NLRB’s proposed joint employment rule worrisome for employers

The definition of joint employer has been one of the most contentious labor issues in the past decade and there is yet another proposal from the National Labor Relations Board (NLRB). The proposal, which was published in the September 7, 2022 Federal Register, is to rescind and replace the employer-friendly rule adopted in February 2020. Currently, to be classified as a joint employer, employers must both possess and actually exercise substantial direct and immediate control over the employees’ terms and conditions of employment.

Under the proposed rule, two or more employers would be considered joint employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.” In many respects, the proposed rule returns the standard to the one arising from the 2015 Browning-Ferris (BFI) decision – a company needs to have only “indirect control” over the terms and conditions of an employment to be considered a joint employer. More specifically, “share or codetermine” means “possess the authority to control (whether directly, indirectly, or both) or to exercise the power to control (whether directly, indirectly, or both) one or more of the employees’ essential terms and conditions of employment.”

In some ways, this goes even further than the BFI decision. Employers do not have to exercise any authority over an employee’s essential terms and conditions of employment to be considered a joint employer but need only “possess the authority to control” to be deemed a joint employer. If an agreement reserves the right of control over certain aspects of employment such as wages, discipline, and scheduling, the employer may be a joint employer under the proposed rule, even if it never acts on that authority.

Recognition as a joint employer by the NLRB holds significant consequences under federal labor law. While the laws vary by state, critical issues can arise with workers’ compensation as to which employer is responsible for the payment of workers’ compensation benefits and whether either or both employers have the benefits of the “exclusivity doctrine” available to defend against a third-party action. The change would also increase the risk profile of franchisors and franchisees, entities either supplying or utilizing temporary employees, and entities that utilize contract labor to perform auxiliary support functions such as facilities maintenance and security.

The bottom line for employers is that under the proposed joint employer rule, employers that require the use of another employer’s employees would more likely be considered joint employers. Employers that use indirect employment staffing models should review their contracts to evaluate contractual terms that directly control or reserve the right to control the terms and conditions of employment of other companies’ employees. If the rule is adopted, supervisors and managers will need to be retrained not to act like they are supervising and managing temporary and contract workers, particularly those who work onsite. Concerns would need to be reported to the agencies providing the workers.

It is important to note that this is a notice of proposed rulemaking and stakeholders wishing to comment on the proposed rule have until November 7 to provide feedback on the proposal, which must be considered by the NLRB before it issues a final rule.