NLRB’s New Joint Employer Standard Raises New Considerations for Business

© 2015 The Texas Lawbook.

By: Ron Chapman, Jr. and Rodolfo R. (Fito) Agraz of Ogletree Deakins

(Sept. 8) – In today’s modern workplace, multiple companies may have workers at a given location, whether through a staffing company or other third-parting contractor. Similarly, one company may not have any workers at the worksite yet may have some involvement with the site, such as a franchisor that sells a given store location to a franchisee, a parent company with a subsidiary operating the site, or a private equity firm with a majority interest in a portfolio company.

When a worker is injured, feels harassed or suffers an adverse employment action and files a lawsuit, or wants to try to persuade other workers to join a union, a frequent question is which company or companies can be held responsible. Liability generally flows only to the entity that is the employer of the workers in question. If two or more companies meet the legal definition of employer, they are considered “joint employers.”

Businesses spend much time, effort, and money trying to establish which entity is the employer or which entities may be classified as joint employers over a single worker or group of workers.

In a sweeping decision overturning 30 years of precedent defining the joint employer relationship, the National Labor Relations Board (NLRB) recently handed unions a major victory, one that could force companies to reevaluate their use of temporary or contract workers and other contractual arrangements such as franchise agreements.

Specifically, in a case against Browning-Ferris Industries of California, Inc. (BFIC), the NLRB held that even the potential right of a company to control another company’s workers is sufficient to find that the first company is a joint employer of the employees of the second company. Notably, neither actual nor direct control is required. Rather, according to the NLRB, the mere possibility of indirect control now may suffice to establish that both companies are joint employers of the workers in question.

This is a critical issue for business. First, the NLRB’s lenient standard for determining joint employer status enhances the threat of unionization. Second, if the new definition is extrapolated to other contexts, it could result in liabilities for companies that previously thought they were shielded from the actions of third parties.

Background – BFIC Contracts with Leadpoint to Operate Part of its Facility

BFIC operates a recycling facility and directly employs 60 employees who work primarily in the outdoor areas of the facility. BFIC contracts with Leadpoint to sort material, clean screens on the sorting equipment, and clean the facility.

Leadpoint employs approximately 240 employees at the facility. Leadpoint also employs an on-site manager, three shift supervisors, seven line leads, and an onsite HR manager who operates out of a separate trailer with the Leadpoint logo. The union sought to unionize the Leadpoint employees and claimed that BFIC is a joint employer of the Leadpoint employees, which would result in BFIC being legally required to engage in collective bargaining with the Leadpoint employees should the union prevail.

As is common practice, BFIC and Leadpoint executed a written agreement for the work Leadpoint was to perform at the site. The agreement provides that Leadpoint is the sole employer of its employees and will recruit, interview, test, select, hire, set wage rates for, discipline, and/or terminate those employees.

On the other hand, the agreement also provides that Leadpoint’s employees must comply with BFIC safety policies; BFIC can establish limited qualifications for the workers or “discontinue the use” of any worker for any reason; BFIC can deem its own former employees ineligible for hire by Leadpoint; Leadpoint employees have to pass a drug test approved by BFIC; and the workers’ pay rates are subject to certain caps.

The NLRB cited these provisions in support of its conclusion that BFIC is a joint employer of the Leadpoint employees.

Additionally, the Board concluded that BFIC exercises control over Leadpoint employees by (1) controlling the speed at which the conveyor belt moves material down the sorting line, thereby controlling the speed at which the Leadpoint employees are required to work, and (2) setting productivity standards and assigning specific tasks with “near-constant oversight,” despite recognizing that Leadpoint has a large on-site supervisory staff directly overseeing its workforce.

Finally, the NLRB pointed to two incidents where a BFIC manager reported incidents of drinking and damage to property to Leadpoint management and asked that the Leadpoint employees be terminated.

In concluding that BFIC is a joint employer over the Leadpoint employees, the NLRB dramatically changed the standard for determining which companies may be considered joint employers. Previously, a company could be deemed a joint employer only if it exercised actual control over the terms and conditions of a worker’s employment.

In the BFIC case, however, the NLRB ruled that the potential right of a company to directly or indirectly control the employment of another company’s workers is sufficient to find that both companies are joint employers. While this ruling is not mandatory precedent that the courts or other agencies such as the Equal Employment Opportunity Commission or Department of Labor must follow, efforts to extrapolate the reasoning to other contexts are certain to occur. Similarly, the Texas Legislature recently amended the Texas Labor Code to confirm that a franchisor is not considered an employer of its franchisees’ employees, but that will not protect a company from a joint employer allegation under federal law.

What Should Companies Do in Response to the NLRB’s Change to the Joint Employer Standard?

First, companies should proactively review any relationships they have with other entities for the provision of either labor or services and assess whether (1) the written agreements contain language similar to what the NLRB relied upon to find that BFIC had the right to exert control of Leadpoint’s employees and/or (2) their day-to-day actions, such as providing instruction to the contractor’s employees, would put them at risk of an argument that they have sufficient indirect or direct control of those workers to be deemed a joint employer.

Second, companies should evaluate whether its contractual relationships with other entities can be reworked to reduce risk. For example, could the relationship be structured so that the company pays on the basis of the volume of work performed rather than the number of hours worked?

Similarly, if the contract permits the company to exercise some level of control over another entity’s workers but such control is never actually exercised, consider removing the extraneous term altogether. Such tweaks to contractual language can permit companies to continue with the substance of their current business arrangements yet with substantially less risk of being deemed a joint employer.

*Ron Chapman, Jr. and Rodolfo (Fito) R. Agraz are shareholders in the Dallas office of Ogletree Deakins, an international law firm focusing on labor and employment law issues.

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