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On Tuesday September 6, 2022, the National Labor Relations Board (NLRB) issued a notice of proposed rulemaking (NPRM) that would change the standard for determining whether related entities are joint-employers under federal labor law. The NLRB seeks to rescind and replace the Trump-era joint-employer rule, which took effect on April 27, 2020, in favor of a more expansive view of joint-employer status explicitly identified by the NLRB as embodying the standard adopted in Browning-Ferris Industries of California, Inc. , d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015) (BFI). Under the previous 2020 rule, an employer would be considered a joint-employer only if it exercises substantial direct and immediate control over the essential terms and conditions of employment of the other entity’s workers. The essential terms were “exclusively defined” as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

By contrast, under the NPRM, two or more employers would be considered joint-employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.” The 2020 rule’s “closed set” of essential terms and conditions would be replaced by an “open-ended, non-exclusive list” of essential terms and conditions to include such things as wages, benefits and other compensation, work, and scheduling, hiring and discharge, discipline, workplace health and safety, supervision, assignment, and work rules. Additionally, the NPRM would define “share or codetermine” as “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 employees’ essential terms and conditions of employment.”

By permitting evidence of reserved or indirect control (even if only hypothetical and unexercised) over conditions of employment, the NPRM would make it much easier for related entities to be considered joint-employers. Further, if two (or more) entities are found to be a joint-employer, even if one of the entities is not unionized, both will be subjected to ongoing labor obligations. Such obligations include, but are not limited to,

• bargaining with the union that represents the jointly employed workers,
• being subject to liability for unfair labor practices (ULPs) committed by a joint employer, and
• being subject to union picketing or other economic pressure in the event of a labor dispute.

Indeed, should the NPRM become final, employers may see a (continued) rise in the assertion of joint-employer theory ULPs and organizing efforts as unions seek to expand their scope of influence under the current administration’s pro-union standards. 

Employers wishing to maintain the separate identity of related entities and avoid a joint-employer finding should carefully audit the relationship between entities (including applicable contracts and practices) to determine the risk of a joint-employer finding and address areas of concern. Given the open-ended nature of “essential terms and conditions of employment” under the NPRM, this task will be more challenging and its findings less certain than under the 2020 rule.

Comments concerning the proposed rule must be received by the NLRB on or before November 7, 2022, with reply comments due on or before November 21, 2022. To move forward in the rulemaking process, the agency must conclude that its proposed solution will help accomplish the goals and solve the problems identified. It must also consider whether alternative solutions would be cost effective. In this instance, the NLRB has suggested that the proposed rule will restore the common-law approach to the rule and serve the purposes of the Act of promoting collective bargaining.

Of note, while the Board has invited comment on all aspects of the NPRM, the Board has specifically invited comment related to address which “’routine components of a company-to-company contract’ the Board should not consider relevant to the joint-employer analysis.” While it is unlikely that the Board will abandon its course in implementing a final rule, given the back-and-forth history of the rule between BFI in 2015 and the 2020 rule narrowing the joint-employer standard, potential revisions to the NPRM on these elements may provide some additional clarity for related entities seeking to avoid a joint-employer finding.

While we wait for the Biden Administration to finalize the new rule, the decade-long fight over a joint-employer rule will shift back into the political and judicial systems. The NLRB’s Democratic majority, with encouragement from labor groups, argue its updated rules are necessary to protect workers’ rights to organize in changing workplaces. On the other side, Republican leaders in Congress, with backing from major business groups like the National Federation of Independent Businesses (NFIB) and the International Franchise Association (IFA), are already considering ways to immediately block or slow the NLRB’s new rule should they win a majority in Congress in early 2023. However, Republicans’ legislative options may still be limited by President Biden’s veto power, meaning opponents may also seek to block the new rules through the courts, including a newly conservative U.S. Supreme Court.

In the near term, clients should prepare for the draft NLRB joint employer rule by preparing comments to the agency, then taking steps to ensure compliance when the rule is finalized next year. In the longer term, the Michael Best team offers our clients the latest updates as Congress and the courts take swipes at the new rule. If you have any questions or concerns regarding the implications of this proposed rulemaking or submitting a comment to the NLRB, please contact your Michael Best team.