Adding to the list of employer-punishing labor changes this year, on October 26, 2023, the National Labor Relations Board (NLRB or Board) issued a final rule establishing a joint employer standard. The standard defines when a business entity may be considered a joint employer of a group of another business’ employees, requiring them to collectively bargain with and be liable for unfair labor practices under the National Labor Relations Act (NLRA).
As expected, the Board reverted to the previous version of the rule under the Obama administration, which made a business liable as a joint employer when it merely held “indirect” or “reserved” control over one or more essential terms and conditions of employment. In 2020, the Trump administration had re-established a “direct and immediate” standard, which limited the joint employer relationship to only cases where a business directly and actually exercised control and had a regular or continuous effect on another business’ employees.
This new final rule states that a business “may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employees’ essential terms and conditions of employment, which are 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) working conditions related to the safety and health of employees.” And, to share or codetermine those matters “means for an employer to possess the authority to control (whether directly, indirectly, or both) or exercise the power to control (whether directly, indirectly or both) one or more of the employees’ essential terms and conditions of employment.”
The major change from the previous 2020 rule is the final rule reverts to a broad and ambiguous standard where allegations by a union of a business’ reserved authority to control the terms and conditions of employment– without regard to any actual control and without regard to whether the alleged control is indirect (for example, on behalf of another employer or through an intermediary) may be sufficient to establish a joint employer relationship between two businesses.
The NLRB claims “reserved control” is grounded in traditional, common-law principles that require that an employment relationship exists whenever the employer retains the right to direct how business should be done. And, the only type of control not relevant to the joint employer status is alleged control that is “immaterial.”
Further, while the Board purports that its final rule “reflects both a legally correct return to common-law principles and a practical approach,” undoubtedly, the result is more legal uncertainty because of its ambiguous terms. The Board itself states in its “Joint Employer Fact Sheet” that “while the final rule establishes a uniform joint-employer standard, the Board will still have to conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.” This clearly means increased litigation. Consider the uncertainty created, for example, to franchisors – who may now have collective bargaining liability for a broad network of franchisees because of some alleged “reserved” contractual authority to define the hours of operation; businesses – who may now need to bargain with groups of independent contractors of whom it has more than any “immaterial” control; small businesses – who may now have direct liability for seasonal or temporary labor because they limit specific work timeframes; or large companies – who may now have direct liability to smaller businesses that may be included on large work projects because they are subject to safety and health requirements under a master contract. Maybe all of these business relationships are subject to additional and unexpected layers of employment liability under the NLRA, only the Board knows.
The bottom line is that more employers will now be on the hook to bargain collectively with union representatives because a joint employer relationship will be easier to establish. Be warned – employment liability is closer to businesses than may appear – so contact your employment counsel to make significant maneuvers to avoid these potential risks.