Published on: April 23, 2018
By Stephen Marcus
Depending on their size, condominium associations may receive a variety of professional services – from managers, security guards, lifeguards, maintenance workers and administrative assistants, among other personnel. Boards and owners often question the cost and quality of these services, but few, if any, ever wonder, “Whose employees are they?”
If you haven’t asked that question, you should, because some of the rules governing employee-employer relationships have changed, and the changes are creating significant liability concerns for associations and management companies.
For a long time, both parties have lived comfortably with a hazy, hybrid arrangement in which: The manager handles administrative details related to employees, including salary payments; the association reimburses the management company dollar for dollar for employee expenses; and both managers and boards exercise some degree of direct or indirect control over employees.
The National Labor Relations Board (NLRB) roiled those calm waters in 2015 when it decided to change the standard for determining whether two entities are “joint employers.” The old standard, in place for decades, generally defined an employer as someone who controlled the “essential terms and conditions” of employment. The new standard, outlined in Browning Ferris Industries of California, said an entity could be deemed a joint employer if it reserved the right to control employment terms and conditions, even if it never actually exercised that control.
A New Standard
This new standard no longer required that a joint employer exercise authority “directly and immediately, and not in a limited and routine manner,” the decision explained. “Otherwise sufficient control exercised indirectly – such as through an intermediary – may also establish joint employer status.”
The NLRB decision also clarified that “essential terms of employment” were not limited to the hiring, firing, discipline, supervision, and direction of employees. They also included, among other factors: Specifying the number of workers required, creating work schedules, approving overtime, assigning work and “determining the manner and method of work performance.”
Under this expansive Browning-Ferris standard, a contract giving a management company the right to supervise association employees might make the management company a joint employer, even if it never actually exercised that right. And a board that complained to a management company about a manager might be deemed a joint employer if the complaint resulted in a reassignment or other changes in the ‘terms or conditions” of the manager’s employment.
Although this NLRB decision attracted the interest and concern of many condo attorneys, most association boards and managers were unaware of it and few, if any, reacted to it. That non-response seemed justified when the NLRB, with new members appointed by the Trump Administration, voted in December of 2017 to rescind the Browning-Ferris ruling and restore the old joint-employer standard. Revisiting the issue in a new decision (Hy-Brand Industrial Contractors), the board determined that to be deemed a joint employer:
- An entity must “actually” exercise joint control over “essential” employment terms;
- The control must be “direct and immediate”; and
- The control can’t be “limited or routine.”
The relief greeting that decision was immediate, widely shared, and short-lived. Determining that a member of the board should have recused himself because of a potential conflict, the board vacated the decision, establishing Browning-Ferris once again as the standard for defining joint employer status. The House of Representatives has approved legislation that would amend the Fair Labor Standards Act to make permanent the pre-Browning-Ferris “direct control” standard; but there is no indication of when, or if, the Senate is going to act on that measure. So, for the foreseeable future, Browning Ferris will govern.
Back to the Future?
What does this mean for condo associations and association managers? In a word: Liability. As we explained in an alert analyzing the Browning-Ferris decision, a major concern is the heightened exposure to discrimination complaints lodged with the Massachusetts Commission Against Discrimination (MCAD). The MCAD has jurisdiction over companies with six or more employees; aggrieved employees of smaller companies must sue them directly, and at their own expense.
The lone employee of a condo association could not lodge an MCAD complaint. But if the association’s management company, with 30 employees, is deemed a joint employer, the MCAD’s door would be open to that employee. The reverse also applies. A disgruntled management company employee could include the association in an MCAD complaint. The indemnification provision common in management contracts, requiring associations to defend their managers, creates an additional “deep pocket” that plaintiffs might target. The joint employer rule may make it both easier and more appealing for employees to initiate complaints they might not otherwise pursue.
Given these heightened liability risks, associations should take steps to protect themselves. The first and best line of defense is adequate insurance – two forms of it in particular: Employment practices liability and workers compensation. Some directors and officers (D&O) liability policies include employment practices coverage, but many do not. If yours doesn’t include it, you should purchase it separately to ensure coverage for discrimination or wrongful termination, among other potentially costly employee claims. You need this coverage even if the association doesn’t have any employees.
That advice applies equally to workers compensation insurance – necessary to protect the association if it is sued as a joint employer. The insurance, which is not expensive, would provide coverage if an injured construction worker sues both the association and the construction company. The coverage would also apply if the Industrial Accident Board, which processes workers compensation claims, tries to identify additional deep pockets to pay them.
Equally important, managers and associations should review their management contracts to make sure they provide an unambiguous answer to the question: “Whose employees are they?” The joint employer rule provides a major impetus for this review, though not the only one. For example, many contracts specify that if the management company is fired, all its employees leave with it. If the contract language isn’t clear, the company might assert the right to take not only the portfolio manager assigned to the site, but also the site manager who has been in place for 10 years – along with the maintenance workers, lifeguards and concierge staff the association thought were its employees.
The common arrangements through which associations reimburse management companies for employee expenses require particularly close scrutiny under the joint employer lens. Convenience and ease of administration have long made these arrangements attractive to management companies and condo associations. The joint employer rule makes them potentially dangerous for both.