By Phyllis Karasov and Silas Petersen
On October 26, 2023, the National Labor Relations Board (NLRB) issued a final rule redefining “joint employers” under the National Labor Relations Act (NLRA). Approved three-to-one along partisan lines, the new rule mirrors the Board’s proposed rule that was published in September 2022. The new rule expands the definition of joint employers to include entities that have indirect authority over the terms of employment for workers employed by another business – even when such control is not actually exercised. This means that a wide array of businesses will be treated as joint employers under the NLRA that were not previously classified as such.
Understanding the Law
The new rule, which goes into effect on December 26, 2023, classifies an entity as a joint employer if it has the authority to control at least one of the “essential terms and conditions of employment” affecting workers employed by another business. The rule provides an exclusive list of such terms and conditions:
- wages, benefits, and other compensation;
- hours of work and scheduling;
- the assignment of duties to be performed;
- the supervision of the performance of duties;
- work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
- the tenure of employment, including hiring and discharge; and
- working conditions related to the safety and health of employees.
Significantly, this test may be met even if control of these conditions is not actually exercised or is only exercised indirectly. This standard represents a sharp break from the NLRB’s 2020 rule requiring “substantial direct and immediate control” over the terms and conditions of employment. The NLRB has justified this change by arguing that businesses that do not exercise the level of control over employment terms required to meet the old rule may still have a significant influence over the employees of another business and should thus be subject to the obligations that come with joint-employer status.
Who Is Affected?
Franchisors are among the most obvious businesses impacted by the new rule. Given the prevalence of provisions in franchise agreements relating to the terms and conditions listed above, franchisors will have to re-examine their franchise agreements and operating manuals to determine whether they are now joint employers with their franchisees. The new rule’s relative ambiguity will present a challenge to franchisors as they grapple with how best to maintain adequate control over their franchise systems and still avoid joint-employer status under the NLRA. Other businesses that may be affected include temporary agencies and staffing firms.
Effect of Joint-Employer Status
Classification as a joint employer is accompanied by a variety of significant consequences. One such effect is the obligation to bargain with unions representing jointly employed workers over the terms of employment that the joint employer controls or has the authority to control. Joint employers are also liable for the other employer’s unfair labor practices and are subject to union picketing that would otherwise be unlawful in the event of a labor dispute.
This new rule represents the most significant broadening of the definition of joint employer that the NLRB has taken to date. It is thus likely to encounter protracted legal challenges. While only time will tell if the NLRB’s newest change to the joint employment standard will survive these legal challenges, affected businesses should consider whether they fall under the new joint employer definition and be mindful of the effects of this classification.