Until last year, condominium and homeowner associations and their management companies understood the relationship between an employer and its employees and who would be considered the employer of those employees. However, a 2015 ruling by the National Labor Relations Board (“NLRB”) has placed that understanding in a state of flux. The new standard employed by the NLRB may now find associations and their management companies joint employers, when dealing with association and management company employees and also, joint employers with independent contractors and thus, potentially responsible for each other’s employee’s pay, benefits and even legal liability.
Previous Rule Determining Joint Employer Liability
For over the past thirty (30) years, the joint employer rule was that two businesses must share or co-determine matters governing the essential terms and conditions of an individual’s employment before joint employer liability was found. The NLRB and courts would examine whether the businesses had decision making authority over the hiring, firing, discipline, supervision and direction over the employee, which were deemed to be the “essential terms and conditions” of employment. If it was found that those duties were shared and the two businesses exercised direct and immediate control over the employees, a joint employment relationship was usually found to exist. This meant that both businesses were held liable for the claims being brought by the employee(s).
The key under the old rule was that the type of control over the essential terms and conditions had to be direct and immediate and the alleged employer must have had actually exercised that control. It was not enough if the alleged employer had reserved some level of control over the essential terms and conditions in a contract.
New Rule Determining Joint Employer Liability
In Browning-Ferris Industries of California (#32-RC-109684) (“BFI”), the NLRB significantly lowered the threshold for determining whether a business will be considered a joint employer with another business.
Under the new standard, the NLRB uses a two prong test: 1) whether the entities are both employers within the meaning of common law; and 2) whether the entities share or codetermine those matters governing the essential terms and conditions of employment. The new test looks at whether an entity possesses the authority to control the terms and conditions of its workforce whereas, the old rule required the entity to actually exercise its authority over the employee(s) to be considered a joint employer.
Furthermore, the NLRB also expanded on what it considered to be the “essential terms and conditions” beyond just hiring, terminating, supervising, and directing employees to now include such things as controlling the number of workers to be supplied, setting work hours, controlling seniority and approving overtime, and assigning work and determining the manner and method of work performance.
Thus, the NLRB will now hold a business jointly liable if the business has the ability to exercise control over the employee(s) in question, whether the business actually ever exercises that control and even if the control is limited to such things as the number of workers that are supplied, assigning the work and determining the manner and method of the work performance.
Why is the NLRB’s change in determining joint employer status important?
First and foremost, the decision is important because the National Labor Relations Act (“NLRA”), under which the NLRB operates, applies to all employers, and Michigan courts and other state courts have relied on the NLRA and how it has been interpreted in case law when determining joint employer relationships in these jurisdictions. Thus, these courts will look to the NLRB and how it has determined whether joint employer liability exists when it in turn is faced with making a determination of joint employer liability.
Second, the new standard is extremely important to condominium and homeowner associations because it can now impose liability where none existed before. For example, certain claims by employees are only applicable if the employer has a certain number of employees, such as claims under Title VII of the Civil Rights Act of 1964 (“Title VII”)[1] and the Americans with Disabilities Act (“ADA”)[2], which cover employers with at least 15 employees, and the Age Discrimination in Employment Act (‘ADEA’)[3], which covers employers with at least 20 employees. The Persons with Disabilities Civil Rights Act cover employers of any size.
Under the old rule, if a maintenance worker employed by a condominium or homeowner association, with no other employees, was fired, he/she would have to sue the association under the Persons with Disabilities Civil Rights Act to pursue a discrimination claim. The aggrieved maintenance worker could not pursue claims under Title VII, ADA or ADEA set forth above. The maintenance worker could still file a claim under both of Michigan’s discrimination statutes.
However, under the new BFI standard, the maintenance worker could now file a claim against both the association and its management company as joint employers, under both Title VII and the ADA, if the management has a minimum of 14 employees to reach the magic number of 15 required under those statutes, and, an ADEA claim, if the management company has 19 employees to reach the magic number of 20 required under the ADEA.
