Court Rejects Employer’s Attempt at Two-Bites at the Same Apple When Challenging ULP

Last week, the Sixth Circuit rejected the attempt of a government contractor to avoid an unfair labor practice charge by claiming that it was a joint employer entitled to the benefit of the NLRA exemption for the federal government.  Bannum Place of Saginaw LLC, v. NLRB, No. 21-2664 (6th Cir. 7-14-22).   The employer first raised the argument -- that the federal Bureau of Prisons so regulated its operations under their service contract that the employer constituted a joint employer with the federal government – when the union sought recognition.  However, the employer failed to appeal the Regional Director’s decision rejecting the argument and the NLRB refused to entertain – or relitigate -- the issue when the same employer was then subject to an ULP Charge arising out of that same, or related, election. 29 C.F.R. § 102.67(g).  The Court agreed that courts will defer to the NLRB’s refusal to relitigate legal issues which the party could have but failed to appeal to the Board during the representation phase.  In any event, “because Congress has unambiguously limited the reach of the exemption in § 2(2) to governmental entities and wholly owned government corporations, this court will not extend the exemption to government contractors.”

The Court observed that the no-re-litigation rule only applies when the second proceeding is related to the representation issue when the argument was first raised and then not appealed.  However, the employer could not successfully argue that this ULP was unrelated to the earlier representation proceeding for the first time on appeal because the employer failed to raise the unrelatedness argument before in the underlying ULP proceeding.   The Court will only consider arguments that had first been made to the NLRB.

The employer also failed to point to any new circumstances that could have justified re-litigation of the issue during the ULP phase.

The employer then argued that its joint employer argument went to the NLRB’s statutory jurisdiction and could not be waived.   However, the Court found that this argument would likewise fail because the NLRA did not address joint employment and only exempted certain types of employers, including the federal government.  The Supreme Court had earlier rejected a similar argument by a hospital which claimed its lease with a state government made it a government subdivision.  Other circuit courts had likewise rejected arguments to expand the reach of the limited exemptions:

As the Tenth Circuit held, “because Congress has unambiguously limited the reach of the exemption in § 2(2) to governmental entities and wholly owned government corporations, this court will not extend the exemption to government contractors.”

. . .

In sum, even if Bannum’s contract vests in the BOP substantial control over Bannum’s daily operations, that does not transform the company from a covered employer into either a governmental entity or a wholly owned government corporation and thus beyond the Board’s reach.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

FLSA Issues Kick Off 2016

This week has brought two developments impacting FLSA compliance and claims.  First, the federal Department of Labor issued an Administrative Interpretation 2016-1 concerning joint employment.  Essentially, the AI describes when two businesses will become liable for wages and overtime worked by a shared employee even if that overtime was earned while working for the other employer.   It describes both horizontal (i.e., related) and vertical (i.e., staffing) relationships that can lead to joint employment.  Second, the U.S. Supreme Court issued a class action decision involving spam text messages, but the holding about offers of judgment and mootness of claims will be important to employers attempting to defend FLSA class actions by making offers of judgment (i.e., complete relief) to the class representatives.   Campbell-Ewald Co. v. Gomez, No. 14-857 (1-20-16).  The Court held that an offer of judgment rejected by the class representative does not moot the pending litigation claim, even if the offer was rejected before the certification of the class.  As discussed here a few years ago, if the rejected offer of judgment mooted the claim, then the FLSA case was left moot and was dismissed.   The Court left open for another day whether the result would be different if the defendant had actually deposited the amount of the offer into an account payable to the plaintiff and then the court entered judgement in that amount in the plaintiff’s favor.

In the Administrative Interpretation, the DOL summarized its position on when two or more employers may be held jointly liable for the FLSA obligations regarding an employee who works for each of the employers.  It describes one situation as horizontal joint employment when the two or more technically separate businesses are associated or related (through common ownership, management, contracts to share employees, etc.)  The focus of the analysis is on the relationship of the businesses with each other (because it is already clear that the worker is an employee of each entity)   This can happen, for instance, with restaurants and home health care, property management, etc. When joint employment is identified, each employer becomes jointly and severally liable for the employee’s wages for each week worked, including overtime wages, regardless of how many hours the employee worked for that particular entity.  See 29 C.F.R. §791.2(a).

