Proposed Joint Employer Rule May Increase Employer Liability

Allen Smith, J.D. By Allen Smith, J.D. September 6, 2022
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The National Labor Relations Board (NLRB) wants to change the standard for when two employers that do business together are considered to be joint employers and thus liable for one another's unfair labor practices.

On Sept. 6, the board issued a notice of proposed rulemaking that would replace the proposed rule that took effect on April 27, 2020. Under that rule, an employer could be a joint employer of another entity if it had direct and immediate control over the essential terms and conditions of employment of the other entity's workers.

Under the proposed rule, two or more employers would be considered joint employers if they "share or codetermine those matters governing employees' essential terms and conditions of employment."

Comments on the proposed rule are due Nov. 7. The NLRB is likely to act quickly on finalizing and enforcing the rule after it reviews comments, according to Steve Bernstein, an attorney with Fisher Phillips in Tampa, Fla.

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. Moreover, if one entity is determined to be the joint employer of a second organization, the first will have a bargaining obligation with the other entity if the employees of the second organization unionize, noted Thomas Payne, an attorney with Barnes & Thornburg in Indianapolis.

Business Practices in Flux

The "substantial direct and immediate" control standard "put an end to years of litigation at the NLRB and in federal courts" over who is a joint employer under the NLRA, Payne said.

This legal uncertainty began in 2015 when the board issued its Browning-Ferris decision, he stated. That decision found that a company needs to have only "indirect control" over the terms and conditions of a workforce's employment to be considered a joint employer, Payne added.

"Notably, the Browning-Ferris decision overturned 40 years of labor law precedent that had required there be direct control," he said. The proposed rule "essentially reinstates the Browning-Ferris decision, putting in flux business practices where one company supplies temporary labor to another [or] manages employees on another's worksite."

NLRB Chairman Lauren McFerran stated, "In an economy where employment relationships are increasingly complex, the board must ensure that its legal rules for deciding which employers should engage in collective bargaining serve the goals of the NLRA. Part of that task is providing a clear standard for defining joint employment that is consistent with controlling law. Unfortunately, the board's joint employer standard has been subject to a great deal of uncertainty and litigation in recent years. Rulemaking on this issue allows for valuable input from members of the public that will help the board in its effort to bring clarity and certainty to these significant questions."

However, Jim Paretti, an attorney with Littler in Washington, D.C., said that the proposed rule "absolutely does not provide any clearer guidance to employers on how to lawfully structure their business arrangements so as to minimize the risk of a joint-employer finding, and instead relies on references to common-law standards with which most employers will be wholly unfamiliar."

Indirect Control

"Employers that use temporary staffing agencies, employ a franchise model or otherwise use indirect employment staffing models will need to pay attention to this new rule," Payne said.

That's just a starting point, according to Bernstein. Any business entity, regardless of whether it's unionized, "should be paying close attention to this. That's how broad in scope this rule is," he said.

The proposed rule warns that employers need only "possess the authority to control" the terms and conditions of employment of another entity's workforce to be deemed a joint employer for the purposes of labor law.

"That authority to control can be indirect and also unexercised—that is, reserved," Payne said.

Employers' Response

Employers that use indirect employment staffing models should review their contracts with those entities, Payne said.

If such agreements reserve control over significant aspects of the workforce—such as wages, benefits, work hours, scheduling or discipline—the employer may be a joint employer under the proposed rule, even if it never acts on that authority, he noted.

Consider removing any contractual terms that directly control or reserve the right to control the terms and conditions of employment of other companies' employees, recommended Mark Kisicki, an attorney with Ogletree Deakins in Phoenix.

If the proposed rule comes into effect, the employer might need, if it's dissatisfied with the performance of a staffing agency's employee, to consult with the staffing agency, Bernstein added. The ultimate hiring decision would not be by the borrowing employer but by the staffing agency, he explained.

Retrain supervisors and managers to not act like they are supervising and managing the employees of another company, particularly those who work onsite, Kisicki said. Under the proposed rule, supervisors and managers should instead report their concerns about staffing agency employees to the staffing agency.

He added that employers should "assess their current operations and evaluate their potential risks and the potential consequences of being deemed a joint employer of the employees of their vendors, contractors, suppliers and franchisees."

Different Tests

One problem for everyone—employers and employees—is that there are different rules and tests for the joint employment concept under various laws, noted Charlie Morgan, an attorney with Alston & Bird in Atlanta. These laws include Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act and the NLRA. The NLRB proposed rule would not supersede the other rules, but rather, it would be one among many standards.

"There are common threads, but there is definitely a patchwork," he said. "It is confusing, and confusion usually leads to more litigation."

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