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Now what? Divided NLRB loosens joint employer standard

August 27th, 2015  |  Joy Waltemath

As widely expected, a divided NLRB has loosened its standard for determining joint-employer status under the NLRA. In a press statement announcing the release of the long-awaited decision, the Board said its newly adopted standard serves “to better effectuate the purposes of the Act in the current economic landscape,” noting that more than 2.87 million U.S. workers were employed through temporary staffing agencies as of August 2014, and that the previous standard has failed to keep up with the changing employment relationship, “particularly the recent dramatic growth in contingent employment relationships,” the decision notes. Member Miscimarra and (outgoing) Member Johnson dissented (Browning-Ferris Industries of California, Inc., dba BFI Newby Island Recyclery, August 27, 2015).

The new test. The Board said that, applying “long-established principles,” it held that two or more entities are joint employers of a single workforce if (1) they are both “employers” within the meaning of the common law; and (2) they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the Board will consider, among other factors, 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.

Certification to issue. Applying the restated joint-employer standard retroactively here, the Board found that Browning-Ferris, the respondent company, was a joint employer along with its labor supplier, relying on the fact that the company had indirect and direct control over the leased workers’ essential terms and conditions of employment, and also that it had reserved the authority to control those terms and conditions. Thus, it reversed the regional director and held the union established that the two entities were joint employers of the petitioned-for bargaining unit. Accordingly, the Board ordered the currently impounded representation election ballots to be counted within 14 days, and the appropriate certification issued.

Dissent. “[N]o bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards,” Members Miscimarra and Johnson asserted, in dissent. “We believe that the Board should adhere to the ‘joint-employer’ test that has existed for 30 years without a single note of judicial criticism.”

So what are folks saying about the widely expected ruling? The usual suspects are saying the usual things:

  • House Education and the Workforce Committee Chairman John Kline (R-MN) and Health, Employment, Labor, and Pensions Subcommittee Chairman Phil Roe (R-TN) said in a joint statement that the Board’s decision overturns established labor policy and will disrupt the operations of small businesses across the country.  “The Board has set a dangerous precedent that will lead to higher costs for consumers and fewer jobs for workers.  … This decision is as bad as we feared, and it extends the board’s long track record of siding with union leaders instead of America’s workers and job creators. … we will work to roll back this flawed decision and the damaging effects it will impose on families and small business owners.”
  • Senate HELP Committee Chairman Lamar Alexander (R-Tenn.) agreed. “Today’s ruling seems intended to destroy a small business opportunity for more than 780,000 Americans in our country working 12 hours a day and facing the pressure of meeting payroll, paying taxes, and providing for their families–all as franchisees. It will also harm the millions of small businesses that provide work as subcontractors.  …The board’s decision will greatly reduce any incentive for a corporation to sell franchises or parcel out business to subcontractors, suppliers or subsidiaries, and so may knock the ladder out from under millions of small business owners, some of whom have never been subject to NLRB jurisdiction before. I will be introducing a bill to invalidate this harmful ruling and restore an appropriate legal standard for determining who is a joint employer.”
  • Meanwhile, the Congressional Progressive Caucus described the opinion on Twitter as a “HUGE win for workers w/ #NLRB decision holding corporations accountable 4 working conditions. We will oppose any #GOP effort 2 undermine.”
  • Writing for thehill.com, Tim Devaney said “The Obama administration is redefining what it means to be an employer,” calling out franchise companies in general and the restaurant industry in particular as likely to see broad repercussions.  “The NLRB ruling is a sharp departure from previous decisions that stated companies were only responsible for employees who were under their direct control. … The NLRB is seeking to end that situation by holding that both companies responsible as joint employers, because they “share or co-determine those matters governing the essential terms and conditions of employment.”
  • And the U.S. Chamber of Commerce expressed “strong opposition” and said the opinion “radically upsets the NLRB’s longstanding ‘joint employer’ standard.” Randy Johnson, senior vice president for Labor, Immigration and Employee Benefits at the Chamber, saw “broad implications” from the Board’s action because “the array of obligations and liabilities that attach with a finding of joint employer status … could lead many employers to significantly alter or limit the contractual agreements into which they enter.”
  • Echoing that view, the International Franchise Association criticized the decision, saying it “ignores nearly 50 years of bipartisan policy and decades of court and regulatory rulings and will ultimately harm our national economy.” It also called the Board action “proof that the NLRB may target parties to any business contract in pursuit of their ideological agenda of promoting unions above all else.” IFA President & CEO Steve Caldeira, CFE, said that the ruling jeopardizes small employers in numerous sectors and the future viability of the franchise model of doing business. He also predicted that the courts will ultimately reject the Board’s view.
  • The Teamsters called it a “Huge victory for millions of temp & contracted workers! #NLRB decision holds joint employers accountable,” it said on Twitter. In a released statement, the union applauded the Board ruling “as an additional step to protect and provide a voice to millions of American workers by holding employers that rely on temporary or contracted workers accountable.”
  • AFL-CIO President Richard Trumka said the decision “may very well signal the beginning of the end of outdated laws that fail to address an economic structure tilted against working people. It means more working people can engage in meaningful collective bargaining by bringing all parties who control their wages and other conditions of employment to the table.”

