JOINT EMPLOYER DOCTRINE RECYCLED

Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015) “Certainly, we have modified the legal landscape for employers.”

October 9, 2015

Jonathan O. Levine Shareholder Milwaukee

jlevine@littler.com

Adam-Paul John Tuzzo Associate

Milwaukee atuzzo@littler.com

Presented by:

GARBAGE IN . . . GARBAGE OUT!

IBT petition names Leadpoint

and BFI as employers of

Leadpoint employees working at

BFI recycling facility

NLRB majority finds that BFI was

a “joint employer”

Decision overrules decades of

precedent based on economic

policy

Predictable continuation of NLRB’s recent effort to extend coverage of the NLRA

CNN America, Inc., 361 NLRB No. 47 (2014)(joint-employer liability imposed)

FedEx Home Delivery, 361 NLRB No. 55 (2014)(revised definition of “independent contractor”)

CNN AMERICA, INC., 361 NLRB NO. 47 (2014)

CNN found to have violated NLRA

as a joint employer

Terminating sub and causing

discharge of sub’s employees for

allegedly anti-union reasons

Limited the number of sub’s

employees it hired in order to

avoid becoming a successor

Failing to bargain over decision to

terminate subcontract and its

effects

FEDEX HOME DELIVERY, 361 NLRB NO. 55 (2014)

In evaluating independent-contractor

status, Board will look at common-

law agency principles “with no one

factor being decisive”

Board will give weight to actual, not

theoretical, “entrepreneurial

opportunity” and “the constraints

imposed by a company on the

individual's ability to pursue this

opportunity”

NEW JOINT EMPLOYER STANDARD

The Board may find that two or

more entities are joint

employers of a single work

force if: (1) they are both

employers within the meaning

of the common law; and (2)

they share or codetermine

those matters governing the

essential terms and

conditions of employment

Old Rule New Rule

Burden of proving joint-employer status is on party asserting it

Same

Employers must “share or co-determine” matters related to “essential terms and conditions of employment”

Employers must also meet “common law” definition of employer

“Share or co-determine” means control is exercised in a meaningful, direct and immediate way

Control may be indirect, through “intermediary” or simply reserved; “right to control” is probative even if unexercised

Limited and routine supervision is not probative of joint employer status

Limited and routine supervision may be probative

“Essential terms and conditions” focuses on matters related to hiring, firing, discipline, supervision and direction

Broadly looks at almost any mandatory subject of bargaining – e.g., wages, benefits, hours, assignment, scheduling, staffing, seniority, overtime, safety, manner/method of work

THE “COMMON LAW” TEST

Restatement (Second) of Agency

Do employees perform services in the affairs of user

employer?

Are they subject to user employer’s control or right to

control?

Does the job require a higher education or skill level?

Is the employment over a considerable period of time with

regular hours?

Is the work part of the putative joint employer’s

regular business?

BROAD VIEW OF “SHARE OR CO-DETERMINE”

Employers confer or collaborate

directly to set a term

One sets wages/hours; the other

assigns work and supervises

Both affect components of same

term - e.g. one defines and

assigns work; other supervises

how it is carried out

One simply retains the right to set

a term or condition for the

other’s employees

KEY FACTORS THE NLRB RELIED ON

Hiring. BFI allegedly retained and exercised control over

hiring by requiring Leadpoint to drug test its employees,

prohibiting hiring of employees BFI deemed ineligible for

rehire, and retaining a contractual right to reject any

Leadpoint employee even if they met Leadpoint’s

qualifications and hiring standards

Firing. BFI allegedly retained the contractual right to

require Leadpoint to discontinue the use of any worker

and exercised that right by reporting misconduct to

Leadpoint who removed the employees

KEY FACTORS cont.

Direction. BFI allegedly retained and exercised control over

the direction of work by dictating stream speeds to

Leadpoint and production standards, directly counseling

Leadpoint employees for failing to meet standards,

assigning specific tasks to employees and engaging in

“near-constant oversight of employees’ work performance”

Staffing. BFI allegedly determined the number of

employees Leadpoint supplied

Wages. BFI allegedly controlled wages thru its cost-plus

contract and by setting a contractual ceiling (no more than

BFI paid its workers for similar jobs)

KEY FACTORS cont.

