Another Potential “Hook” For Entities Doing Business with Federal Contractors: The NLRB’s Browning-Ferris Decision

Seyfarth Shaw LLP

The new and expansive standard for joint-employer status adopted by the National Labor Relations Board (NLRB) last week has significant implications that extend beyond employer liability for collective bargaining obligations or unfair labor practices under the National Labor Relations Act.  As discussed here, the Board’s Browning-Ferris decision sets the stage for other federal agencies to expand enforcement efforts by asserting jurisdiction over entities that not only exercise control over another entity’s workforce, but also to those that have a direct or indirect “right to control” the workforce of another entity.   

The Office of Federal Contract and Compliance Programs (OFCCP), which has pursued an aggressive enforcement agenda under the Obama Administration, is likely to apply the standards in the Browning-Ferris decision to bolster its reach over organizations that provide services or supplies to federal contractors, even if the entity itself holds no contracts with the federal government.  federal contractors have hundreds and even thousands of relationships with subcontractors, suppliers, and vendors.  Post-Browning-Ferris, these entities may find themselves at increased risk of being classified as a “single entity” with a federal contractor and, in turn, on the hook for onerous affirmative action requirements.  

The OFCCP’s “Single Entity” Test

A business or organization without government contracts may still be covered under laws enforced by the OFCCP based on an integrated relationship or “single entity” status with a government contractor.   The OFCCP uses a five-factor test for determining whether such a relationship exists. The test requires the OFCCP to consider whether:

  • the entities have common ownership;
  • the entities have common directors and/or officers;
  • one entity has de facto day-to-day control over the other through policies, management or supervision of the entity’s operations;
  • the personnel policies of the entities emanate from a common or centralized source; and
  • the operations of the entities are dependent on each other, e.g., services are provided principally for the benefit of one entity by another and/or both entities share management, offices, or other services.

In particular, the NLRB’s ruling in Browning-Ferris could signal changes in how the OFCCP interprets and analyzes the last three factors listed above. While OFCCP guidance states that an organization need not meet all five factors to be considered a single entity with a covered federal contractor, the OFCCP recognizes that “centralized control over labor relations and personnel functions” is the most important factor when considering single entity status.  Accordingly, separate entities may now find themselves caught up in a single entity relationship given the shift in labor relations policy under Browning-Ferris.  Moreover, the OFCCP may enforce a more liberal interpretation of “day-to-day control” of operations to include entities that have a direct or indirect “right to control” the workforce of a separate organization.  

Extending OFCCP Requirements to Temporary Employees

For federal contractors, there has been much uncertainty as to whether federal contracting obligations attach to temporary workforces and alternative staffing models.  While certainly subject to challenge, it would not be surprising if the OFCCP followed the Board’s reasoning in Browning-Ferris that its previous standard failed to keep pace with the changes in workforce and economic circumstances, in light of the more than 2.87 million of the nation’s workers employed through temporary agencies in August 2014.

Indeed, if the OFCCP uses the Browning-Ferris decision as further support to flex its jurisdictional arm, the following business relationships, among others, may hold special significance for federal contractors and their vendors and suppliers.   

  • Any federal contractor that regularly uses contractors, such as a cleaning or janitorial services, maintenance services, caterers, or a management company to staff and operate its business;
  • Any federal contractor that outsources some of the non-core work integral to its business model, such as a manufacturer that contracts with a trucking company for shipping; and
  • Any federal contractor that uses a staffing agency to obtain additional or temporary help.

Implications for Companies Doing Business with Federal Contractors

As noted, the Browning-Ferris decision may have far reaching implications for companies doing business with federal contractors. Such a result would involve complex, burdensome and costly measures to come into compliance with the OFCCP’s regulations. 

In addition to non-discrimination obligations, companies found to be a “single entity” with a federal contractor would also be subject to burdensome data collection, reporting and auditing requirements, including development of an affirmative action program. Among other requirements, covered contractors are required to collect, maintain, and self-audit applicant data by gender, race, ethnicity, disability and veteran status. They must administer certain self-identification forms to applicants pre-offer and post-offer and administer a disability self-identification survey to its workforce. There are mandatory job posting requirements, affirmative action notices that must be distributed, and training requirements. Federal contractors must also engage in targeted outreach and efforts designed to employ women, minorities, individuals with disabilities and protected veterans.

Perhaps coincidentally, the OFCCP’s site describing its single entity test, has been down since the Browning-Ferris decision was released.  We will keep you updated as further developments related to Browning-Ferris and its impact on the federal contracting community unfold.

Written by:

Seyfarth Shaw LLP

Seyfarth Shaw LLP on:

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