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NLRB Passes Final Rule on Joint Employer Status

February 26, 2020

By Jessica E. Wilcox

Today, the National Labor Relations Board (NLRB) issued its final rule that will guide those covered by the National Labor Relations Act (NLRA) in determining whether a business is a “joint employer” of employees directly employed by another employer. The new rule makes it clear that to be a “joint employer,” a business must share “substantial direct control” over the “essential terms and conditions of employment” of another employer’s employees. The rule change is significant because it reduces employers’ risk of liability for another related employer’s unfair labor practices and responsibility to bargain, especially with franchisees and subcontracted workers. The rule will take effect on April 27, 2020.

In its rule, the NLRB specifically defines the essential terms and conditions of employment as “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.” It also defines “substantial” direct control as actions that have “a regular or continuous consequential effect” on the conditions of employment. The final rule states that there is no joint employment when direct control is “sporadic, isolated or de minimis.”

This rule overturns a previous NLRB standard set during the Obama administration that allowed a joint employer finding where one entity had a contractual right to establish parameters over the terms and conditions of employment offered by another employer, even though the entity never actually exercised that right.  The new rule makes it clear that an employer, that has never exercised a contractual ability to control another employer’s essential terms and conditions of employment or mandatory subjects of bargaining, is not a joint employer unless there is evidence that it actually has and exercises substantial direct control. Additionally, certain elements of third-party contracts, such as “setting minimal standards for hiring, performance, or conduct” will also not automatically convert businesses into joint employers.

The NLRB utilized its rulemaking power, in order to provide a comprehensive and clear explanation of the changes to what it considers vitally important to the national economy. NLRB Chairman John Ring stated that, "[w]ith the completion of today’s rule, employers will now have certainty in structuring their business relationships, employees will have a better understanding of their employment circumstances, and unions will have clarity regarding with whom they have a collective-bargaining relationship.”

However, there is strong disagreement between the political parties, employer groups, and unions, over joint-employment policy, and this final rule is likely to be challenged in court or blocked by the legislature. Bullard Law will update you of any future developments, if you have questions about your joint employer status or how this change impacts you please call Bullard.
 
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