New NLRB Proposed Joint Employer Standard May Substantially Increase Liability For Employers

On Thursday, September 7, the National Labor Relations Board (NLRB) published a notice of proposed rulemaking that, if enacted as anticipated, will significantly expand the number of businesses presumed to be “joint employers” for purposes of the National Labor Relations Act.

Under the proposed rule, two or more employers would be considered joint employers if they “share or codetermine those matters governing employees' essential terms and conditions of employment.”  The proposed rule makes clear that an entity can be found to be a joint employer of an employee if it has the authority to exert either direct or indirect control over any of the employee’s “essential terms and conditions of employment,” including but not limited to “wages, benefits, and other compensation; hours of work and scheduling; hiring and discharge; discipline; workplace health and safety; supervision; assignment; and work rules governing and directions governing the manner, means, or methods of work performance.”  The proposed rule does not require an entity to actually exercise any authority over an employee’s essential terms and conditions of employment to be considered a joint employer.

The new proposed rule would explicitly rescind and replace the NLRB’s most recent overhaul of the joint employer rule under the Trump administration, which went into effect on April 27, 2020.  The current rule holds that an entity can only be considered a joint employer of an employee if it “possess[es] such substantial direct and immediate control over one or more essential terms of [the employee’s] employment as would warrant finding that the entity meaningfully effects matters relating to the employment relationship with those employees.”  The 2020 Rule makes clear that absent the actual exercise of direct control of the essential terms and conditions of employment, an entity will not be found to be a joint employer of another entity’s employees—even if the entity in question has the unexercised contractual authority to impact the essential terms and conditions of employment.  The 2020 rule and the newly announced revised rule represent the most recent developments in a years-long struggle over the scope of the standard for determining joint employer status, which has shifted dramatically multiple times since 2015.

Recognition as a joint employer by the NLRB holds significant consequences under federal labor law.  Joint employers can be held jointly liable for any unlawful actions taken against employees engaging in activity protected under the National Labor Relations Act and may be required in certain circumstances to recognize and bargain with employee groups seeking to unionize.  This was the case in the seminal 2015 NLRB decision in Browning-Ferris Industries, 362 NLRB 1599.  In that case, the NLRB held for the first time that an entity could be considered a joint employer under the National Labor Relations Act if it had the “right to control” the essential terms and conditions of employment, “whether direct or indirect,” and that the actual exercise of that control was not a necessary precondition to joint employer status.  Applying this standard, the NLRB held that waste recycling company Browning Ferris was required to recognize and bargain with a group of employees that worked for the company through a contract with a staffing agency because Browning Ferris’s contract with the staffing firm retained substantial control over the use of contract employees, including the right to discontinue the use of any particular personnel at any time.  The NLRB’s 2020 revision of the joint employer rule was intended to ensure that the standard for joint employer status created in the Browning Ferris decision was substantially narrowed; however, the Board’s newly proposed rule would explicitly codify that broader standard moving forward.

The proposed rule must proceed through a mandatory comment process before the NLRB can hold a final vote on whether to implement the rule.  Barring any extensions, any stakeholder wishing to comment on the proposed rule has until November 7 to provide feedback on the proposal, which must be considered by the NLRB before it issues a final rule.

The bottom line for employers moving forward is that under the NLRB’s newly proposed joint employer rule, employers in industries that frequently require the use of another employer’s employees would more likely be found as joint employers, which could potentially increase the risk of liability under federal labor laws.  Examples of large employer groups that would likely be affected are franchisors and franchisees; entities either supplying or utilizing temporary employees; and entities that utilize contract labor to perform auxiliary support functions such as facilities maintenance and security.

If you are an employer with questions about the current or proposed NLRB rule on joint employer status, contact your Dinsmore Labor and Employment attorney to discuss how the rules apply to your business now and moving forward.