NLRB Proposes New Rule Expanding Scope of Joint-Employer Standard: What Might This Mean for You?
On September 6, the National Labor Relations Board (the Board) issued a proposed rule to revise the current standard to determine whether employers are “joint employers” under the National Labor Relations Act (NLRA). The proposed rule would rescind the Trump-era Board’s definition of “joint employer,” in which an employer must possess and exercise “direct and immediate control” over the terms and conditions of employment of another company’s employees in order to be deemed a joint employer under the NLRA. Instead, the proposed rule adopts a broader standard in which an employer may be a joint employer if it possesses or exercises direct or indirect control over the terms and conditions of employment.
If the proposed rule is issued as written, it would have significant implications for employers deemed to be joint employers—including, but not limited to, a requirement to bargain with a union that represents any jointly employed workers.
Background of the “joint employer” standard
The central issue regarding the Board’s shifting position on the joint employer standard is the degree of control an entity must exercise to be considered a joint employer. For decades, a joint employment relationship was established if an entity exercised “direct and immediate” control over essential terms and conditions of employment. In its 2015 decision in Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015) (BFI), the Obama-era Board expanded the definition of “joint employer” to include employers even if they have only “reserved and indirect control” over employees. The U.S. Court of Appeals for the District of Columbia partially upheld this position, finding that “the Board’s determination that both reserved authority to control and indirect control can be relevant factors in the joint-employer analysis” was “fully consistent with the common law.” However, the court remanded the case to clarify that a joint employer’s control must bear on essential terms of conditions of employment only, and “not on the routine components of a company-to-company contract.”
In the midst of the BFI appeal, a newly appointed Board under the Trump administration issued a proposed rule that restricted the definition of joint employer to only those that possessed and actually exercised “substantial direct and immediate” control over employees. That rule was finalized in 2020 and still remains in effect today.
The proposed rule
The Board’s new proposed rule returns to the BFI standard and common law principles. According to the proposed rule, “two or more employers of the same particular employees are joint employers…if the employers share or codetermine those matters governing employees’ essential terms and conditions of employment.”
To “share or codetermine” 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” (emphasis added). Furthermore, the proposed rule emphasizes that merely “possessing the authority to control is sufficient to establish” joint-employer status, “regardless of whether control is exercised.”
The proposed rule also expands the current definition of “essential terms and conditions” of employment. Under the current rule, that list exclusively encompasses “wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.” However, the proposed rule provides a non-exclusive list of factors that “will generally include, but are not limited to: wages, benefits, and other compensation; hours of work and scheduling; hiring and discharge; discipline; workplace health and safety; supervision; assignment; and work rules and directions governing the manner, means, or methods of work performance.”
In their dissent, the two Republican Board members stated that the proposed rule is premature since it has been “merely” two-and-a-half years since the 2020 rule was promulgated. Furthermore, they argued that the proposed rule is “arbitrary, and capricious because it fails to provide meaningful guidance,” and that it goes far beyond the common law and the BFI standard in its expansion of the scope of the joint-employer definition.
Public comments regarding the proposed rule are due by November 7, 2022. Responses to the initial comments are due to the Board by November 21, 2022. It is anticipated that commenters will accept the Board’s invitation to the public to discuss which “contractual controls reserved by the joint employer over another entity’s employees” should factor into whether the entity is a joint employer. It is possible the Board will alter the test based on public comments, particularly with respect to this issue.
The potential implications of a broader joint employer standard are significant, particularly for franchisee/franchisors, staffing agencies, and other business models utilizing third party employees. Under the proposed rule, mere contractual language aimed at addressing issues such as product quality and safety could contribute to a finding of a joint employer relationship if they rise to the requisite level of control under the Board’s revised standard. Both employers could be required to bargain regarding the jointly employed employees’ terms and conditions of employment, and both employers could be jointly and severally liable for any committed unfair labor practices. While the rule is merely proposed, employers in these industries should evaluate their agreements and relationships to determine the extent to which the potential changes would affect their operations.
Additionally, the Board’s joint employer rule could be adopted by other federal agencies also grappling with joint employment standards for laws within their purview, including the U.S. Department of Labor. The joint employer rule could also factor into the Board’s continued consideration of whether college athletes are employees under the NLRA. We will continue to monitor these developments.
As always, please reach out to our attorneys if you have any questions about the proposed rule and its potential implications for your workplace.
*Also authored by Jenny Lee, a third-year law student at Loyola University Chicago School of Law, currently a law clerk at Franczek P.C.