By William R. Horwitz and Philippe A. Lebel

Yesterday, the National Labor Relations Board (the “NLRB” or “Board”) issued a decision greatly expanding the standard for determining whether a company may be deemed a “joint employer.”  The Board’s decision, in Browning-Ferris Industries of California, Inc., overturned the narrower standard that the Board had been applying for 30 years.  The impact on companies that rely on staffing agencies and contractors is likely to be significant and the effects may ripple into the world of franchised business.

The Previous Joint Employer Standard

The National Labor Relations Act (“NLRA”) imposes numerous obligations on employers, including the duty to bargain with a union that workers select as their designated representative.  These obligations can extend to a company that does not directly employ the workers in a traditional sense, if the company is deemed to be a joint employer.

For decades, to determine whether a company constituted a joint employer, the Board relied on a test set forth in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 691 F.2d 1117 (3d Cir. 1982), and refined in two subsequent Board decisions – TLI, Inc., 271 NLRB 798 (1994), and Laerco Transportation, 269 NLRB 324 (1984).  Under the Third Circuit’s test in Browning-Ferris Industries of Pennsylvania, two or more companies could be considered joint employers of the same group of employees if they “share[d] or codetermine[d] those matters governing the essential terms and conditions of employment.”  In TLI and Laerco, the Board imposed additional limitations on the test, requiring that, to be considered a joint employer, a company must actually exercise control – not merely possess the authority to exercise control.  Moreover, the control had to be direct and immediate, not limited and routine.

The Facts

Browning-Ferris Industries of California, Inc. (“BFI”) owned and operated the Newby Island Recyclery (“Newby Island”), where workers sorted mixed waste and recyclable materials into separate commodities that were sold to other business.  BFI employed 60 employees at Newby Island, who were represented by the International Brotherhood of Teamsters (the “Union”).  BFI entered into a temporary labor services agreement (the “Agreement”) with Leadpoint Business Services (“Leadpoint”) under which Leadpoint provided employees to sort the recyclables on Newby Island’s conveyor belts, clean the screens on the sorting equipment and provide housekeeping services.

BFI and Leadpoint maintained separate management teams and human resources functions.  Although BFI managers were not directly involved in hiring Leadpoint’s employees, under the Agreement, BFI required Leadpoint to ensure that any personnel assigned to Newby Island met certain BFI-set qualifications, including drug testing and certification and training requirements.  The Agreement provided that Leadpoint retained sole authority to counsel, discipline, and terminate its employees.  However, the Agreement also granted BFI the authority to reject any personnel provided by Leadpoint and to “discontinue the use of any personnel for any or no reason.”  As to wages, Leadpoint was responsible for paying the employees who worked at Newby Island.  Yet, under the Agreement, Leadpoint could not, without BFI’s approval, pay a higher rate than BFI to Leadpoint employees who performed similar tasks to BFI’s own employees.  As to hours and scheduling, while Leadpoint decided what employees to schedule for which shifts, BFI retained sole control over the shifts and operating hours of the facility.  Moreover, BFI – not Leadpoint – decided how many employees to assign to specific conveyor lines.  BFI also set productivity standards and retained the sole authority to set the pace of the material streams.  As to training and safety, although Leadpoint conducted its own training, BFI occasionally supplemented the training, and Leadpoint employees were required to comply with BFI’s safety policies and procedures.  The Agreement expressly provided that Leadpoint was the sole employer of its personnel and that nothing in the Agreement should be construed as creating a joint employer relationship.

The Union petitioned to represent Leadpoint’s sorters, screen cleaners, and housekeepers.  The Union wanted to bargain with BFI on behalf of these workers, arguing that BFI was the joint employer.  Applying TLI/Laerco, the Board’s Regional Director disagreed, finding that BFI was not a joint employer and, therefore, BFI had no duty to bargain.  In arriving at this decision, the Regional Director focused on the fact that, under the Agreement and in practice, Leadpoint retained primary and direct control over its employees supplied to Newby Island.

The Union requested that the Board review the decision.  Among its arguments, the Union contended that the Board should revisit its joint employer standard.

The Board’s Decision

After reviewing the history of its joint employer jurisprudence, the Board concluded that the test originally set forth by the Third Circuit in Browning-Ferris Industries of Pennsylvania had been severely distorted in subsequent NLRB decisions, including TLI and Laerco.  The Board noted the increasing prevalence of employers procuring workers through staffing and subcontracting arrangements.  In its view, the existing, narrow, joint employer test was out-of-date in light of the changing realities of industrial life.

A “New” Joint Employer Test

After criticizing the long line of Board decisions that had narrowed the joint employer designation, the Board declared that it was returning to the original test announced by the Third Circuit.  The Board articulated this “new” test as follows:

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 or conditions of employment.

Relevant facts to consider under this test include the roles that companies play with regard to:  hiring, firing, discipline, supervision and direction; wages and hours; scheduling, seniority and overtime; assigning work; and determining the manner and method of work performance.  The Board explicitly overruled TCI, Laerco, and their progeny, stressing that a company may be a joint employer by virtue of its authority to exercise control, irrespective of whether the company actually exercises that control.  The Board rejected the requirement that a joint employer’s control is necessarily exercised directly and immediately.  Now, control exercised indirectly may establish joint employer status.

The Board stressed that a putative joint employer’s “bare rights to dictate the results of contracted services or to control or protect its own property” would not be determinative.  However, it made clear that:

[w]here … [a] user firm owns and controls the premises, dictates the essential nature of the job, and imposes the broad, operational contours of the work, and the supplier firm, pursuant to the user’s guidance, makes specific personnel decisions and administers job performance on a day-to-day basis, employees’ working conditions are a byproduct of two layers of control.

In such situations, the Board suggested that both the supplier and user of the contingent or temporary workforce would constitute joint employers.

The Board Reverses The Regional Director’s Determination

Applying its revived joint employer standard, the Board found that BFI constituted a joint employer.  Even though BFI was not directly responsible, it exercised “significant control” over hiring, firing and discipline by virtue of the parties’ Agreement.  Moreover, the Board noted that, by virtue of its unilateral control over the operation of its facilities, it also had control over the supervision, direction and hours of work of Leadpoint’s employees.  Likewise, by virtue of the agreed-upon wage ceiling, the Board found that BFI exercised control over Leadpoint’s employees’ wages.

Take Aways From And Potential Impact Of Browning-Ferris

It is unknown whether the Browning-Ferris decision will be appealed.  However, unless and until it is potentially narrowed or overturned by the Supreme Court, the case may have significant consequences for companies that rely on staffing agencies or contractors.  When a company reserves significant authority with regard to the workers of a staffing agency or contractor, the company risks being deemed a joint employer of those workers.  The company would then have a duty to bargain with a union representing those workers and could be subject to unfair labor practice charges for alleged NLRA violations.  The Browning-Ferris decision could also have implications for franchisors if they retain significant control over their franchisees (and franchisee employees).

For now, the Browning-Ferris decision only has implications for an employer’s obligations and exposures under the NLRA.  It does not have the force of law in other contexts, such as wage and hour disputes and claims of discrimination under other state and federal laws.  However, it is conceivable that some courts may find the decision persuasive and appropriate for application in other legal contexts.  In that event, every company that has labor supplied through subcontractors could now face vastly expanded liability under those other laws.

In light of the Browning-Ferris decision, companies that rely on supplemental workforces and franchise agreements should examine their current arrangements carefully.