New NLRB Rule Broadens Scope of Joint Employment

On October 27, 2023, the National Labor Relations Board (NLRB) published its Final Rule addressing the “Standard for Determining Joint-Employer Status” under the National Labor Relations Act (NLRA).  The new rule, slated to take effect on December 26, 2023, significantly expands the circumstances under which separate businesses can be considered “joint employers” for purposes of the NLRA.

Background on NLRA Joint Employment

Joint employment involves a situation where two (or more) different corporate entities share control or influence over workers to such an extent that both entities may be considered an employer of those workers.

Under the NLRA, joint-employer status can require that both such entities be jointly liable for any unfair labor practice committed by either of them, and also that they both be jointly responsible for bargaining with the workforce’s union.

Standards for joint-employment under the NLRA have oscillated wildly over recent years.  Pursuant to the NLRB’s prior rule on this issue, from 2020, joint-employer status required that an entity possess and exercise “substantial direct and immediate control over one or more essential terms or conditions” of the employment of another entity’s employees.  That 2020 rule abrogated a controversial labor decision from 2015, in Browning-Ferris Industries, where the NLRB held that an entity can be a joint employer even if the entity’s control over an essential term or condition of the employment of another business’s employees was indirect, or even if the entity had merely the potential or contractually reserved (but unexercised) ability to control such an essential term or condition.

The New, More-Expansive Rule

The 2023 Final Rule rescinds and supersedes the 2020 rule, with the NLRB once again widening the scope of joint employment, arguably even beyond the standard set forth in Browning-Ferris Industries.

Under the new Final Rule, the NLRB will consider an entity to be a joint employer if the entity has the authority to control an essential term or condition of employment of another entity’s employees, whether or not such control is exercised, and whether or not any exercise of such control is direct or indirect.  Thus, regardless of whether the putative joint employer actually exercises control over an essential term or condition of employment of the employees of another business, the entity may be deemed to be a joint employer simply by virtue of possessing such authority to control.

The new Final Rule defines the “essential terms and conditions of employment” 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.”

Implications for Employers

As noted, the Final Rule is not set to take effect until December 26, 2023.  Business groups have threatened to sue to try to block its implementation, and certain U.S. Senators have vowed to try to overturn the rule through Congressional Review Act resolutions.  Opponents of the Final Rule are particularly concerned that it poses substantial risks to and uncertainties for the franchise model, and that it would make it too easy for a franchisor (like McDonald’s) to be considered an employer of the workers at local, small-business franchisees.

In the lead up to the end of the year, companies with particular exposure to joint-employer risks should take careful stock of the nature of their employment-related relationships with intermediaries, business partners, and key third-parties, including franchisees, staffing agencies, and subcontractors.  Modification or restructuring of those relationships, as well as the revision of governing contracts (e.g., adding more-specific indemnification provisions or disclaiming authority to control), may be advisable to help reduce the risk of being considered a joint employer and of any related liability or obligations under the NLRA.

 

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Attorney Gregory Feit who counsels clients on employment law, litigation, arbitration, negotiation, and trial advocacy. Mr. Feit served is admitted to practice in New York.