The Falling Sky and the NLRB Ruling on Co-Employment
On August 27, 2015 the NLRB majority broadening the standard by which an organization may be found in a joint-employment relationship with their contractor. In short, previous recent rulings by the board required the reputed joint-employer to exercise the authority and such control needs to be exercised “directly and immediately.” Now the new ruling considers indirect control:
“If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status.”
The dissenting opinion argues that the majority goes to far:
NLRB Opinion Documents“Our fundamental disagreement with the majority’s test is not just that they view indicia of indirect, and even potential, control to be probative of employer status, they hold such indicia can be dispositive without any evidence of direct control.”
But what does this “If otherwise sufficient” test mean to you and what factors of “indirect control” will tip the scale to establish a joint-employer status?
These are hard questions to answer and most likely will spawn a few lawsuits and perhaps even a Supreme Court decision.
Should you be concerned? Yes.
Is it the end of days for contractor relationships? No.
The media has various comments on the ruling:
The New York Times ArticleThe decision could threaten the business model of staffing agencies and other firms that provide their customers with temporary workers, business groups say.The Wall Street Journal Article
The ruling from the National Labor Relations Board will ripple through the fast-food, construction and other industries that rely heavily on contract workers and employees of franchisees. Previously, such companies were considered by law to be a step removed from many of their workers when certain labor disputes arose.
Existing Contracts Should Be Reviewed
However, like any evolving standard or law, corporations will adapt to this shift. Existing contracts that were drafted with the narrower NLRB rulings in mind should be revisited for unnecessary language pertaining to contractor employees. Importantly, task-based buying specifications and RFP terms are likely hard coded toward a co-employer finding as the majority explains:
For example, one employer sets wages and hours, while another assigns work and supervises employees. . . . Or employers may affect different components of the same term, e.g. one employer defines and assigns work tasks, while the other supervises how those tasks are carried out.
The majority opinion gives some guidance on this issue. Broadly contract language covering “those matters governing the essential terms and conditions of employment” should be reviewed. Initially this analysis should look to common law – specifically Restatement (Second) of Agency §2(1) paraphrased below:
In determining whether one acting for another is an employee or an independent contractor, the following matters of fact, among others, are considered:
- The extent of control which, by the agreement, the employer may exercise over the details of the work
- Whether or not the one employed is engaged in a distinct occupation or business
- The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervisior
- The skill required in the particular occupation
- Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work
- The length of time for which the person is employed
- The method of payment, whether by the time or by the job
- Whether or not the work is a part of the regular business of the employer
- Whether or not the parties believe they are creating the relation of employer and employer
- Whether the principal is or is not in business.
Beyond this review, if a common-law relationship exists, you are wise to analyze if you have sufficient control over “essential terms and conditions of employment to permit meaningful collective bargaining.” The key difference is that “control exercised indirectly” will be evaluated seemingly with equal weight to your having actually exercised that control. Even if you take no action; but, are contractually able to create worker accountability or employment circumstances, you could be found to be a co-employer. So what should you do?
A review of your current contract would be prudent with legal council to understand the risks you currently have and if there are ways to restructure the contract language to accomplish the same result “a clean facility” for example without specific task-based control language.
As an example, many cleaning contracts specify the tasks and frequencies to be performed as a contractual “specification” and RFP terms. We have seen some contracts that go into fine detail about each task that needs to be done and the labor, products and equipment that MUST be used. This is a high risk strategy in light of this ruling.
In contrast, a performance-based contract does not specify the tasks but focuses on the results required. In this approach, it is the service provider who designs the service system and the employee control factors. While there is no guarantee that a performance based contract will insulate you from co-employment – many other factors will need to be evaluated, a performance based contract is a major step toward mitigating your co-employment risks.
Download our Performance Based Contracting WhitepaperIn the BFI test case (the company held by the NLRB majority to be a co-employer) there were many contractual (specifying a cap on hourly wages) and also direct and immediate control examples of actions taken by BFI to train and in some cases facilitate the dismissal of the contractor’s employees.
For more details download the majority and the dissenting opinion here:
At Elliott, we have been writing and managing performance-based contracts for over 40 years. Please give us a call to discuss your contract situation and how a Performance-Based strategy may help.