The following facts may be relevant when analyzing the degree of association between, and sharing of control by, potential horizontal joint employers:

·        who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);

·        do the potential joint employers have any overlapping officers, directors, executives, or managers;

·        do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);

·        are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);

·        does one potential joint employer supervise the work of the other;

·        do the potential joint employers share supervisory authority for the employee;

·        do the potential joint employers treat the employees as a pool of employees available to both of them;

·        do the potential joint employers share clients or customers; and

·        are there any agreements between the potential joint employers.

Of course, merely because an employee holds more than one job does not make his or her employers joint employers. “Joint employment does not exist, however, if the employers “are acting entirely independently of each other and are completely disassociated” with respect to an employee who works for both of them. 29 C.F.R. 791.2(a).”

The AI describes a second situation  -- called vertical joint employment -- where there is an intermediary employer which supplies workers to a client and the economic realities show that the client exercises sufficient control over the worker to make that worker economically dependent on it and, thus, its employee for purposes of the FLSA.   Unlike horizontal relationships, the analysis in vertical relationships is on the economic realities of the relationship between the worker and the client to determine whether the employee is economically dependent on the client.   These situations arise for instance in construction (when a subcontractor supplies employees to the general contractor), in agriculture (when laborers are supplied to a grower) and in warehouses (when workers are supplied to the operator or owner of the warehouse) and medical (where nurses are placed by a staffing agency). 

The AI lists the following factors are relevant in determining the economic realities and economic dependence:

A.     Directing, Controlling, or Supervising the Work Performed. To the extent that the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer. The potential joint employer’s control can be indirect (for example, exercised through the intermediary employer) and still be sufficient to indicate economic dependence by the employee. See Torres-Lopez, 111 F.3d at 643 (“indirect control as well as direct control can demonstrate a joint employment relationship”) (citing pre-1997 MSPA regulation); Antenor, 88 F.3d at 932, 934; 29 C.F.R. 500.20(h)(5)(iv). Additionally, the potential joint employer need not exercise more control than, or the same control as, the intermediary employer to exercise sufficient control to indicate economic dependence by the employee.¹⁷

B.     Controlling Employment Conditions. To the extent that the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the potential joint employer. Again, the potential joint employer may exercise such control indirectly and need not exclusively exercise such control for there to be an indication of joint employment.

C.     Permanency and Duration of Relationship. An indefinite, permanent, full-time, or long-term relationship by the employee with the potential joint employer suggests economic dependence. This factor should be considered in the context of the particular industry at issue. For example, if the work in the industry is by its nature seasonal, intermittent, or part-time, such industry condition should be considered when analyzing the permanency and duration of the employee’s relationship with the potential joint employer.

D.     Repetitive and Rote Nature of Work. To the extent that the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training, those facts indicate that the employee is economically dependent on the potential joint employer.

E.      Integral to Business. If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent on the potential joint employer. Whether the work is integral to the employer’s business has long been a hallmark of determining whether an employment relationship exists as a matter of economic reality. See, e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722, 729-30 (1947).

F.      Work Performed on Premises. The employee’s performance of the work on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer. The potential joint employer’s leasing as opposed to owning the premises where the work is performed is immaterial because the potential joint employer, as the lessee, controls the premises.

G.     Performing Administrative Functions Commonly Performed by Employers. To the extent that the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work, those facts indicate economic dependence by the employee on the potential joint employer.

See 29 C.F.R. 500.20(h)(5)(iv).

 

In Gomez, the Court addressed the issue which is passed on in 2013 in Genesis HealthCare Corp., 569 U. S., at ___, and adopted Justice Kagan’s dissenting opinion from that case:

We hold today, in accord with Rule 68 of the Federal Rules of Civil Procedure, that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.

However, the Court left open the possibility that a claim could be mooted by the offer of complete relief:

We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff ’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

NLRB Broadens Joint Employer Test to Reach Temporary Employment Relationships

On Thursday, a divided NLRB adopted a new legal standard for determining joint employer status when a labor union seeks to represent temporary employees paid by an agency, but who are assigned to another employer which has indirect authority over certain terms and conditions of employment. Browning-Ferris Industries of California, Inc., 362 NLRB No. 186.  In doing so, the Board reversed the current standard, which had been in place since at least 1981, and found the company to be a joint employer with the temporary agency which supplied it with the employees at question.  The Board’s majority claims to focus on the contractual and exercised authority of the company to control – directly or indirectly --  the manner and means that the temporary employees perform the work.  Contracts which specify only the result to be obtained should not satisfy the Board’s new standard.  In any event, the Board also held that the bargaining obligations of the company would be limited to those terms and conditions over which it possesses authority to control through its contract with the temporary agency.

