The National Labor Relations Board issued its Final Rule on Feb. 26, 2020, on the standard for determining joint-employer status under the National Labor Relations Act. The Rule provides clear guidance to employers, unions and employees alike on important aspects of their labor-management relationship and will go into effect on April 27, 2020.

A joint employer finding has significant implications for rights and obligations under the NLRA relative to collective bargaining, strike activity and unfair labor practice liability.

Key Points of the Rule

Under the Rule, a business is a joint employer of another employer’s employees only if the two employers share or co-determine the employees’ essential terms and conditions of employment. “Share or co-determine” refers to the possession and exercise of substantial direct and immediate control over one or more essential terms and conditions of employment as would warrant a finding that the business meaningfully affects matters relating to the employment relationship.

As defined, “substantial” in this context means direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. Such control is not “substantial” if it is only exercised on a sporadic, isolated, or de minimis basis. Accordingly, the exercise of even direct and immediate control may be so isolated, sporadic or de minimis that it fails to establish that the purported joint-employer meaningfully affects matters relating to the employment relationship.

Further, the Rule provides that evidence of indirect and contractually reserved but never exercised control over essential employment terms, and control over mandatory subjects of bargaining other than essential terms and conditions, is probative of joint-employer status, but only to the extent that it supplements and reinforces evidence of direct and immediate control.

In discussing the diminished relevance of indirect control under the new standard, the Board noted that merely setting objectives, basic ground rules or expectations for a contractor’s performance does not constitute evidence of even “indirect control” and thus should be accorded no weight in the joint employer analysis. For example, a business that contracts with a food service contractor to staff its employee lunch room does engage in direct or indirect control by determining the hours the lunchroom will be open.

Notably, the Board also clarified that, by definition, the phrase “essential terms and conditions of employment” includes wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. This is an exhaustive list.

Prior Joint-Employer Standard Restored

The long-awaited Rule restores the joint-employer standard that the Board applied for several decades prior to its controversial Browning-Ferris Industries (“BFI”) decision in 2015. Under BFI, an affiliated entity could be considered a joint employer if its control over essential terms and conditions of employment was merely indirect, limited and routine, or contractually reserved, even if never exercised. BFI significantly broadened the joint-employer standard from the prevailing standard.

Consequences of the Rule and Moving Forward

The Rule should provide welcome clarity for employers across a range of industries. The Rule allows, as stated by NRLB Chairman John F. Ring in the NLRB’s announcement of the Rule, for “the clarity, stability, and predictability that is essential to any successful labor-management relationship and vital to our national economy” and provides employers with “certainty in structuring their business.” Ultimately, the Rule could face challenges in federal court and Congress, but until then, employers, their affiliated partners and business advocates can look forward to a more common sense approach to determining what is a “joint employer” under the Act.

For more information on this important development, please feel free to contact the authors or the Fox Rothschild attorney with whom you regularly work.