Whose employees are they?

Shopping center landlords could be held responsible for labor violations or breaches of collective bargaining agreements committed by their subcontractors, according to a broader definition of what constitutes a “joint employer” issued in January by the U.S. Department of Labor.

This follows an August 2015 ruling by the National Labor Relations Board, which found that Browning-Ferris Industries violated a collective bargaining agreement negotiated between a subcontractor and its employees by refusing to negotiate with the workers’ union.

Though the Labor Department interpretation lacks the force of law, it is likely to establish precedent and thus influence the way the department makes future joint-employment decisions. 

“It is yet another example of regulatory overreach,” said Betsy Laird, ICSC’s senior vice president of global public policy. “It threatens shopping center owners, service providers and retailers that may lose their ability to operate as independent entities as a result.”

For roughly 30 years, the Labor Relations Board defined employers as those who directly hired, fired and set the wages and schedules of employees. The NLRB’s 2015 ruling changed this definition to allow companies to be considered joint employers if they have the “potential for control” — a distinction that many consider ambiguous and potentially damaging to local companies who work under contract with larger organizations.

Landlords and other employers use contractors to provide such services as landscaping, janitorial, office, technology and food every day, and the question of what constitutes direct versus indirect control is key. “If a shopping mall directs an outside cleaning service to have its employees come to work at 10 p.m., after the mall closes at 9 p.m., such a basic direction may be found by regulators as indirect control of employment terms — in this case, working hours,” said Michael Layman, executive director of the Coalition to Save Local Businesses. “Thus, the shopping mall may be forced to collectively bargain with the cleaning service’s employees — employees the shopping mall didn’t hire and has no control over.”

Critics charge that these actions may jeopardize many of the foundational contractual relationships upon which the shopping center industry relies, and the consequences could be far-reaching. Shopping centers and other companies may simply decide to bring previously outsourced services in-house for the sake of greater control and lesser liability — which may mean, in turn, the end of thousands of smaller companies that provide these services. “The upshot is [that] big companies get bigger, and small businesses lose their livelihoods,” Layman said. “Employees will experience less workplace flexibility, because they may no longer be managed by small-business owners in their hometown but rather by corporate management in a faraway headquarters.”

Labor unions and the National Employment Law Project support the new definition. The Labor Department’s release “provides a timely reminder to companies that while they are free to insert intermediaries or subcontractors into their business models, they cannot outsource their responsibility for the workers in their businesses,” said Christine Owens, executive director of the National Employment Law Project, in a news release.

Legislation to reverse the Labor Relations Board standard has been introduced in both houses of Congress — the Protecting Local Business Opportunity Act, introduced by Rep. John Kline, R-Minn., and Sen. Lamar Alexander, R-Tenn. 

“The NLRB’s new joint-employer standard would make big businesses bigger and the middle class smaller by discouraging companies from franchising and contracting work to small businesses,” the lawmakers said in a joint statement. “The board’s effort to redefine the idea of what it means to be an employer will wreak havoc on families and small businesses across the country.” 

The issue will potentially have the greatest impact on business owners without labor unions, according to Layman. “‘Joint employer’ primarily threatens employers who do not have labor unions,” he said. “So if you are a business owner with no collective bargaining experience and think labor laws don’t affect you right now, you are precisely the target that regulators are eyeing for their joint-employer claims.” 

Laird concurs. “Under the current administration, both the NLRB and Department of Labor appear emboldened to rewrite labor policy with a pro-union slant, which businesses will have to scramble to get up to speed on,” Laird said. “While Congress may be able to push back with legislation, ultimately, those measures will be subject to the veto power wielded by the president. I will venture to say that many of our members will find labor policy challenging in the months and years ahead.”