Joint Pain: Divided NLRB Adopts New Co-Employer Standard

In Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, et al. Case 32–RC–109684 (Aug. 27, 2015), Chairman Pearce and Members Hirozawa and McFerran set forth a new standard for joint-employers, which will be met when two employers broadly “share or codetermine those matters governing the essential terms and conditions of employment.” Members Johnson and Miscimarra filed a lengthy and vigorous dissent, arguing that the Board’s majority is a sweeping departure from established standards that will subject “countless entities to unprecedented new joint-bargaining obligations that most do not even know they have,” among other ills.

Background

As described in the opinion, Browning-Ferris Industries (BFI) owns and operates the Newby Island recycling facility, which receives approximately 1,200 tons per day of mixed materials, mixed waste, and mixed recyclables. The essential part of its operation is the sorting of these materials into separate commodities that are sold to other businesses at the end of the recycling process. BFI solely employs approximately 60 employees, including loader operators, equipment operators, forklift operators, and spotters. Most of these BFI employees work outside the facility, where they move materials and prepare them to be sorted inside the facility. These BFI employees are part of an existing separate bargaining unit that is represented by the Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters (the Union).

The interior of the facility houses four conveyor belts, called material streams. Each stream carries a different category of materials into the facility: residential mixed recyclables, commercial mixed recyclables, dry waste process, and wet waste process. Workers provided to BFI by Leadpoint Business Services (Leadpoint) stand on platforms beside the streams and sort through the material as it passes; depending on where they are stationed, workers remove from the stream either recyclable materials or prohibited materials. Other material is automatically sorted when it passes through screens that are positioned near the conveyor belts.

BFI contracts with Leadpoint to provide the workers who manually sort the material on the streams (sorters), clean the screens on the sorting equipment and clear jams (screen cleaners), and clean the facility (housekeepers). The Union sought to represent approximately 240 full-time, part-time, and on-call sorters, screen cleaners, and housekeepers who work at the facility and filed a petition to do so arguing that BFI and Leadpoint were joint-employers, thus subjecting them co-bargaining responsibilities.

The Union argued that BFI constitutes a joint-employer of the Leadpoint employees because it shares or co-determines the following essential terms and conditions of employment: employment qualifications, work hours, breaks, productivity standards, staffing levels, work rules and performance, the speed of the lines, dismissal, and wages. It argued that BFI’s direct control over employees is evinced by its regular oversight of the employees and its constant control of their work. The Union argued in the alternative that even if BFI does not actually exercise direct control over the employees, the Board should adopt a broader standard of joint-employer to better effectuate the purpose of the Act and respond to industrial realities.

BFI argued that under the Board’s current joint-employer test, the Regional Director correctly found that BFI is not a joint-employer of Leadpoint’s employees. The Regional Director, it argued, properly concluded that Leadpoint has sole authority to hire, fire, discipline, supervise, direct, assign, train, and schedule its employees. It further contended that the Union could point to only a handful of instances in which BFI managers gave routine instructions to Leadpoint employees, evidence that falls far short of establishing that BFI exerted any meaningful control over them. BFI also urged the Board not to modify its existing joint-employer standard. It contended that the Union had not presented any compelling reason to revisit Board policy. Any modification, it argued, would undermine the predictability of the law in this area, which the Board had applied uniformly for over 30 years. The Union’s proposed standard would impose “no meaningful limit on who could be deemed a joint-employer of another’s workers.”  Leadpoint echoed BFI’s arguments.

The Board’s Decision

The Board majority accepted the Union’s invitation to create a new standard for establishing joint-employers. Prior to the Board’s new test, “[t]he essential element in [the joint- employer] analysis is whether a putative joint-employer’s control over employment matters is direct and immediate.” Airborne Express, 338 NLRB 597 fn. 1 (2002). The new test, however, is as follows: “The Board may find that 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 if they share or codetermine those matters governing the essential terms and conditions of employment.”

