NLRB Adopts Expansive New Standard For Joint Employer Status

Volume 14, Issue 18
September 9, 2015

Rejecting over thirty years of well-established case authority, the National Labor Relations Board (NLRB) redefined and expanded the standard for determining when two or more separate companies are a "joint employer" of employees for purposes of collective bargaining under the National Labor Relations Act (NLRA). The new standard, set forth in Browning-Ferris Industries of California, Inc., 362 N.L.R.B. No. 186 (Aug. 27, 2015), represents one of the most sweeping and significant changes made by the Democrat-controlled NLRB in recent years. It is expected to have far-reaching consequences on the business operations of countless companies, especially those using contingent/temporary employees supplied by staffing agencies.

What Is "Joint Employer" Status?

When a company contracts with an independent company for any type of labor or when a company exercises some degree of control over another's employees, the question arises whether the workers belong only to the independent company (the supplier firm) or whether the contracting company (the user firm) is also responsible for these workers under the NLRA. This analysis seeks to determine whether the supplier and user are "joint employers" of the workers. If the supplier and user are joint employers, both will be required to collectively bargain with represented employees and both can be liable for unfair labor practices.

What Was The Old Standard?

Under the old standard, the NLRB would find two or more companies to be a joint employer if they shared or codetermined matters governing the employees' essential terms and conditions of employment (specifically, hiring, firing, discipline, supervision, and direction). To be a joint employer, a company had to exercise meaningful control over such essential terms and conditions of employment in a "direct and immediate" way, rather than in a "limited and routine" manner. The old standard was set forth in NLRB decisions such as TLI, Inc., 271 N.L.R.B. 798 (1984) and Laerco Transportation, 269 N.L.R.B. 324 (1984).

Why The New Standard?

The NLRB explained that it was compelled to develop a broader standard for the joint employer analysis because of the steady and continuing increase in the procurement of employees through staffing agencies and subcontracting arrangements since the TLI and Laerco decisions. Acting as a legislature, instead of an administrative agency charged with interpreting a statute, the NLRB concluded that this increase in "contingent employment" was bad for collective bargaining and needed to be fixed. Accordingly, the NLRB decided to make it easier for unions to prove that companies using non-traditional staffing arrangements are "joint employers" obligated to recognize and bargain with unions.

What Is The New Standard?

Under the NLRB's new standard, two or more companies will be deemed joint employers of a single group of employees if they are both employers within the meaning of the common law and they share or codetermine those matters governing the essential terms and conditions of employment. The NLRB will use a broad definition of "essential terms and conditions of employment" which will now include wages, hours of work, number of workers to be supplied, scheduling, seniority, overtime, assigning work, and determining the manner and method of work performance.

A company must only possess/retain the right to control essential terms and conditions of employment; it is no longer necessary to show that the company actually exercised such control. Further, any actual exercise of control will be "probative of joint employer status," even indirect control, such as by way of an intermediary or through contractual provisions.

An Example - How Did The NLRB Apply Its New Standard?

In Browning-Ferris, BFI Newby Island Recyclery (BFI) contracted with Leadpoint Business Services (Leadpoint) to staff the inside operation of its recycling facility. BFI and Leadpoint were completely separate companies; their temporary labor services contract specifically stated that Leadpoint was the sole employer of its employees and that nothing in the contract created an employment relationship between Leadpoint employees and BFI. The union which sought to organize the inside employees argued that BFI and Leadpoint were joint employers. Retroactively applying its newly broadened joint employer analysis, the NLRB agreed.

Although Leadpoint hired its own employees without input from BFI, the NLRB found that BFI co-determined the outcome of the hiring process because it had the right to require Leadpoint to meet or exceed its selection procedures, it required pre-employment drug testing, and it restricted Leadpoint from hiring former BFI employees that BFI deemed ineligible for reemployment. The NLRB also found that BFI had a significant role in determining the employees' wages because it prevented Leadpoint from paying its employees more than BFI's employees and it had the right, under a cost-plus contract, to approve all pay increases. Moreover, it was irrelevant that BFI's supervisors passed information and direction through Leadpoint's supervisors and refrained, on most occasions, from directly engaging Leadpoint's employees. Instead, the NLRB determined that BFI had control over the processes that shaped the day-to-day work of the Leadpoint employees. BFI controlled the speed of the recycling stream, the productivity standards, the need for overtime, the specific tasks to be accomplished each day, the location of the work stations, the specific number of workers assigned to each area, and the timing of shifts. Because Leadpoint did not control these factors, the NLRB determined it could not effectively bargain over necessary terms and conditions of employment without BFI.

What Is The Effect Of The New Standard?

At a minimum, the NLRB's new broadened standard will increase uncertainty for many employers as to the scope of their obligations to contingent workers under the NLRA. The NLRB did not define the contours of its new standard, stating that the nature and extent of a putative joint employer's control are best examined on a case-by-case basis.

On the other end of the spectrum, the NLRB's new standard could be applied, without any reliable limitations, to a variety of business relationships such as franchisors and franchisees, parent and subsidiary corporations, lessors and lessees, predecessors and successors, contractors and consumers, and contractors and subcontractors. There is also a well-founded concern that this new expanded standard will be applied by other federal agencies, such as OSHA and the EEOC.

There will undoubtedly be an appeal of the Browning-Ferris decision and other legal challenges as the NLRB enforces its new standard. While it would be entirely appropriate for Congress to enact statutory restrictions to effectively overrule Browning-Ferris, it is unlikely that the present Congress will do so or that President Obama would sign any such legislation into law. All NLRA-covered employers are wise, therefore, to take a hard look at their operations, staffing, associations, and structure to determine where joint employer challenges are possible. Once identified, the employers should carefully review the contractual and practical nature of the relationship(s) to determine "the existence, extent, and object" of their control over another company's employees' essential terms and conditions of employment and whether a less restrictive/more decentralized relationship is the better course of action.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.