In February 2020, the NLRB finally unveiled its long-awaited joint-employer rule governing joint-employer status under the NLRA. The final rule returns the test for determining joint employment to the standard the Board applied for several decades before the 2015 Browning-Ferris decision. The test set forth by the new joint-employer rule provides that a business is a joint employer only if it has “substantial direct and immediate control” over another company’s workers and actually exercises that control. While this is no doubt a welcome relief for employers who routinely contract with subcontractors and staffing companies, it is important to note the limited scope and that this rule does not impact joint-employer tests applied under other employment laws. The proposed rule was initially released in late 2018 and ultimately generated nearly 30,000 public comments (see our coverage here).

Although the rule is an employer-friendly change, employees who are terminated for engaging in protected concerted actives will continue to have a claim for relief against their primary employer. Similarly, union organizing efforts can continue amongst temporary employees as they have for years. Bargaining will continue to occur as it always has between employers and their employees’ union representatives. The labor movement, however, is likely disappointed by the demise of the 2015 Browning-Ferris rule.  For years, unions have chaffed at the prohibition against secondary boycotts contained in the Taft Hartley Act of 1947. The 2015 Browning-Ferris rule allowed a backdoor repeal of a significant portion of the secondary boycott ban with its loose definition of joint employer.

The NLRB has limited resources and has historically refused to act in matters where the decision was not likely to have a significant impact on employees’ Section 7 rights or their exercise of those rights. Given these principles, as well as the limited impact of decisions from joint-employer test litigation and the enormous expense of litigating the joint-employer test under the Browning-Ferris standard, the NLRB’s return to the pre Browning-Ferris test is not surprising.

Under the NLRB’s Final Rule:

  • A business is considered a joint employer of a separate employer’s employees if the two employers share or codetermine the employees’ essential terms and conditions of employment.
  • A business is a joint employer if it both possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment.
  • Substantial means that the requisite control is not exercised on a “sporadic, isolated, or de minimis basis.”
  •  “Limited and routine” instructions consisting of telling another employer’s employees what work to perform, or when and where to perform the work, but not how to perform the work does not rise to the level of the direct and immediate control needed to establish that a business is a joint employer.
  • Essential terms and conditions of employment are hiring, firing, discipline, supervision, direction, wages, benefits and hours worked.
  • Indirect and contractually reserved-but-unexercised control over essential terms and conditions is probative of joint-employer status, but only to the extent it supplements and reinforces evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.
  • Similarly, control over mandatory subjects of bargaining is probative of joint-employer status, but only to the extent it supplements and reinforces evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.

Key Takeaways for Employers

Employers should continue to review their business practices and contracts to ensure their employment relationships with contractors and suppliers are structured to comply with the guidelines and examples provided in the NLRB’s final rule. Subcontractors with union-represented workforces have a very real incentive to agree to cede or share control over essential terms and conditions of employment because a joint employer is obligated to engage in bargaining with the union over the decision to terminate the joint-employer relationship. In addition, training managers to avoid performing tasks likely to give rise to allegations of direct control remains paramount.

The final rule, which will take effect on April 27, 2020, provides a clearer standard and will likely streamline litigation related to an employer’s status as a joint employer. However, litigation challenging the rule itself is likely. We will provide updates on further developments.

For more, please contact your Baker McKenzie lawyer.