New NLRB ruling is game-changer for employment and labor law

September 2, 2015

Employment Law BookComing on the heels of last month’s Administrator’s Interpretation from the Department of Labor clarifying the definition of “independent contractor,” the National Labor Relations Board (NLRB) issued a new decision, Browning-Ferris Industries, Inc. (BFI), changing the standard for determining joint-employer status.

The previous standard found joint-employer status only where the company is shown to actually exercise direct and regular control over significant aspects of employees’ wages and working conditions.  The new standard – that is, the standard in use prior to a 1984 NLRB ruling (one also involving BFI) – finds a joint employment relationship of a single workforce if:

  • Both entities are employers within the meaning of the common law; and
  • Both share or codetermine those matters governing the essential terms and conditions of employment.

Further, the determination of “whether an employer possesses sufficient control over employees to qualify as a joint employer” includes “whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.”

In other words, under the old system, an entity wasn’t a joint employer unless it regularly exercised direct control over the employees and their working conditions.  Under this new (old) standard, a company may be deemed a joint employer simply if it has the right to control conditions of employment regardless of whether it ever actually exercises that right.

How does this translate in the real world?  Let’s look at the facts of the most recent BFI ruling as an example.

BFI owns and operates a recycling plant.  BFI directly employs about 60 workers, “most of whom work outside the facility, where they move materials and prepare them to be sorted inside the facility.”  For labor inside of the facility, BFI contracts with Leadpoint, which provides workers to clean and operate the machinery of the plant itself.  Leadpoint provides about 240 full-time, part-time, and on-call employees to work in BFI’s plant.

This is a fairly typical example of labor supply contract, which are often used in medium- to low-skill labor markets (e.g., janitorial, warehouse, etc).  For example, one company may own and/or operate an office building, but contract with a third-party to supply security personnel.

In BFI, although Leadpoint was the company directly responsible for hiring and firing its employees, as well as setting their employee’s wages and working conditions, BFI nonetheless exerted influence sufficient to, among other things, effectively set a wage ceiling for and impose disciplinary action up to and including termination on Leadpoint employees.

Under the old standard, only Leadpoint would be considered the employer for those 240 employees, regardless of whether any specific Leadpoint employees were terminated because of a request from BFI (which actually happened according to the opinion).

Because of last week’s ruling, BFI is no longer insulated from any labor violations that may be alleged against Leadpoint – which may not be immediately relevant in BFI’s case (since the case involved labor union representation), but the ruling now requires employers such as BFI who use labor supplied by third parties to keep closer tabs on the employer activities of those third parties.

Speaking of labor union representation, the BFI ruling undeniably opens doors for labor unionization in these triangular employment situations across the country.  And these employment “triangles” don’t only include labor supply contractors such as Leadpoint, but also franchises – which is why fast-food companies such as McDonald’s are noticeably disturbed by the ruling.  Previously, franchise employees couldn’t form collective bargaining agreements with any other entity but the individual franchise itself.  And even if such a union was formed, the parent company could simply choose to close that individual franchise – thereby snuffing out the union.

Now, the parent company is on the hook as the employer just as much as the franchisee – meaning not only that there could be serious legal consequences if the parent company retaliated against any franchise collective bargaining agreement, but also that all employees of an individual franchise are considered employees of the parent company itself – allowing for the unionization of employees across the country.

Because of the complex logistics of such an unionization endeavor, it’s unlikely that fast-food workers will be unionizing anytime soon.  Nevertheless, the door is now open for unions to make these efforts, and the incentives for labor unions to make the attempt are likely undeniable.

But the ruling’s implications go beyond the reach of the NLRB and labor unions: it may lead to the further narrowing of the definition of “independent contractor,” assigning even more companies the liabilities attached with being an employer.

True, the immediate effects of the ruling will not be felt.  Barring a reversal (say, because of a Republican presidential win in 2016), however, the employment landscape will be forever changed by this ruling, and it remains to be seen whether the benefits of using indirect employment relationships continue to outweigh their costs.