Yesterday, in a 3-2 decision, the National Labor Relations Board (“NLRB”) reversed a 30-year old standard for determining joint employer status under the National Labor Relations Act (“NLRA”). In Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015)(“Browning-Ferris”), the NLRB considered whether a recycling company and the staffing agency it used to recruit, hire, supervise, and compensate contingent workers in its facility were joint employers for the purposes of collective bargaining. In a decision that has attracted significant national attention, the NLRB scrapped its longtime joint employer analysis and created a new joint employer test under which more companies that use staffing and subcontracting agencies to provide contingent workers will be deemed “joint employers” with the staffing and subcontracting agencies under the NLRA.
The circumstances at issue arise when a company (“User”) contracts with a staffing or subcontracting agency (“Supplier”) to provide contingent workers to perform a function the User’s employees do not perform. These arrangements may include providing temporary employees to fill short-term User needs, providing temporary employees who the User evaluates for full-time employment, or providing contingent workers on an ongoing basis to perform a task in support of the User’s operations (e.g., maintenance, housekeeping, processing). Although there is significant variation in these arrangements, the User generally sets staffing requirements and worker qualifications, and the Supplier recruits, hires, compensates, sets benefits for, and administers the employment of the contingent workers. The User typically pays a fee based on a total hourly cost of each contingent worker including compensation, benefits, and administrative costs. The Supplier may or may not provide on-site supervision of the contingent workers.
Since the early 1980s, the NLRB’s joint employer analysis focused on the extent of the actual control a User exercised over the contingent workers. To be deemed a “joint employer” with the Provider, the User had to actually exercise control over the contingent workers’ terms and conditions of employment in a “direct and immediate” manner. In other words, a User was not a joint employer if it merely exercised “limited and routine” supervision over contingent workers. Absent joint employer status, a User is not subject to a collective bargaining obligation or liability for unfair labor practices under the NLRA even if the Supplier is (and vice versa).
In Browning-Ferris, the NLRB determined that its former analysis was out of step with “changing economic circumstances.” The NLRB cited significant growth in contingent employment relationships and revised its standard to adapt to the “changing patterns of industrial life.”
The New “Joint Employer” Standard
Under the NLRB’s new standard, multiple entities are “joint employers” of a single workforce if (1) “they are both employers within the meaning of the common law” and (2) they “share or co-determine” matters governing the essential terms and conditions of employment. Central to both analyses is the “existence, extent and object” of a putative joint employer’s control.
Under the first prong, the “right to control” is the key and the NLRB will no longer consider whether the entity exercises that right. Therefore, if an entity reserves a contractual right to determine a specific term or condition of employment (e.g. ultimate discharge authority, job qualifications), it may have created a common law “employer” relationship with contingent workers whether it has ever exercised that right. Additionally, an entity that exercises even indirect control over terms and conditions of employment may meet the common-law employer standard (e.g., gives direction to the Supplier to discipline a contingent worker).
Under the second prong, the NLRB considers the variety of ways in which entities may “share or co-determine” the “essential terms and conditions of employment.” “Essential terms and conditions of employment” include wages, hours, hiring, firing, discipline, supervision, and direction. Evidence of an entity’s control over essential terms and conditions of employment includes: dictating the number of contingent workers supplied; controlling scheduling, seniority, and overtime; and assigning and determining the manner and method of work performance.
Through its Browning-Ferris decision, the NLRB abandoned the certainty over three decades of joint employer analysis precedent provided to most contingent worker agreements. The NLRB’s new standard will very likely impose NLRA bargaining obligations, unfair labor practice liability, and/or lawful economic protest activities (e.g., strikes, boycotts, picketing) on entities that previously were not considered joint employers by the NLRB. The decision stands to significantly affect a wide-range of common business relationships including user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, and predecessor-successor. Additionally, as the dissent warned, the new standard may render smaller employers that lie outside the NLRA’s Commerce Clause-based jurisdiction subject to the statute’s terms.
Although the NLRB recognized the almost tectonic significance of the Browning-Ferris decision, it insisted that the new standard is in full accord with the purposes of the NLRA. As the majority summarized its decision:
It is not the goal of joint employer law to guarantee the freedom of employers to insulate themselves from their legal responsibility to workers, while maintaining control of the workplace. Such an approach has no basis in the [NLRA] or in federal labor policy.
Employers who participate in contingent worker, subcontracting, temporary worker, and/or franchise agreements should closely examine the new standard and reevaluate the terms, benefits, and potential risks of such agreements. The examination must include a realistic assessment of the control employers retain over the terms and conditions of the contingent workforce, the potential for NLRA-based liability and alternatives that will reduce the risk of a joint employer determination under the new standard. Additionally, companies with parent/subsidiary structures should examine the relative control reserved to component entities and the risks of joint employer status.
*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. For more information about the Browning-Ferris decision or labor & employment law, please contact Pat Hoban | pjh@zrlaw.com | 216.696.4441