The National Labor Relations Board issued its Final Rule addressing the Standard for Determining Joint-Employer Status under the National Labor Relations Act, which makes it easier for workers to be considered employees of more than one entity for labor relations purposes – a move that will result in increased union organizing and collective bargaining efforts across the country.
The rule fundamentally alters the definition of joint employment, making it more difficult for businesses to escape legal responsibility for alleged labor law violations by staffing companies, franchisees, and other related organizations.
Under the new standard, an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employees’ essential terms and conditions of employment, which are defined exclusively as: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.
In adopting this new standard, the final rule rescinds the 2020 final rule that was promulgated by the Trump administration’s NLRB.
The new final rule more faithfully grounds the joint-employer standard in established common-law agency principles. In particular, the 2023 rule considers 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.
By contrast, the Trump-era 2020 rule made it easier for actual joint employers to avoid a finding of joint-employer status because it set a higher threshold that a putative joint employer must “possess and exercise . . . substantial direct and immediate control” over essential terms and conditions of employment, which has no foundation in common law.
The new rule also provides extensive guidance to parties regarding their rights and responsibilities in situations where joint-employer status has been established.
The controversial rule establishes joint employment not only when one company has the right to exert control over the terms and conditions of another company’s employees, but also when evidence exists of reserved, unexercised, or indirect control over any working conditions. This includes not only obvious situations like hiring and firing but also such other conditions as wages, benefits, scheduling, supervising, directing, and disciplining.
“The board’s new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA,” said NLRB Chairman Lauren McFerran, one of three Democrats serving on the board. “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”
McFerran’s initial term expired on December 16, 2019, after which no Democrats were left on the board and the remaining Republican members released a flurry of decisions favorable to management but hurt workers.
The Notice of Proposed Rulemaking was published by the Federal Register on September 6, 2022 and the comment period for initial comments was open until December 7, 2022. The Board received over 13,000 comments that it reviewed and considered in drafting the Final Rule. The effective date of the new rule is December 26, 2023, and the new standard will only be applied to cases filed after the effective date.
Members Prouty and Wilcox joined McFerran in issuing the Final Rule. Member Kaplan dissented.
View a fact sheet on the new rule.