On September 7, 2022, the NLRB issued a notice of proposed rulemaking seeking to replace the Trump-era final joint employer rule, which provided that an employer would be considered a joint employer under the NLRA only where it exercised “substantial direct and immediate control” over the essential terms and conditions of another company’s employee.

The NLRB’s newly proposed rule drastically expands the joint employer standard to encompass relationships where a company holds indirect and unexercised control over the terms and conditions of another company’s employee.

Employers would be wise to begin thinking now how this will impact their business.

Background

The NLRA does not expressly address situations where employees are employed jointly by two or more companies  As a result, the NLRB and courts have typically applied common-law agency principles to determine when one or more entities jointly employ a particular group of employees.

In an Obama-era decision, Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015), the NLRB held that the “right to control, in the common-law sense, is probative of joint-employer status, as is the actual exercise of control, whether direct or indirect.” Id. at 1614. Essentially, the BFI majority found that a company could be deemed a joint employer even where its control over the essential working conditions of another company’s employees was indirect, or in circumstances where it was contractually reserved, but not exercised. Id. at 1613-14.

In February 2020, in an effort to roll back BFI, the Trump-era Board published a final rule that narrowed the joint-employer test to include only those situations where the two employers “share or codetermine” the essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. The employer-friendly final rule defined “share or codetermine” as the possession and exercise of “such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.”

The final rule also considered indirect control over essential terms or conditions of employment, contractually reserved control over essential terms or conditions of employment, and control over mandatory subjects of bargaining other than essential terms and conditions of employment into the joint-employer analysis, “but only to the extent [they] supplement[] and reinforce[] evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.”

The final rule went into effect on April 27, 2020.

The Proposed Joint-Employer Standard (Revisited)

The NLRB’s new proposed rule rejects the 2020 rule’s narrow focus on “direct and immediate control” and returns to the rationale in the BFI decision, stating that “a party asserting a joint-employment relationship may establish joint-employer status with evidence of indirect and reserved forms of control, so long as those forms of control bear on employees’ essential terms and conditions of employment.”

The proposed rule would also expand the definition of “essential terms and conditions of employment,” to include “work rules and directions governing the manner, means, or methods of work performance.”

The proposed rule reflects the Board’s view that the NLRA’s purpose of promoting collective bargaining and stabilizing labor relations “are best served when two or more statutory employers that each possess some authority to control or exercise the power to control employees’ essential terms and conditions of employment are parties to bargaining over those employees’ working conditions.”

Members of the public may file comments on the Board’s proposal on or before November 7, 2022 and replies to comments filed during the initial comment period must be filed on or before November 21, 2022.

Thinking Ahead…

Employers should begin to consider how the new joint employer standard will impact their existing business structure. Under the proposed rule, a company would be considered a joint employer if they co-determine not just scheduling, wages, and benefits, but also THE direction of the manner and means of performance, even where they do not retain any direct and immediate control over those terms and conditions.

This means that companies that currently outsource staffing, employee management, and/or human resources may no longer use those attenuated relationships to act as a shield for compliance with the NLRA, including potential bargaining obligations.

Thinking ahead, employers should begin look at their staffing and other third party agreements to determine whether they contain reserved control provisions. Even if never exercised, under the propose rule, such provisions are likely probative of joint-employer status. Companies should also consider whether it is now necessary to retrain managers who oversee employees of another entity, such as a staffing agency.

Back in July 2021, President Biden signed Executive Order 14036 directing the Federal Trade Commission (“FTC”) to “address agreements that may unduly limit workers’ ability to change jobs.” As a result, gallons of ink were spilled by practitioners across the country predicting the downfall of non-compete provisions nationwide, replacing the current patchwork of state laws with something more akin to California.

While these predictions have not yet come to fruition, the FTC recently expanded its non-compete enforcement into an area that caught many by surprise – non-compete provisions executed in conjunction with a business sale. Most who follow this area of the law can be forgiven for not seeing this issue on the horizon, as the fanfare regarding President Biden’s EO mainly focused on non-competes in the employer-employee context. In fact, employer-employee provisions have been an enforcement strategy of state legislatures and attorneys general for the past several years. Few, if any, discussed these agreements as part of business deals.

