NLRB Proposes Employee-Friendly Joint Employer Rule

The National Labor Relations Board (NLRB) wants to replace the current standard for determining joint employment under the National Labor Relations Act (NLRA) with a rule that, some say, makes it easier to impose liability on employers.

The NLRA protects employees’ right to form and join a union. It provides private-sector workers with the right to improve their wages and working conditions.

Under the current rule, a business is a joint employer under the NLRA only if it has “substantial direct and immediate control” over the essential terms and conditions of the other company’s workers. The current rule has been in effect since April 2020.

What are the key terms and conditions of the proposed rule?

The proposed rule jettisons the emphasis on “direct and immediate control.” Under the proposed rule, employers would be viewed as joint employers if they share or determine an employee’s “essential terms and conditions of employment.”

Employers would only have to possess the authority to control the terms and conditions of employment of another organization’s workforce without taking advantage of that authority to be viewed as a joint employer.

Essential terms and conditions of employment can include:

• Hiring
• Work assignments
• Employment Schedules
• Supervision
• Discipline
• Rules affecting work
• Termination of employment
• Compensation

The agency says it wants to return to “established common-law agency principles, consistent with Board precedent and guidance that the Board has received from the U.S. Court of Appeals for the DC Circuit.”

But many say the proposal is a restoration of the much-criticized Obama-era standard for determining joint employment. They say that made it too easy for a business to be considered a joint employer.

What will be the impact of the proposed standard?

Employers that use temporary staffing agencies could see huge fallout if the proposed rule is adopted. Franchise operators could also see that fallout.

An increasing number of businesses are changing their staffing models by using staffing agencies to fill employee vacancies. About 16 million temporary and contract workers are hired throughout the year.

The proposed standard means that if a business qualifies as a joint employer:

• It might have to bargain with a union that represents the workers
• Also, it might have to deal with economic pressures such as strikes and picketing if there is a labor dispute
• It could be liable for unfair labor practices that the other employer committed

Organized labor advocates argue that a strict definition of “joint employer” lets many large companies that rely on subcontractors or other contingent workers off the hook for their treatment.

Franchisors say they worry that a relaxed definition of “joint employer” will create extensive litigation. They worry that it’ll hold them accountable for decisions and actions over which they did not have control.

What did dissenting Board members say?

Changing the existing standard wasn’t unanimous among the 5-member Board. The 3 Democratic members of the Board, including its Chair, approved the proposal. The 2 Republican members dissented and voted against changing the legal standard.

In their dissent, they said the proposed rule enlarges joint employment beyond the parameters found by the courts when applying the common law. They argued that including “indirect or reserved control” as an indicator of joint-employer status goes beyond the common law.

The dissenting Board members also said the Administrative Procedures Act (APA) requires an agency to provide a reasonable explanation for changing rules that are already in place and provide good reasons for the new policy. They said the Board has failed to provide an adequate explanation. They said that as a result, it failed to meet the requirement needed under the APA to change the existing rule.

In addition, they declared the Board’s proposal to change the 2020 rule premature. This is because the courts haven’t applied the standard in a precedent-setting court case.

People are challenging the current rule in court. The Service Employees International Union, the huge union behind the campaign to raise the minimum wage to $15 an hour, filed a lawsuit in September 2021 against the NLRB disputing its joint-employer regulation.

The SEIU said in its complaint that joint-employer status should also apply to employers with an unexercised right to control. That is, those who have reserved control over workers.

What is the background of this proposed standard?

The analysis for joint employment has been the subject of quite a bit of back-and-forth over the last many years. It has been addressed several times in the last decade. New standards have been created as the composition of the NLRB has shifted from Democrats to Republicans and back to the Democrats.

The Board issued a decision in Browning-Ferris Industries of California, Inc. (Browning-Ferris) in 2015 that changed many years of legal precedent by expanding the definition of joint employer.

Under that decision, 2 businesses could be joint employers if control was “limited and routine,” indirect, or simply reserved for use by one of the companies.

This was a significant change from the standard that existed before Browning-Ferris. The pre-Browning-Ferris standard required a joint employer to exercise actual or “direct and immediate” control over the essential terms and conditions of employment.

Browning-Ferris increased both the potential for finding that a business was a joint employer and the possibility of legal liability in instances of certain types of workplace misconduct. Businesses heavily criticized the decision.

Additional details

Three years later, a D.C. federal appeals court upheld some parts of Browning-Ferris but sent it back to the Board for another look at the Obama-era standard. The appeals court ruled that the Board had applied the concept of indirect control too broadly, although indirect control could be appropriate in determining whether a business qualifies as a joint employer.

The Board took still another look at the issue in 2020 during the Trump Administration. The Board issued a final rule declaring that businesses are joint employers only if the organizations exercise “substantial direct and immediate control” over the essential terms and conditions of another company’s workers. The 2020 rulemaking rejected and replaced the Browning-Ferris standard.

Under the 2020 standard, a franchisor was far less likely to be a “joint employer.” The rule reduced potential liability for unfair labor practices. It also clarified that businesses did not have to bargain with their franchisees’ workers.

The Trump Administration rule went into effect in April 2020. It’s the legal standard that is currently in use.

The proposed rule would not change the other standards

The Board’s proposal only applies to finding joint employment status under the NLRA. The standard varies depending on the law being applied.

The Board’s proposed rule would not change the other standards. It would be one among many standards.

Title VII of the Civil Rights Act of 1964 and the Fair Labor Standards Act and state laws have different rules for determining joint employment. The Board’s proposed rule would not change the other standards. It would be one among many standards.

What is the deadline for submitting comments?

The deadline for submitting comments to the Board on the new standard for finding joint employment closes Dec. 7. Reply comments are due Dec. 21. The deadline was originally November 7 but they extended it.

NLRB considering change to freelancer standard

Another NLRB Trump-era standard could also be on the chopping block. The NLRB is also taking another look at the standard used to determine who qualifies as an independent contractor. With a Democratic majority in place, the Board is revisiting the issue.

The Board is mulling over whether it should keep the current independent contractor test established during the Trump Administration or return to an earlier standard.

The current Board test for deciding freelance status emphasizes “entrepreneurial opportunity.” The previous test, under the Obama Administration, focused on the amount of control exercised over the worker. Many regard the Trump-era standard as employer-friendly, while many regard the Obama-era standard as employee-friendly.

Comments filed by stakeholders on the matter ran the gamut. They range from keeping the current test to returning to the earlier test to adopting a completely new standard.

Joint-employer status has become a source of contention

Joint-employer status, like independent contractor status, has become a source of contention among Washington, D.C. regulators. It’s subject to the prevailing political winds in the nation’s capital. Employers should monitor the proposals for significant changes in compliance responsibility.