News Law and Policy

Workers Get Big Boost in Latest Labor Board Decision

Jessica Mason Pieklo

A ruling last week could open the doors for businesses like McDonald's to be held liable for the unlawful employment actions of its individual franchises.

Organized labor got a big boost last week from the National Labor Relations Board (NLRB) in a decision that expands the definition of “joint employer” and opens the door for workers in franchised industries to unionize.

The NLRB decision could change the way workers negotiate salaries and benefits across industries.

The case involves a California company, Browning-Ferris Industries (BFI), that owned and operated the Newby Island Recyclery, where workers sorted recyclables and mixed waste to be sold to other businesses. BFI employed 60 workers at Newby Island who were represented by the International Brotherhood of Teamsters. BFI then entered into a different labor agreement with Leadpoint, under which Leadpoint provided additional workers to the Newby Island facility.

The Leadpoint workers were not unionized. The Teamsters petitioned to represent the Leadpoint workers, but the NLRB’s regional director determined that BFI was not a joint employer of the Leadpoint workers and thus had no obligation to negotiate with the union.

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Ruling 3 to 2 along partisan lines, the NLRB disagreed with the regional director’s assessment and ruled Browning-Ferris Industries a joint employer.

“It is not the goal of joint-employer law to guarantee the freedom of employers to insulate themselves from their legal responsibility to workers, while maintaining control of the workplace,” the majority from the NLRB wrote. “Such an approach has no basis in the act or in federal labor policy.”

The decision overturns decades of labor and employment precedent created by the business-friendly Reagan-era NLRB.

The ruling will likely apply beyond companies that rely on contractors and staffing agencies to include companies with large numbers of franchisees like McDonald’s and Papa John’s.

Corporations like Papa John’s and McDonald’s employ about two-thirds of the low-wage workers in this country, but have so far mostly avoided liability for the illegal actions of their franchise owners under the theory that, despite sharing a common corporate brand, each franchise is independently owned and operated. Defining a company and its contractors or franchisees as joint employers removes that shield businesses like McDonald’s have relied on to keep organizational costs low at the expense of workers’ wages and benefits.

Labor unions cheered the NLRB decision, saying it will help vulnerable workers challenge exploitative employers and modernize labor laws to reflect the changing economic circumstances of today’s workplace. “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.

Conservative business interests like the Competitive Enterprise Institute (CEI) decried the decision, warning it will have a “devastating impact” on the business community because treating temporary workers as actual employees adds costs to business owners, despite the stability workers gain. According to CEI, this unfairly burdens “innovators.”

“[T]he NLRB’s new standard could force Silicon Valley startups to hire the receptionists and cleaners they currently get from staffing or property management companies,” said Iain Murray, CEI’s vice president of strategy.

Murray added that the decision will crush innovation and the emerging “sharing” economy. “It will adversely impact the innovative sharing economy, where technology has drastically lowered transaction costs, enabling people to come together to share services in novel new business relationships,” he said. “The NLRB has set back the clock 40 years, to an era of corporate giants when few people had the option of being their own bosses while pursuing innovative employment arrangements.”

The NLRB estimates that 2.87 million of the nation’s workers were employed through temporary agencies.

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