The NLRB Restores the “Substantial Direct and Immediate Control” Standard for Joint Employment

Orrick - Global Employment Law Group
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Orrick - Global Employment Law Group

On February 26, 2020, the National Labor Relations Board unveiled the final version of its rule for determining joint-employer status under the National Labor Relations Act. The Final Rule, which can be found here and which will take effect on April 27, 2020, will return to the “substantial direct and immediate control” standard.

Under the “substantial direct and immediate control” standard, to be considered a joint employer under the NLRA, and thus required to comply with and be liable for statutory violations, a company must have substantial direct control over the essential terms and conditions of employment of another employer’s employees, and that control must be actually used. The NLRB states that the Final Rule “will foster predictability and consistency regarding determinations of joint employer status in a variety of business relationships, thereby enhancing labor-management stability, the promotion of which is one of the principal purposes of the [NLRA].”

The Previous Standard under Browning-Ferris

Prior to 2015, evidence of indirect control was typically insufficient to prove that an entity was the joint employer of another employer’s workers. In 2015, however, the NLRB issued the Browning-Ferris decision, uprooting this standard. Specifically, the NLRB held that two or more entities were joint employers of a single workforce if (1) they were both employers within the meaning of the common law; and (2) they shared or codetermined those matters governing the essential terms and conditions of employment. In evaluating whether a company possessed sufficient control over employees to qualify as a joint employer, the NLRB would – among other factors – consider whether the company had exercised control over terms and conditions of employment indirectly through an intermediary, or whether it had reserved the authority to do so. Thus, even if there was no direct control exerted; the ability to control or indirect control could be sufficient.

The Final Rule

In short, the newly issued Final Rule does the following:

  • Specifies that to be a joint employer, a business must possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees;
  • Defines “substantial direct and immediate control” as actions that have “a regular or continuous consequential effect” on wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction;
  • Explicitly excludes from the definition of “substantial direct and immediate control” – entering into cost-plus contracts, minimal hiring standards, setting minimal standards of performance or conduct, and refusing to allow another employer’s employee to continue performing work under a contract;
  • Makes clear that control exercised on a sporadic, isolated, or de minimis basis is not “substantial;”
  • States that an entity does not exercise direct and immediate control over benefits by permitting another employer, under an arms-length contract, to participate in its benefits plan; and
  • Specifies that evidence of indirect and/or contractually reserved control over essential employment terms – which could have led to a joint employer finding under the Browning-Ferris standard – cannot give rise to joint employer status without substantial direct and immediate control.

Growing Trend

The NLRB is not the only government entity tackling joint employer standards. Last month, the U.S. Department of Labor updated its own Final Rule for analyzing whether workers are jointly employed by affiliated businesses under the Fair Labor Standards Act, adopting a four-factor balancing test for determining whether two or more affiliated businesses jointly employ workers in situations where workers perform tasks for one employer that simultaneously benefit another business or individual. For more information on the DOL’s Final Rule, please see our blog post from February 17, 2020.

What’s Next?

The NLRB’s Final Rule narrows the definition of a joint employer, and may make it less likely that a company will be considered a joint employer by the NLRB. We will continue to examine the Final Rule’s impact on companies, especially once the rule takes effect on April 27, 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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