of Law and Economics Professors.
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In the NPRM, the Board considered exempting certain small entities.
See 83 FR 46696. The Board received no comments on this potential
alternative and again rejects this exemption as impractical because
such a large percentage of employers and unions would be exempt under
the SBA definitions, thereby substantially undermining the purpose of
the final rule. Moreover, as this rule often applies to relationships
involving a small entity (such as a franchisee) and a large enterprise
(such as a franchisor), exemptions for small businesses would decrease
the application of the rule to larger businesses as well, potentially
undermining the policy behind this rule. Additionally, given the very
small quantifiable cost of compliance, it is possible that the burden
on a small business of determining whether it fell within a particular
exempt category might exceed the burden of compliance. Congress gave
the Board very broad jurisdiction, with no suggestion that it wanted to
limit coverage of any part of the Act to only larger employers.\424\ As
the Supreme Court has noted, ``[t]he [NLRA] is federal legislation,
administered by a national agency, intended to solve a national problem
on a national scale.'' \425\ As such, this alternative is contrary to
the objectives of this rulemaking and of the NLRA.
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\424\ However, there are standards that prevent the Board from
asserting authority over entities that fall below certain
jurisdictional thresholds. This means that extremely small entities
outside of the Board's jurisdiction will not be affected by the
final rule. See 29 CFR 104.204.
\425\ NLRB v. Nat. Gas Util. Dist. of Hawkins Cty., Tenn., 402
U.S. 600, 603-604 (1971) (quotation omitted).
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None of the alternatives considered accomplished the objectives of
issuing this rule while minimizing costs on small businesses.
Accordingly, the Board believes that promulgating this final rule is
the best regulatory course of action.
B. Paperwork Reduction Act
In the NPRM, the Board explained that the proposed rule would not
impose any information collection requirements and accordingly, the
proposed rule is not subject to the Paperwork Reduction Act (PRA), 44
U.S.C. 3501-3521. See 83 FR 46696. No substantive comments were
received relevant to the Board's analysis of its obligations under the
PRA.
C. Congressional Review Act
In the NPRM, the Board explained that the provisions of the
proposed rule were substantive and that the Board would submit this
rule and required accompanying information to the Senate, the House of
Representatives, and the Comptroller General as required by the Small
Business Regulatory Enforcement Fairness Act (Congressional Review Act
or CRA), 5 U.S.C. 801-808. Pursuant to the Congressional Review Act,
the Office of Information and Regulatory Affairs designated this rule
as a major rule. Accordingly, the rule will become effective April 27,
2020.
Final Rule
This rule is published as a final rule.
List of Subjects in 29 CFR Part 103
Jurisdictional standards, Election procedures, Appropriate
bargaining units, Joint Employers, Remedial Orders.
For the reasons stated in the preamble, the National Labor
Relations Board amends 29 CFR part 103 as follows:
PART 103--OTHER RULES
0
1. The authority citation for part 103 continues to read as follows:
Authority: 29 U.S.C. 156, in accordance with the procedure set
forth in 5 U.S.C. 553.
0
2. Add subpart D, consisting of Sec. 103.40, to read as follows:
Subpart D--Joint Employers
Sec. 103.40 Joint Employers.
(a) An employer, as defined by Section 2(2) of the National Labor
Relations Act (the Act), may be considered a joint employer of a
separate employer's employees only if the two employers share or
codetermine the employees' essential terms and conditions of
employment. To establish that an entity shares or codetermines the
essential terms and conditions of another employer's employees, the
entity must possess and exercise such substantial direct and immediate
control over one or more essential terms or conditions of their
employment as would warrant finding that the entity meaningfully
affects matters relating to the employment relationship with those
employees. Evidence of the entity's indirect control over essential
terms and conditions of employment of another employer's employees, the
entity's contractually reserved but never exercised authority over the
essential terms and conditions of employment of another employer's
employees, or the entity's control over mandatory subjects of
bargaining other than the essential terms and conditions of employment
is probative of joint-employer status, but only to the extent it
supplements and reinforces evidence of the entity's possession or
exercise of direct and immediate control over a particular essential
term and condition of employment. Joint-employer status must be
determined on the totality of the relevant facts in each particular
employment setting. The party asserting that an entity is a joint
employer has the burden of proof.
