The NLRB recently published its final rule on the standard for determining joint employer status, broadening the circumstances under which separate businesses can be considered joint employers—thereby making them obligated to recognize and bargain with unions, jointly liable for unfair labor practices, and legally vulnerable to picketing during labor disputes.

Over a year after the National Labor Relations Board (NLRB or Board) published its notice of proposed rulemaking (NPRM) on the standard for determining joint employer status, the NLRB issued its final rule on the topic (Final Rule) on October 26, 2023. The final rule affirms the new legal standard foreshadowed by the NPRM and widens the circumstances under which separate businesses will be joint employers, making them jointly obligated to recognize a union, bargain with that union, be bound by a collective bargaining agreement, share unfair labor practice liability, and legally constitute the same valid target of union picketing.

The Final Rule rescinds and replaces the 2020 rule on the joint employer standard issued by the Trump-era Board. A Board majority adopted the Final Rule, with Chairman Lauren McFerran, Member David Prouty, and Member Gwynn Wilcox supporting the Final Rule, and Member Marvin Kaplan dissenting.

The Final Rule goes into effect on December 26, 2023, which is coincidentally the same day that the new election rules go into effect.

For more information on the NPRM regarding the joint employer standard published on September 7, 2022, refer to our LawFlash NLRB Seeks to Broadly Expand Joint Employer Standard.

For more information on the election rules that will go into effect on December 26, 2023, refer to our LawFlash National Labor Relations Board Reinstates ‘Quickie’ Election Rules.

THE FINAL RULE

The Final Rule largely mirrors the NPRM and adopts an expanded version of the 2015 standard set forth in the Board’s 2015 Browning-Ferris Industries (BFI) [1] decision, which focused on “indirect and reserved” control. The differences between the Final Rule and the NPRM are discussed in detail below. The new standard applies in both the representation-case and unfair-labor-practice case contexts, making separate employers jointly obligated to recognize and bargain with a union, jointly liable for unfair labor practices, and jointly vulnerable to picketing during labor disputes.

In summary, the Final Rule provides that a business may be found to be a joint employer of another business’ employees if the two businesses have a common law employment relationship with the employees and share or codetermine one or more of the employees’ essential terms and conditions of employment. The Board defines “share or codetermine” to mean for another business “to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.”

However, as Member Kaplan points out in his dissent, several past Board joint-employer decisions and the US Court of Appeals for the Third Circuit’s decision in BFI all require that “share or codetermine” requires “exertion—i.e., exercise—of significant control,” and not just the passive control described by the Board in the Final Rule.[2]

Thus, under the Final Rule, a business may be found to be a joint employer if it possesses direct or indirect authority (including through an intermediary) to control any of the essential terms and conditions of employment of the employees of another business, even if such control is reserved or never actually exercised.[3]

The Board expressly declined to provide guidance on what factual circumstances will evidence indirect control that is relevant to the joint-employer analysis, and said that it will instead “expect the contours of the Board’s application of this rule in particular scenarios to be defined through the future application of the Final Rule to specific factual records.”[4] Furthermore, the Board emphasized the significance of reserved control and stated that the Final Rule “adheres to the view that reserved control is probative” and is sufficient on its own to establish joint employer status.”[5]

This vastly broadens the scope of the previous joint employer standard issued in 2020, under which a business was found to be a joint employer only if it actually exercised direct and immediate control over another business’ employees, and such control was substantial and not limited in degree.

While the Final Rule supersedes the 2020 rule, the Board made clear it considers the issuance of the Final Rule to be separate and severable from its recission of the 2020 rule. The Board explained that it felt it was “required” to rescind the 2020 rule because it believes the 2020 rule to be contrary to common-law agency principles and inconsistent with the National Labor Relations Act, and because the Board would still have chosen to rescind the 2020 rule as the current Board believes it “fail[s] to fully promote the policies of the Act.”

Member Kaplan wrote a comprehensive dissent to the Final Rule, noting at the outset that the majority “have come up with a standard for determining joint-employer status that is potentially even more catastrophic to the statutory goal of facilitating effective collective bargaining, as well as more potentially harmful to our economy, than the Board’s previous standard in Browning-Ferris Industries.”

MODIFICATIONS TO NPRM IN THE FINAL RULE

In the Final Rule, the Board modified the NPRM (at least facially) in several notable respects.

