Businesses Face New Bargaining Obligations and Potential Liability After NLRB Expands Definition of “Employer”

On August 27, 2015, the National Labor Relations Board issued a landmark decision in which it redefined whom it considers to be an “employer.” The decision will affect many aspects of business relationships, including which businesses may be held liable for unfair labor practices committed by others and which businesses are required to collectively bargain with unions.

The case involved Browning-Ferris, a waste disposal company, and a staff leasing company that provided workers to Browning-Ferris. A union filed a petition to represent the workers and argued that Browning-Ferris and the staff leasing company were “joint employers” of the workers and, therefore, both entities would be required to negotiate with union if it won the election.

Before this new decision was issued, in order to determine whether entities were joint employers, the Board applied a standard, endorsed by federal courts, which analyzed which entities exercise “direct operational and supervisory control.” In the Browning-Ferris decision, the Board noted that the number of workers employed through temporary agencies had risen to almost 3 million and decided that a new standard should be applied in order “to better effectuate the purposes of the Act in the current economic landscape.”

Under the new standard, the Board looks to whether an entity may exercise control over essential terms and conditions of employment either directly or indirectly through an intermediary. The key is not whether the entity actually exercises any control; rather, the question will be whether the entity could exercise that right, even if it chooses not to do so.

While there is little doubt that this decision will change the nature of contract employment and the relationships between employers and staffing companies, a scathing 28-page dissent authored by two Board members illustrates the far-reaching nature of the decision. Stating that “no bargaining table is big enough to seat all of the entities that will be potential joint employers,” the dissent noted that the new test “fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships.” It cited the following examples of business relationships that could now be subject to obligations and potential liability under the National Labor Relations Act:

  • Insurance companies that require employers to take certain actions with employees in order to comply with policy requirements for safety, security, health, etc.;
  • Franchisors
  • Banks or other lenders whose financing terms may require certain performance measurements;
  • Any company that negotiates specific quality or product requirements with its vendors;
  • Any company that grants access to its facilities for a contractor to perform services there, and then continuously regulates the contractor’s access to the property for the duration of the contract;
  • Any company that is concerned about the quality of contracted services
  • Consumers or small businesses who dictate times, manner, and some methods of performance of contractors.

The dissent went on to note that “Under the majority’s test, the homeowner hiring a plumbing company for bathroom renovations could well have all of that indirect control over a company employee!” The Board majority did not address the specific instances the dissent cited as being potentially encompassed by the decision, but emphasized that it will not interpret the standard in a way that that will, as the dissent fears, give the Board license to find joint-employer status even in cases where evidence of control is minimal. Instead, the majority says that “all of the incidents of the relationship must be assessed.” Unfortunately, this vague disclaimer does little to alleviate the uncertainty created by this decision.

What is certain following this decision is that many more entities will be exposed to obligations and liability under the Labor Act and that the full extent of its reach will not be known for quite some time as subsequent cases move through the Board’s processes and the courts. Because of the many open questions left by Browning-Ferris, it is important that, at a minimum, all those who contract for goods or services necessary for the conduct of their business or operate through franchisees consult with counsel to assess their risk of exposure given the facts and circumstances of such arrangements.

If you have any questions regarding this Client Alert or what you can do to protect your business, please contact Joe Hofmann at 717.399.6643 or the Stevens & Lee attorney with whom you normally consult for labor and employment matters.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.