NLRB At It Again: Joint Employer Doctrine Changed By Administrative Fiat


I just wrote about the National Labor Relations Board (NLRB) a month ago, but the agency is making headlines again—this time for overturning a thirty year definition of “joint employers.”

The joint employer doctrine comes into play when one entity (the actual employer) employs workers to perform services for another entity (the so-called joint employer), and there is some reason to think the joint employer should have equal accountability with the actual employer. The second corporation might be a parent of the actual employer, the customer of a temporary staffing agency or service provider, or a franchisor.

For the past thirty years, the NLRB’s test for holding a corporation to be “joint employer” has been to require that entity to have “direct and immediate control” of the “essential terms and conditions” of the workers in question. “Essential terms and conditions” was defined to include hiring, firing, discipline, and termination.

Moreover, it was not enough for the second corporation simply to have the authority to act—that company had to actually exercise control. This “actual exercise of control” was a relatively bright line test, enabling parent companies, franchisors, businesses using staffing agencies, and other entities to avoid becoming responsible for people they knew very little about. If they didn’t exercise any control, they wouldn’t be a joint employer.

On August 27, 2015, in a 3-2 opinion issued along party lines, the NLRB adopted a new “economic realities” test. See Browning-Ferris Industries, Inc., 362 NLRB No. 186 (Aug. 27, 2015). This test creates new ambiguities on several points.

First, the definition of “essential terms and conditions” is broadened. The NLRB now defines these as “hiring, firing, discipline, supervision, direction, wages, hours, the number of workers to be supplied” and “controlling scheduling, seniority, overtime, assigning work and the manner and method of work performance.” In other words, any attempt to define how work is done on one’s premises can make an entity a joint employer in proceedings before the NLRB.

Second, the NLRB will now permit the “joint employer” doctrine to apply even where the second employer has not actually exercised immediate and direct control. Control through an intermediary is sufficient. Reserving the right to exercise control—even where that control is not actually exercised—can be sufficient. Even where the alleged joint employer reserves control over only a few of the terms and conditions, the NLRB might apply the doctrine.

For example, if a contractor provides janitorial services for a customer, that customer can become a joint employer simply by specifying the schedule when the services are to be performed. The NLRB’s language in the Browning-Ferris opinion is broad enough to support such an interpretation.

This means that all contracts between businesses and any parties providing services for that business potentially could give rise to joint employer status. If a standard for the quality of work the contractor provides is specified in the contract—and if it isn’t, why have a contract?—then the NLRB might swoop down to involve the business in the contractor’s labor problems.

The actual facts of the Browning-Ferris case did involve more involvement than the NLRB’s broad language supports. In that case, which involved a Browning-Ferris recycling facility with workers hired by a contractor, Browning-Ferris set out hiring criteria, reserved the right to terminate workers, set pay ceilings, and shift lengths. But the NLRB did not limit its ruling to cases with this much involvement by the alleged joint employer.

As a result of this decision, Browning-Ferris must now be involved in the negotiations if and when the contractor employees unionize. (The case involved a vote on unionization, and the ballots had not yet been counted.)

The ostensible purpose for the new test is to make businesses using contractors and staffing agencies more responsible for labor activities on their premises. But the potential application of the test is far broader. In “Labor Board Ruling Eases Way for Fast-Food Unions’ Efforts” by Noam Scheiber & Stephanie Stromaug (Aug. 27, 2015), The New York Times reports that

“Unions are expected to seek to apply the ruling beyond the circle of companies that rely on contractors and staffing agencies, extending it to companies with large numbers of franchisees — even, some argue, to money managers who own significant stakes in corporations.”

As a result of the Browning-Ferris ruling, companies cannot be sure the NLRB will not bring them into labor issues between a contractor and the contractor’s employees. Any business with non-employees performing services on its premises—or even off premises but clearly for the benefit of the business—now risks additional labor problems. These labor issues could include joint collective bargaining, strikes, and picketing. Moreover, the company might well become exposed to unfair labor practice charges for anything it does to enforce quality or other standards specified in its agreement with the contractor.

Money and management time are likely to be spent in dealing with the increased likelihood of NLRB and union involvement in what were previously private arrangements between businesses and their service providers.

As a first step, businesses need to consider all relationships with contractors that provide them with temporary workers or services on their premises. To minimize the risk of being found to be a joint employer, they should reduce the types of control they can exercise over workers under the contract—recognizing that they may be giving up some quality control, and balancing the legal risk with the desired outcome from the services.

Lest one think that this is primarily a concern for large corporations, many small businesses are not happy with the ruling either. The article, “2 Big Takeaways From the New Labor Ruling” by Jeremy Quittner, (Aug. 28, 2015), on Inc.com, makes the point that small businesses use contractors also. These small businesses are now more likely to be drawn into union negotiations and to have difficulty changing or terminating contract terms.

Furthermore, small business franchisees might well see more interference from their franchisors, as the franchisors seek to minimize the risk of liability if they are brought into labor problems of the franchisees. What, then, are the advantages of franchising for either franchisor or franchisee?

Because this new test was adopted by a regulatory agency, Congress can reverse it. Business groups are already calling for Congress to reinstate the more limited definition of “joint employer.” But Congressional action would likely be met by a veto from President Obama.

Do you think the expanded joint employment doctrine will help or hurt businesses? What about employees?

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