Defining ‘Essential Terms and Conditions of Employment’

In the NPRM, the Board provided examples of topics that could be considered essential terms and conditions of employment sufficient to trigger joint employer status, should a putative joint employer have control over such terms and conditions, but did not enumerate a definitive list of such factors. The Board instead solicited comments as to “all aspects of its approach to essential terms and conditions of employment, including the specific terms it should (or should not) generally consider ‘essential.’”

The Final Rule now sets forth an “exhaustive” list of terms and conditions of employment that are considered “essential” for the purposes of the joint employer analysis. These essential terms include wages, benefits, and other compensation; hours of work and scheduling; the assignment of duties to be performed; the supervision of the performance of duties; work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; the tenure of employment, including hiring and discharge; and working conditions related to the safety and health of employees.[6]

Control, whether direct, indirect, or reserved, over any single essential term can form the basis for a finding of joint employer status. The Board intended the exhaustive list to respond to the US Court of Appeals for the District of Columbia Circuit’s request that the Board “explain which terms and conditions are ‘essential’ to permit ‘meaningful collective bargaining.’”[7]

The Board further noted that several commenters and Member Kaplan raised concerns over the inclusion of scheduling and work rules as “essential,” arguing that such terms are routine contractual terms that do not show control over employees. The Board rejected those concerns, however, citing broadly to the Restatement (Second) of Agency and noting that it was “persuaded” by commenters who contended scheduling and work rules should be indicia of joint employment status.

Notably, the Board opined that work rules or directions, in the form of charts, diagrams, or other documents directing the processes by which work should be performed are “especially clear indicators of a putative joint employer's authority to control or exercise of control over the details of particular employees’ work.”[8]

Excluding ‘Meaningful Collective Bargaining’ From the Analysis

The Board, as in the NPRM, declined to establish “meaningful collective bargaining” as a separate element of the joint employer standard—meaning the NLRB General Counsel and/or a charging party does not need to demonstrate that a putative joint employer possesses sufficient control to permit “meaningful” collective bargaining.

The Board reasoned that this element was unnecessary given its enumerated list of “essential” terms and conditions of employment, which the Board concluded “lie at the core of workplace issues appropriate for collective bargaining” so that control over any single term would “ensure[] that there is a basis for meaningful collective bargaining.”[9]

As Member Kaplan pointed out in the dissent, the Board’s new standard fails to account for what, if any, limitations it imposes on joint-employer determinations based solely on what is controlled, without giving any weight to the extent of that control. Specifically, the Final Rule does not state what minimum quantum of authority to control serves as the threshold for a joint employer finding.

Relevance of Control and Evidence of Different Types of Control

Modifying the NPRM, the Board distinguished between relevant and irrelevant control in the Final Rule. To establish joint employer status under the Final Rule, “the relevant object of control must be an essential term or condition of employment,” or one of the seven categories enumerated in the Final Rule (which are listed above).[10]

Bargaining Analysis and Scope of Bargaining Obligation

The Board modified the NPRM to create, in effect, a two-step bargaining analysis for joint employers. This is because the Board concluded that “[t]he scope of a joint employer's duty to bargain . . . is distinct from the issue of joint-employer status.”[11] The first step, therefore, focuses on whether a putative joint employer has reserved, indirect, or direct control over any one of the Board’s seven enumerated “essential” terms.

The second step assesses the scope of the joint employer’s bargaining obligation. Here, the Board will expand—potentially greatly—the scope of subjects over which a joint employer must bargain, well beyond the “essential” term(s) that the employer controls. The Board stated in the Final Rule

[T]he Board has concluded, after careful consideration of the comments, that it is desirable to expressly provide that a joint employer's bargaining obligations are not limited to those “essential terms and conditions” of employment that it controls, but extend to any ordinary mandatory subject of bargaining that is also subject to its control.[12]

In other words, if a joint employer is found to control just one of the seven “essential” terms, the joint employer must then bargain over any mandatory subject of bargaining that it controls—even issues that have no bearing on the “essential” term that triggers joint employer status.

The Board’s “in for a penny, in for a pound” approach will likely create greater uncertainty and litigation, as employers and unions alike will not know where bargaining obligations end. The Board will make determinations on mandatory subjects of bargaining on a case-by-case basis, applying “traditional and longstanding precedent.”[13]

OUTSTANDING ISSUES AND CONSIDERATIONS

Little Guidance on Common-Law Factors

The NPRM cited generally to “common law” principles of agency, which the Board stated it would use to determine joint employer status—without identifying the specific principles. Commenters responded to the ambiguity, asking the Board for further guidance on what principles the Board intends to use. The Board, however, expressly declined to do so in the Final Rule, stating broadly that “common-law agency principles [are] sufficiently familiar and tractable to assist parties in interpreting and complying with other labor and employment statutes that use these terms.”[14] The Board, by refusing to provide necessary guidance, has effectively left lay employers to guess which principles the Board will use and how those principles will be weighted. Similarly, the Board refused to provide specific guidance on forms of relevant indirect control central to the analysis under its new rule.

