NLRB dramatically expands definition of joint employment

On October 26, 2023, the National Labor Relations Board (NLRB) released a final rule dramatically expanding the definition of joint employment under the National Labor Relations Act (NLRA). It replaces the employer-friendly 2020 rule, which stated joint employers must both possess and exercise substantial direct and immediate control over the employees' terms and conditions of employment.

The controversial new rule reestablishes and goes beyond the broad 2015 Obama-era standard, known as Browning-Ferris. It substantially alters the control provision and establishes that indirect control over working conditions or, more troubling, the authority to control working conditions, even if that authority is not exercised, is sufficient to determine joint employment. The bottom line is employers that have franchise relationships, work with third-party temporary labor and staffing agencies, or use outside custodial services run a risk of being deemed a joint employer. The law applies even if the employer is not unionized.

Additionally, the final rule adopts a broad definition of essential terms and conditions of employment, including hiring, firing, wages, benefits, scheduling, supervising, directing, and disciplining, that the NLRB will examine in determining an employer's status. Joint employers also must bargain collectively concerning any term or condition of employment it controls or has the authority to control.

There are enormous practical and legal consequences that a finding of joint-employer status may have on an employer. From an insurance perspective, while the laws vary by state, critical issues can arise with workers' compensation as to which employer is responsible for the payment of workers' compensation benefits and whether either or both employers have the benefits of the "exclusivity doctrine" available to defend against a third-party action. The change would also increase the risk profile of franchisors and franchisees, entities either supplying or utilizing temporary employees, and entities that utilize contract labor to perform auxiliary support functions such as facilities maintenance and security.

Companies should take steps now to reduce the potential liability. Fisher Phillips, a labor law firm, suggests:

• Begin working closely with counsel to evaluate service contracts and related documents for language reserving the right of (direct or indirect) control over workers staffed by third parties when it comes to their employment terms and conditions. The scope of review should go beyond explicit references to control. For example, a contract provision requiring post-accident drug testing of workers does not refer to control, but it could be viewed as a right of control.
• Protect against misclassification of independent contractors. Understand how a third-party staffing provider is classifying workers. The fact that workers are provided by a third party is not an adequate defense in the event of a misclassification challenge.
• Train managers to understand the implications of the rule and be sure they understand the legal boundaries surrounding both direct and indirect control.
• Review or create clear policies regarding the role and authority of third-party vendors related to your business practices, especially in their interactions with direct employees.
• Recognize and prepare for unions' efforts to target temporary employees.

Unless sidetracked or blocked by a court order, the rule takes effect on Dec. 26 and will only be applied to cases filed after that date. Several business groups, including the U.S. Chamber of Commerce, have expressed opposition.