Joint-Employer Liability

“It Wasn’t Me!” – Sixth Circuit Rules that Management Consultant Wasn’t Joint Employer under the WARN ActCan your consultant-consultee relationship with an employer who allegedly violates the Worker Adjustment and Retraining Notification (WARN) Act subject you to liability as well? Not according to the U.S. Court of Appeals for the Sixth Circuit. In McKinney v. Carlton Manor Nursing and Rehabilitation Center, Inc., former nursing home employees sued Carlton Manor and its management consultant for alleged violations of the WARN Act.

The Facts

In July 2013, the Ohio Department of Health cited Carlton Manor for failing to meet 27 federal health and safety regulations and gave it until January 2014 to fix the problems. Carlton Manor hired Sovran, a management consultant, to help and by the deadline had resolved 26 of the 27 deficiencies. The health department rejected its plan to comply with the final regulation and began the process of revoking Carlton Manor’s operating license. The nursing home closed soon after.

Before closing, Carlton Manor gave little notice to its employees (and certainly not the 60 days the WARN Act requires). Consequently, Debi McKinney filed a putative class action against Carlton Manor and Sovran under the WARN Act. Although the employees received a default judgment against Carlton Manor, they received nothing because the nursing home had no assets. As one would expect, they turned to Sovran, the only solvent defendant in the case. However, the employees still hit a brick wall, as the district court ruled that Sovran was not liable under the act because it was not the employees’ employer and did not decide to close the nursing home. The district court granted summary judgment for Sovran, and the employees appealed.

The Sixth Circuit’s Opinion

In reaching its ruling, the Sixth Circuit first focused on the words of the WARN Act, explicitly articulating that “employers” were liable for violations. Specifically, “[o]nly ‘employers’ that ‘order[ed]’ a plant closing face[d] regulation by the Act or liability under it.” The Sixth Circuit emphasized that there was no dispute that Carlton Manor, not Sovran, employed the nursing home workers. Likewise, Carlton Manor, not Sovran, made the final decision to close the nursing home. Based on these facts, Sovran was not an employer under the terms of the act.

Despite McKinney’s attempt to argue that Sovran and Carlton Manor were either a “single employer” or “separate employers,” the Sixth Circuit easily rejected these theories. On the single employer theory, the Sixth Circuit held that none of the factors that make two entities a single employer were present. There was no common ownership, they did not share any directors, officers, or personnel policies, and they kept separate payrolls. They also operated two distinct businesses that were not dependent on each other. Although the court acknowledged that one might argue that Sovran exercised some control over Carlton Manor employees (it allegedly had the authority to fire nursing home employees), it was unclear if this power was the type of control that would indicate that Sovran and Carlton Manor were a single employer. Thus, while no one factor was dispositive in determining whether the entities were a single employer, McKinney could not meet any of the listed factors, and her first argument failed.

Regarding the defendants being separate employers, the Sixth Circuit reiterated that the factors in the WARN Act’s regulations, whether examined singly or taken together, did not show that Sovran was McKinney’s separate employer. There was no evidence that Sovran hired McKinney, fired McKinney, or otherwise treated her as one of its employees. Furthermore, there was no evidence that Sovran ordered the closing of the nursing home. The court explained that Sovran and Carlton Manor had a consultant-consultee relationship in which Sovran offered management advice to Carlton Manor, but never became the owner of the nursing home in the process. As such, Sovran was not liable to McKinney, or any other nursing home employees, under the WARN Act.

Practice Points

So what should a consultant do to protect itself from being deemed either a single employer with its consultee or a separate employer of its consultee’s employees? Follow Sovran’s example, and keep the factors that constitute a joint employment relationship in mind so that you actively avoid them.

  • Keep your business distinct and independent of your consultee.
  • Do NOT share ownership with your consultee.
  • Do NOT share common directors or officers with your consultee.
  • Do NOT share personnel policies, employee handbooks, and/or policy and procedure manuals.
  • Most importantly, do NOT exercise control over the terms and conditions of employment of your consultee’s employees or over the consultee’s business operations.

Parting of the Joint Employers: Trump DOL Withdraws Past Guidance on Independent Contractor Standards and Joint Employment Yesterday the U.S. Secretary of Labor Alexander Acosta announced the Department of Labor’s withdrawal of guidance on independent contractors and joint employer liability issued in 2015 and 2016 by the Obama administration DOL. Generally, the guidance made more people employees rather than independent contractors. In particular, this guidance sought to (1) define more rigidly the situations in which a worker was found to be an employee under an “economic realities test” (even when an independent contractor relationship was intended), and (2) expand the joint employer doctrine taking into account “whether, as a matter of economic reality, the employee [was] economically dependent on the potential joint employer.”

The DOL’s roll back of Obama-era guidance signals an important shift in favor of employers, but no binding laws have changed. Employers should remember that the same statutes, regulations, and case law are still in force and the analysis applied to these issues remains the same, at least for the time being. In fact, the proper legal “test” for joint employer liability is currently on appeal in the D.C. Circuit in the Browning-Ferris case, with a decision expected later this year. For a more detailed look at the law on independent contractors and joint employers, see our previous blog posts on independent contractors and joint employment.  Be sure to keep an eye on how the DOL’s action affects these issues going forward.

