Author Archives: Reuben Guttman

by Reuben A. Guttman. Guttman practices law with Guttman, Buschner & Brooks PLLC 

A half century ago, in Boire v. Greyhound, 376 US 473 (1964), the United States Supreme Court opined that two or more employers could exist as “joint employers” for the purposes of labor relations. Elaborating on this joint employer doctrine, the United States Court of Appeals for the Third Circuit, in a case known as NLRB v. Browning-Ferris Industries of Pennsylvania, 691 F.2d 1117 (3rd Cir. 1982), held that “the joint employer concept recognizes that the business entities involved are in fact separate but that they share or codetermine those matters governing the essential terms and conditions of employment.”

The joint employer doctrine allows for the imposition of liability against entities that do not sign the employee’s paycheck and do not provide monetary benefits but – still – in other ways, exercise or share control over the terms and conditions of employment. Last month, this tiny gem of labor doctrine formed the basis of 13 complaints, encompassing 78 separate charges, brought by the General Counsel to the National Labor Relations Board against McDonald’s USA, LLC, and McDonald’s franchisees as “joint employers.”

The complaints allege that the respondents interfered with employees’ rights to engage in concerted-protected activity, that is, organize a labor union, and in some cases retaliated against employees for doing so. While the substantive allegations are to some degree routine, the use of the “joint employer” doctrine to impose liability on the parent company – albeit the entity that probably does not pay workers directly – is the more interesting part of the case. The issuance of a complaint by the NLRB General Counsel is not a finding of liability; it is the beginning of a process that will cause the case to proceed to trial before an Administrative Law Judge, review of any decision by the full NLRB, and perhaps a hearing before a United States Court of Appeals where the decision will be enforced or overturned. Whatever the outcome, renewed focus on the joint employer doctrine is important in an era where employment paradigms are so complex that a myriad of entities may play a role in decisions that impact individual workers.

The control over labor relations exercised by a franchisor over franchisees – as in the case of McDonald’s — may provide a set of facts to establish common law applicable to more attenuated or complex relationships. While the McDonald’s matter will only have immediate precedential value to cases brought under the National Labor Relations Act, the NLRB’s ultimate ruling may be useful in analyzing employment settings not directly regulated by US Labor Law.

One need only consider US retailers that manufacture their products in China, Bangladesh, Vietnam and India. When problems occur at the local workplaces, the retailors – back home – often hide behind the excuse that their products are manufactured by “independent” employers. But is this really the case? When these retailers – for marketing purposes – tout their strict oversight on production and thus quality, can they truly say that responsibilities for local labor conditions are outside their control? Is it really possible for Apple Computers to manufacture its products in Southern China and tout them as true Apple products but when labor problems arise say that they are really the product of an independent company that is responsible for labor conditions at the local level? And so to some degree the McDonald’s case asks the question: “is it really possible for a company to tout the uniform quality of its product and then maintain that it does not exercise at least some control over those at the front line of production who make the product?”

For its part, the NLRB’s remedial abilities are limited and it must go to court to enforce its orders. Other than requiring employers to post notices acknowledging a violation of the law and informing employees of their rights to engage in protected concerted activity, the most the NLRB can require is that employees be given back pay where the employer’s conduct has caused the loss of work or an employment opportunity.

Yet, any back pay award is often offset by compensation received by the employee if he or she were able to find substitute work. And for employees who cannot document their efforts to find new jobs, there is sometimes even a
presumption that they would have found work. The NLRB’s processes are also extremely slow and workers and their unions are not entitled to pursue relief if the General Counsel does not believe their allegations merit a “complaint.”

Against this backdrop, unions have claimed that employers routinely violate Federal Labor Law because the chances of being civilly prosecuted are small and if the General Counsel pursues and secures a remedy, the remedies are worth the price of an infraction which may have the impact of chilling a union organizing campaign. Of course these criticisms of the NLRB are not new and it is because of them that many unions have strategized about ways to protect workers and organise without resort to the NLRB. And so, as the NLRB nears its 80th Anniversary – it was established in 1935 – there are more than a few people who are contemplating its relevance. Curiously, with the pursuit of McDonald’s, all eyes are back on the Board not because any remedy will have a material impact on the hamburger chain’s bottom line, but because the ultimate remedy may provide some insight into the protection of those who are part of attenuated supply chains or complex employment paradigms.

At year’s end, here in the nation’s capital there is the ritual they call “credit claiming.” Legislators claim credit for everything from corn and soy subsidies, programs or pieces of legislation. Credit claiming is not limited to elected officials — even government agencies do it.

