Why This Matters

On Tuesday, the National Labor Relations Board (“NLRB” or the “Board”) announced that, on February 26, 2020, it will issue its final rule governing joint-employer status under the National Labor Relations Act (“NLRA”).  Under the NLRB’s final rule, an entity may be considered a joint employer of a separate employer’s employees only if the two share or co-determine the employees’ essential terms and conditions of employment.  “Essential terms and conditions of employment” are specifically defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.  The Board’s intent in issuing the final rule is to restore the joint-employer standard that was applied for many years prior to the Board’s 2015 decision in Browning-Ferris.

The final rule will be effective April 27, 2020.  The NLRB’s Fact Sheet regarding the final rule is available here.

Background

For about 30 years, evidence of indirect control was typically insufficient to prove that an entity was the joint employer of another employer’s workers. Even direct and immediate supervision of another employer’s employees was insufficient to establish joint-employer status where such supervision was “limited and routine.”  That changed with the Obama-era Board’s Browning-Ferris decision in 2015.  Under the Browning-Ferris joint-employer standard, a business could be deemed a joint employer if it merely reserved the contractual right to control – directly or indirectly – terms and conditions of employment, even if such control was not actually exercised.

Rather than restore the NLRB’s pre-Browning Ferris joint-employer standard through case adjudication, the Trump-era Board did so via rulemaking (we reported on the NLRB’s proposed rule change to its joint-employer standard here).  By going this route, and allowing for public comment under the federal Administrative Procedures Act, the Board has made it likely that the new rule will not be successfully challenged in the court system.

In short, the newly-issued final rule does the following:

• Specifies that to be a joint employer, a business must possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees;

• Defines key terms, including what are considered “essential terms and conditions of employment,” and what does, and what does not, constitute “direct and immediate control” as to each of these essential employment terms;

• Defines what constitutes “substantial” direct and immediate control and makes clear that control exercised on a sporadic, isolated, or de minimis basis is not “substantial”;

• Specifies that evidence of indirect and/or contractually reserved control over essential employment terms may be a consideration for finding joint-employer status under the final rule, but it cannot give rise to such status without substantial direct and immediate control;

• Makes clear that the routine elements of an arm’s-length contract cannot turn a contractor into a joint employer.