Big Changes to Joint-Employer Status: Are Business Relationships Threatened?

Big Changes to Joint-Employer Status: Are Business Relationships Threatened?

A big decision at the end of August has the potential to change numerous business relationships and models.  The National Labor Relations Board (NLRB) decided to significantly expand the definition of “joint employer” to encompass more business relationships that will offer increased opportunities for workers to collectively bargain for improved working conditions.  Companies that are franchises, hire subcontractors or use temporary agencies should take note. The decision makes substantial changes to decades-old legal precedent and is controversial.  Will it stick?

What Changed?

For decades, the test to determine whether companies with a business relationship were joint employers relied on whether an entity had direct control over essential terms and conditions of employees.  For example, did an employer control hiring, termination, discipline, or did it supervise or direct employees in a real and meaningful way?  If so, it was deemed an employer and subject to the workforce responsibilities and liabilities that designation entails.

Now, the NLRB says there are additional essential elements of employment that should be considered, such as the number of workers supplied, scheduling, seniority, overtime, assignment of work, and the manner and method of work performance.  And, importantly, an “employer” needs only to have indirect control that it could potentially exercise.  In the case that led to the NLRB’s decision, a waste recycling company, Browning-Ferris Industries, contracted with a company, Leadpoint, to provide employees to work in a recycling plant to perform tasks such as cleaning and sorting items.  The NLRB determined that both companies met its new joint-employer definition based on direct and indirect control and contractual authorities (not being exercised).

Is the Change Good or Bad?

The majority of the NLRB feels it is updating the standard to reflect modern business practices.  Labor unions hail the decision as one that makes it “more possible for working people to organize and bargain with the employer that has authority to control the terms of their employment.”  Members of the NLRB who opposed the ruling pointed to the uncertainty that it poses for business relationships (for example, those between users-suppliers, parent-subsidiary, lessor-lessee, contractor-subcontractor, new “sharing economy” arrangements, etc.) the ambiguity of the new test, and its far reaching economic consequences.

Will it Stick?

The decision may be appealed, which is likely, and a final decision could be more than a year away.  Meanwhile, leaders in Congress introduced legislation last week, the Protecting Local Business Opportunity Act, to reverse the NLRB’s decision and return to a joint-employer definition that relies on whether an employer has “direct and immediate” control over workers.  The bills’ authors, Rep. Kline (R-MN) and Sen. Alexander (R-TN) chair the congressional committees in the House and Senate that have jurisdiction over labor policy, so the legislation is likely to see some action, but ultimately it may be tough to overcome a Senate filibuster or veto.