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NLRB Announces New Standard For Joint Employment

By Thomas P. Brady / Aug 28, 2015

In a much anticipated decision, the National Labor Relations Board reversed 34 years of precedent, announcing a new standard for determining whether two separate companies are joint employers. Browning-Ferris Industries of California, Inc.(BFI), 362 NLRB No 186 (2015).

Under the Board's existing precedent, a joint employer relationship exists where the employer exercises, or has the right to exercise, sufficient control over the labor relations policies of the contractor or over the wages, hours and working conditions of the contractor's employees, from which it may be reasonably inferred that the employer is in fact an employer of the contractor employees. Southern California Gas Co., 302 NLRB 456 (1991). In BFI, the Board announced a new standard: "the Board may find two or more statutory employers are joint employers of the same statutory employees if they directly or indirectly 'share or codetermine those matters governing the essential terms and conditions of employment.'"

BFI, the "user firm," operates a recycling facility. Through a temporary labor service agreement, BFI contracts with Leadpoint, the "supplier firm," to supply 240 full-time, part-time and on call workers who perform sorting duties inside the facility. BFI and Leadpoint have separate supervisors over their respective employees at the BFI facility. BFI plays no role in hiring Leadpoint employees. BFI does not counsel, discipline, review, evaluate or terminate Leadpoint's employees. Under the service agreement, BFI maintains the right to reject any Leadpoint personnel and discontinue the use of any personnel for any or no reason. The service agreement established a rate schedule that requires BFI to compensate Leadpoint for each worker's wages plus a specific markup. The agreement also prohibits Leadpoint from paying employees a higher hourly rate without BFI's approval. BFI establishes the hours the facility operates and the number of shifts. Leadpoint schedules which employees work which shifts. BFI determines which part of the facility operates each day and a target headcount of the Leadpoint workers needed for the operation. BFI sets productivity standards for each operation within the facility. Leadpoint employees receive training from Leadpoint but periodically receive substantive training from BFI. The service agreement requires Leadpoint employees to comply with BFI safety policies.

The union sought to represent the Leadpoint employees and argued that BFI was a joint employer. The regional director found that BFI was not a joint employer. On appeal, the Board announced a new legal standard for determining joint employer status.

Under its new standard, "the Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment." The Board listed a number of factors it will consider to determine if an employer is a joint employer. The Board will consider the putative employer's ability to hire, fire, discipline, supervise, and direct the workforce. It will also consider the employer's ability to set wages and hours and other mandatory terms and conditions of employment. Other mandatory terms and conditions include dictating the number of workers supplied by the supplier firm, controlling scheduling, seniority and overtime, assigning work, and determining the manner and method of work performance. The Board will not limit a finding of joint employer status to those cases where the joint employer directly exercises control over these areas but will consider whether the user employer exercises indirect control over these areas, for example, through the provisions of a service labor agreement. The Board noted that the joint employer's duty to bargain only extends to the terms and conditions that the joint employer possesses the authority to control.

Applying the new standard, the Board found that BFI was a joint employer:

  • While Leadpoint performs all hiring, firing and discipline, BFI possessed significant control over these areas because its service agreement with Leadpoint was terminable at will, and BFI retains the right to require that Leadpoint meet or exceed BFI's own standard selection procedures and tests. BFI also had the right to discontinue the use of any personnel Leadpoint assigned to the facility.
  • BFI exercises supervision, directs work and hours because it controls the speed of the production line and specifies production standards for sorting material. BFI managers also assign specific tasks through Leadpoint supervisors and specify the number of workers required, shift timing and determine if overtime is necessary.
  • BFI plays a significant role in determining employees' wages. The service agreement prevents Leadpoint from paying its employees more than BFI pays its employees for the same job. In addition, the service agreement is a cost plus contract under which BFI reimburses Leadpoint for its labor costs.

The Board's decision will have a far reaching affect on the use of contract employees. Employers should:

  • Carefully review and renegotiate the terms of any employment service agreement to ensure that the agreement does not provide the user firm with the ability to share or codetermine those matters governing the essential terms and conditions of the supplier firm's employees.
  • Ensure that the user firm's supervisors do not exercise, either directly or indirectly, control over the supplier firm's employees.
  • If a joint employer relationship is found, limit any bargaining to the terms over which the user firm has the ability to share or codetermine.

If you have any questions about the Board's new joint employer standard, please contact Thomas P. Brady at (313) 965-8291 or tbrady@clarkhill.com, or another member of Clark Hill PLC's Labor and Employment Practice Group.