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The government just redefined what it means to be an employer. It's a huge deal.

Unions have scored a huge victory from this NLRB decision.
Unions have scored a huge victory from this NLRB decision.
Getty Images

On Thursday, the National Labor Relations Board issued what observers are already calling its most significant ruling in 35 years. It ruled that the company Browning-Ferris Industries of California is a "joint employer" of workers it hired through a temp agency. The company had contended that the fact that the workers were directly employed by the temp agency, a contractor, meant that it could not be considered their employer for the purpose of unionization. NLRB rejected that reasoning.

Browning-Ferris is not super important as a company. But the NLRB's reasoning opens the door for labor organizing in industries that had previously been resistant. Big franchisers like McDonald's could be targeted. So could big non-unionized government contractors like Booz Allen Hamilton. It's too early to say what the ruling's precise implications will be, but if the ruling holds, they could be massive.

The Browning-Ferris decision redefines who technically "employs" many US workers

First, some background: waste management firm Browning-Ferris used Leadpoint, a staffing agency, as a subcontractor at a California recycling plant. The Teamsters union organizing the workers argued that Browning-Ferris and Leadpoint were joint employers. Browning-Ferris disagreed, saying they were not the direct employer. The regional NLRB director sided with Browning-Ferris, ruling that its involvement in the lives of these workers was only "routine in nature" and that therefore it was not a joint employer. The national board overruled that judgment.

The key question in the case was what makes an employer an employer. The current standard is that a secondary company can be judged a "joint employer" if it has "direct and immediate impact" on the worker's terms and conditions — say, if that second company is involved in hiring and determining pay levels.

In an amicus brief, Meghan Phillips, the counsel for the NLRB general counsel (which is something like a prosecutor's office, and operates separately from the board itself) argued that this should be changed to a much broader definition: "if one of the entities wields sufficient influence over the working conditions of the other entity's employees such that meaningful bargaining could not occur in its absence," then the two entities are joint employers, she says. If you need to be at the table in a labor negotiation, then you're an employer.

While Browning did not directly hire, fire, or set pay levels for the Leadpoint employees, it did determine the facility's hours and when overtime would happen, and it also "closely monitor[ed]" the work that was done in the plant, the AFL-CIO argues in its amicus brief.

"What the union says in Browning-Ferris is, 'Look, we want everybody who controls our terms and conditions of employment at the table,'" says Craig Becker, general counsel at the AFL-CIO and a former NLRB board member.

That standard could mean that many contracting companies and franchisers find themselves designated as joint employers of their contractors' and franchisees' employees.

Walmart

Could this NLRB decision change life for Walmart workers? (Getty Images)

That could change how corporations interact with workers

"The general counsel is trying to say that even if, as employer one, I don't directly tell employees what to do, but in effect I am, through employer two, controlling employees, that makes me joint employer," Barbara Fick, associate professor at Notre Dame Law School and a former NLRB field attorney, told us in December.

Now that the NLRB has agreed with that reasoning, big corporations might start to interact with their subcontractors' or franchisees' workers differently, either fully stepping in and becoming more of a hands-on employer or backing off and trying not to fall under the definition of "joint employer."

Businesses, of course, are worried about the repercussions of a decision. In a 2014 letter to the NLRB, the International Franchise Association writes that franchises provide "jobs, opportunities, and extraordinarily positive economic results" for the US, and that a decision that extends to franchises would threaten that.

But labor (and the NLRB general counsel) argues that businesses have increasingly used contractors, temp workers, and franchises as means to escape unionization. As Philips writes in the NLRB general counsel's brief:

Some scholars have posited that franchisors consider avoidance of unionization and the collective-bargaining process to be the "prime advantage of franchising," and "[i]n some cases, the driving force behind the conversion of fully integrated, employee-operated businesses to franchised operations is an attempt to prevent or remove the supposedly harmful effects of unionization and thereby increase profits."

The buffer that these sorts of relationships put between larger companies and workers, labor groups also argue, enable worse working conditions, less transparency, and lower pay.

All of this could eventually trickle down to consumers. As Fisk told the New York Times last year, "if labor costs for franchisees go up, then the price of a Big Mac will go up." And it's not just labor prices that might go up — if businesses are now legally liable for what goes on at their franchises, that means insurance will cost more, which could also bump up prices for consumers.

McDonald's protest

Workers protest at McDonald's in favor of higher wages. (Getty Images)

The ruling could impact a huge segment of the economy

It's hard to know exactly how many workers could be affected by this decision.  But it could be "cataclysmic," according to Michael Lotito, cochair of the Workplace Policy Institute at Littler Mendelson.

"It has a way of upsetting these business relationships and employers thinking they were separate suddenly finding they are combined," says Lotito. "That has just enormous implications for business relationships."

For example, the NLRB general counsel notes that fast-food chains often provide their franchisees with high-tech scheduling software (sometimes called "just-in-time" software) that uses data and algorithms to determine when workers need to come in and for how long. Though restaurants aren't directly telling workers when to work by using that software, the argument goes that it is indirectly directing scheduling by giving franchisees the software, making it a joint employer of those franchises' employees.

Browning could also affect supply-chain relationships, Lotito says, as some companies create contracts with their suppliers that are restrictive enough that they wind up indirectly dictating the terms of employment at the suppliers' workplaces.

Fick uses Walmart as a hypothetical example: "They're so big they can pretty much control how the people they deal with make their stuff. They wield a lot of influence on the people who are actually doing the business," she says. Walmart's terms in its contracts with its suppliers, she says, can heavily influence pay and benefit levels.

"If Walmart is saying, 'We want 20 gazillion shirts, and we're going to pay you X dollars for it,' well what's the effect of that?"

At the very least, the numbers available suggest that the number of people potentially affected by this decision is growing. The number of franchise employees in the US is growing at 2.3 percent per year, and is currently at around 8.5 million, according to the International Franchise Association. Not only that, but as of November, the number of employees in the temporary help industry was growing at an annual rate of 8.5 percent.

The NLRB has leaned toward labor recently

The Browning ruling is the latest in a spate of recent NLRB decisions that have fallen in favor of labor. In 2014, the board made the union election process much speedier (opponents call the new standards the "ambush election" rules) and in a separate case said that employees can organize on workplace email systems. In January 2013, the board ruled that speech on social media is protected speech — in other words, your employer can't ban you from complaining about your working conditions on Twitter.

These actions have angered the business community, causing some to see the Obama-era NLRB as activist.

However, Fick sees a different kind of coherence to these decisions. It's not so much that they're pro-labor as that they're adapting old labor rules to a new world — one in which employees have public conversations about their jobs on Twitter, and also one in which huge corporations increasingly rely on subcontracted or franchise workers.  "As industrial relations change, we have to figure out how to apply the old rules to the new situation," she says.

The NLRB doesn't have the final word

The board's ruling won't necessarily hold. The case could still be challenged in appeals court, and the pro-business DC Circuit Court of Appeals especially has displayed a willingness to overturn NLRB judgments.

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