Common sense has left the building: The push to redefine joint employer rule

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The National Labor Relations Board did something earlier this year that union leaders and their allies on Capitol Hill have long demanded: It expanded the so-called “joint employer” rule. That is when a business can be held liable for workplace violations at a separate business the former has control over, such as a contractor hiring a subcontractor.

Advocates of the expanded rule argue it is necessary to prevent employers from escaping responsibility for actions that affect workers. The funny thing is, these advocates struggle to come up with a scenario illustrating the actual, real-world need for the expanded rule.

Such was the case when Virginia Rep. Bobby Scott, ranking Democrat on the House Education and the Workforce Committee, asked a hypothetical question about the rule to Richard Griffin, former general counsel for the NLRB, during a Tuesday hearing. The question was intended to illustrate why the expanded rule was needed but Griffin’s response unintentionally proved the contrary.

First, some context. Previously, the joint employer rule had required one business to have “direct control” over the other. The NLRB rulemaking in late October expanded that to include scenarios involving “indirect control,” a term of art with no clear definition, and even cases of “reserved control.”

Under reserved control, a business merely has to have hypothetical control over another business’ policies and could be found liable even if it was uninvolved in and/or unaware of any violations. To put it more bluntly, under the new expanded rule, the NLRB’s regulators are limited only by their imaginations in types of the cases that they can bring.

The main reason why unions push for the rule is because they are trying organize fast food chains and other branded restaurants. In most cases, franchisee restaurants are actually independent business that merely rent out the corporate brand and otherwise set their own polices on worker pay, hours and such.

The franchisor corporations typically weren’t covered by the older joint employer rule because they didn’t have direct control over the franchisees. Unions seeking to organize the restaurants had to do it location-by-location because each one was independent.

Under the expanded joint employer rule, the parent corporation can also be said to be an employer and a union could therefore pressure that corporation to unionize all of the franchisee workers at once.

Scott attempted to make the case for the expanded rule in an exchange with Griffin. (The quotes are a bit long because I don’t want to make it seem as though they’re being taken out of context.)

Scott: “If the franchisor requires, say, that pay cannot go over $15 an hour, but otherwise doesn’t do anything, and if you don’t have the joint employment rule, the franchisee is the only, quote, employer, then what good does it do to try to negotiate wages when it has already been set before the franchisee can have a say?”

Griffin: “The whole purpose of the joint employer rule is to make sure that the entity that controls the terms and conditions of employment is at the bargaining table. That doesn’t mean that they have to be physically present. They certainly, as in many multi-employer situations, can designate a common agent to negotiate on behalf of both the franchisee and franchisor. But if the franchisor does have control over the terms and conditions of employment, they ought to be at the bargaining table because otherwise the collective bargaining over that particular term and condition is going to be useless with the franchisee because they don’t have discretion.”

Griffin’s response is broadly correct but leaves out a crucial point: The scenario he addresses is clearly a direct control one. Determining a worker’s pay rate has long been one of the main factors under the NLRA that identifies an entity as an employer.

On top of that, Scott’s scenario describes the franchisor as having the ability to overrule any objections by the franchisee regarding the pay rate. That is direct control, period. The NLRB wouldn’t have needed to expand the joint employer rule to bring a case against a franchisor doing what Griffin describes. It was already covered by the previous version of the rule.

The expanded rule, by contrast, will inevitably result in cases far more frivolous than the one Scott outlines. After all, the direct control standard already covered the joint employer cases where common sense was in play. Expanding the rule can therefore only include cases where common sense is absent.