The White HouseWhat will a Trump administration do to the labor and employment law landscape? While we can’t predict for certain, we figure we can at least provide better insight than the pollsters who have spent the last year following the campaigns—so here is the first in a three-part blog series. First, here are some Executive Orders that could be rescinded or amended and administrative action that could affect the employer-employee relationship.

1. Executive Orders

Several of President Obama’s Executive Orders likely will be reviewed by President Trump during his first year in office. They could be rescinded or amended by new Executive Orders.

Executive Order 13502 promoted pre-hire collective bargaining agreements. Opponents of these “project labor agreements” argue that they negatively impact competition for project bids and can lead to higher costs. If one of President Trump’s top priorities is job creation and stimulation of the economy, a return by Executive Order to contract neutrality with regard to union involvement can be anticipated.

President Obama’s Executive Order 13496 required contractors to inform employees of their rights to unionize or refrain from unionizing. This order rescinded a prior Executive Order issued by President George W. Bush informing employees that unions could not use member dues for purposes unrelated to union contract administration without the members’ consent. President Trump could rescind EO 13496.

Executive Order 13672 and its Final Rule, which became effective on April 8, 2015, provided that covered federal contracting agencies must include gender identity and sexual orientation in their list of protected classifications under EEO law. Likewise, the EEOC has taken the position that Title VII’s prohibition of sex discrimination includes discrimination based on gender identity, gender transition, and sexual orientation. This issue is now before several courts and will continue to be litigated. While it is not anticipated that a Republican-controlled Congress will pass legislation prohibiting discrimination based on gender identity and sexual orientation, it is also clear that any scaling back of the EEOC’s strategic enforcement plan that promotes LGBT employee rights would not occur immediately. President Trump could rescind EO 13672, but the likelihood of that is not clear at this time.

Two orders with January 1, 2017 triggers (EO 13706 and EO 13658) may not be a top priority for rescission. Executive Order 13706 requires employers with certain types of federal contracts to provide employees working on those contracts of one hour of paid sick leave for every 30 hours worked on the contract (up to 56 hours per year). It applies to contracts stemming from solicitations on or after January 1, 2017 and existing contracts replaced or amended after that date. Executive Order 13658 requires federal contractors to pay covered workers at least $10.20 per hour starting on January 1, 2017. The new administration may think federal contractors have already made adjustments to comply with these Eos and not expend much effort on them in the short run.

Executive Order 13673, the Fair Pay and Safe Workplaces Order, requires federal contractors and subcontractors to report any “administrative merits determination arbitral award or decision, or civil judgment” against them in the preceding three years. This so-called “blacklisting” order requires disclosure of potential violations under the FLSA, NLRA, OSHA, FMLA and other anti-discrimination laws and requires the contracting officer to consider such violations when awarding or extending contracts. Litigation to enjoin the rule is pending and will not be decided quickly, but President Trump could rescind the EO, making the issue moot.

Executive Order 13495 creates hiring rights of first refusal for current employees of federal contractors when the contract changes hands. The new administration will review this in light of whether it promotes or hinders growth and job creation.

Executive Order 13494 prevents the government from reimbursing contractor employers for costs associated with union campaign activities. This is one the employer community would like to see rescinded and rescission will not cause a lot of disruption.

2. NLRB and DOL Actions

In the last several years, initiatives driven by Obama Administration agencies significantly changed the nature of the employer-employee relationship. While President Obama was issuing Executive Orders, the National Labor Relations Board and the Department of Labor handed down rules and decisions which the new administration may seek to change.

The NLRB’s quickie election rule shortened the time for an election following a union’s filing of a representation petition and is widely seen as pro-union. While President Trump’s position on specific rules may not yet be clear, the Republican Party is expected to push back against this perceived overreaching, perhaps by restricting funding to the NLRB for enforcement or reintroducing legislation to protect employees’ rights to secret ballot union elections.

While class action waivers in arbitration agreements are viewed askance by the current NLRB (which has announced they violate the NLRA), this could change with the new administration. The Trump Administration will change the composition of the Board, which could result in a new direction on this issue.

We may see the winds of change on the joint employer front. In last year’s Browning-Ferris Industries case, the NLRB presented a new standard for determining whether two or more entities are joint employers of a single workforce. Indirect control and “unexercised potential control” could establish joint employer status, which has potentially wide-ranging implications for franchisee and independent contractor relationships. To the extent that the new administration views this as detrimental to economic growth, it will seek to appoint board members who hold a more employer-friendly view.

The DOL’s persuader rule requires employers to file public reports with the DOL when they obtain advice from consultants and lawyers regarding labor activities, even if such advice involves no direct employee contact. This was a change from the prior disclosure rules. A court has enjoined the rule for now. President Trump also will have an opportunity to reshape the NLRB to address this issue.

And let’s not forget the DOL’s currently enjoined Final Rule on the Salary Basis for the White Collar Exemptions.


Look for installments 2 and 3 in this series covering possible changes to immigration policy, the Affordable Care Act (ACA), social issues and expected judicial appointments.