This is because non-compete provisions in connection with a business sale have traditionally been viewed as a business necessity and not a mechanism that impedes on worker mobility. This concept is so commonly accepted that even California, the state that literally outlawed non-compete agreements, carved out a limited exemption for the “sale of goodwill of business or ownership interest.”  See Cal. Bus. & Prof. Code §16601. Continue Reading Dire Straits? The FTC’s Expanding Non-Compete Enforcement Seeks to Narrow Sale-of-Business Agreements

The Equal Opportunity Commission (EEOC) updated its “Technical Assistance Questions and Answers” as of July 12, 2022 to reflect new standards for COVID-19 screening in the workplace. The updated Q&A can be found here. The revised guidance is based on the “evolving pandemic circumstances” that the EEOC considers when determining compliance with the ADA. The guidance also distinguishes between viral testing and antibody testing – explicitly barring the use of antibody testing for employees re-entering the workplace.

Can Employers Require COVID-19 Screening?

Yes, but an employer must show that testing is job-related and consistent with business necessity. At the beginning of the COVID-19 pandemic, the EEOC’s assessment was that the ADA standard for conducting medical examinations was met for employers to conduct COVID-19 viral test screening of employees. The updated guidance now requires “individual assessment by employers to determine whether such testing is warranted.”

In order for an employer to mandate a COVID-19 viral test as a screening test for new or continued employment, the employer must now show that the test “is job-related and consistent with business necessity.” Whether or not testing is “consistent with business necessity” will be based on whether it is “consistent with guidance from Centers for Disease Control and Prevention (CDC), Food and Drug Administration (FDA), and/or state/local public health authorities that is current at the time of testing.”

The EEOC provides a list of factors that may be considered when determining whether testing is a “business necessity,” including:

“[T]he level of community transmission, the vaccination status of employees, the accuracy and speed of processing for different types of COVID-19 viral tests, the degree to which breakthrough infections are possible for employees who are ‘up to date’ on vaccinations, the ease of transmissibility of the current variant(s), the possible severity of illness from the current variant, what types of contacts employees may have with others in the workplace or elsewhere that they are required to work (e.g., working with medically vulnerable individuals), and the potential impact on operations if an employee enters the workplace with COVID-19.”

Employers that intend to mandate testing should monitor evolving CDC guidance. Continue Reading The EEOC’s Updated Guidance on Employer COVID-19 Safety Requirements

Join Kelley Drye’s Labor and Employment team for the 2022 WORKing Lunch Series, which includes five webinars focused on the latest trends and developments in workplace law. Sign up for one, some, or all of the programs below. Invite a colleague, grab your lunch and let’s take a deep dive into these timely employment topics.

Tuesday, September 13, 2022 at 12:30pm ET
Pay Equity & Transparency: Rising Workplace Trends

New York, which has over 9.3 million workers and counting, will soon join other jurisdictions in a growing trend of state and local pay transparency requirements for employers across the country. Currently there are 17 states (and numerous cities) that have laws requiring pay transparency and/or prohibit salary inquiries by current/prospective employers. Additionally, the recent focus on pay equity laws, both state and federal, has served as a catalyst for increased scrutiny by government agencies and resulted in an uptick in related class action lawsuits in recent years.  While transparency is generally a virtue, compliance with the ever-evolving pay transparency and pay equity laws across multiple jurisdictions can create a quagmire of issues in attracting and retaining talent—not to mention the HR and legal landmines.

This webinar will cover:

  • New pay transparency laws
  • Review of pay equity and salary history ban laws
  • Insights on compliance
  • Practical implications for talent acquisition and retention

Continue Reading Complimentary L&E Webinar Series

On June 24, 2022, the U.S. Supreme Court issued its decision in Dobbs v. Jackson Women’s Health Organization, overturning Roe v. Wade and holding that there is no constitutionally protected right to abortion.  While the Dobbs decision does not make abortion illegal, it does permit states to make abortion illegal under state law. Whether employers assume new risks in covering abortions (including aiding or abetting someone in receiving an abortion) under their health plans is now a matter of state law.  In the wake of this decision, employers now need to consider what they can legally do to support employees (and their covered dependents) who wish to terminate a pregnancy, including those who need to do so due to a medical condition or emergency.

Fully Insured and Self-Insured Plans

The implications of the Dobbs decision for group health plans will differ depending on whether a plan is fully insured or self-insured.  Since states generally have the power to regulate fully insured health plans, insurance policies would need to comply with the law of the state where the policy is issued; fully insured health plans in states where abortion is banned would not be able to provide abortion benefits.  Employers with such plans would therefore want to review their plan documents, insurance policies, and governing state laws, and should explore alternatives with their carriers and brokers as needed to see if there is still a way to provide assistance for abortion services.  Employers may also want to consider the possibility of switching to a self-insured plan, as doing so would give them more discretion in terms of plan design (as discussed below).  If this is not possible, there could still be other alternatives available such as establishing an HRA that covers any unreimbursed expenses for medical care (which includes abortion procedures which constitute “medical care” under IRS rules).  The HRA would need to either be integrated with the employer’s medical plan to comply with the Affordable Care Act or structured as an Excepted Benefit HRA (with different implications with respect to eligibility, funding, and other features).  Kelley Drye is available to assist employers wishing to learn about an HRA approach. Continue Reading Impact of Dobbs Decision on Employee Benefits

A few weeks ago, we hinted at the possibility that the United States Supreme Court may overturn parts of the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (Cal. 2014). Our prediction was spot on as the US Supreme Court did just that in a big win for employers.

