The NLRB decision in Browning-Ferris Industries of California (BFIC) creates a vortex of employer liability for outsourcing and placement companies

FEDS SMASH
OUTSOURCING SHELL GAME IN OVERTIME DECISION

Under
the Fair Labor Standards Act (FLSA), any person or entity that had the right to
control the terms and conditions of an employee’s employment duties and
exercised those duties, would be lumped in with the ‘employer’ for liability
purposes in unpaid overtime cases. Think of a class action with multiple
plaintiffs, statutory damages, and attorney’s fees.  Think of the financial pain of being caught
in an overtime violation. Outsource placement companies thought they could avoid
being lumped in with the employer because all they did was select appropriate
employees for their clients, and really did not exercise the right of
control.  But didn’t the act of selecting
and deeming the qualification of personnel to work at a particular job site or
for a client indicate some level of control?
The Feds also scratched their heads on this one, and from up on high
came the Browning-Ferris decision.  This decision
is, at least for now, only an administrative decision, but one that may soon be
adopted by federal courts.
The Golden
Standard for Employer Liability

 

On
August 27, 2015, the National Labor Relations Board revised the standards for
determining joint employer status. The decision, involving Browning-Ferris
Industries of California (“BFIC”), significantly impacts any business model
that relies heavily on outsourcing employees or franchising.
The
Board reaffirmed long-standing principles used to determine whether multiple
entities are joint employers: whether (1) the multiple entities are employers
within the meaning of the common law, and (2) they share or codetermine matters
governing the essential terms and conditions of employment. The Board added a
new wrinkle, however. Prior to the BFIC decision, the Board required that a
joint employer not only possess the authority to control employees’ terms and
conditions of employment, but that it also exercise
that authority.
The Ability to, not
Actual Exercise of Control, Yields Liability.
OK . . . What?

 

The
BFIC decision significantly departed from that standard, stating that “reserved
authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment
inquiry” [emphasis added].  In other
words, even if a business does not exercise direct control over the terms and
conditions of employment of outsourced employees, if it reserves the right to
do so, it is enough to support a finding of joint employment. It is also
apparent that retention of indirect control is enough to meet this standard. In
the BFIC case, the outsourcing firm was responsible for recruiting,
interviewing, testing, selecting, and hiring personnel to work in BFIC’s
facility. Nonetheless, BFIC’s contract required the outsourcing firm ensure
that personnel hired have appropriate qualifications “consistent with all
applicable laws and instruction” from BFIC to perform the general duties of the
assigned position, and that BFIC had the right request that persons hired “meet
or exceed” BFIC’s “own standard selection procedures and tests.” Stated
succinctly, determining employment qualifications can impose joint employer
liability on a business that outsources its employment. Other factors, such as
discipline and termination, scheduling of hours, wages and benefits, and
training and safety, played into the decision as well.

 

The
ultimate key to the decision was the degree of indirect and direct control BFIC
possessed over the outsourced employees, whether the employer exercised control
over terms and conditions of employment indirectly through an intermediary, or
had reserved the authority to do so. As expected, the 3-2 decision broke evenly
across party lines, with the three Democratic board members in the majority.

 

Outsourcing and
Franchisor Dragged In
The
ruling has significant ramifications for employers who rely heavily on
outsourcing firms to manage its workforce and franchisors. Employers who rely
on outsourcing still generally determine the terms and conditions of employment,
requiring certain qualifications for employees. While previously an employer
could stand back and point to the outsourcing firm as the “true” employer,
despite defining many of the terms and conditions of employment, this is not so
after the BFIC decision.

 

We
see this decision affecting various industries, including franchisors.  The application of this new rule will depend
largely upon the degree of control franchisors place on their franchisees.
Franchisors who closely regulate the conditions of its franchisees’ employment
practices may find themselves subject to joint employer liability, while those
franchisors who are less stringent may not. The decision could pose particular
problems for large entities such as McDonald’s, which strictly regulates the
activities of its franchisees at many levels to preserve product and service
quality. McDonalds is, in fact, currently litigating joint employer status
before the NLRB. The BFIC decision does not bode well for the fast food giant.
You Really Need
to Call VLF

 

Employers
and outsourcing companies may “want it their way,” but the BFIC decision may
create greater liability for various companies that insist on which employee is
hired, why they are hired and how they work.
Talk
to the business lawyers and employment attorneys of the Vethan Law Firm, P.C.,
now with offices in Houston, San Antonio and Dallas to discuss how your company
handles employee matters and placement issues.  Visit our web page at www.vethanlaw.com