Employers Face New Joint Employer Standard Issued by the NLRB

The joint employer standard sets forth when two or more entities may be considered joint employers of a group of employees under the National Labor Relations Act. Determining that a company is a joint employer is hugely consequential because joint employers have a duty to bargain with what they previously believed were another entity’s workforce and can be held liable for labor law violations emanating from that workforce. In recent years, the National Labor Relations Board (NLRB) has changed the rules several times regarding when an employer is deemed to be a joint employer. A final rule published on October 27, 2023, has revised the standard yet again. 

History of the Joint Employer Standard

Prior to 2015, to be deemed a joint employer, an employer was required to actually exercise “direct and immediate” control over the employment terms and conditions of another company’s employees. This changed in 2015 with the NLRB decision in Browning-Ferris Industries of California, Inc., 362 NRLB 1599 (2015), which expanded the standard to encompass employers that either controlled employment terms and conditions indirectly, had control that was limited and routine, or had the ability to control that was reserved but never actually exercised.

In 2020, under a new administration, the NLRB revised the joint employer standard yet again. Joint employers were required to share or codetermine the employees’ essential terms and conditions of employment. That standard was met by employers that “possess and exercise such substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees as would warrant a finding that the business meaningfully affects matters relating to the employment relationship.” The 2020 rule further clarified that the list of essential terms and conditions included wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

New Joint Employer Standard

The new rule brings the standard closer to the one established by Browning-Ferris in some respects. It provides that joint employers are ones that “share or codetermine those matters governing employees’ essential terms and conditions of employment.” However, the rule now defines “share or codetermine” to mean the employer must “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.”

Under this standard, employers may be joint employers if they have the right to control an essential term and condition of employment even if they never exercise that right. The NLRB’s rationale for this expansion is that an employer could use that power at any time even if they haven’t yet done so.

Further, employers with indirect control (including through an intermediary) over one or more essential terms and conditions of employment are joint employers, regardless of whether the power is exercised directly. The basis for this provision is that employers may try to avoid joint-employer status by using an intermediary to exercise such control. 

The rule also provides that an employer is only required to have the authority to control one of the following essential terms and conditions of employment:

• 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.

“Working conditions related to the safety and health of employees” may be especially problematic since many employers have rules governing the safety and health of employees, including restrictions on access to certain areas, or requiring safety-related protective gear.

Impact of Being a Joint Employer

Importantly, the new rule only affects the definition of joint employer under the National Labor Relations Act, not the Fair Labor Standards Act (“FLSA”), which has a different joint employment test that applies to wages and hours. However, this still means that if an employer is found to be a joint employer, it has a duty to bargain with unions representing the employees of the other employer with respect to those essential terms and conditions that it possesses or exercises the authority to control. In addition, joint employers may be liable for unfair labor practices of the other employer. A joint employer may also be picketed by striking workers.

Next Steps for Employers

The rule goes into effect on December 26, 2023, and will only be applied to cases filed after that date. In the interim, employers should consult an attorney about whether they may be adversely affected by the new standard and how they may mitigate the risks contractually with vendors and other entities they work with such as staffing agencies, franchises, etc.

Notably, the rule is virtually certain to be challenged in court, and employers should therefore monitor any subsequent legal developments related to its implementation. In addition, the rule may ultimately be overturned if a new administration is elected in 2024.

Please feel free to reach out to any of our employment attorneys if you have any questions or would like our assistance in complying with the NLRB’s new joint employer rule.

NOTICE: Material provided on this website has been prepared by Kauff McGuire & Margolis LLP solely for general informational purposes, and it is not intended to and does not constitute legal advice. Material provided on the website is not privileged and does not create an attorney-client relationship with the Firm or any of its lawyers.