Reduces Joint Employer Liability, Brings Clarity for Employers
The National Labor Relations Board recently published a new rule clarifying the "joint employer" definition. Employers should welcome the NLRB’s new rule, as it both reduces the likelihood for joint employer liability and provides much needed clarity to a doctrine that has been in flux.
Historically, the NLRB has considered only an employer’s actual and direct control over another entity’s employees when determining joint employer liability. However recently, the NLRB pursued a joint employer finding where a company’s control over the essential working conditions of another business' employees was indirect, limited or contractually reserved — but never exercised. This created a stronger likelihood that employers that contract with companies for labor would be jointly liable for the contractor’s failure to meet its own labor obligations. In contrast, the United States Department of Labor adopted a rule in January that clarified that, to be a joint employer under the Fair Labor Standards Act, a second employer must actually exercise — directly or indirectly — one or more of four specified control factors: hiring or firing employees, supervising and controlling work schedule or conditions of employment to a substantial degree, determining employee rate and method of payment and maintaining employment records.
The new final rule states that an entity is a joint employer of a separate employer's workers only if the two employers share or codetermine the employees' essential terms or conditions of employment. The NLRB stated that forms of indirect control can still be relevant to the joint employer analysis, but indirect control alone is not enough to show joint employer status under the final rule. "Share or codetermine" is defined as the exercise of substantial direct and immediate control over the essential terms and conditions of employment. Thus, even the exercise of direct and immediate control may fail to establish a joint employment relationship if it is isolated, sporadic or minor.
“Direct and immediate control” is defined under the new rule to not include activities such as:
- setting minimal hiring standards,
- setting minimal standards of performance or conduct,
- bringing misconduct or poor performance to another employer's attention,
- establishing an enterprise's operating hours,
- setting deadlines for services,
- refusing to allow another employer's worker to continue performing work under a contract and
- maintaining standards that are required by government regulation.
Inversely, the new rules defines “essential terms and conditions of employment" as only the following:
- hiring,
- firing,
- discipline,
- supervision,
- direction,
- wages,
- benefits and
- hours of work.
This exhaustive list provides employers with a clear road map of activities to avoid exercising control over to avoid joint employer liability.
This new rule provides employers wider latitude to engage with labor contractors to ensure that the contractor’s own policies meet legal and professional standards without the risk of joint employer liability. However, it must be noted that, because this rule has been promulgated by the NLRB, it’s application is limited to matters under the National Labor Relations Act, such as collective bargaining obligations and liability for unfair labor practices brought by unions. Separate joint employer standards may exist for non-NLRB matters.
Finally, the history of the joint employer rule has demonstrated that this has become a political issue that is likely to arise again and be changed, depending on the political environment. Employers are therefore encouraged to treat this rule change as a partial, temporary reprieve, as developing case law and alternative forums may provide opportunities for those seeking a joint employer determination.
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