NLRB Rules in Favor of Teamsters in ‘Joint Employer’ Case

The National Labor Relations Board has provided unions with a variety of favorable rulings during the Obama years, but perhaps none as dramatic as one last Thursday. On August 27, the NLRB, in a 3-2 vote, concluded that Browning-Ferris Industries (BFI) of California Inc. qualifies as a “joint employer” alongside another firm, Leadpoint Business Services, with which it had contracted to handle labor operations at a Bay Area recycling plant. As such, both companies must negotiate with a Teamsters affiliate should the results of a representation vote last spring reveal a union victory. The ruling could force many large employers to the bargaining table over labor issues which they have little or no direct control, while sharply raising business costs for contractors, franchisees and temp agencies. And it isn’t just the Teamsters who are rejoicing.

Union Corruption Update analyzed this case at length in July 2014 in the context of the changing U.S. labor market. Increasingly, the article noted, employers consist of third-party contractors, franchisees and self-employed individuals. In certain industries, such as fast food and administrative services, major employers now usually farm out personnel functions to outside firms. A recent report by software maker Intuit projected that by 2020 more than 40 percent of the nation’s workforce will consist of subcontractors, freelancers and temporary workers. Such arrangements are mutually advantageous to management and labor. Employers can reduce labor costs by hiring someone else to set standards for wages, benefits, recruitment, training, safety and discipline. Employees can achieve more flexibility in planning careers and work schedules.

Unions, by contrast, don’t make out so well. That’s why they’ve been trying for years to block employment outsourcing. Labor officials see the practice as an evasion of collective bargaining responsibility. As they see things, if a Wendy’s or a Burger King franchisee sets wages and benefits for its employees, then the Wendy’s or Burger King corporations as well as the franchisee must be included in negotiations. A less benign motive for the unions’ position is that their leaders are fully aware that major nonunion employers have deeper pockets than their franchisees, contractors or staffing consultants; thus these employers are likely to make extra concessions in order to avoid a strike. By persuading the NLRB to broaden its definition of a “joint” or “dual” employer, unions can generate more members, money and bargaining power.

For some three decades, the National Labor Relations Board had been reluctant to redefine dual employer status in a manner favorable to the unions. In a pair of precedent-setting 1984 cases, TLI Inc. (271 NLRB 798) and Laerco Transportation (269 NLRB 324), the NLRB ruled that a company must exercise “direct and immediate” control over the workplace in order to qualify as a dual employer. Several times the board upheld this precedent. But under the Obama administration, with its 3-to-2 Democratic Party (i.e., pro-union) built-in majority, unions saw renewed possibilities for a broader definition. What was needed was a union to test the waters.

Sanitary Truck Drivers and Helpers Local 350, an affiliate of the International Brotherhood of Teamsters in the San Francisco-Oakland area, saw an opportunity. The Daly City, Calif.-based union had organized employees at the Newby Island recycling plant in nearby Milpitas. Browning-Ferris Industries of California owned the plant. In addition to employing about 60 workers at the facility, mainly equipment operators, BFI has been contracting with Leadpoint Business Services to employ around 240 temporary workers for entry-level positions such as sorters, screen cleaners and housekeepers. But Browning-Ferris does not have direct and immediate supervisory control over the latter group of workers. It does not set wages or benefits nor does it establish safety, training, disciplinary and other rules. As those responsibilities belonged to Leadpoint, only Leadpoint had to bargain in the event of becoming unionized. The union didn’t like that. It wanted BFI at the bargaining table as well, even if none of BFI’s employees belonged to the union or even expressed a desire to belong.

In an effort to corral BFI, Local 350 filed suit with the NLRB’s Oakland Regional Office. In August 2013, Regional Director George Velastegui ordered a representation election. The election was held in April 2014. Including BFI in the negotiations, however, would require not just an election victory, but also an NLRB redefinition of labor law. The effort at first was unsuccessful. Based on the evidence, Velastegui declared that BFI and Leadpoint were not dual employers. And he ordered all ballots impounded.

