NLRB's Final Rule Revamps Definition of Joint Employers – What Employers, Franchisors, and Staffing Agencies Should Know

Executive Summary: Yesterday (October 26, 2023), the National Labor Relations Board (NLRB) issued its final rule addressing the standard for joint employer status. It expands liability for affiliated businesses, mandating collective bargaining under the National Labor Relations Act and potentially holding franchisors and staffing agencies liable for unfair labor practices committed by the primary employer.

Overview

In the final rule, the NLRB posited seven categories that cover “essential terms and conditions of employment,” which it will consider in determining joint employer status. These include: 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. Sharing or codetermining one or more of the proscribed essential terms and conditions of employment by two unrelated entities is sufficient to confer joint employer status. The party asserting joint-employer status need only meet this requirement by a preponderance of the evidence. Notably, the putative employer (i.e., franchisor or staffing agency) will be found a joint employer if it has indirect control, even if that control is never exercised.

The rule replaces the Trump-era policy that required the putative employer to have “direct and immediate control” of an essential term or condition of employment. That policy limited the circumstances in which a business and its affiliates could be deemed joint employers. In rescinding the old rule, the NLRB found its former policy “contrary to the common-law agency principles that must govern the joint-employer standard under the Act.” In his dissent, the lone Republican member of the NLRB, Marvin Kaplan, disagreed and highlighted that the “final rule effects an unprecedented and unwarranted expansion of the board’s joint employer doctrine.”

The NLRB’s final rule makes it easier for employees of franchisees and staffing agencies to show that the business, franchisor, or user firm they work for is their joint employer, which, in turn, will mandate a seat at the bargaining table. The rule also clarifies that control over matters that are not essential terms and conditions of employment are “immaterial” to the joint employer inquiry. This includes evidence of indirect control that common law agency principles would consider reflective of an ordinarily “company-to-company or true independent-contractor relationship.” Despite the clarity it would provide, the Board declined to list a set of examples, citing the “innumerable variations” with which “companies interact with each other, and with each other’s employees,” making such a finding “impossible.”

Details of the Final Rule

1. The employer has an employment relationship with alleged employees under common law agency principles.
2. Two or more employers who share or codetermine the essential terms and conditions of employment.
3. To “share or codetermine” means to have 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’ terms and conditions of employment.
4. “Essential terms and conditions of employment” include:

• 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.

5. The party asserting joint employer status can meet its burden by a preponderance of evidence showing either:

• The employer possesses the authority to control one or more essential terms and conditions of employment, regardless of whether such control is exercised; or
• The employer’s exercise of indirect control (through an intermediary) of one or more essential terms and conditions of employment, regardless of whether the power is exercised indirectly.

6. If the above is established, even with “immaterial” evidence mentioned earlier, the joint employer must collectively bargain regarding any term and condition of employment that it possesses the authority to control or exercises the power to control, regardless of whether that term or condition is not an essential term and condition of employment, i.e., “immaterial” evidence mentioned earlier.