On February 25, 2020, the National Labor Relations Board released its long-awaited final rule regarding joint-employer status under the National Labor Relations Act (NLRA).  The final rule is scheduled to be published in the Federal Register on February 26, 2020, and will become effective April 27, 2020.

Foremost, the final rule provides that an employer will be considered a joint employer under the NLRA only where it exercises “substantial direct and immediate control” over the essential terms and conditions of another company’s employee.  This is welcome news to employers, insofar as joint-employer status can have profound consequences.  A joint employer may be required to bargain with a union representing jointly employed workers; may be subject to joint and several liability for unfair labor practices committed by the other employer; and may be subject to labor picketing that would otherwise be unlawful.

The final rule makes clear that an employer will be considered a joint employer of a separate company’s employees only if a business possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees.  The final rule specifies that these essential terms and conditions of employment are wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.  It further provides that even where an employer exercises direct control over another employer’s workers, it will not be held to be a joint employer if such control is “limited and routine.”

With respect to indirect control, or control that is contractually reserved over terms and conditions of employment but never actually exercised, the final rule states that while such control may be probative of joint-employer status, it is only so to the extent that it reinforces evidence of direct and immediate control.  The rule makes clear that joint-employer status cannot be based solely on indirect influence or the reservation of a right to control that is never exercised.  This approach is generally consistent with the joint-employer rule the U.S. Department of Labor issued earlier this year addressing the standard for joint employment under the Fair Labor Standards Act.

Equally important, the final rule states that routine elements of an arm’s-length contract will not result in a contractor becoming a joint employer, and provides definitions of key terms, including what does and does not constitute “substantial and direct immediate control” over each essential employment term.  The clarification that routine business-to-business contractual provisions will not render one company the joint employer of another’s employees will be of significant interest to businesses using the franchise model.

In recent years, the plaintiffs’ bar has attempted to hold national franchisors as “joint employers” of their franchisee’s employees under the NLRA.  The final rule reduces the risk that a franchisor will be found to be a “joint employer,” thereby reducing potential liability for unfair labor practices, and making clear that these companies do not need to bargain with their franchisees’ workers.  For example, the rule specifically provides that “a franchisor’s maintenance of brand-recognition standards (e.g., a requirement that the employees of its franchisees wear a particular uniform) will not evidence direct control over employees’ ‘essential’ working conditions.”  Nor will the Board consider a franchisor’s protection of its trade or service mark to be evidence of joint employment.

The final rule reverses the NLRB’s 2015 Browning-Ferris Industries of California, Inc. decision, which dramatically expanded the definition of joint employer and categorized many more independent companies as joint employers, upending years of precedent.  Under Browning-Ferris, two entities were deemed joint employers based on the mere existence of reserved joint control, indirect control, or control that was limited and routine. 

Browning-Ferris was a stark departure from the Board’s long-standing prior standard.  Prior to 2015, the NLRB’s case law held that employers would be deemed joint employers only if the alleged joint employer exercised substantial, direct and immediate control over a group of workers’ terms and conditions of employment.  Under this test, the alleged joint employer had to both possess and exercise the authority to control the workers’ employment terms.  Limited and routine supervision was insufficient to create a joint employer relationship.  Browning-Ferris drastically increased the universe of potential joint employers and was the subject of intense negative scrutiny, including congressional hearings geared toward overturning the decision. 

In September 2018, the Board issued a proposed joint-employer standard for public comment, which generated almost 29,000 responses.  The final rule largely tracks this proposed rule, while addressing a number of issues raised by commenters.  Opponents of the rule have criticized the NLRB’s process in promulgating the rule, and it remains to be seen whether any legal challenges to it are filed.  As noted above, the Department of Labor earlier this year issued its own final rule on joint employment. The Equal Employment Opportunity Commission has likewise indicated its intention to release a proposed joint employer rule in the months to come.

Employers assessing their potential status as joint employers are advised to consult with counsel.