The National Labor Relations Board ruled last week that two unrelated companies may be held to be joint employers of an employee who works for just one of the companies. Browning-Ferris Industries of California, 362 NLRB No. 186 (August 27, 2015), ruled that unrelated companies may be joint employers even if one employer has no power to hire, fire, supervise or determine the pay of an employee of the other employer.

The NLRB says that it “will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority”.

In other words, if you as a business owner contractually could say anything to your subcontractor about the work you want performed by the subcontractor’s employees, then you can be jointly liable to those employees if any of the subcontractor’s employment practices go awry, even if you never actually exercise any control over your subcontractor’s employees.

This decision has major implications for any business that uses contractors, such as an after hours cleaning service, a staff management company, a construction subcontractor or a human resources outsourcing company. In addition, franchisors are terrified that this will make them liable for everything that happens to an employee of a franchisee. Employees of a subsidiary may now be considered joint employees of the parent company, thereby exposing the parent company’s assets in any employee lawsuit. Real estate holding companies may now be responsible for the employee relations at an outsourced property management company.

The National Labor Relations Board’s decision purports to be about collective bargaining activities, but it affects non-union workplaces as well as unionized workplaces. Most experts believe that this NLRB decision will be quickly followed by similar enforcement interpretations by the Department of Labor in wage and hour cases, holding the unrelated company liable as a joint employer if the subcontractor doesn’t pay overtime correctly, for example. The EEOC may also see this decision as an opportunity to hold McDonald’s corporate entity liable if an assistant manager sexually harasses the drive-up window worker at a franchise McDonald’s location in a small town in Nebraska.

Businesses will be carefully reviewing their written contracts with any other business to ensure that the unrelated business’s employment practices are legal while at the same time trying to divorce the first business from any control over the second business’s employees. The contracts will also need significant indemnity provisions that protect the first business if the second business mistreats its employees in any way.