Work Rules. BFI allegedly required Leadpoint’s employees

to abide by its’ safety policies

Hours of Work. BFI allegedly dictated the start and end

time of shifts Leadpoint employees worked, when/how

much OT would be worked, and how breaks were taken

IS POTENTIAL/RESERVED CONTROL ENOUGH?

Reserved control is probative;

not clear if or how much

reserved control will be

determinative

Majority relied on alleged

evidence of direct, indirect and

reserved control to find joint

employer status

“Bare right to dictate the results

of a contracted service or to

control or protect its own

property” is not enough

NLRB WILL USE A MULTI-FACTOR TEST

Ultimate focus is on how a putative

joint employer affects the means or

manner of work and other terms of

employment

NLRB will look at the “existence,

extent, and object of a putative joint

employer's control”

NLRB will look at how that control

impacts terms and conditions and

weigh “their significance to employees'

work life”

WHO’S AFFECTED BY NEW RULE?

All employers - union and

non-union

All industries - especially those

who depend heavily on the use of

contingent workers and

contractors

New rule applies to user/supplier,

contractor/subcontractor,

predecessor/successor, and other

business models/relationships

PARENT-SUB RELATIONSHIP

If “potential control" is enough, every parent would be a joint employer with its subs or divisions; not a likely result

A parent that exercises direct or indirect control over terms and conditions may be a joint employer under even if control is insufficient to establish “single employer” status

FRANCHISORS-FRANCHISEES

Historically, franchisors have been permitted to exercise enough control over the manner and method of work to protect brand and comply with applicable laws

NLRB’s General Counsel is seeking to change this rule in McDonald’s USA, LLC, Cases 02-CA-093893, et al.

NUTRITIONALITY INC. D/B/A FRESHII

April 28, 2015 Advice Memorandum issued by the Office of the General Counsel found no joint-employer relationship between Freshii and its restaurant franchisees under old standard or the new standard proposed by the General Counsel Browning-Ferris

Franchise agreement included normal controls over operations, marketing and other aspects of the franchisee's business consistent with business format

No evidence Freshii used its reserved power to terminate as an indirect means to affect terms and conditions or HR decisions

Insufficient evidence of direct or control

FRESHII FACTORS

Typical franchise agreement controls over operations, marketing etc. were present

Operations manual included HR suggestions; not requirements

No obligation to use sample handbook

Point-of-sale software did not include scheduling component

No evidence that reserved power to terminate was used as an indirect means to affect employment terms or HR decisions

PRIME CONTRACTOR - SUBS

Prime contractor now faces greater

risk of joint employer status with its

subcontractors by . . .

Directing the number of workers to

be supplied

Managing scheduling and/or

overtime

Assigning work

Determining the manner and method

of work performance

BIG IMPACT ON small businesses

Commerce data applicable to joint employers is combined for NLRA jurisdictional purposes

NLRA will now extend to small businesses owners whose operations and employees previously were not subject to the NLRA’s jurisdiction

INCREASED LIABILITY RISK

Browning Ferris increases legal risk for employers by making

it much easier for unions/NLRB to establish that nominally

separate employers are “joint employers”

CONSEQUENCES OF JOINT EMPLOYER FINDING

Joint liability for ULPs

Duty to bargain with

co-employer’s union

Successor employer risks

Increased risks of union

organizing by co-employer’s

employees

Increased risk of exposure to co-

employer’s labor disputes –

secondary strikes, picketing etc. -

due to loss of neutral status

JOINT AND SEVERAL LIABILITY FOR ULPS

Each “joint employer” is generally

responsible for the conduct of

the other including unfair labor

practices

Both are jointly and severally

liable for the remedy

REMEDIES IMPOSED ON JOINT EMPLOYER

Sign and post notice

Cease and desist unlawful practice

Restore status quo

Bargaining orders

Reinstatement

Backpay; other damages

10(j) injunctions

GC continues to get creative

VIOLATION OF SECTION 7 RIGHTS

A joint employer may violate Section 8(a)(1) of the NLRA by direct or indirect interference with Section 7 rights of a co-employer’s employees

