Before publishing this post, I confirmed that my clients were indeed still in business and planned on business as usual this week. Despite doomsday like proclamations, Thursday’s NLRB decision in Browning Ferris Industries, which revised the test for finding joint employer status, did not end the construction business as we know it. The Board’s decision will no doubt significantly impact many industries, but its impact on the construction industry will likely be more muted. However, there are changes contractors and developers should make to standard industry contract clauses.
1. The New Old Test
In Browning Ferris, the Board returned to the test the Board applied to joint employer cases before 1984 and as was articulated by the Third Circuit Court of Appeals in another case ironically involving Browning Ferris, NLRB v. Browning Ferris Industries of Pennsylvania, 691 F.2d 1117 (3d.Cir. 1982). Under the new old standard, a two part test is employed to determine joint employer status. First, the Board will determine whether the putative joint employer is an employer under the common law joint employer test. Second, if so, does the putative joint employer share or co-determines essential terms and conditions of employment, such as, hiring and firing, discipline, supervision, scheduling, seniority and overtime, and assigning work and determine the means and methods of performance.
Additionally, the Board made two critical findings that impact contractors. First, if the common law does not permit you to be a joint employer, then the inquiry ends. Second, the putative joint employer does not actually have to exercise its control over the employees in question so long as it retains the right to do so.
2. Impacts on the Construction Industry
Staffing agreements and subcontracting are the most obvious areas where the decision has the potential to impact the industry.
a. Staffing agencies
Much of the hyperventilating about the Board’s decision concern the use staffing agencies. In fact, the Browning Ferris case involved its use of a staffing agency for employees for a certain portion of its recycling operations. The use of staffing or employment agencies in the construction industry has been prevalent in recent years. These firms provide skilled labor to contractors on a project by project basis. Under a typical arrangement, the staffing agency sets the worker’s rate of pay, handles wages, benefits, and insurance. However, the contractor utilizing the service retains the means and methods of how the individual will be utilized on the project, such as providing tools, setting work hours, and assigning tasks. The staffing agency and the utilizing contractor were probably already joint employers of the leased worker under the Board’s old joint employer standard. The user contractor always maintained almost unfettered control over the staffing agency worker ceding only payroll activity to the staffing firm. In fact, the staffing agency usually plays no role at all once a worker is assigned to a contractor. So, the relationship between staffing agencies and their customers in the construction industry is not likely to change much.
The other area that had the construction community up in arms was the decision’s impact on the typical contractor – subcontractor relationship. Unlike other industries, the use of independent subcontractors have been the accepted industry standard for years. (Its one of many areas that make labor relations in the construction industry unique from other industries.) The industry is particularly concerned about the decision’s impact on common situs picketing and secondary boycotts. Under well established standards, labor law protects so called neutral employers from labor protests directed at a primary employer, who is the firm that actually employs the workers subject to the dispute. The fear is that the Browning Ferris decision erodes the line between the neutral employer and the primary employer and, therefore, the long established protections afforded to the neutral employer.
While the expansive definition of joint employer is reason for the industry to take notice, analyzing the typical owner-general contractor or contractor-subcontractor relationship using the Board’s test in Browning Ferris shows that that it is likely to result in far fewer joint employer findings than feared.
As the Board pointed out, the common factor in its two part test is the right of control over the employee. Among the non-exhaustive list of factors Court and the Board have used to determine whether a construction industry putative joint employer is an employer under common law standards are whether the general contractor (or owner-developer):
(1) had the power to hire and fire the subcontractors employees;
(2) supervised or controlled the subcontractor’s employees work schedules;
(3) supplied the employees with the materials and tools needed to complete their jobs;
(4) maintained their employment records; and
(5) set rates of pay.
In a typical owner – general contractor or contractor-subcontractor relationship on a construction project, most of these factors are not met. For example, while a general contractor may certainly dictate the outer limits of when work may be performed on a project, it typically does not dictate when a subcontractor’s employees show up and how many hours they work. A general contractor almost never (at least I have never seen it) determines how must a subcontractor’s employees will be paid. And, the general contractor certainly does not maintain a subcontractor’s employment records.
Furthermore, even if a general contractor is determined to be a joint employer under the common law test, it still would need to co-determine essential terms and conditions of employment. The Board pointed out the following as being “essential” terms and conditions of employment: setting wages, dictating the number of workers to be supplied, controlling scheduling, seniority and overtime, and determine the means and methods of performance. A general contractor and owner – developer almost never co-determine these essential factors. (Yes, while the general contractor controls the overall project schedule, the subcontractor still retains control over its employees personal work schedules.)
3. What developers and contractors should do
While construction industry employers can relax (somewhat) over the Browning Ferris decision, it does not mean they should do nothing. If anything, the decision provides on means of defending against a joint employer claim.
Because the Board has emphasized that potential control, even if when its not exercised, is enough to demonstrate control, general contractors and developers need to be aware of what is in their contracts. The Board in Browning Ferris, pre-1984 NLRB decisions, and the courts in other joint employer cases have all relied heavily on what the contract said about control over a contractor’s or subcontractor’s labor force.
Most construction contracts grant a developer or general contractor at least some control over a subcontractor’s employees. Consider the following sections of an industry standard AIA A201 General Conditions:
§ 3.4.3 The Contractor shall enforce strict discipline and good order among the Contractor’s employees and other persons carrying out the Work. The Contractor shall not permit employment of unfit persons or persons not properly skilled in tasks assigned to them.
§ 3.9.3 The Contractor shall not employ a proposed superintendent to whom the Owner or Architect has made reasonable and timely objection. The Contractor shall not change the superintendent without the Owner’s consent, which shall not unreasonably be withheld or delayed.
§ 10.2.2 The Contractor shall comply with and give notices required by applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities bearing on safety of persons or property or their protection from damage, injury or loss.
§ 188.8.131.52 The Owner may terminate the Contract if the Contractor . . .repeatedly refuses or fails to supply enough properly skilled workers or proper materials.
All of these sections impact on the essential terms of employment, especially sections 3.4.3 and 3.9.3. Many contracts go much farther into the control exerted over certain terms and conditions of employment, such as dictating behavior on site, requiring criminal background checks, and certain immigration status before an employee is allowed on a project. Whether these factors alone will be enough to establish co-determination of essential employment terms is to be seen. However, parties should consider modifying standard industry contract clauses with an eye towards the Browning Ferris decision or adding a clause that delineates that notwithstanding anything to the contrary, the primary employer retains all control over the essential terms and conditions of its employees’ employment. While exculpatory language like this will not permit a general contractor to escape joint employer status where the facts do not otherwise exist, it certainly is helpful in mounting a defense to a claim.