Many employers have rested long and easy in the knowledge that the National Labor Relations Board would not consider them to be joint employers with entities such as franchisees, staffing agencies, and contractors unless they exercised control over those entities’ employees. That peace of mind was snatched away when the NLRB turned more than 30 years of precedent on its head in Browning-Ferris Industries of California, Inc., effectively announcing open season on thousands of previously protected employers. Here is what you need to know about the decision, what it could mean for your business, and what you can expect in the future.

What the NLRB Did

The saga began in August 2013, when a representation election was directed among the employees of a Browning-Ferris Industries (BFI) subcontractor doing business as Leadpoint Business Services (Leadpoint), which provided approximately 240 workers to a BFI subsidiary. The International Brotherhood of Teamsters Local 350 argued that BFI and Leadpoint were joint employers of those employees. In keeping with longstanding precedent, under which joint employer status was marked by both entities in question exercising “immediate and direct” control over the terms and conditions of workers’ employment, the acting regional director determined that BFI was not a joint employer.

The NLRB granted review of the regional director’s determination, and solicited amicus briefs on the issue of whether to adopt a new joint employer test. The Board cited a burgeoning contingent and temporary workforce as justification for reconsidering its longstanding joint employer test, arguing that the existing test did not jibe with changing economic tides and caused a “disconnect [that] potentially undermines the core protections of the [National Labor Relations Act] for the employees impacted by these economic changes.” Employer groups argued in amicus briefs that up-ending the well-established test would detrimentally affect employers’ ability to adjust to changing market conditions.

As anticipated, the Board came down on the side of a new test. In reaching its decision in Browning-Ferris, the Board did not accept the general counsel’s contention that an entity should be considered a joint employer if “industrial realities” made the entity “essential to meaningful bargaining,” but nevertheless dramatically lowered the historical joint employer bar. Under the new joint employer test, which the Board majority heralded as a return to its “traditional test”:

The Board may find that two or more entities are joint employers of a single work force if they 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. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of employment or “codetermine” them.

The decision notes that a joint employer relationship will not be found based on a company’s “bare rights to dictate the results of a contracted service or to control or protect its own property.” This statement offers small comfort, however. In the same figurative breath, the NLRB stated: “Instead, we will evaluate the evidence to determine whether a user employer affects the means or manner of employees’ work and terms of employment, rather directly or through an intermediary.” In other words, the Board “will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.”

Applying the new test to the facts before it, the Board determined that BFI was a joint employer of the workers Leadpoint provided to the facility at issue. The key facts driving the Board’s determination were that BFI gave Leadpoint supervisors detailed directives concerning employee performance; set conditions on hiring that Leadpoint was contractually bound to follow; had the authority to discontinue the use of any given Leadpoint employee; controlled the speed of the sorting lines (which dictated the speed at which employees were required to work) and other productivity standards; and the contract between the entities gave BFI the right to control other terms and conditions of the workers’ employment (e.g., BFI had the right to enforce its safety policies against Leadpoint employees).

The Board deemed BFI and Leadpoint joint employers despite facts such as the following: Leadpoint employed an “Acting On-Site Manager,” three shift supervisors, and seven “line leads” to manage and supervise Leadpoint employees working at the BFI facility; Leadpoint set its employees’ schedules; Leadpoint engaged its own human resources manager to work at the BFI facility; and Leadpoint had the sole responsibility to counsel, discipline, review, evaluate, and terminate employees assigned to BFI.

What the Decision Means for Employers

The new test leaves employers guessing as to how much indirect control they must have over another entities’ employees to be deemed a joint employer. It is entirely unclear what one must do to “affect[] the means and manner of employees’ work and terms of employment.” And what it means to “share or codetermine those matters governing the essential terms and conditions of employment” is anybody’s guess.

What is clear is that entities wishing to avoid joint employer status under the new test must take a more hands-off approach than ever before to employees of other entities. This places franchisers in a particularly difficult position, as they are likely to hold franchisees — and by extension, their employees — to uniform standards that affect employees’ terms and conditions of employment. (Notably, the NLRB general counsel issued complaints last year against McDonald’s and its franchisees as joint employers.)

While by no means offering a road map, the Browning-Ferris decision does provide a few insights into actions employers can take that might minimize the joint employer risk:

• Talk the talk, and walk the walk. Review all contracts with staffing agencies and other contractors to ensure that they do not wave a joint employment red flag. Significantly, the new test takes into consideration whether the potential to control employees’ terms and conditions of employment exists, so all contracts should include language making clear that all such control rests with the contractor. However, remember that while a bulletproof contract can be helpful evidence, what ultimately matters is whether the parties conducted themselves in accordance with that language.
• Focus on the forest, not the trees. When communicating expectations to a contractor, focus on ensuring that the entity is clear on your ultimate goal, and then leave it up to that entity to instruct its employees on how to achieve that goal. As seen in Browning-Ferris, the more detail a “user employer” provides in its directives, the more likely it will be found to have indirect control over the affected employees.
• Stay out of hiring and firing decisions — completely. The contract between BFI and Leadpoint set conditions on Leadpoint’s hiring practices, which worked to BFI’s detriment under the new test. Likewise, BFI’s ability to discontinue the use of a given contracted worker, regardless of the extent to which it had exercised that right, weighed in favor of a joint employer finding. While many employers are hesitant to relinquish the reins entirely when it comes to determining who will work within their walls, doing so appears to be a must under the new test.
• Do not place parameters on wage rates. Among the provisions in the BFI-Leadpoint contract that the Board found to indicate a joint employer relationship was one prohibiting Leadpoint from paying its employees more than BFI employees in comparable positions were paid. To avoid joint employer status, wage decisions should be left to the unfettered discretion of the contractor.
• Avoid mandating contracted workers’ conditions of employment. This poses particular practical difficulty for employers, such as BFI, that engage contracted workers in assembly line-type environments. BFI controlled the speed of the sorting lines on which the workers were engaged, and therefore was found to have control over their working conditions. While this kind of control will be hard to avoid, there are some mandates that employers can avoid laying down. For example, do not mandate when contracted workers will take breaks or require them to work particular hours. Leave that rule-making to their own employer.

What Comes Next

Reaction to the Browning-Ferris decision has been swift and divisive, beginning within the Board itself. In a lengthy dissent, Members Miscimarra and Johnson blasted the majority’s decision as spurning a “longstanding test that provided certainty and predictability” in favor of “an ambiguous standard that will impose unprecedented bargaining obligations on multiple entities in a wide variety of business relationships.”

Unions are lauding the decision as a watershed victory for the American worker, while employers view the decision as dealing a harmful blow to job-creators. Many view the decision as yet another example of the NLRB seeking to expand its reach in the face of a declining union presence.

Some employers might choose to take a wait-and-see approach to the new test, as it will undoubtedly be challenged in the courts (either by BFI should the employees at issue vote for union representation and BFI draws an unfair labor practice charge for refusal to bargain, or by another company caught in the new test’s crosshairs). Further, a legislative reaction is not out of the question. Sen. Lamar Alexander (R-Tenn.) announced on August 27 that he will introduce a bill to negate the decision. Even if Browning-Ferris withstands any proposed legislation and/or judicial review, the contours of the new test will continue to emerge for years to come as parties litigate the many issues it raises. In the meantime, unwitting employers could find themselves hauled to the bargaining table, and drawn into unfair labor practice charges, as joint employers.