Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
UPDATE: The NLRB once again delayed the effective date of this rule, this time until March 11, 2024. On November 16, 2023, the Board announced it had extended the effective date to February 26, 2024.
On October 26, 2023, the National Labor Relations Board (“NLRB” or “the Board”) released a final rule setting forth the standard for joint-employer status under the National Labor Relations Act (“NLRA” or “the Act”). The rule was approved by a vote of three to one, with all three Democratic members of the Board supporting it. The NLRB’s sole Republican member voted to disapprove, and filed a lengthy dissent criticizing the final rule. The final rule repeals and replaces the rule adopted in 2020 during the prior administration. The Board indicates that the effective date of the final rule will be December 26, 2023.
Joint-employer status can have profound consequences for employers. A joint employer may be required to bargain with a union representing jointly employed workers; may be subject to joint and several liability for unfair labor practices committed by the other employer; and may be subject to labor picketing that would otherwise be unlawful. The broad definition of joint employment contained in the final rule is in line with the aggressive pro-labor stance the Board has taken throughout the Biden administration.
The Final Rule
As expected, the final rule largely mirrors the proposed rule published by the Board in September 2022. The final rule reestablishes the broad Obama-era standard of joint employment, under which one company will be deemed the joint employer of a second company’s employees not only where it directly or immediately exercises control over the second company’s workforce, but where the first company’s putative control is indirect, or even simply reserved but not ever actually exercised.
More specifically, under the final rule, two or more employers will be held to be joint employers where they share or codetermine those matters governing employees’ essential terms and conditions of employment. The Board defines “share or codetermine” to mean “possess the authority to control (whether directly, indirectly, or both) or to exercise the power to control (whether directly, indirectly, or both) one or more of the employees’ essential terms and conditions of employment” (emphases added).
The final rule rejects the 2020 rule’s focus on “direct and immediate control” and restores the “indirect, reserved” control standard first put forth in 2015 in the Board’s Browning-Ferris Industries (BFI) decision. Indeed, by making clear that indirect or reserved control standing alone will establish joint-employer status, the final rule establishes an even more encompassing standard than BFI.
Like the proposed rule, the final rule takes a broad view of the “essential” terms and conditions of employment the Board will examine in determining whether an employer is a joint employer. The final rule notes additionally that a joint employer must bargain collectively over those 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.
In his dissent, Member Kaplan criticized the final rule, noting that it sets forth “a standard for determining joint-employer status that is potentially even more catastrophic to the statutory goal of facilitating effective collective bargaining, as well as more potentially harmful to our economy, than the Board's previous [Browning-Ferris] standard.”
Background on Joint Employment
Joint-employer status has been among the most controversial topics the Board has addressed in the last decade, and the Board’s position has gone back and forth dramatically as the composition and political control of the Board has shifted.
In 2015, the Board issued its decision in Browning-Ferris Industries of California, Inc., 362 NRLB 1599 (2015), which upended years of precedent by dramatically expanding the definition of joint employer and categorizing many more independent companies as joint employers. Under BFI, two entities were deemed joint employers based on the mere existence of reserved joint control, indirect control, or control that was limited and routine. This contrasted starkly with the prior standard, which required the putative joint employer to exercise actual control over essential employment terms, with such control being “direct and immediate.” BFI thus drastically increased the universe of potential joint employers, and was the subject of intense negative scrutiny, including congressional hearings geared toward overturning the decision.
In December 2018, the U.S. Court of Appeals for the District of Columbia Circuit upheld portions of BFI. The appeals court ruled that while evidence of reserved or indirect control could be appropriate factors to consider in determining joint-employer status, the Board in this case had applied the concept of “indirect control” too broadly. The appeals court returned the case to the Board, directing that it reevaluate the case by considering “indirect control” of only those factors directly related to the terms and conditions of employment of the subject employees. The court noted that by “failing to distinguish evidence of indirect control that bears on workers’ essential terms and conditions from evidence that simply documents the routine parameters of company-to-company contracting,” the Board had exceeded its authority and “overshot” the common-law mark. Moreover, the court held, “‘global oversight’ is a routine feature of independent contracts” which should not be a factor relevant to the analysis of a joint-employment relationship.
In February 2020, the Board promulgated a final rule requiring that joint-employer status be found only where a company exercises “substantial direct and immediate control” over the essential terms and conditions of another company’s employees, largely rejecting the BFI standard. As noted above, the new final rule replaces that 2020 standard.
The new final rule represents the most extreme shift of the pendulum toward the broadest definition of joint employment that we have seen. Given the enormous practical and legal consequences that a finding of joint-employer status may have on an employer—and given the lengthy and litigious path that has led to this final rule—we confidently predict that the rule will again be subject to legal challenge. Littler Workplace Policy Institute (WPI) will continue to keep readers apprised of relevant developments.