In yet another significant reversal, the National Labor Relations Board (NLRB) enacted a critical change in how it interprets the National Labor Relations Act (NLRA). On October 26, 2023, the NLRB released its final rule regarding the standard for determining joint employers in the private sector. As with many other recent changes to federal labor law, this rule change applies even to nonunion employers.
Under the new standard it is now easier to find that workers are employees of more than one employer. This means that the two otherwise separate and unrelated entities will be deemed to share all the same liabilities and obligations under the NLRA. This change will generally apply to workers engaged through staffing agencies or workers who are leased employees—for both temporary and regular employment. But it could also apply more broadly to employees of subcontractors or franchisees.
Under the new rule, as an example, the NLRB may impose liability for violations of the NLRA and the obligation to bargain with unions, on both the owner or operator of a facility, as well as on the staffing or leasing agency providing the workers. Now, the potential for joint employment exists where the owner or operator has the right to control the “essential” terms of employment of workers provided by the staffing or leasing agency.
Background
All this may sound familiar—the joint employment standard has gone through several iterations in recent years. In Browning-Ferris (2015), the Obama-era NLRB overturned the previously longstanding precedent that a company could only be considered a joint employer if it actually exercised both direct and immediate control over the terms and conditions of employment. Under Browning-Ferris, joint employment was determined by the right to control employees’ essential terms and conditions of employment, and the mere existence of that right was sufficient to find joint employment.
In 2020, the Trump-era NLRB used its rulemaking authority to again change the joint employment standard. The rule issued in 2020 stated that for companies to be considered joint employers, they must have and use the right to control essential terms and conditions of employment. The NLRB also broadened the definition of terms and conditions of employment to include, “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”
The New Standard
The new final rule is similar to the Browning-Ferris standard. Under the new final rule, two entities may be joint employers if they have the right to control even a single essential term or condition of employment. Joint employment exists under the new rule if:
“the employers share or codetermine those matters governing employees’ essential terms and conditions of employment. To ‘share or codetermine those matters governing employees’ essential terms and conditions of employment’ means for an employer to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.”
Additionally, the rule further expands the definition of “essential terms and conditions of employment,” which now include:
- 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 the 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.
Effective Date Delayed Until February 26, 2024, Due to Legal Challenges
The new rule was originally set to take effect on December 26, 2023. But after several lawsuits were filed in federal court challenging the new rule’s validity and a complaint filed by several senators alleging the implementation date violated the Congressional Review Act, the NLRB announced that it would delay the effective date until February 26, 2024. That date may be pushed out further still due to additional opposition in Congress and the status of litigation in federal courts.
Key Takeaways for Employers
While the effective date has been delayed until no earlier than February 26, 2024, employers would be well served to begin taking affirmative steps to mitigate risk when (or if) the rule does go into effect. The release of this new broad joint employment standard makes it easier for entities to be considered joint employers for purposes of triggering obligations under the NLRA. The far-reaching implications of this rule may have significant consequences for entities that use staffing companies, have temporary employees, contractors or subcontractors, or franchisor-franchisee agreements. The finding for joint employer status may obligate both entities to participate in negotiations with unions, while also making both entities responsible for any labor law liabilities, such as unfair labor practice charges.
What Employers Should Know Now:
- This rule applies to a broad scope of arrangements including staffing and temporary employment engagements, employing leasing arrangements, subcontracting, and franchising.
- Understand that an entity that sets or reserves the right to set workers’ essential terms or conditions of employment will be a joint employer with the other entity that implements such terms or conditions. For example, a franchisor dictating terms of employment for a franchisee’s workers will be the joint employer of the franchisees’ workers.
- The rule may trigger collective bargaining obligations, including pension contributions and other benefits under a collective bargaining agreement, or liabilities for unfair labor practices in common with the other entity that directly employs the workers.
What Employers Can Do Now:
- Review your current contracts and business relationships in light of this new rule to determine if contract terms with other entities may potentially trigger such bargaining obligations or liability for unfair labor practices.
- Consider carefully whether it is worth the risk to specify or reserve the right to specify essential terms or conditions of employment in your contract with another entity.
- When obtaining workers through another entity, require strong indemnification protection from the other entity for liabilities that may be created by, or within the control of, the other entity.
The legal issues impacting this topic are and will continue to be ever-changing (Employment Law in Motion!), and since publication of this blog post, new or additional information not referenced in this blog post may be available.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
