The National Labor Relations Board (NLRB or Board) released its Final Rule on October 26, 2023, drastically expanding the circumstances under which separate entities could be considered joint employers. Under the Final Rule, separate entities may now be jointly obligated to recognize and bargain with unions, liable for unfair labor practices committed by the other, and subject to union picketing during labor disputes.

Background

On September 6, 2022, a divided Board issued a Notice of Proposed Rulemaking (NPRM) to rescind and replace the joint-employer standard set forth by the Trump Board in 2020. The NPRM prompted nearly 13,000 comments prior to the issuance of the Final Rule, which resurrects—and expands—the Obama Board's articulated standard under its 2015 Browning-Ferris Industries (BFI) decision.

Prior to BFI, the Board held that a putative joint employer must exercise direct and immediate control over the terms and conditions of employment of a workforce. In issuing its Final Rule, the Board restores the flawed standard set forth in BFI. Under BFI, the Board majority held that two or more entities will be considered joint employers of a single workforce if: (1) there is a common-law employment relationship with the employees in question; and (2) the putative joint employer possess sufficient control over employees' essential terms and conditions of employment. Notably, under BFI indirect or reserved control, even if not exercised, could be considered when determining the existence of a joint employer relationship.

During the Trump administration, the NLRB reversed the BFI standard via a 2020 Final Rule (2020 Rule) and held that an entity may be considered a joint employer of a separate employer's employees only if the two share or codetermine the employees' essential terms and conditions of employment, which were exclusively defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. The 2020 Rule required "substantial direct and immediate control" by a putative employer over essential terms and condition of employment. Under the previous standard, an indirect control, and a never-exercised contractual reservation of a right to control essential terms and conditions of employment were insufficient to create a joint employment relationship.

The New Joint-Employer Standard

The new Final Rule eliminates the requirement of actual and direct control by a putative joint-employer over the terms and conditions of employment, and instead, applies common-law agency principles.[1] The new standard mandates a finding of joint-employer status based on the mere possession or authority to control, directly or indirectly, a single essential term of employment.

The Final Rule more broadly defines "essential terms and conditions of employment" to include: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.

In resurrecting the BFI standard, the Board has now expanded the scope in which a joint-employer relationship may be established. Now, the Board may find a joint-employer relationship when an entity possesses a reserved, unexercised right to control any of these essential terms, or through "indirect control" exercised by third parties or intermediaries. As a result, joint-employer status is now established if control exists (even if only potentially or indirectly) and if the object of control is an essential term and condition of employment of another employer's workforce, regardless of the extent of the control.

The drastic expansion of entities that could now be deemed joint employers, coupled with the uncertainty created by the expanded scope, creates an increased risk for entities previously able to evade joint-employer status.

Practical Implications

The joint-employer standard has significant implications for both unionized and nonunionized employers, as it determines when one entity can be held liable for the other's unfair labor practices and may require an entity to share a collective bargaining relationship with a union that represents another employer's employees. For example, franchisors may now face increased risks of becoming involved in union organizing campaigns and alleged unfair labor practice related to the other employer's response to those campaigns.

A business could also be required to bargain over the terms and conditions of a supplier's employees, even if the business does not control all the terms or conditions of employment for these employees. Joint-employer status may also deprive the business of its status as a neutral employer if there is a strike or labor dispute, exposing the business to liability for actions by the supplier that violate the NLRA.

Bargaining with two or more employers instead of one can be significantly more challenging. And under the new standard, employees may be required to bargain with multiple—and different—entities than they initially expected.

What Does This Mean for Employers?

The Final Rule is subject to congressional review but is scheduled to go into effect December 26, 2023, and will only be applied to cases filed after the effective date.

As a result of the sweeping nature of the Final Rule, businesses can expect increased labor risks and should take the following steps to mitigate the risk of exposure:

• Assess current operations and evaluate potential risks and consequences of being deemed a joint employer with their vendors, contractors, suppliers and/or franchisees;
• Identify and consider removing any contractual terms with third parties that would establish direct or reserved control to determine the terms and conditions of employment of the other companies' employees; and
• Train supervisors and managers to properly report concerns about staffing or other work-related concerns regarding a third party's employees directly to the third-party partner to handle.

This is an evolving area and there is still much to be determined. DWT will continue to monitor developments regarding the Final Rule and will keep you apprised of any developments. If you would like to learn more about the impending changes from the Board and minimize the risk of inadvertent joint responsibility, please consult with experienced labor counsel.

[1] Under the common-law test, an employment relationship exists where the person for whom the services are performed reserves the right, even though not exercised, to control the manner and means by which the result is accomplished. Vaughn Bros., 94 NLRB 382, 383 (1951).