United States: NLRB'S New Joint Employer Standard Creates Enormous Uncertainty

Late last week, the National Labor Relations Board published a decision that will make many business leaders' heads spin. By pronouncing a new legal standard to be used to determine if a business is a "joint employer" of another's employees, the Board has created an unprecedented amount of uncertainty for all types of businesses. Under this new standard, employers may have new obligations and liabilities under federal labor law in relation to employees of a variety of other companies with which they do business – their contractors, their suppliers, their franchisees, their subsidiaries, and more.

The Board's new "joint employer" standard is incredibly broad and vague. In recasting the joint employer test, the Board rejected a 30-year old legal standard that focused on the actual exercise of direct control over another business' employees. Instead, it has declared that "joint employer" status can be created by the mere possession of authority to control some essential term or condition of employment of another business' employees, even if that authority is never actually exercised, and that this analysis includes indirect as well as direct control. Predictably, the Board split along members from different political parties, with the two Republican Board Members dissenting. At the outset of an extensive dissenting opinion, the dissenters summarized the problematic consequences of the majority's new legal standard as follows:

The change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts, and picketing.

Given the enormous ramifications of the Board's decision, at this early juncture we can only summarize the Board's ruling and begin to identify some of the prominent unanswered questions among the myriad concerns created by this ground-breaking decision. Soon, we will follow up and provide some practical guidance to businesses that can be used to begin to assess their particular vulnerabilities and solutions. But first, the new challenge should be understood.

The Case Background

Browning-Ferris (B-F) operates a recycling facility in Newby Island, California at which it employs 60 persons who are represented by the Teamsters. B-F has a labor services agreement with a supplier named Leadpoint. Pursuant to that agreement, Leadpoint provides workers who perform tasks at B-F's facility, such as sorting recycled materials, maintaining the screens used in the sorting equipment, and cleaning the facility. The Union sought to represent the 240 persons supplied by Leadpoint who work at B-F's facility.

In its management of the union election process, the Board's Regional Director concluded that B-F was not a joint employer of the Leadpoint employees because it does not "share or codetermine [with Leadpoint] those matters governing the essential terms and conditions of employment" of those performing the sorting and cleaning tasks. In making the "joint employer" analysis, the Regional Director followed 30-year old Board precedent that has never been questioned or criticized by any federal courts.

The Union appealed that ruling to the five-member Board, making two distinct arguments. First, the Union asked the NLRB to reverse the Regional Director's decision by finding that B-F was a "joint employer" under the traditional precedent. Second, and alternatively, the Union asked the NLRB to adopt a broader standard for determining when a company is a "joint employer" and shares labor law obligations with another business, and to find that B-F was a "joint employer" under whatever new standard the Board might adopt. The Board never bothered to assess the case under its own joint employer precedent and did not rule on the Union's first argument. Instead, it gave the Union (and all other unions throughout the country) everything it could have dreamed of in relation to its second request.

The New Joint Employer Standard

The Board may now find that two or more businesses are joint employers of the same employees if they "share or codetermine those matters governing the essential terms and conditions of employment." To determine if a business is a joint employer, the Board first looks at whether it has a common-law employment relationship with the employees in question. Next, it determines if the business possesses sufficient control over the employees' essential terms and conditions of employment to permit meaningful collective bargaining.

This new standard radically departs from the historical standard in two ways. First, the Board no longer requires an actual exercise of authority over terms of employment—the mere possession of authority is enough to support a finding of "joint employer." Second, the Board will consider control exercised indirectly, through intermediaries, whereas the previous standard required a showing of control that was exercised in a manner that was "direct and immediate."

The NLRB claimed it intended to restate the joint-employer standard to best serve the federal policy of "encouraging the practice and procedure of collective bargaining." The Board noted that the diversity of workplace arrangements has significantly expanded in today's economy, and emphasized that a primary function of the Board is to apply the federal labor law "to the complexities of industrial life."

The Board's Application of the New Standard

The Board concluded that B-F was the joint employer of Leadpoint's employees assigned to work at the B-F facility. Frankly, B-F's purported "control" of Leadpoint's employees was fairly typical of a manufacturer using contracted employees, but under the new standard the Board concluded that the authority B-F possessed was sufficient to make it a joint employer. As examples, the Board pointed to the fact that B-F retained control over who Leadpoint could hire to work at B-F's facility, prohibiting applicants who failed a drug screen or had been previously deemed by B-F to be ineligible for rehire. The Board also noted B-F's control over the pace of the work. Specifically, B-F maintained unilateral control over the speed of the production lines on which the sorter employees worked, and even specified where Leadpoint employees would be positioned on those lines. Furthermore, B-F dictated the time of the work shift and determined when a line would operate on overtime. The Board also noted B-F's impact on the employees' wages through a provision that required Leadpoint to obtain B-F's approval for wage increases under the parties' "cost-plus" contract.

Some of the New Challenges

The dissent lists a variety of business relationships that are "fundamentally altered" by the Board's new joint-employer standard:

  • User-supplier
  • Lessor-lessee
  • Parent-subsidiary
  • Contractor-subcontractor
  • Franchisor-franchisee
  • Predecessor-successor
  • Creditor-debtor

The dissent also notes that the new standard "does violence" to the secondary boycott provisions of the labor law. Because more companies will be deemed to be joint employers in more circumstances, they will now be subject to more strikes, boycotts and picketing by unions that is only permissible against the "primary" employer with which a union has a labor dispute. Now, for example, a union that has a labor dispute with a franchisee business may strike, boycott or picket the franchisor if it can show the franchisor is a "joint employer" under the new standard.

What's Next

Presumably B-F will challenge the Board's ruling in court, but a court decision will likely take a year or more. In the meantime, businesses would be wise to begin an assessment of their contracts and relationships with employment agencies and other companies to determine the extent that they possess some authority to control, directly or indirectly, the terms and conditions of the other business' employees. Stay tuned for additional guidance in the days to come.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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