NLRB Revises and Broadens Test for Joint-Employer Status

On October 27, the National Labor Relations Board (“NLRB”) issued a long-awaited Final Rule (“Final Rule”) that will dramatically alter the test for joint-employer status. As proposed,  the Final Rule rescinds the NLRB’s 2020 Final Rule, with the NLRB claiming that the new rule “more faithfully grounds the joint-employer standard in established common-law agency principles.”   In effect, the Final Rule will make it easier for employees of franchises, staffing agencies, and potentially a broad swath of contractors to show that two entities are joint employers. If an entity is found to be a joint employer with the direct employer of unionized employees, “under common-law agency principles,” the entity can be liable for the unfair labor practices of the co-employer and can be required to negotiate with the union representing the workers under the National Labor Relations Act (“NLRA”).  The NLRB’s new rule will take effect on December 26, 2023 and is not retroactive.

This new rule comes at a time when there has been increased, and highly publicized, unionizing activity across industries. The Notice of Proposed Rulemaking was initially published on September 7, 2022, and the NLRB reported that it considered nearly 13,000 comments prior to issuing the Final Rule last week.

By way of background, the 2020 final rule set a higher bar for joint employer status, and rejected the notion that reserved, but wholly unexercised, control could establish a joint employer relationship. Under that former final rule, joint employer status could only be established on a showing that the entity at issue “possess[ed] and exercise[d] . . . substantial direct and immediate control” over terms and conditions of employment.  The newly-issued Final Rule states that an entity will be a joint employer if:

1. The entity has an employment relationship with the employee; and
   
   
2. The entity “shares or codetermines” one or more of the employee’s essential terms and conditions of employment. This means that the entity possesses “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.” Such “essential terms and conditions of employment” are exclusively defined 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. The working conditions related to the safety and health of employees.

Importantly, under the new Final Rule, a putative joint employer must merely possess the authority to control one or more of these terms or conditions to be deemed a joint employer, which is a significant departure from the existing 2020 final rule. The Final Rule issued on October 27 reinforces the D.C. Circuit’s 2018 decision in Browning-Ferris Industries of California, 911 F.3d 1195 (D.C. Cir. 2018), which found that “reserved authority to control and indirect control can be relevant factors in the joint-employer analysis.”

In short, under the new Final Rule, it is sufficient that the authority to control these terms and conditions exists, regardless of whether the entity exercises that authority or whether such control is direct or indirect.  As a result, the Final Rule broadens significantly the circumstances under which two separate business will be considered joint employers.  To accompany the new rule, the NLRB also issued a fact sheet.   

Employers who provide contract labor, as well as franchisees and staffing agencies, should review the terms of their agreements with the employer to whom they are providing services and assess the extent to which contractual changes – as well as actual practices – should be modified in light of the Final Rule.