NLRB: Businesses Liable for Leased/1099 Workers

October 28, 2015 | from AdminBerenson No Comments

In mid-September the National Labor Relations Board’s (NLRB) continued its efforts to expand worker rights and unionization abilities. In a highly controversial and potentially far-reaching decision, the NLRB voted to hold waste management company Browning-Ferris responsible for the treatment of the company’s third-party leased employees.

Texas-based Browning-Ferris had hired Leadpoint Business Services out of Arizona to staff the company’s recycling facility in California. The use of such a professional employer organization or PEO is common in the construction industry, of course, as is the use of 1099-based subcontractors.

The NLRB held that even though these were leased employees from a PEO, Browning-Ferris should be held to be a “joint employer” along with Leadpoint Business Services. This means that Browning-Ferris can be held liable for any labor violations claimed by workers brought to the company by Leadpoint Business Services.

This is a 180-degree change in the NLRB’s position, which up to this point in time only held that an employer was liable for employees who were under the employer’s direct control. This ruling now means that a contractor is liable for worker right violations even if the contractor does not have the power or ability to set hours, wages or job responsibilities for that worker – even if that worker, for example, is a leased employee from another company or a subcontractor. Not surprisingly, Teamsters union General President Jim Hoffa called the ruling a “victory for workers across America.”

In reality, the decision makes clear that the NLRB is continuing in its efforts to advocate for worker rights and unionized labor and against the interests of employing businesses. Staffing agencies and PEOs will no doubt begin seeing drop-offs in business, as larger companies will not want to be liable for employees they are leasing, especially for how those employees are treated by the leasing company – because that essentially defeats the purpose of leasing employees in the first place. Many companies will decide it makes more sense, if they will be liable anyway, to bring those jobs in-house so they at least have control over the worker they are going to be liable for.

Correspondingly, remodeling franchisors and larger contractors could find themselves subject to (i) liability for those workers hired by their dealers and franchisees; and (ii) unionization activities by their own subcontractors. Given that this ruling turns decades of established labor law on its head, the overarching issue – and one many businesses are waiting for – is that this decision would almost certainly be rescinded if the Democrats lose the White House in 2016.

The NLRB is a federal board that referees workplace disputes and oversees union-organizing elections. The ruling was passed with the approval of the board’s three Democrats, with the two Republicans dissenting, and is just the most recent in a series of major victories for labor under the Obama administration, which has issued a number of sweeping executive actions on worker protections and wages over the past seven years.

We will continue to monitor the implementation of this ruling and provide any updates as applicable.