While the Board cited three Supreme Court cases to seemingly say that employers and laypersons should be able to easily decipher common-law agency principles and their impact on the Final Rule on their own so that a federal agency need not lay out any specific guidance, none of the cases support that concept.

In fact, in Clackamas, which is one of the cases cited by the Board, the Equal Employment Opportunity Commission (EEOC), unlike the Board here, posted guidelines that informed individuals about the interpretation and effect of its definition of an “employee,” thereby relieving employers of the burden and risk of having to assume the EEOC’s unique definition through an interpretation of common-law principles.[15]

Little Guidance on Basic Ground Rules for Business-to-Business Relationships

The DC Circuit, on appeal of the Board’s 2015 BFI decision, concluded that the NLRB correctly held that both indirect and reserved control could be considered in making a joint employer determination, but took issue with the Board’s failure to differentiate between routine contract terms that set basic ground rules for the business-to-business relationship—which are not indicia of joint employment—and “reserved” or “indirect” control that governs “essential terms and conditions of employment.”[16]

In response to the NPRM, commenters raised a wide range of provisions, including industry-specific examples, that should be considered basic contractual ground rules and not indicia of joint employer status.

In the Final Rule, the Board expressed appreciation for commenters’ feedback and facially acknowledged the DC Circuit’s criticism of the BFI standard, recognizing that joint employer status would not result from contractual language establishing “basic expectations or ground rules for the production or delivery of goods or services, without otherwise reserving the authority or exercising the power to control the details of the manner and methods by which the work is performed.”[17]

The Board further reiterated its acknowledgments in the NPRM of two examples the DC Circuit provided of basic contractual expectations: a “very generalized cap on contract costs” and “an advance description of the tasks to be performed under the contract.”[18] Similarly, the Board recognized that where an entity does nothing more than document legal requirements, such as minimum wages or driving time limits for truck drivers, in its contract for goods and services without reserving the authority to control or exercising the right to control terms and conditions of employment, that entity will not be considered a joint employer of the employees covered by the contract.[19]

The Board then recognized, as raised by commenters, that there are a substantial number of important, routine contractual provisions that may not give rise to a finding or joint-employer status. However, although the Board had asked in the NPRM for actual examples of contract provisions and contracting practices to potentially formulate guidelines, the Board expressly identified but consciously took no position on many categories of provisions common and important for businesses in their business-to-business agreements, leaving them up to future litigation, for example[20]

• work standards or expectations and about what work to perform, or where and when to perform work;
• minimum staffing requirements;
• quality, productivity, timing, and safety terms about providing a service or completing a project;
• requirements that deliveries be made during limited windows of time;
• requirements about monitoring or maintaining brand standards or the design, décor, logo, or image of a business (but see below for franchisors);
• uniform requirements;
• generally applicable rules for individuals visiting a facility;
• general price terms or terms governed by third-party or customer demand;
• authority to cancel a contract, including at will;
• requirements that employees undergo background checks or drug tests, comply with equal employment opportunity, nondiscrimination, and antiharassment policies, and satisfy licensure requirements;
• authority to bar certain individuals from the premises or reject particular employees;
• terms related to an entity’s control over its property, premises, or equipment, including training and safety requirements;
• provisions related to the nondisclosure or confidentiality of trade secrets, proprietary information, or intellectual property; and
• goals related to diversity, equity, inclusion, and access (DEIA), corporate social responsibility (CSR), or environmental, social, and governance (ESG).

