Reversing course from more than 30 years of precedent, the National Labor Relations Board significantly expanded its standard for determining when two entities constitute a single joint employer over a unit of employees. In so doing, the NLRB creates questions about a number of entity relationships such as parent corporation/subsidiary, contractor/subcontractor and franchisor/franchisee relationships.

The potential to exercise control

Since 1984, the board’s standard for determining whether an entity was a joint employer required a showing that the entity’s control was “immediate and direct” rather than “limited and routine.” Further, in its previous decisions, the board focused on control that was actually exercised over employees rather than control that hypothetically could be exercised. However, in its recently released decision Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), the NLRB overruled its prior standard and concluded that an entity with the potential to exercise control over another entity’s employees was a joint employer and was obligated to participate in the collective bargaining process with respect to those issues in which the entity could exercise control. Additionally, the NLRB concluded that the potential control need not be directly exerted; rather, joint employer status could be based on control exercised indirectly through a third party.

The Browning-Ferris case involved an arrangement in which Browning-Ferris Industries of California, Inc. (BFI) contracted with a third party, Leadpoint Business Services, to provide employees who performed work at BFI’s facility. It was undisputed that Leadpoint was an employer — the issue was whether BFI, the recipient of the Leadpoint employees’ services, was a joint employer. In reaching its conclusion that BFI was a joint employer, the NLRB looked at a number of factors, in particular the contract between BFI and Leadpoint to determine whether BFI retained potential control over the Leadpoint employees’ terms and conditions of employment, regardless of whether BFI actually exercised that control. Notably, while the board did identify factors to consider under the newly announced test, it pointed out that the analysis is fact specific and refused to comment on the potential impact of the new test on facts other than those before it.

Other employee scenarios

While the Browning-Ferris case involved a leased-employee relationship, the NLRB’s decision could extend well beyond the temporary or leased employee scenario. The board has not given guidance on the potential effects the new standard may have on other types of relationships. For example, a parent corporation may indirectly exercise some authority over the employees of its subsidiary by requiring the subsidiary to meet certain standards. A franchisor may require its franchisees to apply standards for purposes of system consistency and trademark protection that indirectly affect employment conditions of franchisee employees. Contractors may require subcontractors to work certain hours or meet certain production standards. While these scenarios may not definitively create joint employer status, it is conceivable that any of these circumstances could satisfy the NLRB’s new test. The implications of joint employer status are significant, including obligations to collectively bargain and potential liability for unfair labor practice charges.

It is unclear whether BFI will file or need to file an appeal of the NLRB’s decision. The NLRB conducted the representation election prior to issuing its ruling and had impounded the ballots. Those ballots will be counted. In the event the union prevails in the election, BFI has the right to appeal the NLRB’s decision to either the 9th Circuit or D.C. Circuit Court of Appeals.