Guest Post: N.L.R.B.’s Browning-Ferris Decision Could Reshape Contract and Franchise Labor

Catherine Fisk is Chancellor’s Professor of Law at the University of California, Irvine.

In the much-anticipated Browning-Ferris Industries case, the National Labor Relations Board yesterday decided in a split 3-2 vote to return to the common law test for when two corporations are joint employers, and therefore may be jointly responsible to bargain with the union representing employees who work under the control of both.  The facts make the case relatively easy, but the strident tone of the dissent reveals that the possible implications of the decision alarm some companies who have outsourced labor but who have retained enough control over labor as to make them possible joint employers.

Browning Ferris (BFI) runs a recycling plant and contracts with Leadpoint to supply the workers who sort garbage and recyclable materials.  BFI and Leadpoint both employ supervisors in the plant who direct the work, with BFI establishing the work process and setting the working hours, Leadpoint doing the hiring and firing and payroll, and BFI paying Leadpoint the cost of each worker’s labor plus a markup.  This was a conventional labor supply contract, of the sort that are frequently used in janitorial, agricultural, security, maintenance, warehouse, and other sectors.  A company runs an office building, a farm, or a warehouse and contracts with a staffing companies to provide all the janitors and security guards who work in the building, or all the farmworkers who pick and pack the crops, or all the workers who load and unload, pack and unpack the boxes in a warehouse.

The Board majority decided that BFI and Leadpoint are joint employers of the recycling plant workers such that, if in the union election conducted in April 2014 a majority of the workers voted to unionize (the ballots were impounded so the outcome of the election is not publicly known), both BFI and Leadpoint would be obligated to bargain with the union.  This matters because if the union wishes to negotiate for a pay increase, for changes in the safety procedures or the speed at which the conveyor belts operate, for protections against unfair discipline, or for employer-provided health insurance, both BFI and Leadpoint would be required to negotiate.  A union could try to negotiate for improved conditions only with Leadpoint, but if BFI refused to change its practices, the agreement with Leadpoint would accomplish nothing.  Or, worse, if Leadpoint agreed to a pay raise or to a different work schedule and BFI would not agree to revise its agreement with Leadpoint to cover the additional cost, BFI would just terminate its agreement with Leadpoint.  Leadpoint would then fire all the workers (because it would have no jobs for them), and BFI would probably find some other labor contractor to hire the workers and send them right back to the BFI plant without the union they chose and without the improved conditions they negotiated for.

The dispute that the NLRB resolved was over how much control the company that uses a labor contractor must exert over the work in order to be deemed a joint employer.  The Board overruled a few cases holding that the employees must prove that the company actually exercises regular control over important aspects of their wages and working conditions.  Instead, the Board returned to the older version of the common law test of employment and held that a company may be a joint employer if it has the right to control conditions of employment even if it does not regularly exercise that right.  Thus, it does matter how often BFI actually tells Leadpoint that a particular worker is unsatisfactory and cannot be assigned to the BFI job and whether its doing so causes Leadpoint to fire the worker, or whether Leadpoint or BFI formally establishes the work schedules for the workers; what matters is that BFI has the contractual power to tell Leadpoint to remove a worker from the job and BFI has the power to decide the operating hours of the facility, even if Leadpoint is formally the entity that sets schedules (which, of course, correspond to the working hours BFI establishes and which Leadpoint agrees to supply with labor).

All of this is important in the sectors where labor contracts are used.  But another interesting feature of the decision is the implications for other kinds of tripartite relations between companies and workers.  In a 30-page, single-spaced, and impassioned dissent, the two Republican Members of the Board insisted that the decision will wreak havoc with franchise relations, and with the law of successorship and secondary boycotts, even suggesting that insurance companies may be joint employers with their insureds and banks with their debtors if the insurance policy or loan agreement requires certain safety, security, or health measures.  Some of these concerns are seriously overblown, and the majority dismissed both the banking and insurance hypotheticals, but some raise interesting questions.

The most interesting implication, given the recent strikes in the fast food industry, is whether the decision means that corporate restaurants like McDonald’s are the joint employer with their franchisees.  The Board has cases pending that will present this issue and it will decide them in due course.  The test the Board articulated in Browning-Ferris is that two entities are joint employers “if they share or codetermine those matters governing the essential terms and conditions of employment” which includes “hiring, firing, discipline, supervision, and direction,” as well as “wages and hours,” “the number of workers to be supplied, controlling scheduling, seniority, and overtime, and assigning work and determining the manner and method of work performance.”  And the Board said the codetermination of these matters need not be done “directly and immediately, and not in a limited or routine manner” but it is enough if the control is exerted in an “indirect” or “routine” way so long as the user employer “affects the means or manner of employees’ work and terms of employment, either directly or through an intermediary.”

What the dissent is anxious about is precisely what workers’ rights advocates have been talking about for decades.  Should companies that effectively dictate working conditions by the price they are willing to pay suppliers (whether it is suppliers of labor, as in Browning-Ferris, or suppliers of goods, as in supply chain cases) be obligated to bargain with the employees who supply that labor or those goods?  Should janitors or security guards in an office building or warehouse workers be able to pressure the building manager or the logistics company (as opposed to the labor contractor for which they work) for a pay raise or safety protections?

One issue the Browning Ferris case does not decide but the dissent talks about at some length is whether the common law right of control test adopted by the majority also has implications for a different issue, which is the difference between employees (who are workers that a hiring entity has the right to control) or independent contractors (workers that the hiring entity does not control).  The majority said little about this, but the dissent lambastes the majority for adopting a version of the common law test that might narrow the definition of independent contractor, making more workers employees.  If the dissent is right, then the years long effort of Federal Express to run a huge package delivery service without employing any drivers might fail, and so, too, might Uber’s argument that it’s become the country’s fastest-growing taxi service by simply being a technology company that employs no drivers.

The majority’s basic position is that a company cannot have it both ways.  If they want to control the process and products of work in order to ensure good quality service or an efficient process, as Browning-Ferris did, then they cannot divest themselves of the legal responsibilities of being an employer.  The dissent’s fear is that the Board’s decision jeopardizes the strategy of companies that have become profitable precisely because they can reduce labor costs by outsourcing all the labor to a third party and counting on competition among third party suppliers to keep labor costs down.  Who is right will depend on how the Board works out the implications of its decisions in myriad cases that are sure to come.