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NLRB Joint Employer Rule Sets Employer-Friendly Standard for Joint Employer Determinations

By Mark Kisicki and Erica Shafer

Federal labor agencies have kicked their rulemaking efforts into high gear. One month after the U.S. Department of Labor published a final rule defining (and limiting) when one entity can be deemed the joint employer of another’s employees, the National Labor Relations Board (NLRB) has followed suit. On February 26, 2020, the NLRB issued a final rule, establishing–for the first time–a federal regulation with a clear standard for determining joint-employer status under the National Labor Relations Act. The rule has been in the pipeline for a long time. It was first proposed in 2018, but the NLRB received almost 29,000 comments in response. It has taken the NLRB about 18 months–and nearly 200 pages in the Federal Register–to consider those comments and adopt a final rule. This rule is scheduled to become effective on April 27, 2020.

The NLRB’s rule should have a sweeping and positive impact on the nation’s business community, as it replaces the nebulous, overbroad, and unworkable standard the NLRB adopted in its 2015 Browning-Ferris Industries (BFI) decision. Under the BFI standard, most every business could be deemed to jointly employ the employees of some other business. The BFI standard put an employer at risk simply based on the terms of its contracts with other companies, particularly when those other companies provided services on the employer’s premises. Under BFI, the mere contractual right to exclude an employee of another company constituted “reserved control” sufficient to establish joint-employer status, even if that right was never exercised. Likewise, the BFI rule would have allowed for a franchisor to be deemed the joint employer of its franchisees’ employees.

The NLRB’s final rule restores the pre-BFI standard by providing that one business entity can be deemed the joint employer of another entity’s employees only when the two businesses codetermine essential employment terms–and that codetermining employment terms requires the actual exercise of “substantial control” over those terms, rather than a practical ability or contractual but unused right of control. Moreover, the rule provides a level of clarity that the Board had not previously given the employer community, as it does the following:

The final rule’s clarity and application to a plethora of common business relationships and practices greatly benefit the employer community, as employers now have the guidance they need to structure their operations and contracts with confidence regarding whether they will be deemed to jointly employ another company’s workers.

Key Takeaways

Employers now have a clear standard for structuring their operations and contracts. However, the final rule would still deem many businesses to jointly employ another entity’s employees if they “exercise substantial direct and immediate control” over those employees. Employers may want to review their practices and agreements with businesses with which they contract for services, and structure their practices and contracts to ensure they are not unwittingly subjecting themselves to being deemed the joint employer of another company’s employees.

Legal challenges to the final rule are likely, but the NLRB has gone to great lengths to insulate the rule from legitimate challenges.

 


This article was drafted by attorneys at Ogletree Deakins, and is reprinted with permission. This information should not be relied upon as legal advice.

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