National Labour Relations board Adopts New Test for Determining “Joint Employer Status”

September 2015

In a ground-breaking decision published on August 27, 2015 (BFI Newby Island Recyclery1) the National Labour Relations Board revisited the test to be used in determining whether two employers should be considered as a “joint employer” for the purposes of applying the provisions of the National Labor Relations Act. In doing so the three member majority (Democratic administration appointees), with a vociferous dissent by the two member minority (Republican administration appointees), restated the standard as follows:

  • Whether a common law employment relationship exists (as opposed to independent contractor status).
  • Whether two or more employers share or co-determine those matters governing the essential terms and conditions of employment.
  • Whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.
  • “Control” may include the “right to control” and not only the actual exercise of control.

The National Labor Relations Board applies three different concepts in determining whether separate legal entities will be considered as the “employer” under the Act: “single employer”, “joint employer” and “alter ego”. A “single employer” will be found to exist where two nominally separate entities are in fact operating as a single-integrated enterprise. The NLRB applies four principal factors in determining whether the various entities constitute a single-integrated enterprise:

  • Functional interrelation of operations.
  • Centralized control of labor relations.
  • Common management.
  • Common ownership or financial control.

To establish the existence of “joint employers”, it is not necessary to demonstrate that the various entities form a single-integrated enterprise. Rather, a finding that companies are “joint employers” assumes that the companies are independent legal entities that jointly share or co-determine matters governing essential terms and conditions of employment.

Two enterprises will be found to be “alter egos” where they “have substantially identical management, business purpose, operation, equipment, customers, and supervision as well as ownership.”

In British Columbia, the Labour Relations Board approaches the issue of employer status in one of two ways. It may determine two or more legal entities to be a “common employer” or it may identify the “true employer” where two legal entities are doing business together. The “common employer” test requires the following2:

  • More than on entity carrying on business
  • The entities must be under common control or direction
  • They must be engaged in associated or related activities
  • There must be a labour relations purpose to make the declaration

The “true employer” test involves the following factors3:

  • The party exercising discretion and control over the employees performing the work.
  • The party bearing the burden of remuneration
  • The party imposing the discipline
  • The party hiring the employees
  • The party with the authority to dismiss the employees
  • The party who is perceived to be the employer by the employees
  • The existence of an intention to create the relationship of employer and employees

The Board will also look at two general questions4:

  • into which organization or undertaking are the employees integrated
  • which organization or undertaking holds fundamental control over the employees

The majority decision in BFI Newby Island Recyclery shows a desire to expand the reach of the “joint employer” determination to cover situations where the putative third party employer has sufficient control (either real control or the right to control) over the essential employment terms of employees to enable the objectives of the National Labour Relations Act (e.g. collective bargaining) to be fulfilled.

The focus of the dissenting opinion, and its objection to the majority decision was based on the conclusion that the “right of control” (rather than the actual exercise of control) would now be a relevant factor in determining joint-employer status.

BFI owns and operates a recycling facility (Newby Island Recyclery) that receives and sorts recyclable waste. BFI directly employed 60 employees, most of whom work outside the facility operating forklifts and other loading equipment. Those employees were represented by the applicant union, Teamsters Local 350, in a separate bargaining unit.

BFI engaged Leadpoint Business Services to perform all of the sorting work within the facility. Workers were provided by Leadpoint pursuant to a temporary labour services agreement. Leadpoint employees worked on conveyers sorting recyclable waste.

With respect to indicia of control over terms and conditions of employment, the majority of the Board made a number of findings:

  • While Leadpoint had supervisors on each shift, BFI supervisors also had responsibility to ensure the productivity of the Leadpoint sorting streams.
  • With respect to hiring, Leadpoint was required to hire employees who “meet or exceed BFI’s own standard selection procedures and tests”.
  • BFI retained the right to reject any employee or to discontinue the use of any personnel “for any or no reason”. A discipline of Leadpoint employees was on occasion prompted by BFI supervisors.
  • BFI compensated Leadpoint for each worker’s wages plus a percentage markup. Leadpoint was precluded from paying a rate increase in excess of BFI employees who performed similar work, without BFI approval.
  • BFI scheduled the facility’s working hours and determined which sorting streams would work overtime. BFI also indicated when sorting streams could stop so that Leadpoint employees could take breaks.
  • BFI determined which sorting streams would run each day and would provide Leadpoint with the headcount required. BFI controlled the speed of the sorting line conveyors.
  • BFI, periodically, provided training and counselling to Leadpoint employees.
  • Leadpoint employees were required to comply with all BFI safety policies and procedures.

The Regional Director had rejected the union’s application for a joint employer determination holding that Leadpoint was solely responsible for determining pay and providing benefits, had sole control over recruiting and hiring its own employees, had sole control over scheduling its employees and that BFI did not control or co-determine the essential terms and conditions of employment.

The Board majority extensively reviewed its jurisprudence since a decision of the Court of Appeals for the Third Circuit in Browning-Ferris5, a 1981 decision which had endorsed the Board’s then standard of determining whether two or more employers “share or co-determine those matters governing the essential terms and conditions of employment”.

The majority determined that subsequent Board decisions had shifted away from that standard, repudiating the probative value of reserved control or indirect control and instead focusing exclusively on the actual exercise of control. The majority held that the “right to control” had previously been a relevant consideration in determining joint employer status. They further held that common law principles supported the concept of shared control where the “user firm” owns and controls the premises, dictates the essential nature of the work and broad operational components of the work while the supplier firm makes specific personnel decisions on a day to day basis. In that sense, both firms exercise two layers of control over conditions of employment and thus “co-determine” them. The majority therefore held that:

The right to control, in the common-law sense, is probative of joint-employer status, as is the actual exercise of control, whether direct or indirect.

