NLRB Issues New Definition of 'Joint Employer'

The National Labor Relations Board (NLRB) tightened up the definition of "joint employer" in a final rule announced Feb. 25.

Under the 2015 decision of Browning-Ferris Industries, the NLRB had permitted a company to be deemed a joint employer even if its control over the essential working conditions of another business's employees was indirect, limited or contractually reserved but never exercised. The new final rule states that an entity is a joint employer of a separate employer's workers only if the two employers share or codetermine the employees' essential terms or conditions of employment.

If two entities are joint employers under the National Labor Relations Act (NLRA), both must bargain with the union that represents the jointly employed workers, both are potentially liable for unfair labor practices committed by the other, and both are subject to union picketing or other economic pressure if there is a labor dispute.

The final rule gives HR professionals clarity that has been missing since Browning-Ferris Industries to examine the relationships their employers have with suppliers, such as temporary agencies, food service workers in cafeterias, janitorial services and landscaping, said Michael Lotito, an attorney with Littler in San Francisco. After Browning-Ferris Industries, employers may have backed away from these relationships for fear of being viewed as joint employers. Now they might work a little closer with suppliers to ensure there isn't harassment and that supply chains comply with safety standards, for example.

But they still need to be careful not to inadvertently have direct control over other entities, cautioned Harry Johnson III, an attorney with Morgan Lewis in Los Angeles and former member of the NLRB.

Former NLRB Chair Wilma Liebman in Washington, D.C., said she was troubled by the final rule, saying it takes the law "in the wrong direction." She said that the rule was inconsistent with the way business relationships have evolved. Companies too often try to distance themselves from other entities, pressuring wages lower, she said.

However, Mark Kisicki, an attorney with Ogletree Deakins in Phoenix, said the rule improves on the old standard "in a way that's workable for employers."

Direct and Immediate Control

The NLRB defined "share or codetermine" as the exercise of direct and immediate control over the essential terms and conditions of employment. The Society for Human Resource Management, which supported the rule, had asked for clarity on that language.

Direct and immediate control excludes:

• Setting minimal hiring standards.
• Setting minimal standards of performance or conduct.
• Bringing misconduct or poor performance to another employer's attention.
• Establishing an enterprise's operating hours.
• Setting deadlines for services.
• Refusing to allow another employer's worker to continue performing work under a contract.
• Maintaining standards that are required by government regulation.

Contractual provisions requiring workplace safety practices, anti-harassment policies and other measures to encourage compliance with the law usually will not make joint-employer status more likely under the act.

The proposed rule had hypothetical examples illustrating how it would apply to particular scenarios but the board removed these from the final rule.

From 1984 to 2015, evidence of direct and immediate control was required to prove that an entity was the joint employer of another business's workers. The 2020 board rationalized that it was adopting a standard consistent with the law in place prior to Browning-Ferris Industries.

Indirect Control Still Relevant

Because the final rule says that indirect control still can be a relevant consideration in the joint-employer analysis, the NLRB said the new standard is consistent with the U.S. Circuit Court of Appeals for the District of Columbia's judgment that affirmed Browning-Ferris Industries in 2018. But indirect control alone is not enough to show joint-employer status under the final rule.

This was a significant change from the proposed rule, which did not consider indirect control to be relevant, noted Philip Miscimarra, an attorney with Morgan Lewis in Washington, D.C., and former chair of the NLRB.

Essential Terms and Conditions of Employment

The final rule clarifies that essential terms and conditions of employment are:

• Hiring.
• Firing.
• Discipline.
• Supervision.
• Direction.
• Wages.
• Benefits.
• Hours of work.

The final rule makes the list of essential terms exhaustive.

As a result, if an employer exercises direct control with another entity over aspects of the employment relationship not listed here, that won't be enough to render it a joint employer, Kisicki said. If the list hadn't been exhaustive, employers would have been left wondering what other terms might be essential and much litigation would have ensued, he added.

[SHRM members-only toolkit: Complying with U.S. Labor Relations Laws in Nonunion Settings]

Other Joint-Employer Rules

The Department of Labor's  joint-employer rule under the Fair Labor Standards Act (FLSA) is compatible with the NLRB's rule, Lotito said. He pointed out that unlike the FLSA, the NLRA pre-empts state law.

The Equal Employment Opportunity Commission has announced plans to issue a joint-employer rule. The business community would welcome rules from three agencies that are harmonized, he said.

Nonetheless, Lotito added that the NLRB's rule may be challenged in court and subject to change should the White House change hands in the presidential election.

But the fact that it is a rule rather than a decision will make it harder to change.