By Kelline R. Linton,
Last Thursday, the National Labor Relations Board (“NLRB”) overturned decades of precedent by establishing a new standard to determine whether two companies are a single “joint employer” for a group of workers. (Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, 362 NRLB No. 186 (August 27, 2015))
Under the old standard, both entities had to exercise “direct and immediate” control over the terms and conditions of employment to be considered a joint employer. The Board’s new test eliminates the requirement of “direct and immediate,” and considers whether a company has the potential to directly or indirectly control the terms of employment. Under this standard, a company may be a joint employer based on the rights it reserves under a contract, the indirect control it exercises over a third party’s workers due to the contractual services, or the standard and limitations it imposed on the contractual services. Such indirect control is commonly exercised by contractors over subcontractors, franchisors over franchisees, parent companies over subsidiaries, and, potentially, any other company that contracts with another company to perform work necessary for its operations.
In Browning-Ferris, the Board not only rejected longstanding principles for joint-employer status, it also explained that the new standard applied the common law test for determining the existence of an employment relationship.
Tips for Employers: This NLRB decision may have far-flung ramifications. Since the Board specified that it applied the common law test for employment relationships, the NLRB potentially created precedent for other state and federal governmental agencies. We recommend that companies review their contracts with third parties to determine whether the contracts allow for potential control of the third parties’ employees—the key is whether the company has the significant potential to exercise control over the workforce employed by the other business. If so, the entities may be joint employers.