Citing “changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships,” in Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (August 27, 2015), a 3-2 National Labor Relations Board majority (Pearce, Hirozawa, McFerran) significantly revised and broadened the standard for assessing joint-employer status under the National Labor Relations Act. The primary justification for the Board’s sweeping departure from the current standard was that it did not “best serve the Act’s policies of encouraging the practice and procedure of collective bargaining,” considering the expansion of workplace arrangements including a diversity of subcontracting and contingent employment relationships since the 1990s.

Going forward, the Board will now find joint employer status where one entity either actually directly controls another employer’s employees’ terms and conditions of employment OR where that entity has “indirect” control of terms and conditions of employment OR has simply reserved the right to exert such control.

The Board’s decision was rooted in its view of the general “common law” definition of an employer and focused on “whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.” Particularly, the Board examined the common law definition of an employment relationship and concluded that the scope of control under common law principles incorporated both direct and indirect control. In reaching its decision, the Board majority rejected and overturned 30 years of precedent that limited joint-employer findings to actual use of direct control situations (including TLI, Inc., 271 NLRB 798 (1984), enfd., 772 F.2d 894 (3d Cir. 1985), and Laerco Transportation, 269 NLRB 324 (1984)).

The Board noted a number of factors that it will examine to evaluate whether an entity affected terms and conditions of employment either directly or through an intermediary including: establishing the number of workers to be supplied; control over scheduling, seniority, and overtime; the assignment of work and the method of performance.

The Board also cited a number of examples of prior cases that it now believed took an inappropriately narrow view of joint employer status. For example, the Board disapproved of its prior holding in Southern California Gas Co., 302 NLRB 456, 461–462 (1991) that there was no joint-employer status where a building management company set the number of workers to be employed by a janitorial company, communicated tasks and oversaw whether jobs were being properly performed. Moreover, the Board noted that its prior narrower view led to the Board’s holding in Goodyear Tire and Rubber Co., 312 NLRB 674 (1993) that cost-plus contract relationships between parties do not support a finding of joint-employer status.

In applying the broad test, the Board found that under common law principles the BFI Newby Island Recyclery (BFI) was a joint employer with Leadpoint Business Services (Leadpoint) – – the company that supplied employees to BFI to perform cleaning and sorting activities. The Board noted that, among other factors, BFI “codetermined” the outcome of Leadpoint’s hiring decisions; it controlled speed of streams and standards for sorting; BFI managers assigned tasks to Leadpoint employees; and BFI prevented Leadpoint from paying Leadpoint employees more than BFI employees who were performing similar work.

The Board dissent (Miscimarra and Johnson) vehemently opposed the majority’s emphasis on indirect forms of control constituting a basis for joint employer status stating that “anyone contracting for services, master or not, inevitably will exert and/or reserve some measure of indirect control by defining the parameters of the result desired to ensure he or she gets the benefit of his or her bargain.”

We will, of course, be providing further detailed analysis and guidance on the sweeping implications of this new standard in the days and weeks to come.