Moreover, the new BFI standard can work in the reverse situation whereby the association could be held to be a joint employer with its management company by the management company’s unhappy worker. This scenario is likely to happen when the worker’s attorney looks for another pocket from which to seek compensation given that many management contracts have an indemnification provision requiring the association to defend the management company.
The new BFI standard may even come into play if an association’s Board complains about a particular manager and, as a result, the manager is terminated by the management company. Under the old standard, it was unlikely that the association would have been held to be a joint employer as the management company was solely responsible for hiring and firing the manager. However, under the new standard, the manager could argue that the association’s indirect control of being able to fire him/her would create a joint employer relationship and thus, liability for potential claims by the aggrieved manager.
Likewise, these situations may also create potential liability with contractors who do work for the association onsite, particularly in situations where a contractor’s worker is injured.
In addition to potential actions by aggrieved individuals, associations will also need to be cognizant that other federal and state agencies, such as the Occupational Safety and Health Administration (“OSHA) and the Department of Labor (“DOL”), may incorporate the new rule standard, which may impact conditions and requirements for work to be done onsite.
What To Do?
The BFI opinion has been appealed by the employer and thus, the concerns brought about by the BFI opinion may be much ado about nothing if the opinion is reversed. Moreover, we do not know whether Michigan or Federal courts will adopt the BFI standard.
Most professional management companies that this author has worked with are well governed and have procedures and safeguards in place to prevent and avoid the issues and concerns that have arisen since the BFI decision. Nevertheless, it is easier to stop or prevent something in the first place than to attempt to fix or repair the damage after it is happened. Thus, until and if the BFI opinion is reversed or Michigan and/or Federal courts indicate that they will not use the BFI standard, it may be prudent for both association boards and their management companies to review applicable contracts/agreements and to see if there is a need to amend these documents to eliminate or to revise any provisions that would allow the right to hire, fire, etc.
Thus, associations and their management companies can potentially revise their contracts to clarify that control over terms and conditions of employment rest with the true employer of the employee, whether it is the association, the management company or an independent contractor. Moreover, the contracts should also use as little detail as possible in directing the work of the employee when onsite, and remain out of all decisions on the hiring, firing, and wage-related decisions of the employee(s).
Furthermore, contracts with independent contractors should require that they be properly licensed and insured, adequately set forth the desired results to be completed under the contract and set forth the level of skill and care to be used. In addition, the contracts should also include a provision that requires the contractor to indemnify and hold the association and its management company harmless in the event a labor dispute arises[4].
Conclusion
It is still early to determine what exactly will happen with the BFI standard and whether it will be applied by other agencies and courts across the county. Rather than take action at this time, some associations and management companies may choose to wait to make any changes until there is a final resolution to the BFI appeal.
At the end of the day, because of the wide array of factual arrangements involving workers and independent contractors and the reality of business relationship, associations and their management companies should consult with their counsel on how best to respond to the BFI standard. There may be some situations where letting go of some level of operational control is not a practical option, which will have to be weighed against the risk of being found to be a joint employer, and carefully evaluated when entering into and reassessing all business relationships. If you have any questions regarding the BFI standard and how it may impact your association and/or management company, please contact our office.
[1] Prohibits discrimination based on color, national origin, pregnancy, race, religion and sex, as well as retaliation, in all terms, conditions, or privileges of employment.
[2] Prohibits discrimination based on a disability.
[3] Prohibits age discrimination against employees 40 years of age or older.
[4] This is something that Associations should be doing with their counsel even without regard to the BFI decision as a California court involving an unlicensed and uninsured contractor, whose employee was seriously hurt on the first day of the job, held that a contractor, association and its management company were all joint employers because the employer hired the injured employer, and the management company, as agent of the Association, hired the contractor. Heiman v Worker’s Compensation Appeals Board, Cal: Court of Appeal, 149 Cal. App. 4th 724 2007.
The attorneys of Hirzel Law, PLC focus their practice on condominium and homeowners association law in addition to real estate law. Our attorneys have extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. We stand by our clients, offering quality legal representation and promptly responding to our clients’ needs. Contact Hirzel Law online or call 312-626-4535 to learn how our Illinois attorneys can help.
