Whether two entities are “joint employers” is an important question under the National Labor Relations Act.  Consider Company A, which contracts with Company B, a staffing company, to provide maintenance or other services at Company A’s facility.  The maintenance workers are employed directly by Company B.  While working at Company A’s facility, Company B’s employees file unfair labor practice charges against Company B and also vote to form a union.  Can Company A be held liable for the unfair labor practices committed by Company B?  Can Company A be ordered to bargain with the union, alongside Company B?

On September 6, 2022, the National Labor Relations Board issued a Notice of Proposed Rulemaking, which would drastically alter the test used for determining joint-employer status under the NLRA (“2022 Proposed Rule”).  The 2022 Proposed Rule would rescind the joint-employer rule very recently issued in 2020 and replace it with a union-friendly test that would expand the circumstances in which Company A could be deemed a “joint employer” of Company B’s employees, and therefore be subject to liability and bargaining obligations under the NLRA.

Background

The Board’s standard for determining joint-employer status has shifted over the past seven years with each new presidential administration.  For at least thirty years prior to 2015, the Board’s longstanding rule was that an employer could be considered a joint employer of a separate employer’s employees only if it exercised “direct and immediate” control over those employees’ essential terms and conditions of employment (e.g., wages, benefits, hours of work, hiring, discharge).  Indirect control or a reserved but unexercised right to control, was insufficient.

In a 2015 decision, the Obama-era Board overruled this precedent and announced a new joint-employer test.  See Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015) (“BFI”).  Under BFI, the Board no longer required that the joint employer’s control over terms and condition of employment be exercised directly and immediately.  Rather, one company could be deemed the joint employer of another company’s employees based solely on either indirect control or a contractually reserved but never exercised right to control such terms and conditions.  Another way to say this is “theoretical” control.

In February 2020, the Trump Board issued a rule that reinstated and clarified the joint-employer standard that was in place prior to BFI.  See 29 C.F.R. § 103.40 (“2020 Rule”).  The 2020 Rule makes it clear that an employer can be a joint employer of a separate employer’s employees only if it possesses and actually exercises substantial direct and immediate control over one or more essential terms or conditions of their employment.  Evidence of indirect control, or contractually reserved but never exercised control, is probative of joint-employer status, but only to the extent it supplements and reinforces evidence of possession or exercise of direct and immediate control.  The 2020 Rule also provides an exhaustive list of “essential terms and conditions of employment” and defines “direct and immediate control” with respect to each listed term or condition of employment.

2022 Proposed Rule

The 2022 Proposed Rule, which has been issued by the Biden Board, would rescind the 2020 Rule and replace it with a new rule incorporating the BFI standard.  The 2022 Proposed Rule would provide as follows:

• An “employer” is an employer of particular “employees” (as those terms are defined in the NLRA) if the employer has an employment relationship with those employees under common-law agency principles.
• For all purposes of the NLRA (i.e., union elections and unfair labor practices), two or more employers of the same group of employees are joint employers of those employees if the employers “share or codetermine those matters governing employees’ essential terms and conditions of employment.”
• To “share or codetermine those matters governing employees’ essential terms and conditions of employment,” an employer must either possess the authority to control (directly, indirectly, or both) or exercise the power to control (directly, indirectly, or both) one or more essential terms and conditions of employment.
• Indirect control, control exercised through an intermediary, or a contractually reserved but never exercised right to control, is sufficient to establish joint-employer status. Thus, like the BFI standard, the 2022 Proposed Rule eliminates the requirement that control be exercised directly and immediately.
• “Essential terms and conditions of employment” are defined generally to include, “but are not limited to: wages, benefits, and other compensation; hours of work and scheduling; hiring and discharge; discipline; workplace health and safety; supervision; assignment; and work rules and directions governing the manner, means, or methods of work performance” [emphasis added]. Notably, unlike the 2020 Rule, this list is not exhaustive, and the Board contemplates that what are “essential” terms and conditions could change over time, as well as vary from industry to industry or occupation to occupation.  The 2022 Proposed Rule also does not define what it means to “possess the authority to control” or “exercise the power to control” with respect to any particular essential term or condition of employment.
• Evidence of an employer’s control over matters that are immaterial to the existence of an employment relationship, or that do not bear on the employees’ essential terms and conditions of employment, is not relevant to joint-employer status.
• The party asserting that an employer is a joint employer has the burden to prove by a preponderance of the evidence that the entity is a joint employer under the requirements of the 2022 Proposed Rule.

Not surprisingly, the Board was divided 3-2 over the decision to issue the 2022 Proposed Rule.  Chairman McFerran and Members Wilcox and Prouty were in favor of the proposed rule, while Members Kaplan and Ring – who were on the Board in 2020 – dissented.  In their dissenting statement, Members Kaplan and Ring argued that there was no valid justification to engage in another joint-employer rulemaking a mere two-and-a-half years after the 2020 Rule was promulgated.  They also argued that the 2022 Proposed Rule is contrary to the common law, inconsistent with the policies of the NLRA, arbitrary and capricious, and fails to provide any meaningful guidance to regulated parties.

What’s Next?

The 2022 Proposed Rule is subject to a public comment period that ends on November 7, 2022.  The public then has another 14 days, or until November 21, 2022, to file comments in response to comments submitted during the initial comment period.  The Board must then consider the public comments before issuing a final rule.  If the Board does issue a final rule, we anticipate that it will be substantially similar to the 2022 Proposed Rule, although possibly modified to incorporate some of the public comments.  We also anticipate, however, that any final rule will be subject to legal challenges for the reasons articulated by Members Kaplan and Ring in their dissenting statement.

As such, whether the 2022 Proposed Rule becomes law remains to be seen.  Nevertheless, it would be prudent for businesses like Company A, which contract for services from third parties, to review their contracts and evaluate whether their relationships potentially could be subject to the 2022 Proposed Rule.  Organizations in franchisor-franchisee relationships should also carefully consider the potential impact of the 2022 Proposed Rule.

We will keep you posted on the status of the 2022 Proposed Rule.