On Thursday, August 27, the National Labor Relations Board (“NLRB” or the “Board”) issued its ruling in Browning-Ferris Industries of California, Inc.,altering decades of precedent about the standard required to be held as a joint employer under the National Labor Relations Act (“NLRA”). This ruling only applies to determining whether an entity is a joint employer for purposes of the NLRA, but could be adopted by other government agencies.

Prior to Thursday’s ruling, an employer could be a “joint employer” only where it both possessed and actually exercised direct and immediate control over the terms and conditions of employment. Now a company can be considered a joint employer under the NLRA if it merely has the potential to exercise control over working conditions. The Board will now determine whether an employer can influence the essential terms and conditions of the employment, either directly or indirectly. Under the new standard, the NLRB expanded its consideration of the essential terms and conditions to include “dictating the number of workers to be supplied; controlling scheduling, seniority, and overtime; and assigning work and determining the manner and method of work performance,” in addition to influence over hiring, firing, and supervising employees.

Browning-Ferris Industries, which operates a recycling facility, and Leadpoint, a temporary staffing agency that supplied employees to Browning-Ferris, entered into a staffing agreement identifying Leadpoint as the employees’ sole employer. Leadpoint was responsible for all disciplinary matters of those employees, hired and fired them, and determined their wages, although Browning-Ferris Industries could prohibit employees from continuing to work at the facility and set upper limits on certain employees’ wages. The Board determined that under the circumstances presented, Browning-Ferris Industries and Leadpoint were joint employers because they both maintained authority to control the workers’ employment – even if Browning-Ferris Industries never exercised that authority.

In issuing its ruling, the NLRB found the previous joint employer standard “narrower than statutorily necessary,” and reiterated its view that the definition of employer should be expanded so as to capture as many employment relationships as possible. The dissenting members cautioned that the ruling would subject companies to new joint-bargaining obligations and increased potential risk for joint liability of unfair labor practices claims. For example, the Board’s position could force joint employers with divergent interests into a difficult bargaining situation, or could result in one joint employer facing liability for the unfair labor practices of another joint employer.

The Board’s decision represents a significant departure from long-standing precedent, and will impact employers who use staffing agencies, franchisees, or other contractual relationships to facilitate on-site work – not just franchise models such as fast food restaurants.

In light of the Board’s decision, employers should review and reconsider their business practices and contractual relationships to determine whether they are likely to be considered a joint employer under the new standard. It is expected that other federal agencies (such as the Occupational Safety and Health Administration) will consider this new standard when imposing liability.