Last Thursday (8/27/2015), the National Labor Relations Board (NLRB) ruled that the waste management firm Browning-Ferris should be considered a “joint employer” of employees of one of its subcontractors, the Phoenix-based staffing agency Leadpoint Business Services. This ruling follows a related NLRB ruling this year regarding joint employer status of McDonald’s and some of its franchisee groups. If these rulings can withstand court challenges, they will create major changes in a broad array of small businesses in many industries.
Background: What is joint employer status?
Here’s an extremely short version of a legal term that certain employment lawyers spend entire careers mastering. Under the Fair Labor Standards Act of 1938, two or more employers can employ an individual employee at the same time. However, if it is determined by the NLRB that the two-employer arrangement is set up for the reason of circumventing the Fair Labor act, the NLRB can rule that the two employers are not employees of two companies but are joint employees of both companies and therefore subject to provisions of the Fair Labor Act like overtime pay and certain regulations that companies with fewer employees are exempt from.
Joint employer regulations have spawned a wide array of business organization and creation
In the decades since enactment of the 1938 law, there are modern business processes and corporate structures that have developed that require employees of separate companies to work together in tightly organized fashion not envisioned in the 1930s. These range from classic sub-contracting found throughout the construction business to global franchising companies to elaborate outsourcing relationships that provide economy, efficiency, expertise and flexibility in nearly every industry.
In some industries, “joint employment” has provided an opportunity for creative ways of structuring company-worker relationships. For example, professional employer organizations (PEO) are firms that enable an employer to outsource employee management tasks, such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development, while retaining facets of employment related to the operations of the employer’s business. The PEO does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. However, the worker is a “joint-employee” of the PEO’s client in terms of operations and benefits.
The implications of the Browning-Ferris ruling could be far-reaching
The NLRB is called on to make joint-employment decisions on a regular basis. Unlike a broad precedent-setting court decision, NLRB rulings are focused on specific factors related to each filing brought before it. However, the context and timing of this ruling has given it greater importance than most rulings. Earlier this year, the NLRB ruled that McDonald’s and some of its franchisees are joint employers in complaints alleging they retaliated against employees who participated in wage protests. That decision could open McDonald’s up to unionization efforts by its employees. (The ruling is currently being challenged in court.) Other types of sub-contractor labor that could be opened to organized-labor initiatives based on the decision include:
- Janitorial workers
- Delivery truck drivers
- Construction workers
- Warehousing employees
- Institutional food service workers
- Home healthcare agency staffers
On the other hand, in May 2015, the NLRB’s Associate General Counsel Barry Kearney issued an opinion that a 100-store franchised restaurant chain called Nutritionality operated by a company called Freshii, did not fall under the joint-employer definition. “At most, Freshii’s control over Nutritionality’s operations are limited to ensuring a standardized product and customer experience,” he wrote. “There is no evidence that Nutritionality shares or co-determines with Freshii matters governing the essential terms and conditions of employment of Nutritionality’s employees.”
The ruling’s impact on the on-demand economy
As we have explored during the past few months, the emerging on-demand economy (the Uber-like app-enabled marketplaces that match in real-time the providers and users of various services) is facing a challenge by those who think that the providers of the services are not independent sole proprietors, but rather employees. The NLRB decision is a similar challenge to conventional criteria for determining the difference in employee and independent worker.
Business reaction to the ruling
For the most part, business groups have objected to the ruling, saying it can be used as a basis for interpreting a wide range of relationships between companies and the employees of sub-contractors they hire. Franchising companies believe the ruling could impact their relationships with franchisees, for instance the ability of franchisee employees to unionize if their employers are considered to be jointly employed by the franchisor.
What will the likely outcome be?
With the stakes so high, expect legal challenges that could reach the Supreme Court. Browning-Ferris Industries has the option to appeal to either the 9th Circuit or the D.C. Circuit Court.