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EMPLOYER TAX BRIEF
New final rule on joint-employer status brings back broader criteria
When two or more separate entities operate collaboratively, there’s always a chance that they could be deemed a joint employer under the National Labor Relations Act. The legal consequences of this can be quite serious.
For example, one entity may become bound by the other’s collective bargaining obligations, and both or all could be held jointly liable for any unfair labor practices that one entity commits.
Recently, the National Labor Relations Board (NLRB) issued a revised final rule regarding precisely how joint employers will now be defined. Suffice to say, it’s the latest chapter in a long-running saga.
Recent history
For many years, the NLRB took the position that one entity wouldn’t be considered a joint employer unless it exercised “direct and immediate” control over the essential terms and conditions of another entity’s employees. Essential terms and conditions include hiring, firing, wages, discipline, supervision and direction.
However, in a 2015 case — Browning-Ferris Industries — the NLRB expanded the joint employer rule to include entities that:
- Exercise “indirect control,” a term not clearly defined, over another entity’s employees, or
- Contractually reserve the right to control another entity’s employees, even if such control is never exercised.
In September 2018, under the Trump administration, the NLRB issued a proposed rule that would have essentially overruled Browning-Ferris. According to the proposal, to be treated as a joint employer, an entity would need to “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.”
In December 2018, a federal appellate court upheld the NLRB’s decision in Browning-Ferris. Nevertheless, in February 2020, the NLRB published a revised final rule that greatly limited the criteria for defining two or more entities as a joint employer. Under this version of the rule, an entity was considered a joint employer of a separate employer’s employees only if it possessed and exercised substantial direct and immediate control over the employees’ essential terms of employment.
Latest final rule
The newly issued final rule brings back the much broader criteria that were in effect during the Obama administration and articulated under Browning-Ferris. That means major contributing factors of whether a joint-employer relationship exists now include wages, benefits and other compensation; work hours and scheduling; assignment of duties; and performance and supervision of those duties.
Also affecting the designation of a joint employer are work rules and directions that control the manner, means and methods of performance. In addition, grounds for discipline and employment tenure, including hiring and discharge, will play into the decision. Working conditions related to employees’ safety and health are significant, too.
In the NLRB’s press release announcing issuance of the final rule, Chairman Lauren McFerran added, “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”
Your organization’s status
Some industry groups, including the Retail Industry Leaders Association and Associated Builders and Contractors, have pushed back hard against the final rule. So, this may not be the end of the story. As being designated a joint employer can have a substantial financial impact on an entity, it’s a good idea to discuss your organization’s status with your legal advisors if you’re potentially subject to the final rule.