On August 27, 2015, the National Labor Relations Board (NLRB) announced the anticipated changes to its rules for holding companies liable as "joint employers." For employers who utilize temporary labor or who have outsourced work functions to third parties but retained some degree of oversight or control over those third parties, the decision creates new risks that they will be drawn into union bargaining relationships and labor disputes that had been the sole responsibility of their outside labor providers.

The NLRB's changes came in a five-member decision of the full NLRB in Browning-Ferris Industries. The case concerned whether or not Browning-Ferris Industries was a joint employer of employees it utilized through a staffing services company. Although the full reach of the decision will not be realized until further decisions are issued, the joint employer standard is applied in many other situations, including whether a franchisor can be considered a joint employer of its franchisee's employees.

The Former Joint Employer Standard

Before its decision in Browning-Ferris Industries, the NLRB utilized a well-recognized test: it reviewed whether a "user" employer meaningfully exercised actual control over the terms and conditions of employment for the employees at issue, such as hiring, firing, discipline, supervision and establishment of wage rates. Under that test, limited supervision, such as giving direction to temporary employees regarding the specific work to be performed, or supervision exercised predominantly through a third-party staffing agency, was not enough to create a joint employer relationship. The NLRB required the user employer to exercise meaningful and direct control over employees.

The New Joint Employer Standard

The new standard announced in Browning-Ferris Industries significantly expands that test. The NLRB concluded that two entities will be considered joint employers if they "share or codetermine" matters regarding any material terms and conditions of employment. Moreover, the NLRB will no longer look to determine whether that control is actually being exercised. Moving forward, "indirect or potential control" over such terms and conditions will be enough in most cases.

An employer deemed to be a joint employer can be forced to recognize and bargain with labor unions. The NLRB held that the obligation to bargain will only apply to topics over which the user employer retains control. However, that may be a distinction without a difference once aligned with the NLRB's newly minted concept regarding "potential control." An employer deemed a joint employer also will share liability for unfair labor practices, some of which involve monetary remedies, and may also be subject to strikes, picketing and other actions by unions.

What the Decision Means for Employers

As before, determining whether a joint employer relationship exists will be fact-intensive, requiring an examination of all aspects of the user employer's control over the employees at issue. For instance, in the past, a cost-plus arrangement for temporary employees was not considered evidence of a joint employer relationship. In Browning-Ferris Industries, the NLRB stopped short of concluding that cost-plus arrangements always create a joint employer relationship regarding economics, but suggested that any additional influence by the user employer over economics would result in a joint employer finding.

The NLRB's decision was not unanimous. Two NLRB members wrote a scathing dissent, claiming that the new standard exceeds the NLRB's authority and that the decision was an unjustified departure from the former standard. Challenges to the decision in Browning-Ferris Industries in the courts are likely. But for now, expect unions and the NLRB to begin aggressively applying this decision against employers who utilize contract labor.

In light of the NLRB's revision of the joint employer standard, employers should reexamine how they are using temporary labor and whether their contracts (and practices) with labor providers can or should be restructured so as to reduce risks of a joint employer relationship being established.

Please contact J. Kevin Hennessy at +1 (312) 609 7868, Kenneth F. Sparks at +1 (312) 609 7877, Mark L. Stolzenburg at +1 (312) 609 7512 or any other Vedder Price attorney with whom you regularly work if you would like to discuss.