On October 26, 2023, the National Labor Relations Board (“NLRB”) issued its final rule entitled “Standard for Determining Employer Status.” This rule comes a little over three years after the NLRB released a rule in April 2020 that effectively raised the standard for multiple companies to qualify as “joint employers.” The new final rule rescinds and replaces the April 2020 standard. The NLRB states that this rule will “more explicitly ground the joint-employer standard in established common-law agency principles.”  However, the reality is that the new standard makes it much easier for companies and other business entities to qualify as joint employers for purposes of sharing liability for labor law violations and legal obligations for union negotiations.  Consequently, it is imperative that companies, franchises, and other employers that hire workers through staffing firms and other similar arrangements pay close attention to the sudden change in legal threshold.

Under the previous rule, an employer could only be a joint employer of another entity if it had “direct and immediate” control over the “essential terms and conditions” of employment, such as wages, benefits, hiring, firing, discipline, and supervision.

In contrast, the new final rule provides that an entity may be considered a joint employer of a group of employees if each entity has an “employment relationship” with the employees and “shares or codetermines” one or more of the employees’ essential terms and conditions of employment.

The NLRB stated in the final rule:

To ‘share or codetermine those matters governing employees’ essential terms and conditions of employment means 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:

‘Essential terms and conditions of employment’ are:

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.

The new rule states that possessing the authority to control one or more of the employees’ essential terms and conditions of employment, as well as exercising that authority even if indirectly (through an intermediary), are both sufficient to establish joint employment. The new final rule effectively allows the NLRB to find a joint employer relationship exists based on indirect or unexercised authority.

The good news is the new joint-employer standard only applies to cases filed after its effective date of December 26, 2023. Thus, employers have a small window to review their employment structures to ensure that any potential joint-employer finding does not come as a surprise and negatively impact business.