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Franchise Parents, Staffing Firms Ruled Joint Employers Under Labor Law

More companies may be held responsible for labor-law violations committed by contractors and forced to negotiate wages and benefits with their workers under a decision by a politically split U.S. labor board.

The National Labor Relations Board, in a closely watched case, on Thursday unveiled a new standard for determining which companies are “joint employers” of workers paid by another business such as a franchisee or contractor.

Previously, employers were responsible only if they had direct control over working conditions. The standard, in use for three decades, is “increasingly out of step with changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships,” the board ruled.

The case involved a Teamsters organizing drive of employees at a staffing facility who were working in a recycling facility owned by Browning-Ferris Industries Inc., a Houston-based waste management company. The case drew attention from labor, businesses and Republicans in Congress, who vow to try to block the panel’s decision.

The decision will be applied in separate cases pending against McDonald’s Corp. in which the labor board’s general counsel has accused the restaurant chain of labor violations at its franchisees.

Temporary Employment

The board cited a rise in temporary employment in its decision. Almost 2.9 million Americans had jobs through temporary agencies in 2014, or 2 percent of the workforce, up from 1.1 million in 1990, the board said.

The NLRB’s change means that companies that have the power to influence the conditions of workers through contracts or franchise agreements may be deemed joint employers. Business groups said now companies would become less efficient by tying them more directly to their contractors or other businesses that are now a step removed.

The International Franchise Association, a Washington-based business group, said the decision is a “seismic shift” in labor law.

“If allowed to go into effect, the impact of this new joint-employer rule would be sweeping and widespread, create havoc for the franchise industry and, ultimately, would inflict serious damage to our nation’s economy,” Steve Caldeira, the group’s chief executive, said in a statement.

‘Unprecedented’ Obligations

The decision was derided by the board’s two Republicans, who wrote a 29-page dissent — eight pages longer than the opinion — saying it will “subject countless entities to unprecedented new joint-bargaining obligations.”

The three Democrats said the Republicans’ dissent was “long and hyperbolic,” and misstates the standard “and grossly exaggerates its consequences.”

Chuck Cohen, an attorney at Morgan Lewis in Washington and former member of the board, said the standard is likely to be challenged in court.

“This doctrine is so far-reaching, I’m assuming it will end up in the Supreme Court,” Cohen said.

The NLRB decided to move away from criteria used for three decades in a case involving Browning-Ferris and the Teamsters union trying to draw the company to the negotiating table along with a staffing company, Phoenix-based Leadpoint Business Services.

The board found Browning-Ferris was a joint employer.

Wilma Liebman, a former head of the labor board who advocated for the new standard, said shifts in the workforce threatened to make basic protections provided by labor laws “illusory.”

Often the company with deeper pockets that hires a subcontractor sets conditions of employment through a contract, she said. These companies should be at the bargaining table, she said.

“The nature of employment and the nature of the economy has changed a lot,” Liebman said in an interview.

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