Recently, the National Labor Relations Board (“NLRB”) issued its final rule for defining joint-employer status under the National Labor Relations Act (“NLRA”). The new rule retreats from the more expansive joint-employment principle in recent years, returning instead to the agency’s prior, more restrictive standard. As this new rule becomes effective on April 27, businesses should become familiar with the new definition and how it affects potential joint-employer status.
Key Considerations for Businesses
The Final Rule Marks the Return to an Old Standard
The new rule is actually a reversion to a previous definition of a joint employer. For many years, through case decisions, the NLRB found companies to be joint employers if they had control over the workers’ employment terms, and used such control. With its Browning-Ferris decision in 2015, the NLRB expanded the joint-employer standard to include companies which merely had indirect control and/or the potential to control another business’s workers, even if that control was never exercised. In the agency’s 2017 Hy-Brand decision, after a change in the composition of the NLRB under the new administration, the NLRB attempted to overrule the standard set forth in Browning-Ferris. However, the Hy-Brand decision was vacated a few months later on procedural grounds, leaving the expansive Browning-Ferris standard in place.
Burned by the adjudication path, the NLRB has now chosen rulemaking to narrow the joint-employer standard and provide greater clarity. The new standard represents good news for employers – not only by narrowing the definition of joint employer and providing a higher degree of certainty for business arrangements between companies, but also by promulgating this standard in the form of an agency rule, which is less susceptible to change without detailed notice and process.
NLRA “Joint Employer” Defined
The new rule defines a “joint employer” under the NLRA as an employer who shares or codetermines another employer’s employees’ essential terms and conditions of employment. Employers “share or codetermine” these terms and conditions where they:
- Possess and exercise…
The potential joint employer must not only have the right to exercise such control, but it must be shown that they exercise that right. For example, a worker attempting to prove a company’s joint-employer status on the basis of the company’s contractual option to discipline him would have to show that the company actually used that disciplinary option.
- Substantial direct and immediate control…
Direct control over terms of employment means determining issues such as the rate of wages, or determining if employees are hired or fired: The rule specifically defines what this means for each essential term or condition of employment. The potential joint employer must also exercise such control regularly. Using our prior example of the company with the option to discipline, it would not be enough for the worker to show that the company had disciplined workers once or twice, but rather that the company exercised its authority in matters of discipline on a regular basis.
- Over one or more essential terms or conditions of employment…
The rule lists these terms and conditions of employment as: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
- That meaningfully affect matters relating to the employment relationship.
While this element is not as clearly defined, it likely means that the authority a company exercises to establish joint-employer status must make a material difference in the employment relationship, considering the totality of the circumstances. Working with our previous example, the worker might have to show that the disciplinary measures regularly determined by the company had a material effect on the workers. For instance, disciplinary measures such as docking wages or suspensions would probably satisfy the materiality requirement, but verbal reprimands might not.
All four of these elements must be met in order to establish a business’s joint employer status under the NLRA. Unlike the Browning-Ferris standard, the new rule establishes that evidence of indirect control and unexercised authority over essential terms and conditions of employment is not determinative of joint-employer status, but can be used to supplement evidence presented to establish the elements detailed above.
Burden of Proof
In addition to returning to a more business-friendly standard, the new rule also establishes that the burden of proof is on the party asserting joint-employer status. In other words, a worker who is trying to sue both his actual employer and the employer’s client (for whom he provided services) will bear the burden of showing that the client exercised control over the terms and conditions of his employment. This requirement may dissuade parties from trying to assert claims against potential joint-employer entities and will provide such entities with a stronger defense to such claims.
The Bigger Picture
Keep in mind that this new rule only establishes the test for joint-employer liability for purposes of the NLRA, which is the federal standard for labor-management relations. This is the second recent rule change regarding the joint-employer definition under federal law: The U.S. Department of Labor (“DOL”) also recently updated its joint employer rule under the Fair Labor Standards Act (“FLSA”). A claim for unpaid wages under the FLSA, for example, would be analyzed under the new standard issued by the DOL. Looking forward, the Equal Employment Opportunity Commission (“EEOC”) has signaled it will soon update its definition of joint employers under federal anti-discrimination laws such as Title VII and the ADA, although the update could be delayed by current events. Thus, a federal discrimination claim would be governed by the EEOC’s interpretation of joint employment.
Companies engaging in contractual relationships with other businesses should therefore be aware that the application of the “joint employer” doctrine may vary depending on the type of claim at issue. As such, in structuring business processes and contractual arrangements, companies should keep all applicable joint-employer standards in mind.