On February 26, 2020, the National Labor Relations Board issued its final rule establishing the standard for determining whether two employers are joint employers under the Act (“New Rule”).

History of Joint Employer Standard

As explained by the NLRB, a joint employer finding has significant implications for rights and obligations under the NLRA relative to collective bargaining, strike activity and unfair labor practice liability:

  • If the employees are represented by a union, the joint employer must participate in collective bargaining over their terms and conditions of employment.
  • Picketing directed at a joint employer that would otherwise be secondary and unlawful is primary and lawful.
  • Each business comprising the joint employer may be found jointly and severally liable for the other’s unfair labor practices.

While “[t]he Board will find that two separate entities are joint employers of a single workforce if the evidence shows that they ‘share or codetermine those matters governing the essential terms and conditions of employment,’” for many years the “essential terms and conditions of employment” that were relevant to the joint-employer inquiry were not clearly defined.[1]

The New Rule restores the joint-employer standard that the Board applied for several decades prior to the 2015 decision in Browning-Ferris[2], after which, a company could be deemed a joint employer even if its control over the essential terms and conditions of another business’s employees was indirect, limited and routine, or contractually reserved but never exercised.

The Browning-Ferris standard deviated significantly from the pre-2015 standards under which evidence of indirect control was typically insufficient to prove that an entity was the joint employer of another employer’s workers. Even direct and immediate supervision of another employer’s employees was insufficient to establish joint-employer status where such supervision was “limited and routine.”[3]

The New Rule

Under the New Rule, an entity is a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms or conditions of employment. The Board now defines “share or codetermine” as the possession and exercise of “such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.”

Under the New Rule, evidence of indirect control over essential terms or conditions of employment would only be considered “to the extent it supplements and reinforces evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.”

For example, an entity’s control over grievance adjustment or drug or alcohol testing might be probative of its direct and immediate control over discipline or supervision; but likely would not, standing alone, support a finding of joint-employer status.

Furthermore, the New Rule provides that an entity does not exercise direct and immediate control over supervision when its instructions are limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it.

Practical Takeaways

The New Rule has significant economic implications for the health care industry and hospitals that frequently rely on subcontracted workers who may have previously claimed to be jointly employed by the hospital and the third party entity that employs them. Increasingly, hospitals have subcontracted both health and non-health functions within health systems as a part of their cost-saving and work-flow management strategies. According to one survey,[4] 90 percent of hospital leaders are continuing to evaluate whether to work with third-party vendors for cost efficiencies in both clinical and nonclinical functions.

The New Rule has set a stricter standard for when an employee or union can claim to be jointly employed by two employers under the Act and provides better guidance to health care employers contracting with third-party entities. However, such arrangements must still be structured and managed properly to avoid a finding of joint-employer status.

Hospitals and health systems are well-advised to consider the New Rule in structuring any new staffing or subcontracting arrangements.