What makes A Company A Joint Employer?

Decoding NLRB’s final rule

On October 26, the National Labor Relations Board (NLRB or board) announced a new Final Rule that changes the test for determining who is a joint employer.

The rule drastically expands the scope of joint employment, overriding and rescinding the test published by the board in its 2020 rule. Under the new rule, a business is a joint employer if it has the right to exercise control over any of the seven enumerated terms or conditions of employment, even if it never exercises such control, and even if the only way it could exercise such control would be through an intermediary.

The impact of joint employment differs under different laws. This rule affects joint employment under the National Labor Relations Act (NLRA) only. It does not affect determinations of joint employment under federal wage and hour law or any state laws. Under the NLRA, and this rule, joint employers have the duty to bargain, and joint employers can be held accountable for unfair labor practices involving workers they did not think were their employees.

The new rule injects new types of uncertainty into labor relations. The rule will alter the rights and obligations of businesses when dealing with other companies’ employees. 

The effective date has been postponed to February 26, 2024. In the meantime, federal courts are already considering legal challenges to the rule.

What Is the New Joint Employer Test?

The rule starts with a basic principle that sounds reasonable: Two or more employers are joint employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.” 29 CFR 103.40(b). That’s not controversial.

But then the board defines those terms in subparts (c) and (d). And that’s where we see a substantial change from the current test:
 
The board then explains what it all means in subparts (e)(1) and (e)(2):
 
When these sections are read together, here are some of the implications:

First, under (e)(1), a business is automatically a joint employer if it has the authority to control any of the seven topics listed above, even if it never does so. Reserved but unexercised control is not merely probative of joint employer status; it is determinative of joint employer status.

Second, the seventh essential term and condition, “working conditions related to the safety and health of employees,” creates impractical outcomes. All businesses have site safety rules. You must wear steel-toed shoes to enter the manufacturing floor. You must not enter this high-voltage area without permission. You must walk on designated pathways to avoid being hit by a forklift. 

As written, the inclusion of “safety and health” would mean that if your business has health and safety rules that apply to everyone who enters the site, including vendors’ employees, you would be exercising control over an essential term of employment of the vendors’ employees, thereby making your business a joint employer. 

How Might it Affect Your Business to Be Named a Joint Employer Under the New Rule?

How big is your bargaining table? You might be wise to buy some more chairs.

The rule provides that a joint employer “must bargain collectively” over any term and condition it has the authority to control. This obligation to bargain applies “regardless of whether that term or condition is deemed to be an essential term and condition of employment.”

In other words, a business will be deemed a joint employer merely by reserving the right to exert control over one of the seven essential terms and conditions of employment for another company’s employee, even if that right is never exercised. The joint employer, then, must participate in collective bargaining with the other employer’s unionized employees. Failure to do so, even unknowingly, could be an unfair labor practice.

Consider again that “safety and health” is one of the seven essential terms. The rule would seem to require a business that has site safety rules applicable to everyone on-site to be at the bargaining table alongside its vendor, if the vendor’s employees (a) are unionized, (b) sometimes work at your business’s worksite and (c) must follow the worksite safety rules (e.g., wear steel-toed shoes on the plant floor). Those three conditions are likely to exist. Often.

What Are Other Consequences of Being a Joint Employer, Other Than Mandatory Bargaining?

Joint employment may also affect the determination of a proper bargaining unit. A union may be able to organize a group of workers that includes your direct employees and a vendor’s or staffing agency’s employees.

If a vendor’s employees strike or picket and your business is a joint employer, they can strike or picket your business, too. If the picketers were not your joint employees, the picketing would be illegal secondary picketing, and you could take action to prevent it.

What Should Businesses Do?

• Prepare. Evaluate relationships with subcontractors, vendors, staffing agencies and other third parties that might fit the new definition of joint employment.
• Consider whether to modify those relationships before the new rule goes into effect. Modifications to consider include day-to-day interactions, rules of engagement and contract terms. 
• Consider amending contracts with vendors and staffing agencies to add that your business has no right to control any of the seven essential terms or conditions listed in the rule. List them in the contract.
• Follow new developments, both at the board level and in the courts. Federal courts will decide the fate of the rule, but the NLRB traditionally ignores federal court decisions, except by the Supreme Court. The effect of these legal challenges remains to be seen. 
• Expect the board to begin enforcing the rule as soon as it takes effect. 
• Review the NLRB’s Fact Sheet for the new rule. The Fact Sheet oversimplifies concepts and understates the scope of the rule, but it is still a useful reference. 

Todd Lebowitz leads BakerHostetler’s national Contingent Workforce Practice Team. He has successfully defended misclassification claims of all sizes, obtaining outright dismissals in numerous class actions.