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The NLRB Broadens Joint-Employer Status and Liabilities

September 2, 2015

            In another decision which will assist union efforts to organize employees, the National Labor Relations Board has radically liberalized its test for determining joint-employer status.  Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (August 27, 2015) (“BFI”).  The Board’s three Democratic members overturned 30-year old precedents and created a new, broader and more permissive standard for determining whether two or more entities are joint employers of a single workforce.  The Board’s two Republican members strongly dissented.  Under the Board’s new standard, any entity that has a “right to control,” whether exercised or not, over the other company’s employees may be a joint-employer of those workers, even without actually supervising or directing their work.  The new decision greatly increases the risk that parent and subsidiary companies, franchisor and franchisee companies, and companies that engage independent contractors at arm’s length will all become responsible under the National Labor Relations Act for collective bargaining and unfair labor practices against workers not directly employed by the parent, the franchisor or the customer engaging the independent contractor.  By vastly expanding the circumstances in which joint employment may be found, the decision also breaks down these companies’ protections from what previously were unlawful secondary boycotts.

            Prior Joint Employer Standards

            The Board’s prior standard for determining whether separate entities were joint employers for the purposes of the NLRA was reviewed and restated in two 1984 decisions: TLI, Inc., 271 N.L.R.B. 798 and Laerco Transportation, 269 N.L.R.B. 324.  There the Board ruled that, in order to determine whether two separate entities are joint employers, it will assess whether the two “share or codetermine those matters governing the essential terms and conditions of employment.”  TLI, 271 N.L.R.B. at 798.  The Board specifically evaluated whether the alleged joint employer “meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.”  Id.  Any such authority that was exercised only on a “limited or routine” basis was insufficient to establish joint employer status.  Id. at 799.

            The BFI Decision and the Board’s New Standard

            BFI, found to be a joint employer in the Board’s recent decision, operates a recycling facility in California where it entered into a temporary labor services agreement with an independent staffing agency to obtain workers for sorting, screen cleaning, and housekeeping functions.  The services agreement specified that the staffing agency was the sole employer of these workers. 

            A local of the Teamsters Union filed a petition seeking to organize the staffing agency’s recycling employees and asserted that the agency and BFI were joint employers.  The Board’s Regional Director, applying TLI, ruled that the agency, as the direct employer of the workers the union sought to represent, was the sole employer, and dismissed BFI from the case.  The Teamsters appealed the Regional Director’s decision, and, anticipating that it would change the law, the Board sought legal arguments from the parties and amici curiae on the specific question of whether the TLI and Laerco decisions articulated the appropriate joint-employer standard, or, whether the Board should adopt some new standard.

            In announcing its new standard for joint employer status, the Board described the arrangement between BFI and the staffing agency and focused on the influence BFI had over the agency’s employees with respect to hiring, discipline and termination, wages and benefits, scheduling and hours, work processes, training and safety, and other terms and conditions of employment.  The Board’s decision highlighted those particular circumstances where BFI exercised some degree of control over the staff.  For example, although the staffing agency was allowed to set the rates of pay for its employees, it could not, without BFI’s approval, pay a “rate in excess of the pay rate for full-time employees of BFI who perform similar tasks.”  Testimony revealed, however, that this had never occurred.  362 N.L.R.B. No. 186, slip op. at 4.  The agency also had the right to discipline or terminate its own employees; however, the Board noted that on two occasions, employees were disciplined at the behest of BFI.  Id.  Additionally, BFI determined the number of the agency’s laborers allowed to work each shift, although the agency specified the particular posts to be worked and the individual employees assigned to each post.  Id. at 5. 

            The Board then reviewed the common law and Board law, from both before and after the TLI and Laerco rulings, and announced a new standard for joint employers, characterized by the Board majority as a return to the “traditional test” that existed prior to the 1984 decisions.  The BFI majority, in “returning” to this prior standard, rejected TLI, because it had “without any explanation imposed additional requirements that effectively narrowed the joint-employer status” from the “traditional” test.  The Board concluded that two or more entities are joint employers of a single work force if:

[T]hey are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.  In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of employment or “codetermine” them…

Id. at 15.  “Essential terms and conditions of employment” are wages and hours, the number of workers to be utilized, work scheduling, seniority, and overtime, and assigning work and determining the manner and method of work performance.  Additionally, the majority makes clear that TLI and its progeny are overruled to the extent that they require actual exercise of potential managerial authority.  Instead, “[t]he right to control . . . is probative of joint-employer status, as is the actual exercise of control, whether direct or indirect.”  Id. at 16.  In explanation of its change in the law, the Board majority asserted that: “Our aim today is . . . to best serve the Federal policy of ‘encouraging the practice and procedure of collective bargaining.’”  Id. at 2, quoting Section 1 of the National Labor Relations Act.

            Under this new standard, BFI was found to be a joint employer with the staffing agency because BFI possessed the right to control terms and conditions of the agency’s employees working at BFI’s plant, even if BFI did not exercise that authority frequently or regularly.

            A vigorous dissent by the Board’s two Republican members predicts that this new rule “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.”  Id. at 21.

            The fate of the Board’s decision upon review in the United States Courts of Appeal is uncertain.

            Significance for Management

            Any employer which utilizes staffing firms to provide temporary workers or which contracts with other companies for staff to complete various functions must be mindful of the test announced by the Board in BFI.  Similar concerns apply to parent-subsidiary relationships and companies doing business as franchisor and franchisee.  Even where a company only exercises “indirect control” over workers who are directly employed by another entity, the two may be a joint-employer for the purposes of the NLRA under the BFI decision.  In such a case, the “user” company could be held jointly responsible for any unfair labor practices committed by the contracted entity, the subsidiary or the franchisee that is the direct employer of the affected employees.  It also means that, should employees of the contracted entity seek to organize, the now joint-employer may be required to bargain collectively over those terms and conditions of employment for which it has actual or potential authority.  Id. at 16.  Moreover, in the absence of a joint employer relationship, the “user” company is free to terminate its relationship with a contractor whose employees become unionized; on the other hand, if the “user” is a joint employer, which is far more likely under the BFI standard, its ability to terminate the contractor’s services will be restricted by the continuing bargaining and other labor relations obligations it will have to the incumbent union.  Additionally, joint employers are denied the NLRA’s protections against secondary strikes, picketing and boycotts, which may give the unions representing any of either company’s employees a potent weapon to use in any labor dispute.

            Please contact us if you have any questions regarding the Board’s new rule on joint-employer status, or steps that your company should take to ensure it is not interacting with employees of its subsidiaries, contractors and franchisees in a manner that may create joint-employer obligations and liability under the NLRA and other Federal and State employment laws and regulations.