On August 27, 2015, a divided (3-2) National Labor Relations Board (NLRB) changed the standard for joint employment under the National Labor Relations Act (NLRA) in its lengthy Browning-Ferris Industries of California, Inc. decision. Through this ruling, the NLRB has dramatically expanded the joint employer standard beyond requiring actual exercise of direct and immediate control over workers, and instead makes the mere right to control, even if that right is never exercised, sufficient to establish a joint employment relationship. This decision represents a significant departure from existing precedent and substantially expands the likelihood that certain companies — such as those who use labor from staffing agencies or those who are franchisors — will be deemed “joint employers” with the staffing agencies and franchisees that actually employ the workers.
Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery (BFI) operates a recycling facility that receives various mixed materials. A critical part of BFI’s business operation is sorting these materials so they can be resold at the end of the recycling process. BFI employs approximately 60 employees, most of whom work outside the facility to move and prepare materials to be sorted inside the facility (and who are part of a separate bargaining unit). An additional 240 workers are provided to BFI by a staffing agency (Leadpoint) under a temporary labor services agreement. The Leadpoint employees work inside the facility and either sort materials or provide various cleaning services. This action arose after Teamsters Local 350 sought to represent these 240 Leadpoint workers and more specifically, to force BFI to be at the bargaining table to negotiate with regard to its “shared employees” from Leadpoint.
Notably, the Regional Director who issued the initial ruling in this matter concluded that BFI was not a joint employer with Leadpoint because it did not share or “codetermine” essential terms and conditions of employment. However, the union filed a request for review of the decision on the grounds that: 1) the Regional Director ignored significant evidence and reached the wrong conclusion under existing law; and alternatively (2) the NLRB should reconsider its standard for evaluating joint employment relationships.
The NLRB agreed with the union’s second ground for review and reconsidered the very standard by which joint employment relationships are evaluated. In its decision, the NLRB provided a detailed analysis of the facts related to the relationship between BFI and Leadpoint, many of which would seem on their face to establish that the two entities should not be considered joint employers. The NLRB discussed the management structures of the two entities, hiring practices, discipline and termination, wages and benefits, scheduling and hours, work processes, training and safety, and various other contract terms, noting that:
- The temporary labor services agreement between BFI and Leadpoint provides that Leadpoint is the sole employer of the personnel it provides, and that nothing in the Agreement shall be construed as creating an employment relationship between BFI and the workers.
- BFI and Leadpoint employ separate on-site supervisors and lead workers who oversee their respective employees.
- They also have separate HR departments (although only Leadpoint has an HR manager on-site). Moreover, Leadpoint recruits, interviews, tests, selects and hires the personnel that are assigned to BFI’s facilities. However, Leadpoint’s agreement with BFI provides that: (1) personnel will have appropriate qualifications consistent with BFI instructions; (2) BFI has the right to request that workers meet or exceed BFI’s own standard selection process and tests; (3) Leadpoint will avoid refer workers who are former BFI employees that separated from BFI and were deemed ineligible for rehire; and (4) Leadpoint’s workers will pass a drug screening test.
- Leadpoint maintains sole responsibility to counsel, discipline, review, evaluate and terminate workers assigned to BFI, but BFI retains authority to “reject any [p]ersonnel, and … discontinue the use of personnel for any or no reason.” (The NLRB noted that the fact BFI had prompted Leadpoint to impose discipline on workers in two separate instances was an influential factor in its analysis.)
- Leadpoint issues paychecks to the workers, maintains their payroll records and is the only entity providing them employment benefits. However, the amount Leadpoint pays each employee cannot exceed (without BFI’s approval) the pay rate for full-time BFI employees who perform similar work.
- BFI sets facility schedules, although Leadpoint is responsible for providing specific employees to cover the shifts, whether regularly scheduled or overtime. At the end of each week, Leadpoint employees must provide to Leadpoint a summary of their hours worked on a weekly basis, but only after someone at BFI signs off to ensure accuracy. BFI can refuse payment for any worker who failed to obtain signature.
