United States: NLRB Adopts New Broader Joint-Employer Standard

Executive Summary: On August 27, 2015, the National Labor Relations Board (NLRB or Board) issued its long-awaited decision in Browning-Ferris Industries (BFI) substantially changing and expanding the standard for finding a joint-employer relationship under the National Labor Relations Act (NLRA).

The previous test had been whether two entities share the ability to directly and immediately control or determine essential terms and conditions of employment such as hiring, discipline, termination, suspension and direction.

Citing the significant expansion in the diversity of workplace arrangements in today's economy and that the Board's joint-employer jurisprudence is increasingly out of step with changing economic circumstances, the NLRB's three Democratic members created a new standard over the vigorous dissent of the two Republican members.

The majority said that under common-law principles the right to control is probative of an employment relationship – whether or not that right is exercised. Under the new standard a joint-employer relationship will be found if the alleged joint-employers possess, exercise or simply retain the right, directly or indirectly, to control essential terms and conditions of employment, even if that control is not exercised.

The case arose at a BFI plant in California. BFI uses a subcontractor doing business as Leadpoint Business Services to provide recycling service workers at the plant. A Teamsters local had sought to organize those workers. Citing the existing Board standard, the Regional Director of the NLRB had rejected the union's arguments that BFI is the joint employer of approximately 240 workers provided by Leadpoint under a labor services agreement. The Regional Director's determination that an election should proceed against Leadpoint only as the employer was appealed to the NLRB.

Applying the new standard, the NLRB ruled that BFI is an employer under common-law principles and that it shares or codetermines matters governing the essential terms and conditions of employment for Leadpoint's employees. The NLRB relied on the following factors in reaching that conclusion: hiring, firing, discipline, suspension, direction of work, hours and wages.

The new test is not as expansive as the one proposed by the NLRB's General Counsel. The NLRB did not adopt a standard based on "industrial realities" rather than the common-law test. The NLRB also did not adopt a standard based on how potential joint-employers structure their commercial dealings with each other. Finally, the NLRB rejected the General Counsel's "sufficient influence" standard stating "sufficient influence" is not enough if it does not amount to control.

The dissent argued, among other things, that the majority decision exceeds the limits of the NLRB's statutory authority. The dissent stated "the new joint-employer test fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships" under the NLRA.

The majority rejected the dissenters' criticism that the new standard fundamentally alters the law regarding various legal relationships between different entities. The majority said that all of those situations were not before the NLRB. In particular, the Board stated that none of the particularized features of franchisor/franchisee relationships were present in the case. Only the specific user-supplier relationship between BFI and Leadpoint was at issue. Further, the majority noted that joint-employer determinations are fact specific and must be determined on a case-by-case basis.

The dissent responded that the NLRB has maintained a unitary joint-employer test for all types of employer relationships. There is now a single new test, and it likely will be applied to all the business relationships listed by the dissent.

The new standard can be challenged in a federal court of appeals by BFI or some other employer subjected to the new standard. It could take a year or longer to get a court ruling. Efforts may be made in Congress to undo the decision. However, legislation is unlikely to have enough Democratic support to overcome a Senate filibuster.

The NLRB will apply this new test to joint-employer issues in matters before the NLRB such as union elections and unfair labor practice charges, including cases against franchisors and franchisees accusing them of illegally firing, threatening or otherwise retaliating against workers who have engaged in walkouts and other activities protesting their wages and seeking an increase to $15 per hour.

Expansion of the New Joint-Employer Standard to Other Laws

There is a concern that an expanded joint-employer standard will spread to other federal agencies analyzing the employment relationship. A draft memo circulating within OSHA shortly before the NLRB decision discussed looking at the potential for a joint-employer relationship between franchisors and franchisees when investigating workplace safety. The memo says "While the franchisor and franchisee may appear to be separate and independent employers, a joint-employer standard may apply where the corporate entity exercises direct or indirect control over working conditions, has the unexercised potential to control working conditions or based on the economic realities." In making a joint-employer determination OSHA will review: the overall relationship between the franchisor and the franchisee; written documentation of franchisor direction and control of the franchisee; franchisor control over the essential terms and conditions of employment of the workers at the franchisee; and franchisor control over safety and health policies and practices at the franchisee.

Employers' Bottom Line

The outer limits of how expansive the NLRB's new joint-employer standard is will be determined on a case-by-case basis. Businesses should evaluate their other business relationships and review documents related to them. Employers that want to avoid a joint-employer finding should ensure that they do not directly or indirectly control or have the right to control essential terms and conditions of employment. Franchisors should avoid control over a franchised operation beyond that necessary to protect the franchisor's trade name, professional methods, customer goodwill or commercial image.

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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