How Low Can You Go? Labor Board’s Final Joint Employer Rule Sets Exceedingly Low Bar for Assessing Joint Employer Liability

By now, employers are all too familiar with the circuitous nine-year voyage the Board has sailed to discover the right test for determining when two distinct entities should be considered legal joint employers of a common group of workers. We’ll unpack the nuances of the Board’s latest iteration of the standard below. But lest we bury the lede, let’s first remember why this matters.

When two entities are found to be joint employers of a group of employees, the Board may hold both employers jointly and severally liable for labor law violations committed by either of them. Further, both employers may be responsible for any bargaining obligation that arises when a union becomes the bargaining representative of the jointly employed workforce (or, potentially, a mixed unit comprised of singly- and jointly-employed workers). What is more, joint employers may be subject to labor dispute-related activity — e.g., picketing — that would otherwise be unlawful. 

Not to put too fine a point on it, but businesses using a franchise model, contracting for temporary workers through a staffing firm, or entering agreements with independent contractors, face significant legal risks from a potential joint employer finding. The Board’s new rule has now made such a finding significantly more likely.

The Board’s Final Rule for Determining Joint Employer Status

On October 26, 2023, the Board issued its Final Rule for addressing the Standard for Determining Joint-Employer Status under the National Labor Relations Act (NLRA). The Final Rule largely mirrors the Board’s September 2022 proposed rule on the subject, expanding the scope of potential employer liability by embracing a standard that finds joint employment even in cases where an entity merely reserves, but does not use, the right to exercise control over a single “essential term or condition of employment.”

More specifically, the Board’s Final Rule provides that a business may be deemed a joint employer whenever it “possess[es] the authority to control (whether directly, indirectly, or both),” or “exercise[s] the power to control (whether directly, indirectly, or both),” any of the following “essential terms and conditions of employment” for a group of workers:

• Wages, benefits, and other compensation;
• Hours of work and scheduling;
• Assignment of duties;
• Supervision in the performance of duties;
• Work rules and directions governing the manner, means, and methods of work performance, and grounds for discipline;
• Tenure of employment, including hiring and discharge; and/or
• Workplace health and safety.

Rather than providing specific circumstances where the requisite degree of reserved or exercised authority exists for a finding of joint employment, the Final Rule says this determination will be made “under common-law agency principles.” Similarly, the Final Rule eschews commenter requests for specific guidance concerning “contractual provisions that would not give rise to a finding of joint-employer status,” or a listing of ‘‘routine components of a company-to-company contract[s]” that the Board would “exclude as probative of joint-employer status.” 

Instead of providing examples, the Board majority explains that “the approach taken in the proposed rule, which did not attempt to categorize company-to-company contract provisions ex ante, is the most prudent path forward. Because the language used in contract provisions that ostensibly address the same subject matter may vary widely, we believe that case-by-case adjudication applying the joint-employer standard is a better approach.” In other words, the Board will tell you whether your contract makes you a joint employer after you’ve been charged with being a joint employer, not before.

Employers should harbor no doubt, however, about the breadth of this new standard. The Final Rule expressly states it will be sufficient to establish joint employer status when an employer possesses the authority to control “one or more” essential terms or conditions of employment, regardless of whether control is exercised; when the employer exercises the power to control indirectly, regardless of whether the power is exercised directly; and when control is exercised through an intermediate person or entity. Further, the Final Rule makes clear that a party need only prove joint employer status by a preponderance of the evidence, in contrast to the Board’s previous standard, which required a finding based on the totality of facts in the particular employment setting.

Does the Final Rule Really Go Beyond BFI? Yes, it Does

Highlighting the ideological differences among Board members on this subject, the Final Rule is accompanied by a lengthy dissent from Member Marvin Kaplan, which begins with the ominous declaration: “My colleagues have accomplished something truly remarkable. They have come up with a standard for determining joint-employer status that is potentially even more catastrophic to the statutory goal of facilitating effective collective bargaining, as well as more potentially harmful to our economy, than the Board’s previous standard in Browning-Ferris Industries [BFI].”[1] Yikes.

As the dissent further explains, “BFI held that contractually reserved but unexercised control and indirect control are probative of joint-employer status; the majority now makes them dispositive of that status.” And, while BFI recognized that the “existence, extent, and object” of a putative joint employer’s control may be relevant to a joint-employer determination, the Final Rule removes the term “extent” from the analysis. The dissent thus laments that under the Final Rule, “an entity’s mere possession of a never-exercised contractual reservation of right to control a single essential term and condition of employment of another business’s employees makes that entity a joint employer of those employees. So does its ‘indirect’ control of an essential term and condition, a term [the Final Rule] fail[s] to define or otherwise cabin.”

Future cases decided under the Final Rule will shed greater light on these concerns, demonstrating whether and the extent to which the new standard, in application, sets a lower bar for joint employment even than that established by BFI.

What’s Next?

Employers with an eye on this saga have come to recognize that the Board’s “final word” on a subject is not always the final word. Indeed, the Final Rule announced last week “rescinds and replaces” the Board’s previous “Final Rule” on ‘‘Joint Employer Status Under the National Labor Relations Act,’’ which was published on February 26, 2020, and took effect on April 27, 2020. Beyond the inherent uncertainty of the shelf life of many Board actions, business groups are expected to sue, and Senators on both sides of the aisle have promised a Congressional Review Act resolution to overturn the Board’s Final Rule. Of course, any Congressional effort to undo the Board’s action faces a likely veto, and prospects for an override are slim. 

In the meantime, the Final Rule is slated to take effect December 26, 2023. Employers are well advised to review with counsel the specific terms and circumstances of existing business partnerships that may create exposure to joint employer risk. Please feel free to contact any member of the ArentFox Schiff Labor, Employment & OSHA team to discuss these issues further.

[1] Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015) (BFI).