In Short

The Situation: The National Labor Relations Board ("NLRB" or "Board") recently issued a Notice of Proposed Rulemaking to articulate the standard for determining joint-employer relationships under the National Labor Relations Act ("NLRA" or the "Act") and rescind the Board's current joint-employer regulation, which was finalized in 2020.

The Background: The NLRB's joint-employer standard has changed five times since 2015, broadening or narrowing depending on whether Democrat- or Republican-appointed members maintain majority control of the Board. The proposed rule seeks to broaden the joint-employer standard considerably, which would make companies in many industries subject to a heightened risk of joint-employer liability and bargaining obligations under the NLRA.

Looking Ahead: The proposed rule is subject to public comment for a period of 60 days, although the Board may extend the comment period as it did in connection with its 2020 joint-employer rule. Thereafter, based on the rulemaking record, the Board will determine whether to proceed with a final rule in its current form, in modified form, or not at all, with any final rule being subject to potential challenge through litigation or under the Congressional Review Act.

On September 6, 2022, the NLRB published a proposed rule designed to articulate the standard for determining joint-employer status under the NLRA. Even for an agency known to shift its legal positions when political control of the Executive Branch changes hands, the frequency with which the Board has changed its joint-employer standard in recent years is exceptional. If the proposed regulation becomes a final rule, this would mark the fifth change of the joint-employer standard by the agency since 2015.

The most recent proposed changes largely reflect a return to the broad joint-employer standard articulated by the Obama-era Board in Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015) ("Browning-Ferris") and a repudiation of the Board's 2020 joint-employer regulation promulgated by a Republican-majority Board. Additionally, the proposed rule attempts to address concerns with the Browning-Ferris standard raised by the U.S. Court of Appeals for the District of Columbia in Browning-Ferris Industries of California, Inc. v. NLRB, 911 F.3d 1195, 1222 (D.C. Cir. 2018).

The proposed rule is the latest attempt to broaden coverage under the NLRA to impose liability and bargaining obligations on entities other than workers' direct employers. If the proposed rule is finalized without material changes after the comment period, companies in many industries—and particularly those in franchisor-franchisee, contractor-subcontractor, and staffing company-leased labor relationships—would face a heightened risk of being found a joint employer under the Act.

Comments regarding the proposed rule are due by November 7, 2022, with reply comments due November 21, 2022. Comments on the Board's last joint-employer regulation were extensive, and likely will be again, both because of the hotly contested nature of this issue and because the proposed rule is vague and expansive, subjecting far more entities to liability and bargaining obligations than historically has been the case. All interested parties should consider the value of commenting on the proposed rule.

Background

In 2015, the NLRB altered decades of precedent in the joint-employer context under the Act when it decided Browning-Ferris. Namely, the Board departed from a standard that required an entity to exercise actual, direct, and immediate control over the terms and conditions of employment of a group of workers in order to be deemed those workers' joint employer, and adopted a standard that permitted a joint-employer finding based upon an entity's reserved authority to control workers' terms and conditions of employment (even if that authority is never exercised) or indirect control over such terms and conditions, such as through an intermediary.

In late 2017, the Board reversed course and returned to its pre-Browning-Ferris standard in Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co., 365 NLRB No. 156 (2017). It then vacated Hy-Brand for procedural reasons several months later, which reinstated by default the joint-employer standard adopted in Browning-Ferris.

Later in 2018, a federal appellate court weighed in on the Browning-Ferris decision. While affirming Browning-Ferris's recognition that the Act's definition of "employer" derives from the common law and that indirect and reserved control are relevant in a joint-employer analysis, the U.S. Court of Appeals for the District of Columbia Circuit stated that the Board had "overshot the common-law mark" by failing to distinguish evidence of indirect control that bears on workers' essential terms and conditions of employment from evidence that simply documents the routine parameters of company-to-company contracting. Given that the Board "insufficiently explained the scope of the indirect-control element's operation and how a properly limited test would apply," the court remanded the case to the Board to provide more clarity on the standard and its application in the case.

By the time of remand, however, the Board had already proposed a new joint-employer regulation that largely returned the Board to the pre-Browning-Ferris standard. That joint-employer regulation, which was finalized in 2020, provides that an entity "may be considered a joint employer of a separate employer's employees only if the two employers share or codetermine the employees' essential terms and conditions of employment." This means that the entity "must possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant a finding that the entity meaningfully affects matters relating to the employment relationship with those employees." Evidence of an entity's indirect control or reserved but unexercised authority over essential terms and conditions of employment, or evidence of the entity's control over mandatory subjects of bargaining other than essential terms and conditions of employment, could be probative of joint-employer status only to the extent that it supplements and reinforces evidence of the entity's direct and immediate control over a particular essential term and condition of employment. The regulation specifically defines "essential terms and conditions of employment" to mean "wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction."

After the D.C. Circuit remanded Browning-Ferris to the Board for further consideration, the Board concluded in a July 2020 decision that a retroactive application of the Browning-Ferris standard was unjust and vacated its 2015 Browning-Ferris decision. On appeal of the Board's July 2020 decision, however, the D.C. Circuit recently vacated the Board's order and again remanded the case to the Board for further consideration, finding that retroactive application of the Board's August 2015 joint-employer standard was not unjust and the Board must apply a joint-employer test that considers evidence of reserved, direct, and indirect control consistent with the D.C. Circuit's instructions in its 2018 decision.

The Board's 2022 Proposed Regulation

The Board's proposed regulation abandons the joint-employer standard articulated in the 2020 regulation, which requires a finding of substantial direct and immediate control to establish a joint-employer relationship, and largely would return to the Browning-Ferris standard, although in some respects the proposed standard is broader than the standard articulated in Browning-Ferris.

