The National Labor Relations Board (NLRB) has redefined the test for determining whether two separate and independent entities can be considered “joint employers” of certain employees, which potentially exposes entities to new joint-bargaining obligations and joint liability for unfair labor practices and breaches of collective-bargaining agreements.
In Browning-Ferris Industries of California (2015) 362 NLRB 186, the NLRB ruled that two or more entities are joint employers of a single workforce if they "share or codetermine those matters governing the essential terms and conditions of employment." To determine whether an entity codetermines the essential terms and conditions of employment, the NLRB now considers whether the entity has exercised control indirectly through an intermediary, or whether it has reserved the authority to do so. This marks a shift from a thirty-year precedent requiring actual and direct control, to a new standard where indirect control or the reservation of rights to control terms of employment can lead to a finding of joint-employer status.
The issue in this case was whether BFI Newby Island Recyclery (BFI) and Leadpoint Business Services (Leadpoint) were joint employers of the workers whom a union petitioned to represent.
BFI owns and operates the Newby Island recycling facility in Milpitas, California. The essential part of BFI's operation is sorting mixed waste and recyclables into separate commodities that are processed and sold to other businesses. BFI solely employs the approximately 60 employees who work outside the Newby Island facility, where they move materials and prepare them to be sorted inside the facility.
BFI contracts with Leadpoint to provide the workers who work inside the facility to manually sort the materials (sorters), clean the sorting equipment and clear jams (screen cleaners), and clean the facility (housekeepers). A union sought to represent approximately 240 fulltime, part-time, and on-call sorters, screen cleaners, and housekeepers who worked inside the facility.
The relationship between BFI and Leadpoint is governed by a written agreement that states that Leadpoint is the sole employer of the personnel it supplies to BFI, and that nothing in the agreement shall be construed as creating an employment relationship between BFI and the personnel that Leadpoint supplies.
The NLRB ruled "[t]he right to control . . . is probative of joint-employer status, as is the actual exercise of control, whether direct or indirect." The NLRB found that BFI was a joint employer with Leadpoint, and focused on the direct as well as the indirect control that BFI possessed with regard to the employees supplied by Leadpoint. Thus, the NLRB recognized BFI’s reserved authority in the written agreement to control terms such as hiring and discipline standards, wages, work scheduling, and operations for the Leadpoint employees.
In making this determination, the NLRB considered BFI's indirect control of employment matters as well as the rights BFI reserved in the written agreement with Leadpoint. For example, the agreement between BFI and Leadpoint provides that Leadpoint will recruit, interview, test, select, and hire personnel to perform work for BFI. As to hiring, the agreement requires Leadpoint to ensure that its personnel have the appropriate qualifications, certification, and training consistent with instructions from BFI. Before it refers a worker to BFI, Leadpoint is also required to ensure that the candidate has passed a drug test and remain drug- and alcohol-free and in condition to perform their job duties for BFI.
Accordingly, the NLRB held that "BFI is an employer under common-law principles, and the facts demonstrate that it shares or codetermines those matters governing the essential terms and conditions of employment for the Leadpoint employees. . . . Moreover, it has exercised that control, both directly and indirectly."
What This Means To You
The previous joint-employer standard focused on whether a company has direct control over employment factors such as operations, wages and hours, and working conditions. The new standard is much more expansive, such that a showing of indirect control, or the ability to control the essential terms and conditions of employment, is enough to establish joint-employer status. Accordingly, the NLRB no longer requires actual exercise of authority over terms of employment; the mere possession of authority is enough to support a joint-employer finding. The NLRB now considers the exercise of indirect control, through intermediaries, whereas the previous standard required a showing of direct and immediate control.
The dissent highlighted the possible impact of the new ruling: "the new joint-employer test fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships …".
The NLRB determined that companies that utilize workers hired by another business may be responsible for labor violations under the National Labor Relations Act (NLRA). Accordingly, these companies could also be required to bargain with unions. The focus now is on how much influence can be exerted when determining whether a joint employer relation is created. Thus, contracts which reserve authority — either directly or indirectly — to control and direct the activities of another business's employees, or the manner and method in which work is performed, may be enough to establish joint-employer status and trigger the rules and regulations under the NLRA.
At this point, BFI may challenge the NLRB's decision in the U.S. Court of Appeals, and the dissent provides a strong foundation in support thereof. In the meantime, we can anticipate unions claiming the right to collectively bargain with entities previously excluded from joint-employer status, as well as an increase in charges filed with the NLRB seeking to apply the new joint-employer standard to a variety of business relationships.
If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult:
Meredith Packer Garey or Errol C. Dauis | 916.321.4500