What the NLRB’s Overturning of Obama Era Employer Liability Rules Means for Employers in the Piedmont

Across the board, the Trump administration has moved quickly to roll back existing regulations in its quest to scale back government intrusion into the workplace. In a move that will benefit small business owners in the Piedmont, the National Labor Relations Board (“NLRB”) has lessened the liability a franchise may face for the actions of a staffing or contracting company it utilizes.

In comparison to other states, North Carolina’s workforce is heavily dependent on temporary workers and part-time labor. Much of this labor is supplied by staffing companies or temp agencies that assume responsibility for the sourcing, vetting, hiring, and payment of workers. While these workers may be utilized by one business, they are also employees of the staffing company. This arrangement is advantageous for employers who may have seasonal or rapidly shifting labor needs, or simply may not be able to afford a full-time staff. Staffing agencies can come with risks, however, some charge a higher rate than hourly works, while paying their workers less than the market, offering little to no benefits, and in the worst cases, coming rife with health, safety, and labor violations. For the last two years, a small business owner paying a premium to one of these agencies could potentially be held responsible if one of their staffing partners engaged in unfair labor practices.

In December 2017, the National Labor Relations Board voted 3-2 to reverse an Obama era ruling that made employers potentially liable for the labor violations their subcontractors. The Board’s decision in Browning-Ferris, in 2015, effectively overturned long-standing guidelines that considered a company as a joint employer only in cases where that company shared direct control over workers with the sub-contractor. Under the prior standard, both entities were required to control or determine the terms and conditions of employment (things like hiring, firing, supervising, and directing workers).  Post Browning, the Board could find two companies are joint employers if “they are both employers within the meaning of common law” or if they share or co-determine the matters governing the essential terms and conditions of employment. Essentially, if a company reserved the right to control, then the Board could find a joint employer relationship existed. This was a sweeping change that meant that employers could effectively be held liable for the actions of another business when they had “indirect or unexercised control” over workers.

The December 2017 ruling reverses that standard. The Board held that going forward  “two or more entities will be deemed joint employers under the National Labor Relations Act (NLRA) if there is proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine.” This relaxed standard prevents small business and franchise owners from suffering collateral damage from a separate business that they may have no influence over. These increased protections will help growing businesses avoid costly litigation and penalties that might stunt the growth of their business.

Patrick Wilson is a second-year law student and staff member for the Journal of Business and Intellectual Property Law.