The proposed rule would require, as a threshold consideration, that a common-law employment relationship be established between particular employees and the putative joint employer. Under the proposed rule, common-law agency principles would determine whether an employer has a common-law employment relationship with particular employees, and the rule identifies "relevant sources of common law agency principles," which "include primary articulations of these principles by common-law judges as well as compendiums, reports, and restatements of common law decisions such as the Restatement (Second) of Agency (1958), and early court decisions addressing 'master-servant relations.'" Aside from this incorporation of common-law principles by reference, and an indication of some sources where parties could look to research such principles, the rule provides no further clarity on what is necessary to satisfy this threshold question.

If a common-law employment relationship is established, the proposed rule would then require proof sufficient to establish that the putative employers "share or codetermine those matters governing employees' essential terms and conditions of employment." While the quoted language has long been used by the Board to define a joint-employer relationship, the proposed regulation defines this language very broadly. Indeed, the proposed rule defines the phrase "share or codetermine" to mean "for an employer to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees' essential terms and conditions of employment." By interpreting "share or codetermine" in this manner, the proposed regulation, if finalized without modification, would restore the heart of the Browning-Ferris ruling—i.e., that indirect or reserved control is "probative evidence of the type of control over employees' essential terms and conditions of employment that is necessary to establish joint-employer status." The proposed rule also would go one step further, and explicitly codify Browning-Ferris's suggestion that reserved or indirect control, standing alone, is sufficient to establish a joint-employer relationship.

The proposed regulations also would do away with the requirement in the 2020 joint-employer rule that a putative joint employer's control must be "substantial," which was defined as control that has a "regular or continuous consequential effect on an essential term or condition of employment of another employer's employees." The requirement that a putative joint employer exercise more than just "limited and routine" control was a fixture of the Board's joint-employer jurisprudence for at least three decades before Browning-Ferris. The Board's proposed regulation requires no qualitative level of control to be found a joint employer, as long as such control (in any amount) is exercised in relation to an "essential term and condition of employment."

To that end, the new regulation would substantially expand what "essential terms and conditions of employment" are to be considered when determining joint-employer status. Under the 2020 joint-employer rule, the essential terms and conditions of employment consisted of eight enumerated items: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. See 29 C.F.R. 103.40(b). The proposed rule, on the other hand, states that the essential terms and conditions "generally include, but are 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 and directions governing the manner, means, or methods of work performance." Thus, the proposed rule, at minimum: (i) would make the list of essential terms and conditions of employment non-exhaustive; (ii) would add one essential term and condition of employment explicitly (health and safety); and (iii) would likely expand the meaning of "direction" from the prior rule. Again, the Board references using common-law principles to determine what essential terms and conditions of employment are appropriate, but provides no further guidance.

Finally, the proposed rule purportedly attempts to respond to concerns raised in the D.C. Circuit's decision by enumerating some contractual terms and types of contractual relationships that generally would not be relevant to the joint-employer analysis. Such terms include "routine components of a company-to-company contract," terms limited to "dictat[ing] the results of a contracted service," terms that "aim to control or protect [the employer's] own property," and terms that "set the objective, basic ground rules and expectations for a third-party contractor." Further, the proposed rule states that "very generalized cap[s] on contract costs" and requiring "an advance description of the tasks to be performed under the contract" would not be probative of joint-employer status.

The Proposed Rule Is Subject to Public Comment and Potential Modification and Future Challenges

Like the 2020 rule, the Board has set an initial comment period of approximately 60 days, until November 7, 2022, with reply comments due by November 21, 2022. In connection with the 2020 rule, however, the Board ultimately granted several extensions to the comment period, which remained open for 136 days. During that time, the Board received nearly 29,000 comments. Given the hotly contested nature of the joint-employer issue, alongside the various vague and expansive terms in the Board's proposed joint-employer rule, it is reasonable to assume the Board will receive extensive public comments once again.

Employers concerned about the proposed joint-employer rule should consider commenting in their own name or through their trade associations. Comments allow employers and their trade associations to express concerns about the proposed rule, raise objections, shape the final rule, propose alternatives, create a factual record, challenge the Board's legal authority, suggest effective dates, and prepare for litigation challenging any final rule.

Historically, the Board has taken, on average, approximately one year between the issuance of its Notice of Proposed Rulemaking and the publication of a final rule. Given the lengthy comment period and the extensive comments received in connection with its last joint-employer rule, the Board took nearly 1.5 years to publish its final rule (i.e., the proposed rule issued on September 14, 2018, and the final rule issued February 26, 2020). It is reasonable to assume that if the Board promulgates a final rule after receiving comments, it will likely do so between September 2023 and February 2024.

In the event a final rule issues, individuals, businesses, and organizations (e.g., trade associations) will evaluate whether the rule is subject to legal challenge in court. Additionally, the new rule would be subject to the Congressional Review Act, which permits Congress to review and invalidate (with the President's authorization) new rules in the 60 days after their publication.

Three Key Takeaways

  1. For the fifth time in the last seven years, the NLRB has proposed a new joint-employer standard, which significantly broadens the definition of "joint employer" under the NLRA.
  2. The new rule would expand the current joint-employer test by making indirect and reserved (but never exercised) control, standing alone, sufficient to establish joint employment; by expanding the terms and conditions of employment under consideration to an unlimited (and undefined) scope; by allowing any amount of control to be sufficient to establish a joint-employer relationship; and by referring generally to common-law agency principles, without further definition, to delineate the outer bounds of the rule.
  3. The Board has requested public comments on the proposed rule, which must be submitted by November 7, 2022 (with reply comments due by November 21, 2022). Such comments are expected to be extensive, and all interested parties should consider the value of submitting comments. If a final rule is published, it may face legal challenges in court and will be subject to review by Congress.