The National Labor Relations Board (“NLRB”) has issued a notice of proposed rulemaking, which would significantly alter the standard to determine who is a “joint employer” under the National Labor Relations Act (“NLRA”). The proposed rulemaking seeks to end what NLRB Chairman Lauren McFerran described in the NLRB’s press release as a “great deal of uncertainty and litigation in recent years” surrounding the joint employer standard, and provide “a clear standard for defining joint employment that is consistent with controlling law.” This move not only changes the prior understanding of the joint employer standard, but is also indicative of the Biden Administration turning into a reality the President’s campaign promises aimed at strengthening worker protections and labor unions, reversing prior Board decisions, and restoring the broad definition of joint employment. We previously discussed other recent actions taken by the NLRB in an earlier blog post, which you can find here.

Background

It is worth first taking a step back to review how the Board arrived at this most recent iteration of the joint employer standard. The joint employer standard has been a topic of significant interest over the better part of the past seven years, beginning with the Board’s 2015 decision in Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015) (BFI), which declared that employers were joint employers if they “share or codetermine those matters governing the essential terms and conditions of employment,” and further held that employers were not required to actually exercise control to constitute a joint employer, only that they possessed the right to control, whether directly or indirectly. The D.C. Court of Appeals later upheld portions of BFI, but directed the Board to reevaluate its application of indirect control in the joint-employer inquiry.

The Board in 2018—now a different composition than in 2015—then issued a notice of proposed rulemaking to establish a new joint-employer standard, which proposed to return to a pre-BFI standard requiring that the employer both possess and actually exercise substantial direct and immediate control over the employees’ terms and conditions of employment to qualify as a joint-employer. The Board adopted this standard in February 2020, and it remains the controlling standard to date.

This proposed rule would rescind and replace the current joint-employer standard, largely returning the standard to the one set forth in BFI, and, according to the NLRB, “ground the joint-employer standard in established common-law agency principles, consistent with Board precedent and guidance that the Board has received from the U.S. Court of Appeals for the DC Circuit.”

With this relevant history in mind, we describe the proposed rule below.

The Newly Proposed Joint Employer Standard

The proposed joint employer standard would provide that: “two or more employers of the same particular employees are joint employers of those employees if the employers share or codetermine those matters governing employees’ essential terms and conditions of employment” (emphasis added). This would mark a significant departure from the current standard, which requires that an employer exercise “substantial direct and immediate control over the employees’ essential terms and conditions of employment.”

The proposed standard would not require that the employer actually exercise power or control over the employee, but rather it must only possess the authority to control one or more of the employees’ terms and conditions of employment—a distinction that exemplifies the NLRB’s desire to build this standard on a foundation of common-law agency principles. Equally as important, an employer with either direct or indirect control over one or more of the employees’ terms and conditions of employment could qualify as a joint employer under the proposed rule, even if the employer exercises such control through an intermediary person or entity.

This proposed broad standard includes other aspects worth breaking down further. First, the proposed rule defines “essential terms and conditions of employment” as a non-exhaustive list of bargaining topics, including but not limited to: “wages, benefits, and other compensation; hours of work and scheduling; hiring and discharge; workplace health and safety; supervision; assignment; and work rules and direction governing the manner, means, or methods of work performance.” While the non-exhaustive nature of this list is more expansive than the Board’s current list—which includes only “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction”—it is unclear if this proposed change would have significant impact in practice. Second, and not dissimilar from the current standard, an employer must only possess authority to control or exercise the power to control “one or more” of these essential terms and conditions of employment. Given the expanded list of terms and conditions combined with the emphasis on applying “common law agency principles,” entities could be found to be joint employers at an increasingly frequent rate.

Takeaways

Practically speaking, this rule—if adopted—could increase potential exposure for employers, including where the connection is tenuous, especially if the concept of what constitutes “indirect control” is not further clarified. It also greatly enhances the risk profile where an employer enters into relationships with staffing agencies or other third-party vendors, and in the franchisor-franchisee context.

That said, it is important to note that this is a notice of proposed rulemaking, meaning this rule is not yet final. We are still in the midst of the commentary period where the Board will receive important feedback from the public. Additionally, it is also worth noting that even if adopted, this rule would only immediately impact the definition of “joint employer” under the NLRA, not any other federal law, such as the Fair Labor Standard Act or Title VII. Nevertheless, given the potential ramifications of this proposed rule, we will stay on top of any developments that emerge during the notice and comment period, and provide updates accordingly.