The National Labor Relations Board recently announced a significant change in the standard under which companies may be deemed "joint employers." Absent intervening action by the courts or Congress, the Board's decision in Browning-Ferris Industries of California, Inc. will likely have a major impact on companies that use contract labor in their business operations, and potentially on parties to franchise agreements as well.

Background Browning-Ferris Industries of California ("BFI") operated a recycling facility where mixed waste and recyclable materials were separated, sorted, and sold to other businesses. BFI had a labor services contract with staffing agency Leadpoint Business Services, under which Leadpoint supplied BFI with workers who sorted materials on the plant's conveyor belts, cleaned screens on the sorting equipment, and cleaned the facility. The agreement between BFI and Leadpoint explicitly stated that Leadpoint was the sole employer of the workers supplied to BFI, and that no employer relationship existed between BFI and the Leadpoint's personnel.

Under the terms of the contract, Leadpoint was responsible for selecting, hiring, disciplining, and terminating employees assigned to work at BFI's plant. Each worker supplied by Leadpoint had to meet certain criteria specified by BFI, and BFI could reject any worker provided by Leadpoint. Leadpoint was responsible for paying its employees, but could not pay them a higher rate than BFI paid its own employees who performed similar tasks, unless BFI first approved the higher rate. Leadpoint determined which shifts its employees would work at the BFI plant, but BFI controlled the actual timing of the shifts. BFI retained control over how many workers would be assigned to each sorting line, over the pace at which materials on each line ran, and over productivity standards for the lines. BFI and Leadpoint employed their own supervisors at BFI's recycling plant, and each company maintained its own, separate human resource department.

A local Teamsters union wanted to represent the Leadpoint employees who worked at BFI's plant, and petitioned to bargain with BFI as a "joint employer" of the workers. After the Regional Director of the local NLRB office determined that BFI had no duty to bargain with the union because it was not a joint employer of Leadpoint's employees, the union successfully appealed its case to the national NLRB.

The New "Joint Employer" Rule The Browning-Ferris Industries decision creates an incredibly expansive standard for determining joint employer status under the National Labor Relations Act ("NLRA").

The NLRA mandates that a company participate in collective bargaining negotiations if its workers choose a union to act as their designated representative. This duty to bargain typically applies only to the company that directly employs the represented workers. But in some situations, two or more companies may be considered "joint employers" of a single group of workers. Companies deemed "joint employers" under the NLRA bear the burden of being forced to participate in collective bargaining negotiations with the employees of another employer.

For thirty years, the NLRB has consistently held that two companies could be considered "joint employers" of a single group of workers only if both companies exercised direct and immediate control over essential terms and conditions of the workers' employment. However, under the new rule announced in Browning-Ferris Industries: two or more companies may be deemed joint employers of a single group of workers "if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment."

The Board further explained that a company's exercise of direct or indirect control over the terms and conditions of workers' employment -- or even a reserved right to exercise such control -- can create joint responsibility for bargaining with the representative of another employer's workers. This means companies can potentially be on the hook for joint employer liability by merely retaining a contractual right to control certain aspects of workers' employment, regardless of whether the right is ever actually exercised.

Although the Board's three-member majority focused its attention on joint employer liability for companies that contract labor through third parties, its decision has significant implications for franchise owners as well. Indeed, the Board's two Republican-appointed members argued in a blistering dissent that the effect of the decision on franchising relations "will almost certainly be momentous and hugely disruptive."

Don't Hit the Panic Button, But Do Take Action to Reduce Your Exposure Moving forward, BFI may appeal the Board's decision to federal court. Congressional members are already preparing legislation designed to limit or invalidate the Board's decision. The Board is also scheduled to hear a series of cases against fast food giant McDonald's before the end of the year, which should provide better insight into how the new rule will apply in the franchise context. One way or the other, it will likely be months before the dust settles and the true impact of the Board's decision is understood.

In the meantime, companies that have agreements with staffing agencies or other third parties to provide contract workers should carefully review those agreements, and identify areas in which they have retained the right to control the terms and conditions of contract workers' employment. Where feasible, agreements should be modified to reduce contractually-reserved control over contingent workers, in order to minimize the risk of being considered a joint employer under the NLRA.

Companies should also evaluate the employment practices of the entity that is providing the contract workers, as well as review and monitor how staffing agreements are actually being implemented on a day to day basis. As part of this review, companies should make sure that their own supervisors on the ground -- particularly those that interact with contract workers -- are acting in a manner consistent with the terms of the staffing agreement.

Companies that are parties to franchise agreements, companies that use subcontractors, and even parent companies with subsidiary businesses, should engage in a similar review and analysis of relevant contracts and their implementation to identify areas of potential joint employer liability under the NLRA.