NLRB Creates New “Joint Employer” Standard

The National Labor Relations Board (“NLRB” or “Board”) has revised its test for determining when a business should be treated as a “joint employer” with another entity for purposes of federal labor law – and the result is not good for employers.

The New Test

Under the Board’s controversial ruling, a business will be treated as a “joint employer” and, as such, may become subject to union election petitions, bargaining obligations, strikes, and picketing relative to employees of another entity, if the business merely (a) possesses “reserved but unexercised” authority over the working conditions of these individuals, such as through an agreement with a staffing company, or (b) exercises “indirect control” over them, “such as through an intermediary.”

Practical Implications

As a result of this decision, in many cases, contractors now may be found to jointly employ the employees of their subcontractors; franchisors now may be found to jointly employ the employees of their franchisees; employers with contingent workforces now may be found to jointly employ the temporary workers provided by staffing companies; and so on. If the Board had any limitations on its new standard in mind, it did little to articulate them.

Sharp Departure

The Board’s new approach departs sharply from the “joint employer” test the Board had used for more than 30 years. Under the prior test, a business could not be treated as the “joint employer” of another entity’s employees unless the business (a) not only possessed but actually exercised authority over their terms and conditions of employment, and (b) exercised this control directly and immediately.

Case Summary

The case in which this ruling was made, Browning-Ferris Industries of California, Inc., is illustrative.

The Parties

Browning-Ferris Industries (“BFI”) owns and operates a recycling facility. BFI directly employs approximately 60 workers, who mostly work outside the facility gathering recyclables. BFI contracts with Leadpoint Business Services (“Leadpoint”) to sort the materials inside the facility and provide related services.

The Parties’ Agreement

The BFI-Leadpoint relationship is governed by a temporary labor services agreement (the “Agreement”). Either party can terminate the Agreement at will on 30 days’ notice. The Agreement states that Leadpoint is the sole employer of the personnel it supplies and that the Agreement shall not be construed to create an employment relationship between these individuals and BFI.

The Agreement is a “cost plus” arrangement in which BFI compensates Leadpoint for each worker’s wage plus a specified percentage markup. The Agreement specifies that Leadpoint “solely determines the pay rates paid to its Personnel” subject only to the limitation that Leadpoint may not, without BFI’s approval, “pay a pay rate in excess of the pay rate for full-time employees of [BFI] who perform similar tasks.”

Leadpoint employees must sign a benefits waiver stating that they are eligible only for benefits offered by Leadpoint. The waiver includes an acknowledgment that Leadpoint employees are not eligible to participate in any benefit plans of BFI.

Under the Agreement, Leadpoint recruits, interviews, tests, selects, and hires the personnel it supplies to BFI. Leadpoint ensures that its personnel have appropriate qualifications, arranges for background checks and drug screens, and makes “reasonable efforts” not to provide workers who were previously employed by BFI and deemed ineligible for rehire.

New hires receive orientation, job training, and safety instructions from Leadpoint supervisors. Leadpoint has sole responsibility to counsel, discipline, review, evaluate, and terminate personnel assigned to BFI, although BFI retains the right “to reject any Personnel, and … discontinue the use of any personnel for any or no reason.”

The Initial Board Proceedings

In July 2013, the Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters (the “Union”) filed a representation petition with Region 32 of the NLRB in Oakland, California. The petition, which sought certification as the bargaining representative of Leadpoint’s employees, named both Leadpoint and BFI as purported “joint employers.”

In August 2013, the Regional Director determined, based on the Board’s then-prevailing “joint employer” test, that BFI was not a joint employer of Leadpoint’s employees. Accordingly, in directing that an election take place, the Regional Director specified that Leadpoint was the sole employer for purposes of potential Union representation.

In September 2013, the Union filed a request for Board review of the Regional Director’s decision. The Board invited amicus (or “friend of the court”) briefs on the “joint employer” issue. Meanwhile, an election was conducted, and the ballots were impounded pending the Board’s ruling.

The Board’s Ruling

In deciding to revise its standard for assessing “joint employer” status, the Board opined that the standard that had been in place for more than 30 years was too restrictive – and that prior Boards had “never offered a clear and comprehensive explanation” for this.

Further, the Board noted that the increased “procurement of employees through staffing and subcontracting arrangements, or contingent employment,” was “reason enough to revisit the Board’s current joint-employer standard.”

In applying its new standard to the case, the Board found that BFI possessed reserved but unexercised authority over Leadpoint’s employees, such as by having the contractual right to reject or discontinue employing any Leadpoint personnel in BFI’s discretion.

The Board also found that BFI exercised indirect control over the working conditions of the Leadpoint personnel. In the Board’s view, the “cost plus” nature of the parties’ Agreement, coupled with pay-related requirements, constituted indirect control.

In this regard, the Board noted that Leadpoint needed BFI’s permission to pay its personnel more than BFI employees performing comparable work. The Board also found it significant that after new minimum wage legislation went into effect, Leadpoint reached out to BFI to verify that the Agreement would be adjusted to take this into account.

The Board also relied on episodic interactions between BFI’s supervisors and Leadpoint’s personnel, pointed out that Leadpoint’s HR activity (e.g., training, drug screens, and safety orientation) needed to be satisfactory to BFI, and even found it significant that Leadpoint personnel use BFI’s break rooms, bathrooms, and parking lot.

Concluding that BFI is the joint employer of the Leadpoint personnel, the Board directed the Regional Director to open and count the impounded ballots from the representation election. If the Leadpoint personnel voted to unionize, then BFI, together with Leadpoint, will have an obligation to bargain with the Union.

Many Questions Left Unanswered

The dissenting Board members complain that so-called “reserved but unexercised control” or “indirect control” can be found in virtually every arm’s-length business arrangement of this kind and that the ruling sets forth no “limiting factors” to guide employers.

They provide a long list of contractual relationships in which corporate separateness has traditionally been recognized but that now may give rise to a “joint employer” finding under the Board’s new standard.

The dissenters go so far as to pose numerous hypotheticals to demonstrate how, in their view, the new test will create uncertainty, unduly affect multiple doctrines central to the National Labor Relations Act, and cause business destabilization.

Recommendations For Employers

Given the sea change set in motion by the NLRB’s new “joint employer” test, employers should monitor this issue closely, particularly as an appeal of the Browning-Ferris decision is likely.

Meanwhile, employers involved in contingent-employment relationships should review the governing contract and the parties’ practices carefully to determine if changes could be made to reduce the potential for a “joint employer” finding without unduly affecting productivity or disrupting business operations.

In anticipation of organizing activity by individuals directly employed by another entity (e.g., employees of staffing companies, employees of franchisees, or employees of subcontractors), employers should ensure that appropriate policies are in place and consider training supervisors and managers in the “dos and don’ts” of responding to union organizing campaigns.

Please contact us if you have any questions about the NLRB’s new “joint employer” standard or need assistance with any labor law matter. We would be happy to help.