National Labor Relations Board Issues Final Rule on Joint Employer Status

On Thursday, October 26, 2023, the National Labor Relations Board (“NLRB”) issued a final joint employer rule entitled “Standard for Determining Joint Employer Status” (“Final Rule”) which rescinds and replaces the previous joint employer standard made effective April 27, 2020 (“2020 Rule”).

Regardless of an employer’s business model, the focus of the joint employer analysis is the joint employers’ relationship with the employees and the authority of the joint employers to control (whether direct, indirect, or reserved) the essential terms and conditions of employment. The Final Rule will impact a variety of businesses and employers given the broadened scope of the categories of essential terms and conditions of employment.

The 2020 Rule narrowed the joint employer standard and provided that an employer may be considered a joint employer of a separate employer’s employees only if the two share the separate employer’s employees’ essential terms and conditions of employment, which were exclusively defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. To meet the standard under the 2020 Rule, the employer must have “possessed and exercised such substantial direct and immediate control over one or more essential terms or conditions of their employment to warrant a finding that the employer meaningfully affects matters relating to the employment relationship with the employees.” Under the 2020 Rule, employers had a higher likelihood of avoiding a finding of joint employer status because the 2020 Rule set a higher legal threshold, requiring a showing of “substantial direct and immediate control” over essential terms and conditions of employment.

Following the NRLB’s September 2022 notice of proposed rulemaking to establish a new joint employer legal standard, the much-anticipated Final Rule issued last Thursday expands the previous legal standard under the 2020 Rule. The Final Rule states that an employer “may be considered a joint employer of another employer’s employees if the two share or co-determine the employees’ essential terms and conditions of employment” and is more expansive to permit employers who have even indirect control or unexercised control to be deemed joint employers.

What's Defined in the Final Rule?

The Final Rule now defines “essential terms and conditions of employment” to include these seven categories: 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 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. A finding of control of only one of these seven categories will draw the employers under the ambit of the Final Rule.

While the Final Rule’s definition of essential terms and conditions of employment has been broadened to capture more conditions of employment, the Final Rule also expands the standard for joint employer status to include “indirect control” and “reserved control.” The Final Rule discusses that “reserved control” reviews whether the employer had the right to exercise control over the terms and conditions of employment but has not yet done so. Thus, the focus is on the right to control not the control itself. “Indirect control” of the essential terms and conditions of employment is rooted in the National Labor Relations Act’s reference to the definition of “employer” which includes any person acting as an agent of the employer, “directly or indirectly.” By including an employer’s “indirect control” in the analysis of joint employer status, the Final Rule now accounts for control exercised through an intermediary/third party. In other words, forms of indirect and unexercised control are not just probative of joint employer status but relevant and independently sufficient to establish joint employer status under the Final Rule.

The Final Rule was published on Friday, October 27, 2023, in the Federal Register. The effective date is 60 days after publication, making the effective date December 26, 2023. The Final Rule will only be applied to cases after the effective date.

Any questions regarding the final rule and its impact to your business, please reach out to a member of Barrett McNagny's Labor and Employment team listed below.