In a decision that will impact on how many American corporations do business, the National Labor Relations Board ("NLRB") last week redefined the term "joint employer" in response to a union representation petition naming Browning-Ferris Industries as an employer. The decision presents a new risk to companies of being named as an employer in filings before the NLRB. Abandoning its previous standard -- whether a putative employer exercised direct control over the terms and conditions of employment of another entity's employees -- the NLRB will now consider whether the putative employer merely has the power to exercise control, regardless of whether it ever actually exercised that power. The new test may be applied to investment companies that possess any degree of control over hourly employees of portfolio companies, companies that engage subcontractors, companies that engage staffing services, leased, or temporary employees, and franchisors that could exercise control over franchisees' employees, even if they never exercise that control. When unions seek to represent these employees or file unfair labor practice charges on their behalf, these first-tiered, separately-incorporated companies may be named as the employer or as respondents.
Facts of the case
BFI Newby Island Recyclery ("BFI"), a waste recycling company, engaged Leadpoint Business Services ("Leadpoint") to provide BFI with employees who then reported to BFI supervisors at its worksite. The labor services agreement required Leadpoint to ensure that all referred employees had appropriate qualifications and certifications and could perform the general duties of the assigned position. Leadpoint had to make "reasonable efforts" not to refer workers who were previously deemed to be "ineligible for rehire" by BFI, and any worker Leadpoint referred had to pass a drug screen. Although Leadpoint had sole responsibility to discipline, evaluate, and terminate employees, BFI retained the authority to "reject any personnel, and . . . discontinue the use of any personnel for any or no reason." When a union filed a petition with the NLRB to represent the temporary employees on Leadpoint's payroll, it named BFI and Leadpoint as joint employers, providing the Board an opportunity to re-examine its standard.
Analysis of the Board's decision
The NLRB explained that it was broadening the future application of the term "joint employment" under the National Labor Relations Act ("the Act") because "the diversity of workplace arrangements in today's economy has significantly expanded." Given these changes in the workplace, instead of determining whether an entity in fact exercised control over employees, the NLRB announced it will examine whether an employer simply has the right to exercise control over the "essential terms and conditions of employment," even if that right is never exercised. Explaining the "indirect control" standard it will use going forward, the NLRB stated:
"The Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may 'share' control over terms and conditions of employment or 'codetermine' them, as the Board and the courts have done in the past. . . .
". . . But 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."
The Board broadly defined "essential terms and conditions of employment" as "matters relating to the employment relationship," including but not limited to hiring, firing, discipline, supervision, direction, wages and hours, dictating the number of workers to be supplied, scheduling, seniority, overtime, assigning work, and determining the manner and method of work performance. Given this expansive definition and the facts above, the NLRB ruled that Leadpoint and BFI were joint employers under the Act. Although the holding only applies prospectively, in these circumstances both entities would have to oppose the union organizing campaign and both would have to recognize and bargain with the union if the union won the election, potentially giving the union access to two pocketbooks rather than one.
The NLRB decision offers little guidance to employers in these circumstances, stating only that each inquiry into joint employment will be highly fact-intensive. However, the question the Board will now ask when analyzing whether two entities are joint employers is whether each entity merely has the power to affect the essential terms and conditions of employment, and not whether each one actually exerted any control over those terms and conditions.
The impact of this decision likely will be far-reaching, enmeshing companies that have any control over employees of other entities with whom they contract. But note: the "joint employer" standard applies not only in representation cases, but in unfair labor practices proceedings where charges are filed against two (or more) entities that are claimed to be jointly employing the employees in question. Several consolidated unfair labor practice proceedings involving McDonald's USA LLC and dozens of its independent franchisees are being tried before administrative law judges in several regions of the NLRB. The General Counsel in these cases alleges that McDonald's, as the franchisor, imposed personnel and pay practices on its franchisees to a degree sufficient to render it a joint employer and liable for its franchisees' unfair labor practices. One complaint against McDonald's was argued before the NLRB prior to last week's BFI ruling, but the Board has yet to issue its decision. Companies involved in these relationships should take extra precautions when entering into staffing, subcontracting, and franchise agreements and analyze the level of control each entity may have over the essential terms and conditions of the other's employees. Watch for updates, as NLRB decisions are often appealed to federal circuit courts.