The Board attempted to minimize the significance of the departure from the old standard, noting that courts and the common law had already focused on these distinctions for many years. The majority alleged that the new test is really just a return to the traditional test used by the Board (and endorsed by the Third Circuit in Browning-Ferris). The Board stated that in evaluating the allocation and exercise of control in the workplace, Regional Directors, Administrative Law Judges and the Board will consider the various ways in which joint-employers may “share” control over terms and conditions of employment or “codetermine” them, as it alleged that the Board and the courts have done in the past.

The old test required that a joint-employer not only possess the authority to control employees’ terms and conditions of employment, but that it must also exercise that authority, and do so directly, immediately, and not in a “limited and routine” manner. Under the new test, the right to control, in the common-law sense, is probative of joint-employer status, as is the actual exercise of control, whether direct or indirect.

In applying the new test, the majority concluded that BFI and Leadpoint were joint-employers. It held that the facts demonstrate that BFI shares or codetermines those matters governing the essential terms and conditions of employment for the Leadpoint employees. Moreover, it had exercised that control, both directly and indirectly. Therefore, the 240 employees that the Union sought to represent were considered joint employees of both entities and BFI and Leadpoint could be required to bargain collectively with the Union.

The Dissent

In a 30-page scathing dissent, Members Johnson and Miscimarra took the majority to task. The dissent stated that the new test is so broad that “no bargaining table is big enough to seat all of the entities that will be potential joint-employers under the majority’s new standards.” The dissent also reasoned that the rationale that the majority applied for expanding the standard - to protect bargaining from limitations resulting from third-party relationships that indirectly control employment issues - relies in substantial part on the notion that these relationships are unique in the modern economy and represent a radical departure from simpler times when labor negotiations were unaffected by the direct employer’s commercial dealings with other entities. However, the dissent argued, such an economy has not existed for more than 200 years. Many forms of subcontracting, outsourcing, and temporary or contingent employment date back to long before the 1935 passage of the Act. Congress, the dissent contended, was thus aware of the existence of third-party intermediary business relationships in 1935, when it limited bargaining obligations to the “employer,” in 1947, when it limited the definition of “employee” and “employer” to their common-law agency meaning, and in 1947 and 1959, when Congress strengthened secondary boycott protection afforded to third parties who, notwithstanding their dealings with the “employer,” could not lawfully be subject to picketing and other forms of economic coercion based on their dealings with that “employer.” In other words, the Act did not (and does not) confer “employer” status on third parties merely because commercial relationships made them interdependent with an “employer” and its employees.

The dissent asserted that only Congress, and not the Board, can modify the agency standard as applied by the common law. The common law standard as codified by the Act puts a premium on actual direct control before making an entity the joint-employer of certain workers, and if Congress wants to amend the definition of employer in the Act, it is free to do so. According to the dissent, the majority cannot stand in the shoes of Congress and do so.

The dissent further argued that the majority abandoned a longstanding test that provided certainty and predictability, and replaced it with an ambiguous standard that will impose unprecedented bargaining obligations on multiple entities in a wide variety of business relationships, even if this is based solely on a never-exercised “right” to exercise “indirect” control over what a Board majority may later characterize as “essential” employment terms. This new test leaves employees, unions, and employers in a position of uncertainty regarding identity of the “employer.”

Finally, according to the dissent, the “inequality” addressed by the majority as a basis for the new test is the wrong target, and collective bargaining is the wrong remedy. The dissent claimed that the inequality targeted by the new test is a fixture of our economy—business entities have diverse relationships with different interests and leverage that varies in their dealings with one another. There are contractually “more powerful” business entities and “less powerful” business entities, and all pursue their own interests. The Act, the dissent  reasoned, is not meant to redress imbalances of power between employers, even if those imbalances have some derivative effect on employees.

Conclusion

The new test is a sweeping overhaul of the joint-employer standard under the Act that may have a profound impact on a variety of business relationships, including franchisors and franchisees, contractors and subcontractors, and other contingent workforce arrangements. It will be interesting to see what impact the new standard will have on the various McDonald’s cases pending before the Board. It will also be interesting to see if other agencies, like the Department of Labor, the Equal Employment Opportunity Commission, and even state and local agencies, will embrace the new standard.