NLRB Decision Presents New Challenges for California Employers

Employers across the country have recently been presented with an unsettling question:  Who are our employees?   Not surprisingly, the answer is trickier for California employers.

A recent NLRB decision made headlines when it reversed a more than 30-year standard for assessing joint-employer status under the National Labor Relations Act.  The Browning-Ferris Industries of California, 362 NLRB No. 186 (“Browning-Ferris”) decision addressed the question of when an employee may be jointly employed by two (or more) entities.  For decades, the NLRB had taken the position that an entity must have direct control over an employee before it can be considered the worker’s employer.   Recently, the NLRB indicated that it intended to significantly expand the scope of joint employer relationships  (link).   Now, in the Browning-Ferris decision, the NLRB has ruled that an entity can be an employer if it has direct or indirect control over a worker.  The NLRB extended the definition of a joint employer to entities that have the potential to exert control, even if they do not actually act on that authority.

Browning-Ferris arose out of an attempt by the Teamsters to organize workers at a recycling plant.  The workers at issue were employed by one entity, Leadpoint Business Services (“Leadpoint”), but performed work for the recycler, BFI Newby Island Recyclery (“BFI”).   Leadpoint was the workers’ direct employer, and was responsible for hiring, disciplining, firing, training, and paying the employees.  BFI had no direct control over the employees, but did set the speed at which the production line had to move and the hours of operation.  BFI also indirectly controlled the wages of Leadpoint’s employees by requiring that the workers earn no more than its own staff.  It also mandated that Leadpoint workers adhere to BFI’s safety policies and pass a drug test, among other factors.

Under prior law, BFI would not have been considered the workers’ employer because it did not have direct control over their work.  In its new decision, the NLRB greatly expanded the scope of “joint employment,” such that BFI’s indirect control over the workers’ employment was sufficient to deem it a joint employer for the purposes of collective bargaining rights.  In fact, even if BFI had not actually exerted any indirect control over the employees, but instead only had the authority to impose indirect control, it would have been a joint employer under the new definition.

The Browning-Ferris decision will have a major impact on issues that fall within the domain of the NLRB, such as union representation elections and collective bargaining.  Employers of all sizes across the country that use temporary servicing providers, franchisees, sub-contractors, leasing companies, and similar relationships to staff their operations may soon find themselves faced with union organization efforts that would have been previously unthinkable.

But what about other contexts?  Does the NLRB decision universally change the definition of “joint employer?”

The short answer is no.  The Browning-Ferris decision is limited to the context of labor relations.

The longer answer, though, is that time will tell what impact the decision will have.  The NLRB’s new definition will likely migrate in some form to other areas of employment law.   For instance, the Equal Employment Opportunity Commission advocated for an expansion of the NLRB standard, and may well use the new NLRB standard to expand its own definition of joint employment.

For the moment, however, at least some California employers can take some comfort in a California Supreme Court decision issued last year, Patterson v. Domino’s Pizza, LLC, 60 Cal. 4th 474 (2014).  In that case, the Court considered whether a franchisor was liable under the Fair Employment and Housing Act (FEHA) for sexual harassment allegedly suffered by an employee of a franchisee.   It concluded that a business is only liable as an employer under FEHA when it exerts “a comprehensive and immediate level of ‘day-to-day’ authority over matters such as hiring, firing, direction, supervision, and discipline” of employees.  This standard is considerably narrower than the new NLRB standard, which can find joint employment even when a business does not have comprehensive authority over a worker’s day-to-day schedule.   Also, the standard requires that a franchisor exert actual control, a much stricter requirement than the new NLRB standard, which only requires a joint employer to have the potential to exert control.

In other words, it is now entirely possible that a business might be subject to an unfair labor practice charge filed with the NLRB by a union for actions taken by a franchisee or subcontractor with regard to the franchisee’s or subcontractors employees  – but not face any liability if one of those workers sued for harassment under FEHA.  In this very unusual turn of events, an employee could have fewer rights under California law than provided in another context by federal law.

Given the unsettled nature of the law, it is more important than ever to evaluate relationships with staffing agencies, subcontractors, and any other entities that place workers.  The liability of joint employers will continue to be an area of heavy activity for employment litigation.

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