Converging efforts to shut down the corporate shell game

As the economy has become more globalized and volatile, a growing number of companies have sought to minimize liabilities while maximizing profits by using the corporate form to create supposed separation between closely related entities. This “separation” often takes the form of a parent-subsidiary, franchisor-franchisee, or other affiliated relationship. Companies that use such tactics insist that the entities involved are somehow distinct in management, operation, and financial control.

Government agencies and plaintiff counsel that seek to hold responsible companies accountable need to show, therefore, that the supposedly separate entities actually are related in a meaningful way. The time-honored joint employer doctrine – also known as the integrated enterprise doctrine or the single employer doctrine – enables those prosecuting a wide of array of claims under labor law, employment law, and/or civil rights law to hold all culpable parties fully accountable rather than only a shell corporation that may have been created, at least in part, to shift official responsibility for any wrongdoing.

The National Labor Relations Board (“NLRB”) recently rendered a decision, Browning-Ferris Indus. of Calif., Inc., 362 NLRB No. 186 (2015), that has significantly expanded the scope of the joint employer doctrine to cover far more companies and corporate relationships than ever before. In particular, the NLRB ruled that a company is a joint employer even if it merely exerts only indirect control over workplace conditions or if it simply has the right to control those conditions but does not exercise that right. In reaching its decision, the NLRB reasoned as follows: “It is not the goal of joint-employer law to guarantee the freedom of employers to insulate themselves from their legal responsibility to workers, while maintaining control of the workplace.” The NLRB further explained its ruling by invoking the Supreme Court’s longstanding directive: “If the current joint-employer standard is narrower than statutorily necessary, and if joint-employment arrangements are increasing, the risk is increased that the board is failing in what the Supreme Court has described as the board’s ‘responsibility to adapt the act to the changing patterns of industrial life.’”

Consequently, the pending cases against McDonald’s before the NLRB will likely result in a determination that corporate McDonald’s, as the franchisor, is a joint employer with individual McDonald’s restaurants, as the franchisees. In fact, the NLRB’s General Counsel has already reached precisely that conclusion. Indeed, and even before the matter has been decided, the cases against McDonald’s are already having a global impact.

The NLRB’s decision in Browning-Ferris Indus. closely resembles the approach taken by the Department of Labor (“DOL”), the Occupational Health and Safety Administration (“OSHA”), and the Equal Employment Opportunity Commission (“EEOC”). In particular, the DOL has enforced the wage-and-hour laws in recent years based on a similarly broad definition of a joint employer. Likewise, the OSHA and EEOC have pursued cases to hold primary contractors and/or parent companies responsible for the violations of subcontractors and/or subsidiaries. In addition, the DOL is now aggressively addressing the employee misclassification problem that is the flip side of the joint employer problem. In this era of Uber and other essentially dependent contractor arrangements, the DOL has dedicated more resources to prosecuting the violations that flow from the corporate shell game concerning who actually is or is not an employee.

The invigoration of enforcement activity by the NLRB, DOL, OSHA, and EEOC is good news for aggrieved parties, whether claimants in individual, multi-plaintiff, or class actions. That the government agencies charged with interpreting and enforcing the nation’s labor, wage, work safety, and civil rights laws are now applying the joint employer doctrine expansively and, moreover, aggressively pursuing claims on that basis will undoubtedly enhance private parties’ ability to prosecute claims for damages in court regarding any type of employment law case, whether involving wage claims, civil rights claims – including harassment and discrimination matters – and whistleblower and other retaliation claims.