Fasman adds that it is “unclear” what is meant by “indirect control or reservation of such control.”

“What is clear is that the NLRB will no longer make its ruling based upon the actual degree of control that has been exercised by one business over another business's employees,” Fasman explained.

Also, Fasman predicts the ruling will be appealed. If it withstands the appeal, “a significant number of business relationships may inveigle a business in the labor affairs of another business with whom it contracts.”

When asked about its significance for general counsel, Fasman said the NLRB was correct “that subcontracting of various business functions has become far more common over the years, and corporate general counsel now must be sensitive to the possibility that such relationships – whether they involve franchisor/franchisee structures or direct subcontracting of certain work, which was the case in BFI itself – do not result in a joint employer finding.”

A business can become liable for another employer's unfair labor practices, under the ruling. It could also “force that seemingly neutral employer into a bargaining relationship with a union,” Fasman said.

He recommends that commercial contracts be clear that one business does not retain indirect control over another company's workers. They also need to be clear that the first business does not reserve control.

When asked what sectors may be most at risk with the new ruling, Fasman said that “any business that subcontracts some of its operations.” He cites the example of a business that enters into a commercial contract with a security company. It is “exposed to a heightened risk of being found a joint employer under this ruling,” he adds.

Similarly, Steve Bernstein of Fisher & Phillips said, “Virtually any employer that leases or otherwise secures labor from third party contractors is now at substantially increased risk of joint employer status as a result of the Board's BFI decision.”

• Franchises, which traditionally assume “the separateness of franchisor and franchisee,” Larkin said.
• Outsourcing, such as a hospital or university that outsources janitorial work to a cleaning contractor. The university of hospital could be considered a joint employer of the janitors if it “reserves the right to limit the number of janitors performing the work; to limit the number of overtime hours performed; to inspect work; or even to terminate the cleaning contract altogether,” Larkin said.
• Private equity. “Firms that acquire portfolio companies and then participate actively in the management of those companies may fall victim to the standard if, for example, they dictate terms like benefit plans, company headcount, or even such fundamental decisions as whether to move or close a facility,” Larkin said.

As a result, Larkin recommends that general counsel at financial institutions, private equity firms, hospital systems or universities (or a company that provides them with subcontracted services), or commercial real estate developers, need to study the decision and its potential impact.

Inside Counsel