National Labor Relations Board Adopts New Joint Employer Standards - Broad New Test Likely to Draw Legal Challenges

In a landmark decision sure to spawn legal challenges in a variety of settings, the National Labor Relations Board ("NLRB" or "the Board") has significantly redefined what constitutes a joint employer relationship. Overturning decades of precedent, the Board significantly broadened the standard for determining when two separate legal entities can be combined for labor relations purposes. In the process, the Board has created uncertainty on an unprecedented scale, which will impact virtually all business relationships, including outside suppliers, on-site contractors, subsidiaries, and franchisees.

Facts

In Browning-Ferris Industries of California Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (August 27, 2015), the Teamsters ("the Union") sought to represent certain employees working directly for Leadpoint Business Services ("Leadpoint"), a staffing service, at a recycling facility owned and operated by BFI, and to negotiate with Leadpoint and BFI over the terms and conditions of employment of the Leadpoint employees BFI was using. BFI contracted with Leadpoint to provide approximately 240 full-time, part-time, and on-call employees to work at a BFI facility. BFI and Leadpoint memorialized this arrangement by entering into a temporary labor services agreement which specified that Leadpoint was the sole employer of these employees. Although BFI employed an operations manager and division manager at the facility, Leadpoint’s on-site manager, shift supervisors, and lead workers directly oversaw the work of Leadpoint’s employees. The Union argued that because BFI controlled the operation of the facility, it should be regarded as the joint employer of Leadpoint’s employees. The Regional Office of the NLRB rejected that argument, but the full NLRB reviewed this decision and, by a 3 to 2 vote, ultimately reversed it.

The New Standard

The Board majority in Browning-Ferris established a new standard in finding BFI and Leadpoint joint employers. The majority held that two or more entities are joint employers of the same employees for labor relations purposes “if they share or co-determine those matters governing the essential terms and conditions of employment.” In deciding whether an entity like BFI, which uses another entity's employees ("user entity"), meets the standard, the Board held that it must first determine whether there is a common law employment relationship with the provider’s employees based on a "right of control" over them. If such a relationship exists, the Board then examines whether a user entity possesses "sufficient control over employees' essential terms and conditions of employment to permit meaningful collective bargaining." The majority held that it will no longer require that a proposed joint employer both possess and actually exercise the authority to control employees. In addition, the Board majority held that it would no longer require that a proposed joint employer’s control over the employees be exercised "directly and immediately."

In the majority's view, BFI was a joint employer of the 240 Leadpoint workers under common law principles, and it shared or co-determined those matters governing essential terms and conditions of employment. The Board relied on the fact that BFI determined the standards for hiring Leadpoint employees, required drug testing of such employees, and possessed the right to require Leadpoint to discipline or remove its employees. Additionally, the majority found that BFI unilaterally controlled the speed of sorting work in the facility, assigned specific tasks to be performed by Leadpoint workers, and determined the number of workers required, the time of their work shifts, and the need to work overtime. The majority also found that BFI played a significant role in the establishment of Leadpoint employee wages. Based on all of these factors, the majority found that BFI shared and co-determined the terms and conditions of employment of Leadpoint employees so as to sufficiently render BFI a joint employer with Leadpoint. Thus, if Leadpoint employees chose to be represented by the Teamsters (their election ballots were impounded by the regional office while the NLRB reviewed the case), both Leadpoint and BFI, as joint employers, would be required to bargain collectively with the Teamsters.

The Dissent

In a stinging dissent, members Philip Miscimarra and Harry Johnson III accused the majority of rewriting the well-established, decades-old test for determining joint employer status. As they wrote: "This change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, [and] to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements. . ." The dissenters accused the majority of impermissibly legislating changes to the NLRA designed to equalize bargaining leverage between a union and employer based on an "economic realities" test long rejected by Congress and the Supreme Court. In the dissenters' view, the Board's new joint employer test will fundamentally alter the law applicable to a host of business relationships, including lessor-lessee, parent-subsidiary, franchisor-franchisee, and others. Further, the dissenters found the majority test for joint employer status— a "right" of control over the "essential" terms and conditions of employment of a provider's employees—to be hopelessly vague and unworkable in practice. As the dissenters wrote, "no bargaining table [will be] big enough to seat all of the entities that will be potential joint employers under the majority's new standards."

What's Next?

While organized labor hailed the Board's decision in Browning-Ferris as a huge win for American workers, employer groups such as the National Association of Manufacturers, the U.S. Chamber of Commerce, and the National Retail Federation, among many others, denounced the ruling. Given its breadth, business models that rely upon franchising, temporary staffing, or subcontracting are all at risk of creating joint employer relationships, depending upon the particular facts and the degree of control user entities have over the terms and conditions of the employees provided to them. While court challenges are a virtual certainty, user entities should closely examine their contractual relationships with these providers and, if they are able to do so, modify them to help insulate themselves against joint employer liability.

If you have questions regarding the Board's decision in Browning-Ferris, contact your Quarles & Brady attorney or David Kern at (414) 277-5653/david.kern@quarles.com, Michael Aldana at (414) 277-5151/michael.aldana@quarles.com, or Judi Williams-Killackey at (414) 277-5439 /judi.williams@quarles.com.