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The ping pong game over who is a joint employer under the National Labor Relations Act (the "Act") continues. On September 6, 2022, the Biden-appointed majority controlling the National Labor Relations Board (the "Board") proposed a new rule defining who is a joint employer, to replace the one adopted in 2020 by a Board dominated by a Trump-appointed majority (29 CFR 103.40). The proposed rule is designed to greatly expand who will be considered a joint employer under the Act.

Both the current rule and proposed rule purport to rely on the common law right to control the essential terms and conditions of employment. But the proposed rule defines the essential terms more broadly to "include" but not be "limited to wages, benefits, and other compensation; hours of work and scheduling; hiring and discharge; discipline; workplace health and safety; supervision; assignment; and work rules and directions governing the manner, means, or methods of work performance."

More importantly, under the proposed rule, possessing the authority to control such essential terms is sufficient to establish status as a joint employer, regardless of whether control is actually ever exercised. Exercising the power to control essential terms indirectly would also suffice to establish status as a joint employer, regardless of whether the power is exercised directly. And, control exercised through an intermediary person or entity would likewise be sufficient to establish status as a joint employer.

By contrast, under the current rule, an entity is a joint employer only where it possesses and exercises “substantial direct and immediate control” over the essential terms and conditions of another entity’s employee. 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 a joint employer if such control is “limited and routine.”

Additionally under the current rule, indirect control and control that is contractually reserved over terms and conditions of employment (but never actually exercised) is probative of joint-employer status. But such probity is limited to the extent that it reinforces evidence of direct and immediate control over an essential term. The current 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.

As you can see, the proposed rule will be a significant change from the current rule.

Which employers are at risk?

Many commentators believe that this expansion is intended to target national franchise operators, which impose strict controls on terms of employment on franchisees. The proposed rule also extends to those businesses which retain third party contractors to undertake work both within its operations, or even outside, but reserves certain rights of control over the essential terms of employees working for the third party.

Will this proposed rule be adopted?

It is expected that the current Board will adopt some version of the proposed rule. The proposed rule is very similar to that adopted by a Board controlled by an Obama-appointed majority in 2015 in Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015). But if you want to voice your concerns, comments from the public (including employers) can be made by following instructions posted on the NLRB website.

What can I do now to minimize risks of being a joint employer with my contractors or franchisees?

The key is to ensure that your contracts with franchisees or third party contractors do not dictate essential terms of employment as defined in the proposed rule. The more that employment terms are detailed in your contracts, the greater risk you will run in being considered a joint employer of another entity's employees.

The legal issues impacting workplaces are ever changing (Employment Law in Motion!) and since publication, new or additional information not referenced in this blog post may be available.

This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.