NLRB Issues Final Rule on Joint-Employer Relationships

The NLRB’s new definition of joint-employer liability requires a company exercise “substantial” direct and immediate control over a worker’s job

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The new labor law is a win for business owners and franchises

The National Labor Relations Board issued its final rule clarifying the joint-employer relationship, which will go into effect on April 27, 2020.

The ruling appears to be a win for employers, particularly for franchise owners and businesses that subcontract work. The new rule is a reversal of the 2015 Browning-Ferris Industries ruling by the NLRB, which expanded joint-employer scenarios.

The 2015 NLRB decision ruled a company is a joint-employer by having “indirect” or “direct” control over workers contracted to them by another employer.

Under the final rule, a business is a joint-employer if it has “substantial” direct and immediate over the essential terms and conditions of another company’s employee.

What are the joint-employer implications?

The new ruling returns the standard to pre-2015 language and provides key terminology to define what establishes a joint-employer relationship.

According to the NLRB, a business is a joint-employer of another employer’s employees if:

  • The 2 employers share or codetermine the employees’ essential terms and conditions of employment
  • A business possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees

The new rule also defines what areas of control over employment the company must have to be considered a joint-employer under the law.

Those essential terms and conditions are exclusively defined as:

  • Wages
  • Benefits
  • Hours of work
  • Hiring
  • Discharge
  • Discipline
  • Supervision
  • Direction

For businesses to fall under the category of joint-employers under the rule, they would have to work cooperatively with a contractor, for example, to determine all aspects of a workers’ employment.

Joint-employer example

An example would be a company that uses contract workers to clean their facility after hours.

To be a joint-employer, the company would have to have direct control over one or more of the cleaning staff’s terms of employment — either wages, benefits, hours, hiring and firing, discipline, or supervision.

While a business may contract for a cleaning service at a specified price, they would not have control over how much each individual employee is paid.

They may request the work be performed after hours, but have no control over employee’s schedules. And, if they request a particular employee removed from work, it wouldn’t necessarily result in that staff member being fired. They could easily be reassigned to another client.

Absent that “direct” control over the contracted worker’s terms of employment, no joint-employer relationship can be established.

For franchise owners and businesses who use sub-contractors

The joint-employer standard, as it affected franchise agreements, muddied the waters with respect to individual business owners’ control over their staff. The rule reversal essentially returns employment decision-making back to franchise owners.

Franchise owners cautiously watched the recent decision won by McDonald’s over a wage dispute in California.

The court found that brand control does not constitute joint-employment. The fast food giant is still working with the NLRB to settle a dispute brought under the previous joint-employer relationship interpretation.

The California ruling, along with the new definition by the NLRB, appears to show parent companies and franchise owners are separate entities under the law.

For any business that subcontracts work, the new rule provides protection

in the event of unfair labor practices on the part of the subcontractor. It also provides  protection from being targeted by unions trying to organize the other company’s contract workers.

Joint-employer workers

Worker advocate groups and unions strongly oppose the new joint-employer ruling, arguing it protects businesses who mistreat workers.

Under the old rule, it was easier to determine which companies were jointly-employed entities. While joint-employer status provides specific protections for workers under the National Labor Relations Act, an entity not considered a joint-employer can refuse to accommodate workplace changes.

If an entity qualifies as a joint-employer, they might have to bargain with a union representing jointly-employed workers. They may also be subject to picketing at their location, and potentially be liable for unfair labor practices committed by the other employer.

The current standards have made it challenging for businesses to understand their rights and responsibilities under the law.

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