Labor Board Reverses Ruling That Helped Unions Fight Chains

Posted December 14, 2017 10:04 p.m. EST
Updated December 14, 2017 10:11 p.m. EST

The National Labor Relations Board on Thursday overturned a key Obama-era precedent that had given workers significant leverage in challenging companies like fast-food and hotel chains over labor practices.

The ruling changes the standard for holding a company responsible for labor law violations that occur at another company, like a contractor or franchisee, with which it has a relationship.

The doctrine also governs whether such a corporation would have to bargain with workers at a franchise if they unionized, or whether only the owners of the franchise would have to do so.

While most labor law experts expected the labor board, which gained a Republican majority only in late September, to overturn the board’s joint-employer decision from 2015, the speed of the change came as a surprise to many.

“Frankly, it’s shocking,” said Wilma Liebman, a former Democratic appointee on the board who once served as its chairwoman.

The board’s 3-2 vote, along party lines, restores the pre-2015 standard, which deemed a fast-food corporation a joint employer only if it exercised direct and immediate control over workers at the franchise, and in a way that was not limited.

Employer groups had been agitating to undo the standard that was set under President Barack Obama almost from the moment it was decided, and they applauded the decision Thursday.

“Today’s decision restores years of established law and brings back clarity for restaurants and small businesses across the country,” said Cicely Simpson, executive vice president of the National Restaurant Association, in a statement.

Liebman noted that the parties in the case that served as the vehicle for Thursday’s ruling had not even asked the board to reconsider the existing precedent.

The key question in determining whether a company, like a fast-food corporation, is a joint employer of workers employed by another company, like one of the chain’s franchisees, is the degree of control exercised by the corporation over workers at the franchise. The ruling Thursday declared that such control must be direct.

Under the Obama-era doctrine, the fast-food corporation could be held liable for labor violations that occurred at the franchise even if the control it exerted was indirect — for example, if it required the franchisee to use software dictating certain scheduling practices — or if it had the right to exercise control over workers that it nonetheless didn’t exercise.

The reversal could have important implications for the ability of workers to win concessions from employers through collective bargaining. In many cases, a contractor or franchisee has such low profit margins that it could not afford to raise wages or improve benefits even if it wanted to.

But when, as was more likely under the Obama-era doctrine, a wealthier company employing a contractor or conferring a franchise is considered a joint employer, it must join the bargaining and could in principle compensate workers more generously.

The reversal could also affect the ability to unionize in the first place. A company is free to fire a contractor or end a franchise arrangement if it suspects that workers are on the verge of unionizing. But there could be legal liability for doing so if the company is a joint employer of workers with the contractor or franchisee.

Employers have been so concerned about the more sweeping joint-employer standard that they have lobbied Congress to change the standard through legislation, a version of which the House passed in November. They are likely to continue to push for such legislation for fear that a future labor board under Democratic control could simply reverse the standard again, and because there are applications of the joint employer concept — as in enforcement of minimum-wage laws — not covered by the labor board’s decision.

The case before the board appeared relatively straightforward, involving two nominally separate construction companies in Iowa, Brandt Construction Co. and Hy-Brand Industrial Contractors, owned by the same four people. In 2015, two employees of Brandt and five employees of Hy-Brand went on strike to highlight safety concerns and the level of their pay and benefits, and the ownership fired all seven in retaliation.

An administrative law judge ruled that the seven firings were illegal, and that the same ownership was responsible for all of them. The board’s ruling Thursday agreed on both counts, but argued that the judge had applied the wrong standard — the Obama-era standard — for determining joint employment.

At its most fundamental level, the ruling highlights deep differences in philosophy between most Democratic and Republican members of the labor board. During the Obama administration, the board majority believed that the changing structure of the economy — in which employers have steadily pushed workers outside their firms and into a throng of contractors, franchises and staffing agencies — required updating doctrine to stay true to the intent of labor law.

In its 2015 ruling, the board wrote that the existing joint-employer approach was “increasingly out of step with changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships.”

By contrast, the ruling Thursday from the Republican-led board argued that its predecessors had been guilty of “upending decades of labor law precedent and probably centuries of precedent in corporate law” with no mandate from Congress to do so.

While the joint-employer decision was arguably the highest priority for Republicans, the labor board is likely to overturn other Obama-era decisions strongly opposed by employers in relatively short order. Among them are rulings that made it easier for smaller groups of workers within a company to unionize, that gave workers access to a company’s email network for organizing purposes and that conferred a federally protected right to unionize on graduate students at private universities.

Some insiders believe that the labor board could overturn at least one more high-profile precedent before the term of the Republican chairman, Philip A. Miscimarra, ends on Saturday. At that point, the board will be evenly split between the parties, and Republicans won’t regain their majority until the Senate confirms another member, whom President Donald Trump has yet to nominate.