Update: As we indicate below, the NLRB’s final rule regarding the standard to determine joint-employer status under the NLRA was met with a challenge in the court system, and on March 8, 2024, just days before the applicable regulations would have come into effect, the U.S. District Court for the Eastern District of Texas issued an order blocking the final rule. As a result, the current joint-employer rule will remain in place for the foreseeable future, unless successfully reversed on appeal.

In its order of March 8, the court determined that the substance of the final rule was contrary to law, as the rule’s definition of employment exceeded the bounds of the common-law definition. The court also determined that the NLRB’s purported rescission of the current rule was invalid under the Administrative Procedure Act, which governs the process by which federal agencies develop and issue regulations, on the basis that it was “arbitrary and capricious.” Finally, the court held that the Rule was overbroad, and therefore unlawful, because it would have allowed a finding of joint-employer status based on either (a) indirect control, or (b) potential control, meaning control that was reserved but not exercised. Accordingly, the court determined, the final rule was overbroad and contrary to law.

The order vacates the final rule insofar as it would have rescinded the current standard for determining joint-employer status, and would have promulgated a new set of regulations setting forth the definition of “joint employers” under the National Labor Relations Act. This preserves the current standard explained below.

The NLRB is likely to appeal, and any appeal would be heard by the Fifth Circuit Court of Appeals. It will likely take months, if not more than a year, for that appellate court to weigh in.

For now, employers should continue to comply with the current joint-employer rule adopted in 2020 and explained below.

As of November 1, 2023:

On October 26, 2023, the National Labor Relations Board (“NLRB”) issued a final rule regarding the standard to determine joint-employer status under the National Labor Relations Act (“NLRA”). The final rule represents a major departure from the current rule, and focuses on whether one business has authority or control over any “essential term or condition of employment” of another company’s employees, regardless of whether the business actually exercises such control. As a result, the final rule makes it more likely that a business may be deemed a joint employer under the NLRA.

The final rule will take effect on December 26, 2023.

Background and Significance of Joint-Employer Status

Under the NLRA, a legally independent entity may be held jointly liable for the unfair labor practices committed by another employer if the two are deemed to be joint employers. Additionally, joint employers are required to bargain collectively and negotiate with unions representing jointly-employed employees, and may be subject to union organizing and picketing activities.

The standard for joint-employer status has been the subject of a heated debate within the NLRB, with the Board shifting its position on the matter a number of times in recent years. In drafting the final rule, the NLRB largely drew from the expansive, employee-friendly standard put forth in a 2015 decision, Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015) (“BFI”). Under the BFI decision, employers could be considered joint employers even if they had only indirect control over employees, or reserved (but did not exercise) control. BFI greatly increased the number of potential joint employers. The decision was scrutinized and subjected to a number of legal challenges – some of which were successful and narrowed its applicability.

The current joint-employer rule was adopted in 2020 and replaced the BFI standard. Under the current rule, an entity may be considered a joint employer only if it exercises actual and direct control over a defined list of eight essential “terms and conditions” of employment. These include “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.” Merely retaining authority, but not actually exercising it, does not suffice.  Rather, in order to be considered a joint employer under the current rule, an entity must have “substantial direct and immediate control” over the essential terms of employment of another entity’s employees.

The final rule, on the other hand, adopts a new standard that utilizes a broad set of terms used to determine whether two entities may be considered joint employers, and eliminates the requirement that control must be exercised. While similar in nature to the BFI standard, the final rule is even more expansive, as described below, and significantly broadens the definition of joint employers. As such, the final rule will almost certainly result in more entities being deemed joint employers.

The Final Rule

Under the final rule, an entity may be considered a joint employer if both parties “share or codetermine” the employees’ “essential terms and conditions” of employment. The NLRB defines “share or codetermine” to mean for an employer to possess the authority or exercise the power to control, whether directly, indirectly, or both, one or more of the employees’ essential terms and conditions of employment.

The final rule accounts for control exercised through an intermediary or third parties, and control that has not been exercised. Mere authority to control is enough to meet this definition, regardless of whether or not control is actually exercised.

In other words, indirect or reserved control alone may establish joint-employer status.

The “essential terms and conditions” of employment are now defined as:

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.”

Nearly all of the “essential terms and conditions” of employment are defined more broadly than the current rule, or use terms (i.e., “the tenure of employment”) that were not present in prior definitions. The burden to prove joint-employer status remains with the party asserting that the entity is a joint employer.

Lastly, the final rule also notes that a joint employer must bargain collectively over terms of employment that it controls, or has authority to control, even where the term or condition may not be “essential” in determining joint-employer status.

While this rule is likely to affect all employers, it will have its greatest impact on staffing agencies, franchisors, contractors who utilize subcontractors, and employers who may lease or contract out their employees on a temporary basis.

Preparing for Implementation

The final rule will make it easier for one entity to be held liable for the unfair labor practices of another. While the final rule will undoubtedly be subjected to legal challenges, given the history of its development and the response to prior related standards, employers must take caution and plan accordingly. The consequences of joint-employer status may be great, with increased exposure to liability for unfair labor practice charges and overhead costs associated with obligatory collective bargaining.

While it is somewhat difficult to predict how broadly the final rule will be applied, the NLRB has made vague reference to applying the standard in a manner that is sensitive to “industry-specific norms and practices,” and noted it will take “industry-specific context into consideration.”  Nonetheless, employers should begin taking steps to prepare for the new standard’s implementation and to minimize the risk of being held liable as a joint employer.

1. First, employers should do their due diligence on entities with whom they have shared employees, regardless of the parties’ intent in the working relationship. It may be difficult or impractical to eliminate the conditions that lead to a finding of joint-employer status under the final rule, and if a business partner is engaged in unfair labor practices, businesses should be aware that liability for those practices may attach under this standard.
2. Employers should review any temporary service agreements or other contracts with subcontractors, franchisees, and other third-party affiliates for language reserving the right to control an employee or their employment terms (including scheduling, wages, benefits, or the like). Employers should consider altering such language or otherwise making efforts to ensure agreements are structured in such a way that clearly defines the relationship between the entities.
3. Employers should draft clear internal policies regarding employer relationships with any third parties, and policies for employees to follow in their interactions with such third parties.
4. Employers should remain mindful of the amount of control they exert over another entity’s employees.

Understanding the final rule and how to mitigate the risks associated with its enforcement may be complicated, and an unexpected finding of joint-employer status may carry grave consequences for an entity in terms of time, attention and resources.

If you have questions regarding the new NLRB joint-employer standard, or you are unsure how to mitigate any related risks, reach out to counsel. Hinckley Allen’s Labor and Employment attorneys are well versed in these issues and can help you navigate them, while remaining in compliance with the law.