On December 14, 2017, the new Republican majority at the National Labor Relations Board (the “Board”) overturned a controversial Obama-era decision regarding joint employment.  The Board’s 3-2 decision in Hy-Brand Contractors, Ltd. and Brandt Construction Co. (“Hy-Brand”) rejected the 2015 Browning-Ferris decision, which had fundamentally broadened the joint employer standard. 

In Browning-Ferris, the Board departed from decades of Board precedent by greatly expanding joint-employer status.  Prior to the Board’s decision in Browning-Ferris, two employers were found to be “joint employers” only when the two entities exerted such direct and significant control over the same employees that they shared or co-determined matters governing the essential terms and conditions of employment.  However, under Browning-Ferris, an entity’s reserved authority to control terms and conditions of employment, even if not exercised, was deemed to be indicative of joint-employer status.  Further, joint-employer status could be established through indirect control, such as through an intermediary.

The Board’s recent decision in Hy-Brand overruled Browning-Ferris, returning to the principle governing joint-employer status that existed prior to that decision.  Specifically, the Board was clear that a finding of joint-employer status shall once again require “proof that the alleged joint-employer entities have actually exercised 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 joint-employer status will not result from control that is ‘limited and routine.’”

In overruling Browning-Ferris, the Board provided numerous reasons for its decision, including the following:

• The Browning-Ferris test exceeded the Board’s statutory authority, which extended the definitions of “employee” and “employer” in the National Labor Relations Act (“NLRA”) far beyond the common law limits that Congress and the Supreme Court have stated must apply.
• The Browning-Ferris decision incorrectly relied on the notion that present conditions are unique to modern economy, when forms of subcontracting, outsourcing, and temporary or contingent employment date back long before the passage of the NLRA.
• The Browning-Ferris decision created a vague and ill-defined standard that would have imposed bargaining obligations on multiple entities in a wide variety of business relationship, based solely on never-exercised right to exercise “indirect” control over an employment term. It provided no guidance as to when and how parties may contract for the performance of work without being deemed joint employers.

The Hy-Brand majority announced that the reversion to the Board’s prior joint-employer standard would be applied retroactively to the case at hand as well as all other pending cases in front of the Board.  In applying the joint-employer standard, the Board found that two construction companies, Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co., were joint employers based on substantial evidence that the two entities exercised joint control over essential employment terms involving Hy-Brand and Brandt employees, the control was direct and immediate, and it was not limited and routine.  For example, one individual served as the corporate secretary for both companies, was directly involved in the decisions at both companies to discharge workers, and identified himself as an official of Brandt when he signed letters informing two Hy-Brand strikers that they had been fired. The companies also had common employment policies.

The Hy-Brand decision is welcome news for employers impacted by the NLRA and will likely have important implications for businesses with various contracting arrangements, including contingent employment relationships, franchising arrangements, and parent-subsidiary relationships.  For example, as the Hy-Brand Board recognized in its decision, franchisors will no longer have concern that their indirect control over employee working conditions related to the quality of product or brand would result in a joint-employer determination before the NLRB.

While the NLRB could revert to the Browning-Ferris standard if the composition of the Board changes in the future, pending legislation in Congress—the Save Local Business Act—would permanently amend both the NLRA and the Fair Labor Standards Act to narrow the joint-employer relationship to only those situations where “such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.”