Jim Grasso Comments on Joint Employment Issues

Joint employment issues garner national attention

Joint employment has emerged as a major business issue with implications of liability and more for employers in a variety of industries that use workers they do not directly employ.

Federal agencies such as the Department of Labor and Equal Employment Opportunity Commission have long focused on joint employment but attention on the matter has ramped up, according to Amy Habib-Rittling, partner at Lippes Mathias Wexler Friedman.

She said it’s a result of the National Labor Relations Board becoming more aggressive and taking a more expansive approach to joint employment and the DOL issuing guidance to reinforce and provide further explanation of the concept.

While the NLRB has been hearing critical cases, for now, leaving the meaning difficult to discern, the DOL has remained consistent in its interpretation and application of joint employment, she said.

Last year, the NLRB changed the standard for joint employment in its decision on Browning v. Ferris, in which the agency provided a new standard and one far broader than before.

“With NLRB’s activity and now with DOL’s attention to joint employment, I think it has raised this issue,” said Habib-Rittling, who manages the labor and employment practice at the Buffalo law firm. “It’s more prevalent in today’s workplaces so that when there are entities affiliated in some fashion with an employer or worker base, they have to be mindful of potential exposure in doing so.”

The impact will be felt mostly by employers that use contract and temporary staffing in such industries as construction, health care, home care, manufacturing and even in the relationships between government entities and private providers. In fact, Browning v. Ferris involved the waste management industry.

Peter Godfrey, a partner at Hodgson Russ who focuses his practice on management-side labor and employment law, said all businesses should take note of the risks before they end up with a claim.

“I don’t know that there’s any industry that doesn’t have some potential concern for employees that might work elsewhere or wherever you have a business relationship with somebody else that exercises any control at all of employees,” he said.

Some employers assume that if they get workers through an agency, they’re insulated from liability, said James Grasso, a partner in labor and employment at Phillips Lytle.

Said Grasso: “The common perception is that if I get my employers through a temp agency and they do all of the payroll and do the workers’ comp and unemployment and all of that, I don’t have to worry about any of this stuff, which certainly is not the case.”

Despite all the attention on joint employment, attorney Robert Boreanaz of Lipsitz Green Scime Cambria has a different message for employers: “Calm down,” he said, because it is not that radical of a change.

Boreanaz, who practices union-side labor law and plaintiff-side employment law, said the new standard is basically the common law generally used in other employment law scenarios. It’s just that now a different light is shining on the subject.

“Generally speaking, right now employer groups are just reacting to the change, which shifts the standards,” he said. “There is really no difference for the employer in the discrimination areas, the Fair Labor Standards Act, the Family and Medical Leave Act or even the Occupational Safety and Health Administration.”

Under the FLSA, if two entities are deemed to be joint employers, then each is responsible for obligations involving employee compensation and the hours they work to determine if they’re entitled to overtime.

Existing case law wasn’t changed by the DOL, Godfrey said. It simply articulated the standard because these issues have come up with greater frequency, especially as the minimum wage and exemption levels increase. He said employers are switching employees to non-exempt status to pay them hourly, raising the issue of joint employment.

“If I have an employee and you have an employee and it turns out that we’re joint employers of this person, you might engage him for 30 hours and I might engage him for 30 hours, and we both think it’s fine and there’s no overtime. That’s a liability,” he said.

Two types of tests for joint employment were laid out for analysis: horizontal and vertical tests. Vertical is the parent company having liability for subsidiary companies and horizontal is a brothersister company or partners working side by side and liable for one another.

Browning v. Ferris examined the potential control exercised by each of the joint employers such as a common-law relationship or even indirect but sufficient control that is shown by an entity, Godfrey said. The decision opens up organizations to claims involving subsidiary corporations and franchisers to claims related to the employees.

“They are all circumstances where an entity may not realize that it has persons who are its responsibility from an employment perspective that can present significant financial risks if caution is not exercised,” he said.

The board’s decision changed a standard that was in place for three decades, according to Boreanaz. Previously, general contractors, franchisers and staffing companies attempted to keep liability isolated to themselves and looked to avoid responsibility for their partners’ business practices.

This new environment requires that potential joint employers look at contracts between them much more carefully; make sure that each entity has its own written policies regarding employees; and limit the involvement between the parties, Boreanaz said.

The EEOC contributed an amicus brief in the case, supporting the NLRB and stating that the common law standard should be used because it has worked well for years.

Grasso said the change in the joint employment standard could create a higher rate of unionization.

“Unions are not as active as they used to be, but I think they’re using that decision to go and unionize a facility that they otherwise couldn’t under the prior law,” he said. “I do think it’s a big deal for employers.”

Browning v. Ferris is now on appeal in the District of Columbia Circuit Court.

The NLRB is hearing a case involving fast-food chain McDonald’s that may have further implications for joint employment. Claims were made that the corporation is the joint employer of all the company’s franchises.

Boreanaz said it brings up some questions: Who is responsible for alleged violations of the National Labor Relations Act? Who is responsible for negotiating with unions on behalf of the employer?

McDonald’s contracts give the company certain rights and economic controls over the franchisee, so claims are being made that the corporation becomes a joint employer for purposes of bargaining and dealing with any violations.

“McDonald’s is what we call in the industry a heavy-handed franchiser, meaning their involvement is maybe more than others. They require strict standards, and that’s what is of importance here,” Boreanaz said. “We’re going to see how this new standard plays out.”

Grasso called the McDonald’s case an example of overreach that has become more common by NLRB in an effort “to keep itself relevant in today’s economy with the decrease of unionization.”

He said coordinated efforts by government agencies are part of the Obama administration’s broader push to expand worker rights and address wage theft.

“They’re trying to change the playing field — in their eyes, level it out — in favor of the employee,” he said. “A broader and more liberal interpretation of joint employment allows the employees to have a greater opportunity for recovery in a case where they’re not paid properly.”

Habib-Rittling said government agencies are responding to a shift in the workforce.

“All of this is driven to make sure wage and hour laws, EEOC and discrimination law are being complied with,” she said. “It puts an added onus on employers engaged in alternative work arrangements to be aware of potential consequences if that other entity is not as compliant as one would have thought.”

Implications may include a joint employer being required to provide certain insurance, employee benefits and profit sharing, said Godfrey. Legally, it could bring up issues of employment, discrimination and corporate transactions, he added.

“It’s an issue that has tentacles that go in a lot of different directions,” he said.” It’s a real headache for employers. The bottom line of it is to appreciate the impact of it.”

Grasso said it’s imperative that employers understand the risks and be aware that they’re not immune from a joint employer claim.

“If someone is a contract employee, you can take steps to make sure they don’t bleed over into your regular workforce,” he said.

Businesses must identify where risks exist and apply the relevant tests to make sure a company is including the appropriate safeguards to avoid a joint relationship when one is not intended, Godfrey said.

“The real issue is where employers aren’t cognizant of the fact that some relationships might be deemed joint employment,” he said, “and there’s really little you can do after the fact when somebody is looking at a relationship that wasn’t properly structured.”