NLRB Ruling Increases “Joint Employer” Risks for Condo Associations and Managers

We don’t usually discuss employment law in this space, but a recent decision of the National Labor Relations Board (NLRB) will have significant implications for condo associations and association management companies, potentially affecting their employment practices and their liability risks.The ruling, in Browning Ferris Industries of California, 362 NLRB No. 186 (2015) revised and expanded the decades-old criteria for determining whether two entities are “joint employers” and thus jointly liable for complaints filed by employees. The joint employer standard was established in a1965 case (Greyhound Corp.), involving a bus company that had contracted with a maintenance company to service its terminals. Relying on common law principles, the NLRB found both employers in this case to be joint employers of certain employees because they both shared sufficient control over the essential terms and conditions of employment.This original standard focused essentially on the right employers have to control the work of employees and the terms and conditions of their employment. The NLRB also held that simply reserving the right to control was enough to create a joint employer relationship, regardless of whether the employer actually exercised that right.The Third Circuit endorsed this standard in a 1982 case (Browning-Ferris Industries of Pennsylvania, Inc.), finding that:

The basis of the [joint employer] finding is simply that one employer while contracting in good faith with an otherwise independent company, has retained for itself sufficient control of the terms and conditions of employment of the employees who are employed by the other employer . . . Thus, the “joint employer” concept recognizes that the business entities involved are in fact separate but that they share or codetermine those matters governing the essential terms and conditions of employment.

Over the next 30 years, the NLRB narrowed the joint employer standard the Third Circuit had embraced, most significantly by eliminating the reserved right to control as a determining factor. The NLRB’s revised standard considered whether the employer had a right to control, whether it actually exercised control and did so immediately and not in a limited and routine manner.In its recent decision (Browning-Ferris), the NLRB attempts to clarify the analysis that should be used to determine joint employer status by returning to its original standard. But the decision also expands the criteria to be used in the analysis. According to the NLRB:

Two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of employment or “codetermine” them, as the Board and the courts have done in the past.

The NLRB decision further specifies that “essential terms of employment” are not limited to the hiring, firing, discipline, supervision, and direction of employees. Other factors, including whether employers dictate the number of workers to be supplied, scheduling, seniority and overtime, assign work and determine the manner and method of work performance, should also be considered in determining whether an entity has control or a reserved right to control mandatory terms and conditions of employment.Additionally and significantly, the Ferris ruling makes two crucial changes in the joint employer analysis that has evolved over the past 30 years. First, the board said it will no longer require that joint employers both possess and exercise direct authority over employees. “Reserved authority to control the terms and conditions of employment, even if not exercised, is clearly relevant to a joint employment inquiry,” the board said.Second, the board said that as actual control and reserved control are now both factors that can be considered in determining whether a joint employer relationship exists, the standard also no longer requires that an employer exercise authority over employees “directly and immediately, and not in a limited and routine manner.” Under this standard, the board explained, “otherwise sufficient control exercised indirectly - such as through an intermediary – may also establish joint employer status.”This decision potentially affects condominium associations and management companies because the National Labor Relations Act, under which the NLRB operates, applies to all employers, and the courts in Massachusetts and other states have relied on this statute and the interpretation of case law based on it in determining joint employer relationships in their jurisdictions.

The MCAD Concern

Condo boards and managers in Massachusetts should be particularly concerned because this decision will make it easier for unhappy workers to file discrimination complaints, for this reason: The Massachusetts Commission against Discrimination (MCAD) can handle employment discrimination complaints filed against companies with six or more employees, but employees with grievances against companies with fewer than six employees must sue those firms directly, and at their own expense.So a maintenance worker employed by a condo association that has no other employees would normally have to sue the association to pursue an unfair termination complaint. But if the association’s management company has more than six employees and is deemed a “joint employer,” this unhappy worker can instead file a complaint with the MCAD targeting both the condo association and the management company as joint employers.This also works in reverse. If the condo association is a “joint employer,” an unhappy worker employed by the management company may haul both before the MCAD, knowing that the indemnification provision in most management contracts, requiring the association to defend the management company, could create another pocket from which to seek compensation.

Avoiding the Trip Wires

Joint employer questions involving condo associations are likely to arise in connection with maintenance workers or custodial staff. Consider these examples:

• A previously self-managed community that employs a custodian hires a management company. The management company communicates specific work assignments and directives to the custodian and exercises ongoing oversight over the employee’s job performance. Using the prior NLRB standard, an argument could have been made that no joint employer relationship exists in this situation, because the management company’s control was not direct and immediate; and
• A property manager files incident reports with a condominium association about the actions of condo workers, maintains records and logs pertaining to condo workers, occasionally assigns work to them and monitors their work. Using the prior NLRB standard, an argument could have been made that such supervision and direction by the property manager is both limited and routine and not evidence of a joint employer relationship.

Under the new standard, simply having a contract giving the management company the right and even the reserved right to control the terms these workers might make the management company a joint employer, even if it never actually exercises that right.Association managers may come into play as well. Under the old NLRB standard, if a board complained about a manager and the management company terminated that individual, the association could argue credibly that the management company was the employer and was solely responsible for hiring and firing decisions.Under the new NLRB rule, the association’s complaint about the manager might be deemed an exercise of indirect control, creating a joint employer relationship and the potential liability related to it.

Warning from the Dissenters

The two NLRB board members who dissented from the Browning Ferris ruling noted the problems it could create.“No bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards,” they warned. The ruling, they said, replaces the “certainty and predictability” of the old standard with “an ambiguous standard that will impose unprecedented bargaining obligations on multiple entities in a wide variety of business relationships, even if this is based solely on a never-exercised right to exercise “’indirect’ control over what a Board majority may later characterize as ‘essential’ employment terms. This new test leaves employees, unions, and employers in a position where there can be no certainty or predictability regarding the identity of the “employer,” the dissenters argued.Condo associations may still be able to sidestep a joint employer relationship with their managers (although that is by no means certain) with a carefully worded contract. But the NLRB ruling has made it very difficult to avoid a joint employer relationship when both the condo association and its management company have direct and even indirect control over employees, given the newly broadened terms and conditions of employment that can be considered in making a joint employer determination.

An Untenable Arrangement

We think the NLRB ruling will force condo associations to consider other options in order to limit the risks and liability related to employment-related claims. Some may hire independent vendors to provide maintenance and custodial workers instead of using those provided by the management company. If trustees aren’t satisfied with the service, they can simply terminate the vendor’s contract, without raising any questions about exerting indirect control over the vendor’s employees. This is a far less satisfactory arrangement for the association and the management company, but it may be necessary.These are early days. The courts will have some discretion in interpreting the NLRB’s ruling, and we don’t know how Massachusetts courts will apply the new standard in future cases they decide. However, the courts will have to operate within the framework the NLRB has created in its recent decision.Even in these early days, it seems clear that a ruling the NLRB said was designed to clarify the joint employer issue has had the opposite effect, making an already complex area of the law more complex, less predictable, and more difficult for employers to navigate.Equally clear, the standards the board has created have made the joint employer tent a lot larger than it was, and this has dramatically increased the risks that association boards and managers may find themselves standing uncomfortably under it.