Recently, the National Labor Relations Board (NLRB) issued its final rule on the joint-employer standard under the National Labor Relations Act (NLRA). This new rule, originally set to go into effect December 26, 2023, is essentially a rollback of the NLRB’s 2020 joint-employer rule issued during the Trump administration. On November 16, 2023, however, the Board stated the new rule would not become effective until February 26, 2024. The Board indicated the effective date was delayed to allow for resolution of the legal challenges. The Board also clarified that the new rule would only be applied on a prospective basis to cases filed after the new rule becomes effective. Let’s take a closer look.
The 2020 Rule
Under the 2020 rule, an entity was to be considered a joint employer of another’s employees if the entity had and actually exercised “substantial direct and immediate control” over an employee’s essential terms and conditions of employment. This was seen as a higher standard than that established under the NLRB’s 2015 decision in Browning-Ferris.
In Browning-Ferris, the NLRB ruled that a more common joint-employer test applied for purposes of the NLRA—an entity would be considered an employer where they simply had a “right to control” an employee’s essential terms or conditions of employment, whether such control was exercised or not.
The New 2023 Rule
The new rule and its preamble are just under 73 pages, but it largely harkens back to the 2015 Browning-Ferris decision. That is, a joint-employer relationship is created under the new rule if an entity retains the right to exercise some minimal or even “indirect” control over one or more essential terms or conditions of employment.
An essential term or condition includes:
- Wages, benefits and other compensation;
- Hours of work and scheduling;
- The assignment of duties to be performed;
- The supervision of duties;
- Work rules and directions regarding the manner, means and method of performance;
- The grounds for discipline;
- Tenure of employment, including hiring and discharge; and
- Working conditions relative to health and safety.
Notice that the mere right to control or dictate just a single essential term or condition, even if not exercised in fact, can create a joint-employer relationship. For example, a joint-employer relationship could be created if an organization contracts with a staffing agency to fulfill labor needs but retains the contractual right or duty to establish conditions of health and safety for the staffing agency’s workers.
Such an innocuous contractual provision could inadvertently cause the organization to be considered a joint employer of the staffing agency’s workers under the new rule.
Importantly, the new rule is limited to the NLRA, which governs collective bargaining and union activity, and doesn’t apply in the context of the FLSA and other Department of Labor (DOL) standards.
Industry groups like the International Franchise Association seemingly are poised to attack the new rule in the courts, while U.S. Senators Joe Manchin (D-WV) and Bill Cassidy, M.D. (R-LA) announced that they will seek to overturn the rule by resolution under the Congressional Review Act.
Although the new rule will be challenged, care should be taken when utilizing staffing agencies or a franchise model given the now much lower bar to becoming a joint employer.