Introduction

On October 26, 2023, the National Labor Relations Board (NLRB) issued a final rule on joint employment, reversing its previous standard set in 2020. Employers that have potential control or influence over another entity’s employees, such as staffing agencies and client companies, vendor-client relationships, contractors and subcontractors, and franchisors, should understand the implications of this new rule and consider whether to adjust their practices accordingly.

Overview of the New Final Rule

The new Final Rule, which comes into effect on December 26, 2023, marks a shift in the criteria used to determine joint employment under the National Labor Relations Act. This change resurrects the broader 2015 standard from the NLRB’s Browning-Ferris Industries decision, which considers indirect or reserved control in joint employment determinations. If two entities are determined to be joint employers, they could each be held accountable for any unfair labor practices, required to engage in collective bargaining, and share other legal responsibilities related to the relevant employees.

Key Details of the New Joint Employment Standard

Under the revised standard:

1. Joint employment status may arise when two entities share or codetermine essential employment terms.
2. Both direct and indirect (including through an intermediary) control over essential employment terms, even if reserved or unexercised, may lead to joint employer status.

The essential employment terms encompass:

• Wages, benefits, and other compensation
• Hours of work and scheduling
• Duty assignments
• Supervision of duties
• Work rules, and directions on duty performance
• Employment tenure, including hiring and discharge decisions
• Working conditions related to safety and health

Potential Legal Challenges

Although it is anticipated that the new rule will face legal challenges, its final outcome and limitations, if any, set by the courts are yet to be determined.

Implications and Recommendations for Employers

In light of the new NLRB Final Rule on joint employment, companies and business entities should re-evaluate their relationships with third parties where there is potential to influence the third parties’ employees. Consider the following:

1. Review Current and Pending Contracts: Businesses should scrutinize their existing and forthcoming contracts with third-party entities. Focus on identifying clauses that might be interpreted as retaining the right to control any key term or condition of the other entity’s employees.
2. Assess On-Site Work Arrangements: Companies allowing third-party employees to work on their premises should be particularly vigilant. The actual practices of supervisors and managers in these settings must be closely reviewed.
   • Examine Supervisor and Manager Conduct: Ensure that the actions of your supervisors and managers do not inadvertently exert direct or indirect control over the terms and conditions of third-party employees' employment. This oversight includes, but isn't limited to, directing their work, influencing their schedules, or engaging in disciplinary actions.
   • Implement Targeted Training: To the extent possible within each specific business context, provide training to your supervisors and managers. This training should aim to prevent any conduct that could be construed as asserting control over another entity's employees. This training be thorough and tailored to the unique aspects of your business operations and interactions with contracted employees.
3. Franchisors should pay special attention to their documents and practices: Franchisors should carefully review their franchise agreements, franchise disclosure documents, operations manuals, and any related materials that define their relationship with franchisees and potentially franchisees' employees. This includes to review documents and materials distributed to franchisees and/or their employees, including training materials, for language or content that might suggest a joint employer relationship. The goal is to clearly delineate the separation of control over employment terms and conditions, thus reducing the likelihood of being deemed a joint employer.