Franchises were the main target of the new joint-employer standard but its reach could impact other businesses in unsuspecting ways, according to a report Wednesday.
The National Labor Relations Board (NLRB) has worked to expand the criteria for its joint-employer standard. The board can now more easily make an employer liable for the employees of another company it contracts with. The Competitive Enterprise Institute warns the new standard will impact businesses in many unanticipated ways.
“The NLRB has failed to issue guidance on what demands one employer may place on another employer with which it does business that will trigger a joint employer relationship,” the report detailed. “Employers do not know if current business-to-business contracts establish joint employer liability.”
The NLRB previously looked at whether one company had direct control over the employees of another before it declared them joint-employers. The board now looks at indirect control over employment which critics have contested as legally ambiguous. Employers have also been given no guidelines on how to comply.
Businesses that get declared a joint-employer become liable for the employees and labor disputes of the other company it contracts with making it legally risky and costly. The standard was originally designed to resolve labor disputes when it was unclear which employer caused it.
“One of the unanticipated ways the joint employer standard could increase liability for employers that engage with contractors is via Corporate Social Responsibility (CSR) policies,” the report continued. “Which companies use to place basic conditions on a supplier before contracting with them.”
Microsoft noted concern in a legal brief June 14 that its own corporate responsibility policy might fall under the new standard. The Microsoft CSR agreement was issued to make sure its suppliers were treating their employees properly. President Barack Obama himself even praised agreement for protecting worker rights.
“[It] may establish joint employer status for firms that have entered into certain kinds of settlement agreements with the Department of Labor when accused of Fair Labor Standards Act (FLSA),” the report noted. “A requirement that the large company put in to place safeguards to ensure future FLSA compliance of contractors and subcontractors.”
The Labor Department has many tools to make sure companies are upholding the rights of their workers. Settlement agreements are one way which helps federal officials and companies avoid costly judicial actions. Its unclear whether such settlements will trigger a joint-employer determination but it could be a risk under the new broader standard.
CEI warns the new standard could radically change entire business models. Businesses could be disincentived from entering into contractual relationships which are critical for ventures like franchising. The NLRB defended its new standard in 2014 during an ongoing case involving McDonald’s.
“Through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees’ operations, beyond protection of the brand,” The NLRB noted at the time. “To make it a putative joint employer with its franchisees, sharing liability for violations of our Act.”
McDonald’s and Browning-Ferris Industries are the main cases that have allowed the NLRB to revisit the joint-employer standard. Feds declared Browning-Ferris a joint-employer with Leadpoint Business Services Jan. 12 while the McDonald’s case is still ongoing.
The NLRB could not be reached for further comment.