Hyundai Rotem USA Corp. and Aerotek, Inc., 358 NLRB No. 59 (2012) (joint employer liable for overbroad confidentiality agreement maintained by its contractor)

DISCRIMINATION AGAINST UNION ACTIVISTS

Liability for discriminatory conduct in violation of Section 8(a)(3) may be direct

It may also be imputed where the non-acting employer "knew or should have known" co-employer acted with unlawful motive and acquiesced by failing to protest or exercise contractual right to resist it. Capitol EMI Music, 311 NLRB 997 (1993)

FAILURE/REFUSAL TO BARGAIN

Under Browning-Ferris, joint

employer has a duty to bargain

“only with respect to those

terms and conditions over

which it possesses sufficient

control for bargaining to be

meaningful”

MORE QUESTIONS THAN ANSWERS

Buckle up!

NLRB majority conceded that

there will be plenty of confusion

about who the “employer” is

(and with respect to what terms

and conditions) and how disputes

are resolved when joint

employers cannot come to an

agreement on what to propose or

how to resolve issues with a

union

DUTY TO PROVIDE INFORMATION

Employers are likely to see

extensive information requests

Requests designed to prove

joint employer status

Requests with respect to terms

that are jointly controlled

THE 8(A)(5) V. 8(A)(2) DILEMMA

Putative joint-employer risks

violating Section 8(a)(5) if it

refuses to bargain

Risks violating

Section 8(a)(2) if it agrees

to bargain and/or bargains

over the wrong issue and is

later found not to be a

joint employer

TERMINATING AGREEMENTS JUST GOT HARDER

Malbaff rule allowing termination of

third-party agreement for anti-union

reasons (e.g., because contractor’s

employees are organizing) does not

apply to or protect a joint employer

Joint employer may have a duty to

bargain to the point of impasse over

decision and/or effects of decision to

amend, terminate, or rebid

agreements with union contractor,

franchisee etc.

SUCCESSOR EMPLOYER RISK

Whitewood Maintenance Co., 292

NLRB 1159, 1168-1169 (1989)

“User” employer that was found

to be a joint employer with union

subcontractor and firm that

replaced it could not set its own

initial terms

INCREASED EXPOSURE TO LABOR DISPUTES

Section 8(b)(4) prohibitions

on secondary strikes,

picketing and other coercive

union conduct protect

“neutral” employers

Neutral status is lost

in a labor dispute

when joint employer

status exists.

Teamsters Local 688,

211 NLRB 496 (1974).

IS ANYBODY A “NEUTRAL” ANYMORE?

More entities will be found to have

“primary-employer” status in labor

disputes that are not directly their

own

Risk that unions will be allowed to

picket all of a user’s stores or other

facilities even though the supplier

only provides services at one

Risk that unions will be allowed to

picket franchisor and all franchisees

even though its real dispute lies with

only one

UNION ORGANIZING RISKS

Unions will seek to organize

contingent workers and

franchisees

Interim bargaining order may

be imposed on joint

employers for campaign

violations. Dorothy l. Moore-

Duncan ex rel. NLRB v.

Aldworth Company, Inc.,

124 F. Supp. 2d 268

(D. N.J. 2000)

ACCESS ISSUES

Stay tuned. A “user”

employer will likely be

required to extend to its co-

employer’s employees the

same right to engage in

solicitation, distribution etc.

that must be extended to its

own employees

WILL THE NLRB’S DECISION STAND?

Teamsters won the election

NLRB will likely be forced to pursue claims that BFI refused to bargain in federal court

Other employers may test the decision as new joint employer cases are filed

Legislation (e.g., Protecting Local Business Opportunity Act) has been introduced to overturn the decision; will not become law anytime soon

IS OAKWOOD CARE CENTER NEXT TO FALL?

