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
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.
b. Subcontractors
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.
§ 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.
§ 14.2.1.1 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.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
