The National Labor Relations Board (“NLRB” or “Board”) has issued its long-anticipated  decision in Browning-Ferris Industries, 362 NLRB No. 186 (pdf), establishing a new test for determining joint-employer status under the National Labor Relations Act (“NLRA” or the “Act”).  Because this revised standard will resonate with businesses relying on contractors and staffing firms throughout the economy and across industry lines, employers should be wary of its potential impact upon relationships with service providers that are supportive of, or critical to, their enterprise.

By fashioning a new standard in Browning-Ferris, the Board springs open new questions of which legally distinct entities will bear responsibility in NLRB cases addressing union recognition and bargaining obligations, as well as for any unfair labor practices that may follow.  Given the Board’s lead in fashioning a new standard, described as based on common law principles, it is likely to be relevant as well to other agencies, such as the Equal Employment Opportunity Commission and Department of Labor.

The majority opinion in this 3-2 decision makes clear that its objectives are far reaching: to address “the diversity of work­place arrangements in today’s economy,” including the increase in “[t]he procurement of employees through staffing and subcontracting arrangements, or contingent employment,” and fulfill a “primary function and responsibility.”

A New Standard for a Different Economy

Under the new standard enunciated by the majority, “[t]he 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.” Browning-Ferris jettisons the long standing requirement that not only must a party have the means to influence such matters, but it must also have exercised that right in a meaningful way.  If the decision is upheld and followed, no longer will the Board need to find that an employer retains and exercises direct control over another employer’s employees to be liable as a joint employer of those employees.

In the decision and press release, the Board suggests that “the current economic landscape”, which includes some 2.87 million people employed by temporary agencies, warrants a “refined” standard for assessing joint-employer status. As the majority puts it: “If the current joint-employer standard is narrower than statutorily necessary, and if joint-employment arrangements are increasing, the risk is increased that the Board is failing what the Supreme Court has described as the Board’s ‘responsibility to adapt the Act to the changing patterns of industrial life.’”

What Is the New Test for Finding Joint Employer?

So what exactly is changed? Previously, an employer had to exercise direct and immediate control over the terms and conditions of employment to be found to be a joint-employer. Under the new standard, what matters is whether the purported joint-employer possesses the authority to control the terms and conditions of employment, either directly or indirectly. In other words, the actual or potential ability to exercise control, regardless of whether the company has in fact exercised such authority, is the focus of the Board’s inquiry.  As the Board puts it, “reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.” (emphasis added).

The Board’s decision also extends joint-employer status to employers that only exercise a degree of indirect control over the work performed by the employees of another. By way of example, in support of its holding that Browning-Ferris Industries (“BFI”) was a joint-employer of the employees of its contractor, Leadpoint Inc., a supplier of temporary labor, the Board emphasized that BFI had “communicated precise directives regarding employee work performance” to Leadpoint supervisors.

Why This Matters

As former NLRB Chair Wilma Liebman told Noam Scheiber of The New York Times, the Board’s decision changes the critical fact of which company is required to negotiate when employees unionize: “This is about, if employees decide they want to bargain collectively, who can be required to come to the bargaining table to have negotiations that are meaningful,”

One significant indicator of how broadly the Browning-Ferris decision will be applied may be seen when the decisions issue in the pending unfair labor practice charges in which McDonald’s is alleged to be a joint-employer of the employees of various franchisees. While the full import of Browning-Ferris may unfold over years of administrative litigation and court review, we know that the obvious (and intended) effect of the decision is to permit the Board to find joint-employer status where it did not previously exist. Indeed, the Board majority notes that extending joint-employer status is necessary to “encompass the full range of employment relationships wherein meaningful collective bargaining is … possible.” Notwithstanding the arrangements employers and contractors have made in years past to guard against joint-employer exposure, unions will be at the ready with unfair labor practice charges and representation petitions as vehicles for the Board to apply its new standard and examine or reexamine relationships forged before the pronouncements of Browning-Ferris. Thus, employers should anticipate a role in newly filed proceedings alleging joint-employer status – even as they contemplate reforming or redefining terms by which they engage with contractors and other providers of services supportive of their business.

Especially troubling is the prospect that the Board, in its zeal to create new applications for its joint-employer criteria, will ignore existing facts showing no actual exercise of control by one employer over employee relations of another, and instead look for control that potentially could be exercised in an ordinary arm’s length business relationship.

Given these circumstances, even those employers who do not exercise any direct or indirect control over the employees of their contractors should review carefully the terms of such arrangements, keeping in mind the Board’s stated intention of expanding joint-employer status.

What to Do Now

It is not an exaggeration to say that the new standard for determining joint-employer status will impact employers in almost every industry across the country.  As a first step, employers will want to closely examine their relationships with those who provide them with temporaries and other contingent workers, and their contracts and relationships with those other businesses that provide integral services and support, to assess whether there is a vulnerability to findings of joint-employer status.