Employers Should Prepare for NLRB’s Expanded “Joint Employer” Rule Before Dec. 26

The National Labor Relations Board (NLRB) issued a final rule on Oct. 26 that broadened the definition of “joint employer” under the National Labor Relations Act (NLRA). The highly anticipated and hotly debated rule is the latest announcement in what has been a contested back-and-forth policy debate over the last decade.

How has the definition of “joint employer” changed over time?

In 2015, the Board issued its decision in Browning-Ferris Industries of California, Inc. That decision altered years of precedent by expanding the definition of “joint employer” to include entities who possessed indirect or reserved control over employees. Prior to Browning-Ferris, an entity was deemed to have joint employer status if it exercised direct and immediate control over essential terms and conditions of employment.

In December 2018, the District of Columbia Circuit Court of Appeals upheld portions of Browning-Ferris but remanded the case to the Board with instructions to reconsider indirect control of certain applicable factors. In February 2020, the new Trump-era Board issued a final rule that required a putative joint employer to possess and exercise “substantial direct and immediate control” over essential terms and conditions of employment. In short, the 2020 rule largely restored the pre-Browning-Ferris standard. Enter the new rule.

What standard does the new final rule set? 

According to the Board, the new final rule “more faithfully grounds the joint-employer standard in established common-law agency principles” by considering the alleged joint employers’ “authority to control essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect.” In other words, entities with reserved authority to control workers, directly or indirectly, may now be considered a joint employer under the NLRA. While the new standard is unquestionably broader, the Board, in announcing the new rule, cautioned that it would undertake a fact-specific analysis on a case-by-case basis in determining whether two or more employers are “joint employers.” Notably, the new rule states that a joint employer must bargain collectively over terms of employment that it controls or has authority to control, even where that term or condition may not be “essential” in determining joint-employer status in the first instance.

The new final rule was approved by a vote of three to one, with Member Kaplan dissenting. The effective date of the rule is expected to be Dec. 26.

How can employers prepare for the new final rule?

The new final rule rescinds the 2020 final rule that was promulgated by the prior Board and continues the current Board’s more aggressive pro-labor stance. Franchisors and staffing firms are expected to be included in the entities most affected by the new rule’s broadened definition of what constitutes a “joint employer.” While it is anticipated that the new rule will face legal challenges, all affected employers should review their relevant policies prior to the Dec. 26 effective date and seek legal guidance where necessary. 

Please contact Trey Clark or any member of the Phelps Labor and Employment team if you have questions or need advice or guidance.