(b) ``Essential terms and conditions of employment'' means wages,
benefits, hours of work, hiring, discharge, discipline, supervision,
and direction.
(c) ``Direct and Immediate Control'' means the following with
respect to each respective essential employment term or condition:
(1) Wages. An entity exercises direct and immediate control over
wages if it actually determines the wage rates, salary or other rate of
pay that is paid to another employer's individual employees or job
classifications. An entity does not exercise direct and immediate
control over wages by
[[Page 11236]]
entering into a cost-plus contract (with or without a maximum
reimbursable wage rate).
(2) Benefits. An entity exercises direct and immediate control over
benefits if it actually determines the fringe benefits to be provided
or offered to another employer's employees. This would include
selecting the benefit plans (such as health insurance plans and pension
plans) and/or level of benefits provided to another employer's
employees. An entity does not exercise direct and immediate control
over benefits by permitting another employer, under an arm's-length
contract, to participate in its benefit plans.
(3) Hours of work. An entity exercises direct and immediate control
over hours of work if it actually determines work schedules or the work
hours, including overtime, of another employer's employees. An entity
does not exercise direct and immediate control over hours of work by
establishing an enterprise's operating hours or when it needs the
services provided by another employer.
(4) Hiring. An entity exercises direct and immediate control over
hiring if it actually determines which particular employees will be
hired and which employees will not. An entity does not exercise direct
and immediate control over hiring by requesting changes in staffing
levels to accomplish tasks or by setting minimal hiring standards such
as those required by government regulation.
(5) Discharge. An entity exercises direct and immediate control
over discharge if it actually decides to terminate the employment of
another employer's employee. An entity does not exercise direct and
immediate control over discharge by bringing misconduct or poor
performance to the attention of another employer that makes the actual
discharge decision, by expressing a negative opinion of another
employer's employee, by refusing to allow another employer's employee
to continue performing work under a contract, or by setting minimal
standards of performance or conduct, such as those required by
government regulation.
(6) Discipline. An entity exercises direct and immediate control
over discipline if it actually decides to suspend or otherwise
discipline another employer's employee. An entity does not exercise
direct and immediate control over discipline by bringing misconduct or
poor performance to the attention of another employer that makes the
actual disciplinary decision, by expressing a negative opinion of
another employer's employee, or by refusing to allow another employer's
employee to access its premises or perform work under a contract.
(7) Supervision. An entity exercises direct and immediate control
over supervision by actually instructing another employer's employees
how to perform their work or by actually issuing employee performance
appraisals. An entity does not exercise direct and immediate control
over supervision when its instructions are limited and routine and
consist primarily of telling another employer's employees what work to
perform, or where and when to perform the work, but not how to perform
it.
(8) Direction. An entity exercises direct and immediate control
over direction by assigning particular employees their individual work
schedules, positions, and tasks. An entity does not exercise direct and
immediate control over direction by setting schedules for completion of
a project or by describing the work to be accomplished on a project.
(d) ``Substantial direct and immediate control'' means direct and
immediate control that has a regular or continuous consequential effect
on an essential term or condition of employment of another employer's
employees. Such control is not ``substantial'' if only exercised on a
sporadic, isolated, or de minimis basis.
(e) ``Indirect control'' means indirect control over essential
terms and conditions of employment of another employer's employees but
not control or influence over setting the objectives, basic ground
rules, or expectations for another entity's performance under a
contract.
(f) ``Contractually reserved authority over essential terms and
conditions of employment'' means the authority that an entity reserves
to itself, under the terms of a contract with another employer, over
the essential terms and conditions of employment of that other
employer's employees, but that has never been exercised.
Dated: February 14, 2020.
Roxanne L. Rothschild,
Executive Secretary.
[FR Doc. 2020-03373 Filed 2-25-20; 8:45 am]
BILLING CODE 7545-01-P