Update on Joint Employer Legislation and NLRB Rulemaking

by Amanda Doran Dempsey

Last November, H.R. 3441, the Save Local Business Act, passed in the House of Representatives and was sent to the Senate for consideration and vote. H.R. 3441 amends the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA). The law also rolls back the NLRB decision in Browning-Ferris Industries of California, Inc., et al. The bill is awaiting action from the Senate.

While action in Congress has stalled, the National Labor and Relations Board continues to grapple with the implications of its decision in the Browning-Ferris case, which modified the standard for determining a joint-employer. In 2015, the NLRB’s decision in Browning-Ferris Industries, held that an entity may be a joint-employer of another entity’s employees if it has reserved the right to control essential employment terms of the other entity’s employees. In December 2017, the NLRB overruled the Browning-Ferris Industries decision with the Hy-Brand Industrial Contractors decision, reverting to the former joint-employer standard, whereby an entity could only be considered a joint-employer if it actually exercised significant controls over another entity’s employees. However, the reversal was short lived. On February 26, 2018, the NLRB vacated its decision in Hy-Brand. The NLRB reinstated the Browning-Ferris standard after the NLRB Inspector General concluded that a board member, William Emanuel, had an ethics conflict. Mr. Emanuel’s former law firm had represented an adversely affected client in the Browning-Ferris case.

In addition to the NLRB vacating Hy-Brand, Browning-Ferris requested that the D.C. Circuit reinstate its appeal in early 2018. The court responded and added the case to its docket on April 6. In early June 2018, the NLRB decided it would not reconsider its decision to vacate Hy‑Brand.

As of June 8, 2018, Browning-Ferris remains the standard for what defines a joint-employer relationship. Under this standard, companies are ‘joint employers’ if they have indirect or contractually reserved control over workers, instead of the direct and immediate control standard that used to define the term in labor law.

Proposed rulemaking

On May 9, 2018, the NLRB issued a press release regarding the use of notice-and-comment rulemaking for the joint-employer standard. The NLRB Chairman, John F. Ring, stated that the “notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be,” and that the NLRB had “begun the internal process necessary to consider rulemaking on the joint-employer standard.” The NLRB revised its statement in a June 5, 2018 letter to Senators Warren, Sanders, and Gillibrand. No longer just a consideration, the NLRB is now preparing the internal process necessary for an official Notice of Proposed Rulemaking on joint employment for this summer.

We will continue to monitor the progress regarding the joint-employer standard. If you have questions about how this may affect you or your business, please contact us.

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Plan Ahead for New Jersey’s Equal Pay Act, Effective July 1, 2018

New Jersey has enacted the strongest equal pay legislation in the country, the Diane B. Allen Equal Pay Act (“Allen Act”). The Allen Act expands New Jersey’s equal pay protections not only based on gender, but for all protected classes, and goes into effect on July 1, 2018.

Equal Pay for Substantially Similar Work Is Required

The Allen Act prohibits employers from paying members of a protected class[1] “at a rate of compensation, including benefits, which is less than the rate paid by the employer to employees who are not member of the protected class for substantially similar work.” “Substantially similar” work is determined based on a “composite of skill, effort and responsibility.”

Employers may not reduce an employee’s rate of pay to comply with this requirement. Nor may employers take into consideration the employee’s geographic location when determining compensation rates, as the Allen Act requires that the comparison of wage rates be “based on the wage rates at all of the employers’ operations or facilities.”

There Are Limited Exceptions

Limited exceptions may be used to justify a different rate of compensation. The exceptions include if the differential is made pursuant to a seniority or merit system, or if the employer can demonstrate that bona fide factors other than the characteristics of the protected class account for the entire wage differential, such as education, training, experience, or the quantity or quality of production, among other requirements[2].

Damages and Limitations Period

Damages available to employees include an award of three times the amount of any monetary damages suffered by the employee. Liability will accrue each time an employee receives a paycheck that is subject to an illegal wage differential. Employees may be able to obtain backpay for up to six years for continuous violations.

No Retaliation or Waivers

Employers are prohibited from retaliating against employees and prospective employees for, among other things, requesting, discussing or disclosing to another employee or former employee, an attorney from whom the employee seeks legal advice or a government agency, information regarding the job title, occupational category and rate of compensation of the employer’s employees or former employees, or the race, gender, ethnicity, military stats or national origin of the employees or former employees.

Employees may not be required to sign a waiver of this as a condition of employment or otherwise be required to agree not to make or respond to such requests. Nor may employees sign waivers agreeing to shorten the statute of limitations or waive any of their rights under the New Jersey Law Against Discrimination.

Reporting Requirements for Contractors

Employers who contract with the State of New Jersey or any agency or instrumentality of the State, regardless of the employer’s location, will be subject to reporting requirements. If the contract is for the provision of qualifying services[3], the required data includes compensation and hours in the form of pay bands for each establishment of the employer. If the contract is to perform any public work, similar information must be provided through certified payroll records.

