In a landmark ruling yesterday, the National Labor Relations Board (the Board) dramatically revised its standard for determining when two businesses constitute “joint employers” for purposes of collective bargaining and liability under the National Labor Relations Act (the Act). This decision may have far-reaching implications for businesses nationwide.

For decades, the Board has held that a company is a joint employer of a separate entity’s employees only if it actually exercises “direct control … over the terms and conditions of the workers.” To determine whether a business is a joint employer, the Board must first determine whether there is a common-law employment relationship with the employees in question. If there is, the inquiry turns to whether the business possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining. Most importantly, the Board required that the joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority, and that any control over employment must be “direct and immediate.”

Yesterday’s decision greatly relaxed that standard. In Browning-Ferris of California, Browning-Ferris Industries (BFI) operates a recycling and waste processing facility in Milpitas, California. Inside the facility, employees sort and process recyclable materials on large conveyor belts. Those employees are not BFI employees, but workers provided by an employment agency – Leadpoint. At the facility, BFI and Leadpoint maintain separate supervisors and HR departments. Leadpoint has total hiring discretion; however, evidence in the record indicated that Leadpoint employees were occasionally disciplined as a result of BFI action, including a request by a BFI manager that two employees caught drinking on the job be immediately dismissed. Leadpoint set salaries for its employees, but the agreement between Leadpoint and BFI prohibited Leadpoint from paying its employee more than BFI employees performing the same tasks. BFI controlled all scheduling, including whether or not to keep the facility open for overtime work.

In Browning-Ferris, the Board majority stated that it will no longer require that joint employers actually exercise the authority to control terms and conditions of employment, and that instead reserved authority – the mere potential to control wages and working conditions even if not exercised – is relevant to determine joint employer status. Moreover, an employer’s control need not be “exercised directly and immediately.” Indirect control may also establish joint-employer status. According to the majority, this “restated” standard is not new but instead represents a return to the standard used in older Board decisions and endorsed in 1982 by the Third Circuit inNLRB v. Browning-Ferris Industries of Pennsylvania, Inc. In announcing the restated standard, the Board explicitly overruled all Board decisions that had previously held a joint employer must exercise direct and immediate control over employees.

The Board justified its “recalibration” of the joint employer standard by pointing to major changes in the workforce. As of August 2014, the number of workers employed through temporary agencies had climbed to a new high of 2.87 million, a 2 percent share of the nation’s work force. In light of these changes, and the Board’s review of its pre-1982 decisions, the Board found that a joint-employer standard which requires the actual exercise of control is too strict. Now, control over terms and conditions of employment need not be actually exercised, nor does it have to be exercised “directly or immediately.”

In a blistering dissent, Board members Miscimarra and Johnson criticized the majority for re-writing 30 years of Board precedent. According to the dissenters, the new standard will subject “countless entities” to new bargaining obligations, potential unfair labor practices, and economic protest activities which, under the old standard, would be unlawful. While the decision may be as disruptive as the dissenters suggest, it did not come as a surprise. Last year, we discussed the possibility of this new standard, reviewing the Board General Counsel’s decision to authorize 43 complaints of unfair labor practices brought by McDonald’s workers, naming both the McDonald’s Corporation and its franchisees as joint employers which would hold them jointly responsible for the unlawful actions.

Yesterday’s decision will have a direct impact on businesses other than fast food restaurants, and employers must be careful to maintain strict separation where feasible. The more discretion a business can vest in its subcontractor or franchisee, the more likely it will be able to avoid a costly joint employer determination.