A more reflective view from practitioners

Mark G. Kisicki, shareholder in the Ogletree Deakins Phoenix office, also noted that the Board had overturned decades of precedent commonly apply to establish a joint employment relationship, not just under the NLRA, but for all purposes—that one company must be directly or immediately involved in controlling the terms of another’s workers. That precedent has been that “you are not a joint employer simply because you contract out to another employer for services you need rendered, even if you are having those services performed on your property,” he said.

Now the NRLB is focused on the indirect or potential right to control—which happens “any time a business uses or contracts out to a third party some services that it needs,” stressed Kisicki. He offered the example of janitorial services, and pointed out that when a company puts limits on the services it has contracted for, the Board now would consider this as “exerting indirect control,” as would requiring background checks or requiring confidentiality agreements.

Finally, Kisicki said it was important to understand the context of this case, which did not involve an employer that brought in temporary employees whom it supervised; “this was a true subcontracting relationship,” he emphasized, noting that the labor supplier here did its own hiring and provided its own onsite HR and supervisory staff.

Rebecca Bernhard, Of Counsel at Dorsey & Whitney in Minneapolis, raised similar concerns. She says the new standard comes with a price for employers. “This has serious implications for all businesses–those that typically work with contractors and subcontractors, those that operate in a franchise environment, and even those that simply hire contingent workers from a staffing agency. Departing from 30 years of precedent, the Board has set a new standard which requires that the two employers (whether franchisor or franchisee, contractor and subcontractor or recipient and provider of temporary employees) simply possess sufficient control over terms and conditions of employment.

“Before, the two employers had to both exercise control, but now they can exercise that control ‘indirectly.’  Unfortunately for employers, indirectly is a difficult test to define – and under the case at issue today, was found to be exercised through what have been standard terms in an agreement between a recipient employer and a staffing agency: terms such as the requirement for the staffing agency’s employees to meet standard selection tests. How can an employer now legitimately rely on a staffing agency for supplemental labor if it cannot require the agency to screen its employees according to the same standards the recipient-employer uses for its own employees?” Bernhard asked.

At any rate, it’s only the beginning

  • Jonathan A. Segal, Partner at Duane Morris LLP and Managing Principal, Duane Morris Institute, quipped on Twitter that “#NLRB is as likely to find joint employer under “refined” test as #DOL is to find employee rather than contractor.”
  • Seth Bordon, Partner at McGuireWoods and editor of LaborRelationsToday.com, tweeted  “#NLRB’s new Joint Employer test: ‘We’ll know it when we want to see it.’”
  • Finally, Steptoe & Johnson’s Employment Essentials blog team reassured us this is only the beginning: “Rest assured, #NLRB decision in Browning-Ferris 2day only 1st battle in longer fight about whether there should be new #JointEmployment std.”