Updated: Sep 6, 2020
(Originally published in the Nevada Business magazine, November 1, 2015)
The National Labor Relations Board just expanded the standard for determining joint employer status under the National Labor Relations Act (NLRA). With a 3-2 vote, the Board overturned 30 years of case law in its eagerly anticipated Browning-Ferris decision. Under the new rule, an alleged joint employer no longer actually needs to exercise direct control over the employees of another employer. Now, the mere “right to control” is sufficient, even if that right to control is never exercised!
Expect broad and continuing implications for employers; not only under the NLRA, but also other federal laws like the Occupational Safety and Health Act, the Fair Labor Standards Act and the various employment discrimination acts.
Browning-Ferris operated a recycling facility in California, where it contracted with Leadpoint, a company that supplied workers to sort the materials sent for recycling and clean the facility. Teamsters Local 350, which already represented Browning-Ferris’ own employees at the plant, filed an election petition before the Board, seeking to represent Leadpoint’s employees. The Teamsters claimed that Browning-Ferris and Leadpoint jointly employed Leadpoint’s employees.
In its decision, the Board concluded that two employers jointly employ a single work force if they “share or codetermine” the essential terms and conditions of employment. These terms and conditions include, among other things, wages, hiring, firing, discipline, scheduling and assigning work. The Board further found that an employer’s control – whether actual or potential – need not be “direct or immediate.” Instead, potential control that remains limited, routine or even exercised through the authority of a third party may be enough to create a joint employment relationship.
As other federal agencies move to this new standard, look for joint employer liability to increase. Staffing agencies, franchisors, real estate developers or general contractors who employ subcontractors – even some buyers who require their suppliers to meet “just in time” delivery requirements or enforce price controls that limit the supplier’s ability to increase employee wages or benefits – all will be subject to greater potential liabilities.
Under Occupational Safety and Health Administration (OSHA), for example, employers already can be cited for hazards to the employees of other employers if they “created” or “controlled” the hazard. Recently, however, OSHA investigators have been asking franchisees about their franchisor relationship – moving beyond an effort to find actual control and instead focusing on potential control. A newly discovered draft OSHA internal memorandum advises its investigators that a “joint-employer standard may apply where the corporate entity exercises direct or indirect control over working conditions, has the unexercised potential to control working conditions or based on the economic realities.”
OSHA clearly is poised to adopt the Board’s new standard – all the more likely given the two agencies’ increased level of cooperation, demonstrated by last year’s joint-referral program to redirect time-barred OSHA claims to the NLRB.
Similarly, the Department of Labor recently issued an “Administrator’s Interpretation” discussing the distinction between employees and independent contractors under the Fair Labor Standars Act (FLSA). That guidance emphasized “economic realities,” like whether an individual’s services are an integral part of a company’s business, instead of simply whether the business actually controls an individual’s work.
Fresh on the heels of the Board’s new rule, expect the Department of Labor (DOL) to expand the FLSA’s “economic realities” test and start finding more joint employers in the workplace. A staffing agency, subcontractor, franchisee or supplier’s failure to abide by the FLSA’s exemption rules (with respect to overtime pay and minimum wage) could subject the client, general contractor, franchisor or buyer to judgments for back-pay, penalties and attorneys’ fees – all premised on a broader view of joint employer liability.
Even the Equal Employment Opportunity Commission (EEOC) filed a supporting brief for the Board in the Browning-Ferris case, seeking the expanded joint employer test.
This EEOC/Board alliance, plus the recent OSHA and DOL guidance, all sound a warning bell for businesses: review your temporary staffing arrangements, subcontracting agreements, and other contractual relationships that involve one employer providing labor to another. You may have employees you didn’t even hire.