National Labor Relations Board’s New Joint Employer Standard Expands Risks for Employers

In a potentially game-changing decision in Browning-Ferris Industries of California, Inc.,¹ a three-member majority of the National Labor Relations Board (the “Board”) cast aside its long-standing joint employer test in favor of a highly union-friendly standard that is likely to expand greatly the number of employers subject to collective bargaining and other obligations under the National Labor Relations Act (the “Act”). Prior to Browning-Ferris, an entity that did not directly employ workers who provided services to it would only be deemed to be a “joint employer” of those workers if it “share[d] or codetermine[d] those matters governing the essential terms and conditions of employment” and exercised “direct and immediate control” over those terms and conditions. The majority in Browning-Ferris rejected this latter requirement, holding that “we will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but must also exercise that authority, and do so directly, immediately, and not in a ‘limited and routine’ manner.” Instead, the majority concluded, the “right to control” alone, even when unexercised, “is probative of joint employer status.” 

I. The Background of the Browning-Ferris Decision 

Browning-Ferris, d//b/a BFI Newby Island Recyclery (“BFI”), operates a recycling facility that processes mixed materials, mixed waste, and mixed recyclables. In addition to directly employing approximately 60 employees at the facility, BFI contracted with Leadpoint Business Services, a staffing agency, to provide approximately 240 workers to work on the facility’s sorting lines. BFI’s contract with Leadpoint stated that Leadpoint was the sole employer of the personnel it supplied, and that “nothing in the Agreement shall be construed as creating an employment relationship” between BFI and Leadpoint’s workers. Shortly after BFI’s contract with Leadpoint began, a union petitioned the Board to represent the sorters, screen cleaners and housekeepers at BFI’s facility, claiming that those workers were jointly employed by Leadpoint and BFI. 

Following an election, one of the Board’s Regional Directors considered whether BFI was a joint employer of Leadpoint’s employees, and concluded that it was not. In reaching this decision, the Regional Director relied on, among other things, the fact that: (1) Leadpoint set employee pay and is the sole provider of employee benefits; (2) Leadpoint had “sole control” over the recruitment, hiring, discipline and termination of its employees; and (3) Leadpoint’s employees were supervised solely by Leadpoint supervisors and BFI did not “control or codetermine employees’ daily work.” While BFI controlled the speed at which the stream of material to be sorted flowed through the facility, which impacted the number of Leadpoint employees needed and the speed at which those employees worked, the Regional Director found that this did not “create a level of control that is sufficiently direct or immediate” to support a finding of joint control. 

II. The Majority’s New Standard 

Following briefing by the parties, the Board’s General Counsel, and numerous amicus curiae, the Board reversed the Regional Director’s finding in a 3-2 decision split along party lines. The majority found that, since the Board’s 1984 decisions in TLI, Inc.² and Laerco Transportation,³ the joint employer standard had been improperly narrowed and should be revised. According to the majority, “Laerco and TLI...marked the beginning of a 30-year period during which the Board—without any explanation or even acknowledgment and without overruling a single prior decision—imposed additional requirements that effectively narrowed the joint-employer standard. Revisiting this standard was appropriate, the Board majority determined, because “the diversity of workplace arrangements in today’s economy has significantly expanded,” and “if the current joint-employer standard is narrower than statutorily necessary, and if joint-employment arrangements are increasing, the risk is increased that the Board is failing in what the Supreme Court has described as the Board’s ‘responsibility to adapt the Act to the changing patterns of industrial life.’” 

The majority then went on to reject many of the principles that had been at the heart of its former joint-employer standard over the past 30 years. First, the majority rejected the argument that a joint employer must actually exercise control over the terms and conditions of workers’ employment. Instead, the right to control alone can constitute a basis for finding joint employment: “Where a user employer reserves a contractual right to set a specific term or condition of employment for a supplier employer’s workers, it retains the ultimate authority to ensure that the term in question is administered in accordance with its preferences. Even where it appears that the user, in practice, has ceded administration of a term to the supplier, the user can still compel the supplier to conform to its expectations” (emphasis added). Further, the majority concluded, a joint employer that exercises its right to control workers need not exercise that authority “directly and immediately,” nor is it necessary that the putative joint employer’s control not be exercised in a “limited and routine manner.” 

Applying its “restated” standard to the circumstances of BFI and Leadpoint, the majority concluded that BFI was a joint employer. Although BFI did not directly hire, discipline or fire any Leadpoint employees, it “codetermined the outcome [of the hiring process] by imposing specific conditions on Leadpoint’s ability to make hiring decisions.” Further, although BFI had never in practice compelled the termination of a Leadpoint employee or participated in disciplinary procedures, it possessed the “ultimate right under the terms of the Agreement to dictate who works at its facility.” The majority also concluded that BFI exercised control over “the processes that shape the day-to-day work of the petitioned for employees.” Of “particular importance,” was that BFI retained “unilateral control over the speed of the streams and the specific productivity standards for sorting.” Finally, the Board stated that BFI played a “significant role” in determining employees’ wages by precluding Leadpoint from paying employees more than BFI employees performing comparable work. 

III. The Dissent Warns of Dire Consequences 

In a lengthy dissent, Board Members Miscimarra and Johnson strongly disagreed with the majority’s ruling. The Board’s new test, the dissent wrote, “will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what would have heretofore been unlawful secondary strikes, boycotts and activities.” The dissent asserted that the Board’s “sweeping” decision leaves employees, unions, and employers with “no certainty or predictability” regarding the identity of the employer or employers of a group of employees: “[I]n any particular case, the majority may consider evidence about virtually any aspect of employment and may give dispositive weight to an employer’s control over any essential term and condition of employment…Indirect control, even a power reserved but never exercised, will be considered and may suffice, standing alone, to find joint-employer status” (emphasis added). 

The dissent also expressed concern that “the majority’s test will actually foster substantial bargaining instability by requiring the nonconsensual presence of too many entities with diverse and conflicting interests on the ‘employer’ side.” Finally, and perhaps most significantly, the dissent noted that the Board’s new standard will likely have widespread application outside the staffing agency-user context: “Contrary to their characterization, the new joint-employer test fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships under the Act.” 

IV. The Likely Fallout 

As the dissenting Board members pointed out, Browning-Ferris is almost certain to have dramatic impact for all manner of employers, not just those that contract with staffing agencies. Indeed, even prior to the decision, the Board’s General Counsel had targeted franchisor-franchisee relationships, particularly in the fast food industry, and this effort will clearly be bolstered by the Board’s decision.⁴ Further, it is not difficult to imagine unions using the decision to attempt to compel private equity firms and other investors, as well as lenders and other debt holders, to participate in collective bargaining and to target such firms with picketing and similar conduct. As the Browning-Ferris dissenters aptly pointed out, these efforts are likely not only to bog down the collective bargaining process itself, but also to spur extensive pre-bargaining litigation about who exactly is an “employer.” In short, Browning-Ferris adds another level of uncertainty and unpredictability to an already complex process, and clarity may be a long time coming. In the meantime, employers should carefully review their contractual arrangements with entities with which they could potentially be considered joint employers, and be prepared for possible organizing, concerted activity, demands for recognition and unfair labor practice charges from unions and employees. 

Footnotes 

_{1) 362 NLRB No. 186 (Aug. 27, 2015).
2) 271 NLRB 798 (1984).
3) 269 NLRB 324 (1984).
4) In December 2014 and February 2015, the Board issued complaints in 19 cases alleging unfair labor practices against McDonald’s USA, LLC and asserting that McDonald’s is a joint employer with its franchisees. See Fact Sheet.}