On August 27, the National Labor Relations Board (NLRB or the Board), in a 3-2 vote along party lines, adopted a new standard for determining whether an employer who uses third party contractors is a “joint employer.” Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015). The new standard will make it easier for unions to negotiate on behalf of workers at fast-food chains and other companies relying on contractors and franchisees.

The NLRB changed the definition of a crucial employer-employee relationship that had been in place in some form since the 1980s. The Board found that two or more entities will be considered “joint employers” of a single work force if (1) they are both employers within the meaning of the common law; and (2) they share or co-determine those matters governing the essential terms and conditions of employment. In evaluating whether an employer possesses sufficient control to qualify as a joint employer, the Board majority signaled that it will consider an employer to have exercised sufficient control even if it does so indirectly, through an intermediary (i.e., the subcontractor or franchisee), or even whether it has merely reserved the authority to do so.

Under the new precedent, a company that hires a contractor to staff its facilities may be considered a joint employer of workers at the facility, even if it does not actively supervise them. A union representing those workers would be legally entitled to bargain not just with the contractor/vendor but also with the “user” company.

For example, under this ruling, employees at a fast-food restaurant run by a franchisee who vote to unionize would be entitled to negotiate not merely with the franchisee but also with the franchisor. The franchisor would face the practical hurdles of being forced to negotiate over wages and benefits that it does not actually set, with respect to employees it does not actually employ, for a restaurant it does not actually own.

Before Browning-Ferris, the NLRB’s “joint employer” doctrine required that the franchisor or “user” company to exert “direct and immediate” control over working conditions of employees at its franchisees or contractors before it would be considered a joint employer. Under the new test, a company can be considered a joint employer even if it only has indirect control over working conditions, for example, by requiring the use of certain scheduling software that locks in the timing and length of the workers’ shifts, or if it has the right to control certain conditions even if they don’t exercise those rights.

This decision will have significant impact on employers’ use of the franchise model or contractor model, and any employers who use such models must review their policies and practices to determine whether they could be subject to joint employer status. If the risk of unionization of a contingent or franchisee workforce is high, businesses should consider revising their relationships with their franchisees and staffing contractors and/or engage in proactive union avoidance activities.