Back on October 26, 2023, the National Labor Relations Board (NLRB) issued a Final Rule that changes the test for determining who is a joint employer. This new rule replaces the 2020 Trump–era regulation, drastically expanding the prongs for determination. The previous rule required companies to have “direct and immediate” control over workers in order to be considered joint employers. Under the current standard, the board can now find joint employer status if an organization has the mere “authority” to control at least one of seven enumerated terms and conditions of employment - even if that organization never exercises control, and even if it uses a third party or intermediary like a staffing agency. This raises significant concerns and leaves a lot of uncertainty when it comes to labor relations.
The New Joint Employer Test
The NLRB’s revised rule is founded upon the principle that employers are considered joint employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.” How the NLRB has defined these terms is what is causing controversy.
According to the NLRB definition, sharing or codetermining “means for an employer to possess the authority to control (whether directly, indirectly, or both), or exercise the power to control (whether directly, indirectly or both) one or more of the employees’ essential terms and conditions of employment.”
The NLRB goes on to identify what it considers “essential terms and conditions of employment”:
Wages, benefits, and other compensation
Hours of work and scheduling
The assignment of duties to be performed
The supervision of the performance of duties
Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline
The tenure of employment, including hiring and discharge
Working conditions related to the safety and health of employees
An entity’s reserved right to control at least one item on the above list is enough for it to be considered a joint employer, regardless of whether the control is exercised or whether the control is direct or indirect.
The Expansive Impact of the 2023 Version of the Rule
This broader version of the rule will likely result in more joint employer findings, with franchise, staffing, and temporary employment industries significantly impacted. For example, eEntities can now be considered employers of contract and franchise workers if they have control over pay, scheduling, or supervision, even if they don’t exercise that control. As a result, they can also be required to come to the table to take part in collective bargaining with the other employer’s unionized employees, along with being subject to strikes.
The NLRB has cast an incredibly wide net that will be impossible to understand and manage. With the potential for committing an unfair labor practice is exponentially increased, so too are the liabilities companies now face. The sweeping change will require employees to closely review their agreements with other companies, as even routine commercial terms can now be interpreted as direct or indirect control under the rule.
Will The 2023 Joint Employer Rule Survive?
Although the new NLRB Joint Employer Rule is set to go into effect on February 26, 2024, its fate is up in the air.
The profound consequences of the act have propelled heavy hitters to take legal action. The National Retail Federation and a coalition of business organizations have filed lawsuits against the rule, as has the U.S. Chamber of Commerce, which claims that it violates U.S. labor laws and will cause a variety of problems
Most recently, the House of Representatives has jumped into the fray. On January 12, 2024, it passed a resolution to repeal the rule, which now must go before the Senate. Although Democrats hold a one-seat majority in the Senate, Democratic Senator Joe Manchin has said that he opposes the rule. If the Senate passes the resolution, President Biden has vowed to veto it, and Congress will need a two-thirds majority to overcome that veto.
What Businesses Should Do
While we wait for all of this to play out, businesses need to prepare for the rule’s implications by:
● Acting as if the rule will go into effect on February 26, 2024.
● Reviewing the NLRB’s Fact Sheet Joint-Employer Standards Final Rule.
● Looking at current relationships with vendors, franchisees, staffing agencies, subcontractors, and other third parties that could fall within the new definition of joint employer.
● Analyzing how to modify any of those existing relationships before the rule goes into effect, as well as how to draft agreements moving forward, such as including terms that state your business has no right to control any of the seven essential terms and conditions outlined in the rule.
● Follow all legal cases and congressional resolution developments to monitor impact.
Why is all this important? Many workers work for or are paid by one company (such as a temp agency); but their day-to-day activities are controlled by supervisors or managers from the company that retained the temp agency, or similar arrangements. When something goes wrong and a worker wants to make a claim for unpaid wages or bad behavior by one of those companies, the question often arises about which one to make the claim against, or both. If the NLRB criteria is satisfied, the worker may be able to make claims against both as joint employers.
If you have questions or concerns regarding any issues related to labor and employment law, please contact us at 973.707.3322 or LFarber@LFarberLaw.com.
The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.