On August 27, 2015, the National Labor Relations Board issued a ruling with far-reaching implications for thousands of businesses across the United States. Overturning nearly 30 years of precedent, the agency ruled that businesses that lease employees are “joint employers” under the law, a decision that opens the door to expanded employer liability, employee discrimination lawsuits and Worker’s Compensation claims.
What Is a Joint Employer?
Traditionally, an organization is an employer if it has certain rights. According to the National Labor Relations Act, these include the right to:
- Determine the size of the workforce
- Set wages
- Fire workers
- Approve overtime
- Set employee working hours
- Determine quality standards, such as how work is performed
- Inspect work
In the case of leased employees, more than one organization may have these rights. For example, if a business hires temporary employees from an outside staffing firm, both the staffing service and the business have the right to set the number of workers employed,determine schedules,fire employees and oversee their work. Thus, both the business and the staffing service are “joint employers” under the NLRA.
In the past, however, the NLRB and the courts made a distinction between a business that had the authority to make employee-related decisions and those that actually exercised that right. According to the August ruling, this is no longer true.
A Precedent Setting Decision
In the August dispute, a California recycling firm, Browning-Ferris Industries,had its own unionized workforce. It also contracted with an outside staffing service to provide non-union labor for the firm. According to its contract with the staffing service, Brown-Ferris had the right to set various conditions of employment, such as the right to refuse workers, set working hours, enforce wage caps and more.
The union that represented the core staff at the company sought to represent the workers from the staffing agency, stating that Browning Ferris was a “joint employer,” according to the NLRA. When the company refused, the union brought the case to the NLRB.
The NLRB sided with the union, stating that “the right to control, in the common-law sense, is probative of joint-employer status, as is the actual exercise of control, whether direct or indirect.”
How the New Ruling Affects Your Business
When an organization is an employer, it has certain obligations and vulnerabilities under the law. For example, employers are mandated by the federal government to provide Worker’s Compensation Insurance for their employees, and employers may be held liable for damages in unfair labor practices and employee discrimination lawsuits. Thus, by expanding the definition of joint-employment, the NLRB effectively expanded employer liability as well.
If your business leases employees, the NLRB ruling impacts your business insurance needs in multiple ways. For example, you may need to provide Worker’s Compensation Insurance for leased employees or purchase employment practices liability insurance to protect your business in the event of wrongful termination or discrimination claims. Expanded liability for workplace injuries may mean increasing your commercial general liability insurance as well.
Leasing some or all employees is a common business practice. The National Labor Relations Board estimates that temporary staffing agencies supplied 2.87 million workers in 2014, a number that will likely increase to almost 4 million over the next decade. If you are one of the thousands of employers who hire leased workers, learn more about how the practice affects your business insurance needs. Contact one of our commercial insurance experts at 516-292-3780 or request a free consultation today.