Politics & Policy

Beyond Burgers: The NLRB’s Decision Is Comprehensively Awful

Subcontracting, a very common business practice, will become virtually unworkable.

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.

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 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.

#share#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.

— James Sherk is a senior policy analyst in labor economics at the Heritage Foundation.

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