A strong corporate culture has always been a cornerstone of a robust ethics and compliance program—but exactly how much control businesses should exert over corporate culture just got more complicated.

At issue is a ruling the National Labor Relations Board handed down in August, which jettisoned 30 years of precedent and redefined the concept of “joint employer” much more expansively. Now any company that, say, relies on other businesses for contract labor, or uses a franchise business model for its operations, has much greater risk for labor conditions at those other businesses, even though the original company is a separate entity from those partners. 

“The ripple effect of this is huge,” says Charles Birenbaum, a shareholder of law firm Greenburg Traurig.

Start with the legal history. Since 1984, the NLRB had recognized companies as independent from the businesses with whom they contract when labor disputes arise, so long as they didn’t share direct and immediate control over terms and conditions of employment. Companies that merely possessed the ability to exercise control without actually doing so were not considered a “joint employer.”

That standard went over the side with the ruling Browning-Ferris Industries of California. Under its new standard, the NLRB deems companies to be a joint employer if they exercise “indirect control” over terms and conditions of employment and where they merely have the right to exercise that control. Moreover, the NLRB held that this new standard shall apply retroactively.

“This rule by the NLRB is not industry-specific and will cover every industry that contracts out for services rendered by those who are not the company’s own employees,” says Richard Reibstein, a partner in the labor and employment practice of Pepper Hamilton.

The dispute arose when a local union under the Teamsters asked the NLRB to rule that recycling company Browning-Ferris Industries and staffing firm LeadPoint Business Services are a joint employer. The Teamsters had been trying to unionize the workers employed by LeadPoint, and wanted to force BFI to take a seat at the negotiating table.

LeadPoint conducted all the hiring, firing, disciplining, evaluating, and training of its personnel, and even had a supervisor on-site in BFI’s recycling facility. The union, however, argued that BFI’s control over LeadPoint makes it a joint employer, because BFI exercised control over certain terms and conditions of employment of LeadPoint employees. By a 3-2 vote, the NLRB agreed.

In a strong dissent, NLRB members Philip Miscimarra and Harry Johnson argued that the change was “the most sweeping of recent major decisions.” According to Miscimarra and Johnson, “this change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have [and] to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements.”

“The principle change is that the NLRB is now going to give a greater level of weight to the documentation that the contracting parties create, whereas in the past the board did not focus nearly as much on the parties’ agreements.”
Richard Reibstein, Partner, Pepper Hamilton

Unlike an unfair labor practice case, where unhappy parties can take the NLRB to court, a representation case like Browning-Ferris that involves union organizing cannot be appealed. Rather, the next step is an election proceeding, where employees vote whether they want a union.

The only way the NLRB decision might ever see the inside of a courtroom is if the Teamsters win that election, and BFI and LeadPoint refuse to negotiate anyway—which creates the unfair labor practice needed to go to court. Even then, the NLRB’s federal jurisdiction is so broad, Birenbaum says, “that even if one federal circuit court of appeals doesn’t agree with it, its rules continue to apply in the other circuits, unless the U.S. Supreme Court overrules it.”

The ruling is the latest skirmish in a broader battle about companies’ responsibilities for people who work for them. The other big battle raging right now is against Uber, the hugely disruptive online car-booking service. At the end of August a federal judge granted class-action status to several Uber drivers, who claim that even though Uber considers them independent contractors, it controls enough of their operations that they should be classified as employees.

While Uber and BFI have very different facts to their cases, they both get to the fundamental question of how workers should be treated in the “gig economy” peopled with contractors, part-time workers, temps, and the like.   

Business Risks

Since the decision effectively expands the outer limits of the corporate culture compliance officers must worry about, it’s likely to force a rethinking of how companies protect brand image, address risk, and oversee culture through training and compliance oversight.

“You’re going to have a take a hard look at, ‘What are we controlling in our contingent workforce? What things do we have to control for regulatory reasons or for bona fide corporate compliance reasons? What do we want to control because it just helps us maintain our brand image?’ ” says Rebecca Bernhard, of counsel with law firm Dorsey & Whitney.


Below is an excerpt from the National Labor Relation Board’s decision in Browning-Ferris of California.
Our aim today is to put the Board’s joint-employer standard on a clearer and stronger analytical foundation, and, within the limits set out by the [National Labor Relations] Act, to best serve the federal policy of “encouraging the practice and procedure of collective bargaining.”
Today, we restate the Board’s joint-employer standard to reaffirm the standard articulated by the Third Circuit in Browning-Ferris decision. Under this standard, the Board may find that two or more statutory employers are joint employers of the same statutory employees if they “share or codetermine those matters governing the essential terms and conditions of employment.” In determining whether a putative joint employer meets this standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. If this common-law employment relationship exists, the inquiry then turns to whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.
Central to both of these inquiries is the existence, extent, and object of the putative joint employer’s control. Consistent with earlier Board decisions, as well as the common law, we will examine how control is manifested in a particular employment relationship. We reject those limiting requirements that the Board has imposed—without foundation in the statute or common law—after Browning-Ferris. We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.
As the Supreme Court has observed, the question is whether one statutory employer “possesse[s] sufficient control over the work of the employees to qualify as a joint employer with” another employer. Nor will we require that, to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status.
The Board’s established presumption in representation cases like this one is to apply a new rule retroactively. Applying the restated joint-employer standard here, we reverse the Regional Director and find that the Union established that BFI and Leadpoint are joint employers of the employees in the petitioned-for unit.
Source: NLRB.

Birenbaum agrees. “They have to take a look at their business model insofar as it involves contracting, sub-contracting, outsourcing, and the use of contingent workforce companies and suppliers, and address the risk,” he says.

That’s going to require a review of contracts, Birenbaum notes, and an examination of operational practices:

How do you supervise those with whom you contract?

What are your contracts?

What documents do you review on a regular basis?

How do you control the contractor?

What aspect of that control would trigger a joint employer examination?

“They also have to look at whether the contracting community essential to the business is unionized and the risk that they would be drawn into bargaining,” Birenbaum adds. “They have to have a plan for how they would engage in that activity.”

In some cases, companies do need to exercise a certain amount of control for bona fide compliance reasons, Bernhard says. For example, a loan-processing company might need to rely on a staffing agency to hire additional loan processors during the holiday season, when the volume of customers who need loans temporarily spikes.

Such temporary hires will have access to sensitive data, so “you’re absolutely going to want those temporary employees to go through the same type of high-level background checks for white-collar crime as you do the rest of your workforce,” Bernhard says. “That’s a legitimate exercise of control in certain types of industries or certain types of workplaces.”

Contractual Arrangements

At the least, employers will need to review the language in their contractual arrangements to “relinquish the control that the NLRB will now use as a hammer to nail down more joint employer relationships,” Reibstein says. “The principal change is that the NLRB is now going to give a greater level of weight to the documentation that the contracting parties create, whereas in the past the board did not focus nearly as much on the parties’ agreements.”

Prior to this new NLRB test, many companies have language in their franchise agreements and contractual arrangements where they reserve many rights to control employee terms and conditions of employment. “The words in those agreements are now going to be thrown back in the face of the companies that drafted them,” Reibstein says.

Even if an employer doesn’t exercise any of its rights in the contractual arrangement, it could still qualify as a joint employer simply because of the language used. “Re-documentation and reimplementation of the relationship between these companies and the contracting parties is a must,” Reibstein says.