On October 27, 2023, the National Labor Relations Board (NLRB) published a final rule to establish a new standard for determining joint-employer status under the National Labor Relations Act (NLRA). Critically, under this new joint-employer rule, the Board can find that an entity is a joint employer under an expanded range of circumstances, including where such entity reserves some authority to determine an essential term or condition of employment for nonemployee workers, even if never exercised, or where an entity exerts so-called indirect control over working conditions.
Not only does the joint-employer rule significantly broaden the Board's definition of "employer," it increases potential liability and exposure for companies that engage third-party workers. The Board will apply the joint-employer rule when investigating unfair labor practice charges and union election petitions, as well as when determining whether an entity has any potential collective bargaining obligations. Further, the Board's expansion of what constitutes a joint-employer relationship could influence other state and federal agencies that investigate and address employment-related issues similarly to broaden the tests they apply.
The joint-employer rule is set to go into effect December 26, 2023. As the Board has provided some buffer between the announcement and the effective date, employers and other entities with contractor-subcontractor, franchise-franchisee, user-supplier and parent-subsidiary relationships, among others, should review their arrangements and contracts promptly to determine how the new rule may affect potential joint-employer liability.
Brief History
The development of this new joint-employer rule has a complicated history. Up until 2015, the Board under prior presidential administrations had consistently held that a company was a joint employer if it possessed substantial direct and immediate control over one or more essential terms or conditions of workers' employment. Thus, companies that utilized third-party workers typically were not found to be joint employers unless they were actually co-determining workers' terms and conditions of employment. However, in the 2015 case Browning-Ferris, the Board under the Obama administration held that two entities could be joint employers based on the mere existence of reserved joint control or based on indirect control, even when such control is "limited and routine." (See our related Alert.) This was a significant expansion of the definition of "employer" under Board law.
Two years later in 2017, the Board under the Trump administration attempted to restore the historical joint-employer test by issuing a new precedential decision. However, that decision was later vacated on technical grounds. Going back to the drawing board, in 2020 the Board issued a final regulation, codifying the historical joint-employer test through formal rulemaking. (See our related Alert.) The 2020 rule reestablished the narrower threshold for determining joint-employer status under the NLRA, requiring the existence of "substantial direct and immediate control" over workers' terms and conditions of employment. That is the regulation that has been in effect up until now.
As expected, soon after the Democrat majority regained control of the Board, it announced that it would seek to engage in further rulemaking to re-expand the joint-employer standard. The Board published a formal notice of proposed rulemaking in September 2022, previewing its vision for a broad joint-employer test. Then, on October 27, 2023, after an extensive comment period, the Board published the joint-employer rule in its final form.
The Biden Board's joint-employer rule expressly rescinds the Trump Board's 2020 rule and significantly expands the joint-employer standard. Once in effect, the Board will be able to find joint-employer liability based on reserved and/or indirect control of workers' essential terms and conditions of employment. Assuming no legal challenges stop the Board from enacting the rule, the joint-employer rule will apply to all cases filed after December 26, 2023. Notably, the statute of limitations for unfair labor practice charges is six months. Thus, there will likely be cases where the Board applies the new joint-employer standard retroactively against a company even though the alleged underlying events preceded the effective date of the joint-employer rule.
The New Joint-Employer Rule
Under the joint-employer rule (29 C.F.R. § 103.40), the Board will find a joint-employer relationship if the "employers share or codetermine those matters governing employees' essential terms and conditions of employment." Sharing or co-determining working conditions will include both possessing the authority to control (whether directly, indirectly or both) and exercising the power to control (whether directly, indirectly or both) one or more of the employees' essential terms and conditions of employment.
The joint-employer rule sets forth seven exclusive "essential terms and conditions of employment" that the Board will consider when assessing a potential joint-employment relationship:
- Wages, benefits, and other compensation;
- Hours of work and scheduling;
- The assignment of duties to be performed;
- The supervision of the performance of duties;
- Work rules and directions governing the manner, means and methods of the performance of duties and the grounds for discipline;
- The tenure of employment, including hiring and discharge; and
- Working conditions related to the safety and health of employees.
While this is a closed list of the terms or conditions of employment that will be considered "essential" for the purposes of a joint-employer inquiry, having direct or indirect authority or mere influence over just one of the categories could implicate joint-employer status. As an exclusive list, other categories of working conditions will not be considered in assessing joint-employer status under the NLRA. However, the seven categories are so broad (e.g., health and safety), a company could be deemed a joint employer of practically any third-party employee that provides onsite services.
