On February 26, 2020, the National Labor Relations Board (“NLRB”) released its long-anticipated rule that redefines the agency's test for determining whether businesses can be deemed "joint employers" for purposes of the National Labor Relations Act. The rule is slated take effect on April 27, 2020. Employers with unionized workforces, and those who maintain business relationships with unionized entities, should take note of the new rule and its potential impact.
The new rule will effectively replace the NLRB’s existing test for determining joint employer status. The current standard was established in the NLRB’s 2015 Browning-Ferris decision, which permits a business to be deemed a joint employer when it exerts even "indirect control" over another entity's employees and where it reserves (but does not exercise) authority to exert control.
By contrast, the new rule provides that an employer can only be deemed to jointly employ workers if that employer exerts "substantial direct and immediate control" over the essential terms and conditions of employment of another entity's employees. “Essential terms and conditions” for purposes of the rule include wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. Moreover, the rule makes clear that the employer must actually exert such control -- the mere ability to exert control over employment terms will be insufficient, even when a franchise agreement or other contract provides an entity with the right to exert control.
The new rule represents an expected but welcome change for employers dealing with joint employment risks. Joint employers may be found jointly and severally liable for unfair labor practices, and a joint employer can be drawn into collective bargaining obligations relating to workers directly employed by another entity. The NLRB’s new rule will provide employers with greater certainty as they consider the labor implications of their business relationships. Time will tell, however, whether the new rule will be subject to court challenge or responsive legislative action.
