Prudent employers should evaluate their contingent employee relationships in light of the NLRB’s recent decision.

To say that the National Labor Relations Board’s (NLRB’s or Board’s) recent decision in Browning-Ferris Industries of California (BFI) is controversial would be an understatement. In BFI, the NLRB reversed several decades of Board law and established a new standard for determining whether two separate employers can be considered joint employers under the National Labor Relations Act. The Board’s purpose in creating the new standard was to foster its policy of “encouraging the practice and procedure of collective bargaining.”

In short, the NLRB intended to make it easier for unions to organize contingent workers. The majority’s decision prompted a blistering dissent and a Wall Street Journal op-ed that characterized the decision as “a case study in unaccountable government.” Amidst the controversy — and before federal courts and future NLRB decisions reverse, refine or uphold BFI — prudent employers should take steps to cope with the joint employer issues raised by the decision.

The New Joint Employer Standard

The joint employer standard prior to BFI required a finding that (1) two or more separate companies shared or co-determined matters governing the essential terms and conditions of employment; (2) the essential terms included matters related to hiring, firing, discipline, supervision and direction; and (3) the exercise of the control over the essential terms of employment was direct and immediate and excluded limited and routine supervision over instructing workers about what work to perform, as well as where and when to do the work.

The new joint employer standard, by comparison, requires only a finding that (1) the two separate employers are both employers within the meaning of the common law and (2) they share or co-determine matters governing the essential terms and conditions of employment, which encompasses a broad variety of factors, including hiring, firing, discipline, supervision, direction of work, wages, hours of work, scheduling the number of workers, seniority, overtime, and work assignments. The exercise of such control does not have to be direct and immediate, and the mere right to control, even if unexercised, is probative of a joint employer relationship. Additionally, the Board will no longer exclude limited and routine supervisory authority over workers from its joint employer analysis. A review of the factual background of the NRLB’s decision reveals how far the new joint employer standard extends.

Case Background

In 2009, BFI, the owner of a mixed-waste recycling facility in California, contracted with Leadpoint Business Services, a staffing company, to provide workers to sort various types of recyclable materials at BFI’s recycling plant. The temporary labor services agreement contained typical provisions that required Leadpoint to hire its employees; discipline, evaluate and terminate employees; determine pay rates; schedule its employees; and provide job training. The agreement allowed either party to terminate the agreement upon thirty days’ notice. Leadpoint also employed an on-site manager, three shift supervisors and seven line leaders to oversee its employees at BFI’s facility. Teamsters Local 350 (the Union) sought to represent the 240 full- and part-time Leadpoint workers at BFI’s facility. The NLRB Regional Director issued a decision and directed an election finding that Leadpoint was, in fact, the sole employer of its employees — a determination with which both BFI and Leadpoint agreed. The Union, however, disagreed and requested the NLRB to review the Regional Director’s decision to find that BFI and Leadpoint were joint employers for purposes of the Union’s representation petition.

Despite the Regional Director’s proper application of existing law, and the significant evidence that Leadpoint maintained material control over its employees, including on-site supervision, the NLRB took the opportunity to establish its new joint employer standard and reversed the Regional Director’s decision. In doing so, the Board focused on several provisions in the labor services agreement to determine that BFI had some level of control in the hiring process of the Leadpoint workers. Specifically the Board focused on requirements that Leadpoint, with instruction from BFI, ensure that its personnel were qualified and passed a preassignment drug screen and that Leadpoint make reasonable efforts not to refer workers who were not eligible for rehire with BFI.

With respect to hours of work, the Board noted that BFI operated three work shifts and that Leadpoint had no input into the shift schedules, even though Leadpoint scheduled all of its employees on the available shifts without input from BFI. The Board also referred to minor incidents of indirect worker supervision and the contractual provision that the Leadpoint employees were required to abide by BFI’s safety policies and training requirements to support its joint employer analysis. The Board majority conceded that it is “possible” that a potential joint employer’s control might be too limited to permit it to engage in meaningful collective bargaining and could, therefore, avoid joint employer obligations. Given the extensive analysis articulated by the Board, it is difficult to imagine a real-life arrangement between a staffing company and its customer that does not include multiple indicia of a BFI­-like joint employment relationship.

Impact of the Decision

For most employers, the predictable impacts of the NLRB’s joint employer test are likely to be seen in areas outside traditional labor law. Employers that contract with professional employer organizations (PEOs), whether knowingly or not, are parties to a joint employer relationship as a matter or contract. The National Association of Professional Employer Organizations takes a neutral position towards unions, and any false sense of security that the PEO will be deemed the sole employer should be abandoned. In most PEO relationships, it is the contracting employer who exercises most of the employer control. Plaintiffs’ employment attorneys are likely to seize upon the new joint employer analysis to support discrimination and wage and hour claims against more than one defendant. Buyers and sellers in corporate transactions will need to address their staffing and contingent worker relationships in due diligence and in allocating risk in the governing transactional documents.

The current climate before the NLRB and the Department of Labor (DOL) favors finding employee status that may impose liability on nonemployers. A recent memorandum issued by the DOL noted its position that most independent contractors are actually employees under the Fair Labor Standards Act and entitled to its statutory protections.

What to Do

Employers that supplement their workforces with contingent employees need to review those existing contractual relationships to determine whether they inadvertently contain provisions that reserve the right to control certain aspects of the contingent workers’ terms and conditions of employment. The analysis of those agreements should be done with an understanding of the risks associated with maintaining or eliminating control over the terms and conditions under which the contingent workers are retained under the new legal standard for joint employer liability. Relinquishing contractual or actual control may be appropriate for some employers, but impractical for others. Contractual terms in staffing agreements regarding indemnification and insurance coverages, often considered “boilerplate,” will require special attention in light of the increased exposure to liability.

At a minimum, the BFI majority’s decision should be a reminder for employers to focus efforts on maintaining positive employee relations with their own employees as well as their contingent workers. The broader scope of potential exposure established by the BFI decision requires a new awareness of how the contingent workers interface with the primary employer’s employees. The traditional triggers for union organizing have not changed. Employers with well-trained and informed managers who create positive work environments that minimize the prospect of labor unrest are in the best position to effectively run their businesses while reducing their liability profile.