In a recent 3-2 decision, the NLRB changed the prevailing joint employer standard under the National Labor Relations Act (NLRA) in a way that has profound implications for franchisors and employers who utilize subcontracted labor. The NLRB General Counsel first signaled its intent to change the joint employer standard last year, when it issued numerous complaints against McDonald’s as an alleged joint employer under the NLRA. Now, the NLRB has adopted that new standard.

In Browning-Ferris Industries, the NLRB addressed the question of whether Browning-Ferris Industries (“BFI”) was the joint employer of workers provided by a third-party, Leadpoint Business Services (“Leadpoint”). 362 NLRB No. 186 (NLRB Aug. 27, 2015). BFI operated a recycling facility and contracted with Leadpoint to provide workers to sort recycling materials, clean the sorting equipment, and clean the facility. The parties’ agreement specified that Leadpoint was the employer of the workers and gave Leadpoint the primary responsibility for controlling and paying the workers. Under the NLRB’s new joint employer standard, the NLRB found that BFI was a joint employer of the workers for purposes of the NLRA based on factors such as BFI’s right to reject workers provided by Leadpoint and its right to specify the tasks that need to be completed.

The Two-Part Joint Employer Standard

The NLRB’s new joint employer standard is a two-part inquiry. The first question is whether there is a common-law employment relationship with the employees in question. This question is answered by analyzing multiple common-law factors, including:

  1. The extent of control which, by the agreement, the alleged employer may exercise over the details of the work;
  2. Whether or not the one employed is engaged in a distinct occupation or business;
  3. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the alleged employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. The length of time for which the person is employed;
  7. The method of payment, whether by the time or by the job;
  8. Whether or not the work is part of the regular business of the alleged employer;
  9. Whether or not the parties believe they are creating the relation of master and servant; and
  10. Whether the principal is or is not in business.

If a common-law employment relationship exists, the second part of the joint employer test asks “whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.”  This factor focuses on whether recognizing a joint employment relationship will serve the purposes of the NLRA, specifically its policy to encourage the practice and procedure of collective bargaining.

What Is Different From the Old Standard?

The primary differences between the NLRB’s new joint employment standard and the old one involve the degree of control required for the NLRB to determine that a company is a joint employer. Joint employment can now be found even when the alleged employer’s control is never exercised or is exercised by an intermediary.

One of the changes in the new standard is that a joint employment relationship can be found where the alleged employer only possesses the authority to control the workers – even if the alleged employer does not actually exercise that authority. The NLRB explained that:

Where a user employer reserves a contractual right to set a specific term or condition of employment for a supplier employer’s workers, it retains the ultimate authority to ensure that the term in question is administered in accordance with its preference. Even where it appears that the user, in practice, has ceded administration of a term to the supplier, the user can still compel the supplier to conform to its expectations. In such a case, a supplier’s apparently independent control over hiring, discipline, and work direction is actually exercised subject to the user’s control.

Another change is that the NLRB abandoned its previous requirement that the alleged employer’s control over the workers must be exercised “directly and immediately” instead of in a “limited and routine manner.” Instead, the NLRB held that “direct and immediate control is not required.” With respect to this issue, the NLRB explained that:

Where the user firm owns and controls the premises, dictates the essential nature of the job, and imposes the broad, operational contours of the work, and the supplier firm, pursuant to the user’s guidance, makes specific personnel decisions and administers job performance on a day-to-day basis, employees’ working conditions are a byproduct of two layers of control.

As a result, the NLRB concluded that the requisite control necessary to support a joint employer relationship may be accomplished either “directly or through an intermediary” – i.e., the supplier employer.

What Are the Implications of the New Standard?

The new joint employer standard will make it easier for employers to be found to be joint employers for purposes of either a duty to collectively bargain with a union or liability for unfair labor practices under the NLRA. The primary targets of the new standard appear to be franchisors, who may be determined to be joint employers with their franchisees, or employers who utilize subcontracted labor, who may be found to be joint employers of either temporary employees or contract workers provided by third-parties.

According to Reuters, unions describe the new joint employer standard as a “game changer” and expect that it will have a significant impact in the areas of warehousing, cleaning services, and health care. For example, one union organizer believed that the ruling would force Google to collectively bargain with warehouse and shipping employees at Google Express.

Overall, the new joint employer standard raises the risk level significantly for joint employment relationships under the NLRA. Employers should consider reviewing their practices to see if there are changes that might reduce their risk. However, whether employers should change their practices in response to the Browning-Ferris Industries decision will depend on a variety of factors and will vary based on each employer’s unique situation.

Takeaway: The NLRB’s new joint employer standard is a significant change in the law. In particular, franchisors and employers who utilize subcontracted labor should pay close attention to the new standard and how it develops in subsequent cases.