In 2016, the Department of Labor under President Obama issued a set of standards pertaining to joint employment – you may remember this from our three blog posts on the matter (New Labor Standard: Are You and Your Staffing Partner “Joint Employers”?, Feds Clarify Position on “Joint Employer” Contract and Temp Workers, How the New Rules of Co-Employment Affect Temp Jobs). Guidance was also issued in 2015 to steer companies away from classifying employees as independent contractors in order to deprive them of legal protections. Well… forget all that.
Last week, the current Department of Labor rescinded the previous administration’s informal guidance, to the cheers of business groups like the US Chamber of Commerce, who argued that the previous measures created uncertainty, making companies reluctant to expand. The guidelines were not necessarily legally enforceable, though they would be referenced in procedures like audits and investigations, and would provide a map for future legislation.
However, it may be too soon to consider the tide fully turned. The decision by the National Labor Relations Board (NLRB) to expand the definition of joint employment in Browning Ferris Industries – a move that is legally binding, and requires employers to negotiate with unions – is still under review in Federal Appeals Court. The 30-year precedent for joint employment defined it as when “two separate entities share or codetermine those matters governing the essential terms and conditions of employment.” The standard under review, as defined by the Association of Corporate Counsel, shifted away from control towards the economic reality of the employment:
“A two-part test that now considers: (1) whether a common law employment relationship exists; and (2) whether the potential joint employer ‘possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining.’ The critical distinction is that “control” can now be direct, indirect (through an intermediary) or even a reserved right to control, whether or not that right is ever excised.”
Congress tried and overturn the decision by introduced legislation to define joint employers, but likely this decision will head to the Supreme Court, unless the two board vacancies at the NLRB are filled by President Trump.
As far as the reversal of informal guidance, the Department of Labor did stress that it would continue to uphold the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act. Labor unions and workers’ rights groups remain troubled by the decision to rescind the guidance, as employee misclassification violations were aggressively investigated under Obama, resulting in millions of dollars in back wages returned to workers. However, some argue that state agencies, who are already on high alert given the prevalence of the gig economy, will ramp up their own labor investigations in response to the Department of Labor backing off.
Texas employment lawyer Amy Beckstead of Beckstead Terry elaborates: “While rescinding the joint employment guidance signals a more business-friendly approach by the DOL, the rescission does not change substantive law. It is still vital that employers make sure that the staffing firm they contract with is a solid company that complies with all employment laws. Under many state and federal laws, depending on the level of control and oversight on the temporary employees, the company and the staffing firm may still be joint employers under the law.”
The bottom line: Legally, nothing has changed, but this is likely a sign that the current Department of Labor is making an effort to be business-friendly. Staffing agencies and the companies that use them will still await the NLRB’s appeal, or the appointment of new leadership, for a final answer on legal definitions.
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