Concept of Joint Employment Continues to Narrow

National Labor Relations Board Issues New Final Rule on Joint Employment

On Feb. 26, the National Labor Relations Board issued a new final rule amending the standard by which joint employment is measured under the National Labor Relations Act. 29 C.F.R. § 103.40. The new rule becomes effective April 27, 2020. The rule follows closely on the heels of similar action last month by the Department of Labor to more narrowly interpret joint employment under the Fair Labor Standards Act. The DOL's rule is covered in more detail here.

The National Labor Relations Act is most commonly associated with the rights of employees to unionize and bargain collectively. But the Act also contains broader rights permitting employees to join together to advance their employment interests. The Act applies to most private (i.e. non-government) employers regardless of whether they have a unionized workforce, including nonprofits, employee-owned businesses, labor organizations, non-union businesses and businesses in states with "Right to Work" laws. Employers generally may not interfere with these protected, concerted activities whether or not they directly relate to union organization. The NLRB's rule on joint employment directly affects a wide variety of companies and employers, including franchisors and those that use contract and third-party labor.

Though all questions of "joint employment" are resolved on a case-by-case basis, the new NLRB rule attempts to clearly define when two entities can simultaneously be considered an employer and subject to liability for unfair labor practices. The new rule states that two employers can simultaneously employ the same employee "only if the two employers share or codetermine the employees' essential terms and conditions of employment." Those "essential terms and conditions of employment" are narrowly enumerated: "wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction."

Going further, the rule defines just what kind of "substantial direct and immediate" control over those terms and conditions suffices to establish joint employment — and what does not. Thus, a joint employer must "actually determine" the essential terms and conditions of employment of another's employees, such as wage rates, fringe benefits, work schedules or which particular employees will be hired. On the other hand, more passive control — such as "entering into a cost-plus contract," setting the enterprise operating hours, setting minimal hiring standards, and even "refusing to allow another employer's employee to continue performing work under a contract" — does not rise to the level of direct and immediate control necessary to establish a joint employment relationship.

The NLRB's rule supplants an Obama-era rule that expanded the criteria for joint employment. Several entities that engaged in franchising or subcontracting have recently litigated over their joint employment status. The new rule will likely foreclose future similar claims of joint employment.

While the new NLRB rule brings much clarity to claims of joint employment under the National Labor Relations Act, the concept of joint employment has and will remain a muddle. "Joint employment" can arise in at least three different contexts — before the NLRB, under the Fair Labor Standards Act and under anti-discrimination laws. The NLRB's notice of rulemaking observes that the standard it promotes differs from those applicable to wage or discrimination claims because the relevant federal statutes differ. Thus, while the efforts of federal agencies to narrow the definition of joint employment will harmonize them to a degree, the definitions will not match. In fact, the Equal Employment Opportunity Commission plans to release its own guidance on joint employer analysis this year. In the meantime, employers can take encouragement that those engaged in franchising or subcontracting are less likely to be considered employers of their franchisees or subcontractors' workers — for now.

The Employment and Labor attorneys at Robinson Bradshaw are available to consult and partner with clients to navigate the impact of the new rule on a client's particular workforce and contractual relationships.