Recognising the broad implications of its decision, the majority held that control must relate to “essential terms and conditions of employment”: hiring, firing, discipline, supervision, wages and hours, number of workers to be supplied, determining the manner and method of work performance. As well, they held that “a putative joint employers’ control might extend only to terms and conditions of employment too limited in scope or significant to permit meaningful collective bargaining”.

With respect to the “right to control” the majority distinguished between the right to dictate the results of a contracted service verses the right to affect “the means or manner of employees’ work and terms of employment, either directly or through an intermediary”.

The dissenting opinion provides a strident defence of the Board’s existing approach. It offers a refutation of the majority’s conclusions as to the common law test for control, the majority’s reliance on theories of “economic realities” and “statutory purpose”, points out that courts have afforded a broad deference on the Board’s existing approach, and takes issue with the lack of certainty and predictability of the standard now enunciated by the majority, and the majority’s attempt to correct a perceived imbalance in bargaining leverage. With respect to the last concern, the dissenting members wrote:

This approach reflects a desire to ensure that third parties that have “deep pockets”, compared to the immediate employer, become participants in existing or new bargaining relationships and that they will also be directly exposed to strikes, boycotts and other economic weapons, based on the most limited and indirect signs of potential control.

The dissent warns that the majority’s decision now “fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-sub-contractor, franchisor-franchisee, predecessor-successor, credit-debtor and contract consumer business relationship under the Act”.

The dissenting opinion also singles out a concern that the new test adopted by the majority threatens existing franchising arrangements. Generally, the Board has held that franchisors are not joint employers with franchisees regardless of the degree of indirect control retained. The General Counsel, in his amicus brief to the Board stated that “the Board should continue to exempt franchisers from joint employer status to the extent that their indirect control over employee working conditions is related to their legitimate interest in protecting the quality of their product or brand”. The dissent noted that as a matter of trademark law a franchisor must sufficiently control its licencing program by policing its operations to guarantee the quality of the products sold under its trademark, lest that it be found to have abandoned its mark.

While the BFI decision will cause much debate, and presumably litigation, in the United States it may also have some persuasive effect in Canada. The finding that a joint employer determination will factor in both actual control and the right to control terms and conditions of employment may bolster union arguments that franchisors are “common employers” with franchisees.

The case law in Canada supports a test for common employer (and “true employer”) determination that includes consideration of not only actual control, but also the right to control through the contractual arrangements between the businesses.

For example a 2006 decision6 the BC Labour Relations Board considered a union application to consolidate bargaining units it represented at Shoppers Drug Mart franchisees and to declare the unionized franchisees and the franchisor to be a common employer. The Board held that the franchisee was the “true employer” because it exercised day to day control over key employment terms and conditions, carried the burden of remuneration and was perceived by the employees to be their employer. With respect to the “common employer” issue the Board reaffirmed the factors set out in Re Concerned Contractors Association Group7 for determining the issue of “common control or direction”:

218 The CCAG factors are (1) common ownership, (2) financial control, (3) contractual arrangements, (4) control over labour relations, (5) common management, (6) interrelationship or interdependence of operations, and (6) interrelationship or interdependence of operations, and (7) representation to the public as a single integrated employer or business. The factors are not to be applied as a checklist but rather must be considered as a group.

The Board ultimately determined that the franchisee and franchisor were under “common control or direction” after considering both the “right to control” employment and labour relations, through the franchise agreement and actual control exercised by the franchisor. The Board reviewed its case law on franchise arrangements and held that the “degree of control must be substantial” over terms and conditions of employment and labour relations either through the contractual arrangements or the actual exercise of control, or both.

So, while the legal standard now identified by the majority decision in BFI is consistent with the tests already applied by labour relations boards in Canada, the reasoning of the majority may influence how tests are applied to the facts of a given case.

The majority decision in BFI expressed concern that the test for joint employer determination was not responsive to the changing workforce and the increase in the use of agency workers or contract workers. The most recent U.S. Bureau of Labor Statistics survey from 2005 indicated that contingent workers accounted for as much as 4.1% of all employment, or 5.7 million workers. Employment in the temporary help services industry, a subset of contingent work, grew from 1.1 million to 2.3 million workers from 1990 to 2008. As of August 2014, the number of workers employed through temporary agencies had climbed to a new high of 2.78 million, a 2% share of the nation’s workforce.

The majority’s reasoning that a broader standard was required to address the rights of contingent workers to meaningful collective bargaining under the Act may influence the way in which the existing legal tests are applied in Canada; extending the reach of common employer or true employer determinations. So, while the legal test may not change, the way in which the test is applied might.

This decision is perhaps a foreshadowing of how the NLRB might rule on McDonald’s unfair labour practice cases currently pending before the Board, where McDonald’s USA, LLC, is alleged to have sufficient control over its franchisees’ operations, beyond protection of its brand, to make it a putative joint employer with its franchisees, sharing liability for violations of the NLRA.

1 Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery –and- FPR-II, LLC, d/b/a Leadpoint Business Services, and Sanitary Truck Drivers and Helpers Local 350 International Brotherhood of Teamsters [NLRB, Case 32-RC-109684]

2 Mackie Bros. Sand & Gravel Ltd. (1976), BCLRB No. L107/81

3 York Condominium Corporation, [1977] OLRB Rep. October 645

4 Columbia Hydro Constructors, BCLRB No. B36/94

5 NLRB v. Browning-Ferris Industries, 691 F.2d 1117

6 Re Shoppers Drug Mart Inc. BCLRB No. 112/2006

7 Re Concerned Contractors Action Group, BCLRB No. 32/86