NLRB’s Latest Rule Means Big Changes Ahead on Joint Employment Front

The National Labor Relations Board’s (NLRB) new rule on joint employment puts more employers at risk of joint employer status, meaning they will bear more responsibility related to unionization, bargaining, and unfair labor practice charges.

The Board’s new rule, issued October 26, replaces a rule issued in 2020 by the Trump administration’s Board. That rule said an employer could be in a joint employment relationship with a different employer’s employees only if it exercised direct control over those employees’ essential terms of employment.

The new rule is similar to the Obama-era standard set in the NLRB’s 2015 Browning-Ferris decision, but the new rule goes further. Under the new rule, which is set to take effect on December 26, entities may be considered joint employers if each entity has an employment relationship with the employees and the employers share or co-determine one or more of the employees’ essential terms and conditions of employment.

The new rule defines terms and conditions of employment exclusively as:

• 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;
• The tenure of employment, including hiring and discharge; and
• Working conditions related to the safety and health of employees.

Employer Concerns

Ryan Funk, a labor management relations partner at the law firm of Faegre Drinker in Indianapolis, Indiana, calls the new rule “the latest swing of the NLRB pendulum,” but the new rule does differ somewhat from the 2015 standard.

“This time, the NLRB said that lesser forms of control (contractually reserved but unexercised control and indirect control) are not just potential evidence of a joint employer relationship; they are dispositive evidence,” Funk says. “Also, the extent of control no longer matters.”

The new rule gives employers at risk of being deemed joint employers—often those using a franchise business model—much to consider.

“It’s easy to lose the big picture when trying to track the changes to the NLRB’s joint employer test,” Funk says. “Employers must remember why this matters. A joint employer has a duty to bargain with the union that represents the employees, can be liable for unfair labor practices of fellow employers, and can lose legal protections against ‘secondary pressure’ like union picketing.”

Burton J. Fishman, an attorney with FortneyScott in Washington, D.C., says the rule is likely to be challenged in the courts and even enjoined from taking effect until a final judgment.

Advice to Employers

Funk’s advice to employers is to be careful about the kinds of control they reserve or exercise over employees who may be in a joint employment relationship.

“It is an unforced error for an employer to reserve authority to control another employer’s employees when it doesn’t really need that option,” Funk says. “So, the lowest-hanging fruit is for employers to look for reservations of authority that they can relinquish to avoid a joint employer finding.”

Funk adds that sometimes employers need a certain level of control over another employer’s employees. “Under the new rule, it will be difficult for those employers to avoid a joint employer finding, so they should consider going all in,” he says. “They will likely be determined to be joint employers, but at least they will have taken the control they need to ensure the employees are treated well and serve their functions well.”

Michael J. Moore, an attorney with Steptoe & Johnson PLLC in Bridgeport, West Virginia, says employers must understand that retaining the right to exercise control over employees will be enough to result in a joint-employer finding.

The new rule puts employers in a difficult situation if they feel compelled to preserve some degree of control of their operations when contract staff is involved, Moore says, adding that the new rule shows the direction of the NLRB “will be to find joint-employer status any time the proposed joint employer retains any level of discretion or control over the contractor’s employees.”

Moore says employers must decide whether “the risk of a joint employment finding is worth maintaining some measure of control over the contractor’s employees.” He says the best advice for employers is to understand what is presently in their agreements so they can consider whether to modify them and “to quantify where the risk is to the employer if an employee/union/NLRB agent were to examine the relationship.”

Fishman also advises employers to monitor their relationships with contractors and agencies to make sure control is limited.

NLRB Rule Versus DOL Rule

The NLRB isn’t the only agency concerned with joint employment. The U.S. Department of Labor (DOL) also has a rule defining joint-employer standards. A fact sheet from the NLRB explains that the Board’s rule is based on the National Labor Relations Act (NLRA) and the DOL’s rule applies an economic-realities test to determine what constitutes an employer under the Fair Labor Standards Act (FLSA).

The NLRB’s rule is seen as making unionization and collective bargaining more likely for more employees. Its fact sheet explains that for purposes of collective bargaining, an employer deemed a joint employer will be required to bargain over terms and conditions of employment as well as other mandatory subjects of bargaining that it possesses or exercises the authority to control. The employer won’t be required to bargain over subjects that it doesn’t have the authority to control.

Backlash Against New Rule

Industry groups are speaking out against the new rule. A statement from the Associated Builders and Contractors (ABC) quoted Ben Brubeck, the organization’s vice president of regulatory, labor, and state affairs, as saying the rule is “overbroad” and may make contractors “vulnerable to increased liability and risk, making them less likely to hire subcontractors.”

“ABC will explore all options to push back on this harmful final rule, including possible litigation,” Brubeck said.

The American Hotel & Lodging Association (AHLA) also criticized the rule. AHLA President and CEO Chip Rogers called it “devastating to the hotel industry.”

“NLRB’s goal is to coerce businesses to the bargaining table with workers they do not actually employ to artificially increase unionization,” Rogers said in a statement, adding that “AHLA is reviewing opportunities to legally challenge this regulation to restore certainty for America’s lodging industry.”

American Staffing Association senior counsel Ed Lenz also spoke out on the new rule, explaining it is “unlikely to have a significant impact on the staffing industry or its clients” since staffing firms and clients share control over the essential terms and conditions of employment and therefore “joint employment has always been an inherent aspect of staffing arrangements.”

“The key change made by the NLRB from prior rules is that the mere right to control will now be considered sufficient to establish joint employment even if the right is not exercised,” Lenz said. “Indirect control will also now be sufficient.”

Tammy Binford is a Contributing Editor at HR Daily Advisor.

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