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October 5, 2015

NLRB Establishes New Standard For Joint Employer Status

By Patrick Moody

 

In the recent case of Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015), the National Labor Relations Board established a new, and much broader, standard for determining if separate companies are joint employers under the National Labor Relations Act.  The new rule changes what has been the board’s standard for determining joint employer status for the last 30 years, and it expands the scope of joint employer status from just those employers who directly control the terms and conditions of employment, to include employers who only indirectly affect such terms and conditions.

Under the old standard, in order for a company to be a joint employer, it needed to “share or codetermine those matters governing the essential terms and conditions of employment” with the employees’ direct employer.  In addition, an employer had to exercise direct and immediate control over employees and “meaningfully affect matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction.”

Under the new standard, a company will be considered a joint employer if it “possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining.”  This broad category of “control” can be exercised indirectly if, for example, it is expressed through an intermediary, or if there are present in a labor contracting agreement, contractual provisions between companies that preserve the right to control terms and conditions of employment, even if that right is never exercised.  The board explained that the new standard is necessary because existing labor law, under the old standard, was “increasingly out of step with changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships.”  The board also indicated that the new standard would facilitate more collective bargaining.

In the case above, Browning-Ferris Industries of California, Inc. (BFI), operated a waste recycling facility and hired a labor contractor to provide employees for sorting recyclable items inside the facility and to perform basic housekeeping tasks.  The International Brotherhood of Teamsters petitioned to represent 240 of the contracted employees and a hearing was held to determine if BFI and the labor contractor were joint employers.  The NLRB Regional Director presided over the hearing and held that, under the existing standard, BFI was not a joint employer because it did not directly set pay rates, provide benefits, or supervise employees, and had no direct control over recruitment, hiring, discipline, termination, work assignments or scheduling.  Neither did BFI have any authority to authorize overtime work.

However, the board overruled the regional director on appeal by the union, and announced the new broader standard.  In applying the new standard, the board held that BFI had control over the contracted employees and was, in fact, a joint employer with the labor contractor because: 1) the labor contract between BFI and the contractor was terminable at will by either party, 2) BFI had the right to reject any worker that the contractor hired, 3) Even though BFI did not participate in day-to-day work assignments, BFI’s unilateral control over specific productivity standards was a “clear and direct connection between BFI’s decisions and employee work performance,” 4) contracted employees had to follow safety standards set by BFI, and 5) the labor contract prevented the contractor from paying employees more than BFI paid its direct hires for performing the same work, and any raise in pay for the contracted employees required approval from BFI.

 

What This Means for Employers

This decision by the board is significant and is likely to affect the business and labor relationships of many companies in California, especially businesses that rely on nontraditional workforces (i.e., independent staffing services, subcontractors, distributors, labor contractors and franchisees).  Joint employer status can potentially require a company to participate in collective bargaining with unions and subject a company to unfair labor practice charges, strikes and boycotts because of conduct by other employers with whom the company does business, but has no ownership interest in whatsoever.

 

Pat Moody is a partner in the law firm of Barsamian and Moody, Fresno, CA.