In a ruling that redefines the concept of employment in the United States, the National Labor Relations Board yesterday issued its much-anticipated decision in Browning-Ferris Industries of California, Inc. d/b/a Newby Island Recyclery, 362 NLRB No. 186 (2015). The decision rewrites and drastically expands the definition of who is a “joint employer” under the National Labor Relations Act. Businesses have been bracing for this decision for several months, and now that it has been released, it appears their worst fears have been realized.

Background

The Board’s decision arises out of a petition by the Teamsters Union to represent a group of employees of Leadpoint, a subcontractor doing work in a portion of California recycling facility operated by Browning-Ferris Industries. The Union claimed that Browning-Ferris was the joint employer of Leadpoint’s employees. Following an evidentiary hearing, the NLRB’s Regional Director for Region 32 disagreed, ruling Browning Ferris was not a joint employer with Leadpoint because it did not hire, discipline, evaluate or terminate the Leadpoint employees working on site. The Union sought review before the full NLRB and argued the Board’s joint employer standard should be revisited and expanded. The Board solicited amicus briefs from interested parties on the whether it should adopt a new joint employer standard. Following scores of submissions from organized labor, the employer community and the Board’s own General Counsel (which advocated for a change in the standard that would cover arrangements such as the one between Browning-Ferris and Leadpoint), the Board issued yesterday’s decision.

Majority Rewrites the Rules

Before yesterday, the standard used by the Board to determine whether a joint employer relationship existed focused on whether the putative joint employer actually exercised control over workers that was direct and immediate, and not “limited and routine.” For at least the past thirty years, the Board has consistently held that entities that only possess the authority to influence the employment terms of another firm’s employees, but which do not actually exercise it, are not joint employers. That ended yesterday. First, noting that 2.87 million employees are employed through temporary agencies, the Board opined that the current economic landscape necessitated a review of the existing joint employer standard. It argued that its previous 30 years of precedent reflected an unnecessarily strict joint employer standard that previous Boards failed to adequately explain or justify.

Claiming that it was returning to the “traditional test” of the early 1980s, the Board then held that it: “may find that two or more entities are joint employers of a single work force if they 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.” To determine whether a potential joint employer meets this new standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. If such a relationship exists, the analysis turns to whether the potential joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining, even if it never exercises that control. Critical to both inquiries is the existence, extent, and object of the potential joint employer’s control.

To evaluate the allocation and exercise of control in the workplace, the Board will consider factors such as the ways in which joint employers may share control over terms and conditions of employment or codetermine them. Essential terms and conditions include things such as: wages, hours, hiring, firing, discipline, supervision, scheduling, dictating the number of workers to be supplied, assigning work, and determining the manner and method of work performance.

Critically, the Board held that it will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but must also exercise that authority, and do so directly and immediately. In other words, an employer that merely has the potential to influence the terms and conditions outlined in the Board’s test will now be found a joint employer. In making this ruling, the Board expressly overruled decades of decisions that held that the control had to actually be exercised.

Scathing Dissent from Members Miscimarra and Johnson

In a 28-page dissent, Members Harry Johnson and Philip Miscimarra excoriated the majority for “rewrit[ing] the decades-old test for determining who the ‘employer’ is.” They noted that the new test “will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have,” and predicted “a sea change in labor relations and business relationships.” Admonishing the majority that “the Board is not Congress,” the dissenters lamented the Board majority’s abandonment of its duty to enforce the Act in a manner that fosters industrial and labor relations stability: “We owe a greater duty to the public than to launch some massive ship of new design into unsettled waters and tell the nervous passengers only that ‘we’ll see how it floats.’”

Potential Impact Is Staggering

Despite the Browning-Ferris majority’s claim to have merely “put the Board’s joint-employer standard on a clearer and stronger analytical foundation,” the Board’s new standard could work unprecedented changes in the way business is conducted in the United States. The extension of the standard to entities that merely possess authority to control employment terms of other entities has limitless potential application. As the dissenters aptly noted, the new test will impact “user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor and contractor-consumer business relationships” alike.

Hunton & Williams’ Labor Team Head Greg Robertson believes the Board’s new test could create numerous legal and practical problems for employers trying to determine whether they are subject to this new test. He notes, “It is difficult to set the limits under this new standard. Is a building owner that requires its janitorial contractor to provide a certain number of cleaners per staff, and to clean to a certain sanitary standard, now a joint employer of the janitors? What about the private equity firm that owns the janitorial contractor….it may control the contractor’s board of directors, dictate changes in its benefit plans and other employee policies, and decide whether the firm should pursue certain business opportunities. It too might be joint employer of those same janitors under the Board’s test.”

Robertson’s observations provoke even more questions. Who would be required at the bargaining table if a union were to organize the janitors? The cleaning contractor, for sure. But what about the building owner and the private equity firm? Moreover, the obviously divergent interests of these three entities suggests it will be much more difficult for employers to engage in effective collective bargaining under the new rules.

The new standard might also allow unions interested in organizing the cleaning company to picket the building owner and the private equity firm without incurring secondary boycott liability under the Act. And it might also now prohibit the building owner from terminating its contract with the janitorial contractor merely because the union was interested in organizing the janitors. Indeed, if the building and the cleaner are now joint employers, termination of their commercial contract for union considerations may constitute discrimination against “employees” by the building owner under the Act. Similarly (and unbelievably), a decision by the private equity firm to sell the cleaning contractor altogether because unionization has made it unprofitable could be an unfair labor practice. In other words, the most fundamental aspect of American capitalism…the decision to go into business with another or not…may now be subject to Board regulation. As Hunton & Williams partner Kurt Powell notes, “The possibilities are as staggering as they are disturbing.”

Employers Face a Brave New World of Labor Relations

The full impact of Browning-Ferris may not be known for several years, but it is clear that without Congressional intervention (or a successful challenge in the courts), businesses that have long premised their operations on the economic advantages of flexible business arrangements face potentially untenable obstacles to continuing those relationships. Hunton & Williams partner Tom Murphy wonders: “If franchisors know they will be responsible for the employment decisions of their franchisees and the actions of the franchisee’s employees, is there a good reason left to maintain the franchise business model?”