Do You Know Who Employs You?

Dennis McCarthy |

Uber.jpg

Who employs you? It may sound like a simple question, but a recent National Labor Relations Board (NLRB) ruling signals that it may no longer be so easy to answer. Furthermore, in our highly politicized culture, the issue is getting attention on the election stump and in Congress.

Some background might be useful, as the battle over the definition of “employer” has been brewing for many years. Companies have increasingly used financing and employment structures that result in businesses – often very large businesses (think McDonald’s Corporation (MCD) ) – controlling business units that employ many thousands of employees that are not necessarily direct employees.

McDonald’s and many fast food businesses, for example, employ the franchise model primarily as a financing mechanism. These franchisors, however, also benefit from avoiding having direct employees. The franchisee employs them. Other companies use “employment agencies” to hire and manage workers explicitly to avoid shouldering the full employee costs. These employment agencies may offer lower cost benefits, or may have lower workers’ compensation costs. There are many cost savings for this employment agency model.

Another example of the indirect employee model is the use of independent contractors. Successful, rapidly growing companies such as Uber use the independent contractor model to control many workers without defining them as employees. Yet, Uber is just the visible tip of the iceberg for this trend.

I would guess that a large portion of the people that you interact with day to day could be classified as indirect employees. It’s a much more widespread employment model than is immediately apparent.

So, when the NLRB ruled on August 27th that employees of an “employment agency” were also the employees of the corporation that directed their actions, it set off alarms. The specific challenge arose because the employees of the employment agency voted to join the union of the indirect employer.

What are the Specifics of the NLRB Ruling?

The NLRB ruled in a 3-2 vote that the definitions of employees and joint-employees needed to be updated to reflect the new reality of the workforce.

Excerpt from the NLRB Press Release:

In the decision, the Board applies long-established principles to find that two or more entities are joint employers of a single workforce if:

  1. They are both employers within the meaning of the common law;  and

  2. They share or codetermine those matters governing the essential terms and conditions of employment.

In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the Board will – among other factors – consider whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so. 

If companies become joint employers of many more workers, this may add dramatically to those companies’ costs, especially benefits costs such as healthcare, the fastest growing expense line item.

This NLRB ruling will be challenged, but the issue has now entered the political arena as well as Congressional debate.

Presidential candidate Hillary Clinton mentioned this issue on the stump, and others are sure to follow because it touches many voters, their families and friends. Legislation has been reintroduced in Congress to impose tougher penalties on companies that misidentify employees.

Across the aisle in Congress, legislation has been introduced to nullify the NLRB ruling.

For additional background on this issue, read this Washington Post article.

We’ll keep you informed as the battle rages on…

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MCD McDonald\'s Corporation 120.45 0.53 0.44 3,255,709

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