The Final Rule offered nothing beyond the cursory acknowledgment that basic contractual provisions would not trigger joint employer liability and provided no explanation as to what types of provisions or practices are more or less likely to result in a finding of joint employer status. In fact, the Board ultimately reiterated the NPRM’s refusal to “categorize company-to-company contract provisions ex ante,” asserting that doing so would lead to over- or under-inclusion.[21]

The Board, citing the DC Circuit’s decision in BFI, determined that whether a provision could constitute a basic contractual term that does not trigger joint employer liability requires a case-by-case assessment—leaving businesses with no practical guidance to use when drafting business-to-business contract language. Notably, in BFI, the DC Circuit did not support the Board’s contention that it may wait for cases to flesh out a legal standard that is unlawful on its face; rather, the DC Circuit cautioned the Board must start with “a correct articulation of the governing common-law test.”[22]

Here, the dissent in the Final Rule noted that, without a reasoned explanation from the Board as is required under the notice-and-comment rulemaking requirements of the Administrative Procedure Act, the Board is imposing upon employers the need to “resort to Restatements of Agency, precedent applying the common law, or any other source” to determine whether a joint-employer relationship would be found.[23]

Under this vague standard, employers risk becoming a test case while the Board figures out the impact of its Final Rule through its case-by-case assessments, which the dissent noted “is precisely how the determinations would be made if there were no rule at all.”[24]

Franchisors may find some small comfort in the Final Rule, however. The Board declined to find that all actions taken to protect brand image are immaterial for the purposes of joint employer liability. That said, the Board noted that “many forms of control that franchisors reserve to protect their brands or trade or service marks (like those dealing with logos, store design or décor, or product uniformity) will typically not be indicative of a common-law employment relationship.”[25]

Little Guidance on Quantum of Proof and Evidentiary Standards

The Board majority responded to numerous commenters that criticized the NPRM for seeming to permit a finding of joint employer status based on any amount of evidence of control. It claimed that commenters read “discrete subparagraphs of the proposed rule in isolation” and clarified that the party alleging joint employer status bears the burden to “demonstrate that an entity is a joint employer by a ‘preponderance of the evidence.’”[26]

The Board, however, provided no further substantive explanation of how the standard would apply to “control” in the joint employer context. The Board, instead, stated that establishing the “preponderance of the evidence” standard made it “unnecessary” to clarify how a party asserting joint employer status could successfully carry its burden.

The Board stated in the Final Rule that the preponderance of the evidence standard is a “familiar evidentiary threshold embodied in the Act itself,” citing Section 10(c) of the National Labor Relations Act. However, Section 10(c)’s only reference to the threshold is a statement that the Board shall determine whether an employer committed an unfair labor practice by a “preponderance of the testimony taken.”[27]

As testimony can include circumstantial evidence, it appears that the Board would consider circumstantial evidence in conducting its joint-employer analysis.[28] Moreover, in situations involving unfair labor practices and determining the status of an individual’s agency, the NLRB’s Bench Book refers to the Board’s ability to rely on circumstantial evidence.[29] Thus, it is likely the Board will rely on circumstantial evidence in determining joint employer status.

The Board also narrowed the NPRM exception for “irrelevant control evidence.” Instead, the Board will find irrelevant only evidence of control that both (1) is immaterial to the existence of a common-law employment relationship and (2) has no bearing on employees’ essential terms and conditions of employment.[30]

This definition of irrelevant control appears to contradict the Board’s stated purpose of enumerating a specific list of “essential” terms and conditions of employment; the Board could consider any evidence of control over topics that could show employment status under a common-law test related to any term and condition of employment, even if it is not one of the Board’s seven categories of “essential” terms. Relevant evidence of control in a joint employer proceeding, therefore, could still include evidence of control over non-essential terms and conditions of employment.

Regardless, the Board conceded in response to the critical commenters that a “substantial evidence” standard still must apply to prove joint employer status.[31] A substantial evidence standard requires at least enough evidence that would enable a “reasonable jury” to reach a conclusion of joint employer status. See Allentown Mack Sales & Serv. Inc. v. NLRB, 522 US 359, 366–67 (“Put differently, we must decide whether on this record it would have been possible for a reasonable jury to reach the Board’s conclusion.”). The substantial evidence standard does impose some limit on the Board’s ability to find joint employer status: “[s]ubstantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Consol. Edison Co. v. NLRB, 305 US 197, 229 (1938). However, this standard appears to amount to “what a reasonable jury would find by the preponderance of any evidence that is material to the existence of a common-employment relationship.” This offers scant guidance for employers on evidentiary “control” issues.

