On February 27, 2020, the National Labor Relations Board (the “Board”) issued a highly anticipated final rule providing guidance on determining whether two employers are “joint employers” for purposes of the National Labor Relations Act (the “Act”). The final rule will be effective April 27, 2020.

The joint employer standard determines whether a business is treated as the employer of employees directly employed by another, separate employer. The potential for a joint employer relationship is therefore of particular concern for businesses that engage staffing companies; that participate in franchise arrangements; and that are party to a parent-sub relationship, among others. If two businesses are held determined to be joint employers of the employees of one of the two employers, they both may be liable for the unfair labor practices of the other; both are subject to union picketing or other financial pressure when labor disputes arise; and both must bargain with the union that represents the jointly-employed employees.

Today’s final rule restores the joint employer standard that had been in place for decades. Under that standard, two separate entities were considered joint employers of a single work force if they shared or codetermined those matters governing the essential terms and conditions of employment. In applying this standard, the Board had long required evidence of “direct and immediate control” over the essential terms and conditions of employment for there to be a joint employer finding.

In its 2015 Browning-Ferris decision, however, the Board—the majority of which was appointed by then-President Obama—dramatically lowered the bar by eliminating the requirement of “direct and immediate control. This had the potential to recast a wide range of business arrangements as joint employer relationships. Subsequently, a new Board with a Trump-appointed majority attempted to overturn Browning-Ferris via adjudication, but that effort became mired in internal ethical disputes and appeals. The Board then turned to administrative rule-making, resulting in today’s final rule. 

In addition to restoring the narrower standard for a joint employer relationship, the final rule provides employers with greater clarity by including definitions of key terms. Accordingly, under the rule, “sharing” or “codetermining” essential employment terms requires that the prospective joint-employer “possess and exercise substantial direct and immediate control” over at least one essential term or condition of employment in a manner that is sufficient to warrant finding that it “meaningfully affects matters relating to the employment relationship with those employees.” “Essential terms and conditions of employment,” in turn, are limited to “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”

The rule also provides that evidence of indirect or contractually reserved control over the essential terms or conditions of employment, and control over other mandatory subjects of bargaining, are potential factors in the joint-employer analysis. These factors, however, only matter to the extent that they supplement and reinforce the possession or exercise of direct and immediate control over a particular essential term or condition of employment. As an example, the rule explains that an entity’s control over “grievance adjustment” or “drug or alcohol testing” could indicate that it exercises direct and immediate control over discipline or supervision—both of which are included in the definition of essential terms or conditions of employment. In short, the joint employer determination will continue to be a fact-intensive inquiry.