Executive Summary: The National Labor Relations Board (NLRB) has officially reinstated a narrower standard to determine joint employer status under federal labor law by formally reinstating its 2020 rule and withdrawing a 2023 rule that was vacated by a federal court in March 2024. The new rule provides that an employer must exercise “substantial direct and immediate control over one or more essential terms or conditions of employment” to be considered a joint employer with another entity.
Overview
For a joint employer relationship to exist under the standard from the first Trump-era joint employer rule that was promulgated in February 2020 (2020 Rule), which the NLRB has now officially reinstated, the putative employer must “possess and exercise such substantial direct and immediate control” of an essential term or condition of employment of the employees. Significantly, the putative employer will not be considered a joint employer solely on the basis that the entity exercises indirect control or reserved authority over the essential terms and conditions of employment of another employer’s employees. The standard that is applied under the 2020 Rule limits the circumstances in which a business and its affiliates could be deemed joint employers.
In October 2023, the NLRB published a final rule regarding the standard for determining joint employer status under federal labor law (2023 Rule), which was intended to replace the 2020 Rule. Under the 2023 Rule, a joint employer relationship would exist if each employer had an employment relationship with the employees under common law agency principles and the employers shared or codetermined one or more of the employees’ essential terms and conditions of employment. Notably, a joint employer relationship could exist under the 2023 Rule if the putative employer had indirect control over the employees, even if that control was never exercised.
However, in March 2024, a federal court in Texas issued an order vacating the 2023 Rule. As a result of this legal challenge, the 2023 Rule never took effect, and the NLRB continued to apply the 2020 Rule. Now, in accordance with the federal court’s order, the NLRB performed the ministerial task of revising the joint employer rule to replace the text of the vacated 2023 Rule with the text of the 2020 Rule.
Details of the Reinstated Rule
- An employer may be deemed a joint employer of another employer’s employees if the putative employer possesses and exercises “substantial direct and immediate control” of an essential term or condition of employment.
- The 2020 Rule identifies the following eight “essential terms and conditions of employment”: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
- “Direct and immediate control” of an essential employment term or condition refers to the following:
- Wages – the putative employer must determine the salary that is paid to another employer’s employees;
- Benefits – the putative employer must determine the fringe benefits that are provided or offered to another employer’s employees;
- Hours of work – the putative employer must determine the work schedules or the work hours of another employer’s employees;
- Hiring – the putative employer must determine which employees will and will not be hired by the other employer;
- Discharge – the putative employer must make the decision to terminate another employer’s employee;
- Discipline – the putative employer must make the decision to discipline another employer’s employee;
- Supervision – the putative employer must instruct another employer’s employees on how to perform their work or issue performance appraisals; and
- Direction – the putative employer must assign another employer’s employees their work schedules, positions, and tasks.
The Bottom Line
The issue of whether two or more employers are considered to be joint employers can have several important legal implications under federal labor law. Some of these key considerations include whether the putative employer has mandatory collective bargaining obligations and liability for unfair labor practices. In short, the existence of a joint employer relationship can impose unanticipated obligations and liabilities upon the putative employer for workers who are not directly employed by such employer.
Although this recent action taken by the NLRB does not change the standard that the NLRB will apply in determining the existence of a joint employer relationship, it does now align the NLRB’s regulation with this standard. The official reinstatement of the 2020 Rule means that the more pro-employer standard governing the existence of a joint employer relationship will remain for at least the immediate future.
If you have any questions regarding the final rule or other collective bargaining issues, please contact the authors of this Alert, Marc Sugerman, partner in our Orlando office, at msugerman@fordharrison.com, and Howie Waldman, counsel in our Orlando office at hwaldman@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work.