National Labor Relations Board Finalizes Joint-Employer Rule & Postpones Effective Date to February 26, 2024

As employers may recall, on September 6, 2022, the National Labor Relations Board (“NLRB” or “Board”) released a Notice of Proposed Rulemaking (“NPRM”) concerning the joint-employer standard under the National Labor Relations Act (“NLRA”). On October 27, 2023, the NLRB published the long awaited Final Rule concerning the joint-employer standard, which will take effect on February 26, 2024.

The current Joint-Employer rule, promulgated in February 2020, established the standard that a joint-employer relationship exists only where a company exercises substantial direct and immediate control over the essential terms and conditions of another company’s employees. This was a direct rejection of the more expansive standard set forth in Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015), which found a joint-employer relationship where there was reserved joint control, indirect control, or control that was limited and routine.

The Final Rule will rescind the current rule and introduce an even more expansive standard than the one previously set forth in Browning-Ferris. Under the Final Rule, two or more employers are joint employers if they “share or codetermine” one or more of particular employees’ essential terms and conditions of employment. Unlike the proposed rule, the Final Rule exclusively defines these 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 directions governing the manner, 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.

Under the Final Rule, “share or codetermine” 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. The Final Rule also establishes that this control only needs to exist for a joint-employer relationship to be established; it does not have to be exercised. This detail is significant as it establishes a broader standard than the one in Browning-Ferris, which did not explicitly allow for joint-employer status to be found solely on the existence of an unexercised right of control. Further, the Final Rule’s inclusion of employers who possess indirect authority to control or who exercise power to control indirectly prevents employers from evading joint employer status by using an intermediary or third party to make determinations about the essential terms and conditions of employment. However, the Final Rule does provide some exclusions from joint-employer status. For example, the rule states that evidence of an employer's control over matters that are immaterial to the existence of an employment relationship under established common-law agency principles, or that otherwise do not bear on the employees' essential terms and conditions of employment, will not be relevant to the joint-employer inquiry.

The Final Rule also provides some guidance around the collective bargaining obligations of joint employers. Generally, once an entity is deemed a joint employer, the entity must engage in collective bargaining over the essential terms and conditions of employment. However, under the Final Rule, the collective bargaining obligation applies with respect to any term or condition of employment that the employer possesses the authority to control or exercises the power to control, regardless of whether the term or condition is identified as an essential term and condition in the definition of joint employer. If a joint employer contests its duty to bargain over a particular issue, the Board will assess whether a particular subject of bargaining is mandatory on a case-by-case basis.  

While the Final Rule was originally slated to go into effect on December 26, 2023, the Board recently announced that the Final Rule would go into effect on February 26, 2024, and confirmed that the new joint-employer standard will only be applied to cases filed after the effective date.  The NLRB announced that it was delaying the effective date of the Final Rule to facilitate the resolution of legal challenges to the Final Rule. These legal challenges include a lawsuit filed in the Eastern District of Texas alleging that the Final Rule is unlawful, as well as congressional action from U.S. Senators, who introduced a Congressional Review Act resolution to overturn the Final Rule and prevent the NLRB from publishing a rule that is substantially the same. The Firm will continue to monitor these challenges and the status of the Final Rule.

All employers, regardless of whether their workforce is unionized or not, need to be mindful of the new joint-employer standard, as it will impact agreements and relationships employers have with vendors and other entities that have unionized employees. As the final rule only requires the unexercised right to control for a joint-employer relationship to exist, even employers who do not have their own unionized workforce may find themselves subject to bargaining obligations with their vendors’ unions, liable for unfair labor practices by a vendor and potential picketing depending on their relationships and contracts with vendors. Furthermore, under the Final Rule, a union could organize a group of workers that includes an employer’s direct employees and their vendor’s employees.

Employers should  review the current relationships and contracts they have with other entities or vendors to determine whether they could be considered joint employers under the Final Rule. If an employer thinks a joint-employer relationship may exist, they should consider adjusting such arrangements and contracts and consider what obligations they may have under the new standard if they maintain the status quo. Employers should also consider training their managers who are responsible for managing these relationships and contracts to ensure they understand the new definition of a joint employer and the obligations it will impose. Employers with questions about the Final Rule and how it impacts their relationships with vendors and other entities should contact Caroline Secola at csecola@fglawllc.com or any attorney at the firm.

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