NLRB issues new final rule on joint employer status

On February 25, 2020, the National Labor Relations Board (NLRB) published a final rule returning to a tighter standard for determining when workers are considered to be jointly employed by two or more employers under the National Labor Relations Act (NLRA).

The final rule rolls back a broader test adopted by the NLRB in 2015. Under the previous test, an employer could be classified as a joint employer, and be subject to obligations under the NLRA, even if it exerted (or reserved the right to exert) only “indirect control” over the terms and conditions of employment of another employer’s workers.

Now, while the new, stricter test takes into account “indirect control,” it is not sufficient on its own to establish joint employer status. Instead, an entity now may only be considered a joint employer if the two businesses “share or codetermine the employees’ essential terms and conditions of employment.”

The NLRB initially proposed the new rule in September 2018. After considering nearly 30,000 public comments, it further clarified in the final rule that “sharing or codetermining” means “substantial direct and immediate control” over the essential terms and conditions of the other employer’s workers.

For example, a franchisor will now be considered a joint employer with its franchisee only if it exerts substantial, direct and immediate control over the franchisee’s employees’ wages, benefits, hours of work, hiring, discharge, supervision, discipline, or direction. Indirect control over those terms and conditions of employment, however, is no longer enough.

Thus, fewer businesses will likely be deemed to be joint employers who are required to bargain with a union based on its relationship with an employer subject to the NLRA and may be able to avoid being embroiled in labor disputes between that employer and the union representing that employer’s employees.

The NLRB believes the new final rule provides much-needed clarity, stability and predictability to employers regarding structuring business relationships, as well as to employees and unions regarding with whom they have collective bargaining agreements and labor rights.

Notably, the NLRB’s long-anticipated unveiling of this rule comes just over a month after the Department of Labor issued its own and different final rule on joint employer status under the Fair Labor Standards Act. Although the rules are similar, they are not identical and may have different implications under specific circumstances.

The NLRB’s new rule takes effect on April 27, 2020. Employers are advised to review any possible joint employment arrangements in light of the new test and ensure compliance with the NLRA.