NLRB Issues New Joint Employer Standard

On October 26, 2023, the National Labor Relations Board (NLRB) issued a Final Rule, rescinding and replacing its 2020 joint employer standard. The new standard for determining whether two employers are joint employers under the National Labor Relations Act (NLRA) will make it substantially easier for an entity to be considered a joint employer. “Joint Employers” are different entities that are deemed to exercise enough control over a worker that each has formed an employment relationship with that worker. A joint employer finding could put an entity at risk for potential labor violations and burden them with collective bargaining obligations. In particular, the Board’s joint employer standard will significantly impact the franchising industry, as well as entities that utilize staffing firms and contractors.

Under the new standard, an entity may be considered a joint employer if the entity “possesses the authority to control (whether directly, indirectly, or both) or exercises the power to control (whether directly, indirectly, or both) one or more of the employees' essential terms and conditions of employment, regardless of whether the employer exercises such control or the manner in which such control is exercised.” Therefore, even if an entity does not exert actual control over the terms and conditions of employment, an entity could still be considered a joint employer.

The rule rescinds the NLRB’s more employer-friendly 2020 rule, which required that an entity needed to exercise “substantial direct and immediate control” over one or more essential terms and conditions of an employee’s employment to be considered a joint employer. As we previously covered, on September 6, 2022, the NLRB issued a proposed standard for determining joint-employer status. See Calfee First Alert: NLRB Proposes New Joint Employer Standard. The Board’s 2022 proposed rule was modeled off of the common-law joint-employer standard outlined in the 2015 Browning-Ferris decision. See Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015) (BFI). Under the 2015 joint employer standard, the Board considered evidence of both reserved and indirect control over an employee’s essential terms and conditions of employment when determining joint employer status.

Like the 2015 joint-employer standard and the 2022 proposed rule, the Final Rule is based on common-law agency principles and the NLRA, which, according to the Board, recognizes that reserved control and indirect control are relevant. Specifically, Section 2(2) of the NLRA, defines an “employer” to include “any person acting as an agent of an employer, directly or indirectly” 29 U.S.C. 152(2) (emphasis added). Additionally, Section 2(3) of the NLRA defines an “employee” to include “any employee, and shall not be limited to the employee of a particular employer, unless [the Act] explicitly states otherwise…” Id. 152(3).

Importantly, although the Final Rule strongly resembles the 2022 proposed rule, the Final Rule was modified in three significant ways. First, the Final Rule provides an exhaustive list of seven terms and conditions of employment that are considered “essential terms and conditions of employment,” including:

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.

Second, the Final Rule more clearly identifies the type of control that establishes a joint-employer relationship and the types that are irrelevant to the joint-employer inquiry. Third, a joint employer must bargain collectively over any terms and conditions of employment that it has the authority to control.

The Final Rule is scheduled to take effect on December 26, 2023. However, employers should be aware that the Rule is subject to Congressional review, and it will likely face significant legal challenges. Pursuant to the Congressional Review Act, federal agencies are required to report the issuance of final rules to Congress. Congress has the option to either approve or overrule the final rules. In fact, the International Franchise Association, an organization of franchisors, franchisees, and franchise suppliers, recently released a statement threatening litigation and urging Congress to reject the joint-employer rule via the Congressional Review Act.

Calfee’s Labor and Employment attorneys are available to answer questions relating to the NLRB’s newly issued joint-employer standard.