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Federal Interpretation Expands Definition of Joint Employer to Encompass Indirect and Potential Control

Published by on February 12, 2016

As the concept of joint employment continues to evolve at the federal level, employers must fully consider direct, indirect and potential control.

The concept of joint employment has continued to evolve at the federal level, leaving employers scrambling to understand and accurately interpret the government’s view of the matter, especially considering the high stakes at play.

Federal agencies who have recently issued findings, decisions, rules or other guidance regarding joint employment include the U.S. Department of Labor’s Wage and Hour Division (WHD), the National Labor Relations Board (NLRB) and the Occupational Safety & Health Administration (OSHA).

It is essential for employers to understand how various federal agencies interpret the concept, as it can implicate them as legally responsible parties regarding employment law matters involving personnel who may not actually appear on their own payroll, but whose joint employer status is due to factors associated with another company.

Under standards most recently created by the NLRB in a decision involving Browning-Ferris Industries of California, the NLRB now sees up to three situations in which joint employment may exist. The first is direct control, the second is indirect control and the third is potential control.

Direct control refers to situations where a company directly manages and sets the standards for supervising personnel, even if those personnel are not technically its employees. In these cases, the government may readily find that direct control applies and that the company in question is, indeed, a joint employer. The direct control standard is similar to existing common law standards under state law on who constitutes an employer.

The possibility of looking at “indirect” and “potential” control creates a significantly more ambiguous standard and opens a wider range of entities to joint employer status. The NLRB interpretation now suggests that two or more companies can be found to be joint employers of a single workforce if, in the words of the NLRB, they “share or codetermine” the terms and conditions of employments, such as wages, firing, discipline, scheduling or assigning work.

It is also important to understand that alongside indirect control there is potential control, which means that joint employer status may be determined merely upon the existence of a contractual right held by one company to have a role in determining any of these items with the other, even if the right has never been exercised.

Furthermore, potential control reserved by the alleged employer may be “limited or routine” – or even exercised through the authority of a third party, and yet the joint employer finding may still be applied.

It has yet to be determined the extent to which state and federal courts will be adopting this analysis announced by the NLRB in the Browing-Ferris decision.

Welter Insight:

The federal government’s push for an expansive view of joint employment is part of a long-standing campaign to exert control over “fissured” employment relationships. Companies should pay special attention to situations where joint employer status could dramatically impact the employee-employer relationship, such as matters involving employee labor organizing, employee safety, employee classification and wage and hour considerations.

Furthermore, companies may consider setting aside additional resources to more aggressively evaluate or audit subcontractors or other employers with whom they work to ensure that these entities are clearly operating within appropriate regulatory guidelines. Companies may also consider ensuring that their contractual relationships fully address potential risks with indemnification clauses and clearly defined standards of conduct.

Both internal evaluation and external assessment are essential steps in determining, mitigating and responding to potential joint employer findings associated with employment or other contractual arrangements.

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