Who’s the Boss?Nov 03, 2023
NLRB Expands the Definition of Joint Employment.
On October 26, 2023, the National Labor Relations Board (NLRB or the “Board”) published a final rule establishing a new standard for determining when and how two employers are “joint employers” of the same employees. This new standard amends the standard for determining joint-employer status under the National Labor Relations Act (NLRA) and replaces the Board’s 2020 final rule on the same issue.
The new rule significantly broadens the standard for when two employers can be considered joint employers — and thus potentially liable for one another’s alleged unfair labor practices. The new rule also makes it easier for union organizers to include a “joint employer” in organizing activities and election petition (RM petition) initiatives.
According to NLRB Board chair Lauren McFerran, “the board’s new joint employer standard reflects both a legally correct return to common-law principles and practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA.” Many business and industry associations have differing views and believe the new rule makes the joint employer designation less clear.
Congressional debate, as well as litigation, is anticipated.
The new rule goes into effect on December 26, 2023, and will only be applied to cases filed after that date. The NLRB has published a summary fact sheet about the new rule that outlines the Board’s reasoning and process. All employers are encouraged to review it.
What does the joint-employer relationship look like?
The definition of the joint employer relationship has changed several times over the years as Presidential administrations have changed. The 2020 rule — which will be officially replaced by the new rule at the end of December — stated that joint employer status would only apply when an employer “possessed and exercised such substantial direct and immediate control over the “essential terms and conditions of another employer’s workforce.” The essential “terms and conditions” for joint employment designation were extensive. Under the 2020 rule, the essential “conditions” for joint employer designation included each entity to have direct control over wages, hours, hiring, discipline, discharge, and supervision. All these factors had to operate at both companies for the Board to recognize the joint-employer relationship.
The new final joint employer rule essentially re-establishes the broad Obama-era rule enacted in 2015 and then struck down by the Trump-era decision — Hy-Brand Industrial Contractors, Ltd., 365 NLRB No 156 — in 2017. The 2015 rule — which was based on the NLRB’s Browning-Ferris decision — determined that two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees and if the entities share or codetermine one or more of the employee’s essential terms and conditions of employment.
The most significant departure from the 2020 rule is that now a company may be found to be a joint employer — controlling the “essential terms and conditions” of employment — whether or not that control is exercised, and regardless of whether that control is direct or indirect.
The new rule also adds some clarifying language to the list of items considered to be “essential terms and conditions” of employment:
- Wages, benefits, and other compensation;
- Hours of work and scheduling;
- The assignment of duties to be performed;
- The supervision of the performance of duties;
- Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
- The tenure of employment, including hiring and discharge; and
- Working conditions related to the safety and health of employees.
What is most concerning for all employers is how easy it will soon become to be considered a joint employer under the NLRA. If the business has the authority to control at least one of the terms and conditions of employment for the employees of the second business, it can be considered a joint employer. According to the new rule, the company’s “authority to control” any of the terms and conditions of employment can be direct, indirect, or held in reserve.
Adding to the complexity, this new rule may also create conflicting or additional standards with states that have adopted their own joint employer laws and regulations in recent years.
Preparing for implementation
Any business that contracts with other companies — staffing agreements or other business arrangements where one entity shares or codetermines one or more of the employees’ “essential terms and conditions” of employment with another entity — should immediately review these contracts and relationships. Professional employment staffing organizations supplying temporary staff, contractor-subcontractor agreements, parent-subsidiary relationships, and franchisor-franchisee arrangements should all be scrutinized.
Employers are encouraged to work with other employers — for the benefit of both — to revise any agreements to avoid or minimize the risk of a joint employer determination by the NLRB.
The process of reviewing and renegotiating contracts to minimize your joint employer risks can get complicated, and bringing in some legal expertise can make a big difference in the outcome. Contact Orr & Reno if you need assistance navigating this new joint employer landscape.
About the author: Lindsay E. Nadeau