On October 26, 2023, the National Labor Relations Board (NLRB or “the Board”) issued its long-awaited final rule (“New Rule”) addressing the standard for determining joint-employer status under the National Labor Relations Act (NLRA). The new rule is effective December 26, 2023. By issuing the new rule, the Board rescinds and replaces the previous rule issued under the Board when it was controlled by appointees of former President Donald Trump’s “Joint Employer Status Under the National Labor Relations Act,” which was published February 26, 2020 and took effect April 27, 2020 (“2020 Rule”).

Joint employment refers to situations in which two or more legal entities share control or influence over workers to the extent that all are deemed to be employers of the worker in question. Joint-employer status can have significant implications for labor relations and legal obligations. If two entities are joint employers, they both may be held responsible for unfair labor practices, bargaining obligations, and other legal liabilities concerning the employees in question.

The New Rule makes it much easier for a worker to be found that he/she is jointly employed.

The New Rule

Under the New Rule, two or more legal entities will be held to be joint employers of a group of employees if the entities share or codetermine one or more of the employees’ essential terms and conditions of employment, which the new rule defines as (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.

Entities are joint employers when they share or codetermine at least one of the “essential terms and conditions.” The key aspect of the new rules is that “share” or “codetermine” “means for an employer to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.” Thus, indirect or “reserved” control alone may establish joint employer status. This is a major change from the 2020 Rule’s focus on “direct and immediate control.”

Background

The NLRB’s interpretation of what constitutes joint employment has fluctuated in recent years, with a focus on whether the alleged joint employer had direct or indirect control. Economic change in areas like subcontracting, franchising, and growth of the “gig” economy have spurred this debate. Between 1984 to 2015, indirect control was typically insufficient to establish an entity as the joint employer of another employer’s workers. Instead, “direct and immediate” control was a necessary factor to prove joint-employer status.

Then, in 2015 the Board issued its decision in, Browning-Ferris, 362 NLRB 1599 (2015). A majority of Board members held that an entity may be a joint employer even if its control over the essential working conditions of another business’s employees was indirect, limited, and routine or contractually reserved but never exercised. Browning-Ferris marked a major shift for joint employer status.

The 2020 Rule, which followed the Board’s decision in Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co., 365 NLRB No. 156 (2017), reversed course by rejecting the analysis in Browning-Ferris and establishing that joint-employer status requires showing that the entity possesses and exercises “substantial direct and immediate control over one or more essential terms or conditions” of employment. The 2020 Rule therefore returned to the pre-Browning-Ferris precedent, where indirect control could not determine joint-employer status.

The New Rule restores the Browning-Ferris standard but in some respects goes even further. Thus, the New Rule provides that “evidence of the authority or reserved right to control, as well as evidence of the exercise of control (whether direct or indirect, including control through an intermediary, as discussed further below) is probative evidence of the type of control over employees’ essential terms and conditions of employment that is necessary to establish joint-employer status.”

Implications on Employers

The New Rule expands the criteria for establishing a joint-employer relationship. The chairman of the NLRB, Lauren McFerran, states that the “new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA.” Board member Marvin Kaplan, an original appointee of former President Trump, dissented arguing that “[i]t is difficult to imagine a better recipe than [the New Rule] for injecting chaos into the practice and procedure of collective bargaining that the majority claims to promote.” Kaplan goes on to call the New Rule a “radical expansion of the joint-employer doctrine” and predicts that significant adverse consequences will flow from the New Rule.

Those engaged in the franchise industry, either as a franchisor or franchisee, will be interested in in the comment contained in the NLRB’s Fact Sheet on the New Rule, which states, “The nature of the business-to-business relationship is incidental to the analysis established by the final rule. So, not all franchisors and their franchisees will be joint employers.” Nevertheless, it is obvious the New Rule makes it much easier for the Board to determine joint-employment status, and those involved in any aspect of franchising need to reexamine their relationships and their documents in light of the New Rule.

More litigation and legal challenges may soon arise over the New Rule, but employers should carefully consider the shift in precedent and consider whether they are at risk. Employers should review and assess their relationships with outside vendors, independent contractors, or other third-party contracts to determine whether they may be deemed joint employers under the New Rule.