On August 27, the National Labor Relations Board ruled that companies that hire contract labor through staffing organizations may be considered “joint employers” for union organizing purposes. It’s a decision that drove the Wall Street Journal editorial page to hyperbole.
Others see Browning-Ferris Industries of California as a rational response to the changing nature of employment, an effort to bring independent contractors, gig workers and freelancers under the protective umbrella of labor and employment law. A third view sees it as a return to a longstanding pre-Reagan era definition of the employer/employee relationship, a reassertion of liberal tradition.
The more immediate implications may be for the franchisee/franchisor relationship, especially in the fast food industry, where union organizing activities are already underway.
As for the long range, issues loom about whether employers may find themselves more involved in and responsible for the welfare of workers who they have not typically viewed as employees. California law has already expanded the potential liability of companies that hire contract workers through staffing agencies.
Is this the trend or is this an anomaly? That’s the issue to watch.
The facts behind the NLRB’s ruling
The NLRB decision involved a waste management company, Browning-Ferris Industries, and a staffing company, Leadpoint Business Services, which supplied workers to BFI.
The relationship between the two entities was defined by a temporary labor services agreement. The agreement and practices that grew up during the course of the relationship suggest that BFI and Leadpoint shared managerial responsibility for Leadpoint employees.
For example, although the workers were hired by Leadpoint, they might be terminated or disciplined on the basis of information and requests make by BFI supervisors. Although the staffing agency workers were paid by Leadpoint, the pay scale was determined by BFI. Leadpoint assigned shifts on the basis of staffing requirements determined by BFI. Worker training might be conducted by either entity.
In 2013, the Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters petitioned BFI to represent the 240 Leadpoint workers who worked at the recycler’s facility, alleging that BFI was a joint employer.
The regional director found that BFI was not a joint employer. The Teamsters filed a request with the Board for review, and in May 2014 the NLRB invited the submission of amicus briefs to address whether the Board should “adhere to its existing joint-employer standard or adopt a new standard.”
Last week’s ruling reversed the regional director’s decision, adopted a new standard and held that BFI was a joint employer. Employer groups are now calling on Congress to reverse the NLRB’s decision through legislation.
Who is an employer?
That giant question is generally decided on the basis of who determines basic terms and conditions of employment – wages, hours, schedules and work assignments, for example. Two or more employers are joint employers of the same employees if they “share or codetermine those matters governing the essential terms and conditions of employment.” Those three words, “share or codetermine,” are at the hot heart of the problem.
To be an employer, and thus responsible for employees in many ways, must an entity actually exercise control over the terms and conditions of employment or is the unexercised or indirectly exercised power to do so sufficient?
For the last thirty years, the legal trend has been to require the actual exercise of control. This ruling does an about face, returning to a pre-1984 standard. The Board specifically stated that the joint-employer inquiry should not be limited to "directly and immediately" exercised control. The ruling holds that the standard that had evolved over three decades was unsupported by statutory authority and was
increasingly out of step with changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships. This disconnect potentially undermines the core protections of the [National Labor Relations] Act for the employees impacted by these economic changes.
The underlying rationale of the ruling is an interesting mixture of parsing original language and recognizing the need to embrace profound changes in the nature of employment. While acknowledging the need to honor the purpose of the NLRA by expanding the definition of “employer,” the ruling also claims to restore the intended meaning of the seminal 1981 Third Circuit decision in, NLRB v. Browning-Ferris Industries of Pennsylvania, Inc.
What does this mean?
As the doctor says, “Let’s watch this for a little while.”
The immediate effect will be on employers who hire workers through staffing agencies, especially in industries where organizing efforts are underway. It would be worth having counsel review any labor services agreement. The application of law is very fact specific.
The fewer managerial/supervisory functions described in the agreement or performed in fact by the contracting company, the less likely it is that the contracting company will be seen as a joint employer. Contracting is just not the fig leaf that it used to be.
The second, but far larger tier of concern, is in the franchising industry because franchise agreements often grant a great deal of control to the franchisor. Franchisors typically control uniforms, pay scales, performance incentives and time management software. Franchisors may terminate the contracts of underperforming franchisees, which further affects the franchisee’s management practices with regard to employees.
The NLRB’s dissenting opinion, joined by Board members Miscimarra and Johnson,. explicitly raises this specter. Steve Caldeira, president of the International Franchise Association, an industry group, has predicted that, “This will clearly jeopardize small employers and the future viability of the franchise model.”
And there is nothing hypothetical about organizing efforts in the fast food industry. The Service Employees International Union’s “Fight for $15,” is a three-year-old series of protests and walkouts aimed at raising the minimum wage in cities and states. The union has poured tens of millions of dollars into the campaign, and since a 2014 gathering in Chicago, has reportedly shown a lot of progress. The effort is now in an international phase, as well.
The new “indirect control” standard for joint employment strengthens the position of unions that want to represent workers at both the parent company and subcontractors. The parent company typically has more financial means than any of its subcontractors, so the ability to bargain directly with the parent is an advantage for workers.
In addition, unions have been reluctant to organize individual fast-food franchisees, partly out of fear that management could simply close any successfully unionized stores without real legal consequence. The new standard may bring such conduct to the attention of the NLRB as an unfair labor practice.
McDonalds may be the epicenter, but fast food is certainly not the entirety of the franchise world. Perhaps you have visited a Maaco Collision Repair, a Liberty Tax Service or taken your kid into Kumon for some extra tutoring lately?
Long Range Implications
This is truly the most speculative part of the story. Beyond the issue of joint employer status for union organizing purposes, what else should employers of contract employees or franchisees be looking for?
Common law has long recognized situations in which employers may be held responsible for the misdeeds of independent contractors. This ruling turns that perplexing problem on its head.
When are employers responsible for the welfare of their workers, meaning specifically the right to organize, but perhaps more generally the right to protection from employment discrimination, Social Security contributions, tax withholding or health and benefit coverage?
California law may provide a clue. Under Assembly Bill 1897, a business that employs 25 or more workers and obtains the services of at least five workers through a labor contractor will share civil liability and legal responsibility with the labor contractor for payment of wages, safety and workers’ compensation if the contractor misclassifies the worker as an independent contractor rather than as an employee.
California law poses a difficult problem for contracting employers. How is it possible to know about the labor law violations of the staffing agency? Employers who hire workers through staffing agencies may have to do far more investigation of the agency than they are currently doing.
The expansion of employer obligations to contract employees may be a trend that remains in California, but the NLRB’s recent decision suggests that it may be part of an approach adopted on the federal level as well.