On October 26, 2023, the National Labor Relations Board (NLRB or Board) issued a long-awaited new rule addressing the standard for determining joint employer status under the National Labor Relations Act (NLRA). The NLRB’s new rule significantly expands the definition of “joint employment” under the NLRA.

Under the NLRB’s new rule, one company may be considered the joint employer of a second company’s employees if each business has an employment relationship with the employees and the two companies share or codetermine one or more of the employees’ essential terms and conditions of employment. “Share or codetermine” means that two or more employers “possess the authority” to control the essential terms and conditions of employment, without regard to whether the exercise of control is direct or indirect, or whether or not such control is, in fact, ever exercised.

The NLRB’s new rule, which restores the standard first announced in 2015 during the Obama administration, diverges dramatically from the joint employer standard promulgated by the Board  during the Trump administration that required a company to “possess and exercise . . . substantial direct and immediate control” over the essential terms and conditions of employment before it would be deemed a “joint employer” under the NLRA. The new rule, in contrast, makes either unexercised control or indirect control independently sufficient to determine joint employer status. That “defies common sense” and strays well beyond the Trump era joint employment standard, according to the U.S. Chamber of Commerce.

In addition, the NLRB’s new joint employer rule expands the definition of “essential terms and conditions of employment” to include: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.

With the NLRB’s new final rule broadly redefining joint employment for purposes of the NLRA — and with significant potential consequences for both businesses and employees — there was little question that it would be subject to court challenges from both sides. The legal wrangling is already underway.

Taking the position that the new final rule skews the joint employer standard too far in favor of organized labor, to the detriment of businesses, the U.S. Chamber of Commerce, and a coalition of business groups, which collectively filed a lawsuit on November 9, 2023, in U.S. District Court for the Eastern District of Texas.  The lawsuit challenges the NLRB’s new joint employer rule as an “arbitrary and capricious” exercise of power by the NLRB. What bothers the U.S. Chamber of Commerce is that the new joint employer rule “upends longstanding precedent” and is “the latest in a string of actions [by the NLRB] to promote unionization at all costs” by eliminating the second step of the previous joint employer standard that required proof that a putative joint employer “possesses sufficient control over employees’ terms and conditions of employment to permit meaningful collective bargaining under the NLRA.”  The “ultimate effect” of the new joint employer rule, in the U.S. Chamber’s view, will be “to make it far easier for the NLRB to declare that joint employment status exists in commonplace business relationships like franchising, contracting, and supply chains. Under the new rule, a non-union company that is found to be a joint employer with a unionized company could find itself forced to sit at the collective bargaining, unfairly “facing liability from workers they don’t employ and workplaces they don’t actually control,” as business interests see it.

Conversely, how, in the view of organized labor, does the NLRB’s new final rule work fairly in favor of the unionization of employees? By “ensuring that workers have a real voice at the bargaining table “when multiple companies control” the working conditions of a group of workers, according to the joint statement of three labor unions, including the Service Employees International Union (SEIU), issued in advance of the SEIU’s petition for review filed on November 6, 2023, in the U.S. Circuit Court for the District of Columbia, seeking to head off “any effort to nullify or weaken” the new rule.  The crux of the NLRB’s new joint employer rule, according to the SEIU, is simple:

The [NLRA] protects and encourages collective bargaining as a means of resolving labor disputes. Collective bargaining cannot serve that purpose if companies with control over [working conditions] in dispute are absent from the bargaining table . . . Companies are adopting business structures specifically designed to maintain control over workers, [often inserting] second and third-level intermediaries between themselves and workers. These companies seek to have it both ways – to control the workplace like an employer but dodge the legal responsibilities of an employer. This phenomenon is often called workplace “fissuring.”  Fissured workplaces sometime involving staffing firms, temp agencies, or subcontractors, often leave workers unable to raise concerns, or collectively bargain with, the entity that actually controls their workplace. [M]ultiple entities may share control over a workers’ terms of employment.

With joint employer determination under the new rule posing significant potential consequences for businesses, including, joint and several liability for unfair labor practices, and, again, a duty to bargain collectively with employees they don’t actually employ or control, from the business side of things, and, from organized labor’s viewpoint, a clear opportunity to expand workers’ access to collective bargaining with their employers, there is little doubt that the legal challenges that are now underway will continue and, perhaps, multiply.  We will be providing updates on these lawsuits as they work their way through the courts, and other legal challenges that may arise.

Bean, Kinney & Korman’s labor and employment law practice group works proactively with union and non-union employers of all sizes, to craft a full range of employment policies and documents to meet the compliance challenges of the NLRA and all applicable federal, state, and local laws. If you have questions about the NLRB’s new joint employer rule, or need assistance with your company’s employee policies or forms, please contact Doug Taylor at (703) 525-4000 or rdougtaylor@beankinney.com, or your current Bean, Kinney & Korman attorney.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.