Blog & Legal Updates

NLRB Issues Key Decision Affecting Temporary, Franchise, Contract, and Other Employees

September 1, 2015

In a significant 3-2 decision involving Browning-Ferris Industries of California, the National Labor Relations Board “refined” (changed) its standard for determining joint-employer status for purposes of representation by a union. The NLRB’s “revised and restated” position on this issue  is that two or more entities are “joint employers of a single workforce if (1) they are both employers within the meaning of the common law;” and (2) they “share or codetermine those matters governing the essential terms and conditions of employment.” In evaluating whether an employer possesses sufficient “control” over employees to qualify as a joint employer, the NLRB has limited the requirements for joint employer status and is no longer focused on the question of whether an employer has actually exercised control over terms and conditions of employment.  The test now only requires that each potential joint employer reserved the right to maintain control, directly or indirectly through an intermediary. In other words, the only inquiry on the issue of control is whether the joint employers possessed control, not whether they actually exercised it. In making its decision finding joint employer status, the Board relied on direct and indirect control that the client employer possessed over essential terms and conditions of employment of the employees supplied by the temporary agency employer, as well as the client employer’s reserved authority to control such terms and conditions.

What You Should Know About How the NLRB Arrived at Its New Standard

Under the new standard, it did not matter to the NLRB that the temporary agency hired the temporary workers; conducted orientation and training for the temporary workers; set the temporary workers’ wage rates; determined the benefits of the temporary workers; had separate on-site supervisors and site manager who oversaw the work of the temporary employees at the client employer’s facility; reported through a chain of command solely within the temporary agency; had a separate human resources department to service the temporary workers; created the temporary workers’ schedules and assigned the temporary workers within the client employer’s hours of operation; oversaw the material streams and coached the line leads; issued paychecks for the temporary workers and maintained their pay and other records.  The fact that the client employer reserved the right to make decisions on the minimum criteria for hiring, selection and retention of the temporary workers, and reserved the right to be involved in discipline and termination, was sufficient to reserve authority to control those terms and conditions of employment. In addition, although the written agreement between the temporary agency and the client employer stated that the temporary agency was the sole employer of the personnel it supplied, and explicitly stated that the agreement was not to be construed as creating a joint employment relationship, the Board found that by virtue of the temporary labor services agreement and the actions of the parties, the client employer was a joint employer.

NLRB: Previous Standards “Failed to Keep Pace with Changes in the Workplace”

The Board stated that its revised standard is designed “to better effectuate the purposes of the Act in the current economic landscape.”  With more than 2.87 million of the nation’s workers employed through temporary agencies in August 2014, the Board held that its previous joint employer standard has “failed to keep pace with changes in the workplace and economic circumstances.” Ultimately, this decision will result in union election ballots being counted that had been previously impounded, and the union has been ordered to be certified as the representative for both the temporary employer and the client employer. A strongly worded dissent was written by two members of the Board, but this is the NLRB’s position, for now.  It is very likely that this case will proceed through the court system, so we will keep our newsletter subscribers updated.

Important Actions Needed by Employers, Temp Agencies, PEOs and others

  • Employers of the contingent workforce, such as temporary agencies and professional employee organizations (PEOs), as well as their client employers, should very carefully review and possibly revise their written agreements, with the assistance of qualified counsel, in an effort to avoid the unintended consequence of a joint employer relationship.
  • Contingent workforce employers and their client employers should review their processes and practices at the worksite, with the assistance of qualified counsel, to limit (or eliminate) the client’s reserved control over the contingent workforce, to the extent possible.
  • Because the joint-employer test arguably alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships under the National Labor Relations Board, written agreements in these categories should be reviewed with qualified counsel to determine the potential implications of, and connection to, labor relations.
  • Small businesses that were not previously subject to the National Labor Relations Act may now become subject to the Act if they are found to be “joint employers,” meaning they will be subject to unionization and legal liability for unfair labor practices. Therefore, small employers should have qualified counsel review their contractual relationships with third parties to determine the potential impact of those relationships on their status as a “joint employer” under this decision.
This Information is provided as a courtesy – not as legal advice. Please know that we are writing you and raising the above issues as a courtesy and for informational purposes only. It is not intended as a substitute for legal advice concerning a particular situation that may be affecting your business.