Yesterday, the National Labor Relations Board (“Board”) overruled Browning-Ferris Industries, 362 NLRB No. 186 (2015) (“BFI”) and returned to the pre-BFI standard that governed joint employer liability. Hy-Brand Industrial Contractors Ltd., 365 No. 156 (December 14, 2017) (“Hy-Brand”).

The BFI decision set forth a broad definition of “joint employer,” imposing liability and requiring bargaining in situations where a business possesses only potential and indirect control over the employees in question. BFI received widespread criticism from both unionized and union-free businesses, as the BFI test was unpredictable and fundamentally altered the law applicable to a number of business relationships including: user-supplier, contractor-subcontractor, franchisor-franchisee, parent-subsidiary, predecessor-successor, lessor-lessee, and creditor-debtor. Efforts to overturn BFI have been ongoing since 2015, including the Save Local Business Act which was advanced to the Senate in November 2017.

In a 3-2 vote, the new Republican NLRB majority overturned the controversial standard set forth in BFI that under the National Labor Relations Act (the “Act”), a company could be deemed a joint employer of another company’s employees even if the company had never exerted overt control over workers’ terms and conditions or employment. The majority was composed of Board Chairman Philip A. Miscimarra (who delivered a vigorous dissent in BFI) and Board Members Marvin E. Kaplan and William J. Emanuel. Board Members Mark Gaston Pearce and Lauren McFerran, who were both in the majority in BFI, issued a dissent.

The Hy-Brand majority explained that while the panel in BFI was driven by a “well-intentioned” desire to protect employees’ collective bargaining rights with third parties, the standard created numerous problems. The Hy-Brand Board wrote: “the [BFI] standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.” Among these problems, according to the Hy-Brand majority, the BFI test destabilized bargaining relationships and created unresolved legal uncertainty, threatened existing franchising arrangements in contravention of Board precedent and trademark law requirements, undermined parent-subsidiary relationships, dramatically changed labor law sales and successorship principles, and discouraged efforts to rescue failing companies and preserve employment. Accordingly, the Hy-Brand Board announced it was returning to the principles governing joint employer status that existed prior to BFI and applying this standard prospectively to all pending and future cases.

Thus, under this standard, “a joint-employer finding shall once again require proof that the putative joint employer entities have actually exercised joint control over essential employment terms”, like the right to hire, terminate, discipline, supervise, and direct those employees. BFI is welcome news for the business community because gone are the days when “reserved authority” to control will automatically render two entities joint employers of one another’s employees. Rather, an employer may be considered a joint employer in relation to the other employer’s employees only if such employer “directly and immediately” – and not in a “limited and routine” manner – exercises significant control over the essential terms and conditions of employment. A more balanced and predictable assessment will be applied in future cases. However, with the reversal of BFI, a variety of employers may still be at risk of a joint employment finding under the NLRA, including but not limited to some of the relationships described above (e.g., user-supplier, contractor-subcontractor, franchisor-franchisee). Therefore, employers wishing to avoid a joint employer finding should assess these and other corporate/employment relationships under Hy-Brand and the pre-BFI cases and develop a labor policy consistent with these principles.