United States: NLRB's Final Rule On Joint-Employer Status Under The NLRA: An Overview And Employer Tips

On February 26, 2024, the National Labor Relations Board ("NLRB" or the "Board") will implement a significant rule change to the doctrine of joint employment, which will be of particular interest to employers, particularly those having relationships with staffing agencies, subcontractors, and franchisees. Ultimately, the Board's Final Rule rescinds and replaces an earlier rule issued during the Trump administration under which a business is assigned joint employer status only if the business exercised actual, direct, and immediate control over the essential employment terms and conditions, and such control was substantial. The new rule broadens the scope of which businesses can be considered joint employers.

Understanding the Final Rule for Joint-Employer Status

Under the Final Rule, the term "share or codetermine essential terms and conditions of employment" 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. The Board believes that the Final Rule is consistent with common-law agency principles and clarifies that an employer is not required to actually exercise substantial direct and immediate control over the essential terms and conditions of employment in order to be deemed a joint employer. It can be enough if the employer merely has the ability to control the terms. "Essential terms and conditions of employment" for purposes of the joint employer analysis are as follows: wages, benefits, and other compensation; scheduling of work; hiring and discharge; assignment of duties; supervision of the performance of duties; work rules and directions governing the manner, means and methods of performance and the grounds for discipline; tenure of employment; and working conditions related to safety and health.

If a business entity is determined to be a joint employer under the National Labor Relations Act ("NLRA"), the business entity may be held liable for a failure to adhere to provisions of the NLRA, including unfair labor practices, regardless of if the entity is unionized, or not.

Reserved Control

The Board, when deciding on joint-employer status, will 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...." This standard establishes that an entity does not have to exercise actual control over the terms and conditions of employment. For instance, a company who contractually reserves the right to make decisions regarding the performance of work by a group of employees can be found to be a joint employer. Reserved right to control is a broader rule that its 2020 predecessor, and may implicate a variety of business arrangements, such as those contracting for services (e.g., staffing agencies) and those involving third party intermediaries (e.g., franchisors-franchisees), when the object of control is an essential term or condition of employment as defined by the Final Rule.

Direct and Indirect Control

The Final Rule concludes that a business entity's exercise of control, either direct or indirect, including through an intermediary or agent, may establish an employment relationship. Indirect control may occur if a business entity provides ongoing oversight of the manner or means of the employee's task performance. The Final Rule does not offer specific examples of circumstances that may amount to indirect control, but the Board states that "the joint-employer inquiry is essentially factual and requires examining all of the incidents of a particular relationship on a particular record."

However, evidence of control over matters "immaterial to the existence of an employment relationship" and "do not bear on the employees' essential terms and conditions of employment" are not relevant to the joint-employer analysis. For instance, "routine components of a company-to-company contract will generally not be material to the existence of an employment relationship." The Board acknowledges that "very generalized cap on contract costs, or an advance description of the tasks to be performed under the contract" are company-to-company contracts that will generally not be probative of joint employer status. However, the Board does not rule out the possibility that such contract language will not be considered as part of a joint employer analysis.

Tips for Employers

Review contracts and evaluate relationships:

Employers should review existing contracts, especially those involving subcontractors, staffing agencies, or other contingent work arrangements to ensure that the agreements do not run astray of the Final Rule. Employers should also periodically evaluate relationships with subcontractors, vendors, and staffing agencies to identify and address any potential joint employer issues.

Consult legal counsel:

Given the complexity of employment relationships, seeking legal advice is essential. Consult with legal counsel to assess the potential impact of the Final Rule on your specific business model and take proactive measures to align with the Final Rule.

Documentation and recordkeeping:

Maintain thorough documentation of contractual agreements, communication, and any actions taken that demonstrate little to no control over essential employment terms. Clear records can serve as valuable evidence in case of disputes regarding joint employment status.