NLRB releases new final rule for determining joint employer status

This article, originally published November 15, has been updated to reflect the revised the effective date of the new rule.

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On October 26, 2023, the National Labor Relations Board (NLRB) issued its final rule for addressing the standard for determining joint employer status under the National Labor Relations Act (NLRA). The effective date of the new rule is February 26, 2024. The new rule had been scheduled to take effect on December 26, 2023, but the NLRB decided to extend the effective date. The new standard will only be applied to cases filed after the effective date. The ultimate effect of the rule will be to make it far easier for the NLRB to declare that joint employment status exists in commonplace business relationships like franchising, contracting, and supply chains.

Rolling back previous policy and updating a standard that hadn’t changed in over 60 years, under the new standard an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employees’ essential terms and conditions of employment, which are defined exclusively as wages, benefits, and other compensation; hours of work and scheduling; the assignment of duties to be performed; the supervision of the performance of duties; ork rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; the tenure of employment, including hiring and discharge; and working conditions related to the safety and health of employees.

In adopting this new standard, the final rule rescinds the 2020 final rule that was promulgated by the prior NLRB. The new final rule considers the alleged joint employers’ authority to control essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect. By contrast, the 2020 rule made it easier for actual joint employers to avoid a finding of joint-employer status because it set a higher threshold that a putative joint employer must “possess and exercise . . . substantial direct and immediate control” over essential terms and conditions of employment, which has no foundation in common law. The new rule also provides extensive guidance to parties regarding their rights and responsibilities in situations where joint-employer status has been established. 

The new final rule restores the standard first announced during the Obama administration in the NLRB’s 2015 decision in Browning-Ferris (BFI). The BFI decision upended longstanding precedent and expanded joint-employer liability of employers exercising indirect or reserved control over the terms and conditions of employment, even if not exercised. During the Trump administration, the NLRB reversed the BFI standard for determining joint-employer status and it issued a final rule, which required a joint employer to possess and exercise substantial direct and immediate control over essential terms and conditions of employment to determine that status.

On November 9, 2023, the UC Chamber of Commerce, along with the American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, Coalition for a Democratic Workplace, International Franchise Association, Longview Chamber of Commerce, National Association of Convenience Stores, National Retail Federation, Restaurant Law Center, Texas Association of Business, and Texas Restaurant Association filed a Complaint for Declaratory and Injunctive Relief in the U.S. District Court for the Eastern District of Texas seeking to vacate the NLRB’s rescission of the previous joint employer rule and its promulgation of the new joint employer rule, and to enjoin the NLRB from enforcing its new final rule.

The plaintiffs allege that the NLRB’s decision to repeal and replace its previous joint employer rule suffers from three crucial errors.

• First, the NLRB’s interpretation of who is a “joint employer” under the NLRA is overbroad and directly contradicts the established common-law definition that limits joint employment to relationships of actual and substantial control. The new joint employer rule imposes joint-and-several liability on virtually every entity that hires contractors subject to routine parameters, defines the terms of those contracts, or collaborates with a third party of any kind in achieving common goals that have an incidental or indirect effect on the third party’s employees.
• Second, the NLRB abandons one of the most important limiting principles in the NLRA: to be an employer, let alone a joint employer, one must possess sufficient control over workers’ essential terms and conditions of employment to permit meaningful collective bargaining. The new joint employer rule includes no such limit.
• Third, the new joint employer rule replaces a clear standard, under which employers have tailored their business arrangements, with an arbitrary and uncertain standard that threatens chaos and indeterminacy in national labor relations across major industry sectors.