A recent ruling from the National Labor Relations Board (NLRB)has broadened the standard for assessing joint-employer statusunder the National Labor Relations Act (NLRA).

By a 3-2 vote, the NLRB in Browning-Ferris Industries ofCalifornia, Inc., 362 NLRB No. 186, has made a “broad sweep,”according to Zachary Fasman, an attorney at Proskauer Rose.

He explained that for 30 years, the NLRB saw “two entities to bejoint employers only where both entities actually exercised directand immediate control over the terms and conditions of employmentof the employees in question. This test was based upon the actualconduct of the two business entities.”

But with the new ruling, which comes with the increasingprevalence of subcontracting, the NLRB will “find joint employerstatus where one entity either actually directly controls anotheremployer's employees' terms and conditions of employment” or “wherethat entity has 'indirect' control of terms and conditions ofemployment” or “has simply reserved the right to exert suchcontrol.”

Fasman adds that it is “unclear” what is meant by “indirectcontrol or reservation of such control.”

“What is clear is that the NLRB will no longer make its rulingbased upon the actual degree of control that has been exercised byone business over another business's employees,” Fasmanexplained.

Also, Fasman predicts the ruling will be appealed. If itwithstands the appeal, “a significant number of businessrelationships may inveigle a business in the labor affairs ofanother business with whom it contracts.”

When asked about its significance for general counsel, Fasmansaid the NLRB was correct “that subcontracting of various businessfunctions has become far more common over the years, and corporategeneral counsel now must be sensitive to the possibility that suchrelationships – whether they involve franchisor/franchiseestructures or direct subcontracting of certain work, which was thecase in BFI itself – do not result in a joint employerfinding.”

A business can become liable for another employer's unfair laborpractices, under the ruling. It could also “force that seeminglyneutral employer into a bargaining relationship with a union,”Fasman said.

He recommends that commercial contracts be clear that onebusiness does not retain indirect control over another company'sworkers. They also need to be clear that the first business doesnot reserve control.

When asked what sectors may be most at risk with the new ruling,Fasman said that “any business that subcontracts some of itsoperations.” He cites the example of a business that enters into acommercial contract with a security company. It is “exposed to aheightened risk of being found a joint employer under this ruling,”he adds.

Similarly, Steve Bernstein of Fisher &Phillips said, “Virtually any employer that leases or otherwisesecures labor from third party contractors is now at substantiallyincreased risk of joint employer status as a result of the Board'sBFI decision.”

• Franchises, which traditionally assume “the separateness offranchisor and franchisee,” Larkin said.
• Outsourcing, such as a hospital or university that outsourcesjanitorial work to a cleaning contractor. The university ofhospital could be considered a joint employer of the janitors if it“reserves the right to limit the number of janitors performing thework; to limit the number of overtime hours performed; to inspectwork; or even to terminate the cleaning contract altogether,”Larkin said.
• Private equity. “Firms that acquire portfolio companies andthen participate actively in the management of those companies mayfall victim to the standard if, for example, they dictate termslike benefit plans, company headcount, or even such fundamentaldecisions as whether to move or close a facility,” Larkinsaid.

As a result, Larkin recommends that general counsel at financialinstitutions, private equity firms, hospital systems oruniversities (or a company that provides them with subcontractedservices), or commercial real estate developers, need to study thedecision and its potential impact.

Inside Counsel