The National Labor Relations Board issued a ruling this week that reverses the Board’s ruling issued under the Obama administration in regards to who can be held a “joint employer.”  The ruling is critical to businesses in the franchisee industry as well as businesses that use contract workers.  This Friday’s Five reviews five keys issues on the NLRB’s ruling in Hy-Brand Industrial Contractors and Brandt Construction Co. and the joint employer test for California employers:

1. The Hy-Brand decision overrules the NLRB’s prior holding in Browning-Ferris

In Browning-Ferris, the Board held that even when two entities have never exercised joint control over essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on: (1) the mere existence of “reserved” joint control, or (2) based on indirect control, or (3) control that is “limited and routine.”

The NLRB’s ruling in Hy-Brand stated, “We find the Browning-Ferris standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.”

2. Joint-employer relationship can only be established by “direct and immediate” control

In reverting back to its pre-Browing-Ferris test, the NLRB restores the joint-employer test that it set forth in Airborne Express, 338 NLRB at 597 fn. 1.  In Airborne Express the Board explained that, “[t]he essential element in [the joint-employer] analysis is whether a putative joint employer’s control over employment matters is direct and immediate.” A company’s right to approve hires is not enough to establish a joint-employer relationship, but instead, “[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.”

3. The NLRB’s holding makes it consistent with Federal and some state courts’ test for joint-employer

The NLRB’s decision stated that its reversal of the standard use in finding a joint-employer makes its standard more consistent with Federal and state law court rulings on the issues.  For example, the NLRB cited the following cases: Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 683 (9th Cir. 2009) holding that a “finding of the right to control employment requires . . . a comprehensive and immediate level of ‘day-to-day’ authority over employment decisions.”  Gulino v. N.Y. State Educ. Dep’t, 460 F.3d 361, 379 (2d Cir. 2006) (employment relationship must involve a “level of control that is direct, obvious and concrete, not merely indirect or abstract”); SEIU Local 32BJ v. NLRB, 647 F.3d 435, 442–443 (2d Cir. 2011) (“‘An essential element’ of any joint employer determination is ‘sufficient evidence of immediate control over the employees.’”)); Texas World Service Co. v. NLRB, 928 F.2d 1426, 1432 (5th Cir. 1991) (same); Pulitzer Publishing Co. v. NLRB, 618 F.2d 1275, 1280 (8th Cir. 1980) (holding that the Board erred in finding a joint-employer relationship, distinguishing cases “where the companies share direct supervision of the employees involved and control hiring, firing, and disciplining”); see also NLRB v. Denver Building & Construction Trades Council, 341 U.S. 675, 689–690 (1951) (holding that contractor’s supervision over subcontractor’s work “did not eliminate the status of each as an independent contractor or make the employees of one the employees of the other,” emphasizing that “[t]he business relationship between independent contractors is too well established in the law to be overridden without clear language doing so”).

4. California’s joint employer test

“[T]he basis of liability is the defendant’s knowledge of and failure to prevent the work from occurring.”  Martinez v. Combs, 49 Cal.App.4th 35, 70.  Therefore, to be an employer, the entity must have power to prevent the worker from performing work.  If there is no control to prevent the work, the entity cannot be held liable as a joint employer.

California’s Industrial Welfare Commission (IWC) also sets forth law regarding California’s wage and hour requirements.  The IWC definition also includes “any person … who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”  The court in Martinez held that a joint employer relationship exists when one entity, which hires and pays workers, places the worker with another entity that supervises the work.  There are many factors that a court can look to in making this determination, and employers need to carefully analyze the facts particular to their situations.

5. Additional joint-employer liability for California employers under Labor Code section 2810.3

Effective January 1, 2015, Labor Code section 2810.3 expanded the liability of “client employers” that obtain workers through temporary agencies or other labor contractors.  The law requires that the client employer who obtains the workers through the agency must share in the liability for any wage and workers compensation issues.  The law also provides that a client employer cannot shift all of the liability for wage and workers’ compensation violations.  However, the law does provide that the client employer can seek indemnity from the labor contractor for violations.  Therefore, it is important for employers who are covered by Labor Code section 2810.3 and who are obtaining workers through a labor contractor to ensure the labor contractor is meeting all wage and workers compensation requirements, and negotiate an indemnity provision in the contact with the labor contractor should any liability arise.