HR Legalist

NLRB Announces Final Rule for Employee-Friendly Joint Employer Test

As HR Legalist predicted when the National Labor Relations Board (NLRB) announced the proposed rule in September 2022, the pendulum of federal labor and employment law has once again swung in an employee-friendly direction. Yesterday (10/26/2023), the NLRB released a final rule regarding the joint-employer doctrine.  The final rule, published in the federal register on October 27, 2023, and scheduled to go into effect on December 26, 2023, provides a broadened standard for when two employers that conduct business together are considered to be joint employers—and thus required to bargain with unions and subject to potential joint liability for violations of the National Labor Relations Act (NLRA).

The final rule officially replaces the Trump-era rule that took effect on April 27, 2020. As detailed in our prior update in February of 2020, under the Trump-era rule, an employer was considered a joint employer only if it had direct and immediate control over the essential terms and conditions of employment of another company’s workers. By requiring “substantial direct and immediate control,” the prior rule provided a bright line for businesses to assess risk. By contrast, the new rule is more open-ended.

According to the NLRB’s Democratic majority, the new joint-employer standard reflects both a return to common-law principles and a provides a more practical approach to ensuring that businesses effectively exercising control over workers respect their bargaining obligations under the NLRA. Overall, the finalized rule is similar to what was expected when the proposed rule was unveiled last fall, with some additional specifics outlined below.

Type of Control for Joint Employer Status

According to the NLRB majority, the common law principles announced in 2015’s Browning-Ferris[1] decision “make it appropriate for the board to give determinative weight to the existence of a putative joint employer’s authority to control essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect, such as through an intermediary.”  Thus, if a franchise agreement allows the franchisor to make changes to the terms and conditions of workers at an independently-owned franchise location, the franchisor—with its likely deeper pockets—could be deemed a joint employer even if it never exercises its power to meddle in the affairs of its smaller franchisees.  Notably, the sole dissenter to the new rule, Republican NLRB member Marvin Kaplan, described the new rule as even broader than the standard announced in Browning-Ferris, and thus potentially damaging to employers and the economy.

 Essential Terms and Conditions of Employment

The proposed rule provided an illustrative list of essential terms and conditions of employment. By contrast, the final rule provides an exhaustive list of seven categories of terms or conditions of employment that will be considered “essential” for purposes of the joint employer inquiry: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.

Bargaining Obligations for Joint Employers

The final rule clarifies that if two entities are joint employers, both must bargain with the union that represents the jointly employed workers.  Additionally, both companies would face potential liability for the unfair labor practices of the other, and both could face union picketing or other economic pressure in the event of a labor dispute. A company deemed a joint employer must bargain with workers regarding any term or condition of employment that it possesses the authority to control—regardless of whether that term or condition is deemed to be an essential term or condition of employment under the rule. Practically speaking, a joint employer (such as a franchisor or a company that relies on a staffing company or temp agency) may be required to negotiate with unionized workers when it controls their pay, benefits or other key job terms outlined above. In addition, sufficient control can be established even if the alleged joint employer wields that power only through another entity, such as a staffing firm.

The new rule has extremely broad implications for the business community. Readers and employers interested in obtaining advice regarding the impact of this rule on their specific businesses should contact their employment counsel or an attorney within Obermayer’s Labor and Employment group.

[1] See Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015), summarized by HR Legalist here.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.