In Browning Ferris Ind. of Calif., the National Labor Relations Board (“Board” or “NLRB”) revised its standards for determining whether two (2) unrelated employers constitute a “joint employer” for purposes of bargaining with the union of one of their employees. This decision may have a significant impact on our clients who use temporary services to supply employees. The decision may also have far-reaching implications for other federal laws and agencies such as the Equal Employment Opportunity Commission, the Occupational and Safety Administration and the Department of Labor.

In this recent decision, the Board held that Browning Ferris (“BFI”) was a “joint employer” with Leadpoint, the company that supplied employees. In making that determination, the Board relied on both the indirect and direct control that BFI exercised over the terms and conditions of employment of Leadpoint’s employees, as well as authority it reserved itself to control such terms and conditions of employment in its agreement with Leadpoint.

The Board reviewed a number of factors in concluding that BFI had sufficient control over Leadpoint’s employees to justify making it a joint employer. For example, in the agreement between the parties, BFI retained the right to require that Leadpoint’s employees meet or exceed BFI’s standard selection procedures and tests. Leadpoint’s applicants had to undergo and pass BFI’s drug tests and Leadpoint could not hire former BFI employees it had deemed ineligible for re-hire. Even though BFI did not participate in the day-to-day hiring process, it imposed specific conditions on Leadpoint’s ability to make hiring decisions and retained the right to reject any worker referred to its facility for “any or no reason.” BFI could also discontinue using any employee assigned to it by Leadpoint. BFI, like any user company, exercised control over its processes that shaped the day-to-day work of the temporary employees. BFI unilaterally controlled productivity standards and the pace of the work. BFI’s managers assigned the specific tasks to be performed. The fact that those directives were communicated through Leadpoint’s supervisors did not disguise the fact that BFI, alone, was making such decisions. BFI specified how many workers were required for each shift and whether overtime work was necessary. While Leadpoint was responsible for selecting the particular employees to work a shift, BFI made the “core staffing and operational decisions that define all employees’ work days.” Leadpoint’s employees were required to obtain the signature of an authorized BFI representative verifying their hours worked each week or else BFI could refuse to pay Leadpoint for the time claimed by the worker.

While Leadpoint determined employees’ pay rates, administers payments, retained payroll records and was solely responsible for providing and administering benefits, BFI prohibited Leadpoint from paying employees more than the BFI employees performing comparable work. In effect, the Board viewed this provision as creating a de facto wage ceiling for Leadpoint employees. In addition, BFI and Leadpoint were parties to a “cost-plus” contract under which BFI was required to reimburse Leadpoint for labor costs plus a specified percentage markup. While the Board said this factor alone was not enough to create a joint employer relationship, the fact it was coupled with the apparent requirement of BFI approval over pay increases, led the Board to conclude that BFI was a joint employer.

The decision increases the likelihood that user companies could be liable for labor violations committed by their suppliers. It may also affect franchisors, holding companies, general contractors, companies that use shipping or delivery firms or any business that outsources some of its work. Now, the fact that a user company may be a “joint” employer with the supplier means that smaller groups of workers may organize and draw the larger, more financially viable, user company into bargaining.

Employers should review their contingent worker or other subcontractor agreements to make sure they do not cede so much control to themselves that they may become “joint” employers and incur a bargaining obligation over individuals it does not consider its employees.

If you have any questions, please do not hesitate to contact our Labor Group.