On October 26, 2023, the National Labor Relations Board (NLRB) issued a final rule substantially changing the definition of joint employer under the National Labor Relations Act (NLRA). The new rule makes the definition easier to meet, and employers, particularly franchisors and those who use contract labor, will have greater liability for labor law violations and bargaining obligations.
The final rule rescinds the 2020 final rule that was promulgated by the prior Trump-administration Board. The 2020 rule made it easier for actual joint employers to avoid a finding of joint-employer status because it set a higher threshold that a putative joint employer must “possess and exercise . . . substantial direct and immediate control” over essential terms and conditions of employment, which the NLRB contended had no legal foundation.
Instead, the 2023 final rule further expands on the 2015 Obama-era Board’s Browning-Ferris Industries (BFI) decision. In its summary of changes effective in the new rule, the Board states that the final rule “recognizes that common-law agency principles define the statutory employer-employee relationship under the Act and affirms the Board’s traditional definition of joint employers as two or more common-law employers of the same employees who share or codetermine those matters governing those employees’ essential terms and conditions of employment.”
The final rule further “provides that a common-law employer of particular employees shares or codetermines those matters governing employees’ essential terms and conditions of employment if the employer possesses the authority to control (whether directly, indirectly, or both) or exercises the power to control (whether directly, indirectly, or both) one or more of the employees’ essential terms and conditions of employment, regardless of whether the employer exercises such control or the manner in which such control is exercised.”
Under the new standard, an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employees’ essential terms and conditions of employment, which are defined exclusively as the following:
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Wages, benefits, and other compensation
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Hours of work and scheduling
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The assignment of duties to be performed
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The supervision of the performance of duties
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Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline
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The tenure of employment, including hiring and discharge
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Working conditions related to the safety and health of employees
Moreover, the Board provides that a joint employer of particular employees must bargain collectively with the representative of those employees with respect to any term or condition of employment that it possesses the authority to control or exercises the power to control, regardless of whether that term or condition is deemed to be an essential term or condition of employment under the rule. However, such an entity is not required to bargain with respect to any term or condition of employment that it does not possess the authority to control or exercise the power to control.
The new final rule, which will take effect on December 26, 2023, could have a substantial impact on employers who otherwise had not been deemed joint employers. Franchise agreements and employee leasing agreements should be reviewed in light of this new definition. The relationship cannot be waived, but consideration should be given to details around such agreements.
Given the significant impact on employers, the final rule — like previous iterations of the rule — is highly likely subject to legal challenge. Employers Council will monitor the latest developments and keep members up to date.