Labor Board’s New “Joint Employer” Decision: More Bad News for Virginia Employers
The pro-union NLRB has struck again! In a high-profile case that had been pending before the Board for over two years, the Board, in a 3-2 decision, overruled 30 years of settled precedent and announced a new test to determine whether two entities could be considered “joint employers” under the National Labor Relations Act. Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015). As will be explained below, the Board concluded that a user employer did not have to exercise “direct and significant” control over the contractor’s employees to be considered a “joint employer.” Instead, it ruled that “indirect” control (e.g., through an intermediary) is sufficient. Moreover, the user employer can also be a “joint employer” merely by retaining the contractual right to control essential terms and conditions of employment, even if it has never exercised such control.
Procedural Posture of the Case.
Browning-Ferris (BFI) operates a recycling facility in California. BFI employed about 60 employees, most of whom worked on the exterior portion of the facility. There were four conveyor belts inside the facility that carried distinct materials. In 2009, BFI entered into a temporary labor services agreement with Leadpoint. Under the agreement, Leadpoint provided employees to do the work of sorting the materials and general housekeeping inside the facility.
In July 2013, a local Teamsters union filed a petition for an election seeking to represent a unit comprised of sorters, housekeepers and screen cleaners. The union contended that BFI and Leadpoint should be considered joint employers of these employees. In August 2013, the parties presented evidence at a NLRB hearing, and then submitted post-hearing briefs. On August 16, 2013, the Acting Regional Director for Regional 32 of the NLRB concluded, based on the evidence and settled legal authority, BFI could not be considered the joint employer of the Leadpoint employees. The union appealed to the Labor Board in Washington, DC.
The Board’s New “Joint Employer” Test.
More than two years later, on August 27, 2015, the Board concluded that BFI and Leadpoint were joint employers. The Board stated the test moving forward to be as follows:
The Board may find that two or more entities are joint employers of a single workforce if they . . . share or co-determine 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 co-determine them.Previously, the law had been that the purported joint employer’s control had to be “actual, direct and substantial.” The Board instead concluded that “indirect” control and/or reserved contractual authority over essential terms and conditions of employment could be sufficient.
In other words, the Board will now evaluate the evidence to determine whether an employer that uses a staffing company’s employees affects the means or manner of those employees’ work and employment terms, either directly or indirectly through an intermediary.
The Board opined that “essential terms and conditions” includes matters such as “hiring, firing, discipline, supervision and direction,” as well as the employees’ wages and hours. Other examples of control include “dictating the number of workers to be supplied, controlling scheduling, seniority, and overtime and assigning work and determining the manner and method of work performance.”
The evidence in the case.
To understand the breathtaking overreach of the NLRB, it is useful to outline the arrangement between BFI and Leadpoint in this case. As a general statement, there was nothing out of the ordinary — it is an arrangement that is fairly typical in today’s business environment. The evidence established at the hearing as to the relationship between BFI and Leadpoint was as follows:
- Leadpoint had its own supervisors at the plant.
- Leadpoint supervisors reported to Leadpoint corporate in Arizona.
- Leadpoint supervisors created its employees’ work schedules.
- Leadpoint had its own human resources department and had a HR representative located in a trailer on the premises of the facility.
- Leadpoint had the sole authority to set the wage rates for its employees. [However, Leadpoint could not raise its employees’ wages in excess of those paid by BFI to its full-time employees who performed the same work.]
- Leadpoint independently paid all of its employees and provided them with options to participate in benefit plans offered by Leadpoint.
- Leadpoint has the sole responsibility to discipline, evaluate and terminate employees assigned to BFI.
- Leadpoint was solely responsible for recruiting and hiring its own employees.
- BFI maintained productivity standards for the lines. However, BFI did not control or enforce the speed at which the individual Leadpoint employees had to work.
- BFI set the facility’s hours of operation. However, Leadpoint created the individuals’ work schedules and assigned its employees to work the required shifts.
The Board applied the evidence to the new test.
- BFI retained the right to “discontinue the use of any personnel” that Leadpoint assigned to the facility. The evidence showed that on one occasion a BFI manager observed two Leadpoint employees in possession of a bottle of whiskey while on duty. The BFI manager sent an email to a Leadpoint manager and “requested” their dismissal. Leadpoint thereafter sent the employees for alcohol testing and dismissed one employee and removed the second from the job site. On a second occasion, a BFI manager asked that a Leadpoint employee be dismissed after viewing security video in which the employee punched a mounted box and destroyed other property. The Leadpoint manager conducted his own investigation, consulted Leadpoint corporate management, and then terminated the employee.
- BFI required that all persons who work on the premises pass a drug test.
- BFI had the right to control its conveyor belts including the speed in which they operated, and BFI managers directly and indirectly implored Leadpoint employees to work faster and smarter. BFI managers sometimes spoke directly with Leadpoint employees to communicate work instructions and preferred work practices.
- BFI set the shift times and determined the number of employees that were necessary to staff the plant.
- Although Leadpoint determined employees’ pay rates and benefits, BFI prevented Leadpoint from paying employees more than BFI employees who were performing comparable work.
In sum, the Board concluded that BFI’s role in sharing and codetermining the essential terms and conditions of employment established that it is a joint employer with Leadpoint.
The two Republican members of the Board issued a lengthy, passionate and compelling dissent. (The employer community can only hope such reasoning is persuasive to future courts who analyze these types of cases.)
This decision is a game changer. There is no doubt that this new standard will result in intense and/or protracted litigation in a variety of settings for years to come. In the short term, this decision will embolden Unions and NLRB Regional Directors to inject themselves into a wide variety of business relationships and contend that the user employer is the joint employer of the contractor’s employees. No business relationship is spared of NLRB scrutiny—this is especially true as to franchisor-franchisee relationships, user employer contracts with staffing or temporary agencies, and any agreement in which an employer uses a vendor or contractor to outsource services.
Businesses will need to evaluate their arrangements with outside entities to assess whether they may be found to be a joint employer under the relaxed standard. Business executives should also keep an eye on the development of the law in this area; there will be a multitude of subsequent decisions from the courts and the NLRB as to the countless issues left unanswered. Please contact us at Gentry Locke if we can assist your business in working through the issues unique to your company and industry.