Under this standard, the Board may find that two or more statutory employers [i.e., employers subject to the NLRA] are joint employers of the same statutory employees if they “share or codetermine those matters governing the essential terms and conditions of employment.” In determining whether a putative joint employer meets this standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. If this common-law employment relationship exists, the inquiry then turns to whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.

Using the new standard, the Board will no longer consider whether a company which possesses authority over terms and conditions of employment (through the contract with the temporary agency) actually exercises that authority.   Neither will it consider whether the authority or control of the company is direct or immediate; indirect authority or control through an intermediary would be sufficient to find joint employment.  In other words, authority or control over terms and conditions of employment may only be theoretical for the Board to find an entity is a joint employer.  While the Board acknowledges that its decision will negatively impact the predictability of whether a particular company will be found to be a joint employer, it leaves future cases to be worked out based on their particular facts.  It also acknowledges that “it is certainly possible that in a particular case, a putative joint employer’s control might extend only to terms and conditions of employment too limited in scope or significance to permit meaningful collective bargaining.” 

Importantly, even if a company is found to be a joint employer based on its indirect authority over certain terms and conditions of employment, it would “required to bargain only with respect to such terms and conditions which it possesses the authority to control.”

In the case at hand, the company had 60 employees on its payroll, who worked outside and were already represented by the union which was seeking to also represent the company’s temporary employees.  Pursuant to an indefinite temporary labor services agreement, a temporary agency supplied the company with 240 employees that worked inside sorting materials on conveyor belts.  The temp agency also supplied and paid the supervisors and managers of its employees assigned to the company.   The company’s officers and managers oversaw the entire operation and met frequently and regularly with the temp agency management.  Only the temp agency had human resources staff on site and performed all of the interviewing, hiring, testing, etc.  However, the company specified that it wanted all of the applicants to be drug tested and to not be any of its former employees and retained the right to reject or discontinue any agency employees.  

Only two temp employees had been terminated because of complaints by the company (involving sabotage and drinking on duty) and there was no evidence that the company was otherwise involved in any disciplinary actions or investigations.   The agency paid the employees on its payroll, set work schedules and provided all benefits, including health insurance, vacation and sick days.  However, the company’s contract specified the wage rates through a cost-plus arrangement.  The company also established the shift schedules and operational needs, set the productivity standards, established the number of workers per conveyor belt per shift and the employee’s time sheets were signed by the company supervisors, not the agency’s.   Although most job training and orientation was provided by the agency, the company sometimes provided substantive training to the employees.  The company required the employees to adhere to its safety protocols and rules and provided the training on those matters. The conveyor belt speed was a source of friction between the employees and the company.  Company supervisors frequently told the employees directly that they were not working quickly or efficiently enough.

In addressing whether the company had to bargain with the union about the employees, the Board started with the premise that the common law agency test determines whether an employee is employed by the employer because independent contractors and other non-employees are not protected by the NLRA.

Section 220(1) of the Restatement (Second) [of Agency] provides that a “servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.”

(The dissent argued that the majority was actually applying the economic realities employment test from the Fair Labor Standard Act, which is more expansive than the common law test).  Based on this, the Board focused on the putative employer’s right to control the employee’s manner and means of performing the work.   Therefore, “mere ‘service under an agreement to accomplish results or to use care and skill in accomplishing results’ is not evidence of an employment, or joint-employment, relationship.”  In other words, the Board clarified that it did

not suggest today that a putative employer’s bare rights to dictate the results of a contracted service or to control or protect its own property constitute probative indicia of employer status. Instead, we will evaluate the evidence to determine whether a user employer affects the means or manner of employees’ work and terms of employment, either directly or through an intermediary.

