The National Labor Relations Board (NLRB or Board) has released its new rule for determining joint employer status under the National Labor Relations Act (NLRA). The Final Rule marks a welcome return to the "direct and immediate control" standard in effect prior to 2015, but with additional clarity for employers.
This significant change grants employers more freedom to enter into contractual relationships with other companies without risking joint responsibility for that company’s labor violations or bargaining obligations. The Final Rule takes effect April 27, 2020.
The NLRB will entertain "joint employer" allegations in both unfair labor practice and representation proceedings, the determination of which carries significant consequences.
- In unfair labor practice proceedings, a union may argue that two entities are joint employers so that it can hold both entities responsible for the alleged unlawful conduct.
- In representation proceedings, a union may seek to organize employees and argue that two different entities are employers of the bargaining unit. If the union succeeds with this argument, both employers will have obligations to bargain in good faith with the union about their respective areas of control.
The Final Rule Requires Meaningful Impact to Employment Relationship
Under the Final Rule, two employers will be deemed joint employers where they "share or codetermine the employees’ essential terms and conditions of employment." Establishing a joint employer relationship requires that the entity possess and exercise substantial direct and immediate control over one or more essential terms or conditions of employment.
The Final Rule provides substantial guidance about how joint employment status will be determined. The control exercised must be substantial direct and immediate, meaning it must be conduct that is regular and continuous (i.e., not sporadic, isolated, or de minimus). Further, that control must be exercised over one of eight identified essential terms and conditions of employment: (1) wages; (2) benefits; (3) hours; (4) hiring; (5) discharge; (6) discipline; (7) supervision; and (8) direction.
Direct control over other terms and conditions of employment will not be enough to find joint employer status, and is relevant only insofar as it affects control over one of the identified essential terms and conditions of employment. Similarly, both "indirect control" over an essential term or condition of employment and "reserved control not exercised" are only relevant "to the extent they supplement and reinforce evidence" of direct and immediate control.
Routine Contract Performance Requirements Are Not Indicia of Joint Employer Status
The NLRB provided clarity that the routine elements of an arm's-length contract are not enough to give rise to joint employer status. The NLRB provided several examples of actions that did not constitute direct and immediate control:
- Including the other contracting party's employees in the same benefit plans.
- Requiring the employer to be open for certain business hours.
- Setting staffing levels, minimal hiring standards, or service levels.
- Expressing negative opinions of another employer's employee or refusing to allow the employee to continue performing work under the contract.
History of NLRB Joint Employer Status
Historically, the NLRB required a company to have direct and immediate control over the terms and conditions of employment of another company's workers before finding joint employment. However, in 2015, a Democratic majority of the NLRB issued the Browning-Ferris Industries of California, Inc. decision, which modified the historical joint employer standard by:
- Considering "indirect control" over another business’s employees as evidence of joint employer status; and
- Finding that one employer's reservation of the right to control another’s employees was evidence of joint employer status, even if those reserved rights were never exercised.
In 2017, a Republican majority of the NLRB attempted to reverse Browning-Ferris through a subsequent decision in Hy-Brand Industrial Contractors, Ltd. That 2017 decision was soon withdrawn because of a controversy over whether one Board member should have recused himself. After withdrawing the case, the Board initiated the instant rulemaking process.
What the Board's Decision Means for Employers
The Final Rule gives employers "the clarity, stability, and predictability that is essential to any successful labor-management relationship and vital to our national economy." NLRB Press Release.
The Final Rule is expected to be challenged in the courts, but employers should begin reviewing their contractual relationships now. Employers who prefer not to be joint employers for NLRA purposes should take two immediate steps:
- Review the provisions of contracts with vendors to make sure the contracts do not provide the employer with direct control over any of the eight essential terms of employment. Further, employers should be cautious about reserving control as to employment matters or terms involving the vendor’s employees. While "reserved control" will not suffice to prove joint employer status, "reserved control" can make it easier for the employer to slip into actual control.
- Scrutinize relationships with vendors to avoid any actual direct control of wages, benefits, schedules, hiring, discharge, discipline, supervision, and direction. In this context, supervision and direction mean: assigning the other entity’s employees their work schedules, positions, tasks; instructing the employees how to perform their work (instead of what work to perform or where to perform the work); or providing the employees with performance appraisals. An entity does not exercise direct and immediate control over employees by setting schedules for project completion or when instructions are limited and routine.
Davis Wright Tremaine attorneys will continue to monitor changes and/or challenges to the NLRB's Final Rule and will publish additional advisories if new developments occur. Please reach out to any of the advisory's authors to evaluate and minimize the risk of inadvertent joint responsibility for a vendor or subcontractor's labor violations or bargaining obligations.