How a narrow joint-employment standard benefits hotels

“Joint employment”—the concept that two business entities share sufficient control and supervision of an employee such that they are both considered “employer” (and liable for labor law violations)—has become a key issue and subject of substantial litigation in the hotel industry recently.

For decades, the test for joint employment was whether an entity exercised direct and actual control over the terms and conditions of the worker. In the 2015 case, Browning-Ferris Industries of California, the federal agency responsible for enforcing U.S. labor laws relating to collective bargaining and unfair labor practices, the National Labor Relations Board, significantly expanded the definition to include entities that exercise even indirect control or reserve the potential to exercise control.

Under the Browning-Ferris standard, a franchisor that does not hire, fire, discipline, pay or otherwise direct employees in any way could still be held liable for its franchisee’s legal wrongs – bad news for the hotel industry, which commonly utilizes franchises and staffing companies.

However, with recent changes in the NLRB members, we have seen some movement by the board to loosen the standard. As shown below, there are signs that in the coming months the NLRB will seek to resolve the joint-employment standard and a likelihood it will settle on a narrowed interpretation that is friendlier to the hotel industry’s interests. Activity from the past few months includes:     

  • NLRB rulemaking: In May, NLRB Chairman John F. Ring announced the board is considering rulemaking to address the joint-employment standard. Ring stated the “current uncertainty... undermines employers’ willingness to create jobs and expand business opportunities.” Business can expect that in the coming months the newly Republican-majority NLRB will continue the recent trend to reverse Browning-Ferris and reinstate a narrow standard that is pro-business.     
  • Proposed legislation: The need for clarity also has caught the attention of Congress. In November of 2017, the U.S. House of Representatives passed the “Save Local Business” Act to reverse the NLRB’s expansive joint-employer standard to “provide certainty and stability for workers and employers.” While the bill currently is before the U.S. Senate, and congressional gridlock is unlikely to change, the bill’s passage in the House is yet another signal that the days of Browning-Ferris are numbered.
  • McDonald’s v. NLRB proposed settlement: In March, after years of litigation, McDonald’s and the NLRB’s general counsel reached a proposed settlement to resolve claims that McDonald’s was a joint employer and liable for unlawful labor practices claims brought by McDonald’s workers who sought to improve working conditions by, among other things, participating in minimum-wage protests. Significantly, McDonald’s admits no liability under the joint-employer theory. The settlement still must be approved, but the general counsel’s willingness to negotiate a settlement at this time is a noticeable shift from once-aggressive pursuit of alleged joint-employer violations.

These recent developments suggest a positive outlook for businesses grappling with the uncertainty of joint employment. Businesses that operate in franchise environments or with vendors offering temporary staffing services should keep close tabs on developments in this area during the coming months.

Sarah Hamilton is partner at Constangy, Brooks, Smith & Prophete. Matthew Gurnick is an attorney for Constangy, Brooks, Smith & Prophete.