By: Renee Harris, Esq.
On October 26, 2023, the National Labor Relations Board (NLRB) announced the final rule addressing the standard of determining joint-employment status under the National Labor Relations Act (“Act”). The new rule has once again swung in an employee-friendly direction and replaces the Trump-era rule that took effect on April 27, 2020.
The Statutory Background
Section 7 of the Act explicitly grants employees the right “to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining . . . .” One of the primary objectives of Section 7 is to foster an environment where employees can freely express their desire to organize without fear of retaliation. Similarly, Section 8(a)(5) makes it an unfair labor practice for an employer to refuse to bargain collectively with the representatives of its employees. By mandating collective bargaining, Section 8(a)(5) aims to prevent employers from unilaterally dictating the terms and conditions of employment.
While the Act is premised on protecting employee rights, it fails to address situations involving joint employment. The NLRB has long applied common law agency doctrines to determine whether entities are “joint employers” of particular employees for the purpose of the Act. Under the agency principle, two employers are considered “joint employers” if they “share, or codetermine, those matters governing essential terms and conditions of employment. Greyhound Corp., 153 NLRB 1488, 1495 (1965), enfd. 368 F.2d 776 (5th Cir. 1966).
Although the NLRB continued to adhere to the “share or codetermine” formulation, it also began to impose new control-based restrictions. Under the new approach, NLRB requires (1) a putative joint employer “actually” exercise control, (2) such control be “direct and immediate,” and (3) such control not be “limited and routine.”
In 2015, the Board clarified the traditional “shared or codetermine” formulation and rejected the control-based restrictions, announcing that it would consider “evidence of reserved and indirect control over employees’ essential terms and conditions of employment when analyzing joint-employer status.” See Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015) (BFI).
The 2020 Control-Based Standard
On February 16, 2020, the NLRB announced a final rule that again introduced control-based restrictions and narrowed the joint-employer standard. In BFI v. NLRB, the District of Columbia Circuit Court required the Board to clarify its “articulation and application of the indirect-control element,” NLRB announced its control-based standard that an employer was considered a “joint employer” only if it had direct and immediate control over the essential terms and conditions of employment of another company’s workers (“an entity ‘shares or codetermines the essential terms and conditions of another employer’s employees’ requires showing that the entity ‘possess[es] and exercise[s] such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.’”). See Joint Employer Status Under the National Labor Relations Act, 85 FR 11184 (Feb. 26, 2020).
The New Standard – No Direct or Even Exercised Control Required
On October 26, 2023, the NLRB officially rescinded the 2020 rule because “it is contrary to the common-law agency principles incorporated into [the] Act when it was adopted and, accordingly, is not a permissible interpretation of the Act.”
According to the NLRB, the common law agency principles announced in BFI’s 2015 decision “make it appropriate for the Board to give determinative weight to the existence of a putative joint employer’s authority to control essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect, such as through an intermediary.”
The new rule is more open-ended and does not require an employer to have “direct and immediate control” over the essential terms and conditions of the employment to be considered as “joint employer.” Thus, if a franchise agreement allows the franchisor to modify the terms and conditions governing workers at an independently-owned location, the franchisor, who presumably possesses more financial resources, could be considered a joint employer notwithstanding its lack of involvement in the internal affairs of its smaller franchisees.
Essential Terms and Conditions of Employment
Under the new rule, the NLRB provides an exhaustive list compromising the essential of terms and conditions of employment necessary to establish joint-employer status: (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.
Bargaining Obligations of Joint Employers
The new rule has also stipulated the bargaining obligations of joint employers. If two entities are joint employers, each entity is required to bargain with the union that represents the jointly employed workers with respect to any term and conditions of employment that has the control power, regardless of whether the term and condition is deemed essential. In addition, both entities could face potential liability for unfair labor practices of the other and may face union picketing or other economic pressure if a labor dispute arises.
StraightforWARD Legal Advice:
NLRB’s newly articulated standard is extremely broad in determining joint-employment liability under the National Labor Relations Act. Employers who engage in alternative staffing arrangement and use third-party suppliers should review these relationships with counsel to evaluate whether the arrangement reserves authority to control or indirectly control over the essential terms and conditions of the employment, in which case a modification should be contemplated. Franchisors particularly should remain cautious as the new standard will now make it easier for franchisors to be considered joint employers.