nlrbOn August 27, 2015, the National Labor Relations Board (“NLRB”) diverged from three decades of precedent by broadening the reach of its joint-employer test in a decision involving Browning-Ferris Industries (“BFI”), a waste management company, and Leadpoint Business Services (“Leadpoint”), a temporary worker or subcontractor (“temp”) agency. See Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015). In the past, employers receiving services through temp agencies were not responsible for agency workers’ organization, collective bargaining, and other NLRB-based rights unless the employers exercised “direct and immediate” control over their working terms and conditions. However, the NLRB has now concluded that “indirect control” is enough to qualify for joint-employer status – and thus share unfair labor practice liability and bargaining obligations – upending decades of established law.

In Browning-Ferris, BFI subcontracted out various tasks at its facility to Leadpoint. While BFI set the tasks, Leadpoint was responsible for interviewing, hiring, scheduling, supervising, evaluating, disciplining and terminating its employees, along with determining their rates of pay. The Teamsters, in an effort to organize Leadpoint’s employees, filed a petition for an election naming BFI as a joint-employer of Leadpoint’s employees. BFI countered that its supervision over Leadpoint employees was indirect, at best.

The NLRB concluded that “the Board’s [current] joint-employment jurisprudence [was] increasingly out of step with changing economic circumstances,” referencing the increasing tendency of employers to subcontract out work in order to avoid organization and potential employment issues. The NLRB therefore held that a joint-employer relationship can exist whether or not a party exercises “direct” control over an employee; rather, “indirect control” may suffice. Here, the NLRB found that BFI exercised “indirect control” over Leadpoint employees by, among other things: (i) requiring that its employees pass a drug screening prior to commencing work at BFI; (ii) prohibiting Leadpoint from hiring anyone ineligible for rehire by BFI; (iii) reserving the unilateral right to discontinue the use of a subcontracted/temp worker; (iv) controlling Leadpoint workers’ day-to-day activities; (v) setting productivity standards for Leadpoint’s employees; (vi) asking Leadpoint to assign certain tasks to its employees; (vii) requiring that Leadpoint employees comply with BFI’s safety policies; and (viii) prohibiting Leadpoint from paying its employees more than BFI pays its employees to perform similar work. Moreover, the NLRB found that while BFI exercised “indirect control” over Leadpoint’s employees, by recommending the immediate dismissal of two of Leadpoint’s employees (first when a BFI manager caught two Leadpoint employees drinking on the job; and second where a Leadpoint employee was caught on surveillance tape causing damage to BFI property).

While the majority decision did not extend to other legal relationships, the dissenting Board members asserted that it “promises to affect a sea change in labor relations and business relationships.” Due to the numerous parallels with employer-temp agency agreements, the majority’s reasoning could be applied to franchisor-franchisee arrangements, like those between fast food corporate headquarters and individual restaurant proprietors.

Takeaways for Employers

The Browning-Ferris decision has broad implications on how businesses interact with one another. Moving forward, businesses who utilize a subcontractor or temporary worker agency (“temp agency”) to supplement the workforce should:

  • Take a hands-off approach by conveying their ultimate goals to the subcontractor/temp agency, and letting that entity determine the best means of achievement.
  • Educate management (or in the case of franchisors, franchisees) on the cost and liability ramifications of a “joint employer” relationship.
  • Reexamine their contracts with subcontractors/temp agencies to ensure they include language specifying that the business is not a co-employer of the subcontractor/temp agency workers and an indemnification (or “hold harmless”) clause indicating that the subcontractor/temp agency assumes any and all liability for costs or damages stemming from the temp workers’ relationship with the business. Additionally, businesses should consider eliminating contractual provisions that reserve partial or complete control over temp workers, such as retaining the unilateral right to discontinue the use of a temp worker.
  • Avoid involving themselves in the interviewing, hiring, firing, training, scheduling, disciplining, approving overtime, and otherwise reserving control over temp workers.
  • Reexamine whether mandatory pre-assignment drug test policies are truly necessary, given the NLRB’s finding that doing so demonstrates “significant control” over temp workers.
  • Report inappropriate temp worker behavior to the subcontractor/temp agency, but refrain from suggesting that the worker be disciplined.

Employers are Urged to Proceed with Caution

The implications of the Browning-Ferris decision are not fully known. The GOP has introduced legislation to roll back the decision. Lamar Alexander (R-Tenn.), Senate Labor Committee Chairman, and John Kline (R-Minn.), House Committee on Education and the Workforce Chairman, have stated that the new standard “would wreak havoc on families and small businesses across the country.” Franchisors, likewise, are concerned that the decision could jeopardize the franchise business model. Although Browning-Ferris is not a franchise case, it seems likely that the NLRB will address a matter where franchise specific issues are present.   Thus, while it will take time for the legal consequences of Browning-Ferris to be sorted out, employers are urged to proceed with caution when engaging in a business relationship involving a subcontractor, temp agency, or franchise. And, as always, consult with legal counsel.


Michael S. Pepperman is a partner in Obermayer’s Labor Relations and Employment Law Department practicing in the area of employment and labor litigation. He can be reached at 215.665.3032 or michael.pepperman@obermayer.com

 

 

 

 

Alexander V. Batoff focuses his practice on counseling clients on federal and state employment laws and regulations and defending them in litigation.  He may be reached at 215-665-3048 or alexander.batoff@obermayer.com.