Which one Applies?

By Julie M. Ryan
The National Labor Relations Board (NLRB) is an independent federal agency that regulates matters such as employees’ rights to engage in concerted activity with other employees to seek better working conditions and aims to prevent and remedy unfair labor practices through enforcement of the National Labor Relations Act (NLRA).

The NLRB has jurisdiction over a broad range of employers, including private employers whose activity in interstate commerce exceeds certain minimal levels determined based on the type of industry. Employers subject to the NLRB’s jurisdiction need to stay current on the NLRB regulations.

From time to time, the NLRB issues regulations regarding joint employers. These regulations have a great deal of impact on employers given that if found to be a joint employer, it often carries an obligation to bargain collectively with the representative of the group of employees over which it is a joint employer.

Recently, the NLRB issued a new final rule to change the prior rule issued in 2020 for the standard for determining when a joint-employer relationship exists.

The 2020 joint-employer rule applies a higher threshold for when an employer could be found to be a joint employer. Under the 2020 rule, an employer is a joint employer when it both possesses and exercises “substantial direct and immediate control” over one or more essential terms or conditions of employment in such a way that warrants a finding that the entity “meaningfully affects matters relating to the employment relationship” with that employee.

“Essential terms of employment” is defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. Reserved rights to exercise control or indirect control over one or more of those areas could be considered as evidence that the employer is a joint employer. But reserved rights and indirect control could not establish such joint employer status if the employer did not actually possess and exercise substantial direct and immediate control to the extent required under the test. For example, if the entity did not actually decide the wage rates paid to an individual or for a certain job classification, then the entity is not a joint employer (at least regarding wages) under the 2020 rule.

Additionally, the 2020 rule specifically states that control does not meet the threshold of being “substantial direct and immediate control” if only exercised on a sporadic, isolated, or de minimis basis.

Under the 2023 joint-employer rule, two or more employers of the same employee are joint employers if the employers “share or codetermine” matters governing that employee’s “essential terms and conditions of employment.” That concept exists if the employer possesses the authority to control or actually exercises the control (whether directly, indirectly, or both) over one or more of the employees’ “essential terms and conditions of employment.”

There, “essential terms and conditions of employment” means:
1. wages, benefits, and other compensation;
2. hours of work and scheduling;
3. assignment of duties to be performed;
4. supervision of performance of duties;
5. work rules and directions governing the manner, means, and methods of performance of duties and grounds for discipline;
6. tenure of employment, including hiring and discharge; and
7. working conditions related to the health and safety of employees.

An employer is a joint employer even if it never actually exercises control over any of one of those matters but has the authority to do so and/or even if it exercises control over one of those areas indirectly, say, through an intermediary, rather than directly.

Additionally, there is no exception for an entity that only exercises control on a sporadic, isolated, or de minimis basis.

The 2023 rule is much broader than the 2020 rule. An entity such as a franchisor that was not a joint employer under the 2020 rule may be held to be a joint employer under the 2023 rule.

The status of the legality of the 2023 rule is currently undetermined. It was scheduled to go into effect on March 11, 2024. However, in a decision entered on March 8, 2024, a federal district court vacated the 2023 rule, both as currently set forth and insofar as the NLRB may attempt to pass a new version of that regulation.

Further attempts to do so or appeals from the court’s decision may occur. In the meantime, the 2020 rule controls the joint-employer standard for NLRA-related matters. Still, an employer may seek to perform due diligence with regard to its relationships with subcontractors or other entities to determine whether it would be held to be a joint employer under the 2020 rule and/or 2023 rule to ensure proper protections are in place and be prepared for any regulatory change.

For more information, please contact Julie M. Ryan at [email protected] or 402.392.1250.