NLRB Ruling Already Disruptive, Critics Tell Senators

From labor disputes cases to labor and employment publications, for your research, you’ll find solutions on Bloomberg Law®. Protect your clients by developing strategies based on Litigation...

By Lawrence E. Dubé

June 16 — The National Labor Relations Board's new joint employer standard has left businesses fearful and uncertain about their legal responsibilities, witnesses told the Senate Small Business and Entrepreneurship Committee June 16.

The board's 2015 ruling in Browning-Ferris Industries of California Inc. was a product of the Obama administration's “push for aggressive labor policies” that have negative economic consequences, Chairman David Vitter (R-La.) said. The NLRB's action threatens franchised businesses and “puts millions of jobs at risk,” he said, and many members of his committee will support legislation to overrule the decision.

A North Dakota franchiser and a Maryland franchisee told the committee that uncertainty about the NLRB's new standard has already disrupted successful business relationships. However, a union lawyer called Browning-Ferris a “modest” ruling that provides more “guidance and clarity” than the board's previous decisions offered.

Browning-Ferris Decision Under Scrutiny

The board's decision in Browning-Ferris Industries of California Inc., 2015 BL 278454, 362 N.L.R.B. No. 186 (2015), expanded joint employer liability under federal labor law.

The board held that a business may be liable as a joint employer if it indirectly controls an employment relationship or has reserved the right to do so. Earlier board precedents, dating back to 1984, required a showing that a business entity shared direct control of employees' terms and conditions of employment for the business to be considered a joint employer.

Critics of the NLRB decision have argued it may induce franchisers to take more control over franchisee operations or may discourage some businesses from starting or expanding franchise systems.

Ruling Said to Cloud Business Decisions

Ciara Stockeland started MODE, a retail clothing store franchise based in Fargo, N.D., in 2006. She told the committee she has expanded her business through franchising to 11 stores and hopes to have 75 franchised stores by 2024.

However, she called the NLRB's Browning-Ferris decision “absurd” and said she can no longer be confident that her business won't be held liable for a franchisee's labor law violations.

Stockeland believes franchisers and franchisees are deferring decisions on opening new locations because of their concern about the NLRB's joint employer ruling. Blocking or delaying business expansion costs jobs and economic benefits for U.S. communities, she said.

Impact on Contracting Relationships Questioned

James Sherk, a research fellow in labor economics at the Heritage Foundation, said Browning-Ferris may have unintended and unwelcome consequences for unionized contractors that act as subcontractors for other businesses.

Sherk, who testified as an individual rather than as a Heritage Foundation representative, said larger businesses are sometimes able to focus on their own “core competencies” if they retain subcontractors to perform specialized functions.

“If the client is not satisfied with their contractors' performance they can switch contractors,” Sherk said, but he told the senators “this is no longer possible if a joint employment relationship exists and the contractor is unionized.”

The potential for joint employer liability under Browning-Ferris “will strongly incentivize firms to hire only nonunion contractors and to change contractors if they suspect their current contractor may unionize,” Sherk predicted.

Union Lawyer Sees ‘Overblown' Reaction

Fear about Browning-Ferris has been “enormously overblown,” Keith R. Bolek, a partner who represents unions at O'Donoghue & O'Donoghue LLP in Washington, told the committee.

The board properly determined that limiting joint employer findings to cases in which employers share direct and immediate control over employment conditions is too restrictive, he said.

Browning-Ferris merely held that indirect and reserved control over employment conditions are legitimate factors for the board to consider in weighing joint employer issues, Bolek said.

Professor Says Facts Matter in Disputed Cases

Sen. Mazie Hirono (D-Hawaii) asked Professor Harris Freeman, of the Western New England University School of Law, about the impact of Browning-Ferris on franchising in the U.S.

Freeman said “hysteria and hyperbole” about the decision are “not legally justified,” and he noted that the NLRB's Division of Advice found in Nutritionality, Inc., NLRB Div. of Advice, No. 13-CA-134294, 4/28/15 [released 5/11/15]) that a restaurant franchiser was not a joint employer with its franchisees. The case was considered under the same standard the board applied in Browning-Ferris, Freeman said.

Hirono said decisions on joint employer status appear to depend on the facts of each case. “That's why we have lawyers,” she said.

To contact the reporter on this story: Lawrence E. Dubé in Washington at

To contact the editor responsible for this story: Susan J. McGolrick at

Request Labor & Employment on Bloomberg Law