On August 27, 2015, the National Labor Relations Board (NLRB or the Board) overturned longstanding precedent when it issued its widely-anticipated decision in Browning-Ferris Industries of California Inc., 362 NLRB No. 186 (August 27, 2015). The 3-2 Board majority significantly broadened the standard for determining the circumstances under which two entities are considered joint employers under the National Labor Relations Act (NLRA).
Historically, two companies could be deemed joint employers under the NLRA only when both entities exerted direct and immediate control over the essential terms and conditions of employment. The new test set forth by the Board focuses on whether an entity has a “common-law employment relationship with the employees” and whether it “share(s) or codetermine(s) those matters governing the essential terms and conditions of employment.”1 A critical part of the analysis involves whether the “putative joint employer possesses sufficient control over employee’s essential terms and conditions of employment.”2 The Board determined that possession of sufficient control may be established if a company has indirect control of the employees’ terms and conditions of employment or when it simply reserves the right to exert such control. This departure from the well-established joint employer standard could have broad implications on unionized and non-union companies, staffing agencies, subcontractors, and franchise operators.
BFI Newby Island Recyclery (BFI) owned and operated a recycling facility, where it directly employed the services of several workers. BFI also subcontracted a portion of the operation to Leadpoint Business Services (Leadpoint), which provided its own staff of supervisors and workers. The case arose when a union sought to represent certain Leadpoint employees and filed a petition claiming that BFI was a joint employer under its temporary labor services agreement with Leadpoint (the Agreement).
BFI and Leadpoint maintained separate human resources departments and employed separate supervisors at the facility. Leadpoint hired its own employees, scheduled when they worked, disciplined them, and paid them directly. The Agreement reserved certain rights to BFI with respect to the terms and conditions of these employees, but BFI generally did not assert them.
The Board’s Decision
The new ruling strips away the requirement that a joint employer’s control be direct and immediate, as long as a joint employer has the right to control. In assessing this right, the Board will consider “the various ways in which joint employers may ‘share’ control over terms and conditions of employment or ‘codetermine’ them.”3The majority stated that the right to control may be “very attenuated” or indirect.4
The three-member Board majority declared that it was “return[ing] to the traditional test used by the Board” in applying its restated test for joint employer determinations. The Board cited numerous previous decisions as examples of cases that took a narrow view of the joint employer standard that is inconsistent with the realities of today’s workplace. Specifically, the Board overruled its decisions in TLI, AM Property,Lareco, and Airborne Express.5
Ultimately, the majority found that BFI was a joint employer for Leadpoint’s workers because it exercised indirect control over the employees in a variety of ways, including the following:
- BFI supervisors assigned tasks to Leadpoint employees;
- The Agreement prevented Leadpoint from hiring former BFI employees deemed ineligible for rehire;
- BFI prohibited Leadpoint from paying Leadpoint employees more than BFI paid its own employees for similar work; and
- BFI had the unqualified right to discontinue any Leadpoint worker under the Agreement.
Implications of the Decision
The dissent predicts that the majority’s ruling will create substantial adverse consequences for laws applying to close business relationships, including franchisor-franchisee, creditor-debtor, parent-subsidiary, and contractor-subcontractor relationships. The decision potentially affects every industry sector, as companies have structured their business operations under the decades-old understanding that absent direct control an entity will not be a joint employer under the NLRA.
Takeaways and Best Practices
Employers will need to reassess their business practices to reduce the risk of joint employer liability under the NLRA. Although the Board failed to provide clear guidance on how a business can guarantee its status as an unrelated entity, companies should consider taking the following steps to protect themselves in light of the Browning-Ferris decision:
- Carefully review all contract relationships and agreements involving services by personnel who arguably could be considered joint employees, especially agreements with staffing agencies and contractors whose employees work on-site;
- Consider adding agreement provisions that require the third party contractor to indemnify the employer from joint employer liability;
- Ensure that the work performed by the entity’s employees and the third party’s employees are distinguishable;
- Make certain that third parties establish their own terms and conditions of employment separate from the employer’s; and
- Eliminate unnecessary and potentially problematic provisions that bear on whether the employer has the right to influence the terms and conditions of employment of the contractor’s employees.