Kurt Larkin, a Richmond, Va., labor lawyer, says a new federal standard for determining whether a business acts as a “joint employer” with another business could cause big, confusing problems for businesses throughout the United States.
The new joint employer standard, which was announced by the National Labor Relations Board (NLRB) in August, could turn some companies into accidental employers of other companies’ workers, and it could make complying with the Patient Protection and Affordable Care Act (PPACA) more complicated, Larkin says.
Another labor lawyer, Harris Freeman, a professor of Western New England School of Law, says the federal government needs to expand the definition of joint employer to keep protecting the rights of low-wage workers.
If regulators use the old and narrow definition, staffing agencies, franchisors and other large organizations will continue to profit from arrangements designed to deprive workers of fundamental labor rights, Freeman says.
Larkin and Freeman testified Thursday at a hearing on the new NLRB joint employer standards that was organized by the House Small Business Committee investigations subcommittee.
The NRLB ruled, in a decision on a case involving Browning-Ferris Industries Inc., that it will consider two or more businesses to be joint employers if both entities are employers under common law, and both employers share or codetermine matters concerning the “essential terms and conditions of employment.”
In the past, the board has required a company found to be a joint employer to exercise authority over a worker’s conditions of employment, not just to possess that authority.
Now, the board says, it may find an employer to be a worker’s joint employer if the employer has enough authority to exercise control indirectly, even when the employer does not exercise that control directly and immediately.
Freeman testified that moving to a broader definition is obviously necessary, given the current state of temping and franchising arrangements.
Otherwise, “our nation runs the risk of labor law becoming irrelevant in much of the low-wage economy,” he said, according to a written version of his testimony posted on the committee website.
In the restaurant industry, for example, the big company that offers the franchises often saddles the small business owner who gets the franchise with high costs and complicated rules, while putting most of the burdens involved with the risk of business failure on the shoulders of the small business owner, Freeman said.
The franchisors’ terms lead to high small business failure rates and put downward pressure on wages, Freeman said.
Larkin said the NLRB guidance on joint employers is murky.
“If a putative joint employer never actually exercises direct control over the employees of another company, how much retained or indirect control will be sufficient to establish joint employer status?” The new test “sweeps with a broad brush across all industries and virtually all types of business relationships,” Larkin said.
The definition could backfire if, for example, it discourages contractors from requiring their subcontractors to pay a living wage, Larkin said.
The labor lawyer said he believes the NLRB joint employer definition could affect how federal regulators apply the PPACA employee counting rules. If so, “determining and maintaining compliance will impose administrative burdens that most small employers are not set up to manage effectively,” Larkin said.
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