Under the Biden Administration’s influence, the National Labor Relations Board (“NLRB or “the Board”) has proposed a new Final Rule for determining joint employer status under the National Labor Relations Act (“NLRA”). The Final Rule significantly relaxes the standard for two or more companies to be classified as joint employers who share equal liability for unfair labor practices, legal obligations to negotiate with labor unions, and who may be subject to union picketing or protests in the event of a labor dispute. This Final Rule has implications for unionized and non-unionized employers.

The joint employer Rule has been a controversial topic. The pendulum has swung back and forth between pro-labor and pro-business standards through individual labor cases and NLRB regulations several times over the past decade. In 2020, a Trump-era Board regulation made it more difficult for companies to be joined as joint employers by requiring a showing of “direct and immediate control” over employees. And companies could not be considered joint employers if they did not actually exercise control over the employees’ essential terms and conditions of employment.

Now, under the Biden Administration’s influence, the pendulum has swung towards the pro-labor side on joint employment and other issues. The Board’s Final Rule broadens the joint employer test by expanding the categories of “essential” terms and conditions of employment and expressly rescinds the previous “direct and immediate control” standard and “actual exercise” requirement. The Board repudiates the Trump-era rule as “contrary to the common-law agency principles incorporated into the Act when it was adopted and [an] [im]permissible interpretation of the Act.”

The New Joint Employer Rule

Under the NLRA, two or more employers are joint employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.” 29 CFR 103.40(b). The Final Rule enumerates seven exclusive categories of “essential” employment terms and conditions that must be considered to determine joint employer status. The factors are: (1) wages, benefits and other compensation; (2) hours of work and scheduling; (3) the assignment of duties; (4) the supervision of those duties; (5) work rules, directions related to job performance, disciplinary policies; (6) employment tenure; and (7) health and safety working conditions. A company’s control or power to control, whether direct or indirect, in any one of these categories can establish a joint employer relationship.

Under the Final Rule, employers “share or codetermine”  employees’ essential terms and conditions when employers have the authority to control (directly or indirectly) or to exercise the power to control (directly or indirectly) one or more of the employees’ essential terms and conditions of employment, even if the company never does so. The Board also expansively states that indirect or reserved and unexercised control, standing alone, is enough to establish joint employer status.

The Effect on Labor Relations

The Board believes that the Final Rule “will more explicitly ground the joint-employer standard in established common-law agency principles” and provide more guidance under the Act as to joint employer rights and responsibilities.

The Final Rule creates uncertainty in labor relations and reshapes the rights and obligations of companies when working with the employees of other companies, such as vendors and staffing agencies; indeed, application of the Rule may lead to illogical results by requiring an employer to go to the bargaining table even where they never actually exercise any control over an essential term.

Companies with franchise relationships will be particularly affected by the Final Rule, and should review their current franchise agreements, operations manuals and actual practices and procedures to limit any unnecessary reserved control in the seven categories of the essential terms and conditions of joint employment enumerated by the Board. Staffing and temporary employee agencies will similarly be affected by this Rule. These agencies and the companies that rely on such agencies should similarly review their agreements and policies and consider amending contracts to expressly disclaim the right to control all seven  categories of essential employment terms and conditions.

The Final Rule will also impact non-union employers because even without a labor contract such employers are subject to unfair labor practice charges under the NLRA.

Legal challenges to the Final Rule are highly likely. But assuming that courts do not stay or issue an injunction halting the Final Rule, it will go into effect on December 26, 2023 as to cases filed after that date.

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