NLRB makes it more likely to deem U.S. companies as joint-employers

Final Rule

The Final Rule (the Rule) replaces the prior rule adopted April 27, 2020 during the Trump administration. The Rule considers two or more entities to be joint employers if (1) each entity has an employment relationship with the group of employees, and (2) if the entities share or codetermine at least one of the employees’ essential terms and conditions of employment.

In analyzing whether the entities share or codetermine essential terms and conditions of employment, the Trump-era rule required a business to “possess and exercise substantial direct and immediate control.” The Rule restores, in part, the standard from BFI Newby Island Recyclery, 362 NLRB No. 186 (2015), but expands this prior standard significantly further.  Now, an entity can be considered a joint employer if it has the authority to control at least one essential term of employment, regardless of whether that authority is exercised, and if exercised, regardless of whether it is direct or indirect.  In essence, mere possession of the authority to exercise control is enough. The Board adopted the following exhaustive list of terms and conditions as essential in determining joint-employer status:

1. Wages, benefits, and other compensation;
2. Hours of work and scheduling;
3. Assignment of duties;
4. 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. Tenure, hiring, and discharge; and
7. Working conditions.

The standard set forth in the Rule can apply (i) in determining whether unfair labor practice liability must be shared; (ii) whether entities will be jointly obligated to be involved in representation proceedings; and (iii) whether entitles will be jointly vulnerable to picketing. The Board made clear that, in the event of a joint employer’s duty to bargain, if an entity has mere possession of authority to control one of the above terms, it will have authority to bargain over “any ordinary mandatory subject of bargain that is also subject to its control.”

Next steps

The Rule’s effective date is fast approaching. The Board has made clear that the new standard will not apply retroactively and will only apply to cases filed after February 26, 2024. However, the Board failed to provide clear guidance on how the standard will apply. The Rule, once effective, will impact businesses and make it harder to avoid being considered a joint employer. Further, it will have an impact on unions and bargaining procedures. This impact will also reach employees of staffing agencies and franchisees, increasing the likelihood of a franchisor or staffing firm being deemed a joint employer with its franchisees and clients, respectively.

With actions like these from the NLRB, there is always a high likelihood of legal challenge – there was considerable challenge in the Circuit Courts after BFI Newby. A bipartisan Congressional Review Act (CRA) resolution was introduced to overturn the Rule. Legislators directly addressed the increased costs and uncertainty for small businesses, and increased liability for franchisors, as the basis for the resolution.

The U.S. Chamber of Commerce (Chamber of Commerce), in conjunction with a coalition of business groups, recently filed a lawsuit in the Eastern District of Texas against the NLRB, alleging the Rule is arbitrary and capricious. The Chamber of Commerce takes the position, similar to legislators, that the effects would be drastic on small business and franchisors. Additionally, the Chamber of Commerce argues that the Rule exceeds the current common-law precedent for joint-employment the Board claims the Rule is based on.

The International Franchise Association and several other industry groups are also attempting to lobby against the Rule. On the other end of the spectrum, the Service Employees International Union (SEIU) filed a petition for review in the D.C. Circuit, the same court that largely upheld BFI Newby.

It will be some time until the legal disputes are resolved. The Board postponed the effective date from December 26, 2023, to the new February date to allow time for the legal challenges to resolve. In the interim, companies should examine their agreements and contracts dealing with the provision of labor to ensure they do not possess authority or control over the terms of employment to avoid joint-employer status. Please consult with any Hogan Lovells employment attorney for advice on how to interpret the Rule, regardless of whether your company is unionized, and how to ensure that your company will not be deemed a joint employer with another.

Authored by Kenneth Kirschner, Zachary Siegel, and Muhammad Burney.