The National Labor Relations Board’s (NLRB) joint employer standard determines whether a company has enough control over workers to be required to bargain with their union. Under current law, however, the standard is woefully permissive. Indeed, the prevailing joint employer standard requires a showing of greater control than state-based corporate law requires when applying traditional concepts of agency law to parent-subsidiary and franchisor-franchisee relationships. As a result, the current standard leaves millions of workers without meaningful collective bargaining rights because companies that “call the shots” avoid getting called to the bargaining table. This creates an incoherent and untenable reality: at workers’ expense, labor law currently protects corporate interests better than corporate law does.
Thankfully, this past week, the Board issued a notice of proposed rulemaking (NPRM) that signals the NLRB’s desire to return to a more protective standard. The Board’s proposed rule is a major step in the right direction and corrects the incoherence between federal labor law and state corporate law that the Trump Board’s joint employer standard had created.
For a fuller understanding of the problem, we need to examine the NLRB’s actions over the past seven years. In 2015, consistent with the Board’s approach throughout most of its history, the Obama Board decided in Browning-Ferris that “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.” A tortured procedural history followed. Employers appealed the decision, and, predictably, large business franchisors raised an uproar. In late 2018, the D.C. Circuit ruled in the appeal of Browning-Ferris, affirming that the Board may consider both indirect control and reserved control, but remanding the decision for a narrower application of the indirect control analysis.
In the meantime, however, the Trump Board took the standard into its own hands. After a failed attempt to reverse Browning-Ferris through adjudication in a case called Hy-Brand, the Board promulgated a rule in 2020 which articulated the following joint employer standard:
(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. (emphasis added)
The Trump Board’s joint employer standard—which requires that a putative joint employer exercise “direct and immediate control” over terms and conditions of work—plainly fails to protect workers in the fissured workplace who labor for the benefit of multiple companies. The standard also protects corporations even more than state corporate law does. A number of state corporate law cases acknowledge that parent companies can be held liable for the actions of subsidiary corporations. Other cases hold that franchisors can be held responsible for actions by franchisees. (See also here, here, and here.) In this respect, ironically, the more searching Browning-Ferris inquiry actually better aligns with agency law-based court decisions about the relationships between corporate parents and their subsidiaries than does the Trump Board’s joint employer standard. The NLRB did not meaningfully engage with this incoherence when promulgating the 2020 rule.
What’s more, the Trump Board’s rulemaking failed to consider that the agency’s own precedents, as well as those in other federal labor law contexts, counseled in favor of a realist approach to analyzing corporate relationships. In its decision in Oaktree, for example, the Board held private equity owners responsible for the labor law violations of their portfolio companies (albeit using the single employer doctrine). In the ERISA context, courts regularly pierce the corporate veil in order to ensure that withdrawal payments are made to multi-employer pension plans. In WARN Act cases, courts will analyze whether parents should be held liable using a multi-factor analysis meant to determine the extent of “entanglement” between corporate entities. While these examples do not implicate the joint employer doctrine, they do prove that federal courts can adapt common law concepts regarding corporate separateness in order to protect workers even more aggressively than the Board.
The Trump Board’s selective borrowing of corporate law concepts, and its problematic muddling of labor and corporate law, illustrate the need for alternative approaches to developing the joint employer standard. For instance, Andrew Elmore and Kati Griffith have articulated a useful “power as control” standard, calling for courts to “consider whether a franchisor’s overall influence and power to co-determine the work is sufficient to state a plausible joint employer claim.” That framework makes sense because it can be established facially by reviewing a contractual agreement between employers, and therefore does not require the submission of further evidence. Furthermore, this approach incorporates common law default rules for interpreting contracts of adhesion and the interpretational canon of construing agreements against the drafter, all while sidestepping the “economic realities” approach which Congress spurned with respect to the NLRA’s joint employer standard in the Taft-Hartley Act.
As we develop alternative joint employer standards, we must also consider whether federal labor law and state corporate law need to be perfectly coextensive. In 1991, former labor lawyer Wilson McLeod astutely observed: “[L]abor law expresses a range of societal values that cannot be reconciled with the corporate law policies that led to the development of the limited liability doctrine. Because corporate law policy has been grafted onto labor law, existing veil-piercing doctrines have failed to assure that the labor laws are properly enforced and their beneficiaries assured satisfaction.”
As McLeod asserted, federal labor law’s priorities must, in fact, displace state based corporate law priorities given NLRA preemption. In other words, the joint employer standard may very well go further than state corporate law in assessing corporate relationships for joint liability, and federal labor law should reign.
Further doctrinal and theoretical work on this front is critical, especially now that Biden Board has issued an NPRM that proposes to largely reincorporate the Browning-Ferris joint employer standard. While the proposed rule much better aligns with control tests in corporate law, especially on the concept of indirect control, the new rule does not explore the NLRB’s earlier misguided application of corporate law in the labor law context, an application which consistently undermines labor rights and bolsters the intellectual foundation that undergirds the NLRB’s proposed rule.
We need a new discourse that privileges labor law over state corporate law doctrine in matters within its purview. If, in response to industry opposition, the NLRB retrenches from the position it has taken in its important NPRM, that would open the way for creative business lawyers to think up workarounds. The NLRB should refuse any calls to take an overly formalistic approach and instead ground labor law’s intersection with corporate law in the purpose first set out by Congress: the protection of collective bargaining as a means of redressing the “inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association.”
This post represents the personal views and comments of the author, and should not be attributed to his employer.