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New Joint Employer Rule Means More Jobs, Not Lower Wages

The National Labor Relations Board (NLRB) is in the process of restoring the traditional standard for when a worker is considered to be “jointly” employed by more than one company. On September 13, the NLRB issued a proposed rule under which “an employer may be found to be a joint-employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine.”

The current rulemaking simply seeks a return to the longstanding precedent governing joint employer relationships. A joint employer is a business in a contractual relationship in which two or more businesses possess control and responsibility over certain employees. When two businesses establish a joint employer relationship, they are both liable for unfair labor practices and assume collective bargaining responsibilities. For decades, a joint employer relationship was established when two businesses shared day-to-day control and supervision of those employees, such as when two or more employers exert direct control over workplace practices like hiring and firing, setting wages, and other essential conditions of employment.

Under the previous administration, this concept of joint employment was turned on its head. In 2015, the NLRB issued a decision in the case of Browning-Ferris, which expanded the definition of a joint employer to include indirect control and reserved control. This created immense uncertainty. For one, because the NLRB never expounded on what represents indirect control or when one company exercising indirect control over another business would trigger joint employer status.

The Obama-era joint employer standard threatens to upend thousands of business-to-business relationships, impacting millions of employees in the process. As I’ve previously written:

The new joint employer standard leaves job creators with anxiety over what workplace policies may trigger joint employer designation. Without a bright-line rule, when will an employer be suddenly responsible for all labor law violations and collective bargaining obligations that a contractor or franchisee undertakes? These uncertainties and potential cost liabilities make doing business more expensive and complex and thus harms opportunities for workers and entrepreneurs.

Research from the American Action Forum highlights the toll the Browning-Ferris decision will have on jobs, which estimates that the NLRB joint employer standard could result in 1.7 million fewer jobs.

Unsurprisingly, the Economic Policy Institute (EPI), a pro-union think tank, strongly opposes the NLRB’s rulemaking to restore the traditional joint employer standard. However, one claim made by EPI does not appear to pass the smell test.

In EPI’s public comments on the proposed joint employer rule, they claim:

According to data from the Bureau of Labor Statistics’ 2017 Contingent Worker Supplement (CWS), there are 933,000 workers who work for contract firms and 1,356,000 workers in temporary help agencies—for a total of 2.3 million workers in these two categories.7 The CWS microdata allow us to identify which of these 2.3 million workers who work for contract firms or temporary help agencies are in unions. The data show that 170,000—or 7.4 percent—of these workers are covered by union contracts. The data further show that union workers in contract firms and temporary help agencies have average weekly earnings of $1,108. Research shows that on average in the U.S., a worker covered by a union contract earns 13.2 percent more in wages than a peer in a nonunionized workplace (where a “peer” is someone in the same area of the country, in the same occupation and industry, and with the same demographic characteristics, education, and experience).8 That implies that 13.2 percent of the $1,108 weekly earnings of union workers working for contract firms and temporary help agencies—or $146 per week on average—is the pay boost these workers receive as a result of being in a union. Multiplied by the 170,000 unionized workers in contract firms and temporary help agencies, we find that, all together, these workers get a $24.8 million pay boost per week from being in a union—or $1.3 billion per year. Because the narrow proposed joint-employer standard will make collective bargaining among subcontracted and temporary workers nearly impossible, this $1.3 billion is the amount of money we estimate will be transferred from workers to employers if the rule is finalized.

It is worth noting that there is a substantial amount of uncertainty around the $1.3 billion estimate, but we believe it to be a conservative estimate.

First, no matter what joint employer standard is in place, the National Labor Relations Act (NLRA) does not inherently prohibit workers at contract firms or temporary staffing agencies from unionizing. This means, regardless of what joint employer standard is in place, temp and contract workers who have already unionized will remain unionized and able to collectively bargain. And temp and contract workers that wish to unionize their workplace (the contract firm or staffing agency) continue to have the ability to organize and, if workers voluntarily select a union representative, collectively bargain. As such, it is unclear how these already unionized employees who are covered by a union contract identified by EPI stand to lose wages.

Second, EPI makes the assumption that without a broader joint employer standard, “collective bargaining among subcontracted and temporary workers” would be nearly impossible. This cannot be so. If temp or subcontracted workers voluntarily choose to unionize, the employer, by law, has a duty to bargain in good faith with the union. But, it is important to note, that Congress never intended for the NLRA to force a contract on a union or employer. Rather, the legislative history of the NLRA shows that it “must be stressed that the duty to bargain collectively does not carry with it the duty to reach an agreement because the essence of collective bargaining is that either party shall be free to decide whether proposals made to it are satisfactory.” If an employer or union cannot be compelled to accept the terms of a collective bargaining agreement proposal, it is hard to see how EPI can attribute $1.3 billion in lost wages annually to a change in the joint employer standard.

Third, bringing another employer to the bargaining table as a joint employer does not inherently raise wages or lead to ratifying a collective bargaining agreement. All that occurs is that you would have another entity that would have to agree to terms proposed. Adding another private party to collective bargaining negotiations could make it more difficult to secure a collective bargaining agreement, not less. This is because the two employers would have divergent interests on what the terms of the agreement should be. 

Ultimately, unions and their supporters should focus on providing services to workers they desire, not attempt to rig the rules to ease union organizing. Until unions recognize that workers want a union that provides real value, private-sector union membership rates will continue to drop as they have for the past several decades.