In justifying its expansive joint-employer standard, the Board explained that including "reserved control" accounts for situations where an alleged joint employer maintains authority to control essential terms and conditions, but has not yet exercised such control. Because the entity reserving such control could step in at any moment to change the workers' conditions of employment, even if the entity does not actually exercise such control, such reserved influence may cast a shadow over the other employer's decision-making concerning such terms. With respect to the concept of "indirect" control, the Board stated that it was seeking to prevent entities from escaping liability or responsibility by acting through the cover of a third-party intermediary when the reality is that there is an employment relationship.
As a general matter, the issue of joint-employer status arises in a variety of circumstances. More commonly, companies see increased risk of joint-employer liability when they contract with third-party services that regularly provide workers (e.g., staffing services, janitorial and maintenance services, IT services, etc.) or when one entity has some sort of formal, corporate affiliation with another entity (e.g., parent-subsidiary, franchisor-franchisee, contractor-subcontractor, etc.). Under the prior joint-employer standard, while it was still possible for an entity that was not directly employing the workers at issue to be a joint employer, there had to be evidence of significant, direct control over the terms and conditions of the workers' employment such as having and exercising the authority to supervise, direct, hire or fire such workers. However, under the new rule, the Board will look at how an entity influences the terms and conditions of the workers' employment. This could be as subtle as establishing onsite safety rules that apply to third-party workers, or negotiating rates for services that affect workers' wages; "indirect control" is a broad and vague concept.
Creating additional difficulties for the entities this may affect, the Board stated that it will assess an alleged joint-employer relationship on a case-by-case basis. In other words, the Board does not intend to apply the joint-employer rule in a categorical way with respect to certain types of business relationships. Instead, regardless of the contractual or corporate relationship, the Board will treat each circumstance as unique and conduct a fact-specific analysis. Further, the Board reiterated that its joint-employer rule is completely distinct from the Department of Labor's (DOL) economic realities test for establishing an employment relationship, even though the DOL is the federal agency within which the NLRB operates. Companies should continue to be aware of the various employment-relationship tests that different state and federal agencies apply, as there are substantive differences.
Finally, the Board explained that if an entity is found to be a joint employer of employees represented by a union, that entity will have a legal obligation to bargain collectively over the specific essential terms and conditions of employment, as well as any other mandatory subjects of bargaining, that it controls or has authority to control. The Board did not provide any guidance as to how, practically, that would take place, nor did it expand on how a company could have the authority to bargain at the table over subjects for which it "indirectly" influences. By way of example, a collective bargaining agreement typically contains numerous articles about various employment-related working conditions. Would the purported joint employer only be party to the agreement in part, signing off on one article but not another? Collective bargaining is already a complex process with many moving parts; adding this joint-employer bargaining requirement makes that process even more complicated.
What This Means for Employers
The reformation of the joint-employer standard dramatically expands what constitutes an employment relationship under the NLRA. An entity's reserved, unexercised authority to indirectly control even one of the seven enumerated essential terms and conditions of employment could result in a determination that such entity is a joint employer. This is significant because if an entity is a joint employer, it can be required to bargain with a union representing workers jointly employed. It can also be found liable for unfair labor practices committed against workers that otherwise would not have been considered that entity's employees.
Another legal issue that companies need to keep in mind is the increasing regulation of third-party service providers at the state and local level. For example, New Jersey recently passed the Temporary Laborers' Bill of Rights, which requires staffing companies to pay covered temporary laborers the same average rate of pay and the average cost of benefits as a permanent employee of a third-party employer "performing the same or substantially similar work on jobs the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions." (N.J.S.A. 34:8D-7; see also our Alert.) Given this legislation, could the establishment of the employees' wages and benefits be considered "indirect" control of the temporary employees' wages, leading to a finding of joint-employer status? It is anything but clear.
Corporations, small and large alike, could be subject to bargaining obligations that they were not aware they had and may have greater exposure to liability for unfair labor practice violations. Thus, companies should take steps now to analyze their commercial relationships with other entities to identify any potential joint-employer implications under the new standard. This should include closely examining business relationships and written contractual agreements with other entities that relate to shared workers. Specifically, companies should evaluate their current business needs and, where unnecessary, eliminate contractual clauses that preserve or reserve to them direct or indirect control over any of the seven essential terms and conditions of employment for that third party's employees. Training managers and supervisors to avoid the direct or indirect control of third-party employees is also key.
For More Information
If you have any questions about thisAlert, please contact Eve I. Klein, Elizabeth Mincer, Gregory Slotnick, any of theattorneysin our Employment, Labor, Benefits and Immigration Practice Groupor the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
