On October 27, 2023, the National Labor Relations Board (“NLRB” or the “Board”) published its final rule expanding the definition of joint-employment and, thus, increasing the likelihood that a company will be subject to the National Labor Relations Act (“NLRA” or the “Act”).   The final rule, titled “Standard for Determining Joint-Employer Status,” becomes effective December 26, 2023.

The final rule rescinds and replaces the prior rule in effect and establishes a new standard for determining whether two employers are joint employers of particular employees within the meaning of the Act.  Under the new rule, “if the employer possesses the authority to control (whether directly, indirectly, or both) or exercises the power to control (whether directly, indirectly, or both) one or more of the employees' essential terms and conditions of employment, the employers will be considered joint.”  This holds true regardless of whether the employer actually exercises such control or the manner in which such control is exercised. 

In defining what constitutes “essential terms and conditions of employment,” the Board provided an exhaustive list of seven categories to include: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.

Thus, under the new rule, a company will automatically be considered a joint-employer simply because it possesses the authority to control at least one of the essential terms and conditions of employment, even if that control is never exercised.  Similarly, a company will be considered a joint-employer even if it indirectly exercises (e.g., through an intermediary) the power to control one of the essential terms and conditions of employment. 

The final rule changes things in a big way.  Under the former rule, which took effect on April 27, 2020, the Board applied a narrower joint-employer test that focused on whether a company possessed and exercised substantial direct and immediate control over the essential terms and conditions of employment. “Substantial direct and immediate control” was defined as “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” and excluded control that is “only exercised on a sporadic, isolated, or de minimis basis.”  Thus, under the former rule, a company needed to have exercised substantial and direct control over the terms and conditions of employment in order to be considered a joint-employer – not merely possess that authority.

The new rule starkly broadens the test by not requiring any exercise of control at all.  To support its reasoning, the Board cited over a century old case law stating that even before the passage of the NLRA, “the Supreme Court recognized and applied a common-law rule that ‘the relation of master and servant exists whenever the employer retains the right to direct the manner in which the business shall be done, as well as the result to be accomplished.'” Singer Mfg. Co. v. Rahn, 132 U.S. 518, 523 (1889) (emphasis added).  The Board further stated that it “believes that in light of controlling common law agency principles, it does not have the statutory authority to require a showing of actual exercise of direct and immediate control in order to establish that an entity is a joint-employer of another entity's employees.”

What does this mean for employers? 

If two employers maintain even indirect control over an employees’ working conditions, both employers must bargain with the union that represents the jointly-employed workers, both are potentially liable for unfair labor practices committed by the other, and both are subject to union picketing or other economic pressure if there is a labor dispute.  Further, employers such as staffing agencies or Professional Employment Organizations would be wise to immediately examine any client company agreements they have in place and ensure the client company is the only entity that maintains the right to determine the employees' essential terms and conditions of employment.

The new rule has been classified as a major rule subject to Congressional review and scheduled to take effect on December 26, 2023, unless it is stayed or enjoined by a judicial challenge. 

We will continue to monitor and keep you updated on all significant changes on this issue. Please feel free to contact Kemp Smith’s Labor and Employment Department if you need guidance and assistance.