Facts and the Joint Employer Rule

Eakinomics: Facts and the Joint Employer Rule Let’s review the saga of the “joint employer” standard — the legal definition of when a firm is liable for the employees’ conditions at a separate business. From 1984 to 2015, the National Labor Relations Board (NLRB) held that a firm was a joint employer if it exercised “direct control” over the employees of a separate business. The Obama-era NLRB, however, ruled in the Browning-Ferris Industries case in favor of a “direct or indirect control” standard that could be applied to a broader array of business arrangements and, thus, left a lot of ambiguity and potential for litigation. Along came the Trump Administration and change in control at the NLRB, and in December 2017 the NLRB reversed this expansion of the joint employer definition in the Hy-Brand case. Unfortunately, the NLRB’s Inspector General found that NLRB member William Emanuel should have recused himself from the vote in Hy-Brand on the grounds that his previous law firm had worked on the same issue during his tenure. The NLRB promptly reconsidered Hy-Brand and vacated the decision. “Direct or indirect” was back as the standard. Now, the NLRB has begun a process of rulemaking (as opposed to making legal decisions on cases) to establish a “direct control” standard. Throughout the saga, proponents of the "direct or indirect” standard argued it was necessary to counteract the ability of employers to de facto break up businesses and avoid paying market-rate wages and benefits. Opponents decried the potentially wide impact of the looser standard and its misplaced emphasis. But there was essentially no data provided on one side or the other. (What little evidence existed was produced by AAF’s Ben Gitis; see here, here, and here.) In a new study, Ben Gitis does an enormous amount to fill this void. Specifically, he builds on previous research into the scope of supply chains in the U.S. economy to make three key points. In his words: The broadened joint employer standard impacts 44 percent of private sector employees or 54.6 million workers, most of whom work in the supply chain. While the NLRB assumed that contractors pay low wages, the evidence indicates the opposite: Supply chain workers made on average over 50 percent more than the rest of the private sector in 2013. The supply chain has a high concentration of science, technology, engineering, and mathematics jobs, suggesting that its workers are highly productive and valuable to the U.S. economy. These points cast a very different economic light on the debate. The “direct or indirect” standard does, in fact, have potentially large consequences for the U.S. labor market. Its scope is so substantial that it deserves close scrutiny for its economic impact and not simply its legal merit. Moreover, as a mirror to its breadth, it is too poorly targeted to help the least-well-compensated employees. Instead, it threatens the economic arrangements of highly compensated supply chain workers, including those that are currently the policy objective in other debates. The logic of the looser standard has always been unappealing, at least to me. Given its potential for mischief, however, the time is right to stick to the post-1984 “direct” control standard and look for other policies to help those that may not be succeeding in the labor market.