The National Labor Relations Board has ruled that the test for determining whether a joint employer relationship exists hinges on whether the entities have “direct and immediate control” over employment terms. In doing so, the Board overruled its own 2015 decision that had announced an unproductively broad joint employer standard.

The Board's Dec. 14, 2017 decision in Hy-Brand Contractors Ltd. clarifies the process used to determine joint employer relationships and thereby mitigates unwarranted litigation and labor claims against uninvolved businesses.

A joint employer relationship arises where two separate employers (or other entities, like franchisors) exercise control over the employment terms of employees. If a joint employer relationship is established, both employers may be held liable for labor practice violations or be required to jointly bargain with the union representing the employees.

With its in ruling in Hy-Brand, the NLRB returned to the interpretation that joint employer relationships are formed from entities that have a “direct and immediate control” over employment terms. The decision abandons the test announced in 2015 in Browning Ferris Industries that applied indirect control standards.

Prior to the Browning Ferris Industries decision, the Board had required a showing that a putative joint employer exercised direct control over terms or conditions of employment, i.e. hiring, firing, discipline, supervision and direction, and rejected joint employer status where a putative joint employer exercised only “limited and routine” direction of employees.

In Browning Ferris Industries, the Board effectively broadened the definition of “employer” under the National Labor Relations Act to include those entities that possessed the right to control employment terms, whether or not that control was actually exercised, and where the right to control was “direct or indirect.” This standard covered a large number of entities that might possibly exercise indirect control over employment terms. The majority in Browning Ferris Industries intended to ameliorate collective bargaining that resulted from complex business relationships that excluded workers from meaningful bargaining over employment terms.

Now, in Hy-Brand, the Board has concluded that the decision in Browning Ferris Industries was a misguided attempt to expand the reach of the NLRA without Congressional authority. Importantly, Hy-Brand holds that the Board is limited in its authority to interpret the definition of “employer” under the NLRA to common law agency principles that formalize employer-employee relationships and employer authority over essential employment terms. Further, the Board cannot expand the scope of its authority on a policy basis by perceiving an “inequality of bargaining leverage” due to the business relationships present in the modern economy.

After finding that the Board in Browning Ferris Industries exceeded its authority, it held that joint employer must exercise:

joint control over essential employment terms (rather than merely having reserved the right to exercise control), the control must be direct and immediate (rather than indirect), and the joint-employer status will not result from control that is "limited and routine."

The Browning Ferris Industries decision was too vague to be workable, the Board declared in Hy-Brand, noting that the following types of entities could be considered as an “employer” under that test:

• insurance companies
• franchisors
• banks or lenders
• any company granting access to facilities for the performance of services
• any contracting party that “is concerned about the quality of contracted services
• consumers who exert any power over the manner of a contractor’s performance

The Board further detailed wide-ranging problems that would arise if joint employers with little actual connection to employees were subjected to bargaining with a union representing the joint employees. Moreover, the Browning Ferris Industries standards would lead to conflicts with franchise law, trademark law and even current Board law regarding neutral parties subject to union boycotts.

The return to the “direct and immediate” control test for determining joint employer relationships will re-introduce an important element of certainty into the Board’s processes and diminish the potential for undeserved scrutiny against businesses.

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