United States: New NLRB Rulemaking May Change The Joint-Employer Standard

The National Labor Relations Board ("NLRB")'s joint-employer standard has recently been in a state of flux, making it difficult for employers to understand their potential obligations and liabilities under the law. Generally, the joint-employer standard determines whether one business is a joint employer of another entity's employees by evaluating several factors related to employee control. The joint-employer standard is important to businesses large and small because it determines whether a business is responsible for the labor law violations and collective bargaining obligations of its affiliates, temp agencies, contractors and franchisees.

On September 14, 2018, the NLRB issued a notice of proposed rulemaking that would alter the broad joint-employer standard established during the Obama administration and provide much-needed guidance for employers dealing with actual or potential joint-employer liability. The proposed rulemaking would bring clarity to businesses that contract with other businesses for labor or that have intertwined employee relationships with other businesses.

Background

For a half-century prior to 2015, the NLRB had a bright-line rule that joint-employer status would apply only to an employer that exercised a significant degree of direct and immediate control over another employer's employees' essential terms and conditions of employment. This rule was simple to apply. If one business had the authority to hire and fire the other businesses' employees, it had direct and immediate control sufficient to be considered a joint employer.

In 2015, the NLRB abruptly changed the standard. Under the new broader standard, a business could be considered a joint employer if: (1) it possessed the potential right to control the terms of employment (even if that right went unexercised); or (2) it exercised indirect control over the terms of employment. Even more, the NLRB expanded the definition of "terms and conditions of employment" to include wages and hours. In contrast to the old joint-employer standard, the new standard is not a bright-line rule. Instead, it requires a case-by-case analysis of the employment relationship, causing confusion and requiring expensive litigation for employers.

In late 2017, after the change in presidential administrations, the NLRB overturned its 2015 decision and briefly returned to the longstanding joint-employer standard it had employed for decades before 2015. However, this return to the original, bright-line standard was short-lived. In early 2018, the NLRB again reversed course, holding that its 2017 decision was invalid because of one Board member's conflict of interest. As a result, the broader joint-employer standard adopted under the Obama administration in 2015 was reinstated.

The current joint-employer standard has resulted in uncertainty over which workplace policies may trigger joint-employer status. Without a bright-line rule in place, many employers are left to wonder if they may be liable for the labor law violations or collective bargaining obligations of other entities. This fear is not unfounded. Under the current rule, for example, a franchisor is more likely to be held responsible for a franchisee's employment-based legal disputes.

The Proposed New Rule

The NLRB's proposed new rule provides that an employer may be found to be a joint employer of another employer's employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Essentially, the proposed rule would mark a return to the bright-line joint-employer standard that was employed by the NLRB for decades prior to the establishment of the current standard under the Obama administration. The current, broader standard of indirect or potential control would not be sufficient to establish a joint-employer relationship under the proposed new rule.

The National Labor Relations Board ("NLRB")'s joint-employer standard has recently been in a state of flux, making it difficult for employers to understand their potential obligations and liabilities under the law. Generally, the joint-employer standard determines whether one business is a joint employer of another entity's employees by evaluating several factors related to employee control. The joint-employer standard is important to businesses large and small because it determines whether a business is responsible for the labor law violations and collective bargaining obligations of its affiliates, temp agencies, contractors and franchisees.

On September 14, 2018, the NLRB issued a notice of proposed rulemaking that would alter the broad joint-employer standard established during the Obama administration and provide much-needed guidance for employers dealing with actual or potential joint-employer liability. The proposed rulemaking would bring clarity to businesses that contract with other businesses for labor or that have intertwined employee relationships with other businesses.

Background

For a half-century prior to 2015, the NLRB had a bright-line rule that joint-employer status would apply only to an employer that exercised a significant degree of direct and immediate control over another employer's employees' essential terms and conditions of employment. This rule was simple to apply. If one business had the authority to hire and fire the other businesses' employees, it had direct and immediate control sufficient to be considered a joint employer.

In 2015, the NLRB abruptly changed the standard. Under the new broader standard, a business could be considered a joint employer if: (1) it possessed the potential right to control the terms of employment (even if that right went unexercised); or (2) it exercised indirect control over the terms of employment. Even more, the NLRB expanded the definition of "terms and conditions of employment" to include wages and hours. In contrast to the old joint-employer standard, the new standard is not a bright-line rule. Instead, it requires a case-by-case analysis of the employment relationship, causing confusion and requiring expensive litigation for employers.

In late 2017, after the change in presidential administrations, the NLRB overturned its 2015 decision and briefly returned to the longstanding joint-employer standard it had employed for decades before 2015. However, this return to the original, bright-line standard was short-lived. In early 2018, the NLRB again reversed course, holding that its 2017 decision was invalid because of one Board member's conflict of interest. As a result, the broader joint-employer standard adopted under the Obama administration in 2015 was reinstated.

The current joint-employer standard has resulted in uncertainty over which workplace policies may trigger joint-employer status. Without a bright-line rule in place, many employers are left to wonder if they may be liable for the labor law violations or collective bargaining obligations of other entities. This fear is not unfounded. Under the current rule, for example, a franchisor is more likely to be held responsible for a franchisee's employment-based legal disputes.

The Proposed New Rule

The NLRB's proposed new rule provides that an employer may be found to be a joint employer of another employer's employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Essentially, the proposed rule would mark a return to the bright-line joint-employer standard that was employed by the NLRB for decades prior to the establishment of the current standard under the Obama administration. The current, broader standard of indirect or potential control would not be sufficient to establish a joint-employer relationship under the proposed new rule.

Conclusion

While the NLRB is currently only at the beginning of the rulemaking process, businesses are considering it a step in the right direction. If the proposed rule is adopted, employers will fagain have clarity on the joint-employer issue. The proposed rule would lessen employers' potential liabilities and collective bargaining obligations.

For now, the broader joint-employer standard adopted during the Obama administration remains in place. The NLRB's September 14th notice of proposed rulemaking started the process toward adopting a new rule, but the rulemaking process will take some time. There is a period of public comment and the potential for public hearings. Currently, the comment period is set at 60 days, and no public hearings have been announced. It is difficult to predict how long the entire rulemaking process will last, but it could take months if not years for a rule to be finalized.

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.

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