Baker Sterchi Cowden & Rice L.L.C. (Kansas City, MO) Article: New NLRB Joint Employer Rule Greatly Expands Bargaining, Other Obligations

On October 27, 2023, the NLRB published a final rule for determining joint-employer status under the National Labor Relations Act. This rule rescinds the NLRB’s 2020 rule, which required a threshold of “substantial direct and immediate control over essential terms and conditions of employment,” in favor of an expansive rule purportedly based on common law agency principles. In reality, the new rule is likely to dramatically expand the bargaining obligations of employers who use subcontractors, staffing agencies, participate in multi-employer projects, and franchisors. The new rule is also likely to ensnare numerous employers in Board proceedings who only have a tangential relationship to the unfair labor practice at issue.

Key Takeaways

• The new joint employer rule takes effect on December 26, 2023, and only applies to cases filed after that date. However, given the NLRA’s six-month deadline to file charges, the joint employer rule could apply to events occurring from July 2023 to present.
• Under the new rule, an employer may be a “joint employer” if it “possesses the authority to control (whether directly, indirectly, or both),” or exercises the power to control one or more of the employee’s “essential terms and conditions of employment,” as defined in the rule. It is generally going to be irrelevant whether the employer actually exercises control.
• Employers will be required to bargain in good faith with employees over terms and conditions of employment it “possesses the authority to control or exercises the power to control.”
• Health and safety rules are likely to be an inflection point, finding more employers are “joint employers” at the same time that OSHA has ramped up enforcement.
• The NLRB rule does not affect the Department of Labor’s “economic realities” test for determining employment status under the Fair Labor Standards Act.

Overview

In 2020, the NLRB implemented a final rule finding that an entity could only be a joint employer where it exercises direct control over employees. The 2020 rule provided employers greater certainty as to whether it was a worker’s employer. Over and over, in its responses to commenters in the final rule, the Board stated that its new rule is more in line with the common law of agency and rejected any policy or empirical arguments that the new rule creates greater uncertainty for employers. However, the expansive new rule encompasses many more joint employers and is likely to cause confusion where an entity provides only input or is tangentially related to the term or condition of employment at issue.

The new rule defines joint employers as “two or more employers of the same particular employees [as the] joint employers of those employees if the employers share or codetermine those matters governing employee’s essential terms and conditions of employment.” The key questions in the new rule are:

• What kinds of control constitute “share or codetermine”?
• What are “essential terms and conditions” of employment?
• What obligations does a joint employer have under the new rule?

Forms of Control Sufficient to Create Joint Employer Status

An important component of the new rule is that the mere possession of authority to control the terms and conditions of employment – even if such control is never exercised – is sufficient to create a joint employment relationship. Here, the Board cited with approval comments highlighting that the new rule encompasses control through an intermediary, specifically through franchise, staffing, and temporary employment relationships, to create a joint employment relationship. For example, a company that uses a staffing agency for certain workers could be their joint employer if the contract with the staffing agency allows the company to discipline and discharge workers (or even just to instruct the staffing agency to discipline or discharge a worker). In this scenario, the company would likely now be required to bargain with the workers’ union and refrain from committing other unfair labor practices. Remember, even if a union is not present, and employer can be liable for unfair labor practices related to protected concerted activity.

Essential Terms and Conditions of Employment

For purposes of collective bargaining, once a company is deemed a joint employer, the company must bargain in good faith over those terms and conditions of employment over which it has control, as well as any mandatory subjects of bargaining over which it possesses control.

In the new rule, the NLRB has outlined the terms and conditions of employment it sees as “essential”:

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 govern 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.

Joint Employer’s Obligations

An entity may, in some cases, be a joint employer on one essential term of employment but not others. For example, an entity may have control over wages or safety, but not be a joint employer with regard to discipline or discharge of workers. Notably, the new rule states that the joint employer rule applies “for all purposes” under the Act, and where an entity is a joint employer, it has two primary obligations. First, the joint employer must bargain in good faith, and there is a long body of Board law concerning good faith bargaining. Second, the joint employer must refrain from committing unfair labor practices such as threatening employees with loss of job or benefits if they join or vote for a union, threatening to close plants, questioning employees about union activity, or restraining or interfering with employees’ rights under the Act. Take, for example, a company that uses a staffing agency to fill certain positions, and the company retains the right to dictate workplace safety rules. If the temporary workers band together and complain to management about a safety risk, the company must treat those workers as its own employees and 1) bargain over the safety risk if they select a representative, and 2) refrain from retaliating against them for engaging in protected concerted activity. (In this example, the OSH Act also likely applies).

As a result of the new rule, employers would be wise to review existing contracts with business partners to determine whether a joint employment relationship exists (and for which essential terms and conditions,) as well as determine what new bargaining obligations may apply. At the same time, employers should train managers and consider policies to avoid retaliation or interference with employees’ protected concerted activity. This should already be underway given the NLRB General Counsel’s heightened focus on protected concerted activity over the last two years.

Construction Industry

Construction projects regularly use a general contractor and subcontractor relationship and there is, rightly, much concern that general contractors will now have an employee-employer relationship with employees of their subs. Several construction trade organizations and others commented that the final rule should follow the Board’s decision in NLRB v. Denver Building & Construction Trades Council, arguing that general contractors and subs have separate identities that preclude joint employer status. The Board declined to follow Denver Building and noted in its final rule that the new definition of “joint employer” requires both a “common-law employment relationship with particular employees,” and that the putative joint employer “‘share or codetermine those matters governing employees’ essential terms and conditions of employment.’” The Board also provided examples of conduct which might constitute joint employment: jointly developing employees’ wage structure, consulting on human resources matters, coordinating on hiring decisions, or jointly developing health and safety rules.

Importantly, the Board acknowledged that in some contracting situations, a prime contractor does not have discretion over certain contractual terms and obligations. The Board cited the federal Service Contract Act or state or municipal “prevailing wage” ordinances as examples. Where a general contractor does not have discretion over the terms and conditions of employment (e.g., there is a government-mandated wage), then a joint employer relationship is not created, and the general contractor need not bargain over that term or condition of employment. However, if the general contractor has any discretion on the effects or implementation of a particular requirement, it is required to bargain over the effects or implementation.

Next Steps

Employers should consider reviewing contracts executed in the past six months to determine whether the new rule imposes bargaining obligations that had not previously been fulfilled.

There is already a bipartisan resolution in the works to overturn the NLRB rule under the Congressional Review Act. Under the CRA, a joint resolution of both houses of Congress can override an administrative rule. However, such a resolution must also be signed by the President, or be passed by a veto override, which is highly unlikely.

Of course, federal lawsuits challenging the rule are inevitable, and it is possible the Supreme Court will take up the issue in this term. Baker Sterchi attorneys will continue to monitor these developments and update this blog accordingly.