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NLRB's Joint Employer Rule: Do You Want to Control Other Employers' Workers?

A group of people working on laptops in an office.

​A business's response to the National Labor Relations Board's (NLRB's) new joint employer rule may boil down to one question: whether the business would ever need to control another employer's workers. If the business doesn't foresee the need to control them, changes to its contracts, policies and practices may be in order, so that there isn't a joint employer relationship. However, if the business needs to control another employer's workers and is resigned to the possibility of being a joint employer, no changes may be needed.

What are the pros and cons of being a joint employer? A joint employer finding can have significant consequences for companies under the National Labor Relations Act (NLRA), said David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis. "From a practical perspective, each company found to be a joint employer by the NLRB may be held liable for the unfair labor practices of their co-employers," he said. "That is, companies not only need to account for their own compliance with the NLRA, they must also attempt to ensure compliance by any company with whom they are determined to be a joint employer."

A joint employer determination also likely would require a business to bargain with a union if the co-employer is unionized, said Matthew Fontana, an attorney with Faegre Drinker in Philadelphia.

The joint employer rule will affect franchising models and any businesses, regardless of industry, that use temporary workers from a staffing company to augment their workforces, Pryzbylski said.

Under the old joint employer rule, a company was a joint employer if it exercised direct control over the terms and conditions of employment, said Paul Woody, an attorney with Greensfelder, Hemker & Gale in St. Louis.

Under the new rule, a company could be found to be a joint employer on the basis that they exercise indirect control over those essential terms and conditions, or they have reserved the right to control those terms and conditions, even if they haven't exercised that control, he added.

This standard will lead to "a lot less clarity" over what businesses can and cannot do to minimize their risk of being a joint employer, Woody said. "That uncertainty has costs and consequences for companies."

When a Business Doesn’t Need to Control Another Employer's Workers

If a business doesn't want to be a joint employer, then it's time to conduct a comprehensive assessment of business relationships and changes to avoid reserved or indirect control over essential terms and conditions of employment, said John Ring, an attorney with Morgan Lewis in Washington, D.C., and former chairman of the NLRB.

"Businesses have to decide whether it is more important to have at least minimal control, or to take a completely hands-off approach—if they can—that is more likely to avoid joint employer status," said Jane Jacobs, an attorney with Tarter Krinsky & Drogin in New York City. It's up to the business to decide what's more important—control or possible avoidance of liability, she explained.

"Companies should think hard about whether they need or prefer control," Jacobs said.

Organizations should be combing through their contracts to look for reserved control that they can relinquish, said Ryan Funk, an attorney with Faegre Drinker in Indianapolis. But sometimes letting go of that control isn't possible, and in those cases, a contract review isn't necessary.

"If an organization truly needs the option to control employees of another employer, they are stuck—there's no way that reducing the amount of control is going to save them from being found a joint employer," he said.

For example, a university that hired a private company to manage student residences might decide it would rather be a joint employer than give up all rights to control the company's employees. The university has nothing to gain from reviewing that contract, he said.

The same university might be using similar contract terms with its irrigation repair company even though it has no need to control those employees, he added.

"Organizations should focus their review on their contracts with employers whose employees they do not need to control," Funk said. "If those contracts reserve an option to control that the employer does not need, giving up that option can make the difference between being found a joint employer or not."

Under the new rule, reserved control need not be contractual, so organizations should think about other ways, such as campus policies, that they reserve the right to control employees of other employers, he said.

Review actual interactions with franchisees and licensees, Woody recommended.

Workplace rules should be reviewed too, Funk said. "Look for places where those rules restrict other employers' employees," he said. "For example, does it have a dress code that unnecessarily applies to all persons on the premises?"

Some in Congress, such as Sen. Joe Manchin, D-W.Va., are challenging the rule under the Congressional Review Act, though President Joe Biden likely would veto any resolution seeking to undo the rule.

What about challenges in court? "Courts often defer to agencies when they promulgate rules such as this," Przybylski said. "In addition, the NLRB will be enforcing the rule as drafted in the absence of an injunction, which seems unlikely at this point. Accordingly, companies likely should operate under the assumption this rule will apply for the foreseeable future, starting Dec. 26."

When a Business Needs to Control Another Employer’s Workers

If being a joint employer is a necessary risk, the business may decide to leave its contract with the co-employer as is.

However, it still might be a good time to review the contract. Under the new rule, "the worst place an employer can be is to have a little control, which is too much to avoid a joint employer finding, while being too little to reap the benefits of control," Fontana said.
In addition, if the business suddenly is a joint employer, its policies and practices may need to be updated because it will likely have to bargain with unions, if the co-employer is unionized.

"The new NLRB joint employer rule requires business leaders to undertake a risk-cost analysis: What are the pros and cons of being found to be a joint employer versus having to fundamentally change your business model or contracting relations to avoid being a joint employer?" Ring said.

For some businesses, retaining the reserved control that the NLRB now says creates joint employment is essential to the way they operate and changing is not in the cards, he added. "These companies should start making preparations for a possible joint employer challenge at least until there is a court ruling," he said.

An attempt to avoid a joint employment finding might be in vain. "Since reserved or actual control of even just one category of terms and conditions of employment can be sufficient for a joint employer finding under the new rule, escaping such a finding will be very challenging," said Jenn Betts, an attorney with Ogletree Deakins in Pittsburgh. For example, most organizations ensure that certain work rules—such as drug-free workplace policies or wearing protective equipment—govern all workers that enter their facilities.

Many companies using staffing agencies like the option of disciplining a temporary worker or requesting that the worker no longer be assigned to their account for various reasons, such as poor performance or misconduct, Pryzbylski said. That type of reserved control may now be enough for the NLRB to impose a joint employer finding.

When a business's model requires its direct supervision of another company's employees, the risk of a joint employer finding may be worth taking, said Dan Altchek, an attorney with Saul Ewing in Baltimore and New York City.

"Think about whether your organization needs to control employees of another employer. It's not unlawful if you do," Funk said. "In that case, you will likely be judged to be a joint employer, but giving up enough control to avoid that may be an even worse outcome. If that is the case, consider whether it is better to take even more control."

On the other hand, he said, if an employer can identify ways its organization has an ability to control other employers' workers that it does not really need, it should consider whether it can relinquish all potential control over those employees. "If so, you can lawfully avoid a joint employer finding," Funk said. 


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