Outsourcing and using temporary workers has once again become riskier in the U.S. Joint employer liability is fast becoming the prevailing trend to reach U.S. companies for labor and employment law violations in state and federal courts and by administrative agencies.  On August 27, 2015, the National Labor Relations Board (NLRB) joined that trend in its decision in Browning-Ferris Industries of California (“Browning-Ferris”), 362 NLRB No. 186, establishing a far more labor-friendly definition of companies that can be found to be a joint employer under the National Labor Relations Act (NLRA). 

In this Client Alert, we highlight the context in which the Browning-Ferris dispute arose, the new definition of joint employer established by the NLRB, the risks and impacts for U.S. employers and potentially franchisors as a result, and the steps U.S. companies and franchisors may consider taking to defend against joint employer attacks.  

Background

Browning Ferris Industries of California (“BFI”) operates a recycling facility and outsourced several positions -  sorters, screen cleaners and janitorial services - to a staffing agency Leadpoint Business Services (“Leadpoint”), which provided BFI full-time, part-time and on-call workers under a temporary labor agreement.  Abandoning a long-established standard for determining joint employer status and replacing it with a new, more easily met standard, the NLRB held the relationship of BFI to Leadpoint’s employees was sufficient to establish joint employer status.

New Definition of Joint Employer

Under the NLRB's new standard, two or more unrelated companies may be found joint employers of the same employees under the NLRA “if they share or codetermine those matters governing the essential terms and conditions of employment.”  To determine this, the NLRB will look to the following:

  • Whether there is a “common-law” employment relationship between the potential joint employer (“user firm”) and the labor provider's (“supplier firm”) employees; and  
  • Whether the user firm has meaningful control over the supplier firm’s employees, whether or not exercised either directly or indirectly.

Factors used to determine the common law relationship and control are extremely broad under the NLRB's new standard when considered in the context of outsourcing, and include not only traditional matters such as hiring, firing, discipline, supervision and direction, and determining the manner and method of work, but now also include factors such as wages and hours, number of workers supplied, scheduling, seniority, overtime, and work assignment.

Overview of New Risks and Impact on Business

Most businesses use outsourced labor in some form, be it security, maintenance, mail room or copying services, secretarial, janitorial, catering, administrative or other on-call or temporary general labor.  Those businesses will almost certainly exhibit sufficient control over some term or condition of employment of those contractor employees to meet the new joint employer standard, opening up many U.S. businesses to potential joint employer liability not currently contemplated.  The NLRB's standard will likely be reviewed by a court of appeals in this or another case if an employer refuses to bargain with a union claiming joint employer representation obligations.  In the meantime, it can be expected to be evaluated in the context of other joint employer claims, such as discrimination, FLSA wage and hour liability, or leave of absence or disability accommodation claims. 

At least with respect to NLRB liabilities, and unless overturned, a user firm employer will now be responsible for their supplier firm subcontractor’s employees in the following areas:

Bargaining with the subcontractor employees’ union regarding “terms and conditions it possesses the authority to control”

The bargaining obligation is the most substantial impact of the NLRB's decision.  Under the standard articulated by the NLRB, retained contractual authority over a particular term or condition of employment will be enough to establish “control” and therefore require bargaining with the union over those terms.  For example, if the user firm sets rates, work rules, schedules, methods of performance, has the ability to discipline, evaluate or terminate supplier firm employees, or impact other terms of work (or has a contractual right to do so) in its temporary labor agreement, it will now be accountable for bargaining over those terms.  Unless a user employer is prepared to bargain over the term, companies should shy away from broadly-drafted retained rights provisions in temporary labor agreements.  For those terms and conditions of employment that are retained by the user firm, the user firm should expect to be called to the table during bargaining, possibly embroiled in labor disputes, and, most importantly, may be unable to end a contract with a labor supplier before bargaining with the union over the term - to impasse, if necessary. 

Liability for unfair labor practices

User firm employers will now be jointly liable for unfair labor practices.  This will potentially cause numerous issues in heavily subcontracted industries with expansive geographic distribution.  For example, the user firm could be named and may be required to defend even the most basic unfair labor practice charge filed against any of its locations to avoid potential liability and/or the possibility of unfair labor practice picketing across the entire user brand.  It may also cause the notable consequence that a primary employer may no longer dismiss a contractor based on labor disputes or organizing without being subject to liability and, potentially, injunctive relief to prohibit the dismissal.

Picketing and secondary boycotts

User firm employers may now be subject to picketing when a subcontractor is involved in a labor dispute.  In the absence of a joint employer finding, picketing is typically unlawful against the user firm (also known as a secondary boycott).  If the two firms are joint employers however, picketing would be allowed against both.  This could result in disrupted work, brand damage, and a host of other issues for which a non-unionized user firm is unprepared.  For example, expansive picketing against a user firm based on disputes with one group of employees could impact production for other employee groups, if other workers refuse to cross a picket line.

Impact on Franchisors

There is significant uncertainty about the potential impact of the NLRB’s new joint employer standard on franchisors, and what types of indirect controls will or will not subject a franchisor to joint employer status under the NLRB's new ruling.  The NLRB noted in its decision that the particularized features of franchisor/franchisee relationship were not present in the outsourcing context before it.  The NLRB General Counsel's amicus brief also argued that the Board "should continue to exempt franchisors from joint employer status to the extent that their indirect control over employee working conditions is related to their legitimate interest in protecting the quality of their product or brand."  In any event, franchisors should be prepared for claims against them for joint employer liability before the NLRB and elsewhere.  In August, the NLRB Board denied a request by McDonalds for a detailed explanation of what it means to be a joint employer in the context of the cases pending against that franchise company.

Expectation of What’s to Come

Joint employer liability is a consistent line of attack in today's era of administrative and judicial enforcement of employment laws.  It is likely that the barrage of labor-friendly decisions floated by this joint employer trend will continue.  We anticipate the following will occur in the near term:

  • Combined bargaining units with subcontractor and user firm employees (pending an upcoming decision from the NLRB inMiller & Anderson (Case No. 05-RC-079249));    
  • Unionized subcontractors or staffing agencies may try to negotiate or include sufficient controls over its employees' terms in the staffing contracts in order to create a joint employer relationship with the user firm, which would work to prevent or delay the re-negotiation or the termination of the staffing contract with the user firm.    
  • New joint employer standards from the DOL, EEOC and other federal agencies that mirror the NLRB's new broad standard; and    
  • Increased litigation in an attempt to extend employment liabilities for the outsourced or franchisee employees.

Steps U.S. Companies Should Consider Taking Now to Minimize Liability

  • Reconsider the value of outsourcing certain functions, particularly in industries susceptible to unionization.  
  • Require broad indemnity protection in subcontracting and franchise agreements.  
  • Evaluate “control” language in contracts relating to labor and working terms and conditions, and eliminate those which will never be exercised or are not truly necessary  
  • Redouble efforts to separate day-to-day control over temporary or supplier employees, including in related documents.  For example, policy and operations manuals, and staffing contracts, should all consistently make clear that:  
    • Decisions on employee hiring, firing, wages and hours, supervision, discipline, seniority, rates, work rules, schedules, and manners and methods of performance, are left within the contractor's or franchisee’s control as much as possible;  
    • Any guidance and recommendations on such terms provided by the user firm or franchisor are expressly recommended, but not mandatory;  
    • For franchise agreements in particular, link everything else (e.g., qualifications for managerial employees, employee training, uniforms and other operational requirements) to the protection of the brand.