On October 27, 2023, the National Labor Relations Board (“NLRB” or “Board”) published a final rule expanding the standard used to determine Joint-Employer Status under the National Labor Relations Act (“NLRA”). The final rule establishes that, under the NLRA, two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees, and if the entities share or codetermine one or more of the employees’ essential terms and conditions of employment. This new standard goes into effect December 26, 2023. All employers should familiarize themselves with this new rule.

Background

The joint-employer standard has frequently changed over the past decade as Board control switched between Democratic-run and Republican-run majorities. In 2015, in Browning-Ferris Industries of California, Inc., 362 NRLB 1599 (2015), an Obama-era Board held that the NLRB would consider an employer’s reserved and indirect control, as well as direct and immediate control, over an employee’s essential terms and conditions of employment when determining whether an entity is a joint employer. In 2017, in Hy-Brand Industrial Contractors, a Trump-era Board overturned Browning-Ferris and held that an entity would only be considered a joint employer if it exercised direct and immediate control over an employee’s essential terms and conditions. Hy-Brand Industrial Contractors was vacated in 2018, but in 2020 the Trump-era Board issued a final rule codifying the joint-employer “direct and immediate control” standard. On September 7, 2022, the Biden-era Board released a Notice of Proposed Rulemaking which proposed replacing and broadening the joint-employer standard. Now, one year later, the NLRB has published a final rule, once again changing the joint-employer standard.

The New Joint-Employer Standard

The joint-employer standard supplants the 2020 Trump-era standard by permitting the NLRB to consider whether an entity “shares or codetermines those matters governing employees’ essential terms and conditions of employment.” This standard takes into account whether an entity has authority and power (either directly, indirectly, or both) to control employees’ essential terms and conditions. In particular, the 2023 rule considers the alleged joint employers’ authority to control at least one of the essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect. Significantly, an entity no longer needs to exercise actual control over the essential terms and conditions of employment, as long as the entity has the authority and power to do so, to be considered a joint employer.

The new joint-employer standard defines “essential terms and conditions of employment” to include:

• 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.

It is anticipated that this new standard will have an especially detrimental impact on certain business models, namely franchises. This is because franchisors frequently have the contractual authority (even if not exercised) to control the essential terms and conditions of the employees of franchisees. Thus, the plain language of the new standard suggests that franchisors will now be held liable as joint employers and required to bargain with the employees of franchisees. However, the concern of this new joint-employer standard goes way beyond franchisors and will impact any employer who utilizes vendors or staffing agencies to provide personnel services for their business. Employers need to review such contractual arrangements and carefully consider this new joint-employer standard prior to the effective date of December 26, 2023.

Key Takeaways

Businesses with the authority and power to indirectly control the terms and conditions of employees will soon be classified as joint employers under the new NLRB joint-employer standard. Accordingly, employers should review their current practices, contracts and business models and determine whether they will be impacted by the expansion of the joint-employer standard. The NLRB has published a Fact Sheet on the Joint-Employer Standard 2023 - Final Rule providing additional guidance on the new standard.

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If you have questions or would like additional information, please contact our Labor & Employment attorneys or the primary EGS attorney with whom you work.