In a controversial 3-2 ruling, the National Labor Relations Board (NLRB) recently overturned three decades of its own precedent and redefined joint employment in a manner that promises to create a sea change in labor relations and business relationships.
A fundamental concept in employment and labor law is defining the employer. The National Labor Relations Act (NLRA) provides that an employer has a duty to bargain in good faith with the labor union representing its workers, must comply with the resulting collective bargaining agreement, and may be subjected to picketing and strikes by its employees. However, companies that have business relationships with the employer generally do not have these duties, and in general, unions cannot lawfully engage in picketing, strikes and other industrial action against them, unless they are considered joint employers.
In Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015), the Board significantly revised and broadened its standard for determining joint employer status under the NLRA. In a sweeping departure from the current rule, the NLRB announced that joint employer status will now exist when an entity controls the terms and conditions of employment of another business’s employees, has “indirect” control of such terms and conditions of employment, or has merely reserved the right to take such control.
Based on this ruling, a business that engages a third-party contractor to perform services at the business’s facilities may be deemed to be a joint employer of the contractor’s workers, even without the business exercising any supervision or control over the contractor’s staff. In Browning-Ferris Industries (BFI) for example, BFI’s contractor, Leadpoint, supplied temporary employees to BFI’s waste management facility. Leadpoint handled all discipline of the Leadpoint employees, determined their wages (which BFI only mandated could not be higher than BFI employee wages), and hired and discharged them (while BFI could only prohibit them from continuing to work at a BFI facility). Asserting that it was adopting a standard that was based on common law principles of control, including assessing “overall circumstances” and “industrial realities,” the Board found that BFI and Leadpoint were joint employers. Under the NLRA, this joint employer finding means that both businesses, despite being fully independent and separate, will need to engage together in collective bargaining with the employees’ union.
The Board majority analysis in Browning-Ferris poses two fundamental problems for employers. First, by adopting a standard that allows the NLRB to find a joint employer relationship where there is indirect control or potential control by one employer of another employer’s workers, the vague decision makes a plethora of workplace situations vulnerable to a determination of joint employer status. Second, there is no bright line that separates a joint employer from a company that is not a joint employer. Instead, the Board’s use of such amorphous concepts as “overall circumstances” and “industrial realities” gives little guidance to management and will likely result in a series of NLRB cases that try to define better the broad standard that the Board has adopted. These cases will likely arise in two areas. The first is cases, such as Browning-Ferris, where there is a dispute concerning a union election. The second is where the Board applies its new joint employer standard to existing collective bargaining agreements.
As the forceful dissent in Browning-Ferris cautioned:
“The majority’s new test represents a major unexplained departure from precedent. This test promises to affect a sea change in labor relations and business relationships. Our colleagues [the majority of the Board] presumably do not intend that every business relationship necessarily entails the joint employment of every entity’s employees, but there is no limiting principle in their open-ended multifactor standard. It is an analytical grab bag from which any scrap of evidence regarding indirect control or incidental collaboration as to any aspect of work may suffice to prove that multiple entities – whether they number two or two dozen – ‘share or codetermine essential terms and conditions of employment.’”
It is unclear how the NLRB will apply the Browning-Ferris decision to franchisors. The Board observed in its decision that it was not dealing in this case with the “particularized features” of the franchise industry. However, in view of the NLRB’s new and broader joint employer standard, it is important for franchisors to strive to limit their actual control of or right to control their franchisees’ employment relationships.
Browning-Ferris has greater reach than many traditional labor law cases and may be used by the courts, various administrative agencies and the plaintiffs’ employment bar to hold joint employers liable for other statutory violations. Even though the tests under the NLRA and the Fair Labor Standards Act for identifying the employer-employee relationship are different (common law versus economic reality), the U.S. Department of Labor’s Wage and Hour Division and the plaintiffs’ employment bar will likely cite the Board’s new broad definition of joint employers in efforts to make companies alleged to be joint employers liable for wage and hour violations. Further, federal courts have long ruled that Title VII of the Civil Rights Act of 1964 and the NLRA are in pari materia (of the same matter) and thus must be read and construed together. Accordingly, the U.S. Equal Employment Opportunity Commission and the plaintiffs’ employment bar will likewise seek to rely on the NLRB’s expanded view of joint employment in an effort to make a broader definition of joint employer liable for employment discrimination claims.
Labor unions will use the Board’s Browning-Ferris ruling as a union-organizing tactic that will enable labor to increase its efforts to force to the collective bargaining table the corporate users, such as BFI, of employees supplied by staffing firms. Even though Browning-Ferris did not concern a franchisor-franchisee relationship, the NLRB’s expanded view of joint employment is also bad news for franchisors, which the Board has targeted as alleged joint employers of the workers of their franchisees.
Because Browning-Ferris was a union representation case, BFI cannot directly appeal the Board’s ruling. If the employer wants to challenge a representation case decision in a federal court of appeals, it must wait until the election is decided and the Board has certified the union as the representative of the employees in the collective bargaining unit. A week after the NLRB’s Browning-Ferris decision, the Board opened and counted the previously impounded union election ballots. According to Teamsters Local 350 in Daly City, California, the employees voted 73-17 in favor of representation by the Teamsters. After the Teamsters are certified, Browning-Ferris can refuse to bargain with the union. The Teamsters will then file an unfair labor practice charge, alleging a refusal to bargain; the NLRB region will issue a complaint; and when the NLRB considers that complaint, it will rule that the employer engaged in an unfair labor practice. BFI can then appeal that Board decision to a federal circuit court of appeals. In that appeal, BFI can assert that it is not a joint employer, and the federal appeals court would then review and rule on that argument.
This process can take years, and a federal appeals court decision is not likely until well after the U.S. presidential election in November 2016 and the inauguration of a new president in January 2017. It is likely that a new Republican president would appoint NLRB members who would reverse the Browning-Ferris ruling. However, if a Democrat wins the White House next year, the resulting NLRB will probably not retreat from the Browning-Ferris decision. In that event, it is unclear how the federal appellate court would rule. The federal appeals courts give deference to the expertise of administrative agencies and are often reluctant to overrule the NLRB on issues where the Board contends that it is relying on its expertise concerning industrial relations and the workplace to craft such standards as the definition of a joint employer. However, in view of the vigorous dissent by the Board’s two-member minority, a federal appeals court could decline to enforce the Board’s Browning-Ferris ruling.
In light of the Board’s decision, companies should review carefully their contracts with staffing agencies and subcontractors and consider eliminating potential examples of shared control or of the right to control staffing agencies’ and subcontractors’ workers. Such a review should also include making sure that the company’s contracts with staffing agencies and subcontractors include indemnification and hold harmless provisions that make the staffing agencies and subcontractors liable for damages and costs (including attorneys’ fees) resulting from the relationship between their employees and the company. Further, management should make sure that only the staffing companies and subcontractors handle the hiring, supervision, discipline and discharge of the staffing companies’ and subcontractors’ employees. In sum, the NLRB’s Browning-Ferris decision will have a significant impact in many workplaces.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis & Gross P.C.
Published October 30, 2015.