United States: NLRB Upends Joint-Employer Status Test: Browning-Ferris Ruling Exposes Businesses To Joint-Employer Status For Contract And Temporary Employees

Brief Summary

On August 27, 2015, the National Labor Relations Board ("NLRB") upended its decades old joint-employer status test concluding that a joint-employer relationship exists where separate business entities "share or codetermine those matters governing the essential terms and conditions of employment." This "refinement" of the NLRB's 1982 joint-employer status test is a significant shift in doctrine, which will likely embolden labor unions and employee advocates across the nation and threaten businesses who hire contract and temporary workers with increased risk for collective bargaining and employment related claims. 

Basic Facts

The underlying dispute in the case arose at a recycling facility owned by Browning-Ferris Industries of Milpitas, California. Browning-Ferris retained Leadpoint Business Services to provide temporary and contract workers for a variety of tasks at the facility. Leadpoint and Browning-Ferris entered into a temporary services agreement that named Leadpoint as the sole employer and denied any joint-employer relationship between Browning-Ferris and Leadpoint. Under the agreement, Leadpoint had control over hiring employees and employee discipline and Browning-Ferris retained the right to reject any employee or to "discontinue the use of any personnel for any or no reason."

In July of 2013, the Teamsters Local 350 ("Teamsters") filed a petition under the National Labor Relations Act seeking to represent employees at the Browning-Ferris facility and requesting a determination on whether Leadpoint and Browning-Ferris were joint employers. Applying the joint-employer standard from an earlier 1982 decision, the NLRB regional director found that Leadpoint was the sole employer of the proposed unit's members and directed an election to be held shortly thereafter. The Teamsters filed a request for review, claiming that the regional director ignored important evidence and misapplied NLRB precedent. The Teamsters also requested a reconsideration of the NLRB standard for evaluating joint-employer relationships. The NLRB requested amicus briefs on the issue, a signal that it would likely re-evaluate its 1982 joint employer standard developed in the NLRB v. Browning-Ferris Industries of Pennsylvania Inc. case.

Despite Browning-Ferris claiming no involvement in employee discipline, the NLRB found that Leadpoint employees had been disciplined at the request of Browning-Ferris management, a fact the NLRB found significant. The temporary services agreement also provided Leadpoint the leeway to set wages for its employees, but then gave Browning-Ferris a veto power over any wages that exceeded what Browning-Ferris paid its own employees engaged in similar positions. Browning-Ferris also determined the shift lengths and break intervals of employees while Leadpoint was responsible for deciding which employees would be staffed on any particular shift. Additionally, Leadpoint employees were required to sign a waiver acknowledging they were ineligible to participate in any benefits plan offered by Browning-Ferris.

Claiming a return to the traditional test developed by the Third Circuit, the NLRB stated that a joint-employer relationship exists where "two or more entities...are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment." This interpretation overrules the prior standard illustrated in other decisions by eliminating the requirement that an employer actually exercise control over the terms and conditions of employment. Under this new joint-employer standard, an employer could be found to be a joint-employer by merely possessing the underlying power to control any terms and conditions of employment, regardless of whether it ever chooses to exercise such power.

Ruling

Applying this new standard, the NLRB overruled the regional director's finding against a joint-employer relationship between Browning-Ferris and Leadpoint. The NLRB found that Browning-Ferris met the common law definition of employer, and it was "indisputable," according to the NLRB, that the company not only had a right to control the terms and conditions of employment, but that it had done so, both directly and indirectly. Touting the apparent importance of the decision, the NLRB confirmed that the ruling will modify the legal landscape for all employers covered by the National Labor Relations Act.

Earlier NLRB Joint-Employer Standard

Previously, the NLRB joint-employer standard originated in a 1982 Third Circuit case, NLRB v. Browning-Ferris Industries of Pennsylvania Inc., in which the court held that a joint-employer relationship exists where separate business entities "share or codetermine those matters governing the essential terms and conditions of employment." Over the years, the NLRB gradually narrowed that standard, eventually deciding that the critical factor to joint-employer status is "whether a putative joint employer's control over employment matters is direct and immediate." Absent the exercise of direct and immediate control, the employer would be free from collective bargaining, labor law violations, or other employment related claims.

California Joint-Employer Standard

Though still very disconcerting for California businesses, the Browning-Ferris decision is similar to legislation that Governor Jerry Brown helped write into California law earlier this year. Effective January 1, 2015, under Labor Code § 2810.3, California employers will "share" responsibility and liability with labor contractors with respect to the "payment of wages" to contracted temporary workers assigned to the employer, regardless of the employer's control of, or participation in the payment of wages to the assigned employees. The business must also "share" liability for its labor contractor's unlawful failure to secure valid workers' compensation coverage for assigned temporary workers. The stated basis for the law is to prohibit employers from shifting to their labor contractors legal duties or liabilities under workplace safety provisions with respect to assigned workers provided by the contractor.

The NLRB's ruling in Browning-Ferris and Labor Code Section 2810.3 are a significant departure from California's earlier common law joint-employer theory of liability. Under that approach, an employer could be liable for claims for unpaid wages of contracted workers only if a worker established that an actual employment relationship existed both with the labor contractor that employed the temporary worker and with the company to which the worker was assigned to perform contracted services. This typically was accomplished through, among other things, a showing that the company to which the worker was assigned exercised significant, direct control over the worker's hours, wages or working conditions, a showing that would be necessary under the NLRB's earlier 1982 joint-employer test.

Now, because of Section 2810.3, and rulings like the NLRB's Browning-Ferris determination, a California company may be deemed jointly liable for certain violations along with its third-party labor contractor, regardless of the amount of actual control that the company exerts over contracted, leased or temporary workers.

Looking Forward

Labor Code Section 2810.3 and the NLRB's decision in the Browning-Ferris case should be a wakeup call for California employers to pay special attention to how they retain their workforce and the relationships they forge with respect to hiring temporary and contract laborers. The change in the Labor Code and the NLRB decision signal a shift in pedagogy that may lead to more risk for businesses when it comes to collective bargaining and the potential for employment based suits by workers that were otherwise never thought to be "employees."  Though State and Federal Courts do not generally look to the NLRB for interpretation of law, the Browning-Ferris decision and the change in the Labor Code could lead to a shift in the way courts look at employees and if that shift follows the NLRB's Browning-Ferris viewpoint, businesses are likely faced with a higher cost of doing business.

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