The NLRB Joint Employer Ruling

Confusion over which entities are in fact employers required to be at the bargaining table could lead to instability in business relationships that were once well-defined, such as user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor and the like. Businesses and unions alike are likely to face increased expense from the inevitable litigation that will follow this decision with respect to joint employer status and multiparty bargaining and attendant disputes.

Potential Impact of the Decision

The breadth of the new joint employer standard means that many new entities in a variety of industries will be the subject of union organizing campaigns and potential labor disputes where they previously were not. This has broad implications for businesses that rely heavily on staffing agencies or otherwise contract or lease labor from third parties to provide services. Industries such as hotels, health care, warehousing, transportation and cleaning services will be particularly impacted.

It also has the potential to extend joint employee status to franchisor/franchisee and parent/subsidiary business relationships. Indeed, national union leaders have already stated their intention to use the decision to help them organize manufacturers, fast food chains and e-commerce companies. The decision could impact also Silicon Valley technology firms that contract with transportation providers to provide shuttle service for their employees' commute. Shuttle drivers for several of these firms recently voted to join the Teamsters union. This decision will likely be used to further union organizing efforts and bring tech companies to the bargaining table as joint employers of the shuttle drivers

Unions also will be able to use the decision to circumvent the NLRA's prohibition on secondary boycotts. With more and more entities being converted from “secondary” employers to “primary” employers through the new joint employer standard, unions will be able to pressure users of contracted labor through strikes and picketing, even when their chief dispute is with the labor supplier.

The decision also has potential ramifications beyond the union context. Other federal agencies, such as the U.S. Department of Labor (DOL), could revise their joint employer standards in a similar fashion. In fact, the International Franchise Association (IFA) has asserted that the DOL's Occupational Safety and Health Administration (OSHA) was operating under the assumption that the broader joint employer standard applied even before the Browning Ferris decision was issued. The IFA contended that OSHA inspectors allegedly were asking franchise owners questions during investigations that presumed a joint employer relationship between the franchisors and the franchisees.

The broadening of the joint employer standard is already in line with a trend in California to expand protections for temporary and contracted workers. For example, in 2014, the California State Legislature passed a law that provides that large employers (25 or more employees, including those provided by a labor contractor) must share all civil legal responsibility and liability with a labor contractor for all workers supplied by the labor contractor for payment of wages and for any failure to secure valid workers' compensation coverage. Employers also may not shift to labor contractors any legal responsibilities or liabilities under the provisions of Cal/OSHA. Cal. Lab. Code ' 2810.3.

In addition, in June, 2014, the California Labor Commissioner ruled that a driver for the transportation network company Uber was an employee, rather than an independent contractor, and ordered Uber to reimburse her expenses. On Sept. 1, U.S. District Judge Edward Chen granted class action status in a lawsuit in which three drivers are suing Uber under California wage and hour laws for classifying them as independent contractors rather than employees.

In Noe v. Superior Court, 237 Cal. App. 4th 316 (2015) ( see article infra ), the California Court of Appeal held for the first time that Labor Code Section 226.8, which imposes penalties for willfully misclassifying employees, is not limited to employers who make the classification decision but also extends to any employer who is aware that a co-employer has willfully misclassified their joint employees. These changes, along with the Browning Ferris decision, will have a major impact not only on the many California companies that employ an on-demand business model but also on the numerous California industries that rely on temporary and contracted labor.

Because of the procedural posture of the Browning Ferris case, the decision is not subject to immediate court challenge. On Sept. 9, however, federal legislation was proposed to roll back the effect of this decision in the Protecting Local Business Opportunity Act.

In the meantime, business entities will need to carefully review their current business models and practices to reduce the risk of being found a joint employer under the NLRA. Contracts will need to be reviewed to eliminate terms that may establish sufficient direct or indirect control to support a joint employer finding under the new standard. Employers contracting for third-party services should particularly seek to avoid any involvement in hiring or firing decisions and not place any restrictions on wage rates of firms supplying such services.

In Browning Ferris, the board found that a contract term limiting the supplying contractor from paying its employees more than Browning Ferris employees constituted strong indicia of joint employer status. While contract indemnity and insurance provisions may help to mitigate potential increased costs for user entities, such measures will not shield a business using contract labor services from a joint employer finding if the requisite direct or indirect control is found. The board's application of the new standard, the response of affected business entities, union organizing efforts and the further development of California law on joint employment issues will continue to progress and be the subject of future litigation.

Molly Kaban and Raymond Lynch are labor and employment partners in Hanson Bridgett's San Francisco office. This article also appeared in The Recorder, an ALM sister publication of this newsletter.

On Aug. 27, the National Labor Relations Board (NLRB) issued Browning-Ferris Industries of California, Inc., 362 NLRB No. 186, a sweeping decision that expands the definition of “joint employer” for purposes of the National Labor Relations Act (NLRA). Abandoning 30 years of precedent that required “direct” and “immediate” control over employees' working conditions for a finding of joint employer status, the NLRB held instead that “indirect” or “potential” control is sufficient. Moreover, no longer does the employer actually have to exercise any control for a finding of joint employer status. Rather, as long as some degree of direct or indirect control is reserved for the putative joint employer in the contract with the labor provider, that alone is sufficient to establish joint employment. In the divided decision, two members of the five-member board issued a sharp dissent, characterizing the new standard as a departure from the common law agency standard applied by the NLRB for decades.

