October 26, 2023Client Alert

NLRB Issues Final Rule on Joint Employer Standard

Today, the National Labor Relations Board (“NLRB” or “the Board”) issued a final rule based on the joint-employer standard it proposed in a Notice of Proposed Rulemaking (NPRM) on September 6, 2022. The final rule lessens the burden on employees of franchisees and staffing agencies to prove that the franchisor or staffing agency client for whom they are performing work is their joint employer. The new rule is set to be published in the federal register on October 27, 2023 and take effect 60 days from that date (December 26, 2023).  The new rule will only affect cases filed after December 26th.

As outlined in our earlier alert, this change will likely result in a (continued) rise in the assertion of joint-employer theory ULPs and Union organizing efforts as Unions seek to expand their scope of influence under the current pro-union Board.

Under the final rule, franchisors and employers relying upon temporary workers will be found to be joint employers if they “possess the authority to control (whether directly, indirectly, or both) or exercise the power to control (whether directly, indirectly or both) one or more of the employee’s essential terms and conditions of employment, regardless of whether the employer exercises such control or the manner in which such control is exercised.”

This alert is intended to address changes from the NPRM to the final rule. While the NLRB did make some changes from the NPRM in the final rule, these changes are not likely to assuage concerned employers much.

Changes from the NPRM

Employers expressed concern the NPRM provided an open-ended definition of “essential terms and conditions of employment.” In the final rule, the NLRB clarified that “essential terms and conditions of employment” for purposes of the joint-employer inquiry are items falling in seven categories:

(1) wages, benefits, and other compensation;

(2) hours of work and scheduling;

(3) the assignment of duties to be performed;

(4) the supervision of the performance of duties;

(5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;

(6) the tenure of employment, including hiring and discharge; and

(7) working conditions related to the safety and health of employees.

While this may narrow slightly the scope of entities found to be joint employers, this change will not narrow an employer’s bargaining obligations if found to be a joint-employer. This is because despite defining a closed set of essential terms and conditions of employment, a joint-employer must collectively bargain with the representative of the joint employees concerning any term or condition of employment that it possesses the authority to control or exercises the power to control, regardless of whether that term is deemed essential. A joint employer is not, however, required to bargain over any term or condition of employment over which it does not possess the authority to control or exercise the power to control.

Further, the seven broad categories of essential terms and conditions of employment likely will pose challenges for employers utilizing temporary workers and hoping to avoid a joint-employer relationship and its commensurate bargaining obligations. For example, a complete delegation of authority to set schedules, direct assignment of work to be performed, or supervise the work of temporary workers (all essential terms and conditions of employment under the final rule) would defeat the purpose of obtaining temporary workers to fill short notice absences or staffing gaps on particular jobs. In other words, the final rule certainly will impact how franchise agreements and staffing agency contracts and relationships are structured and employers should consider having these agreements and relationships reviewed.

The final rule also expanded what evidence of control was appropriate for determining a joint-employer relationship.  Under the proposed rule, certain evidence of an employer’s control was deemed not relevant to the analysis of the joint employer. However, the final rule only excludes evidence that is immaterial to both the common-law employment relationship and an employer’s control over employee’s essential terms and conditions of employment, and states that the Board will not presuppose the “employer” status of an entity (such as a principal in an independent contractor relationship) that exercises only immaterial forms of control.

What is next for the joint-employer test?

In implementing the final rule, a majority of the Board concluded that the previous 2020 joint employer rule was “contrary to the common-law agency principles that must govern the joint-employer standard” and that these principles “make it appropriate for the [B]oard to give determinative weight to the existence of a putative joint employer’s authority to control essential terms and conditions of employment, whether or not such control is exercised” and whether or not it is direct or indirect.  A dissenting NLRB Member, Marvin Kaplan, disagreed with this decision and claimed that the majority’s decision “misapprehends common-law agency principles,” and that the rule represents a joint-employer standard “not seen anywhere else in the law.” This ongoing disagreement has existed since prior to the Browning-Ferris Industries of California, Inc. v. NLRB decision in August of 2015, which serves as the foundation for this final rule. It is likely that the rule will continue to sway back and forth as the Board’s composition changes with presidential election results, but for the foreseeable future, Employers should familiarize themselves with the changes in the Board’s analysis.

If you have any questions or concerns regarding the implications of this final rule, please contact your Michael Best Attorney.

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