Finally!: National Labor Relations Board Releases Final Rule Addressing Joint-Employer Status
February 25, 2020
The National Labor Relations Board (“NLRB”) unveiled its final rule today which greatly narrows the scope of the “joint-employer” test under which franchisers and businesses that use third-party employees could be held jointly liable under federal labor law. The NLRB began the rulemaking process late in 2018 and received more than 30,000 public comments on the proposed changes. The new rule will be published in the Federal Register tomorrow, February 26, and will take effect on April 27, 2020.
The new standard requires that a company possess and exercise “substantial direct and immediate control” over one or more of the essential terms and conditions of employment of another employer’s employees. The NLRB has defined “substantial” direct and immediate control as “direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. Such control is not ‘substantial’ if it is only exercised on a sporadic, isolated, or de minimis basis.” The NLRB stated in its press release that while indirect control may be evidence of joint-employer status, it alone cannot establish joint status without a demonstration of substantial direct and immediate control.
Similarly, the NLRB has defined the term “essential,” and expanded upon its original proposed list of “terms and conditions.” The proposed rule listed only examples, and included items such as hiring, firing, discipline, supervision, and direction. Now, the NLRB has added wages, benefits, and hours of work to the list. Furthermore, the list is now exhaustive, at the NLRB’s direction, to provide greater clarity and “remove a potential issue from litigation.”
Employers across the country have been watching this rule, as it is posed to have major economic implications on numerous industries. Franchise businesses, such as McDonald’s, and tech companies, like Google, frequently rely on subcontractors and third-party employees.
The final rule replaces the more relaxed test the NLRB articulated in its 2015 Browning-Ferris Industries decision. That decision made it possible for a company to be found a joint-employer if it exercised “indirect control” over a contractor or franchisee, or reserved the ability to exert such control, without actually exercising it. The final rule “gives our joint-employer standard the clarity, stability and predictability that is essential to any successful labor-management relationship and vital to our national economy,” NLRB Chairman John Ring stated.
Overall, the final rule will likely reduce the risk of significant litigation over union recognition and obligations, as well as the costs that go into defending unfair labor practice charges, for employers. Moreover, the rule provides and defines precise terms which eliminates a major portion of the uncertainty under the previous Browning-Ferris Test. While the new rule is almost certain to face legal challenges, its effect on employers cannot be understated.
To learn more about the final rule, the NLRB has provided a fact sheet. As always, should you have any questions about any issues in the always-changing labor and employment arena, please feel free to contact a member of Jackson Kelly’s Labor and Employment Team.