BACKGROUND

Historically, California employees could avoid their arbitration clauses in part by asserting claims brought under California’s Private Attorney General Act (“PAGA”). PAGA allows employees to stand in the shoes of the State of California to enforce particular Labor Code violations that were – before the enactment of PAGA – only enforceable by the California Labor Workforce Development Agency.

Continue Reading US Supreme Court Overturned CA Supreme Court Decision

On July 1, 2022, new obligations will be placed on Chicago employers under the City’s heightened sexual harassment protections for employees. The amendments to the Chicago Human Rights Ordinance (Ord. 2022-665) were only passed by the City Council on April 27, 2022 – are you and your business compliant? A quick guide for a seamless transition for your HR department into the new summertime protections follows below.

Who needs to keep reading?

The Ordinance applies to any business, partnership, entity, or person that employs at least one employee in the City of Chicago in the current or preceding calendar year (in 2021 or 2022), and is subject to City licensing requirements or maintains a business facility within the City limits.

An employee under the Ordinance means anyone who is engaged to work within the City limits for monetary or other valuable consideration.

Continue Reading Compliance Alert – City of Chicago Employers

Employers use arbitration agreements to avoid costly and protracted litigation. And, in turn, employers can often rely on courts to enforce their arbitration clauses, either dismissing or staying the case pending completion of arbitration. A California-based employee, however, recently convinced the California Courts of Appeal that his arbitration agreement was too unfair to be enforced, and the court agreed. In Nunez v. Cycad Mgmt. LLC (“Nunez”), 77 Cal. App. 5th 276 (Cal. Ct. App. 2022), the California Courts of Appeal held that an employer’s arbitration clause was unconscionable—that is, too unfair—and, as a result, the arbitration clause was invalid and unenforceable.

That decision was rooted in the doctrine of unconscionability. Originally a contract defense, the doctrine unconscionability excuses a party from compliance with a particular contractual provision when that provision both was negotiated in an oppressive manner and would involve an overly harsh or one-sided result. A plaintiff invoking the doctrine of unconscionability must demonstrate both procedural and substantive unconscionability. Continue Reading California Arbitration Agreements: Greater Hurdles To Enforceability

Courts have little leeway to avoid enforcement of an arbitration clause. Indeed, the United States Supreme Court has spilt much ink reinforcing the power and scope of the Federal Arbitration Act (“FAA”), the legislation requiring that courts compel arbitration of claims subject to an arbitration clause. In California, however, employees can circumvent their arbitration clauses by asserting Private Attorneys General Act (“PAGA”) claims, a loophole that two California Courts of Appeal decisions have recently reinforced. The United States Supreme Court, nonetheless, appears poised to step-in and potentially close this loophole for good. Continue Reading CA Courts Still Reluctant to Enforce Arbitration Agreements For PAGA Claims

On May 23, 2022, the California Supreme Court issued a long-awaited decision in Naranjo v. Spectrum Security Services, Inc., 40 Cal. App. 5th 444 (2019). The Court reversed in part the decision of the Court of Appeal by holding that premium pay for missed meal and rest breaks constitutes “wages” that can give rise to derivative claims for inaccurate wage statements (Labor Code section 226) and waiting time penalties (Labor Code section 203). The Court also affirmed that the default prejudgment interest rate of seven percent set forth in the state Constitution applies to such premiums. The Court’s ruling as to derivative claims will have significant impact, including increasing the exposure for employers in class action lawsuits involving unpaid meal and rest break premiums.

Gustavo Naranjo, a former security officer for Spectrum Security Services, Inc., filed a class action lawsuit alleging that Spectrum failed to provide its employees with meal and rest breaks. Naranjo’s suit sought damages and penalties for Spectrum’s alleged failure to report the premium payment on the employees’ wage statements  and failure to timely provide the payments to the employees upon their discharge or resignation. The Court of Appeal held that employees are not entitled to pursue derivative waiting time and inaccurate wage statement penalties for meal and rest break premiums because such premiums are “penalties” not “wages.”  Mr. Naranjo appealed the Court of Appeal’s decision.

Continue Reading CA Supreme Court Holds Meal and Rest Break Premiums are “WAGES”