Last week, the National Labor Relations Board (NLRB) issued final rules broadening the definition of joint employers under federal labor law. A joint employer is a company that is not the employee’s direct W-2 employer, but nevertheless is considered an employer for purposes of labor compliance. The NLRB originally broadened the definition of joint employer during the Obama administration, only to see that policy tightened during Republican control of the NLRB in 2020.

The 2020 definition of a joint employer limited it to situations where the non-W-2 company exercised direct and immediate control over the workers in question. The new rule expands this to include situations where the company has the ability to control terms and conditions of employment, even if it never actually exercises such control.

This rule was primarily aimed at franchisors that typically were not considered joint employers of their franchisees’ employees. Under the new rule, if the franchisor, for example provides franchisees with guidelines for employing or managing employees, or provides a form employee handbook, this could be considered evidence of joint employment. The new rule could also apply to staffing agencies and their clients, although this is already considered a joint employment relationship for most legal purposes.

If the new rule withstands judicial scrutiny, franchisors could find themselves subject to unfair labor practice claims from their franchisees’ employees. This prospect may result in significant changes to franchise agreements and their provisions that deal with the franchisees’ workers.

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