Save Local Business Act Passes the U.S. House

This week, the U.S. House of Representatives passed legislation that will prohibit the National Labor Relations Board (NLRB) from implementing its expanded rule regarding joint employers.

The current “expanded” NLRB rule dates back to a 2015 case referred to as Browning-Ferris. The Browning-Ferris case stretched potential liability for labor law violations to employers in both vertical and horizontal employment relationships. A brief primer: A vertical joint employment relationship exists when an employee has an employment relationship with one employer, but the circumstances show the employee is in fact employed by another entity. To illustrate, a vertical joint employment relationship could be found where a company uses a staffing agency, labor provider, or subcontractor. A horizontal joint employment relationship, on the other hand, exists when an employee has an employment relationship with two or more employers and the employers are sufficiently associated or related such that they jointly employ the employee. Again by way of illustration, where a server works for two restaurants that have the same management and ownership, or where two separate home health care providers share staff and management, a horizontal joint employment relationship exists. Under Browning-Ferris, if a company had “indirect” control over an employee’s terms and conditions of employment, or even if the company had “reserved authority” to exert control over an employee’s terms and conditions of employment, that company could be jointly liable for labor law violations of the other company. Thus, both vertical and horizontal employers could be on the hook.

If the “indirect control” test seems unclear to you, you are not alone. Courts, lawyers, and employers alike struggle to assess joint employer liability under this murky standard.

The Save Local Business Act passed just a few days ago does away with the “indirect control” test. The Act provides a clearer definition of joint employment under federal labor law. If the House gets its way, the standard for joint employment will simply be whether a company has “direct and immediate” control over essential terms and conditions of employment such as hiring and firing, setting rates of pay, day-to-day supervision, etc. If a company has limited, high-level control only, it will be much less likely under the Save Local Business Act to be deemed a joint employer. And therefore much less likely to be liable for labor law violations. This was the narrower standard before Browning-Ferris, and Republicans are applauding its return.

The Save Local Business Act still needs to be passed by the U.S. Senate and signed into law by President Trump, but it is well on its way to being enacted.

Thompson Coe and myHRgenius Tip of the Week is not intended as a solicitation, does not constitute legal advice, and does not establish an attorney-client relationship.