In applying its new test to the case at issue, the Board found that the company was a joint employer because it was a common law employer of the employees in question and possessed authority over essential terms and conditions of employment so as to permit meaningful collective bargaining.  In particular, it found that the company had control over the following terms and conditions of employment:

·        Hiring, firing and discipline.  The company required the agency’s hiring standards to meet or exceed the company’s own standards, to include drug testing, to exclude former company employees, to dismiss any employee at the company’s request.  There was evidence that the company had only requested two employees to be removed (based on investigations conducted exclusively by the agency)

·        Supervision, direction of work and working hours.  The Company exclusively controlled the speed of the conveyor belts, productivity standards, the content of positions, and the placement of workers (although not the identity of workers), signed employee time cards and indirectly supervised workers through the agency etc.  The Company’s control was so extensive that the agency would be unable to meaningfully bargain over overtime, break times, safety or speed of work.

·        Wages.  The agency’s contract with the company established a wage ceiling, although the agency paid the employees, provided and administered benefits, and maintained all payroll records.   The contract was a cost-plus contract where the agency charged a percentage above specified pay rates for the employees. “Although this [cost-plus] arrangement, on its own, is not necessarily sufficient to create a joint-employer relationship, it is coupled here with the apparent requirement of BFI approval over employee pay increases.”

 It is expected that this new test will be applied to permit union organizing in fast food franchise relationships, construction and warehouses, etc.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Reverses Employer’s Summary Judgment in EEOC Race Harassment Lawsuit Because Defendant Was a Joint Employer of Harassed Employees

On Tuesday, the Sixth Circuit reversed summary judgment for the defendant employer in a racial harassment lawsuit brought by the EEOC under Title VII and §1981.   EEOC v. Skanska USA Building, Inc. Nos. 12-5967 and 12-6236 (6^th Cir. 12-10-13).  In that lawsuit, the EEOC alleged that the employees of a construction subcontractor were subjected to daily name-calling and other harassment by workers on the construction site, were supervised almost exclusively by the general contractor and were subjected to retaliation by the general contractor for complaining about the unlawful racial harassment. The EEOC alleged that the general contractor was a joint employer with the subcontractor of the harassed employees.   The district court granted summary judgment to the defendant general contractor on the basis that it was not the employer of the harassed employees. The Sixth Circuit reversed on the basis that the general contractor was a joint employer of the harassed employees. “Entities are joint employers if they “share or co-determine those matters governing essential terms and conditions of employment.’”

 

Construing the evidence most favorably to the non-moving EEOC, the Court found the evidence showed that the subcontracting employer played a minimal role in employing and supervising the harassed employees.  While it selected, hired and paid the employees, the general contractor supervised them, monitored their performance, removed them from the job site with minimal explanations, and covered them with workers compensation insurance, etc.  The Court rejected the defendant employer’s argument that the subcontractor was required by contract to exercise supervisory authority over its own employees:  “That the terms of C-1’s contract with Skanska envisioned a more active role for C-1 is besides the point.” 

 In a rather direct analysis, the Sixth Circuit explained its reversal as follows:

To determine whether an entity is the plaintiff’s joint employer, we look to an entity’s ability to hire, fire or discipline employees, affect their compensation and benefits, and direct and supervise their performance. Id. Here, Skanska supervised and controlled the operators’ day-to-day activities without any oversight from [the subcontractor’s owner]. As a general matter, Skanska routinely exercised its ability to direct and supervise the operators’ performance. Skanska set the operators’ hours and daily assignments. Skanska assigned the operators’ supervisors. When the operators complained about the conditions on site, Skanska handled their complaints. When the operators had disagreements with their supervisors, Skanska arranged a meeting to discuss the situation. Moreover, Skanska did not consult with [subcontractor’s owner] about the operators’ complaints or their conflicts with Skanska’s supervisors. And when the operators called [the subcontractor’s owner] to ask him to improve conditions at the site, [he] did nothing.

Particular incidents likewise demonstrate Skanska’s control over the operators. As discussed above, Skanska executive Mike Rayburn called a meeting with [two harassed employees] and a  Skanska designated supervisor because “[the buck-hoist operators] were representing Skanska” and the operators “work, you know, under our direction.” No one told [the subcontractor’s owner] about this meeting. Skanska also had [two of the harassed employees] sign a document— typed on Skanska letterhead—entitled “Buck-hoist Operator  Responsibilities.” And Skanska repeatedly removed C-1’s operators from the job site without any challenge from [the subcontractor’s owner].  

The reality is that C-1 was a nonentity on the construction site. That the terms of C-1’s contract with Skanska envisioned a more active role for C-1 is besides the point. Viewed in the light most favorable to the plaintiffs, the record here is enough to support a determination Skanska jointly employed the operators.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.