The National Labor Relations Board (NLRB) handed organized labor a major victory that in certain contexts will likely give unions significantly increased leverage at the bargaining table in a landmark ruling issued on Thursday.

The case, Browning-Ferris Industries of California, Inc., et al. v. Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters, changes the analysis for determining whether a company utilizing contract employees or franchisees may be considered a joint employer for the purposes of collective bargaining. Widely considered a significant setback for the franchisee business model, Browning-Ferris likely means that major franchisor corporations could find themselves alongside franchisees at the bargaining table, negotiating with employees over wage and hour issues, benefits, and workplace rules. Additionally, franchisors and contracting companies may find themselves on the hook for unfair labor practice liability based on incidents that do not involve their own employees.

The underlying dispute in the case arose at a recycling facility owned by Browning-Ferris Industries of California. Browning-Ferris engaged Leadpoint Business Services to provide workers for a variety of tasks at the facility, entering into a temporary services agreement that named Leadpoint as the sole employer and denied any joint employer relationship. While the agreement granted Leadpoint control over hiring and employee discipline, it also gave Browing-Ferris the right to reject any employee or “discontinue the use of any personnel for any or no reason.”

Browning-Ferris managers testified that they had never participated in any disciplinary action, but the NLRB found otherwise, pointing to evidence that Leadpoint employees had been disciplined at the request of Browning-Ferris management. The agreement also provided Leadpoint the leeway to set wages for its employees, but then gave Browning-Ferris veto power over any wages in excess of what Browning-Ferris paid its own full-time employees engaged in similar positions. Additionally, Leadpoint employees were required to sign a waiver acknowledging they were ineligible to participate in any benefits plan offered by Browning-Ferris. With respect to work hours, while Leadpoint was responsible for deciding which employees would be staffed on each of the three daily shifts at the facility, Browning-Ferris determined the shift lengths and break intervals. 

In July 2013, the Teamsters Local 350 filed a petition under Section 9(c) of the National Labor Relations Act, seeking to represent a unit of approximately 120 employees at the Browning-Ferris facility and requesting a determination on whether Leadpoint and Browning-Ferris were joint employers of the proposed unit. Applying the former joint employer standard, 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 Board precedent. More significantly, though, the Teamsters requested that the Board reconsider its standard for evaluating joint employer relationships. Taking the bait, the Board requested amicus briefs on whether it should stick to its current joint employer standard, and if not, what should the new standard be and what factors should be considered.

The previous 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.” However, in the years that followed, the Board gradually narrowed that standard, eventually deciding in Airborne Express that the critical factor 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 off the hook with respect to bargaining or labor law violations.

According to the Board, this evolution of the joint employer doctrine had resulted in a standard that was “increasingly out of step with changing economic standards,” and thus risked “undermin[ing] the core protections of the Act for the employees impacted by these economic changes.” To set the stage for the new standard, the Board pointed to Bureau of Labor statistics showing an exponential growth in the number of workers employed through temporary staffing and subcontracting arrangements. Noting its responsibility to “adapt the Act to the changing patterns of industrial life,” the Board seized the opportunity to undo a standard that it contended failed to serve the underlying policies of the Act.

Beginning with the proposition that the employer’s obligation to bargain depends on the existence of an employment relationship, the Board looked to common law agency principles. In cases where the common law permits the Board to find a joint employer relationship, the Board must then determine whether doing so will serve the Act’s “paramount policy” of encouraging collective bargaining. Claiming a return to the traditional test developed by the Third Circuit in the earlier Browning-Ferris decision, the Board 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 Airborne Express and other decisions by tossing the requirement that an employer actually exercise control over the terms and conditions of employment. Under the new joint employer standard, an employer could be found to be a joint employer by merely possessing the latent power to control any terms and conditions of employment, regardless of whether it ever exercises such power.

Applying this new standard, the Board overruled the regional director’s finding against a joint employer relationship between Browning-Ferris and Leadpoint. Browning-Ferris met the common law definition of employer, and it was “indisputable” 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.” Lauding its new standard as “superior” to the prior version, the Board confirmed the significance of the decision as one that will “modif[y] the legal landscape for employers” covered by the Act.

The rather ominous subtext of this statement gives no comfort to employers who engage contract employees or franchisees. For example, the Browning-Ferris decision may inform the Board’s ongoing litigation against a major fast food franchisor and several of its franchisees on joint employment issues. The Board is looking carefully at whether the company should be considered a joint employer and thus potentially liable in light of a number of allegations raised in unfair labor practice filings.