Are You a “Joint Employer”?

Let’s assume you own a business that operates a recycling facility. You need workers who perform various separate jobs in and around the facility to be able to process the materials that are received each day. The outside workers must perform jobs such as moving and preparing materials outside of the facility so that the items can be sorted inside, while sorters manually cull through materials as they are processed on conveyor belts inside the facility, screen cleaners clear conveyor belt screens that serve as backups for the sorters, and housekeepers clean the facility itself.

Now let’s assume that the outside workers are employees of your business. For various reasons, which include controlling labor costs and outsourcing human resource functions, you have elected to contract with a staffing agency to supply workers to perform the jobs inside the facility—sorters, screen cleaners, and housekeeper positions.

The staffing agency provides workers to your business pursuant to a detailed agreement, which includes supervisors who oversee the performance of the other inside workers. The agreement provides that the staffing agency is the sole employer of all the workers it supplies. The agreement also provides that nothing in it shall be construed as creating an employment relationship between your business and the workers supplied by the staffing agency. It further adds that the staffing agency is responsible for recruiting, interviewing, testing, selecting, and hiring the workers it provides to your business and that the staffing agency has sole responsibility to counsel, discipline, review, evaluate, and terminate the workers it hires and employs. Your business retains the authority to reject any worker the staffing agency provides and to discontinue the use of the workers altogether. As the business owner, you keep tabs on the facility and visit regularly to evaluate whether the staffing agency’s workers are meeting expectations under the agreement.

Under the circumstances described above, the staffing agency obviously is the employer of the workers it provides to your business. But despite the clear contractual provisions described above, could your business be considered a “joint employer” of the workers under the National Labor Relations Act? If so, your business could share liability for labor violations by the staffing agency, perhaps be forced to collectively bargain with the staffing agency workers supplied to your facility should they decide to unionize, and, as a result of unionization, be committed for all intents and purposes to a business relationship with another company that you previously had the right to terminate at will.

Prior to August 2015, it was unlikely that your hypothetical recycling business would have been deemed a joint employer of the staffing agency workers as long as you were not involved in things like hiring, supervising, or setting the terms and conditions of their employment. However, in late August 2015, the U.S. National Labor Relations Board (NLRB) adopted a new “joint employer” standard in a union representation election case involving staffing agency workers supplied to a recycling facility. The operator of the facility was found to be the joint employer of the staffing agency’s workers based on circumstances similar to those described above.

Under this new standard, the NLRB may find that two or more employers are joint employers of the same employees if they share or co-determine the matters governing the essential terms and conditions of employment. The initial inquiry will be whether there is a “common law” employment relationship with the employees in question. If such a relationship exists, the inquiry then turns to whether the alleged joint employer possesses sufficient control over the employees’ essential terms and conditions of employment to permit meaningful collective bargaining. In this respect, the NLRB will examine how control (or even merely authority to control) is manifested in a particular employment relationship on a case-by-case basis.

This is a departure from the NLRB’s prior joint employer standard, which was more favorable to employers because it required them to possess and exercise authority to control the terms and conditions of employment before they would be deemed a joint employer. Now, reserved authority to control the terms and conditions of employment, even if not exercised, will be considered in the analysis and may lead to a joint-employer determination. Moreover, the NLRB will no longer require that the employer’s control be exercised directly and immediately. Instead, if otherwise sufficient control is exercised indirectly, such as through an intermediary, that may establish joint employer status. This is an uncertain standard, at best.

The NLRB decision, known as BFI Newby Island Recyclery, is problematic for employers in almost any industry for a variety of reasons. It was not an unexpected decision, however. First, the current political climate and makeup of the NLRB were conducive to such a result. Second, it is not unusual for corporate formalities to be somewhat ignored in the labor setting. Third, at the time of this decision, the NLRB was well into the process of pursuing labor violation complaints against McDonald’s and some of its franchisees, asserting that McDonald’s is a joint employer of the franchisees’ workers and, therefore, should share liability for any proven violations.

Even so, the many concerns outlined by the dissent in the BFI decision are probably alarming to many employers. For example, although the 3-2 majority claimed that it was returning to a previously used standard more in line with the statutory provisions of the National Labor Relations Act, the dissent expressed concern that the changes to the definition of “employer” give rise to an entirely new standard that departs from traditional agency principles and creates significant uncertainty in many types of business relationships. Such relationships include franchisor-franchisee, user-supplier, contractor-subcontractor, and others. The uncertainty arises, in the dissent’s view, because the new standard subjects businesses to new collective bargaining obligations and expands employers’ liability for unfair labor practices, among other things.

In its decision and subsequent press release, the NLRB confirmed its intent to promote labor negotiations through its adoption of the new standard. In this regard, and by way of example, the intent appears to be to allow employees of a franchisee (or multiple franchisees) to unionize and negotiate with the franchisor regarding the terms and conditions of their employment or to permit contract workers of a staffing agency to do the same as to the company to which they are being supplied.

Furthermore, there is a long-term, insidious element to this decision that should not be overlooked. Once the union becomes the representative of a bargaining unit of employees, it normally remains the bargaining representative despite changes in the unit. Therefore, through the use of the joint employer approach, the union likely will remain the bargaining representative at that company even if the joint employer relationship ends. In the example above, the joint employer likely will not be able to change this by hiring a different staffing agency or by performing the work with its own employees. Other staffing agencies may have little interest in contracting for the work knowing that a union comes as part of the deal. Additionally, this unionization of a portion of the workforce will provide the union fertile ground to spread the seeds of unionization through the broader workforce.

There is no doubt that the BFI ruling was not a good one for employers, particularly for those whose business relies on relationships such as those described above. With much uncertainty still surrounding these issues, employers must now attempt to evaluate their contractual relationships and business practices to determine whether changes may be in order to attempt to avoid being deemed joint employers of other businesses’ workers. Traditional contractual disclaimers, such as those described in the hypothetical discussed above, likely will not carry the day if other circumstances satisfy the broader considerations of the new joint employer standard.

For those businesses that prefer to retain or exercise authority to control aspects of their business partners’ operations (e.g., franchisors over their franchisees), careful consideration will be required to determine whether such control is worth the potential additional risks associated with a joint-employer finding under the NLRB’s new standard. For now, unfortunately, the BFI decision and the new joint employer standard likely will continue to be a source of confusion and angst for many businesses.