NLRB Announces New “Joint Employer” Standard Significantly Extends Liability to Employers for Workplace Labor Violations by Contractors

For nearly 30 years the National Labor Relations Board (“NLRB” or “Board”) has reasoned that two businesses can only be deemed “joint employers” – and thus jointly responsible for purposes of collective bargaining and unfair labor practices – upon a showing that the companies exercised actual, direct and substantial control over the terms and conditions of employment of the employees in the other entity. Factors such as the right to hire, terminate, discipline, supervise and direct employees were relevant to the level of control assessment, and theoretical, limited or routine control over workplace activities of the other was generally deemed insufficient.

In a decision that may have sweeping implications for companies that subcontract work through staffing agencies or other third party vendors, the NLRB has announced a new standard that will result in many more companies being deemed “joint employers” of their third-party contractors. The Board’s expanded joint employer standard will also have implications for franchisor/franchisee, parent/subsidiary and other corporate relationships.

The New “Direct or Indirect” Control Standard: In a significant departure from established precedent, a 3-2 majority in Browning-Ferris dramatically lowered the standard for establishing a “joint employer” relationship. At issue in the case was whether Browning Ferris Industries was a joint employer with Leadpoint, a staffing services company, in a union representation election among Leadpoint workers who staffed conveyor belts in Browning-Ferris’ plant. The union already represented Browning-Ferris’ employees at the plant.

In finding the existence of a joint employer relationship, the Board dispensed with the requirement that the employer exercise actual direct and substantial control in favor of a new standard that examines whether the employer exercised direct or indirect control over the essential terms and conditions of employment. In addition to hiring, firing, discipline, supervision and direction, the Board expanded the definition of “essential terms and conditions of employment” to include input from the employer on “dictating the number of workers to be supplied; controlling scheduling, seniority, and overtime; and assigning work and determining the manner and method of work performance.” Among the indirect control factors relied upon by the Board to deem Browning-Ferris a joint employer with Leadpoint were the following circumstances that are commonplace for employers retaining third parties to conduct work on their premises:

  • Browning-Ferris could report those employees it felt should disciplined or terminated by Leadpoint
  • Browning-Ferris required drug testing of Leadpoint’s employees
  • Browning-Ferris asked Leadpoint not rehire any of its former employees that were deemed eligible for re-hire
  • Browning-Ferris controlled the operation of tis conveyor belt, provided training to Leadpoint’s employees, set shift times and how many Leadpoint workers were need to staff the plant
  • Although the parties contract called for Leadpoint setting employees’ wages and administering its payroll and benefits, Browning-Ferris preventing Leadpoint from paying any of its employees more that the rate being paid to Browning-Ferris workers engaged in comparable work.

The Chastising Dissenters: The two dissenting members of the Board did not hesitate to express alarm about the adverse effects the majority’s new standard would have on labor relations:

This change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts, and picketing.

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We believe the majority’s test will actually foster substantial bargaining instability by requiring the nonconsensual presence of too many entities with diverse and conflicting interests on the “employer” side, Indeed, even the commencement of good-faith bargaining may be delayed by disputes over whether the correct “employer” parties are present.

The dissent predicted that the new test will fundamentally alter the playing field for the user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor and contractor-consumer relationships.

Congress to the Rescue? Senator Lamar Alexander (R., TN) and Representative John Kline (R., Minn.) promptly introduced the Protecting Local Business Opportunity Act that would amend the definition of “joint employer” under the NLRB to the narrower pre-Browning-Ferris definition.

The Impact of the Decision on Employers: Employers and temporary service providers cannot ignore the potential impact of the Board’s decision. Those employers who reserve the right to exercise any degree of control or input, even indirectly, over work being performed by third-party employees now run a serious risk of “joint-employer” status for purposes of collective bargaining and unfair labor practice liability. Service agreements and day-to-day interactions with temporary service providers must be re-examined to assess the degree control, either through the written terms of the parties’ agreement or in practice, is being exercised by the employer in such matters as hiring, wages and benefits, scheduling, workload and other matters that are routinely monitored by employers. To the extent possible, employers should minimize any “control” over temporary employees to avoid joint employer status.

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