It is common for housing cooperatives and management agents to oversee employees on a collective basis. In many instances, however, the management agreement states that all employees are either management employees or cooperative employees, but not both. It is assumed, since the management agreement specifically identifies the employer, that when litigation comes knocking, the parties merely look at their management contract and, in that way, identify the true employer. However, the law is no longer as simple as that.

In recent years the federal government has gotten into the business of defining who is the employer for purposes of lawsuits alleging violations of labor laws such as the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA). State law has also followed suit in determining who is an employer when claims of discrimination are filed.

For instance, on October 26, 2023, the National Labor Relations Board (NLRB) issued a final rule which expands the standard for determining joint-employer status under the NLRA. The rules make it easier for the Board to find a joint employer relationship. Typically, an employer is one that has direct and immediate control of its employees. The NLRB, however, has added that an employer is one who determines the employee’s essential terms and conditions of employment. This includes wages, benefits, hours of work, scheduling, job assignments, supervision, when and how to perform job functions, discipline, duration of employment, and health and safety concerns.

This lengthy list poses challenges for a cooperative Board and its management company. By way of example, if all the employees are management company employees, then the new rule virtually mandates that the management agents have on-site personnel to supervise its employees constantly and consistently. In such an instance, Board members must take an aggressive “hands-off” approach. It’s too tempting for a Board member who happens to be walking through the property or the office to say to a management employee: “Could you make sure that the clubhouse gets cleaned today because it will be needed for a meeting.” This simple instruction would suggest to the NLRB that the real employer here is the cooperative because a member of the Board appears to be scheduling work and making job assignments, as well as supervising when and how to perform certain job functions. When the management company asserts that it is solely responsible for discipline and wages, then the result is that there are joint employers, not just one. See the problem? What should have happened in that situation is that the Board member should have contacted the management agent and have the management agent give the instruction or make the job assignment.

The same holds true if the employees are hired by, and solely accountable to, the cooperative and are not management company employees. Often Boards will ask the management agent to come in and explain the terms and conditions of employment, or resolve problems with regard to discipline, or even to terminate employees. It’s understandable that Board members living on the property don’t want to be the “bad guy” in imposing discipline or termination. Thus, it’s natural they turn to the management agent to do so.

In such instances, however, the NLRB will argue that the management company is an employer as well as the cooperative because after all, the management company disciplined the employee or communicated about discipline to the employee, and/or terminated the employee. In this instance, the management agent should have explained to the Board that it can’t be involved in disciplining the Board’s employees and that this matter should be handled by the Board or by the Board’s legal counsel.

What about the Department of Labor? In 2020, under President Trump’s administration, the Department of Labor issued a test to identify an employer. It focused on who had the ability to hire and fire, supervise, and control schedules, set pay rates, and maintain employment records. If an entity exercised control over just one of these conditions, it could be found jointly liable.

Under President Biden, however, this approach was repealed, reverting to a more generic “totality-of-the-circumstances economic realities” approach to joint employment. If the management company itself is considered an employee of the cooperative, then the management company’s employees are typically going to also be considered employees of the cooperative. This is underscored even more by the fact that the management company pays its employees but receives fees under the management contract to do so, making the employees economically dependent on both the management company and the cooperative.

Finally, turning to discrimination lawsuits in state or federal court, judges will typically look to matters of control and may be influenced by either the NLRB standard or the DOL standard. In Michigan for instance, if an entity affected or controlled a term, condition, or privilege of employment, it will be initially regarded as a viable employer defendant. If two entities perform such functions, they both will be considered a joint employer. See McClements v. Ford Motor Co., 473 Mich 373 (2005).

In conclusion, clear lines of communication regarding employee functions and jobs must be understood and followed. If not, then it’s easy to find that both entities could be exposed to litigation or regulation as one “employer” of the employee. Right now, the current weight of administrative and legal regulations is against the single employer theory, and it will be very difficult, unless Boards and/or management companies, each stay in their own lane to avoid such an outcome. As a defensive measure, it is also advisable that indemnification agreements should be carefully written and legally reviewed, and insurance companies notified, listing each entity that could be considered an employer, to be added as a named insured. These steps will go a long way to provide the maximum possible protection for the cooperative and management company when unwanted legal problems come knocking at your door.


-  Attorney Kerry L. Morgan is Of Counsel to Pentiuk, Couvreur & Kobiljak, P.C. He has extensive experience in advising housing clients in connection with employer regulations. Prior to his current legal affiliation, he served as an Attorney-Advisor with the United States Commission on Civil Rights in Washington, D.C. He also was appointed as the Director of the U.S. Bicentennial Project for Regent University.