At the U.S. Department of Justice, its press office, pointing to nearly $6 billion in 2014 recoveries under the False Claims Act, is spinning claims of success. The FCA, a law dating back to Lincoln’s presidency, allows the government to seek redress from individuals or entities that have in some way caused false statements to be used in the process of securing payment of government monies. The FCA is mostly known for its “qui tam” provisions that allow private citizens — commonly called whistleblowers — to bring suit in the name of the government, and to be paid a bounty from recovered funds. Once these suits are brought, the DOJ may intervene and pursue the case with or without the help of the whistleblower and his or her counsel.

For its part, the media has trumpeted the DOJ’s claim to success as have public interest groups and even some whistleblower lawyers. No doubt, the $5.69 billion in recoveries is a high water mark for FCA recoveries; but is there more to the story?

It turns out that of the $5.69 billion, $2.3 billion was recovered from healthcare providers, including the pharmaceutical industry, and $3.1 billion was recovered from the financial services industry including the big banks. This means that $5.4 billion was recovered from entities that had no direct procurement relationship with the federal government or the states. How does this work? The FCA makes it unlawful to file a false claim or to “cause”one to be filed. Marketing drugs for purposes not approved by the Food and Drug Administration, and provision of healthcare that is not medically necessary are just some examples of conduct that cause the Medicare and Medicaid systems —and state and federal health plans — to pay out dollars that should not have been paid.

That only a fraction of the $5.69 billion was recovered from direct procurement contractors, including Boeing and Hewlett Packard, is telling. It is a statistic that has remained a constant year in and year out as most FCA recoveries have come from entities — particularly healthcare providers — where the accused culprit does not have a direct government procurement relationship. Indeed, the top fifteen FCA recoveries of all time are with entities, including Abbott, Bank of America, and GlaxoSmithKline, that have no direct procurement relationship with the government.

Does this mean there are more indirect relationships than direct procurement relationships? Of course not. The Department of Energy, the Department of Defense, the Department of Education, the Environmental Protection Agency, and the Department of Transportation, spend billions of dollars each year on direct procurement contracts. But with these agencies spending so much money on private contractors, why is it that only a fraction of the 2014 FCA recoveries can be attributed to contractors working with these mammoth government agencies? Is it that these agencies do such a stellar job of managing their contractors?

Not a chance. These agencies are undoubtedly rife with contractors who skimp on standards, violate specifications, and overbill for their work. In 2011, the bi-partisan Commission on Wartime Contracting estimated that the military efforts in Iraq and Afghanistan resulted in $31-60 billion in contractor waste and fraud. Commission Co-Chair, Michael Thibault, former Deputy Director of the Defense Contractor Audit Agency, noted at the time that while large numbers of contractors were used in these military efforts, the government had no effective management and oversight of contractor spending.

One looming question is whether the agencies themselves are so in need of their contractors that they are willing to overlook derelictions. Are these agencies protecting rogue contractors and, if so, does it make a difference when it comes to civil prosecution under the FCA?

First, the statistics seem to point in this direction. Second, absent agency cooperation, the Department of Justice is — to some degree — unable to secure relief under the FCA. Think of it this way: the DOJ is the law firm for the government, and its clients are government agencies. If the client says it has not been harmed, it is hard for the lawyer to pursue litigation. Naturally an agency cannot waive requirements that are matters of law or regulation, but it is still no easy task to pursue a case when the client is not cooperative.

Now what about this $5.69 billion figure? While we know this was the amount recovered, what we do not know is whether it represents single, double, or treble damages, and whether civil penalties — between $5,000 and $11,000 for each false claim —were waived or collected. In settling cases, the government has made a practice of waiving penalties and not imposing the full three times damages provided by law. But does this really make sense, particularly when — despite the optics of large FCA sanctions — some accused culprits are undeterred with repeat violations of the FCA?

No doubt the $2.3 billion in healthcare fraud recoveries is a large chunk of change. Yet by whose standards? In 2010, Acting Deputy Attorney General, Gary Grindler, projected that healthcare fraud accounted for between 3 and 10 percent of total government healthcare spending, or between 27 and 80 billion dollars, in that year alone. By these lights, accused fraudsters can still walk away with exponentially more than they are being required to put back.

The point of all this is that it is time to ask hard questions of our government credit claimers. And maybe the media should take a lesson from whistleblowers, who make their mark by questioning norms and claims that are commonly accepted.