Employer Alert: The NLRB’s New Joint Employer Test and its OSHA and FLSA Implications

September 2015

New Joint Employer Test

On August 27, 2015, in its much anticipated Browning-Ferris Industries of California, Inc. decision, the National Labor Relations Board (NLRB) dramatically changed the standard for determining joint employer status under the National Labor Relations Act (NLRA). By a 3-2 vote, the NLRB overturned 30 years of case law and dramatically expanded its joint employer standard. The Board eliminated the requirement that the alleged joint employer actually exercise direct control over workers and instead made the mere right to control sufficient to establish a joint employment relationship, even if that right to control is never exercised. We expect the new standard articulated by the NLRB to have broad and continuing implications for employers under other federal regulations like OSHA and FLSA.

Factual Summary

In Browning-Ferris, the NLRB examined the relationship between Browning-Ferris Industries (BFI), a waste recycling plant located in California, and the employees of Leadpoint Business Services, a staffing agency which provides employees to fill various positions at the BFI plant. A dispute arose when the local Teamsters attempted to unionize the plant, arguing that BFI was the joint employer of Leadpoint's workers and, therefore, obligated to engage in collective bargaining with the union. The NLRB decision came down on the side of the union.

The Browning-Ferris Decision: Impact on the Joint Employer Analysis

In its decision, the NLRB stated that it will find two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law and they "share or codetermine" the essential terms and conditions of employment. These terms and conditions include, but are not limited to, wages, hiring, firing, discipline, scheduling, or assigning work.

The NLRB claims that this "restated" standard is not new at all, but simply a return to the standard used more than thirty years ago. The Board concluded that the standard has been impermissibly and inexplicably narrowed over the decades to focus exclusively on an employer's actual exercise of control instead of the contractual right to control the essential terms and conditions of employment. In essence, the Browning-Ferris decision overturns those previous decisions which the Board now claims improperly narrowed the joint employer test.

Under the Browning-Ferris standard, potential control of employees is just as probative of joint employer status as the actual control. In a further rejection of the last 30 years of decisions, the NLRB also held that an employer's control—either actual or potential—need not be "direct or immediate." Instead, potential control reserved by the alleged employer may be "limited or routine" or even exercised through the authority of a third party.

The Browning-Ferris standard creates the potential for significant joint employer liability for franchisors, companies who use labor from staffing agencies or general contractors who employ subcontractors.

Browning-Ferris: OSHA Implications

We expect the impact of the NLRB's Browning-Ferris decision to reverberate beyond matters governed by the NLRA. For instance, the decision may expand liability under the Occupational Safety and Health Act (OSH Act). The Occupational Safety and Health Administration (OSHA) has long held that an employer can be cited for hazards to other employers' employees if OSHA finds that the employer "created" or "controlled" the hazard. Recently, OSHA investigators have reportedly been asking franchisees for detailed information about their relationship with their franchisors, moving beyond a determination of actual control and instead focusing onpotential control. A newly discovered draft OSHA internal memorandum advises OSHA investigators that "a joint-employer standard may apply where the corporate entity exercises direct or indirect control over working conditions, has the unexercised potential to control working conditions or based on the economic realities."

This language suggests that OSHA is poised to adopt the NLRB's Browning-Ferris rationale. Such adoption is all the more likely given the increased level of cooperation between OSHA and the NLRB, as evidenced by last year's joint-referral program to redirect claims that are time-barred before OSHA to the NLRB.

Browning-Ferris: FLSA Implications

Within the last two months, the Department of Labor (DOL) issued an "Administrator's Interpretation" discussing the distinction between employees and independent contractors under the Fair Labor Standards Act (FLSA). That guidance emphasized the importance of whether an individual's services are an integral part of a company's business and downplayed the importance of whether the business actually controls an individual's work.

Many of the DOL's arguments in support of its shift to a more expansive and encompassing view of the employment relationship in the independent contractor context could also be used to support a broader interpretation of joint employer status under the FLSA. We expect the DOL to argue that the NLRB's increased readiness to recognize joint employers under the NLRA, which has traditionally employed a more restrictive joint employer test than the DOL, supports a broad view of joint employment under the FLSA's "economic realities" test.

Furthermore, in light of the DOL's apparent broader view of the employment relationship and the NLRB's Browning-Ferris decision, the DOL's proposed changes to its FLSA "exemption" regulations could pose significant concerns for general contractors, franchisors, and companies that outsource work. The proposed changes will more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust that minimum salary level each year to account for the increase in the cost of living. A misapplication or failure to abide by these new rules on the part of a subcontractor or staffing agency could subject the company contracting for those services to judgments for back-pay, penalties, and attorneys' fees premised upon a broader theory of joint employer liability.

The combination of the NLRB's Browning-Ferris decision, OSHA's new internal guidance, and the DOL's recent independent contractor guidance should serve a warning to businesses to review their temporary staffing arrangements, subcontracting agreements, and other contractual relationships that involve the provision of labor from one employer to another for potential exposure to joint employer claims.

Click here to read how the DOL proposal would affect the FLSA's minimum wage and overtime regulations.