On Oct. 26, 2023, the National Labor Relations Board issued a final rule that significantly broadens the definition of “joint employment” under the National Labor Relations Act (NLRA), marking the fifth change to the board’s joint employer standard since 2015.
The new rule makes it easier for the board to find a business jointly employs workers who are directly employed by another entity. If two entities are joint employers under the act, both are required to engage in collective bargaining with the union that represents the jointly employed workers, both are potentially liable for unfair labor practice charges committed by the other, and both may be subject to labor picketing.
Under the previous rule that took effect in April 2020, an employer could be a joint employer only if it actually exercised “direct and immediate control” over workers’ essential terms and conditions of employment. The new final rule modifies the standard so that workers are only required to show that a joint employer possesses or reserves the right to exercise direct or indirect control, regardless of whether the employer exercises that right.
Background on Joint Employer Status
Over the past decade, the board’s position on joint employer status fluctuated with its political composition. In 2015, the board made its first major departure from precedent when it issued its decision in Browning-Ferris Industries. Under Browning-Ferris, companies could be liable as joint employers based merely on the existence of reserved joint control, indirect control, or control that was limited and routine. The Browning-Ferris decision dramatically expanded the scope of joint employment under the NLRA.
In 2018, the U.S. Court of Appeals for the D.C. Circuit upheld certain portions of Browning-Ferris but found that the board applied the concept of indirect control too broadly. The ruling contributed to the board’s promulgation of the April 2020 rule under which joint employer status could only be found if a company exercised “substantial direct and immediate control” over one or more essential terms or conditions of employment. The new final rule replaces the 2020 standard and becomes effective Dec. 26, 2023.
New Final Rule
The new final rule builds upon Browning-Ferris, resulting in the broadest definition of “joint employment” to date. Under the new final rule, an entity may be considered a joint employer if it shares or co-determines employees’ essential terms and conditions of employment. In reaching its decision, the board concluded that the existence of an employer’s authority to control “essential” terms and conditions of employment — whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect — is determinative in evaluating joint employer status.
The final rule lists seven “essential” terms and conditions of employment: (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. If an entity has the authority to control at least one of these “essential” terms and conditions — regardless of whether it exercises that authority — the board will find joint employer status.
If the board finds that an entity is a joint employer under this standard, that entity must bargain with a union representing the jointly employed workers over any term or condition of employment over which it has authority, including non-essential terms and conditions of employment over which it has control. In addition, if an entity is found to be a joint employer under the new final rule, it may be held liable for unfair labor practices committed by the other joint employer.
The new rule is subject to the Congressional Review Act, which permits Congress to review and nullify (with the president’s authorization) new rules within 60 days of publication. Absent nullification, the rule will become effective Dec. 26, 2023. Given that the new final rule significantly expands the definition of “joint employment,” and will have substantial practical and legal consequences, the rule likely will be challenged in the courts.
Recommendations for Employers
The new rule comes on the heels of other recent labor-friendly decisions and rulemaking that provide unions multiple, more efficient avenues to the bargaining table and limit employers’ ability to effectively address organizing efforts.
The new final rule particularly affects companies that utilize subcontractors, staffing agencies or a franchise model. Under the new final rule, avoiding a joint employer classification could be difficult. Companies should consider reviewing their contracts with third parties to identify areas in which they might relinquish any visage of control over their temporary workforce.
For assistance with such matters, or for more information on this topic, please contact the authors, your McGuireWoods contact, or a member of the firm’s labor and employment team.