NLRB Returns to a More Expansive Joint Employer Standard
Today, October 26, 2023, the National Labor Relations Board issued a final rule that rescinds and replaces the Trump Administration’s 2020 rule establishing the current test for determining whether two entities are joint employers. This new rule will result in more findings that two entities are joint employers. Under federal labor law, a joint employer is required to bargain with a union selected by its jointly-employed workers and may be held liable for the unfair labor practices committed by the other employer.
The Prior Standard. The issue of joint employer status has been a focus of the Board over the past decade, with major swings in the standard occurring during each change in administration.
In 2015, in Browning Ferris Industries, the Board under the Obama Administration revised the joint employer standard. Specifically, the Obama Board held that it would not require proof that an alleged joint employer exercised “direct and immediate” control over the essential working conditions of another company’s workers. Additionally, the Obama Board stated that it would find joint employment even where a company’s control over another employer’s workers was indirect, limited and routine, or contractually reserved but never exercised.
In 2020, under the Trump Administration, the Board issued a final rule narrowing the circumstances under which the Trump Board would find joint employment. Under the 2020 rule, the Trump Board would require proof of “direct and immediate control” over workers’ essential terms and conditions of employment, including wages, benefits, hiring, and discipline, among other working conditions. The Trump Board further stated that indirect control or contractually-reserved but unexercised control would be insufficient to establish a joint employer relationship.
The New Standard. The new final rule nixes the Trump Administration’s 2020 rule and effectively reinstates and expands the Browning Ferris Industries standard. Once again, the Board will find joint employment where two employers “share or co-determine” essential terms and conditions of employment, even if one of the employers possesses only “indirect” or “contractually reserved” control. This now specifically includes authority exercised through an intermediary. Under the new rule, two companies will be joint employers of workers if they “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.”
The rule broadens what is deemed an “essential term and condition of employment.” The 2020 rule set forth a limited list of essential terms and conditions as including only the following: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. The new rule has set forth an expanded list:
- 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.
Although the proposed rule had suggested that this list might not be exhaustive, the final rule limits the definition of essential terms and conditions to these items. According to the new rule, authority over other matters will not be sufficient to trigger joint employer status. The new rule also specifically asserts that “[e]voidance of an entity’s control over matters that are immaterial to the existence of an employment relationship under common-law agency principles and that do not bear on the employees’ essential terms and conditions of employment is not relevant to the determination of whether the entity is a joint employer.”
The new rule also clarifies that a joint employer must bargain collectively with employees’ representative with respect to any term or condition of employment that it possess the authority to control or exercises the power to control – even for non-essential terms or conditions of employment, which is an unwelcome expansion of the bargaining obligation.
The new rule takes effect on December 26, 2023, and the new standard will be applied only prospectively, meaning that the old standard will continue to apply to cases filed before that date. Note, however, that any arrangements that rely on the old standard may fall afoul of the new standard once it takes effect.
Employer Takeaways. The new rule will result in increased Board findings of joint employer relationships. This will occur even where one company’s control over essential terms and conditions of employment is “indirect” or “reserved” but not exercised. Employers utilizing staffing agencies will likely be significantly impacted by this rule once it is finalized. And similarly, the franchise relationship will be fertile ground for the assertion of joint employer status. Further, companies utilizing onsite contractor employees subject to certain work rules of the host company may be unwittingly ensnared by this new standard if the rules govern “the manner, means, and methods” of work performance and discipline.
If recent history is a guide, however, this new standard may again be revisited if and when the political pendulum swings right and Republicans return to the majority on the Board.
We further note that the standard articulated here by the Board is distinct from the Department of Labor’s standard, which relies on an economic-realities test. (We discuss the current DOL standard here). The Equal Employment Opportunity Commission and states also utilize other standards for determining joint employer status. Thus, employers should be aware that different standards may apply in different contexts, even to the same workers.