United States: The NLRB Issues A New Joint Employer Rule Providing That Indirect And/or Reserved Control Of Essential Employment Terms Is Sufficient To Establish A Joint-Employer Relationship

On October 26, 2023, the National Labor Relations Board published its newest Standard for Determining Joint Employer Status in the Federal Register, which becomes effective 60 days from publication. In many ways, the Rule draws its essence from the Board's previous joint-employer doctrine, in which the Board held that an entity could be considered a joint employer under the National Labor Relations Act if it exercises sufficient "direct," "indirect" (e.g., by directing an intermediary service provider's relationship with the provider's employees) and/or "reserved" (e.g., potentially controlling employment terms of a service provider's employees through a reservation of contractual rights) control over one or more essential employment terms of an another entity's employees.

This expansive view of joint employment will threaten the viability of a range of relationships that are not intended to create joint employment, such as those between a business and its service providers, or a franchisor and a franchisee. Employers who contract with third parties for services must carefully consider whether and how to do so, as the risk of a joint employment finding has increased significantly.

By way of background, on February 26, 2020, the Trump NLRB issued a joint employer rule, which explicitly provided that the touchstone of joint employer status was direct and immediate control over another employer's employment terms. Indirect or reserved control could be relevant to the joint employer analysis, but was insufficient to establish joint employment. The Trump-era Rule was a welcome return to many of the aspects of the Board's pre-Browning Ferris analysis, which had been in effect for 30 years and afforded businesses contracting for services greater predictability that they could avoid joint employer status. Along those lines, reserved rights in service contracts that, for example, established minimum provider qualifications, required drug testing, or gave a service client the right to remove a contractor's employee from the premises, would not give rise to a joint employer finding.

The new joint employer Rule makes clear that either indirect and/or reserved control over another enterprise's employees' essential terms and conditions of employment can create a joint employer relationship – even in the absence of any direct control. But control over what, exactly? Under the new Rule, the Board has set out what it characterizes as an "exhaustive" list of essential employment terms and conditions:

Unlike under the Trump-era Rule, health or safety-related working conditions are now explicitly recognized as an "essential" employment term by the Board. This is unsurprising given the Board's recent information sharing agreement with the Occupational Safety and Health Administration (and OSHA's new proposed walk-around rule, which would allow a union organizer to accompany an employee and an OSHA representative on a site visit). As a practical matter, adding safety as an essential term and condition of employment – and explicitly including it in the joint employer calculus – will almost certainly create a joint-employer relationship where, for example, a Master Services Agreement between a prime contractor and a subcontractor contains certain minimum safety requirements. The same goes for an agreement between a franchisor and franchisee that includes the franchisor's expectations regarding worker safety.

Also unlike the Trump-era Rule, the Board for the first time in its rulemaking addressed the bargaining obligations of joint employers. The Rule makes clear that a joint employer need only bargain over those mandatory subjects over which it possesses direct, indirect or reserved control. Such a bargaining obligation is not limited to the essential employment term or terms giving rise to joint employer status. While the comments to the Rule indicate that joint employers need not bargain over their decision to end or modify the contours of their relationship (e.g., who controls what), joint employers likely still would need to negotiate over the effects of such changes. And – if they have been found to be joint employers – they could be at unfair labor practice risk if they undertake such changes for discriminatory reasons or to restrain employee rights to engage in collective activity.

Many critical questions remain unanswered by the new Rule – most notably, what quantum of relevant control is sufficient to establish joint employment? If one is deemed a joint employer and has a potential bargaining obligation, what does it mean to "control" a mandatory subject? For example, if a service client only is deemed to co-control the service provider's employee bonuses, can they be found to control the entire subject of "wages?" Or just "bonuses?" Such scope issues could become significant, because it is questionable under the common law whether a putative joint employer can have legal responsibilities over matters it does not in fact control.

The new Rule does confirm that certain "routine components of a company-to-company contract" will typically not be material to the joint employer analysis. These routine components include 1) "a very generalized cap on contract costs"; and 2) "an advance description of the tasks to be performed under the contract." In addition, franchisors have been given at least a modicum of relief: some enumerated forms of control that franchisors normally reserve to protect their brands (like logos, store design, and product uniformity) "will not typically create a joint employment relationship." The commentary to the Rule also catalogs a number of other factors that historically at least some courts have held to not be relevant to a joint employer finding. Businesses seeking to improve their odds of maintaining a contractor relationship should consider grounding their dealings in as many of those factors as possible.

Without belaboring the point, the new joint employer rule will almost certainly transform a slew of relationships understood and assumed to be arms' length ones into joint employer relationships. The consequences could be significant. A joint employment finding could saddle an unsuspecting employer with liability for an unfair labor practice or with brand new (and expensive) bargaining obligations. Employers with questions should consult with their Seyfarth labor counsel.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.