As the National Labor Relations Board (the "Board"), traditionally the arbiter of all issues involving labor and unions, continues to broaden its reach into the world of non-union employers, it has begun to dismantle decades-old precedent along the way. Earlier this year, in one of its most high profile decisions to date, the Board overturned long-standing precedent regarding the test for joint-employer status in the Browning-Ferris Industries of California matter. Until Browning-Ferris, employers could rest easy knowing that the Board would not consider them joint employers with staffing agencies, contractors, and franchisees unless they actually exercised control over those entities’ employees. TheBrowning-Ferris decision removes the actual control requirement of the joint-employer test and, in doing so, the Board has shaken up the employment world.

Customarily, under federal, state and local labor and employment laws, including the National Labor Relations Act (which the Board is responsible for interpreting, regulating, and enforcing), joint employers exist where two separate legal entities share control or codetermine essential terms and conditions of employment, such as hiring, firing, disciplining, supervising, and directing employees. A primary requirement for establishing the employer-employee relationship is that the employer actually exercise control over the employee. Where a joint employment relationship is found, both entities must comply with the applicable laws with respect to the employees at issue and are liable as employers under these laws.

In a sweeping departure, the Board announced in Browning-Ferris that joint employer status will now exist not only where an entity controls the terms and conditions of control of another business’s employees, but also when an entity has "indirect" control of such terms and conditions of employment, or where the entity has merely reserved the right to take such control. Specifically, the Board stated:

We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.

Nor will we require that, to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly – such as through an intermediary – may establish joint-employer status.

In other words, under the Board’s new joint employer test, an entity will be deemed a joint employer if (1) it does not actually exercise any control over employees’ terms and conditions of employment, but (based on a contract or otherwise) theoretically could at some undetermined point, or (2) it does not directly exercise any such control, but rather exercises control through a third party. The Board asserted that it was adopting this new standard based on common law principles of control, including assessing "overall circumstances" and "industrial realities." Thus, an entity found to be a joint employer can be held responsible for labor violations committed by their subcontractors, staffing agencies, and franchisees.

The new test leaves employers guessing as to how much indirect control they must have over other entities’ employees to be deemed a joint employer. While it is unclear what an entity must do to "affect[] the means and manner of employees’ work and terms of employment," and what it means to "share or codetermine those matters governing the essential terms and conditions of employment," it is clear that entities wishing to avoid joint employer status must take a more hands-off approach to employees of other entities. This places entities that use staffing agencies and subcontractors, or have franchisees, on high alert as they are likely to hold those entities to specific standards that affect employees’ terms and conditions of employment.

So, what is an employer to do? Below are our top five tips for employers who work with contractors, staffing agencies, and franchisees.

  1. Pay close attention to the language in contracts. Review all contracts with staffing agencies and other contractors to ensure that they do not waive a joint employment red flag. Remember the new test takes into consideration whether the potential to control employees’ terms and conditions of employment exists.
  2. Clearly communicate expectations with contractors and staffing agencies. When communicating expectations to a contractor, focus on ensuring that the entity is clear on your ultimate goal, and then leave it up to that entity to instruct its employers on how to achieve that goal.
  3. Avoid involvement in the hiring and firing process. The contract in Browning-Ferrisset conditions on the contractor’s hiring practices and allowed the company to discontinue the use of a given contracted worker. Regardless of the extent to which the company had exercised that right, the Board found that the right to such control alone weighed in favor of a joint employer finding.
  4. Do not set wage rates. Among the provisions in the contract involved in Browning-Ferris that the Board found to indicate joint employer relationship was one prohibiting the contractor from paying its employees more than Browning-Ferris employees in comparable positions were paid.
  5. Play no part in setting work conditions. This may be difficult when an employee of the contractor or staffing agency is on-site, working side-by-side with a company’s regular employees. For example, do not mandate when contracted workers will take breaks or require them to work particular hours. Leave that rule-making to their own employer.