NLRB Proposes New Rule on Joint Employer Standard

Q.  What is the current rule for determining whether two employers are considered to be “joint employers” under the National Labor Relations Act?

A.  On September 14, 2018, the National Labor Relations Board (NLRB) proposed a new regulation that would make it more challenging to establish joint employer status under the National Labor Relations Act. The proposed rule dictates that two entities will be joint employers only if each exercises substantial direct and immediate control over employees.

As we reported previously, in 2015, the NLRB significantly relaxed the standard for proving that two entities are joint employers in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (2015). In Browning-Ferris, decided during the Obama administration, the NLRB ruled that entities could be joint employers even if one had only indirect, limited and routine control or the unexercised right to control employees’ terms and conditions of employment. The NLRB reversed course in December 2017 during the Trump administration, overruling Browning-Ferris and reinstating the standard for joint employer status that had existed previously – that entities are joint employers only if each has exercised direct and immediate control over employees. See Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017). The Hy-Brand ruling was short-lived, however. The NLRB vacated that ruling earlier this year due to the conflict of interest of one of the NLRB’s members who participated in the decision. In the meantime, a petition for review of Browning-Ferris is pending in the D.C. Circuit Court of Appeals.

Now, the NLRB seeks to establish a stricter joint employer standard by regulation. Doing so would add more permanence to the joint employer standard than interpreting it through case law, which often changes from one presidential administration to the next. The NLRB explained in its Federal Register notice that it would benefit from public comment on the joint employer standard “given the recent oscillation on the joint-employer standard, the wide variety of business relationships that it may affect (e.g., user-supplier, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, lessor-lessee, parent-subsidiary, and contractor-consumer), and the wide-ranging import of a joint-employer determination for the affected parties.”

The NLRB’s proposed rule enunciates the following test for joint employer status:

An employer, as defined by Section 2(2) of the National Labor Relations Act (the Act), may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction. A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.

The NLRB included 10 examples with the proposed rule “to help clarify what constitutes direct and immediate control over essential terms and conditions of employment.” For example, the NLRB concluded that the following scenario reflects one company’s direct and immediate control over another company’s employees: Company A supplies labor to Company B and, pursuant to the contract between them, Company A is required to pay a particular wage rate. In that situation, Company B exercises direct and immediate control over wage rates. In another example, a franchisor requires its franchisee to operate the franchisee’s store between specified hours. The franchisor does not exercise direct and immediate control over the essential terms and conditions of employment of the franchisee’s employees because the franchisor is not involved in scheduling the franchisee’s employees or in determining shift durations.

The NLRB’s proposed rule will now go through the time-consuming rulemaking process. As employers wait for the publication of a final rule, companies can minimize the risk of joint employer status by avoiding involvement in decisions regarding another company’s employees, including decisions regarding pay, hiring, discipline or termination.

–Susan K. Lessack