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NLRB Issues Final Rule on Joint-Employer Status and Returns to Pre-2015 Standard

February 27, 2020

NLRB Issues Final Rule on Joint-Employer Status and Returns to Pre-2015 Standard

February 27, 2020

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The final rule requires that the party alleging joint-employer status show proof that the entity possesses “substantial direct and immediate control over one or more essential terms or conditions” of employment.

On February 26, 2020, the National Labor Relations Board (NLRB) issued its final rule on the standard for determining joint-employer status under the National Labor Relations Act. This long-anticipated final rule comes nearly a year and a half after the NLRB published the proposal for a new joint employer rule, and follows a lengthy comment period and several high-profile cases relating to the joint employer standard.

History of the Board’s Joint-Employer Rule

The NLRB’s joint-employer standard has had a complicated history over the past several years. In 2015, during the Obama administration, the Board overruled more than 30 years of precedent and expanded the joint-employer standard. In that 2015 case, Browning-Ferris, it held that two entities could be joint employers based on the mere existence of reserved joint control or based on indirect control, even when such control is “limited and routine.” This meant that the NLRB could find that an entity was a joint employer in circumstances where it did not exercise joint control over the essential terms and conditions of employment and where joint control was not “direct and immediate.”

In March 2017, the Board under the Trump administration attempted to restore the pre-Browning-Ferris standard. In Hy-Brand, 365 NLRB No. 156 (2017), the NLRB overturned Browning-Ferris (2015) and reinstated the prior joint-employer standard. Under Hy-Brand, the NLRB held that two or more entities would be joint employers under the National Labor Relations Act only if the entity has exercised control over essential employment terms of another entity’s employees and has done so directly and immediately in a matter that is not limited and routine. However, the Board had to withdraw the Hy-Brand decision on February 26, 2018, when the NLRB inspector general found that Board member William Emanuel was disqualified from deciding the case due to a legal conflict.

When the NLRB vacated the Hy-Brand decision, the joint-employer rule automatically reverted to the 2015 Browning-Ferris standard, and the Board had to go back to the drawing board. With Emanuel conflicted, the Board did not have a Republican majority to overturn Browning-Ferris through decision-making. Therefore, rather than overturning the 2015 case, it decided to utilize formal rulemaking processes. On September 14, 2018, it issued a proposed notice of rulemaking to change the joint-employer standard and to codify the pre-Browning Ferris (2015) standard as a formal agency rule.

The NLRB extended the comment deadline three times and finally announced on February 25, 2020, that it would publish the final rule on February 26, 2020.

The Final Joint-Employer Rule

The final joint-employer rule is a return to the Board’s standard before the 2015 Browning-Ferris decision, which expanded the circumstances under which an entity could be considered a joint employer. The final rule, which will go into effect on April 27, 2020, requires that the party alleging joint-employer status show proof that the entity possesses “substantial direct and immediate control over one or more essential terms or conditions” of employment. It explains that control is not “substantial” if it is only exercised on a sporadic, isolated or de minimis basis. Under the rule, evidence of indirect control may be used to show joint-employer status, but indirect control alone is not enough to determine that an entity is a joint employer. The rule’s definition of indirect control specifically excludes control or influence over setting the objectives, basic ground rules or expectations for another entity’s performance under a contract.

The rule defines which terms and conditions of employment are “essential,” limiting them to the following eight items: wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. It also defines each of the eight items, including what does and does not constitute direct control over that item. For example, the definition of wages specifically excludes “cost-plus contracts” as a type of direct and immediate control. And for the definitions of discharges and discipline, the rule states that an entity’s decision to refuse to allow another employer’s employee to continue doing work under a contract is not a form of direct and immediate control. This means that an entity may decide that it does not want a specific contracting employee performing work for it, without such decision-making being considered a form of direct control over the terms and conditions of that employee’s employment. Overall, these definitions and limitations will be key in helping employers and other business entities shape their contracts to either create or avoid joint-employer liability under the National Labor Relations Act.

Once the final rule is in effect, the NLRB will consider the totality of the relevant facts to determine whether an entity exercises substantial control over the essential terms and conditions of employment. This means that no one factor will be determinative and future Board decisions that apply the final rule will likely provide additional guidance on the weighing of the factors.

What This Means for Employers

Employers and other entities with contractor-subcontractor, franchise-franchisee, user-supplier and parent-subsidiary relationships should review their agreements to determine how this decision may affect potential joint-employer liability. In general, the final rule will make it more difficult for a party to show that an entity is a joint employer, as it increases the amount of control an entity must have over the other employer’s employee(s) in order to be liable as a joint employer under the National Labor Relations Act.

That said, the final rule only affects joint-employer status under the Act. The Department of Labor, for example, recently announced its own final joint-employer rule, which utilizes a different test and therefore could result in a different outcome as to an entity’s joint-employer status. Companies should be aware of the various state and federal joint-employer tests to evaluate potential joint-employer exposure.

For Further Information

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.