Key Takeaways:
- The National Labor Relations Board (NLRB) issued a new rule on Oct. 26, 2023, that significantly expands who qualifies as a joint employer under the National Labor Relations Act.
- The effective date of the new joint employer rule, which originally was Dec. 26, 2023, has been extended to Feb. 26, 2024, to facilitate resolution of legal challenges with respect to the rule.
- The new rule will be applied only to cases filed after it becomes effective.
Because of the significant legal and practical consequences of the new rule on employers, it quickly generated multiple legal challenges. On Nov. 16, 2023, the NLRB extended the effective date of the new joint employer rule to February 26, 2024, to facilitate resolution of the pending legal challenges. The new rule will be applied only to cases filed after it becomes effective.
In Holland & Knight’s November 21st online publication accessible HERE, it states that employers would be well served to start reviewing their agreements with subcontractors, staffing agencies and other entities to determine whether those agreements could be interpreted as reserving the right to potentially control any essential term or condition of another entity’s employees or otherwise creating exposure to a joint employer determination. Employers also should start assessing how much control they need to benefit from the business relationship, whether it makes sense to reserve control that it likely will never exercise and whether it is worth taking the risks associated with retaining too much control (including indirect and unexercised control) over essential terms and conditions of employment. Employers who cannot eliminate the risks should consider possible revisions to their contracts to allocate or shift responsibility for their potential joint employer liabilities.
The Joint Employer Standard
Under the final rule, two or more employers of the same particular employees are considered joint employers of those employees 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 the employer must possess the authority to control (whether directly, indirectly, or both) or exercise the power to control (whether directly, indirectly, or both) one or more of the employees’ essential terms and conditions of employment.
The Board provides a list of seven categories of terms and conditions of employment in the final rule that will be considered essential for the joint employer inquiry:
- 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.
Possessing the authority to control one or more of these essential terms and conditions of employment will be sufficient to establish status as a joint employer, regardless of whether the control is actually exercised by a company and exercising the power to control indirectly (including through an intermediary) one or more of these essential terms and conditions of employment will also be sufficient to establish status as a joint employer. The Board states that evidence of a company’s control over matters that are immaterial to the existence of an employment relationship that does not bear on the employees’ essential terms and conditions of employment is not relevant to the determination of whether the employer is a joint employer. The party asserting that an employer is a joint employer of particular employees will have the burden of establishing, by a preponderance of the evidence, that the company meets the requirements of the joint employer standard.
What Does the Board’s Joint Employer Final Rule Mean for Companies?
The final rule removes the requirement that a company must have actual control over another company’s employees’ terms and conditions of employment. A company that does not play an active or substantial role in hiring, supervising, or directing employees in setting their work hours, wages or benefits, and/or disciplining or discharging them could potentially be considered a joint employer and have the duty to bargain collectively with union representatives. The Board explains that the bargaining obligations will extend beyond just the essential terms and conditions of employment that an employer controls, to “any ordinary mandatory subject of bargaining that is also subject to an employer’s control.” The implications of the final rule could have a frustrating effect on companies and unions facilitating collective bargaining and reaching agreements. Companies that were never subject to the Board’s jurisdiction may now be forced to participate in collective bargaining and cover the costs of having to find representation in collective bargaining negotiations and hearings. Additionally, companies that would otherwise be considered neutral employers immune to picketing and boycotts may now be subject to lawful picketing in the case of a labor dispute involving the primary employer. Even in the absence of any union, employers may find themselves on the hook for the unfair labor practices of another entity. As noted, nonunion employees still have protections under the Act and can file unfair labor practices against their employers, including any alleged joint employers.
The implications of the final rule may have the greatest impact on franchise businesses, staffing companies, and professional employer organizations, as well as companies in construction and healthcare sectors. These companies could find themselves having to participate in collective bargaining for employees for whom they never exercised any real control over their employment terms. For example, franchisors that require their franchisees to adhere to strict brand standards that may extend to essential employment terms such as “work rules and directions governing the manner, means, or methods of work performance” or “working conditions related to the health and safety of employees” could find themselves a joint employer under the Board’s joint employer standard. Additionally, clients of staffing companies could now be considered a joint employer of that staffing company’s provided employees if any authority to control and/or indirectly control an essential employment term is reserved by the client (e.g., hours of work and scheduling, tenure of employment, etc.).
Industry groups within these business sectors, such as the International Franchise Association, have signaled that they will use every measure possible, including litigation, to enjoin the final rule. These groups, as well as other challengers, have raised the alarm that the Board’s final rule could create a new host of confusion for companies assessing whether they are a joint employer under the Act and have noted that other federal agencies, like the U.S. Department of Labor, have different joint employer standards. More to come on this developing compliance matter.
For more information, visit The National Labor Relations Board.