Bloomberg: Businesses Fear Joint Employer ‘Creep’

March 2, 2017

A landmark case expanding joint employer liability for businesses accused of unfair labor practices may be on appeal, but the theory is already showing signs of moving into other workplace laws.

The National Labor Relations Board in 2015 ruled that a company may be considered a joint employer of another business’s workers even if it exerts indirect control over them. That case involves California waste management company Browning-Ferris Industries but has been cited by franchise groups, manufacturers and others as a threat to the way they do business.

Federal wage-and-hour enforcers, plaintiffs’ attorneys and New York Attorney General Eric Schneiderman are among those who have looked to follow the board’s lead. They argue employers shouldn’t be able to skirt responsibility under other laws by weaving a complex web of relationships with contractors, franchisees and staffing agencies.

“We certainly view it as an attempt to circumvent the obligations that come with being an employer,” Alvar Ayala, a Chicago lawyer representing a group of delivery drivers suing Amazon.com Inc. for allegedly unpaid overtime, said of indirect employment relationships. The drivers argue Amazon should be considered their joint employer, along with the shipping subcontractor that hired and paid them.

A federal appeals court in Washington, D.C., will hear oral arguments in the Browning-Ferris case March 9. The NLRB’s decision was limited to unfair labor practice liability under the National Labor Relations Act. Still, advocates are using that reasoning, along with an Obama administration Labor Department guidance letter, to help shape their arguments for expanding liability under laws requiring employers to pay minimum wages and overtime, among others.

Companies and their lawyers hope that a ruling against the NLRB will chill efforts to adopt the board’s joint employer standard elsewhere. Microsoft Corp., the U.S. Chamber of Commerce and the HR Policy Association have all asked the appeals panel to undo the NLRB’s decision in friend-of-the-court briefs. McDonald’s Corp. and Domino’s Pizza Inc. are also facing separate joint employer lawsuits.

“If the decision is not upheld, I believe that will be a signal to the other agencies as well,” Philip Rosen, a Jackson Lewis attorney who represents businesses in labor disputes, told Bloomberg BNA.

‘The Switch.’

The board said in the 2015 decision that Browning-Ferris should be on the hook for labor violations alleged by sorters, screen cleaners and housekeepers provided by Leadpoint Business Services to work at a BFI recycling plant in Northern California. BFI was liable under a revised joint employer standard, the board said, because the company restricted who Leadpoint could hire for the jobs, forced Leadpoint to pay those workers no more than BFI employees in comparable jobs and dictated how quickly workers should be performing tasks.

Dr. David Weil—who wrote a book about the “fissured workplace” before running the Labor Department’s Wage and Hour Division in the Obama administration—seemed to borrow some of that analysis when he issued an Administrator’s Interpretation letter in 2016. Weil said joint employer liability under separate federal farmworker and minimum wage and overtime laws should be read “as broad as possible” to cover a wide range of employment relationships.

Weil’s interpretation has attracted lots of attention not only because it marked an effort to expand joint employer liability in new ways but also because it laid out a compelling case for doing so. He said lawmakers intended to give employment an expansive definition by stating that it “includes to suffer or permit to work.”

“The Browning-Ferris decision was the switch,” Michael Lotito, co-chair of Littler Mendelson’s Workplace Policy Institute, told Bloomberg BNA. “It’s not to say that there wasn’t some of this going on beforehand, but the decision—coupled with the intellectual heft of David Weil’s fissured workplace book and what he was pushing at the Labor Department—made joint employment a major issue and concern.”

The DOL around the same time issued a fact sheet on joint employment under the Family and Medical Leave Act, saying the same analysis applies. Meanwhile, a draft memo leaked in 2015 suggested Occupational Safety and Health Administration attorneys were mulling whether a franchiser may be liable under a more broad view of the joint employment relationship.

Federal laws use various standards for gauging an employment relationship and carry different implications for businesses deemed joint employers. An employer covered by the Fair Labor Standards Act, for example, is on the hook for minimum wages and overtime pay. A business considered a joint employer under the NLRA may be required to bargain with a union representing covered workers who choose to unionize.

“What’s at stake for many workers is whether, in practice, they are actually protected by our national and state labor laws, and whether larger companies should be able to benefit from people’s labor without taking any responsibility whatsoever for the conditions under which they are working,” Terri Gerstein told Bloomberg BNA. Gerstein was until recently the lead attorney in a lawsuit by the New York Attorney General’s Office alleging that under state law, Domino’s Pizza is a joint employer of workers at 10 franchise stores.

Shifting to States

The lawsuits against Amazon and Domino’s are still pending. Meanwhile, a pair of lawsuits looking to paint McDonald’s as a joint employer of workers at franchise restaurants in California have yielded two different outcomes.

The fast-food giant last year agreed to pay $3.75 million to settle wage-and-hour claims by franchisee workers after a federal judge said the evidence didn’t appear to create a joint employer relationship. The judge instead allowed the case to proceed based on the workers’ state law claim that the company knowingly led them to believe that McDonald’s was their employer.

A second judge in the Northern District of California in January scrapped similar wage-and-hour claims against McDonald’s, finding that the company wasn’t a joint employer of the workers involved.

The franchise business model is particularly ripe for joint employer claims, Gerstein said, because franchisers often dictate a wide range of operating rules and procedures for their franchisees. In the Domino’s case, for example, the company allegedly monitored worker performance down to the number of pepperoni slices on each pie and forced the franchisees to use a computer payroll system that clearly showed some workers were being underpaid.

The International Franchise Association has taken a vocal lead in the fight against expanded joint employer liability. The group says changes in the law could turn the business model on its head by forcing franchisers to take a much more active role in their franchisees’ day-to-day operations.

Reem Aloul, who owns a Virginia home care franchise, recently testified on behalf of an IFA-led coalition at a House Education and the Workforce subcommittee hearing. He told the panel of lawmakers that to avoid liability, “the safest thing for franchisers to do may be to simply discontinue supporting franchisees.”

Lawmakers in the House are expected to eventually introduce legislation that would roll back the board’s joint employer expansion. A total of nine states have laws on the books making clear that franchisers aren’t employers of their franchisees for liability purposes, and similar legislation is pending in another 11 states, according to the IFA.

To contact the reporter on this story: Chris Opfer in Washington at copfer@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

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