Recent Changes in the Joint Employer Rule May Expose Associations and Management Companies to Unanticipated Liability

The Department of Labor (DOL) recently rescinded the “joint employer” rule which the National Labor Relations Board (NLRB) had previously adopted in 2020, which had itself replaced a rule the board adopted several years before. This regulatory ping pong match, though still somewhat unsettled, has important implications that all employers, including condominium associations and management companies, need to be aware of and to understand.

The National Labor Relations Act defines joint employment as a situation in which two or more businesses “share or codetermine” essential terms and conditions of employment, such as: employee hiring, the payment of wages, employee supervision, the manner and means by which work is performed, and any disciplinary action, up to and including termination.

The joint employer rule establishes the criteria for determining who legally employs workers, and is, as a result, responsible for complying with employment laws governing wages, working conditions and a range of employment practices.  The rule could apply to associations that employ workers but delegate to their management company responsibility for employment-related administrative details – processing payroll, keeping track of hours, vacation and sick days, for example.  This is a common practice for many associations, seeking to working relationship with their employees without incurring the headaches and potential liabilities of an employer. 

A Question of “Control”       

The standard for determining when a “joint employer” relationship exists has flip-flopped many times over the past six years. Before 2015, a joint employment relationship was generally thought to exist only when two or more individuals or entities exercised “direct and immediate” control over employment terms and conditions on a regular and consistent basis.

That changed in 2015, when the National Labor Relations Board (NLRB) decided the case of Browning-Ferris Industries, and determined that 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.

This new standard also defined employment terms and conditions broadly to include factors other than financial compensation that might make an employee economically dependent on an entity, i.e., where a maintenance worker is permitted to live in an on-site apartment, so as to help them carryout with their job duties and responsibilities.  

In 2020, the NLRB, issued its “Final Rule,” which replaced the standard that had been adopted under Browning-Ferris, which tended to favor employees, with a new standard favoring employers, that:

·         Required actual rather than potential control over essential employment terms;

·         Specified that the employer’s control must be “direct and immediate” and can’t be “limited or routine”; and

·         Excluded consideration of an employee’s economic dependence on an employer as a factor determining joint employer status. 

The 2020 rule identified four factors to be considered in determining joint employer status, based on whether a proposed employer: 

·         Hires or fires the employee;

·         Supervises and controls the employee’s work schedules or conditions of employment;

·         Determines the employee’s rate and method of payment; and

·         Maintains the employee’s employment records. 

While employers widely praised the clarity and certainty that the 2020 rule provided, employee advocates found it to be unfair and challenged it in court.  Last year, the DOL announced plans to revoke the 2020 rule and replace it with one closer to the Browning-Ferris standard, and it is expected that in February, the NLRB will issue its proposed rules for purposes of determining when a joint employment relationship exists.

Clarity from the SJC

Fortunately, through its decision in Jinks v. Credico, the Massachusetts Supreme Judicial Court provided Massachusetts employers with some additional clarity on the subject, and reasoned that a joint employment relationship may be found to exist, where two or more persons or entities:

·         Had the power to hire and fire employees;

·         Supervised and controlled employee work schedules or conditions of employment;

·         Determined the rate and method of payment; and

·         Maintained employment records.

Many associations will often delegate to their management companies, responsibility for: hiring employees to work at the association, processing payroll and other administrative tasks related to employment, including creating work schedules, assigning tasks and disciplining employees.   Under both the SJC and Browning-Ferris standards described above, an association that exercises even minimal control – i.e., by directing a management company employee to perform certain tasks, however small– could inadvertently expose the association to liability as a joint employer.

Similarly, if a management company supervises an employee of the association, it too may inadvertently be exposing itself to liability as a joint employer.  In situations where a management company and an association are deemed to be joint employers, they would both be responsible for complying with all applicable employment laws governing (among other things) record-keeping, compensation, payment of wages and medical leave, to name just a few; and they would both be potentially liable for wrongful termination, discrimination and other employment-related complaints. 

Avoiding Joint Employer Risks

In light of these concerns, condominium associations and management companies alike, should take steps to limit their exposure to liability as joint employers.  We suggest the following:

1.      Associations should understand that outsourcing onsite staffing to a management company may not shield associations from the liabilities and responsibilities of an employer. Management companies may similarly incur liability for the actions of association board members. For these reasons, associations and management companies should be cautious about hiring, firing or supervising onsite staff and should be aware that even the potential for overlapping responsibilities could create joint employer risks for both.  The risks aren’t always obvious, and what may seem like innocuous request by a member of the association directly to a management company employee to perform certain on-site tasks, however small, could expose the association to liability as a joint employer of that individual.

2.      Associations should also be aware, that when delegating responsibility for hiring, overseeing and managing employees to the management company, so as to insulate the association from liability as a joint employer, the association must not exercise any control – direct or indirect – over such employees.  Further, if the association complains to the management company about a management company employee, the management company will not be able to discuss what is a confidential personnel matter with association members.

3.      Associations and management companies should clearly define their relationships with each other and with any employees.  Management contracts should state clearly whether the management company or the association is the employer of onsite staff, and should further delegate sole responsibility for hiring workers, keeping records, making work assignments, compensating workers, supervising and disciplining them, evaluating their performance and firing them.  In drafting these provisions, don’t leave anything to chance or good will.  Chance is unreliable and good will can disappear. 

4.      Be wary of non-financial forms of compensation.  An association that allows an onsite maintenance person to live in an on-site apartment, and casually directs them to perform certain tasks throughout the day, may be deemed to be a joint employer even if the maintenance person is a management company employee. In an effort to avoid this scenario, the management contract should specify that the management company employee must vacate the apartment immediately upon the separation of their employment with the management company.  Associations should also execute a license agreement with the employee, which expressly states, among other things, that the association disavows the existence of any employer-employee relationship between the association and the employee and of any landlord tenant relationship between them.

5.      Associations should also pay particular attention to separation provisions in the management agreement, particularly with respect to the handling of any onsite employees, as the association may be estopped under the agreement from retaining such employees or hiring them in the future.

6.      Management companies and associations should also review their insurance policies annually with their respective insurance agents to ensure that they have adequate insurance coverage.  For associations, employment practices liability coverage is very important, yet it is often overlooked. To that point, many associations do not consider themselves to be an employer to warrant purchasing coverage, or if they do have such coverage in place, they may not be aware of a policy exclusion for claims arising out of any joint employer relationship, and should therefore, pay careful attention to such provisions.

Written by

Jennifer Barnett | jbarnett@meeb.com