Under New Labor Decision, You May Have to Bargain with Your Service Contractors’ Unions

Business owners should be aware that the National Labor Relations Board (NLRB) recently issued a landmark decision that broadly expands the definition of “joint employers” under the National Labor Relations Act and thereby vastly increases the bargaining power and reach of labor unions generally in the United States.

The impact of the decision will now start to reverberate throughout the economy. For example, if you are a property manager or building owner who subcontracts maintenance services, to the extent you sufficiently (albeit indirectly) control, or reserve the power to control, the terms of employment of the contractor’s (intermediary’s) employees while working at your facilities, you may find yourself under an obligation to bargain with a union that organizes the contractor’s maintenance workers. You would not have the option to simply terminate your contract with the contractor and then refuse to bargain. That would constitute an unfair labor practice, and the union could bring an unfair labor practice charge against you with the NLRB. Further, you could not hide behind your agreement with the contractor, because you may be required to renegotiate that agreement as part of the bargaining process with the union. Of course, you are not obligated to make any concessions in bargaining with the union, but circumstances may dictate otherwise. Furthermore, as a joint employer, the union could picket your business, in an effort to gain public support for its workers and influence public opinion regarding your treatment of employees.

This article provides a guide for the average business owner to understand the changes brought by the recent decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, and FPR-II, LLC d/b/a Leadpoint Business Services, and Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters (Case 32-RC-109684) that will likely affect businesses that have never before needed to think about collective bargaining.

Businesses Have Kept Employees of Staffing and Temp Companies at Arm’s Length

An increasing number of lower-wage workers are employed by staffing or temporary employment companies or as employees of subcontractors for larger, better financed, higher paying companies. These intermediary employers provide services to the end users, normally through written agreements that effectively limit what the intermediary service providers can afford to pay their employees. The agreements typically provide that the workers supplied by the intermediary companies are the employees solely of the intermediaries, and the intermediaries retain the exclusive right to hire, fire and discipline those employees. The end users have thus been able to keep those employees at arm’s length, to shift hiring, firing and other mundane management responsibilities to the intermediaries, and to effectively reduce their costs by indirectly limiting the wages and benefits that are affordable under the agreements in place between the end users and the intermediaries.

The employees of the intermediaries therefore have had little bargaining power, because the intermediary could claim that any wage increases could not be passed on to the end user, who would simply terminate the parties’ agreement and find another intermediary to perform at the lower rate. Thus union organizing among these intermediary workers has been limited, because any concessions that a union might obtain from the intermediary would not necessarily translate into real economic gains, as the union had little (if any) leverage with the end user. So long as the end user did not exercise direct control over the terms of employment of the intermediary’s employees, the end user had no obligation to bargain with a union with respect to the other company’s employees.

Even Indirect Control May Create Joint Employer Relationship

Browning-Ferris of California had such an agreement with Leadpoint Business Services to provide lower level workers who sorted recyclables and performed cleaning services at its recycling plant. Under the NLRB’s prior definition of “joint employer,” as long as Browning-Ferris did not directly exercise control over the terms of employment, such as hiring, firing, discipline and wages, Browning-Ferris of California had no obligation to bargain with a union that purported to represent the intermediary’s employees. The NLRB has revised its definition of joint employers, and in so doing, Browing-Ferris became a joint employer of Leadpoint’s employees. Because Browing-Ferris indirectly controlled the terms of employment of Leadpoint’s employees, such as by setting maximum pay rates, determining shift start and stop times, limiting overtime, establishing safety regulations, controlling the manner and method by which work was to be performed at its facilities, and ultimately reserving the right to approve or disapprove of any worker provided by Leadpoint, Browning-Ferris was deemed to be a joint employer of the intermediary’s employees. In the words of the NLRB,

Where the user firm owns and controls the premises, dictates the essential nature of the job, and imposes the broad, operational contours of the work, and the supplier firm, pursuant to the user’s guidance, makes specific personnel decisions and administers job performance on a day-to-day basis, employees’ working conditions are a byproduct of two layers of control.

As a joint employer, Browning-Ferris became obligated to bargain directly with the union over the terms and conditions of employment of Leadpoint’s employees, notwithstanding anything in its agreement with Leadpoint that absolved Browning-Ferris of any responsibility for those employees.

Service Contract Agreements May Become Obsolete if Union Organizing Becomes More Active

Many companies use staffing agencies or subcontractors to provide certain employees in order to avoid including those employees in the user company’s workforce, and thereby save on wages and benefits. These types of arrangements may become obsolete if union organizing becomes more active and unions begin targeting staffing companies for their organizing efforts. Other service contractors may also be affected. As identified by the dissenting NLRB board members in the Browning-Ferris decision (the NLRB was not unanimous in the decision), the following other types of contractual relationships may possibly be affected by the NLRB’s new definition of joint employers, including: (i) insurance companies that require employers to take certain actions with employees in order to comply with policy requirements for safety, security, health, etc., (ii) franchisors, (iii) banks or other lenders whose financing terms may require certain performance measurements, (iv) any company that negotiates specific quality or product requirements, (v) any company that grants access to its facilities for a contractor to perform services there, and then continuously regulates the contractor’s access to the property for the duration of the contract, and (vi) any company that is concerned about the quality of the contracted services.

Although the dissenting members of the NLRB may have exaggerated the extent of affected relationships, the trend is clearly an expansion of the reach of the National Labor Relations Act. To the extent contractors are accustomed to micromanaging their subcontractors’ work, they may want to reconsider their business practices, revise their vendor contracts, or bring more employees in-house, rather than rely on other companies’ employees.

Ted Goldstock is a business attorney at Lerch, Early & Brewer in Bethesda, Maryland who counsels business owners on a broad range of corporate and commercial law matters, including service agreements with outside contractors. Employment attorneys Julie Reddig and Rick Vernon contributed to this article. For more information about the NLRB decision, contact Ted at [email protected] or (301) 347-1274.