By James Sherk
Saturday, August 29, 2015
The National Labor Relations Board recently decided that
businesses that “indirectly” control employees’ working conditions also legally
employ them. Most media coverage has focused on how this decision affects
franchises, but the ruling goes far beyond them. If it stands, it will make
contracting and subcontracting almost impossible.
The case before the NLRB dealt with a recycling plant,
Browning-Ferris Industries (BFI). Browning-Ferris paid another company,
Leadpoint, to sort recycling materials. Leadpoint employees separated paper,
plastic, glass, etc., on conveyor belts. These conveyor belts fed into
recycling equipment, which BFI employees ran.
Leadpoint’s staff decided whom they would hire and fire,
what the employees would earn, and what shifts they would work. They chose whom
to promote and whom to discipline. BFI, in turn, decided what hours their plant
ran, which lines would run each day, and how fast the conveyor belts moved. BFI
also monitored Leadpoint’s quality and performance. BFI once caught a Leadpoint
employee drinking a pint of whiskey on the job and asked for his termination.
The NLRB decided that this constituted enough “indirect”
control to make BFI a co-employer of Leadpoint’s workers. If they unionize, the
union will bargain jointly with both companies.
This ruling applies to far more than franchisors. BFI had
a standard business-services contract. It focused on its specialty — recycling
materials — and hired another company to sort those materials. Many businesses
contract with other companies to clean their buildings, provide security, or
perform other tasks. They set basic criteria like hours of operation and
quality standards. The contractors hire and manage the employees who do the
work.
The NLRB now says these firms jointly employ their
contractors’ workers. If this ruling stands, it will turn contracting into a
nearly unworkable morass.
Consider a company that cleans buildings for several
clients:
• If one union organized them client by client, they
would negotiate separate a collective bargaining agreement (CBA) for each
client. Employees doing identical work would get paid differently, depending on
where they got assigned that week.
• If one union organized the cleaning company at every
site simultaneously, the company and all its clients would collectively
negotiate a CBA. This would mean a joint bargaining session between multiple
client/employers with differing priorities — potentially including competitors
that want to disadvantage each other. The cleaning company would have to share
its rate for each client, usually confidential information, with all its
clients.
• After reaching such a CBA, clients would have
difficulty changing their cleaning contract. They would have to not only
negotiate with the cleaning firm, but also bargain with the union and the other
employers.
• If different unions organized the cleaner at different
clients, it would have problems moving employees between job sites. The unions
would not want employees temporarily working (and paying union dues) for
another company and under another union.
• Terminating or rebidding contracts would also become
very difficult. The clients would usually have to bargain over the decision to
do so. In many cases, NLRB precedent would require new contractors to hire the
same workers and use the same collective bargaining agreement as the old
contractor.
These regulations could backfire on unions. For now,
companies don’t care if their contractors are unionized, so long as they charge
competitive rates. But they’ll care a lot if they become co-employers. Many
companies would simply refuse to hire unionized contractors rather than deal
with this.
Service contracting helps the economy run more
efficiently. It allows companies to focus on their core specialties and
delegate tangential services to others. This NLRB ruling would prohibit firms
from doing so. If it stands, they will instantly become co-employers of their
contractors’ workers. The focus on franchises has obscured the fact that this
ruling may do far more extensive damage to the economy.
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