Companies often hire other companies to provide labor services. As an example, a distribution warehouse may hire a staffing company to provide additional workforce during the busy holiday season. In this arrangement, the workers are employees of a different company from the company for whom the work is being performed.
In another example, while McDonald’s, at the corporate level as franchisor, benefits from the activities of its franchised restaurants, the individual franchisee restaurants are the companies that hire staff to perform the work in the restaurant.
Last week, the National Labor Relations Board (NLRB) made a cornerstone decision that could upend the way in which the law views employer-employee relationship, between companies, contractor companies, and contracted employees.
For the past three decades, the standard used by the NLRB to determine whether an employer-employee relationship existed was whether the company for which work was performed had direct and immediate control over the persons working on the job.
If the company for which work was performed was found to have direct and immediate control over the workers, even if those workers were hired, paid and managed by a separate contractor, both the contractor company and the company for whom work was being performed would be considered joint-employers.
If the company for which work was being performed did not exercise direct and immediate control over the workers, the contracting company was the sole employer over those companies, and the sole entity responsible to ensure that employment practice standards were being maintained.
Under the new “Browning-Ferris” decision of the NLRB, it was determined that the standard test for whether an employer-employee relationship existed should instead be whether or not the company had the potential to control wages and working conditions, regardless of whether the company does indeed exercise that potential control.
An effect of this ruling is that the company who hires a labor contractor to provide personnel to conduct work, may more easily be determined to be a joint employer of those personnel, along with the labor contractor, but may in fact have no interaction or control over the subject employees, but only the potential to exercise control.
This decision is employee-friendly, and is intended to increase protections afforded to employees. This decision’s interpretation of the law is made with the intention of preventing certain situations in which workplace standards are not adequately maintained, and adherence to labor law standards are not complied with. Businesses who use contract labor, or franchisors whose franchisees hire employees, may face greater employment liability exposure.
The National Labor Relations Act, for which the NLRB is the quasi-judicial body, does not cover government employees, independent contractors or most supervisors.
While the NLRB is not a court of law, it interprets and enforces the National Labor Relations Act; this decision does not change the law, but it reflects a change in the NLRB’s interpretation of the law and their corresponding change in application to employers.
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