On October 26, 2023, the National Labor Relations Board issued a final rule to replace and essentially reverse the joint employer test issued under the Trump Administration. The new test drastically lowers the standard for companies to qualify as joint employers, making them responsible for labor violations and saddling them with obligations with respect to union negotiations. The final rule, which rescinds and replaces the prior regulation, is set to take effect on December 26, 2023, on a prospective basis only.
The 2020 rule required that a company have “substantial direct and immediate control” over the “essential terms or conditions” of a worker’s employment in order to be held liable as a joint employer. In a major “about face”, the new rule provides that even reserved, unexercised, or indirect control, such as through an intermediary, over one or more terms or conditions of employment is sufficient to establish joint employment. The Board published an “exhaustive list” of seven categories of terms or conditions that it will consider “essential” for purposes of the joint employer inquiry:
- Wages, benefits, and other compensation;
- Hours of work and scheduling;
- Assignment of duties to be performed;
- Supervision of the performed duties;
- Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
- Tenure of the employment, including hiring and discharge; and
- Working conditions related to the safety and health of employees.
While the 2020 rule included factors such as hiring, firing, discipline, supervision, wages, and benefits, the two entities were required to directly share or co-determine at least some of these essential terms, and control over any non-essential conditions was merely of probative value. This list, therefore, represents a substantial expansion of the factors that will drive the Board’s joint employer analysis and is undoubtedly an even broader interpretation of the National Labor Relations Act than the Board developed in the 2015 Browning Ferris decision. In that case, which was largely upheld by the D.C. Circuit Court on appeal, the Board announced a similar, more expansive indirect-control approach to the joint employer inquiry, but with a more limited set of factors.
Under the new rule, if an employer retains the authority to control one of the above terms or conditions of employment, even if unexercised or exercised through an intermediary, it may qualify as a joint employer. This has wide-ranging implications for franchisors, employers that use staffing, temp, or other business-to-business agencies, and other companies who do not directly employ their workers.
Significantly, a determination of joint employment could subject the more-removed entity to liability for unfair labor practices committed by the direct employer (staffing company) and could also force the contracting company to bargain with a union—and face picketing or boycott—regarding any of the terms and conditions of employment over which it exercises ultimate control.
The new rule is expected to face legal challenges. Employers who are franchisors or use staffing companies to provide workers should stay abreast of the new rule’s application and any further developments.