The Republican-led National Labor Relations Board is moving forward with a business-friendly proposal that would limit the scope of “joint employment” between companies, eliminating the liability one employer might have for unfair labor practices at a franchise or contractor.

The proposal to amend the agency's joint-employer standard was expected as Chairman John Ring, the former Morgan, Lewis & Bockius partner, announced his intent weeks ago to begin rulemaking on how to define relationships between companies, franchises, contractors and others. Companies found to be joint employers can be jointly liable for labor violations committed by the other.

The Obama-era standard, long criticized by management-side firms, expanded the scope of joint employer. Business advocates and management-side attorneys were hopeful Trump-appointed NLRB members would quickly overturn the Obama-era joint employer standard, set in a 2015 case called Browning-Ferris Industries.

But the labor board got tripped up in an ethical dispute when it tried to use a case to reverse the Obama ruling. Ethics officials said Trump-appointed board member William Emanuel, a former Littler Mendelson shareholder, should not have participated in ruling in that case.

The new proposed rule would only allow a joint-employment relationship under circumstances of “substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine.” The board has opened a public comment period for 60 days. What follows is a snapshot of the process, and some of the issues in play.

Why a rule, and how long will this process take?

Rulemaking is rare at the NLRB. The labor board more often uses cases to set compliance standards for industry and unions. The ethics conflict plaguing Emanuel—he denied any impropriety—pushed the board into rulemaking, a process that could take months, if not years, to complete. All interested sides will get a chance to participate in the process.

“The way the rule is written, it will provide a lot more clarity to parties about the burden of proof, how much evidence to present before someone is a joint employer,” said former NLRB member Harry Johnson, now a partner at Morgan Lewis. “The advantage of rulemaking is they can delve much more into that.”

Any new rule would apply prospectively, as opposed to retroactively, and provide greater certainty to regulated parties.

Democratic critics on Capitol Hill in the U.S. House of Representatives and Senate contend the rulemaking process itself is inappropriate. They argue the NLRB is trying to sidestep the ethics questions raised by the earlier attempt to undo the Obama standards.

How is the regulatory proposal different from the Obama-era rule?

The proposed regulation says that to be deemed a joint employer, “an employer must possess and actually exercise substantial direct and immediate control over the essential terms and conditions of employment of another employer's employees in a manner that is not limited and routine.”

In Browning-Ferris, the Democratic majority said that the board no longer would require proof that a joint employer has exercised any “direct and immediate” control over the essential working conditions of another company's workers.

Part of their Obama-era criticism over joint-employer—beyond the expanded scope—centered on the contention the NLRB should have done more to define the standards and give companies more concrete guidance.

Under the proposed rule, indirect influence is no longer enough to establish a joint-employer relationship. The proposal announced last week also presents specific examples that can serve as a guide for companies.

“The definition of employer is a fundamental concept that underlies the National Labor Relations Act. It's important that the board lay out examples for comment that cover a reasonable expanse of different contexts,” said Philip Miscimarra, a former NLRB chairman who returned to Morgan Lewis in February. “We made a comment in the dissent, that the [Browning-Ferris] decision did not serve the interest of the public.”

What happens to ongoing cases?

A case working its way to the NLRB between Fight for $15 union workers and McDonald's Corp. is considered a test of the joint employer issue. Because the rule would not apply retroactively, it's unclear what would happen in this case.

Littler Mendelson and Morgan Lewis teams are working with McDonald's.

Another wrench in the joint-employer issue is that Browning-Ferris is still an active case in the U.S. Court of Appeals for the D.C. Circuit. The appeals court has not issued a ruling on the merits of the Obama-era joint employer standard.

Ballard Spahr partner Steven Suflas said he expects a lot of inaction on cases as the rulemaking process is ongoing. He said that he also expects the D.C. Circuit to delay issuing a ruling until after the process is complete. He said the board will likely sit on the joint-employer issues, as well, during the rulemaking process.

Suflas said the board moves slowly. He said he has cases, even those that do not touch on such controversial issues as joint employer, that have been sitting since as long as 2013.

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