NLRB Publishes HR Policy-Supported Joint Employer Rule

February 28, 2020

The National Labor Relations Board published its final joint employer rules reversing a key Obama-era decision and accepting a number of recommendations from HR Policy Association that we included in our Workplace 2020 report.

The rule is consistent with our Workplace 2020 recommendations and comments filed to the NLRB, which are mentioned 30 times in the final rule.  For example, as we recommended in our comments, “so-called social responsibility provisions, such as contractual provisions requiring workplace safety practices, sexual harassment policies, morality clauses, wage floors, or other measures to encourage compliance with the law or to promote desired business practices generally will not make joint-employer status more likely under the Act.”

The final rule, which is effective April 27, 2020, provides employers with greater predictability by generally reinstating the Board’s pre-Browning-Ferris standard, which said a business is only a joint employer under the National Labor Relations Act if it has “substantial direct and immediate control” over another company's workers.

  • Under the Board’s previous Browning-Ferris standard, it was possible for a business to be deemed a joint employer if it exhibits “indirect control” over a contractor or franchisee or reserves the ability to exert such control.

Specifically, under the final rule, in order to qualify as a joint employer, a business must have “substantial direct control” of at least one key term or condition of an employee’s job such that the business “meaningfully affects matters” pertaining to the employment relationship.

The final rule also:

  • Defines the “essential terms and conditions of employment” as “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction;”

  • Defines “substantial” direct control as actions that have “a regular or continuous consequential effect” on one of the essential terms and conditions of employment, while noting that any direct control that is “sporadic, isolated or de minimis” won’t be enough to trigger joint employment;

  • Clarifies that certain examples of a business indirectly controlling or maintaining an unexercised contractual ability to control those terms of employment can be considered part of the board’s joint employer analysis, but only to lend support to evidence of direct control—they can’t by themselves lead to a finding of joint employment if no evidence of substantial direct control exists; and

  • Clarifies various elements of third-party contracts won’t trigger joint employment, such as a business “setting minimal standards for hiring, performance, or conduct” for a contractor, or requiring a contractor maintain workplace safety or sexual-harassment policies, or a franchiser taking steps to protect its trademark.

In a related action, a group of Democratic state attorneys general have asked a federal judge to block the U.S. Department of Labor’s final joint employment rule, which is slated to become effective March 16, 2020.  The DOL rule establishes similar standards under the Fair Labor Standards Act for joint employer liability as those promulgated in the new NLRB rule.

The States’ complaint alleges the final rule contravenes Congress’s intent in the FLSA, to establish a broad interpretation of employer, and will “undermine critical workplace protections for the country’s low- and middle-income workers, and lead to increased wage theft and other labor law violations.”

Outlook:  The next significant test for the NLRB's final rule will come in the courts, as parties are likely to challenge the rule directly, as in the case of the FLSA rule, or urge the courts to reject it in the course of NLRB-related litigation.  The rule may also be short-lived should there be a change of administrations after the November elections.  With regard to the challenge to the FLSA rule, the court may be able to delay the effective date of the final rule until after the November election, when the fate of the rulemaking will be determined by the next administration.