Key Takeaways

• The National Labor Relations Board (NLRB) has recently finalized a rule broadening the joint employer test.
• The new rule replaces a 2020 policy that excused joint employers from bargaining unless workers could demonstrate that the joint employer had “direct and immediate control.”
• Given the changes in the joint employer test, it is crucial for employers to take proactive steps to ensure compliance with the NLRA

In a significant development for employers and businesses across the United States, the National Labor Relations Board (NLRB) has recently finalized a rule broadening the joint employer test. The decision has far-reaching implications for both large corporations and small businesses, impacting their legal responsibilities and potential liabilities under the National Labor Relations Act (NLRA). In this blog post, we will explore the key aspects of this ruling, its implications, and what employers need to be aware of to remain compliant with the law.

Understanding the Joint Employer Test:

The joint employer test addresses the basic principle that 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)).  In the context of labor law, it establishes whether a business can be held accountable for unfair labor practices committed by another business, such as a subcontractor or franchisee. The NLRB’s recent ruling revises and broadens the criteria for establishing joint employer status.

Key Changes and Implications:

The new rule replaces a 2020 policy that excused joint employers from bargaining unless workers could demonstrate that the joint employer had “direct and immediate control.” A majority of board members determined that this was “contrary to common-law agency principles that must govern the joint-employer standard” under the NLRA. Key changes include:

• Direct and Immediate Control: Under the new rule, a business can be considered a joint employer if it possesses and exercises substantial, direct, and immediate control over one of the seven essential terms and conditions of employment of another employer’s employees. These terms include wages and benefits, hours, supervision, and safety.
• Indirect Control and Contractual Reservations: The NLRB’s ruling also clarifies that indirect control or the ability to control employees’ terms and conditions of employment through an intermediary, as well as the existence of contractual reservations of authority, can be relevant factors in determining joint employer status. This means that even if a business does not directly control employees, it can still be considered a joint employer if it has indirect influence or reserves the right to control certain aspects of employment.
• Broader Scope: The expanded joint employer test has a broader scope, potentially impacting various business arrangements, including franchising, subcontracting, and outsourcing. Franchisors, for example, may find themselves held accountable for the employment practices of their franchisees under the new rule.

What Employers Need to Do:

Given the changes in the joint employer test, it is crucial for employers to take proactive steps to ensure compliance with the NLRA:

• Review Contracts: Employers engaged in franchising, subcontracting, or similar arrangements should carefully review their contracts and agreements to assess the extent of control and authority specified within them. Any ambiguous language should be clarified to mitigate potential risks.
• Training and Compliance: Employers should provide training to supervisors and managers involved in overseeing employees of other businesses. Ensuring that all employees understand the boundaries of their authority can help prevent unintentional violations of the joint employer rule.
• Legal Consultation: It is advisable for businesses, especially those involved in complex contractual relationships, to seek legal counsel to understand the specific implications of the new rule on their operations. Legal experts can provide tailored advice and guidance based on individual circumstances.

Conclusion:

The NLRB’s finalization of this rule broadens the current policy and now requires a joint employer to bargain with workers if it has direct or indirect control over one of seven “essential” job terms. The joint employer must only bargain over the essential terms it has the power to control. This new rule is set to go into effect before the new year. Employers should consult with legal counsel if they have questions about how it might impact them.