UPDATE (11/17/23): The NLRB has extended the effective date of the joint employer regulations until February 26, 2024. David's post about the extension, and the reasons for it, is available here.

On October 26, the National Labor Relations Board, by a 3 to 1 vote, issued regulations with a new standard for determining “joint employer” status under the National Labor Relations Act. The regulations adopt a relaxed standard for finding that two or more entities are joint employers of employees. The expected outcomes are (1) expansion of the duty to bargain under the NLRA to more employers, and (2) expansion of the range of employers with potential liability for violations of the NLRA due to actions that the employer may not have the ability to control.

The regulations will take effect December 26 and will apply to cases filed after that date. The Board and the NLRB General Counsel can be expected to use the new standard to “rope in” a broad range of entities in parent-subsidiary, franchisor-franchisee, prime contractor-subcontractor, staffing agency-client company, and Professional Employer Organization-client company relationships. 

The NLRB has published a Fact Sheet, available here.     

The new standard

Under the standard of the new rule, two or more entities may be considered joint employers

if the employers share or codetermine those matters governing employees’ essential terms and conditions of employment. To "share or codetermine those matters governing employees’ essential terms and conditions of employment" means for an employer to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.

“Essential terms and conditions of employment” include

• Wages, benefits, and other compensation.
• Hours of work and scheduling.
• Assignment of duties to be performed.
• Supervision of the performance of duties.
• Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline.
• "Tenure" of employment, including hiring and discharge.
• Working conditions related to safety and health.

The new regulations rescind a more employer-friendly set of joint employer regulations issued under the Trump Administration in 2020. The current Board majority claims that the new regulations more faithfully ground the NLRB standard in established common-law agency principles. According to a statement by Chairman Lauren M. McFerran (D) issued with release of the regulations,

The Board’s new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA … While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.    

Democratic Members David M. Prouty and Gwynne A. Wilcox joined with Chairman McFerran in voting to issue the new regulations.

The lone Republican on the NLRB, Marvin E. Kaplan, dissented. Member Kaplan noted that the new standard “is potentially even more catastrophic to the statutory goal of facilitating effective collective bargaining, as well as more potentially harmful to our economy, than the Board's previous standard.”

History behind the rule

The new rule tracks closely the joint employment standard announced in a 2015 decision by a Democratic-majority Board during the term of President Barack Obama. In that decision, Browning-Ferris Industries of California, Inc., the Board majority expanded the definition of joint employer and threw many employers into joint employer status. That decision was challenged in court, but in 2018, the U.S. Court of Appeals for the District of Columbia Circuit enforced part of the decision. Then, in 2020, a Republican Board majority during the Trump Administration issued regulations on joint employment that essentially overruled the Browning-Ferris decision. The Board’s new regulations will replace the Trump-era regulations.

Application of the regulations

Under the new regulations, an entity will be deemed a joint employer when (1) it directly or immediately exercises control over another entity's employees, or (2) the entity has the indirect or reserved authority to exercise control (even if that control is never exercised). 

“Share” or “codetermine” means the entity “possess[es] the authority to control (whether directly, indirectly, or both) or to exercise the power to control (whether directly, indirectly, or both) one or more of the employees’ essential terms and conditions of employment.” Thus, indirect or reserved control alone is enough to establish joint employer status.

It is important to note that the new regulations provide that a joint employer must bargain only over those essential terms and conditions of employment and mandatory subjects of bargaining that it either controls or has the authority to control. That plainly seems unworkable in practice given the realities of collective bargaining, where “essential terms” are typically not addressed in isolation from other subjects. Indeed, the NLRA does not recognize the concept of a “partial” joint employer. An employer either has a bargaining obligation with respect to a bargaining unit of employees, or it does not.

The practical fallout   

The new regulations are expected to have an impact on employers with business models or business relationships that (1) have employees of two or more entities working together (such as a PEO or staffing agency with its client company) or (2) have employees of one entity working under some larger “umbrella” (such as employees directly employed by a franchisee of a franchisor, or by a subcontractor of a contractor). All the practical implications are far from known now, but here are some issues raised by the regulations:

• The new standard can come into play in representation cases – how are bargaining units defined, who is on eligible voter lists, and how does a joint employer get employee information from an otherwise separate entity?
• Organizational picketing and strike activity may be broadened to wider targets.
• A joint employer can have a duty to bargain regarding a co-employer’s employees.
• A joint employer may be subject to economic or unfair labor practice strikes for issues or actions that it does not control.
• A joint employer may be jointly or individually liable for actions of a co-employer that are unfair labor practices.
• What was once unlawful secondary strike, picketing, or boycott activity may become lawful primary activity.
• Reserved gates in construction labor disputes may be “contaminated” under the new standard. (A "reserved gate" is a structure by which employees and the employer's vendors who are "neutrals" in a labor dispute access the work site. Employees and vendors who are in a labor dispute use different access points. The idea is to try to insulate the "neutrals" from the labor dispute.)

Employers in business relationships that could fall within the broad net of potential joint employment should consult with legal counsel to plan for the issues and develop strategies to try to eliminate or at least minimize the fallout from the new NLRB standard.