New Labor Ruling: What Does It Mean for Small Business Contractors?

Help can sometimes come from the most unexpected places. Last week labor unions found themselves faced in an unlikely sweet spot, when the National Labor Relations Board ruled that companies that use contracted labor from another company on their premises can be considered a joint employer with the contractor. And in the eyes of labor unions, joint employer status means potentially joint responsibility at the bargaining table.

The expanded definition of what is called the "joint employer standard" came as a result of a hearing concerning a waste management company, Browning-Ferris Industries, and its staffing contractor, Leadpoint Business Services. In this case, Browning-Ferris received its staffing from Leadpoint, the primary employer. In the eyes of the board, however, Browning-Ferris took direct or indirect part in many of the functions that affected the workers' duties and job determination, such as regulating working hours, overtime, employment conditions and termination. Browning-Ferris therefore, reasoned the board, played a direct role in the staffing decisions of contracted employees.

For years, many corporations that offer franchises have been able to benefit from a similar contractual arrangement as found in this NLRB case. Many corporations stipulate that while franchisees are responsible for their own business and staffing costs, the corporation has the right to set guidelines for hiring and performance. As in the case of Browning-Ferris' operations, some corporations set minimum requirements for hiring, work hours, training, quality assurance, overtime and disciplinary procedures.

"Today, we restate the board’s joint-employer standard to reaffirm the standard articulated by the Third Circuit in Browning-Ferris decision," said the board. Under that labor standard, two or more employers can be considered to have joint employment responsibilities if they "“share or codetermine those matters governing the essential terms and conditions of employment.”

While most of the media attention has been trained on the implications for fast food establishments that have been worried about unionizing efforts on their premises, the ruling could have broad implications for small businesses that contract as franchees, writes AP business writer Joyce Rosenberg.

"Franchise owners have also contended they could lose their autonomy if franchisors become joint employers with them, and therefore can have more say in their hiring and management practices," says Rosenberg.

But many corporations that franchise out already set boundaries that direct the way franchisees run their businesses -- including staffing.

"[A] franchise contract is like a prenuptial agreement -- not very romantic, but you'd better understand it before you sign it," says Jeff Elgin in Entrepreneur Magazine. It's usually full of "must-dos" and can't-dos as well as iron-clad "non-negotiable" expectations. Many franchisees already recognize that their franchise is meant to be a reflection of another corporation's brand and image.

Given the sweeping implications of this ruling, it's likely that there will be some legal challenges. But it will be interesting to see how other industries that contract, say, temporary workers on a regular basis will be affected by the ruling. Will it cause some companies to voluntarily change the way they deal with short-term staffing needs? Will it make it easier or harder for workers to do their jobs?

In some parts of the country, such as Tampa, Florida, temporary staffing agencies are used as a matter of practice. It's the go-to place for workers that want to be eventually hired in their area of expertise. Will this new ruling change the way workers are managed if the contracting business has a legal responsibility in how the worker is treated and supervised?

And of course, there's the perennial collective bargaining issue in fast-food restaurants and other companies that rely on franchises. For unions that have been unsuccessful in unionizing small franchisees, the NLRB's new and expanded concept of joint employer status may offer some unions a stronger and bigger foot in the door. Will it also levy more responsibility on corporations when it comes to wage and employment issues of non-unionized employees?

These are questions that, however contentious, may have a great deal to say about how companies meet their staffing needs and address their overhead costs in the future.

Images: Flickr/Alan Cleaver; Flickr/All-Nite Images; Flickr/David Bruce, Jr.