NLRB Finalizes Rule Broadening Joint Employer Test

Employers take note: the National Labor Relations Board (NLRB) recently released a finalized rule (Final Rule) establishing a new standard for determining whether two employers are joint employers of particular employees within meaning of the National Labor Relations Act (NLRA).

The Final Rule takes effect on Dec. 26 and significantly expands the circumstances under which a company is a joint employer of the employees of another company.

In sum, the Final Rule provides that two or more employers are joint employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment” (29 CFR 103.40(b)). The rule further defines “essential terms and conditions of employment” as:

(1) Wages, benefits, and other compensation;

(2) Hours of work and scheduling;

(3) The assignment of duties to be performed;

(4) The supervision of the performance of duties;

(5) Work rules and direction governing the matter, means, and methods of the performance of duties and the grounds for discipline;

(6) The tenure of employment, including hiring and discharge; and

(7) Working conditions related to the safety and health of employees.

The Final Rule overrides and rescinds the prior test established by the NLRB in its 2020 rule, which  required an employer to possess and exercise “substantial direct and immediate control” over essential terms and conditions of employment to be considered a joint employer.  As part of its 2023 Final Rule, the Board found that the 2020 standard was contrary to common-law agency principles and made it easier for actual joint employers to avoid a finding of joint employer status and escape its bargaining obligation under the NLRA.

What does this mean for your business? Simply put, an entity having the authority to co-determine the essential terms and conditions of employment will be sufficient to establish joint employer status, whether such control is exercised, and without regard to whether the exercise of control is direct or indirect.

Before the Final Rule takes effect, employers engaging in franchising, subcontracting or similar arrangements should take a close look at their business relationships and potential implications of a “joint employer” determination. Further, employers should provide training to supervisors, managers or those involved in overseeing employees to ensure compliance and understanding of the Final Rule, its implications, and boundaries.

Assessing joint employer status can become a complicated task with potential serious liability, so seeking the advice of counsel may prove valuable to ensure your business remains compliant with the Final Rule.

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