Six Social Security Myths

Both employers need to review their referral arrangements.  User employers should audit referred employees to find out what the actual practices are.  Supplier employers should do the same.  If either employer neglects to do so, the NLRB may conduct that examination for them.

The Board determined that henceforth unions should be allowed to show that two otherwise clearly distinct and independent employers are really joint employers of the referred workers in question.  The traditional Board joint employer doctrine applies whenever one employer enters into a contract with a second employer for the referral of employees employed by that second employer and retains for itself sufficient control over the terms and conditions of employment of those referred employees.  A joint employer differs from the Board’s related alter ego and single employer doctrines where the two employing entities are deemed to be a single entity.  Joint employers remain two separate employers who share or codetermine the referred employees’ terms and conditions of employment.

Employers can defeat a joint employer finding.  The critical issue is the extent of control over the referred employees retained and exercised by the user employer.  If the supplier employer retains complete control over those employees, there is no joint employer relationship.  Indeed, a simple way to preclude a joint employer finding is for the user employer to hand over the affected operation entirely to the supplier employer.  For example, turning the operation of your mail room, cleaning staff or copying room work to a supplier which supplies not only its own employees and equipment but also its own supervision for those employees should block a possible joint employer finding.

Employers need to realize that a joint employer finding can result even though the supplier employer does many things an employer normally does.  The supplier employer usually pays the referred employees, provides their benefits, if any, completes their I-9 forms and employment applications, administers their physical exams and so forth.  However, all these traditional employer hallmarks can be overcome if the user employer exercises control over the referred employees’ day-to-day work, hours, schedules, time off, job assignments and discipline.  If that happens, the referred employees gain a second employer and become joint employees.

This is essentially a fact-specific inquiry.  The user employer should not assign referred employees the same company uniforms, IDs or badges as its own employees.  It should not give them its own policy manual or handbook and, where necessary, should provide referred employees with separate or specially-tailored orientation and safety programs.  The user employer should also monitor the referred employees to ensure they don’t move from one assignment or project to another and, as a result, remain continuously employed at or for the user employer for extended periods of time.  Finally, the user employer should refrain from disciplining the referred employee.  That is the supplier employer’s function.  The user employer can provide information to the supplier employer about a workplace incident involving the referred employee but the investigation and ultimate decision as to discipline must be made exclusively by the supplier employer.

Contingent employees come in many different varieties.  At one extreme, completely outsourced operations with accompanying exclusive supervision by the supplier employer should, as noted, defeat a joint employer finding.  In that case, the former consent rule applicable to multiple employers remains the operative legal standard.  In fact, Greenhout, a true multi-employer case, was not overruled for this reason.  At the other extreme, leased employees remain employees of the user employer since the supplier employer, the leasing company, simply provides pay, workers’ compensation coverage and benefits.  There is only one employer, the user employer, in an employee leasing case.

The M.B. Sturgis case actually involved two separate cases that were consolidated for decision, M.B. Sturgis, Inc, 14-RC-11572, and Jeffboat Division, 9-UC-406.  Each case presented a common fact pattern involving contingent employees.  In both cases, the Board’s regional offices found the user and supplier employers were in fact joint employers.  Now that the Board has abolished the previous employer consent obstacle in such cases, both unions can proceed to hearings that will determine if the referred employees (the employees jointly employed by the supplier and user employers) and the employees exclusively employed by the user employer constitute a combined appropriate bargaining unit.

The fact that both cases have been sent back to the regional offices means there will be no immediate court of appeal review of this Board decision.  Employers and unions must fight over the real meaning of this new decision at the regional office level.  The Board’s decision holds that the unit determination will be made applying the Board’s traditional community of interest rules.  That is an oversimplification.  Separate units and separate self-determination elections, particularly for professional employees, may be necessary.  In addition, there will be an important related question in such hearings because another Board doctrine generally excludes “temporary” employees from bargaining units.

The two cases combined for decision were a representation case with a non-union employer (Sturgis) and a unit clarification case with a unionized employer (Jeffboat).  They were among the oldest Board cases since the Board granted review in November 1995 and May 1996, respectively.  The Board heard oral argument in these cases on December 2, 1996.  Of course, the Board members who heard that oral argument were long gone when the decision issued on August 25, 2000.

In Sturgis, Local 108 filed a petition seeking to represent “all employees” at a 35 employee gas hose plant.  The employer’s surprising response was to claim that the bargaining unit be expanded to include 10 to 15 temporary employees referred by Interim, Inc., a national temporary help provider.  Those were very “temporary” jobs; 50 different referred employees occupied those 10 to 15 positions over a period of several months.  Both Local 108 and Interim objected.  Since Interim’s objection is no longer legally relevant, the Board’s 14^th region will now hold a hearing to determine if the expanded unit (now including the conceded joint employers’ employees) is an appropriate unit.  The answer will likely be “yes” since the employees referred by Interim worked side-by-side, did the same work, were supervised by the same supervisors that supervised the Sturgis employees and were often hired by Sturgis as its own employees after a few months.  At that point, a representation election can finally, after more than five years, be held.  While Sturgis has already conceded the combined unit is appropriate, Interim can presumably challenge any Local 108 election victory and certification by refusing to bargain.