The union promptly appealed to NLRB headquarters, confident the board would overturn the regional director’s decision. Its confidence was justified. For one thing, the board, as custom would have it, now had a 3-2 majority reflecting the political party (i.e., the Democrats) in power. In addition, NLRB General Counsel Richard Griffin in July 2014 submitted an amicus brief recommending that the board apply a broader standard for defining a joint employer. At the time, his office was investigating numerous reports of unfair labor practices at various McDonald’s restaurants. That December, NLRB adopted such a standard in filing 13 complaints against McDonald’s Corp. and corresponding franchisees. These cases are set for hearings this fall. The general counsel’s opinion, while not directly related to Leadpoint, had the potential to work in favor of the Teamsters. And it did.

Last Thursday, August 27, the NLRB ruled 3-2, along party lines, that BFI of California Inc. had exercised sufficient control over the hiring, firing, scheduling and other aspects of personnel to qualify as a joint employer. Voting in favor were Chairman Mark Gaston Pearce and Members Kent Hirozawa and Lauren McFerran, each a Democrat; voting against were Members Philip Miscimarra and Harry Johnson, each a Republican. The majority reasoned that while BFI’s control over employment at the Newby Island recycling plant was not “direct and immediate,” it constituted control all the same. The NLRB issued the following statement:

The revised standard is designed to better effectuate the purposes of the Act in the current economic landscape. With more than 2.87 million of the nation’s workers employed through temporary agencies in August 2014, the Board held that its previous joint employer standard has failed to keep pace with changes in the workplace and economic circumstances…

In its decision, the Board found that BFI was a joint employer with Leadpoint, the company that supplied employees to BFI to perform various work functions for BFI, including cleaning and sorting of recycled products. In finding that BFI was a joint employer with Leadpoint, the Board relied on indirect and direct control that BFI possessed over essential terms and conditions of employment of the employees supplied by Leadpoint as well as BFI’s reserved authority to control such terms and conditions.

Pursuant to this decision, the NLRB ordered the counting of the impounded ballots within 14 days and (given a majority worker vote in favor of union representation) the certification of Local 350 as a collective bargaining agent.

Under the new NLRB standard – which the board majority insists is a revival of the pre-1984 standard contained in a 1982 decision by the Third Circuit Court of Appeals (also involving Browning-Ferris) – the test for determining joint employer status is whether a major employer has the potential, or “reserved authority,” to exercise control over the workplace. In other words, even if the potential is not exercised, it remains present. Measuring reserved authority must take into account factors such as who holds the power in a business relationship and which unions have the best ability to negotiate. It’s a highly subjective judgment call. Further undercutting the ruling is the basis for the claim by the Teamsters that BFI exercised direct control over the workplace. The evidence, if it can be called that, was one instance in which BFI complained about Leadpoint employees drinking whiskey on the job and another in which a Leadpoint employee destroyed a BFI paperwork box. Aside from the fact that these examples, taken in isolation, hardly constitute direct control, the question arises: Why shouldn’t BFI punish such behavior? Hard liquor and heavy machinery aren’t exactly a good mix when it comes to promoting workplace safety. And property destruction, the last time one checked, is a crime.

Even if the evidence were more substantial, the case for the new standard would be shaky. The scathing 28-page dissent by NLRB Members Miscimarra and Johnson explains why. For one thing, the NLRB majority likely exceeded its statutory authority. “The Board is not Congress,” the pair wrote. “It can only exercise the authority Congress has given it. In this instance, our colleagues have announced a new test of joint-employer status based on policy and economic interests that Congress has expressly prohibited the Board from considering.” In addition, they noted, the new standard may have any number of highly unintended consequences. “Under the majority’s test,” the dissent read, “the homeowner hiring a plumbing company for batheroom renovations could well have all of that indirect control over a company employee! We suppose that our colleagues do not intend that every business relationship necessarily entails joint employer status, but the facts relied upon here demonstrate the expansive, near-limitless nature of the majority’s new standard.”

