Using a staffing firm or contractor to outsource tasks can be a great way to fill gaps in your workforce without the hassle of hiring a full-time employee. But which is the rightful employer of these outside workers: the third-party firm or the company that hires them? The National Labor Relations Board (NLRB) says the answer is both.
When two or more associated companies employ the same staff members, and have control over the tasks and employment conditions of those workers, they are considered joint employers. In late August, the NLRB issued a decision that redefined the standard for determining joint employer status, which had been in place for more than 30 years. According to the official NLRB release on the decision, the previous standard "has failed to keep pace with changes in the workplace and economic circumstances," with nearly 3 million of the nation's workers employed through temporary agencies as of August 2014.
The NLRB's decision came as a result of a case involving Browning-Ferris Industries (BFI), a California-based recycling facility that used temporary workers from a company called Leadpoint. Leadpoint employees performed different tasks than BFI's regular employees and were supervised, hired and fired by on-site Leadpoint management and HR representatives. However, because BFI subjected Leadpoint's hiring decisions to its own criteria and reserved the right to dismiss temporary workers, the NLRB found that the two companies were, in fact, joint employers. Further background on the case can be found on Employer Law Report.
What changed with the decision?
Before the August ruling, joint-employment status was determined based on whether the primary employer — the one whose operations are reliant on shared employees' day-to-day work —actually exercised "direct and immediate" control over the workers' daily tasks, scheduling, hiring/firing, etc. Now, it's not just whether control is exercised, but whether a company has the authority to exercise control, said Steve Ensor, partner and leader of Alston & Bird's labor and employment group.
"When you change that, you expand the circumstances and situations in which the board will find a joint employer," Ensor told Business News Daily. "For primary employers, [you have to consider], how [to] manage your relationship with the third party and the potential liabilities that come with being joint employers. Now you're not just responsible for compliance with your own employees, but also now what were historically employees of another company."
The decision could also have an impact on franchisors, depending on what powers their franchise agreements grant them over the way franchisees run their daily operations and manage their staff.
The updated standard also means stronger grounds for workers to organize unions that represent workers at both joint employers. This means employees can bargain directly with either or both companies, and larger companies will have more resources to give unionized workers what they want.
"For example, a union that represents drivers at a bus firm contracted out by Apple and bargains only with the shuttle company might now, under the NLRB ruling, have stronger grounds to demand a seat at the negotiating table with the tech firm itself," author Cole Stangler wrote in an International Business Times article. "It also gives a boost to the unorganized workers toiling away at subcontractors, since the larger employers want to avoid the risk of racking up unfair labor practice charges."
Although no official statements or rulings on joint employment have been issued by the U.S. Department of Labor or the Occupational Safety and Health Administration, Ensor noted that the NLRB's new standard could be adopted by these government organizations, which would mean wide-reaching changes to labor and employment laws.
What are the consequences?
As joint employers, both companies have legal obligations to their shared employees, such as entering collective bargaining agreements; resolving disputes, strikes and work stoppages; and renegotiating contracts, Ensor said. If you don't honor these obligations — even if you're not aware you have them — your company could be found in violation of the National Labor Relations Act.
Stangler noted that the most likely scenario would be complaints about unfair labor practices, which can cover "anything from bosses interfering with free and fair union elections to retaliating against employees who speak out about scheduling practices."
"These violations can also come with monetary penalties, like compensation for employees found to be illegally fired or demoted," Stangler wrote in the IB Times article.
What should small businesses do?
If your company is one of the thousands that use staffing firms and other third-party companies to outsource some of your operations, now is the time to examine the way you're doing business with them.
"The new joint-employer standard should cause every employer to review its contracts and relationships with staffing companies [and] outsourcing partners ... to identify and assess legal risks and to take immediate action to mitigate or eliminate those risks," Ensor said.
For outsourcing relationships in particular, Ensor advised companies who want to avoid joint employment to focus on ensuring that you don't interfere with the hiring and firing of the third-party firm's employees.
"As long as the contractor doesn't violate laws, it should be none of your business who they hire and fire," he said.
With staffing firm workers, be sure you specify the functions they'll be performing and the length of the job, which should be a relatively short and defined period of time.
"Look at whether you're properly using staffing services," Ensor said. "Should you hire more of your own employees to do these services, and use temps for truly temporary work?"
It's important to note that the ruling could very well be appealed and overturned, and the standard could revert to what it was. In addition, just weeks after the ruling, the House and Senate labor committees introduced a bill to undo the changes. The bill is still pending in Congress at present. In the meantime, small businesses should follow updates from the NLRB.