UPDATE: NLRB Tightens Joint Employer Rule in Favor of Employers

Obermayer Rebmann Maxwell & Hippel LLP
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Obermayer Rebmann Maxwell & Hippel LLP

This week the National Labor Relations Board (“NLRB”) released the final version of its new standard for the test to be used in determining whether workers are jointly-employed by affiliated businesses (like in scenarios with temp agencies or franchisees) for the purposes of federal labor law. The NLRB’s new joint-employer test will take effect on April 27, 2020.

As covered by HR Legalist, the Obama-era Board adopted a looser standard in 2015 in Browning-Ferris, 62 NLRB No. 186, which made it easier for an entity to be classified as a joint employer. The Board’s 2015 definition was wide-reaching because it considered a company’s reserved and indirect control over employees, through intermediaries or contractual provisions that reserve the right to control another entity’s workers, as sufficient evidence of a joint-employer relationship – even if that right to control was never actually exercised. This broad definition exposed businesses to the potential for increased liability, as they were more likely to be deemed joint-employers for purposes of union representation, collective bargaining, and other labor-related obligations.

The new NLRB joint-employer test unveiled this week upends the Browning-Ferris test, and returns to the pre-Obama era rule that existed for nearly 30 years before Browning-Ferris. Namely, under the new rule, a business can only be classified as a “joint-employer” if it exercises “substantial direct and immediate control” over another company’s workers. This is in stark contrast to the expansive former rule, which permitted merely “indirect control” to suffice to establish a joint-employer relationship. 

In practice, the new joint-employer rule will provide employers seeking to enter business arrangements with other companies some peace of mind with respect to liability for the other entity’s workers. Courts are expected to defer to the NLRB’s interpretation of the law, giving employers who contract with third parties (such as temp agencies and franchisees) greater assurance and predictability that they will not be considered a joint-employer of certain workers for the purposes of collective bargaining and federal labor law compliance.

Other laws, such as the Fair Labor Standards Act (for wage and hour claims) and state and federal anti-discrimination statutes have their own joint-employer tests (as well as tests to determine whether workers are employees or independent contractors), so this new rule does not apply to all situations faced by employers. 

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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