New Rule for Determining Joint-Employer Status Under the NLRA

The National Labor Relations Board (NLRB) recently proposed a new rule which restored a prior interpretation that was changed under the Trump Administration. Although the rule is described as new, it is merely the latest step in a battle over what actually creates an employment relationship. The NLRB’s new rule makes it easier for an employer to be considered a “joint employer” under the National Labor Relations Act for purposes of bargaining and legal actions against the employer.

How Joint Employment Arrangements Work

Joint employment means that more than one entity employs the worker. There is usually a direct employer who hires the worker and pays them wages. There may then be another employee who has the ability to control the worker. Joint employer arrangements commonly occur when someone is employed by a staffing agency or a subcontractor. The temporary employer or the general contractor has the ability to direct the employee. When a joint employer does not fulfill its legal obligations, the other employer may be held liable. For example, if a staffing agency fails to pay a worker regular pay or overtime, the company that contracts with the staffing company then likely has an obligation to do so. This designation may be critical in wage and hour actions.

Why it Matters Whether an Employer Is a Joint Employer

Further, the definition of “joint employer” is important in several critical respects, including:

• Whether the employer is required to collectively bargain with a certain union
• Whether the employer could be jointly and severally liable for the actions of the other employer
• Whether workers can picket when it would otherwise be unlawful

The New Rules Restore the Browning-Ferris Decision

In a 2015 case, the NLRB dramatically changed the definition of “joint employer.” In Browning-Ferris Industries of California, Inc., the NLRB dramatically expanded this definition from what it had been in the decades prior. Previously, in order to be considered a joint employer, a company had to exercise actual control over a worker, as opposed to just having the ability to control them.

In Browning-Ferris, the D.C. Circuit Court affirmed that an employer could be a joint employer in far more circumstances, including when they share or codetermine matters governing the essential terms and conditions of employment. This decision reinstated a prior standard that was in place since 1982, but had been weakened over the years. Under Browning-Ferris, there is a two-step process for determining joint employers:

• The first question asks whether there is a common-law employment relationship with the employees
• If the answer is yes, the second question is whether the potential joint employer possesses sufficient control over the employees’ essential terms and conditions of employment to permit meaningful collective bargaining

The NLRB made it clear that control did not have to be actual. Instead, it just meant the putative joint employer had the right to control.

Browning-Ferris Has Been the Subject of a Virtual Tug-of-War

Browning-Ferris was controversial the instant the ruling was issued. In fact, it only lasted for about two years. Very shortly after, the Trump Administration changed the composition of the NLRB, expressly overruled Browning-Ferris, and reinstated the requirement that an employer must have directly and immediately exercised actual control over an employee in order to be deemed a joint employer.

As political control of the NLRB has shifted back and forth between Republicans and Democrats, the definition of joint employer has changed along with it. In 2020, the Trump Administration’s appointees to the NLRB spearheaded a rule change that put into rulemaking form its overturning of the holding of Browning-Ferris, and attempted to restore the status quo to what it was before the controversial decision.

Now, Browning-Ferris Will Be Reinstated

Now that Democrats effectively control the NLRB, it has begun the process of revoking the Trump-era rule and committing the holding of Browning-Ferris to a new one. The back-and-forth continues, resulting in the standard being changed for the third time in seven years. There is a fundamental difference of opinion as to whether actual control or the ability to control is needed to establish a legal employment relationship.

The proposed rule restores the status quo that was in place for two years. The essential statement of the rule is as follows:

“a party asserting a joint-employment relationship may establish joint-employer status with evidence of indirect and reserved forms of control, so long as those forms of control bear on employees’ essential terms and conditions of employment.”

In the NLRB’s view, essential terms and conditions of employment would include:

• Wages, Benefits, and Other Compensation;
• Hours of Work and Scheduling;
• Hiring and Discharge;
• Discipline;
• Workplace Health and Safety;
• Supervision;
• Assignment;
• Work Rules; and/or
• Directions Governing the Manner, Means, or Methods of Work Performance

According to the NLRB, the Board’s rules are supposed to reflect the common law interpretation of an employment relationship. The Restatement (Second) of Agency is clear that an employer-employee relationship is created either by actual control or the right to control.

The Rule Will Likely Be Challenged in Court

If this rule is finalized, and it withstands scrutiny from the inevitable legal challenges, employers need to prepare for a drastically altered landscape – they can do this with the legal counsel of a labor and employment attorney. They must be careful about the terms of any alternative working arrangements because they could bring about significant and unexpected liability exposure. Companies should begin the process of reviewing staffing arrangements to check for terms that may imply the ability to control the employee. If the arrangements allow for any type of control, the company may end up with far more than it initially bargained for when it initially reached an agreement.

As with any administrative rule, there will likely be a lengthy period of review where the public will comment on the proposed rule, and the NLRB will consider the feedback it receives. Given the lengthy history of this rule and the accompanying intense controversy over it, litigation can certainly be expected. In addition, if political control shifts again in the 2024 election, this new rule would again be short-lived.

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