- BFI determines the material streams to run each day, sets a target headcount, sets productivity standards and sets the number of Leadpoint workers to be assigned to each stream. Leadpoint decides which specific workers will work certain posts. Generally speaking, when BFI managers identify issues running a stream, they communicate their concerns to Leadpoint supervisors for handling.
- Leadpoint employees receive orientation and training from Leadpoint, but only “periodic” training and counseling from BFI. All Leadpoint employees must comply with BFI’s safety policies, procedures and training.
- The agreement provides that Leadpoint workers shall not be assigned to BFI for more than six months, although BFI has never invoked this provision, and BFI can request to inspect Leadpoint personnel files at any time.
After examining the intricacies of the relationship between BFI and Leadpoint, the NLRB walks through the “evolution” of its joint employment standard over the last several decades. In particular, the NLRB takes the position that over time it has “effectively narrowed” the joint employment standard without reason. Most importantly though, the prior decisions focused on actual exercise of control (instead of just a “right” to control) that must be direct and immediate (and not just limited and/or routine) to find joint employment. The NLRB opines this narrowing is contrary to the common law and must be revisited given the diversity of today’s workplaces (with nearly 4.1 percent of employment, or 5.7 million workers, being in a contingent relationship in an increasing range of occupations). The NLRB states that to find otherwise would result in employees being without protection of the Act simply by virtue of the fact that they work in an arrangement with two or more entities.
The New Standard
The NLRB’s new joint employer standard (which was met by a 30-page dissent by Members Miscimarra and Johnson) provides that:
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 and conditions of employment. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of employment or “codetermine” them, as the Board and the courts have done in the past.
The majority admits its test is very fact specific and “inclusive” as to what constitutes essential terms and conditions of employment. Applying this new standard to the present case, the NLRB found that the Union met its burden of proving a joint employment because:
- BFI has significant control over who Leadpoint hires to work at its facility, and BFI sets standards, requires drug tests and screens out potential workers who are ineligible to return to BFI (which thereby impacts hiring). BFI also has the unqualified right to discontinue use of personnel assigned by Leadpoint or to reject any referral by Leadpoint.
- BFI controls the “processes that shape day-to-day operations” of Leadpoint workers at the facility (for example, speed of material flow and productivity requirements, which have caused strife in the workplace).
- BFI managers assign specific tasks, specify where Leadpoint workers are to be stationed and exercised “near-constant oversight” of employees’ work performance (the NLRB also noted that it is irrelevant as to whether communications regarding performance come through Leadpoint managers versus BFI managers).
- BFI specifies the number of workers needed, the timing of shifts, and whether overtime is needed, which are “core staffing and operational decisions.” Such control is also evidenced by the fact that BFI has to sign off on the accuracy of Leadpoint workers’ time summaries.
- BFI has a significant role in setting wages for Leadpoint given that Leadpoint employees’ wages cannot exceed BFI’s for similar work (effectively setting a “cap”).
While the case did not address franchising directly, the decision will likely impact the McDonald's cases currently pending before the NRLB. McDonald's maintains that it does not control or co-determine any terms of employment of the employees of its franchisees. But given (a) that the NLRB did not say how much indirect control is needed to establish joint employer liability; (b) that franchising as a business model involves various aspects of control; and (c) that the majority conceded that the analysis is very individualized, there can be no predictability as to whether McDonald's will or will not be deemed a joint employer of its franchisees' employees.
This may not be the final decision on this matter, however. Browning-Ferris may appeal the decision to federal courts.
The NLRB’s Browning-Ferris decision moves employers away from existing NLRB precedent, which requires an entity to demonstrate actual and direct control over workers to establish a joint employment relationship, and to a broader standard under which the mere right to control (even if not exercised) could lead to joint employment and impose bargaining obligations under the Act.
The 3-2 decision along partisan lines also will motivate many different business groups, including the U.S. Chamber of Commerce, the International Franchise Association, the National Restaurant Association and many others, who have urged Congress to enact legislation to address the joint employer standard issues.
Faegre Baker Daniels will be sending a supplement next week to specifically address key implications for franchisors and franchisees.