Lack of Exemptions

The Board made clear that it will not “presuppose the ‘employer’ status of an entity.”[32] The Board, however, also made clear that, despite various requests and rationales from employers, it would not create any exemptions from, or industry-specific tests for, the joint employer standard. The Board specifically declined to exempt or create different requirements for the construction industry,[33] hospitals,[34] cooperative businesses, franchise businesses, firms and independent contractors operating in the insurance and financial advice industry, and small businesses.[35]

Acknowledgment of Regulatory Obligations

The Final Rule does recognize, to some extent, that companies must comply with regulatory obligations that can vary widely across industries. The Board stated

“[W]e do not consider contractual terms that do nothing more than incorporate regulatory requirements, without otherwise reserving authority to control or exercising power to control the performance of work or terms and conditions of employment, indicative of joint-employer status.”[36]

The Board reasoned that companies must comply with federal, state, or local regulations and that lack of discretion would not permit collective bargaining if an employer-employee relationship existed. This acknowledgment of regulatory obligations is likely limited to strict compliance, however. The Board included an illustrative example concerning Occupational Safety and Health Administration (OSHA), stating that requiring another company’s employees to comply with OSHA standards would not create joint employer liability, but if “an employer reserves further authority or discretion over health and safety matters . . . such reserved control (or control exercised pursuant to such a reservation) would bear on the joint-employer inquiry.”[37]

TAKEAWAY: CAREFUL CONTRACT DRAFTING

The Final Rule, as expected, resuscitated the “reserved” control standard. Careful attention and consideration when drafting business-to-business contracts, however, can minimize the risk of “reserved” control, according to the Board. Specifically, businesses wishing to avoid joint employer liability can add language at the inception of the business relationship explicitly disclaiming any reserved authority to control the terms and conditions of employment of another employer’s employees.

The Board highlighted two specific areas where the Final Rule allows companies to better address, ex ante, joint employer issues through contract terms. First, in the successorship setting, the Board argues that the Final Rule’s “indirect” or “reserved” control standard gives successors “the distinct advantage of permitting all parties to determine and define their NLRA rights and obligations, ex ante, by contract,” as opposed to the 2020 rule, which turned on whether an employer actually exercised control. This rationale has some superficial appeal, as it suggests companies can more effectively address potential liability; however, the argument overlooks the Final Rule’s relatively low standard for triggering joint employer status.

Second, in response to commenter concerns about the imposition of unfair labor practice liability on joint employers, the Board noted that, even under the Final Rule, companies may “structure their contractual relationships according to their chosen allocation of both authority to control and unfair labor practice liability.”[38] Companies, therefore, may continue to utilize indemnification provisions to limit liability for unfair labor practices.

While indemnification for collective bargaining obligations is more nuanced, companies may consider including clauses which provide that in the event of a joint employer finding, the other company will be designated as its bargaining agent and the other company will be required to indemnify it for any wage, benefit, operating, or other costs incurred as a result of a collective bargaining agreement. However, such clauses are not a complete solution in that the non-participating company can still have its operations impeded without a directly calculable cost due to bargaining obligations.

Given the significant burden the Final Rule may impose on businesses and the questionable legality of the Final Rule’s provisions, the Final Rule is likely to face litigation and legislative action challenging its implementation.

[1] See Browning-Ferris Indus. of Ca., Inc., 362 NLRB No. 186 (August 27, 2015).

[2] 88 FR 73946, 73994; NLRB v. Browning-Ferris Indus. of Pa., Inc., 691 F.2d 1117, 1123 (3d Cir. 1982).

[3] 88 FR at 73983.

[4] Id. at 73955.

[5] Id. at 73962.

[6] 88 FR 73946, 74017-18

[7] Id. at 73966, fn. 178.

[8] Id. at fn. 177.

[9] Id. at 73972.

[10] Id. at 73956 (emphasis in original).

[11] Id. at 73964.

[12] Id. at 73983.

[13] Id. at 73964.

[14] Id. at 73958.

[15] See Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003).

[16] Browning-Ferris Indus. of Ca., Inc. d/b/a BFI Newby Island Recyclery v. NLRB, 911 F.3d 1195 (D.C. Cir. 2018).

[17] 88 FR at 73968.

[18] Id. at 73969.

[19] Id. at 73968.

[20] Id. at 73969-70.

[21] Id. at 73970.

[22] BFI, 911 F.3d at 1221.

[23] 88 FR at 74000.

[24] Id. at 74005.

[25] Id. at 73971.

[26] Id. at 73975, fn. 311 (emphasis added).

[27] 29 U.S.C. 10(c)

[28] 88 FR at 73973.

[29] NLRB Bench Book, April 2023, at 201, 253.

[30] 88 FR at 73955.

[31] Id. at 73975, fn. 311.

[32] 88 FR 73946 at 73956.

[33] Id. at 73959.

[34] Id. at 73960.

[35] Id.

[36] Id. at 73965-66.

[37] Id. at 73966 fn. 175.

[38] Id. at 73981.

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