The National Labor Relations Board has issued final regulations on the standard for determining joint-employer status under the National Labor Relations Act. The regulations overrule the expansive test that the Board adopted in Browning-Ferris Industries of California, Inc. Under that 2015 decision, the Obama Board held that joint employer status existed if the entity exhibited “indirect control” over another employer’s employees or reserved the ability to exert such control. The Trump Board issued proposed regulations in 2018 and received more than 20,000 comments.

The new regulations will take effect on April 27.

“Substantial and Direct Control”

Under the final regulations, an employer may be considered a joint employer of a separate entity’s employees only if the two employers “share or codetermine the employees’ essential terms and conditions of employment.” “Essential terms and conditions of employment” is defined to include wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. To “share or codetermine” the essential terms and conditions of employment, the employer must possess and exercise “such substantial direct and immediate control” over one or more of those eight essential facets of the employment relationship.

The rule defines “substantial” and “direct” control as acts that have “a regular or continuous effect on an essential term or condition of employment.” Control that is sporadic, isolated, or de minimis will not meet the threshold required for joint employment. Furthermore, a mere contractual right of control is insufficient to establish joint employer status.

Practical effects of the new regulations

The new regulations are likely to provide greater flexibility to employers with operations using subcontractors and franchising business models. Because fewer entities are expected to be “joint employers,” the new regulations are likely to reduce the number of businesses that are subject to findings of unfair labor practices and organizing in situations based on subcontractor or franchise relationships. Businesses can also expect to have greater ability to separate themselves from litigation and labor matters resulting from issues over which the businesses did not have direct control.

Déjà vu?

The Board’s final regulations are consistent with final regulations recently issued by the U.S. Department of Labor on joint employment and the Fair Labor Standards Act. Both the NLRB and the DOL regulations focus on an entity’s actual control over workers. The DOL’s regulations consider hiring or firing, supervision and control of work schedule and conditions of employment, determination of employee’s pay rate and method of payment, and maintenance of the employee’s personnel records as indicia of employment control. The NLRB and DOL regulations both require that the entity actually exercise control over terms and conditions of the employee’s work, and both make clear that a mere contractual right of control is insufficient to establish joint employer status.

Both sets of regulations reduce the risk of joint employer liability and recognize the practical realities of tiered business relationships and flexible business models. Both are seen as favorable for businesses in that the responsibility associated with employer status is reasonably placed on the entity or entities that have actual control over employment. The NLRB and DOL regulations do not unreasonably stretch “joint employer” status to extend responsibility for labor and employment matters beyond the controlling entities.