Unions and allied groups, needless to say, are buoyed by the NLRB ruling. They see it as especially good news for fast food workers; in that industry, restaurant outlets for the most part are franchise-owned. Ron Herrera, director of the Teamsters Solid Waste and Recycling Division, remarked: “Today’s decision is another step to show that companies can no longer claim they are not employers when problems arise. Instead of pointing fingers if a worker gets hurt, companies will now be accountable.” Jobs with Justice, a nationwide union-supported nonprofit coalition founded in 1987 and a key figure in the movement for a $15-an-hour minimum wage, welcomed the ruling: “Big corporations have long benefited from crafty arrangements that allow them to profit off of the work of the men and women who wear their logos and sell their products, all while shirking their employment responsibilities. The NLRB’s decision to modernize the joint employment test will help better ensure that Americans can realize their right to meaningful negotiation with their real bosses in order to secure better wages and livelihoods.” And Fast Food Forward, a nonprofit project of the Service Employees International Union, for months has been making the case for expanding the dual employer classification as part of its “Fight for 15” campaign to raise the minimum wage to $15 an hour.

Employer groups, which anticipated this ruling from the start, now are vowing to fight it. International Franchise Association (IFA) President Steve Caldera explains: “The Board’s tortured analysis will undoubtedly be met with skepticism and will be rejected by local franchise owners, legislators and, ultimately, the courts. IFA and its allies are asking Congress to intervene to halt these out-of-control, unelected Washington bureaucrats to reserve the established joint employer standard.” The association won’t lack for allies. Immediately following the decision, Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, said he would “roll back” the NLRB’s action. And Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander, R-Tenn., stated that he plans to introduce a bill that would “invalidate” the ruling.

The IFA believes that by forcing major employers to adopt a one-size-fits-all approach to establishing workplace standards, franchisees lose flexibility. Jania Bailey, an IFA board member and CEO of the consulting firm FranNet, put it this way: “If this goes into effect then the franchisor has to step in and have a standard for hiring, human resources, payroll, everything. It basically nullifies this independent business model.” Beth Milito, senior legal counsel for the National Federation for Independent Business (NFIB), argued similarly: “Many thousands of Americans make a living as subcontractors, and this is a direct threat to them,” she said. “They want the independence that comes with being their own boss and they want the potential for growth. All of that goes away if there are no longer any regulatory or financial advantages in hiring subcontractors.” The IFA, NFIB and other groups have formed the Coalition to Save Local Businesses in an effort to persuade Congress to overturn the NLRB ruling.

These and other critics emphasize the hindrances posed by the ruling to the future of entrepreneurship. Successful startup companies, in fact, typically depend heavily on independent contractors. The mobile app-driven urban taxi service, Uber, headquartered in San Francisco, has come to serve millions of customers seeking an alternative to high-priced standard cab service. In a relatively short time, it has created about 200,000 full- and part-time jobs for contract drivers in more than 300 cities around the world. Two Men and a Truck is another example of rapid startup growth via farmed-out work. The Lansing, Mich.-based moving van company has been able to offer lower rates for customers largely due to its emphasis on franchising. Writing in the current (September 7) issue of The Weekly Standard, Andrew Wilson, a resident fellow at the St. Louis-based free-market Show-Me Institute, observes: “If the NLRB ruling becomes law, the ‘joint employer’ standard will collapse a longstanding set of complementary incentives. It will subject franchisers to almost unlimited risk and to franchisees’ ability to act on their own in making decisions critical to running their businesses on a profitable basis, including the setting of wages and benefits and hiring, firing and disciplinary matters.” Well, it looks like the deed has been done.

One aspect of this controversy that has gotten all too little attention is the fact that contract workers in urban areas, especially for temporary work, disproportionately consist of first-generation immigrants, legal or otherwise, from Third World countries. This is not a coincidence. Such workers tend to work for wages and benefits at levels far lower than what most Americans are willing to accept. And many are unaware of their rights at work. Employers prefer this arrangement because it minimizes labor costs. Unions like it because they have a more fertile ground for recruiting members and political activists. Unfortunately, the American people as a whole lose out, something I noted at length in a 2006 NLPC Special Report. As low wages usually are inadequate to fully cover household bills, unions, rather than support a high-wage, low-immigration policy (as once upon a time, they did), advocate further enlargement of the welfare state in the form of Earned Income Tax Credits, food stamps, Medicaid, housing subsidies and other means-tested forms of anti-poverty aid. In today’s America, few things are as expensive as cheap labor.