Jeffboat involved the largest inland waterway shipbuilder in the United States.  Teamsters Local 89 had been certified as the exclusive representative of approximately 600 production and maintenance employees since 1971.  The parties could not agree on subcontracting in their most recent negotiations in May 1995.  Jeffboat insisted it had the right to subcontract under the contract and had consistently done so without union objection.  This issue came to a head when, immediately following the union’s unsuccessful effort to restrict further subcontracting through negotiations, Jeffboat contracted with T.T.&O which referred thirty welders and pipefitters to this Indiana shipyard.  These two job classifications were expressly mentioned in the Local 89 contract.  T.T.&O paid these referred employees $10.00 per hour plus $50 per diem which was probably much less than the wage rates for these two classifications under the Local 89 contract.

Local 89 did not file a grievance under its contract protesting Jeffboat’s “subcontracting”.  Instead it filed a unit clarification petition seeking to add those T.T.&O employees to its existing bargaining unit.  That was a clever move.  Unit clarification petitions can be filed during the term of a current contract and the Board will not defer to arbitration.  Also, if Local 89 can satisfy the higher standard (an overwhelming community of interest) that applies to accretion cases (see Compact Video Services, 284 NLRB 117, 1987), a favorable Board ruling on its unit clarification petition could automatically add the T.T.&O employees to its existing unit and contract without an election and without those employees ever expressing their views, McDonnell Co., 173 NLRB 225 (1968).

Jeffboat had subcontracted on many prior occasions.  It had brought in contractors with their own independent supervision.  For some reason, Jeffboat did things differently in this case.  There was a T.T.&O representative on site but there was “no recorded information” concerning his/her duties and “no evidence of any assignment or direction” by this representative.  The Jeffboat supervisors provided supervision, determined daily assignments, applied the Jeffboat rules, regulations and manual, required the Jeffboat orientation program and safety meetings, required that Jeffboat tools and equipment be used and, most important, disciplined the referred employees  “as they see fit”.  Moreover, the contract Jeffboat and T.T.&O negotiated provided the referred employees “will be subject to direction of [Jeffboat] as to the assignment of work including shift hours and overtime and to the direction of Jeffboat managers, supervisors and foremen.”  This contract actually confirmed the joint employer status the 9^th Region found, 1995 NLRB LEXIS 1245.

A joint employer determination followed by an appropriate unit finding is only the beginning.  Numerous questions immediately arise in the Jeffboat unionized employer situation.  We are likely to have a bargaining unit that combines employees exclusively employed by the user employer with employees jointly employed by the user and supplier employers.  How is seniority calculated?  Service with which employer?  Will seniority lists be dovetailed?  Which employer’s benefit package applies?  Which employer’s grievance procedure?  What if the supplier employer already has a union contract?  What if there are multiple suppliers?

A brand new issue is that the cancellation of the contract between the user employer and the supplier employer now likely becomes a mandatory bargaining subject for both the user employer and the supplier employer as a subcontracting decision instead of a managerial decision not subject to decision bargaining.  The Board cites, with approval, Ford Motor Co. v. NLRB, 441 U.S. 488 (1979), which held that an employer’s decision to change vending machine suppliers including the new supplier’s prices to be charged to employees was a mandatory bargaining subject.  An unresolved issue is whether, when a new supplier is chosen, if that new supplier is a successor employer which can set its own initial terms and conditions of employment or is bound by the terms of the joint employers’ contract.

Representation case strategy issues are also raised in the non-union context.  The Board will notify all “interested” parties to avoid due process issues.  Will user employers, like Sturgis did, demand that petitioned-for units be expanded to include referred employees?  The supplier employer may be on the union’s side on this issue as Interim was.  That will certainly delay any representation election as, if the union objects, a hearing is necessary.  And, if unions are indeed wary of representing contingent workers, then unions intent on gaining a quick election may offer concessions to the employer on other unit issues (such as confidential or supervisory status) as a condition to the employer’s abandonment of the expanded unit.

Bargaining issues also abound when the two joint employers come to the table.  Can the union strike one of the two employers comprising the joint employer without violating the secondary boycott rules?  Can the union strike the supplier employer over an issue that solely applies to the user employer’s exclusive employees?  What happens if the supplier employer agrees to the union’s demands but the user employer does not?  Will the first (and last) union demand to the joint employer always be “get rid of the temps and expand our regular bargaining unit by hiring your own union employees?”

The issues outlined above are just some of the complex issues raised by a joint employer situation where two separate employers must, by Board edict, deal with a single union.  Things were much simpler under the former Board rule which treated the separate employers as multiple employers.  User employers have a strong incentive to avoid a joint employer finding.  They should closely examine their supplier contracts and, particularly, the terms and conditions of employment of referred employees to make certain that they have not retained impermissible joint control.  Supplier employers have the same interest in structuring their arrangements with user employers so they will not be drawn into a combined bargaining unit.  Both user and supplier employers must immediately examine their current contingent employee arrangements before this sudden change in Board policy puts those arrangements under a legal floodlight.