A recent National Labor Relations Board (NLRB) ruling may end up either turning some small business owners into corporate managers, or causing them to lose large numbers of their commercial customers.

In recent years, many employers, reluctant to expand their payrolls, have turned to using more contractors, subcontractors, and staffing agencies to meet their business needs for services and workers.

In late August, the NLRB, in a 3-2 decision, ruled that companies can now be held responsible for labor violations committed by the contractors and subcontractors they hire to do work for them, as well as employment/staffing agencies with whom they contract for employees that they use in their businesses. Of course, while many of these contractors, subcontractors, and staffing agencies are medium-sized or large businesses, many are small businesses.

In the past, companies were only responsible for employees whom they directly hired and who were, therefore, under their direct control. They were not responsible for the employees of the contractors, subcontractors or staffing agencies with whom they contracted. For example, companies did not have the power to set hours, wages, benefits, or other employment arrangements for the employees of the contractors, subcontractors, and staffing agencies with which they did business.

Now, under the new NLRB ruling, two legally separate companies can be considered "joint employers" of one employee doing one job, even if one of those companies (the "customer" company) does not have control over hours, wages, etc. For example, a company that hires a small business janitorial service to clean its facilities will now be considered a co-employer of that janitorial service's employees.

So what is the concern? In the past, many employers have been able to avoid collective bargaining requirements by using employees hired by other firms, such as contractors, subcontractors, and staffing agencies. Now, with the NLRB ruling, companies using workers hired by other businesses, such as contractors, subcontractors, and staffing agencies, will now be responsible for labor violations claimed by the employees of these businesses, and could be required to bargain with unions that represent those employees. The ruling also allows employees to protest unfair working conditions.

"This decision has broad implications, as it appears to upend decades of settled law defining who the employer is under the National Labor Relations Act," said Randy Johnson, a senior vice president with the U.S. Chamber of Commerce.

As a result of the ruling, contractors, subcontractors, and staffing agencies are now concerned that one or both of two things will happen.

One concern is that their customers (the companies for whom they provide services and/or employees), will now be more likely to try to exert more control over how these contractors, subcontractors, and staffing agencies run their businesses and treat their employees, including issues such as wages, hours, benefits, etc. The result is that small business owners, once masters of their own destinies and businesses, will be turned into de facto "managers," forced to follow the dictates of their commercial customers, rather than being able to run their own businesses the way they see fit.

The other concern is that these commercial customers will simply cut ties with the contractors, subcontractors, and staffing agencies with which they have been doing business, because they don't want to have to be responsible for labor complaints or union issues coming from employees of those firms. That is, these customers will be more likely to bring these once-outsourced jobs in-house, where they can establish and maintain more control over working conditions, etc. As such, a small business contractor, subcontractor, or staffing agency that relies on commercial customers for its livelihood could actually end up going out of business, the result of losing large numbers of its customers. "Because of the array of obligations and liabilities that attach with a finding of joint employer status, [the NLRB decision] would lead many employers to significantly alter or limit the contractual agreements into which they enter," said Chamber of Commerce's Johnson.

In sum: "It will make it much harder for self-employed subcontractors to get jobs," said Beth Milito, senior legal counsel for the National Federation of Independent Business (NFIB). "Subcontractors will come under pressure from their clients to change their employment policies, or they'll be cut out of the picture altogether."

Instant Insights /

New NLRB ruling threatens small businesses in two ways

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