Marking a sea-change in labor law and a departure from decades of settled precedent, the National Labor Relations Board formulated a new joint employer standard in August 27’s Browning-Ferris Industries of California, Inc. decision.

For the past three decades, whether a joint employer relationship existed turned on the “single employer” test, that is, whether “two nominally separate entities are part of a single integrated enterprise so that, for all purposes, there is in fact a ‘single employer.’” NLRB v. Browning-Ferris Industries, Inc., 691 F.2d 1117, 1112-23 (3d Cir. 1982); adopted by the Board in TLI, Inc., 271 NLRB 798 (1984) and Laerco Transportation, 269 NLRB 324 (1984). Under the settled framework, an entity could only be found to be a joint employer if it exercised actual control over the terms and conditions of employment of another entity’s employees.

Last week’s decision injects a great deal of uncertainty into an area of labor law which was, up until now, quite predictable. Under the new rule, an entity that maintains any degree of indirect or reserved control over any of the terms or conditions of employment (such as wages, hours, hiring, firing, discipline, or direction of work) of another entity’s employees may suffice to trigger joint employer status.

This change is not to be understated, and will have immediate impacts in some industries:

• Franchisors.  Although the Board has traditionally not held franchisors to be joint employers with franchisees, many (if not all) franchisors may be found to be joint employers with franchisees under the new rule.
• Staffing Agencies and Contractors.  Although staffing agencies and contractors did not have the indicia of control over employees placed with their customers to be considered joint employers, many staffing agencies and contractors may now be considered joint employers under the new standard.

This is, however, by no means the full extent of the new rule. As the Board’s dissenting members pointed out, the Board’s new standard “appears to be virtually unlimited” and may also apply to a host of other scenarios, such as insurance companies that require employers to maintain safety or security standards, banks or other lenders who require performance measurements in their financing terms, consumers or small businesses who dictate the time, manner, or some method of performance of contractors, or indeed, “[a]ny company that is concerned about the quality of the contracted services.”

In their newfound capacity as joint employer, affected companies may now be held responsible for unfair labor practices committed by a contractor. In the collective bargaining context, the joint employers’ employees may be included in the bargaining units of employees of a contractor. Furthermore, litigation unfolding around the uncertainty created by the amorphous newly crafted test will prove costly.

An appeal of the Board’s decision is likely forthcoming, and it is still possible congress may weigh in. If the decision stands, maintaining economic viability in the wake of Browning Ferris for some companies may require nothing short of a fundamental change to their business models. For others, changes to certain terms in contracts between putative joint employers may be necessary to limit this new area of potential liability. For now, all businesses should carefully examine their contractual relationships with customers and contractors to stay informed of how this change in the law may apply to their operations.