NLRB Finalizes Joint Employment Rule

Author: Michael Cardman, XpertHR Legal Editor

February 26, 2020

The National Labor Relations Board (NLRB) today issued a final rule establishing the standard for determining whether two or more employers are one joint employer under the National Labor Relations Act (NLRA) - and therefore jointly liable for any labor law violations.

Under the new rule, an employer will be considered a joint employer of another employer's employees only if the two "share or codetermine" the employees' essential terms and conditions of employment, which are defined exclusively as:

  • Wages;
  • Benefits;
  • Hours of work;
  • Hiring;
  • Discharge;
  • Discipline;
  • Supervision; and
  • Direction.

The final rule is scheduled to take effect April 27. However, that date may be changed because the rule is subject to review under the Congressional Review Act.

Undoing Browning-Ferris

The final rule goes a long way toward undoing the Obama-era board's 2015 Browning-Ferris decision, which had made it much easier for employers to be considered joint employers under the NLRA. Under the Browning-Ferris standard, two entities would be considered a joint employer even if they exercised only indirect control of shared employees or reserved the right for such control.

However, the NLRB made several changes from the proposed rule that preserve some elements of Browning-Ferris.

Most significantly, perhaps, the final rule provides that evidence of indirect control over essential terms and conditions of employment can help establish joint-employer status, but only as far as it supplements and reinforces evidence of direct and immediate control over essential terms and conditions.

Consistent with the United States Circuit Court of Appeals for the District of Columbia Circuit's decision earlier this year, the finalized definition of indirect control excludes "control or influence over setting the objectives, basic ground rules, or expectations for another entity's performance under a contract."

Reaction to the Final Rule

The NLRB said its final rule will bring "clarity, stability, and predictability" to its joint-employment standard. "[E]mployers will now have certainty in structuring their business relationships, employees will have a better understanding of their employment circumstances, and unions will have clarity regarding with whom they have a collective-bargaining relationship," NLRB Chairman John F. Ring said in a statement.

The final rule makes it much easier for employers to avoid a joint employment situation, according to the Economic Policy Institute, a think tank funded primarily by foundation grants and labor unions. This will deprive workers of "the ability to bargain with the employer contracting for their services through an intermediary, who in most cases is the employer with ultimate control over wages, hours, and working conditions," EPI said.

An advocacy group for the franchising industry welcomed the final rule. "For years, franchise businesses have struggled under an expansive and unclear joint employer standard," said Robert Cresanti, President and CEO of the International Franchise Association (IFA). "Today's final rule fixes that. By restoring clarity and common sense to the definition of 'joint employer,' America's franchise brands and franchise businesses will be able to grow and give back to their communities with a clear understanding of the roles and responsibilities of each party."

Between the NLRB's final rule today, the US Department of Labor's final rule on joint employment under the Fair Labor Standards Act (FLSA) in January and the NLRB's settlement resolving complaints against McDonald's franchisees in December, the past three months "represent an unparalleled amount of pro-franchise actions from the federal government," Cresanti added.