Ambiguity over Certainty

The board's new joint employer standard contains substantial ambiguities, such as which employment terms are “essential,” and the decision raises as many questions as it answers. As stated by the dissent, the majority “abandon[ed] a long-standing test that provided certainty and predictability, and replace[d] it with an ambiguous standard that will impose unprecedented bargaining obligations on multiple entities in a wide variety of business relationships, even if this is based solely on a never-exercised 'right' to exercise 'indirect' control over what a Board majority may later characterize as 'essential' employment terms.”

Confusion over which entities are in fact employers required to be at the bargaining table could lead to instability in business relationships that were once well-defined, such as user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor and the like. Businesses and unions alike are likely to face increased expense from the inevitable litigation that will follow this decision with respect to joint employer status and multiparty bargaining and attendant disputes.

Potential Impact of the Decision

The breadth of the new joint employer standard means that many new entities in a variety of industries will be the subject of union organizing campaigns and potential labor disputes where they previously were not. This has broad implications for businesses that rely heavily on staffing agencies or otherwise contract or lease labor from third parties to provide services. Industries such as hotels, health care, warehousing, transportation and cleaning services will be particularly impacted.

It also has the potential to extend joint employee status to franchisor/franchisee and parent/subsidiary business relationships. Indeed, national union leaders have already stated their intention to use the decision to help them organize manufacturers, fast food chains and e-commerce companies. The decision could impact also Silicon Valley technology firms that contract with transportation providers to provide shuttle service for their employees' commute. Shuttle drivers for several of these firms recently voted to join the Teamsters union. This decision will likely be used to further union organizing efforts and bring tech companies to the bargaining table as joint employers of the shuttle drivers

Unions also will be able to use the decision to circumvent the NLRA's prohibition on secondary boycotts. With more and more entities being converted from “secondary” employers to “primary” employers through the new joint employer standard, unions will be able to pressure users of contracted labor through strikes and picketing, even when their chief dispute is with the labor supplier.

The decision also has potential ramifications beyond the union context. Other federal agencies, such as the U.S. Department of Labor (DOL), could revise their joint employer standards in a similar fashion. In fact, the International Franchise Association (IFA) has asserted that the DOL's Occupational Safety and Health Administration (OSHA) was operating under the assumption that the broader joint employer standard applied even before the Browning Ferris decision was issued. The IFA contended that OSHA inspectors allegedly were asking franchise owners questions during investigations that presumed a joint employer relationship between the franchisors and the franchisees.

The broadening of the joint employer standard is already in line with a trend in California to expand protections for temporary and contracted workers. For example, in 2014, the California State Legislature passed a law that provides that large employers (25 or more employees, including those provided by a labor contractor) must share all civil legal responsibility and liability with a labor contractor for all workers supplied by the labor contractor for payment of wages and for any failure to secure valid workers' compensation coverage. Employers also may not shift to labor contractors any legal responsibilities or liabilities under the provisions of Cal/OSHA. Cal. Lab. Code ' 2810.3.

In addition, in June, 2014, the California Labor Commissioner ruled that a driver for the transportation network company Uber was an employee, rather than an independent contractor, and ordered Uber to reimburse her expenses. On Sept. 1, U.S. District Judge Edward Chen granted class action status in a lawsuit in which three drivers are suing Uber under California wage and hour laws for classifying them as independent contractors rather than employees.

In Noe v. Superior Court , 237 Cal. App. 4th 316 (2015) ( see article infra ), the California Court of Appeal held for the first time that Labor Code Section 226.8, which imposes penalties for willfully misclassifying employees, is not limited to employers who make the classification decision but also extends to any employer who is aware that a co-employer has willfully misclassified their joint employees. These changes, along with the Browning Ferris decision, will have a major impact not only on the many California companies that employ an on-demand business model but also on the numerous California industries that rely on temporary and contracted labor.

Because of the procedural posture of the Browning Ferris case, the decision is not subject to immediate court challenge. On Sept. 9, however, federal legislation was proposed to roll back the effect of this decision in the Protecting Local Business Opportunity Act.

In the meantime, business entities will need to carefully review their current business models and practices to reduce the risk of being found a joint employer under the NLRA. Contracts will need to be reviewed to eliminate terms that may establish sufficient direct or indirect control to support a joint employer finding under the new standard. Employers contracting for third-party services should particularly seek to avoid any involvement in hiring or firing decisions and not place any restrictions on wage rates of firms supplying such services.

In Browning Ferris, the board found that a contract term limiting the supplying contractor from paying its employees more than Browning Ferris employees constituted strong indicia of joint employer status. While contract indemnity and insurance provisions may help to mitigate potential increased costs for user entities, such measures will not shield a business using contract labor services from a joint employer finding if the requisite direct or indirect control is found. The board's application of the new standard, the response of affected business entities, union organizing efforts and the further development of California law on joint employment issues will continue to progress and be the subject of future litigation.

Molly Kaban and Raymond Lynch are labor and employment partners in Hanson Bridgett's San Francisco office. This article also appeared in The Recorder, an ALM sister publication of this newsletter.