On October 26, the National Labor Relations Board (NLRB) published its long-awaited final joint employer rule after initially publishing the revised rule for public comment in September 2022. The rule takes effect on December 26, 2023, and governs how the Board will determine whether two or more employers are considered joint employers under the National Labor Relations Act (NLRA).
Under the new rule, which replaces regulations the agency issued in 2020, the Board in its analysis will consider evidence of not only direct control that’s exercised but also indirect control that’s merely reserved to an employer.
This rule is of immediate concern to businesses that are party to agreements giving one party the right to manage or “step in” to manage a workplace under certain conditions or engage staffing or other agencies to provide them with workers for tasks usually assigned to the workplace owners’ employees.
Under this employee- and union-friendly rule, a company now risks being found to be the employer of workers over whom it doesn’t actually, but theoretically and contractually could, exercise direct control and will be forced into collective bargaining if those employees unionize. A joint employer also may be found liable for unfair labor practices committed by another business entity.
In this alert, we explain the rule and what it might mean for your business and the potential obligation to negotiate with a union representing another employer’s workers.
Summary of the History of the Board’s Joint Employer Standard
Over the years, the Board has changed its view on what qualifies as a joint employer relationship, and the question has historically hinged on the type and level of control an employer has over another company’s workforce and whether that control is exercised or reserved.
For example, in Greyhound Corp., 153 NLRB 1488 (1965), the employer, Greyhound, retained a contractor to provide janitorial services at the employer’s terminals. The employer’s employees filed a representation petition with the Board naming both the employer and the contractor as respondents. After the union won the election, the Board (upheld by the U.S. Court of Appeals for the 5th Circuit) found that both companies had to negotiate with the union because Greyhound had reserved to itself the right to control “essential” terms and conditions of employment of the contractor’s employees.
Later, in Browning-Ferris Industries of Pennsylvania, Inc., 259 NLRB 148 (1981), the NLRB shifted gears and found that the employer wasn’t a joint employer and held that a joint employer finding would result only when both employers “possess and actually exercise substantial direct and immediate control over the employees’ terms and conditions of employment in a manner that is not limited and routine.” The U.S. Court of Appeals for the 3rd Circuit endorsed this rule, upholding the case.
Then, in Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015), the Board largely reverted to the rule it had announced in Greyhound. There, the employer retained a contractor to provide workers to assist with its sorting process.
A union petitioned to represent the workers and named Browning-Ferris and the contractor as joint employers.
In ruling that the two employers were joint employers (and therefore that Browning-Ferris also had to negotiate with the union concerning the contractor’s employees), the Board issued a new standard that it would consider an employer’s reserved and indirect right to control the workforce in its analysis. The Board provided a non-exhaustive list in its definition of the essential terms and conditions of employment.
Most recently, in 2020, the Board issued regulations yet again changing its joint employer rule. Swinging the pendulum back, the 2020 regulations spelled out that joint employer status would exist only when an employer “possessed and exercised such substantial direct and immediate control” over the essential terms or conditions of another employer’s workforce. The regulations outlined an “exhaustive” list of essential terms and conditions of employment that included wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
That rule currently is in place, and under these regulations, a business must exert direct control over these key working conditions; if it doesn’t, then the Board can’t find that a joint employer relationship exists.
The 2020 formulation of the joint employment standard has been important to businesses in the current economy, where they may be party to a business relationship or a staffing arrangement wherein another company provides workers.
In this circumstance, the other business may have theoretical (but unexercised) control over employees’ terms and conditions of employment. Under the regulations that will remain in place until December 26, if a business doesn’t actually control employees’ working conditions, a joint employer finding won’t result.
The Revised Joint Employer Rule
The new rule returns to the Board’s Obama-era “Browning Ferris” rule. Now, when analyzing joint employer status, the Board will consider both direct evidence of control and evidence of reserved and/or indirect control as evidence of joint employer status if the control bears on employees’ essential terms and conditions of employment.
The rule differs from the 2015 Browning Ferris rule in that it does provide an exhaustive list of seven categories of workplace terms and conditions of employment that will trigger the rule, making the employer a party that does or could exercise the right to control and set any of the following.
They are:
- Wages, benefits, and other compensation;
- Hours of work and scheduling;
- The assignment of duties to be performed;
- The supervision of the performance of duties;
- Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
- Hiring and discharge; and
- Working conditions related to the safety and health of employees.
Because indirect control and the mere right to control (rather than exercised) these important working conditions is enough for the NLRB to find that two companies are joint employers, the rule is expected to have a wide-ranging impact on employers.
For example, if you have engaged a temporary staffing agency to provide you with employees and your agreement with that company says you have the right to reject one of its employees, there’s a higher likelihood that the NLRB will find that you’re a joint employer under this new rule. And if that happens, then you will be compelled to negotiate with a union that organizes the other company’s employees with respect to any working condition that’s within your control (or potential control).
What Should You Do Now?
All businesses that contract with other companies in connection with a staffing agreement or another business arrangement in which one party has rights to assert over the employees of the other party should immediately have experienced labor counsel review the agreement. If possible, you might want to consider revising the agreement for the benefit of both companies to minimize the risk of a Board joint employer finding.
Sometimes, this may be sufficient to alleviate the legal risk. But in some cases, it simply won’t be possible for one company to relinquish sufficient control (or the right to control) over the other company’s employees to avoid a joint employer finding. In those cases, given that union organizing is at historic highs and because of NLRB developments making it much easier for unions to be certified without having to win an election, it will be key for you to work with counsel to enact proactive employee relations measures to ensure your employees (meaning those employed by you and potentially jointly employed by you and the other company) are satisfied with their working conditions and environment and don’t “sign up” with a union.
A shareholder in Baker Donelson’s Baltimore office, Louis J. Cannon Jr. focuses his practice on labor and employment matters. He can be reached at lcannon@bakerdonelson.com. Cassandra Horton is an associate in Baker Donelson’s Baltimore office and a member of the labor and employment group. She can be reached at chorton@bakerdonelson.com.