The National Labor Relations Board (“NLRB” or the “Board”) announced a Final Rule on joint-employer status under the National Labor Relations Act that retreats from the broad expansion of the joint employment principle in recent years and returns to its prior, more restrictive standard, which it describes as “carefully balanced.” This Rule will take effect on April 27, 2020.
The Effect of Joint Employment Under the NLRA
In its fact sheet on the Final Rule, the Board begins by explaining that a finding of joint employment under the National Labor Relations Act (“NLRA” or the “Act”) requires the joint employer to bargain in good faith with a Board-certified or voluntarily recognized bargaining representative of the jointly-employed workers, that picketing at a joint employer that would otherwise be secondary and unlawful is primary and lawful, and that a joint employer may be found jointly and severally liable for unfair labor practices committed by the other joint employer.
The Prior Standard
This Rule represents a substantial departure from the test the Board, under the Obama Administration, announced in 2015 in Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (2015), in which the Board stated that it would not require proof that a putative joint employer exercised any “direct and immediate” control over the essential working conditions of another company’s workers. In addition, joint employment would be found where a company’s control over another business’s workers was indirect, limited and routine, or contractually reserved but never exercised.
Under the Trump Administration, the Board previously attempted to overrule the joint employment standard set forth in Browning-Ferris through adjudication, but a bizarre series of alleged conflicts of interest resulted in that decision being vacated.
The Final Rule – What Does It Say?
Joint employment under the Final Rule will now be found only “if two employers share or codetermine the employees’ essential terms and conditions of employment.” In order to make this showing, “the entity must possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of [the purported employees’] employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” The Rule provides a list of the “essential terms and conditions of employment.” Significantly, the party asserting joint-employer status has the burden of proving such status.
The Rule notes that “indirect control” or “contractually reserved but never exercised authority” over the employees’ essential terms and conditions of employment is probative of joint employer status “only to the extent it supplements and reinforces evidence of the entity’s possession or exercise of direct and immediate control.”
The exclusive list of the essential terms and conditions of employment is as follows: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. No other terms and conditions exist for purposes of this standard. The Rule goes on to define the existence of “direct and immediate control” as to each of these terms and conditions of employment as follows:
- Wages: the entity must determine the wage rate, salary or other rate of pay that is paid. This does not include entering into a cost-plus contract (with or without a maximum reimbursable wage rate).
- Benefits: Such control includes selecting the benefit plans (such as health insurance or pension) and/or level of benefits. It does not include permitting another employer to participate in its benefits plans under an arm’s length contract.
- Hiring: This involves determining which employees are and are not hired. Requesting changes in staffing levels or setting minimal hiring standards does not demonstrate the requisite control.
- Discharge: The entity must actually decide to terminate the employee. Such control is not found if the entity:
- brings misconduct or poor performance to the attention of another employer that makes the actual discharge decision;
- expresses a negative opinion of the other employer’s employee;
- refuses to allow the other employer’s employee to continue performing work under a contract;
- sets minimal standards of performance or conduct.
- Discipline: Similar to discharge, the entity must actually decide to suspend or otherwise discipline the employee. With the exception of setting standards, the same actions that do not indicate control for discharge apply equally to discipline.
- Supervision: The entity must actually provide instruction on how to perform the work or issue performance appraisals. Routine and limited instructions as to what work to perform or when and where to perform the work, but not how to perform it, does not indicate control.
- Direction: This involves assigning individual work schedules, positions, and tasks. It does not include setting schedules for completion of a project or describing the work to be accomplished.
The Rule also sets forth definitions of key terms, as follows:
- Substantial direct and immediate control must have “a regular or continuous consequential effect on an essential term or condition of employment.” This standard is not met if the control is exercised on a sporadic, isolated, or de minimis
- Indirect control does not include control or influence over setting objectives, basic ground rules, or expectations for another entity’s performance under a contract.
- Contractually reserved authority over essential terms and conditions of employment means the authority that has been reserved, but never exercised, under the terms of a contract with another entity.
Caution for Employers
Although the Rule reflects the commonsense reality that companies should not be required to bargain with or be held liable for the unfair labor practices of businesses they contract with, there are many other statutes that apply different standards to a joint-employer analysis. These include the Department of Labor’s recently-issued final joint-employer rule under the Fair Labor Standards Act, which we discussed in our January 13, 2020 E-Lert, and the Equal Employment Opportunity Commission’s interpretation of joint employment under anti-discrimination laws, as well as many courts’ interpretations under these laws, which can differ from agency interpretations. Companies engaging in contractual relationships with other businesses must remain keenly aware that the potential impact of the joint employer doctrine may differ depending on the context and jurisdiction at issue. Employers must choose whether to take actions to minimize the likelihood that they will be deemed a joint employer or accept the reality of a joint employment relationship and the resulting obligation to verify compliance with applicable laws.