Just hours before Chairman Miscimarra’s tenure is to end, the National Labor Relations Board (NLRB) has issued two decisions with sweeping impact. Together, they overturn many of the Obama Board’s most controversial decisions that radically departed from decades-long precedent under the National Labor Relations Act (NLRA). We will discuss the Board’s decision regarding employer policies in another article. Our subject here is the Board’s decision yesterday that overturned the 2015 Browning-Ferris Industries case. In Browning-Ferris, the Board had adopted an expansive but nebulous standard for determining when two separate legal entities are deemed to be joint employers of a group of employees. The Browning-Ferris standard was widely criticized and spawned legislation in both houses of Congress to nullify it. Most troubling for businesses was that the Browning-Ferrisdecision failed to provide any meaningful guidelines for them to evaluate and make reasonable conclusions about whether particular business relationships would result in the NLRB deeming them to jointly employ another’s company’s employees. 

The Board’s new decision, Hy-Brand Industrial Contractors, Ltd. 365 NLRB No. 156, focuses almost exclusively on Browning-Ferris and, in an erudite and methodical analysis covering 35 pages, articulates the many reasons the Browning-Ferris decision was not merely wrong legally, but bad labor policy. The Board’s decision draws heavily from the 28-page Browning-Ferris dissent—even making the same observation that under the Browning-Ferrisstandard, “a homeowner hiring a plumbing company for bathroom renovations could well be deemed a joint employer of the plumbing company’s employees!” [Emphasis in original.]

Largely following the Browning-Ferris dissent’s rationale, the Board emphasized five primary reasons the Browning-Ferris Board’s decision was unsound legally and unworkable as a practical matter:

1. First, it held Browning-Ferris had exceeded the NLRB’s authority by expanding the common law definition of “employer” that Congress had adopted under the NLRA.
2. Second, Browning Ferris purported to be interpreting the Act in light of the concerns and complexities of today’s economy that did not exist at the time Congress adopted the Act, but the Hy-Brand Board pointed out that the issue of control by one company over another, and the indirect impact that has on employees, has been a staple of our industrial society for centuries.
3. Third, the Browning Ferris Board did not merely interpret the application of the agency principles that determine employer status, it rewrote those principles—and that was something only Congress could do.
4. Fourth, Browning-Ferris abandoned a longstanding test that allowed employers, employees and unions to reasonably predict whether any given business arrangement would result in one entity being deemed a joint employer of another entity’s employees. Instead, the Browning-Ferris Board left the business community with uncertainty and substantial risk of being deemed a joint employer at the discretion of a regional NLRB office simply because it had “potential” to control, or “indirect” control over the other entity’s workers.
5. Fifth, the Browning Ferris Board had wrongly attempted to fix the inequality between business entities by forcing the one with more leverage in a business transaction to the bargaining table with the business entity with less leverage, but whose employees provide the service or make the other business’s product.  To “reshape” the complex business environment that exists today would depend upon Congress directing the Board to do so, and Congress had not given the Board any such directive. 

In overturning the Browning-Ferris decision, Hy-Brand returns the Board to its long-standing test, articulated in two 1984 cases, TLI, Inc., 271 NLRB 798, and Laerco Transportation, 269 NLRB 324. According to Hy-Brand, in those cases, and many that followed, the Board had made clear that one entity would be deemed the joint employer of another entity’s employees only if it exercised actual, direct control over “essential employment terms”; potential or reserved control alone was not enough. Moreover, that control must be exercised in a manner that is not “limited and routine.”

Key Takeaways

The Board’s Hy-Brand decision is welcome news for all employers of any size and in all industries. The decision will likely have far-reaching effects across many industries and business models:

• Franchisors no longer need to be concerned that their efforts to ensure brand quality and consistency will result in untold obligations as a joint employer of their franchises’ employees.
• Companies can contract with others for on-site services with confidence the potential or reserved control that one has over the other will not result in a joint-employer finding.
• Companies can outsource functions and understand their risks rather than being left to guess at how an NLRB regional office will evaluate its business model under a multifaceted test that, in application, vested complete discretion in the NLRB.
• All employers—and the courts—will be able to know whether a union’s picketing at an unrepresented facility is a legal, or illegal, secondary boycott.

Because economic prosperity and growth requires a foundation of stable legal principles to assess risk, the impact of this decision in returning those principles to the understanding that has existed for decades, and on which our economy is built, will resonate throughout the country.