NLRB Final Rule on Joint Employer Standard

On February 26, 2020, the National Labor Relations Board (“NLRB”) issued its final rule on the standard for determining joint-employer status for businesses and employees covered by the National Labor Relations Act (“NLRA”). The issuance of the final rule reverses the prior standard for determining joint-employer status set forth in the NLRB’s 2015 decision in Browning-Ferris Industries of California, Inc., where the Board held that a company could be deemed a joint employer if its control over the essential terms and conditions of another business’s employees was merely indirect, limited and routine, or contractually reserved but never exercised. Unlike the prior standard established under Browning-Ferris, the final rule clearly addresses and identifies the control for creating joint-employer status under the NLRA, providing the much needed guidance businesses and employees were seeking. As stated by NLRB Chairman John Ring in a press release for the new rule, “This final rule gives our joint-employer standard the clarity, stability and predictability that is essential to any successful labor-management relationship and vital to our national economy.”

Under the new rule, a business is a joint employer of another employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment as would warrant a finding that the business meaningfully affects matters relating to the employment relationship. The list of essential terms and conditions is further clarified under the rule to exclusively include wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. The rule also provides that even where an employer exercises direct control over another employer’s workers, it will not be held to be a joint employer if such control is “limited and routine.”

As to an employer’s indirect control, or control that is actually reserved over terms and conditions of employment but never actually exercised, the rule states that while such control may be probative of joint employer status, it is only so to the extent that it reinforces evidence of direct and immediate control. Another important aspect of the rule is that routine elements of an arm’s length contract will not result in a contractor becoming a joint employer and provides definitions of what does and does not constitute “substantial and direct immediate control” over each essential employment term.

Notably, the NLRB’s standard for joint employer is important for businesses who are franchisors or utilize temporary workers and third-party staffing agencies for their labor force. The final rule also has important implications to employees and unions with whom they have collective bargaining agreements, as it will likely eliminate employers’ responsibilities to bargain with franchisees or subcontracted workers if the franchisees or subcontracted workers choose to form a union.

Joint-employer status is also being addressed by the Department of Labor (“DOL”) and the Equal Employment Opportunity Commission (“EEOC”). On January 16, 2020, the DOL published its long awaited rule addressing joint-employer status under the Fair Labor Standards Act (“FLSA”). The final rule was published in the Federal Register and will become final on March 16, 2020. In late 2019, the EEOC issued a notice stating that it also intended to address joint-employer status by proposing an amendment to current law, with the comment period ending for such notice in February, 2020. It is expected that the EEOC will be releasing its amendment in the upcoming months. Employers should be aware of the differing standards for joint employers and determine which standard applies in their given circumstance. The NLRB new rule will go into effect April 27, 2020. Click here for the NLRB fact sheet on the final rule.

If you have any questions about the final rule, please contact us.