The National Labor Relations Board, the main federal labor law enforcement agency, reversed one of its most controversial rules in the last decade on Thursday, saying that a business can be held liable for workplace law violations at another company only if it has "direct control" over the second businesses' workplace.
The move rolls back a board decision made during former President Barack Obama's administration that applied a much broader, and vaguer, standard.
The reversal is a major win for businesses, which had pushed Congress and the Trump administration hard to reverse the board's ruling. They argued that the Obama-era standard was a threat to the economy because it would force many businesses out of the practice of franchising their brands. The "indirect control" standard meant franchisers could be responsible for labor law violations by franchisee businesses, a vast expansion of corporate liability.
In a statement Thursday, the NLRB said businesses no longer needed to fear that: "In all future and pending cases, two or more entities will be deemed joint employers under the National Labor Relations Act (NLRA) if there is proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine," the board said.
Business groups cheered the announcement: "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.
The decision came in a 3-2 ruling in a case called Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co. It overturned its 2015 board decision in a case called Browning-Ferris Industries. The majority said the ruling "adheres to the common law and is supported by the NLRA’s policy of promoting stability and predictability in bargaining relationships." The decision was made by the board's three Republican appointees, Chairman Philip Miscimarra, Marvin Kaplan and Bill Emanuel.
The dissenting board members, Democratic appointees Mark Gaston Pierce and Lauren McFerran, argued the decision was wrong because the Hy-Brand case involved two companies that were jointly owned. The case was merely a pretext to reverse Browning-Ferris, they said. "The majority insists that this case must be resolved under joint-employer principles. This makes sense, of course, only in light of the majority’s overriding goal to reverse (Browning Ferris)."
The majority's announcement was anticipated last week when NLRB General Counsel Peter Robb, also a Trump administration appointee, issued a memo telling all of the board's regional administrators not issue complaints using the expansive joint standard without seeking alternate advice from the Washington headquarters.