Here We Go Again: NLRB Proposes to Re-Re-Define the Joint Employer Test

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For the third time in less than ten years, the National Labor Relations Board (“NLRB”) stands ready to alter the “Joint Employer” test. Its stated motive this time is to provide a “clear standard for defining joint employment that is consistent with controlling law.” A cynic would be forgiven for wondering if this proposal has little to do with providing “clarification,” as this is just the latest example of the political back-and-forth in labor and employment law at the federal level. In any event, employers are ultimately responsible for keeping up with these ever-changing legal standards. 

As you may recall from our prior post, this political wrangling began in 2015, when the Obama-era NLRB decided Browning-Ferris Industries of California, Inc. (“Browning-Ferris”). In the thirty years preceding Browning-Ferris, the NLRB had relied on a test for joint employment that focused on whether the alleged employer had “direct and immediate” control over employment matters. In imposing a standard that allowed a finding of joint employment based on “indirect control” of supposed employees, the Board reasoned that the prior test was “increasingly out of step with changing economic circumstances.” Because the company in question, Browning-Ferris Industries, had the ability to require drug tests, control day-to-day activities, set productivity standards, and set a cap on wages, the Board concluded that it was the joint employer of workers employed by a third-party contractor, and therefore had to comply with collective bargaining rules with respect to those workers.  Notably, the Board determined that companies could take on the mantle of employer status even if they did not actually exercise this type of authority.

As outlined by HR Legalist here, the Trump administration burst through the Browning-Ferris wall in April of 2020 and, using its rulemaking authority, returned the test to its pre-Browning-Ferris form. With the Joint Employer test returning to one that requires “substantial direct and immediate control,” businesses enjoyed a brighter line in assessing risk than they had previously enjoyed under the amorphous Browning-Ferris standard.

That enjoyment did not last long, as the see-saw now appears poised to swing in the other direction under President Biden’s Administration. On September 6, 2022, the NLRB issued a proposed rule that would return the NLRB’s joint employer test to the Browning-Ferris standard. This, according to the NLRB is “consistent with controlling law,” which appears to be a reference to “common-law agency principles,” and not the controlling 30-year old NLRB precedent that had been in place prior to Browning-Ferris.  Once again, the proposed rule will deem business joint employers of workers if “they possess the authority to control (whether directly, indirectly or both), or … exercise the power to control (whether directly, indirectly or both), one or more of the employees’ essential terms and conditions of employment.” The proposed rule defines “essential term and condition” very broadly to include (without limitation) “control over workplace health and safety, assignments, and work rules and directions governing the manner means, or methods of work performance.”

While this rule is essentially a time hop back to the Browning-Ferris decision, its open ended “terms and conditions” language but is far from a bastion of clarity for employers.  The return of this more aggressive standard has broad implications for the employer community, particularly for national franchisors and companies who rely on staffing agencies and independent contractors. Moving forward, business of this type who wish to avoid being deemed employers for labor law purposes should:

  • Take a hands-off approach by conveying their ultimate goals to the subcontractor/temp agency, and letting that entity determine the best means of achievement;
  • Educate management (or in the case of franchisors, franchisees) on the cost and liability ramifications of a “joint employer” relationship;
  • Reexamine their contracts with subcontractors/temp agencies to ensure they include language specifying that the business is not a co-employer of the subcontractor/temp agency workers and an indemnification (or “hold harmless”) clause indicating that the subcontractor/temp agency assumes any and all liability for costs or damages stemming from the temp workers’ relationship with the business. Additionally, businesses should consider eliminating contractual provisions that reserve partial or complete control over temp workers, such as retaining the unilateral right to discontinue the use of a temp worker;
  • Avoid involving themselves in the interviewing, hiring, firing, training, scheduling, disciplining, approving overtime, and otherwise reserving control over temp workers;
  • Reexamine whether mandatory pre-assignment drug test policies are truly necessary, given the NLRB’s finding that doing so demonstrates “significant control” over temp workers; and
  • Report inappropriate temp worker behavior to the subcontractor/temp agency, but refrain from suggesting that the worker be disciplined.

Of course, in some cases, operational, health and safety requirements and concerns may require businesses to continue to maintain their authority to control the terms and conditions for all workers.  In these cases, the new rule may function as a mandate for the hiring company to come to the bargaining table with contract employees and follow all federal labor laws while there.  Furthermore, the new rule is expected to be a boost for unions seeking to expand their leverage in negotiations.

The new proposal will now head to the public comment stage of rulemaking before a potential final rule is adopted.  As always, we will continue to monitor developments in this ever-changing area of the law, including a potential reversal of this rule when the political winds inevitably shift. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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