Unions have been campaigning to get McDonald’s to pay higher wages — and to take responsibility for the labor law violations of their franchisees. (REUTERS/Carlo Allegri)

A federal labor board voted Thursday to redefine the employee-employer relationship granting new bargaining powers to workers caught up in an economy increasingly reliant on subcontractors, franchisees and temporary staffing agencies.

The decision by the National Labor Relations Board could upend the traditional arms-length relationship that has prevailed between corporate titans such as McDonald’s and its neighborhood fast-food franchises. And it comes as concerns are growing about a generation of new Internet-fueled business such as Uber and Lyft that depend heavily on independent contractors.

In a case that drew intense lobbying by both business and union groups, Democratic appointees on the panel split 3-2 with Republicans to adopt a more expansive definition of what it means to be an “joint employer," making it more difficult for companies to avoid responsibility through various forms of outsourcing.

In doing so, the panel sided with labor advocates and academics who have described an increasingly “fissured” economy, in which whole industries have been built on business models that offer workers few of the protections of a traditional employer relationship.

“With more than 2.87 million of the nation’s workers employed through temporary agencies in August 2014, the Board held that its previous joint employer standard has failed to keep pace with changes in the workplace and economic circumstances,” the Board said in a release accompanying its decision.

The board’s action is just the latest to tackle the trend. The Department of Labor has cracked down on employer misclassification of independent contractors, and the Occupational Safety and Health Administration has directed inspectors to consider whether principal employers might be at fault for the safety violations of their subcontractors. Courts, meanwhile, have been scrutinizing companies like FedEx and Uber for their use of contractors.

Employers are pushing back. Businesses that might be subject to the new joint employer definition have warned that it could undermine longtime business models that have kept the U.S. economy competitive by holding down labor costs.

As a result of the decision, some businesses may be able to distance themselves from their partners to avoid joint employer status, but others may find they need to exert more control.

Corporations are “trying to have it both ways — have the benefits of the control, and not the disadvantages,” says Timothy Glynn, a professor at Seton Hall University Law School. “Where I think it would be very difficult to give up control is circumstances where there’s some exacting need for quality, timeliness, or consistency in the product.”

Like a fast food franchise, for example. While this case did not address franchising directly, the new standard will apply in a major series of cases against McDonald’s scheduled for arguments in the fall. The International Franchise Association has been lobbying against the anticipated decision for more than a year, arranging public hearings, airing ads, and rallying franchisees to make politicians aware of the decision’s potential implications.

“The Board’s tortured analysis will undoubtedly be met with skepticism and will be rejected by local franchise owners, legislators and, ultimately, the courts,” said IFA president Steve Caldeira in a press release. “IFA and its allies are asking Congress to intervene to halt these out-of-control, unelected Washington bureaucrats to preserve the established joint employer standard.”

Congressional Republicans have already obliged, attaching a rider to the budget that would prevent the implementation of a new joint employer standard, among measures meant to block other recent NLRB decisions. Responding to the decision, House Education and the Workforce Committee Chairman John Kline (R-Minn.) vowed to “roll back” the NLRB’s shift, while Senate Health Education Labor and Pensions committee chairman Lamar Alexander (R-Tenn.) announced he would introduce a bill to “invalidate” the ruling.

The case concerned a recycling company called Browning-Ferris Industries in Milpitas, Calif., which used a temporary staffing agency called Leadpoint to provide workers. A Teamsters local tried to organize the employees, but did notjust want to negotiate with Leadpoint — it wanted Browning-Ferris to qualify as a “joint employer,” figuring that bargaining wouldn’t be effective unless it also included the larger company that determines the conditions of the working environment.

A regional director disagreed, and the Teamsters appealed. This time, the NLRB’s general counsel sided with the union, recommending in an amicus brief that the board ignore a standard in place since the 1980s and instead apply a broader definition of what it means to be an employer.

The Board’s Democratic majority agreed and struck down earlier cases that had articulated the previous standard, saying that the growth of the contingent workforce has rendered the definition out of step with the core purposes of the National Labor Relations Act. In doing so, it returned to an even earlier standard, the abandonment of which fostered the growth of independent contractor relationships in industries like trucking and taxis.

The Board also reversed the regional director’s decision, saying that Browning-Ferris exercised sufficient control over hiring, firing, discipline, supervision, and work hours to qualify as a joint employer under the new standard. It ordered that ballots impounded after the Teamsters’ election in April 2014 be counted, which — if the union wins — would allow it to bargain directly with the recycling company as well as the staffing agency that hired them.

“Today’s decision is another step to show that companies can no longer claim they are not employers when problems arise,” said Ron Herrera, Director of the Teamsters Solid Waste and Recycling Division. “Instead of pointing fingers if a worker gets hurt, companies will now be accountable. It’s the decent and reasonable expectation that workers should have at work.”

The issue has not just been a bone of contention between unions and employers. It also created sharp disagreements within the labor board: The two Republican appointees authored a blistering dissent, alleging that the new standard goes beyond the body’s authority and could affect a vast swath of new employers.

“Under the majority’s test, the homeowner hiring a plumbing company for bathroom renovations could well have all of that indirect control over a company employee!” the dissent read. “We suppose that our colleagues do not intend that every business relationship necessarily entails joint employer status, but the facts relied upon here demonstrate the expansive, near-limitless nature of the majority’s new standard.”

This may not be the end of the matter, however. Browning-Ferris Industries has the option to appeal to either the 9th Circuit or the D.C. Circuit Court. “We are currently evaluating all of our available options regarding this matter with the objective of not being unlawfully forced into collective bargaining negotiations with another employer’s employees,” said Darcie Brossart, a spokeswoman for Republic Services, the waste company that owns Browning-Ferris. 

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