Plan Now for July 1, 2018

Below are some things employers should think about doing in advance of the Allen Act’s July 1, 2018 effective date:

  • Conduct a compensation audit, with the assistance of counsel, to determine whether adjustments to compensation and/or job descriptions need to be made.
  • Train human resources personnel, managers and recruiters on the Allen Act.
  • Review and amend your employee polices to notify employees of the Allen Act’s protections and ensure your policies comply with the Allen Act’s requirements.
  • Identify your contracts with New Jersey public bodies that will be subject to the Allen Act’s reporting requirements and make sure there is a system in place to gather the data that must be provided.

For more information on the Allen Act, please contact the Kent Franchise Law Group attorney with whom you regularly work.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, see the disclaimer.

[1] Protected class member status includes “race, creed, color, national origin, nationality, ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy, sex, gender identity or expression, disability or atypical hereditary cellular or blood trait of any individual, or liability for service in the armed forces.”

[2] To take advantage of the “bona fide factors” exception, employers must also show that:  (a) the bona fide factors do not perpetuate and are not based on a compensation differential founded on any characteristic of members of a protected class;  (b) each factor  is reasonably applied; (c) one or more of the factors account for the whole wage differential; and (d) the factors are job-related with respect to the position and based on a legitimate business necessity. If it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential, a factor based on business necessity does not apply.

[3] “Qualifying services” are the “provision of any service to the State or any other public body except for public work.” See N.J. Rev. Stat. C.34:11-56.26 for the definition of “public work.”

 

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House Passes Joint Employer Legislation

by: Amanda Doran Dempsey

On November 7, 2017, the House of Representatives passed H.R. 3441, the Save Local Business Act.  The Save Local Business Act clarifies the standard for determining joint-employer status, an issue that has been unsettled since the National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., et al., Case 32–RC–109684, on August 27, 2015.

In Browning-Ferris, the NLRB adjusted its standard for assessing joint-employer status under the National Labor Relations Act.  Prior to the decision, the NLRB’s standard for determining whether an entity was a joint-employer of another entity’s employees was whether the entity had “direct control” over matters related to the employment relationship.   The Browning-Ferris decision modified that standard, and held that an entity may be considered a joint employer even if the entity has “indirect control” or even reserved or unexercised authority over the entity’s employees and employment relationship.

Despite the fact that the parties in Browning-Ferris case were not involved in the franchise industry, the Browning-Ferris decision left franchisors grappling with how the decision may be applied to franchising, and the age-old question of where to draw the line when exercising common controls to maintain brand uniformity and protection.

The decision was appealed to the US Court of Appeals for the DC Circuit.  The appeal is pending.

Rather than await the results of the appeal, Congress took legislative action to reverse the ruling and clarify the joint employment standard with the Save Local Business Act.  The Act states that an entity may only be considered a joint employer of another entity’s employees “only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.”  This more limited definition will encourage those interested in franchising, or in partnering with compatible businesses to do so without being held responsible for the employment law violations of others.

The Act received some bipartisan support, with a small number of Democrats voting in support of the bill.  The Act may face tougher scrutiny in the Senate, where it will need the backing of at least eight Democrats to pass.

We will continue to monitor the progress of the Save Local Business Act.  If you have questions about how the Act may affect you or your business, please contact us.

 

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The “Protect Florida Small Business Act” (SB 750) Has Died in the Florida Senate’s Judiciary Committee

Although Florida Senate’s Regulated Industries Committee passed SB 750 by a 7-2 vote, the judiciary committee refused to schedule it for a hearing. SB 750 was aimed at “protecting” Florida franchisees from franchisors who are currently allowed to terminate their franchise rights without cause or warning, but it drew criticism from franchise associations.

The International Franchise Association (IFA) strongly opposed the bill and opined that the government should not get involved in what is essentially a private business contract. The IFA believed that this bill would undermine franchising in Florida and cause franchisors to sell their franchises elsewhere in the United States, where they could better protect their brand.

The Coalition of Franchisee Associations (CFA) supported the bill and the protections it would have provided to franchisees. The CFA felt that this bill would not put a damper on franchising in Florida because the state is a desirable place to do business.This marks the end of SB 750 for the 2017 legislative session in Florida.

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Wisconsin Senate Bill 422 addresses joint employment

On March 2, 2016, Governor Scott Walker(R), of Wisconsin, signed Wisconsin Senate Bill 422 into law. This law is important to franchisors because, under this new law, franchisors are not considered employers of their franchisees or their franchisees’ employees for purposes of state employment laws relating to worker’s compensation, unemployment insurance, employment discrimination, minimum wage, and wage payments, unless the following applies:

  1. The franchisor has agreed in writing to assume that role.
  2. The franchisor has been found to have exercised a type or degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand.

As of now this law is only applicable in Wisconsin. However, it is good news for franchisors. It is in direct contrast to recent publications by several federal agencies ( e.g., NLRB) which have tried to make it easier for franchisors to be considered joint employers with their franchisees. Hopefully, other states will follow suit and pass similar state laws.

As always, we will keep up to date on any developments in this area and keep you informed.

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