Over the last decade, there has been confusion and a significant amount of litigation over how to determine if multiple companies are joint employers of a workforce. Joint employer status can create significant liability issues for the secondary employer from wages to safety matters.

On September 7, 2022, the National Labor Relations Board (NLRB) announced a notice of proposed rulemaking that would replace the 2020 rules for assessing joint employment status. The proposed rulemaking notes in Section 4 that an employer is a joint employer of particular employees that have “an employment relationship with those employees under established common-law agency principles and the employer shares or co-determines those matters governing at least one of the employees’ essential terms and conditions of employment.”

The issue in many of the previously contested cases has been how joint employment is defined, especially in the area of indirect control. In other words, control or management of employees that is not clearly seen or specified by a secondary authority. The proposed rules reestablish a strong indirect control component so long as the control “bears on employees’ essential terms and conditions of employment.” This intentionally significantly broadens the application of the rule to multiple employers as opposed to the existing, more narrowly drawn rule.

As the NLRB notes, proposed Section 103.40(c) goes to the issue of essential terms. The NLRB indicates that the definition of share or codetermination is “for an employer 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.” This eliminates prior requirements that employers demonstrate “substantial direct and immediate control.”

In general, the NLRB is attempting to define what has traditionally proven to be a slippery concept, essential terms, and conditions. This now includes such things as wages, benefits, and compensation but also a broad grouping of work, scheduling, discipline, health and safety, supervision, assignment, work roles, and other areas. Given the broad definitional category, this is likely to put most employers in a position of indirect control even of temporary or other types of contractors. This is particularly true given the inclusion of workplace health and safety, work hours, and general assignments, in this definition. The NLRB affirmatively states that it intends to take a “broad, inclusive approach.”

The proposal further narrows the grouping of items that are “immaterial to the existence of an employment relationship.” In other words, these are not essential terms and conditions of employment, and these items will be limited to things such as routine components of the contract, generalized caps on costs, or project-based goals. The proposed rulemaking further states that the burden of evidence on how such a relationship will be established rests on the person alleging the relationship and that it must be proven by a preponderance of the evidence.

The Big Picture

Employers will need to pay careful attention to how temporary workers and contracts are managed to avoid additional liability issues. Employers will also need to look carefully at contracts to ensure clear delegation of responsibilities as well as proper indemnification if their subcontractor doesn’t calculate overtime properly or address a sex harassment claim. This may also ultimately impact the cost of Employment Practices Liability (EPL) insurance policies.

The comment period for this proposed notice of rulemaking closes on November 7, 2022. The documentation can be found at www.federalregister.gov or NLRB.gov.