Over an impassioned dissent by two of its five members, the National Labor Relations Board has jettisoned several decades of precedent and imposed a new standard for determining when a business will be considered a "joint employer" of the employees of a contractor that provides labor services. Under the previous standard, a business would have to exercise "direct and immediate control" over the contractor's workers to be considered a joint employer. The new test focuses more on whether the business has the potential to exercise control over workers' wages and working conditions, even if that control for the most part is not exercised. The NLRB justifies its new standard on the basis that the previous standard was "increasingly out of step with changing economic circumstances," and did not sufficiently account for the true economic power in these relationships.

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The NLRB applied its new standard in a case involving the issue of whether a company was a joint employer and thereby obligated to recognize and bargain with a union. But as illustrated below, the same standard could also be applied in other fact situations and also to other types of business relationships, such as franchisor-franchisee, contractor-subcontractor, parent-subsidiary, lessor-lessee, user-supplier, among others.

The Browning-Ferrris case

After laying out its new standard, the NLRB applied it to the facts in the case before it. Browning-Ferris Industries had a contract with Leadpoint, a staffing services company, to supply workers at a BFI recycling facility. A union election was conducted among the workers. The issue was whether BFI was a joint employer and thereby obligated to recognize and bargain with the union if the latter won the election.

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BFI and Leadpoint kept separate supervisors and lead workers at the facility, as well as separate human resources departments. The contract between BFI and Leadpoint designated Leadpoint as the sole employer and stated that Leadpoint should not assign workers to BFI for more than six months.

Critical to the NLRB majority, however, was that the contract gave BFI the power to tell Leadpoint to fire a worker and to decide the operating hours of the facility, even if Leadpoint was formally the entity that did the firing and set the schedules. In the NLRB's view, these and other factors gave BFI the power to effectively dictate working conditions and therefore "indirectly control" them, even if BFI only occasionally exercised those rights. BFI therefore was determined to be a joint employer and obligated to recognize and bargain with the union if elected by Leadpoint's workers.

Implications of the decision

Although the NLRB's decision arose in the context of whether a business had a duty to recognize and bargain with its staffing service's employees, the decision could also apply in other contexts falling under the NLRB's jurisdiction. The new standard could make a business that utilizes a contract labor service liable for any unfair labor practices that the service may commit, such as firing an employee for engaging in union activity or for engaging in protected concerted activity with other workers. A business could also be liable for the contractor's breach of a collective bargaining agreement, or be subject to economic protest activities, such as picketing, that would otherwise be considered secondary and illegal.

Also, the new standard could create new obligations and liabilities under other business models. Examples include:

1. Franchisor-franchisee relationships. Cases presently pending before the NLRB involve the issue of whether or when a franchisor is the joint employer of the franchisee's employees. Applying the new "indirect control" standard, it is easy to see the NLRB applying the joint employer label to franchisors in many situations, because franchisors typically do retain certain powers that, if exercised, affect the wages and working conditions of the franchisee's employees. This may have practical consequences: If franchisors feel they will be liable for actions committed by their franchisees, they may exercise tighter control over them, such as requiring personnel actions to be reviewed and approved by their human resources departments.

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But it is precisely the freedom from such interference in the day-to-day control of their operations that attracts aspiring franchisees. Some franchisors, already motivated by other regulatory developments, may find other ways to adjust how they do business. For example, fast food franchisors may be encouraged to follow McDonalds' lead in rolling out self-service kiosks to avoid labor costs and exposures.

2. Venture capital companies, parent-subsidiary relationships, and independent contractors. As the dissenters point out, an "indirect control" standard theoretically could make a joint employer out of a bank or venture capital company whose financing terms may require certain performance measurements. Similarly, a parent company typically asserts certain types of indirect control over its subsidiaries that could make it a joint employer of the subsidiaries' employees. The "indirect control" standard may be used to weaken the position of companies such as Federal Express and Uber that treat their drivers as independent contractors.

3. Construction industry. General contractors who use non-union labor at construction sites long have been able to protect themselves from union picketing directed at non-union subcontractors on the site by setting up reserved gates and taking other measures that enable them to force the picketing unions to confine their picketing so as not to disrupt work from getting done. The general contractor usually has a superintendent at the site to direct construction. Applying an indirect control standard could render the general contractor a joint employer of the employees at the site and thereby a legitimate target of the picketing.

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The NLRB's decision likely will be appealed, and legislative action may be initiated in an effort to countermand the decision. It also remains to be seen how the NLRB will address the many fact patterns and issues that the BFI case did not address. In the interim, the legal landscape has dramatically shifted.

Irving M. Geslewitz is a principal in the labor & employment practice group at Chicago-based law firm Much Shelist. He represents clients in a broad array of matters related to employment laws and labor relations, and has extensive experience representing employers and executives on issues or disputes arising out of the employment relationship. Mr. Geslewitz may be reached at igeslewitz@muchshelist.com or 312-521-2414

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