On Feb. 26, 2020, the National Labor Relations Board (NLRB) issued its final rule for determining joint-employer status under the National Labor Relations Act (NLRA). The final rule will implement a new standard to guide the NLRB and those covered by the NLRA in determining whether a business is a joint employer of employees directly employed by another employer. This positive development for businesses sets a new, stricter standard for determining joint-employer status under the NLRA. The new rule, which takes effect on April 27, 2020, comes in the wake of a recent rule published by the Department of Labor (DOL) that narrowed the scope of joint employment under the Fair Labor Standards Act (FLSA).
DOL final “Joint Employer” rule
On January 16, 2020, DOL published a final rule, which went into effect on March 16, 2020. This final rule outlines a new four-factor approach that DOL will use to determine whether, under FLSA, a business is a “joint employer” of another company’s employees and thus jointly and severally liable for wage and hour obligations. The new rule comes as good news for employers because it establishes a concrete and narrow standard for determining joint employer status. It is also expected to provide clearer guidance to federal courts making joint employer determinations. Until this final rule, the DOL had not meaningfully revised the joint-employer rule since its promulgation over 60 years ago.
The new NLRB “Joint-Employer” rule
Determination of joint employer status under the NLRA is important for several reasons. If two employers are deemed to jointly employ a group of employees, each is legally obligated to bargain with any union that represents those employees, each is liable for any unfair labor practices committed with respect to the employees, and each can be the subject of economic pressure, e.g., picketing, if there is a labor dispute involving the employees.
The new NLRB rule replaces a more expansive Obama-era standard adopted by the board in its 2015 Browning-Ferris decision. Browning-Ferris required only indirect control of another entity’s employees to create a finding of joint employer status. As such, it included many more employers under the “joint employer” umbrella. Under the Browning-Ferris standard, a company could be required to bargain with another employer’s union and/or potentially face liability under the NLRA if the company merely reserved the right to exert control over those employees’ terms and conditions of employment. This requirement came into play no matter how attenuated or indirect the right to exert control was. Such an expansive standard often exposed employers to lawsuits due, in part, to the uncertain nature of what constituted “indirect” control.
The new rule restores the joint employer standard that existed prior to the Browning-Ferris decision, and provides additional guidance to all stakeholders – employers, employees, and unions – on those factors that will, and those that will not, support a joint employer finding. The rule clarifies that joint employment will only be found in scenarios where a company exercises “substantial direct and immediate control” over the “essential terms and conditions” of employees.
The rule also explicitly defines key terms in it, including what are “essential terms and conditions of employment,” such as wages, benefits, hours of work, hiring, discharge, etc., and also explains what constitutes, and what does not constitute, “direct and immediate control” over these terms. It also defines what “substantial” control means (i.e., more than control exercised on a sporadic, isolated, or de minimis basis). Lastly, the rule clarifies that although the joint employer analysis can consider indirect and even reserved but unexercised control, such control cannot support a joint employer finding without substantial direct and immediate control.
Takeaway
The new joint-employer rule is welcomed by employers as part of the recent and rapid changes to NLRB rules and standards. If it goes into effect as scheduled on April 27, 2020, the new rule will provide much needed clarity to employers and employees alike as to which entity is an “employer” and what type of business relationships will create risk of joint-employer liability. Not unexpectedly, this rule is contentious as unions and some employee advocacy groups have expressed dissatisfaction. Thus, there is a potential for implementation delays due to litigation. Nonetheless, employers should review the rule and monitor this process for guidance and possibly implementing appropriate corresponding changes to business structure and relationships. Employers should consider seeking experienced legal counsel with any questions or concerns regarding how this development may affect them.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.