Introduction

On October 27, 2023, the National Labor Relations Board (“NLRB”) published its final rule establishing a new standard for determining when two entities may be considered joint employers for purposes of the National Labor Relations Act (“NLRA”) and thus jointly responsible for collective bargaining and the unfair labor practices of each other.   

Over time, the Board has shifted its view of what constitutes a joint employer, depending largely upon the administration in place at the time.  The Board’s final rule reverses the previous Board’s 2020 standard, which required that a joint employer have a “substantial direct and immediate control” over the terms and conditions of employment.  The new rule creates a much more relaxed standard for finding that an employer is in fact a joint employer and significantly increases an entity’s liability for the unfair labor practices of another entity.

New Standard

To establish a joint employer relationship under the new rule, two requirements must be met: (1) there must be an employment relationship, and (2) the entities must “share or codetermine one or more of the employees’ essential terms and conditions of employment.”  The new rule focuses on whether an employer has any “reserved control” over the terms of employment, regardless of whether that control is exercised.  The Board’s reasoning is that the employer could potentially exercise that control at any point in the employment relationship.  A joint employer relationship can also be found if there is indirect control over the terms and conditions of employment.  This occurs when an entity exercises control through an intermediary or controlled third-party.  The new rule is intended to make it more difficult for employers to escape bargaining liability by using intermediaries.

The rule contains an exhaustive list of seven categories that are considered essential terms and conditions of employment.  If an employer has control (whether or not that control is actually exercised or is indirect) over any of these categories, they will be considered a joint employer alongside the other joint employer(s): (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the 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) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.  If an employer is found to control at least one of these essential terms, they will be responsible for bargaining over any other terms and conditions of employment they have control over, regardless of whether they are deemed essential.

The effect this will have on employers may be significant.  Joint employers, under the NLRA, are required to bargain over essential terms and conditions of employment they control, as well as other “mandatory subjects of bargaining that it possesses or exercises the authority to control.”  The rule further imposes liability on employers for the unfair labor practices committed by the other joint employer.  In particular, this final rule will have a significant impact on franchisors/franchisees, as well as staffing agencies and their client employers.  The final rule is set to become effective on December 26, 2023.

Takeaways

While the rule is not yet effective, employers should ensure they are complying with all bargaining requirements under the NLRA.  Employers should also be aware of how this rule will affect their potential liability due to the actions of other entities.  It would be advantageous for employers to review any existing staffing agreements to determine which, if any, essential terms and conditions are under the control of either the employer or the staffing agency.  Additionally, employers may want to consider conducting an audit of these relationships to see if there is any restructuring necessary to avoid an imposition of joint liability.  Employers should take steps to ensure compliance with the NLRA throughout all levels of their organization, including intermediary and third-party employment-related interactions, to help reduce their potential liability under the NLRA.