The Obama administration is redefining what it means to be an employer.
The National Labor Relations Board (NLRB) on Thursday handed down one of its biggest decisions of President Obama’s tenure, ruling that companies can be held responsible for labor violations committed by their contractors.
While the ruling from the independent agency specifically deals with the waste management firm Browning-Ferris, the so-called “joint employer” decision could have broad repercussions for the business world, particularly for franchise companies.
“This decision has broad implications, as it appears to upend decades of settled law defining who the employer is under the National Labor Relations Act,” said Randy Johnson, a senior vice president at the U.S. Chamber of Commerce.
Restaurants could see the biggest changes. Fast food chains such as McDonald’s and Burger King will likely assert more authority over — or even cut ties altogether with — local franchise owners, business advocates say.
At issue in the case was whether Browning-Ferris was responsible for the treatment of contracted employees. The Houston-based company hired Leadpoint Business Services to staff a recycling facility in California.
The labor board determined Browning-Ferris should be considered a "joint employer" with the Phoenix-based staffing agency. As a result, the company can be pulled into collective bargaining negotiations with those employees and held liable for any labor violations committed against them.
The NLRB ruling is a sharp departure from previous decisions that stated companies were only responsible for employees who were under their direct control. Without the power to set hours, wages or job responsibilities, the earlier rulings held, companies could not be held responsible for the labor practices of the contractors.
But the National Labor Relations Board charted a new course Thursday, saying the old standard is “increasingly out of step with changing economic circumstances.”
Labor unions cheered the decision, saying it will help vulnerable workers challenge unresponsive employers.
"Simply put, labor laws in America have failed to keep pace as the workplace has continued to evolve," AFL-CIO President Richard Trumka said in a statement.
The NLFB ruling could affect the growing number of temporary workers and independent contractors who do not receive the same protections as full-time employees.
Rather than hiring their own employees, many companies have grown accustomed to turning to staffing agencies to supply temporary workers or contract with other companies to complete tasks.
The arrangement provides them with less responsibility than for in-house employees, but it can also place those employees in somewhat of a no man’s land. They don’t know who their boss is, because the person who tells them what to do does not pay them.
The NLRB is seeking to end that situation by holding that both companies responsible as joint employers, because they “share or co-determine those matters governing the essential terms and conditions of employment."
Teamsters union General President Jim Hoffa called the ruling a “victory for workers across America."
"Employers will no longer be able to shift responsibility for their workers and hide behind loopholes to prevent workers from organizing or engaging in collective bargaining,” Hoffa said.
The decision is the latest in a string of major victories for labor groups under the Obama administration, which has already issued several sweeping executive actions on worker protections and wages.
The NLRB, which now has a Democratic majority, has also taken steps to make it easier for employees to unionize.
The two Republican appointees on the labor board, Harry Johnson and Philip Miscimarra, dissented from Thursday’s 3-2 ruling.
They argued that “no bargaining table is big enough” for two companies.
"Changing the test for identifying the ‘employer,’ therefore, has dramatic implications for labor relations policy and its effect on the economy,” they wrote.
Business groups had been on the warpath in anticipation of the Browning-Ferris decision.
The National Federation of Independent Business (NFIB), for instance, warned it could “blow up” longstanding business models.
The National Retail Federation (NRF) denounced the ruling as an instance of “unelected government bureaucrats creating roadblocks in the path of job creation.”
“This is further evidence that the NLRB has given up its position as an objective arbiter of workplace issues and sees itself as an advocate for organized labor as a means of imposing new workplace obligations and legal liabilities on well-known corporations,” said David French, the NRF’s senior vice president for government relations.
Companies are already threatening to cut ties with staffing agencies that help recruit temporary workers and subcontractors that provide janitorial and security services because they don’t want to be responsible for another company’s employees.
They say they would rather bring those jobs in-house to establish more control over the situation.
“It will make it much harder for self-employed subcontractors to get jobs,” said Beth Milito, senior legal counsel at the NFIB. “Subcontractors will come under pressure by their clients to change their employment policies or they’ll be cut out of the picture altogether."
Updated at 6 p.m.