The National Labor and Review Board (NLRB) issued a final rule on February 25, 2020, that codifies a majority of the changes it proposed to its joint employer test in September 2018. These changes will take effect on April 27, 2020.

As discussed in our prior alert, this final rule has been a long time coming. The 2015 Browning-Ferris decision expanded the joint employer standard, requiring only that a business have indirect control over workers’ terms and conditions of employment, or reserve the ability to exert such control, to be considered a joint employer. The NLRB proposed a joint employer rule in late 2018 to restore its pre-Browning-Ferris approach. After a long comment and consideration period, the NLRB’s final rule codifies its repeal of the Browning-Ferris decision.

Under the final rule, a business is only a joint employer if it has “substantial direct and immediate control” over the essential terms and conditions of employment of another company’s workers. Essential terms and conditions of employment include wages, benefits, work hours, hiring/firing, discipline and supervision. This test will analyze whether a company meaningfully impacts matters relating to the employment relationship. Finally, under this test, evidence of an employer’s indirect control, or contractually reserved control, is only probative to the extent it supplements evidence of direct and immediate control. 

If, after application of this test, two entities are found to be joint employers under the National Labor Relations Act (NLRA), they will share responsibility for any violations of federal labor law, including the failure to bargain collectively or engaging in unfair labor practices. For example, a union can file a representation petition naming either entity as the employer. A union also could lawfully picket either employer.

The rule immediately faced both widespread support and criticism. Supporters believe this rule provides clarity and predictability to the collective-bargaining relationship and promotes economic growth. Critics argue that this narrower test allows large corporations to avoid their obligations to franchisee and contract workers, who are integral to their operations. Given these heated, opposing reactions, legal challenges are likely.

Ballard Spahr’s Labor and Employment Group routinely assists employers in ensuring compliance with state, federal, and local statutes and regulations, and can assist employers with structuring their business relationships to avoid joint employer liability under the NLRA.

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