Just in Time for Labor Day – Employees You Didn’t Know Were Yours

The National Labor Relations Board (“NLRB”) on August 27, 2015, issued a sweeping decision that overturned decades of precedent and created a new standard for determining when two (or more) entities are “joint employers” for purposes of federal labor law.  The ruling, in Browning Ferris Industries of California, Inc. (“BFI”), is likely to have a significant impact on staffing agencies, businesses that use staffing agencies, franchise relationships (particularly restaurants) and construction companies.  It is also likely to complicate the sale of businesses where some employees are represented by a union and may lead some companies to restructure the manner in which they operate. 

What is “Joint Employment”?

A joint employment relationship may exist when separate business entities share or divide up the rights and responsibilities of an employer with regard to particular employees.  Both entities may be deemed by a court or an agency to be the “employer” for purposes of a particular law, and both may therefore have responsibility to the employee and to third parties for employment-related issues, regardless of how they have divided the responsibilities among themselves. 

The National Labor Relations Act (“NLRA”) imposes certain obligations on “employers,” and the NLRB has long held that there can be joint employment situations under the NLRA.  Historically, the NLRB recognized that a joint employment relationship exists when two entities “share or codetermine those matters governing the essential terms and conditions of employment.”  Where a joint employment relationship exists, both “employers” may be subject to an obligation to bargain with a union and each may be responsible for unfair labor practices committed by the other.

How Did the Law Just Change?

For many decades, the NLRB examined the actual, direct and meaningful involvement of a business entity in matters relating to the employment relationship – such as hiring, firing, disciplining, supervising and directing employees – in order to determine whether it was a joint employer under the NLRA.  Limited and routine involvement in things like supervision and direction was not enough to make an entity an “employer” subject to the obligations of the NLRA toward the employees of another entity.

In BFI, however, the NLRB held that it would no longer limit the examination to actual instances of control exercised by the alleged joint employer, but would more broadly examine “the various ways in which joint employers may ‘share’ control over terms and conditions of employment or ‘codetermine’ them.”  The NLRB stated that the right to control or influence terms and conditions of employment, even if never actually exercised, could result in a finding of joint employment.  The NLRB also ruled that indirect control – through intermediaries or by control of funding and related means – would be a factor that points toward joint employment.  Moreover, control over such things as the number of workers, hiring, scheduling, seniority and overtime, in addition to the standard wages and benefits, will be important to the calculation.

Do We Know How That Works in Practice?

The facts of BFI demonstrate how this new definition of joint employment actually works.  BFI owned and operated a California recycling facility.  About 300 individuals worked at the facility – 60 directly employed by BFI and 240 employed by a contractor, Leadpoint.  The Leadpoint employees manually sorted the recycled material on conveyor belts, cleared jams on the belts and cleaned the facility. 

The Teamsters union filed a petition with the NLRB seeking to represent the 240 Leadpoint employees.  The Teamsters’ petition stated that Leadpoint and BFI were joint employers and sought a ruling that, if the employees selected the union, both BFI and Leadpoint would have a joint bargaining obligation toward the union. 

The local office of the NLRB examined the underlying facts of the relationship and held that, under existing precedent, BFI was not a joint employer with Leadpoint, but that instead Leadpoint was the only employer.  It found that BFI had not actually exercised any meaningful and direct control over pay, benefits, recruitment, hiring, discipline or assignment of work.

The NLRB, however, found that the written contract between BFI and Leadpoint accorded BFI certain rights that, even if not exercised, gave it sufficient control over working conditions so as to make it a joint employer.  Among the factors the NLRB considered were:

  • Hiring – The BFI/Leadpoint agreement required Leadpoint to meet or exceed BFI’s hiring standards, required a drug test, and prohibited hiring former BFI employees who had been deemed ineligible for hire.  The agreement also provided that BFI retained the right to reject any worker for any reason, but there was no evidence it had ever done so.
  • Supervision and Direction – While BFI did not directly supervise the employees, it set the hours that the facility would operate; controlled the speed at which the conveyor belts moved, and thus the pace of the work; determined the number of employees needed; and, on an occasion or two, reported employee misconduct to Leadpoint.
  • Wages – The BFI/Leadpoint agreement provided that wages paid by Leadpoint could not, without BFI’s approval, exceed those paid for similar BFI employees.  It was also a “cost plus” arrangement so that all wage increases would be passed on to BFI.

The NLRB held that this was sufficient to find that BFI had a significant role in “sharing and codetermining the terms and conditions of employment” and that it was therefore a joint employer.

What Happens Now?

The employees at the BFI facility actually voted on whether to be represented by the Teamsters back in 2014, but the ballots have not been counted.  Now the NLRB will count those ballots.  If a majority of the votes are in favor of union representation, then the NLRB will direct BFI and Leadpoint to negotiate.  BFI will almost certainly appeal the decision at that point, and a court will have the chance to weigh in.

Unless and until a court authoritatively changes the new standard, however, the NLRB will almost certainly keep applying it in cases going forward.  This could have a significant impact across many different industries. 

What Problems Will This Create?  What Can I Do About It?

The most immediate issues will arise in organizations that currently have on-site contractors whose employees are represented by unions.  Such organizations should expect that the union will demand that they acknowledge joint employer status and come to the bargaining table, or even claim that they are already bound by an existing collective bargaining agreement they had no part in negotiating.  Businesses in this situation should consult with an experienced labor attorney as soon as possible and be prepared with a response.

Businesses that have contractors on-site but no existing union activity will want to review their service agreements to assess whether, in the event of union activity, they are at risk for being a joint employer, subject to both collective bargaining obligations and potentially to liability for unfair labor practices of the contractor.  It may be advisable to reconsider or renegotiate such agreements, taking into account operational needs as well as the risks under the NLRB’s new ruling.

Staffing agencies will also need to closely examine their agreements and business model in order to deal with this ruling.  A large part of the attraction that a staffing agency brings to a business is workforce flexibility.  If union organization interferes with that flexibility, the staffing firm’s business model may need to be altered.

Beyond the situations that are factually similar to the BFI case, the ruling will likely have a significant impact in businesses that operate on a franchise model.  For example, franchisors typically exercise some degree of control over franchise operations in order to maintain a standard brand, and in most cases that may well be enough, under the new test, to make the franchisor a joint employer of the franchisee’s employees.  The NLRB is in the process of pursuing several high-profile charges in which it alleges that a franchisor is jointly responsible with its franchisees for various unfair labor practices.  A joint employment finding could open the door to more widespread unionization efforts in such facilities.  Franchisors and franchisees should look closely at their arrangements and consider adjustments.

In sum, franchisors, staffing agencies and businesses that use staffing agencies should take heed of the NLRB’s new joint employer test, which the NLRB specifically intends will “modif[y] the legal landscape for employers.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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