NLRB Announces Stricter Standard for Joint Employment

Today, the National Labor Relations Board (NLRB) issued its final rule revising its legal test for determining joint employer status. The NLRB’s new rule makes it harder for workers to claim that an entity is a joint employer because it states that a business is only a joint employer if it has “substantial direct control” of at least one essential term or condition of employment. Essential terms and conditions of employment are “wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.” For control to be “substantial,” the joint employer’s actions must have “a regular or continuous consequential effect” on one of these terms or conditions of employment.

Joint employer status is consequential for workers and management. For example, if workers are represented by a union, the joint employer must participate in collective bargaining and may be subject to picketing. Joint employers can also be liable for each other’s unfair labor practices under the National Labor Relations Act (NLRA). This issue is particularly significant for franchisors, such as McDonald’s, whose guidance to franchisees on customer service, operations, and marketing may be designed to protect their brand but may also influence working conditions.

The NLRB’s new rule, which takes effect April 27, rolls back a looser Obama-era standard for joint employment. Under the prior standard, adopted by the NLRB in the case Browning Ferris Industries, 362 NLRB No. 186 (2015), a business exerting or reserving the ability to exert “indirect control” over workers, such as through a contractor or franchisee, could be a joint employer. There, the NLRB found that Browning Ferris Industries (BFI) was a joint employer with Leadpoint, a contractor hired to provide workers to sort waste in BFI’s recycling facility, because of BFI’s indirect control over the workers, which included imposing certain hiring standards and setting a cap on wages. Under the NLRB’s new rule, such indirect control over working conditions can be considered as part of the Board’s joint employer analysis but does not alone support a finding of joint employer status.     

The NLRB’s new rule makes clear that businesses that simply set minimal standards for hiring, performance or conduct for contractors, including requiring workplace safety or sexual harassment policies, will not automatically become joint employers. These same requirements also would not constitute evidence of indirect control “to the extent they involve setting the objectives, basic ground rules, or expectations” for a third party’s performance under a contract. As one example, the NLRB has stated that it does not view steps that franchisors take to protect their trademark as evidence of joint employer status.

Employers and employees should look out for continued developments in this area, as workers’ rights advocates and unions, who say the new rule improperly shields companies from liability, may challenge it in court. For now, the rule promises increased assurance to franchisors and businesses entering into contracts with third parties to provide staffing that they will not necessarily be responsible for all of the obligations entailed by an employment relationship.

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 Elizabeth Stork, who counsels both companies and individuals on employment matters. Ms. Stork is admitted to practice law in New York. Attorney Advertising.