United States: NLRB's New "Joint Employer" Standard: Seismic Impact For California Employers?

Yesterday, the National Labor Relations Board issued its much-anticipated decision in Browning-Ferris Industries of California, 362 NLRB No. 186 (August 27, 2015). By a 3-2 vote, the Board announced a new standard to determine whether multiple entities are "joint employers" of a single workforce. The Board will now inquire whether there is a common-law employment relationship with the employees in question (including the "right to control" the employees). If this common-law employment relationship exists, the inquiry then turns to whether the putative joint employer possesses enough control over the employees' essential terms and conditions of employment to permit "meaningful collective bargaining."

The Board majority wrote that it was "restating" its joint employer test. "Restate" here means to alter dramatically, as Browning-Ferris overturns decades of precedent. Gone is the requirement of "direct and immediate" control over working conditions, and not of a "limited and routine" nature. Now, indirect control and even the reserved right to control working conditions is enough to establish joint employer status if two or more entities "share or codetermine those matters governing the essential terms and conditions of employment." The essential terms and conditions of employment include hiring, firing, discipline, supervision, direction, "dictating the number of workers to be supplied," scheduling, seniority, overtime, assigning work, and "determining the manner and method of work performance." And this list is illustrative, not exhaustive.

So what does this mean for California employers? Browning-Ferris will likely have a wide-reaching impact. Any business that regularly uses contractors, such as a cleaning or janitorial services, maintenance services, caterers, or a management company to staff and operate its business could be affected. Among the entities possibly affected are:

  • hotels,
  • tech companies (from start-ups to the well-established),
  • investors, real estate holding companies, and general contractors,
  • any entity that outsources non-core work integral to its business model, such as a manufacturer that contracts with a trucking company for shipping,
  • any entity that uses a staffing agency to obtain additional or temporary help,
  • any franchisor that contracts with others via franchise agreements, and
  • any entity with a relationship to a subsidiary or other corporate entity.

The expanded definition of joint employer may result in companies unwittingly being pulled into collective bargaining negotiations (in the case of an already unionized workforce), or even union campaigns and elections with its contractors. With the advent earlier this year of expedited election rules, many companies will no doubt feel whipsawed by these unwelcome developments.

The new joint employer standard might also affect non-union settings. Employees—whether or not unionized—have the right under federal labor law to engage in protected, concerted activity. As the dissent in Browning-Ferris notes, companies who are putative joint employers may find themselves named in unfair labor practice charges with the NLRB, or the subject of increased picketing and boycott activity. Moreover, California employers have long faced unique obstacles to challenging union activity on their premises. The Moscone Act and California Labor Code section 1138.1, which the California Supreme Court has upheld against a constitutional challenge, make it very difficult to obtain injunctive relief against union trespass on private employer property. Now, more companies can expect to bear the brunt of this activity.

Workplace Solution

We have identified a number of steps companies can take to assess their risks and respond to the Board's new joint employer standard, including broad indemnification agreements with third-parties. This last suggestion may sound familiar to many California employers in light of recent state law changes. As of the beginning of this year, as we've noted, Labor Code section 2810.3 requires a "client employer" to share civil liability with "labor contractors" (including pay rolling, temporary staffing, or employee leasing agencies) for (1) payment of wages of the contract employees, and (2) failure to procure worker's compensation coverage. (This statute followed Martinez v. Combs, 49 Cal. 4th 35 (2010), which broadened the definition of "employer" in the wage-hour context.) A "client employer," however, may contract with its "labor contractor" for indemnity. While client employers cannot avoid the Board's new joint employer standard, a broad indemnification agreement (placing the duty to defend and hold harmless on the contractor), may ease the impact of this decision.

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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