In Oakwood Care Center, 343

N.L.R.B. 659 (2004), NLRB overruled

Sturgis and held that a unit

combining employees who are solely

employed by a user with employees

who are jointly employed with a

supplier is a multiemployer unit

which is appropriate only with the

consent of both parties

OTHER LEGAL RISKS

Expect agencies, unions and plaintiff’s

lawyers to aggressively use versions of

joint employer theory to impose

investigatory burdens and liability

under federal and state laws

OSHA is continuing to expand its focus

on “host employers” and franchisees

IC misclassification cases will continue

to increase

How will joint employers be viewed for

ERISA and MEPPA liability purposes?

BROWNING-FERRIS RESPONSE PLAN

Circuit courts have been following

versions of the “direct and

immediate” control standard for

decades and may reject the NLRB’s

new approach

Steps can be taken to reduce the risk

of being a joint employer

Employers should audit their

relationships and develop a

response plan that fits their risk

tolerance level

EVALUATE CURRENT/POTENTIAL PARTNERS

Given the increased risk of

union organizing and joint

employer liability, it is

important to assess (not

dictate) the legal

compliance record and

employment practices of

entities that provide or seek

to provide contract labor or

become franchisees

WEIGH RISKS/REWARDS OF EACH RELATIONSHIP

Determine whether certain

business models and

contractual relationships

continue to make sense

Balance operational/legal

risks associated with giving

up certain controls against

those associated with

reserving and/or exercising

such controls

WEIGH RISKS/REWARDS OF EACH RELATIONSHIP

Review insurance policies that cover employment

practices to determine whether potential liability for a

third party’s employees would be covered

REVIEW AND REVISE CONTRACTS WHERE PRACTICAL

Review agreements, manuals,

handbooks, policies,

communications, and other

documents to identify areas of

potential joint employer risk

WHERE PRACTICAL, remove or

modify red flag provisions that

impose or reserve control over

terms and conditions of

employment or dictate the

manner and method of the work

performed

REVIEW AND REVISE CONTRACTS cont.

Establish pay structures for service providers not based on

wage rates and hours of work rendered by non-employees

Describe operational and other standards as

“recommendations”

Where standards must be mandatory, include language that

describes their relationship to a legal requirement or need

(e.g., franchisor) to protect a trade name, professional

methods, goodwill, or commercial image

Disclaim control over other’s employees

Revise cost-sharing, indemnification, insurance and early-

termination provisions to reflect increased risk of joint

employer liability

IS A COST-PLUS CONTRACT FATAL?

Majority held that “this arrangement, on its own, is

not necessarily sufficient to create a joint-employer

relationship”

BFI’s cost-plus agreement expressly prohibited Leadpoint

from paying more than BFI paid its employees in comparable

positions

BFI also required that Leadpoint employees submit their

time records for approval and “approved” an increase in

what it was required to pay Leadpoint for hours worked

when a minimum wage hike was passed

TAKE STOCK OF DAY-TO-DAY OPERATIONS

Periodically review how agreements are actually being

implemented

Examine actual day-to-day practices to determine what

steps can be taken to restructure work arrangements and

eliminate or reduce joint employer risks

How much direction and control are your managers/

supervisors exercising over third-party employees? Contact

with their non-management employees should be very

limited

Representatives who visit franchisees should interact only

with the franchisee or their supervisory personnel; directives

should not be issued to franchisee employees

TRAIN YOUR TEAM

Train managers, supervisors

and others involved in drafting

or administering agreements

on what the joint employer

lines are and how to avoid

crossing them

The Board’s lines are not clear

so employers will occasionally

be forced to make a “best

guess”

SUMMARY

Scrub the reserved control red flags form your agreements wherever possible

Avoid exercising direct control over terms and conditions

Avoid exercising indirect control over terms and conditions

Expressly disclaim any right of control

Limit contact with non-management employees

Avoid giving detailed directives

Focus dealings with third-parties on the result desired; leave it up them to instruct their employees on how to achieve it

Questions?

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