NLRB’s “Joint Employer” Shift Creates Risk for Users of Contract Labor and Franchisors

Overturning more than 30 years of precedent, the NLRB recently set forth a new standard for a finding of “joint employment,” which could dramatically affect any business using contract/temporary labor or in a franchisor/franchisee relationship.  See Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015). 

Although this decision will likely be appealed in federal court, any business that uses indirect labor should consider the ramifications of this decision and how it could affect its business model.

Previously, an employer would be a “joint employer” with another business entity if it had some direct involvement with or direct control over essential terms of employment, such as hiring, firing, discipline, supervision, and assignment.   Thus, if a franchisor exercised direct control over the terms and conditions of its franchisee’s employees, the franchisor could be found to be the joint employer of the franchisee’s employees and thus liable for employment-related violations.  Similarly, an employer using temporary workers from a temporary agency could be a joint employer of those workers if it directly controlled the terms and conditions of their employment. 

Under the new standard, a business may now be a “joint employer” with a contractor, agency or franchisee if it maintains even indirect control over a group of workers.  In fact, the NLRB indicated that even if a business never actually exercises any control, direct or indirect, the mere fact that it “reserves” authority to do so may now be enough to result in a finding of joint employment (and is, at the very least, a significant factor that the NLRB will consider).    

Businesses that use temporary/contract labor or act as franchisors should now be concerned about possible liability for employment-related claims by temporary/contract workers and/or franchisee employees.  Such business may also be required to participate in collective bargaining, face unfair labor practice charges and/or respond to union campaigns for groups and individuals that they do not directly employ.  To the extent that courts rely upon the NLRB’s joint employment standard in deciding similar issues under federal/state anti-discrimination and/or wage and hour laws, this change in position by the NLRB could have far-reaching consequences for many businesses. 

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