On August 27, 2015, in Browning Ferris Industries of California, Inc., the National Labor Relations Board (the “Board”) redefined the standard for determining joint-employer status, rejecting its 30-plus-year-old standard. In the ruling, it held Browning-Ferris Industries (“BFI”), a national recycling and sanitation company, was a joint employer of a crew of workers provided by a staffing agency. Thus, according to the Board, BFI now is responsible for bargaining obligations and potentially for unfair labor practices under the National Labor Relations Act (the “Act”). The decision is a significant modification to existing Board precedent and should be evaluated for its potential impact in any workplace using contract labor and for its impact beyond the Act.

Prior to BFI, the joint-employer analysis focused on the extent to which the putative joint employer actually controlled the terms and conditions of employees’ employment—in particular, whether control was actually exercised and whether it was done so directly. The standard announced in BFI rejects those limitations as too narrow, and focuses on control that is possessed (including reserved powers), and includes control that is exercised indirectly, such as through an intermediary.  To that end, the Board will evaluate not only actual control, but also the “right” of a putative joint employer to exercise control and the “indirect” control the putative joint employer may exercise through economic power over the nominal employer. The right to control will be considered even where the putative joint employer declines to exercise it in practice.

The Board justifies this shift by appeal to a theory of increased economic fragmentation. That theory posits that the economy is becoming more decentralized and therefore more reliant on contract, temporary, and other irregularly-utilized workers. According to the Board, such workers often work nominally for a staffing agency or other subcontracting party, but actually perform the work for larger companies.  Under the Board’s prior standard, these workers often would have been considered only employees of the staffing agency or subcontracting party due to the indirect relationship or lack of actual exercise of authority by the larger employer. The Board suggests this phenomenon frustrates the fundamental purpose of the Act, which is to encourage and facilitate collective bargaining over terms and conditions of employment. Because the Board claims the Supreme Court has instructed federal agencies to adapt their practices and rules to changes in the economy, it announced this change to combat what it views as a diminution in the protection provided by the Act for workers in a more fractured economy.

The Board’s decision calls for employers with staffing agency relationships to evaluate those arrangements under the new standard, but some commentators have suggested the decision could reach beyond just staffing arrangements, to include reaching even into franchising relationships. At minimum, employers should evaluate the decision and its potential impact on any contract labor, staffing agency, or other temporary employment arrangements in their operations.