On February 26, 2020, the National Labor Relations Board (NLRB) finalized its rule governing joint employer status under the National Labor Relations Act.

The final rule generally restores the “direct and immediate control” standard that the NLRB applied for decades prior to the 2015 Browning-Ferris decision, but provides additional guidance.

To be a joint employer under the final rule, a business must possess and exercise “substantial direct and immediate control” over one or more “essential terms and conditions” of employment of another employer’s employees. With respect to these standards, the final rule further provides as follows:

Essential Terms and Conditions

Control by an employer over the essential terms and conditions of employment must relate to one or more of the following: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

Direct and Immediate Control

The final rule clarifies that direct and immediate control is defined in the context of each of the essential terms and conditions of an employer. This control requires a factual finding that the “user” employer engaged in the following with respect to employees from a “supplier” employer:

  • Wages – The user employer actually determines the wage rate, salary or other rate of pay provided to the supplier employer’s individual employees or job classifications. The definition excludes from consideration cost plus contracts that establish wage reimbursement rates.
  • Benefits – The user employer actually determines the benefit plan or level of benefits of the supplied employees.
  • Hours of work – The user employer determines the work schedules or hours worked, including overtime of the supplied employees.
  • Hiring – The user employer makes hiring decisions with respect to individuals. Simply setting minimal hiring standards is insufficient to establish control over hiring.
  • Discharge – The user employer makes the actual decision to terminate the employee, but the user employer is not precluded from providing negative reviews of an employee to the supplier employer.
  • Discipline – The user employer makes the actual decision to suspend or discipline the supplied employee. A report of misconduct or issuance of an incident report will not constitute direct and immediate control over discipline as long as it is issued to the supplier employer, and not directly to the employee.
  • Supervision – The user employer instructs a supplied employee on “how to perform the work” or issues performance appraisals. Limited and routine instructions on what work to perform and when and where to perform the work do not indicate direct and immediate control over supervision of the supplied employees.
  • Direction – The user employer assigns work schedules, positions and tasks to particular employees.

Substantial

The final rule states that control exercised on a sporadic, isolated, or de minimis basis will not be considered to be “substantial.” While evidence of indirect and/or contractually reserved control over essential employment terms may be a consideration for finding joint-employer status under the final rule, it cannot give rise to such status without substantial direct and immediate control.

The final rule clarifies that the routine elements of an arm’s-length contract cannot turn a contractor into a joint employer.

Last Points

The joint-employer standard under the NLRA is a matter of consequence because it determines whether a business is considered to be an employer of employees that are directly employed by another employer altogether. If two entities are joint employers, both must bargain with the union that represents the jointly employed employees, both are potentially liable for unfair labor practices committed by the other, and both are subject to union picketing or other related issues in the event of a labor dispute.

The final rule will be effective April 27, 2020.