The National Labor Relations Board issued its final rule on joint employer status under federal labor law, with significant implications for all large employers. The unprecedently broad rule could make companies liable for the labor law violations of third parties with which they do business and create collective bargaining obligations for the same.
The final rule establishes that a company may be a joint employer if it shares or codetermines one or more essential terms and conditions of employment of the employees of a third party with which it does business. Such terms are defined exclusively as:
- Wages, benefits, and other compensation;
- Hours of work and scheduling;
- The assignment of duties to be performed;
- The supervision of the performance of duties;
- Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
- The tenure of employment, including hiring and discharge; and
- Working conditions related to the safety and health of employees.
The last bullet was not in the proposed rule and is a new addition. Including “working conditions related to the safety and health of employees” broadly expands the scope of the rule – minimum safety standard clauses are common in contracts with most third-party businesses.
No control over employees needed: Notably, per the rule, a company does not need to exercise control over any of the above terms and conditions, nor does such control need to be direct, for a joint employment relationship to exist. Essentially, as long as a company could have some semblance of control over one or more of the above conditions, they could be considered a joint employer under the new rule.
Not just a franchise issue: While joint employer liability is most often associated with the franchise industry, the Board’s final rule has significant negative implications for all employers. Most, if not all, large employers establish minimum standards through their company’s business and supply chain for quality and safety purposes, among other reasons; such standards-setting could now result in liability for the labor law violations of third parties. Further, such liability could also force companies to deal with the unions of such third parties, including engaging in collective bargaining for workers who are not employees of the company.
Background: The joint employer issue is a prime example of the policy tug of war occurring at the NLRB over the last decade, with three consecutive Boards issuing different rules on joint employer status under federal labor law. The current Board issued a proposed rule in 2022 after rescinding a Trump Board rule that narrowed joint employer liability. The Association submitted comments in opposition to the proposed rule, arguing that it inappropriately expanded joint employer liability and disincentivized companies from setting standards for parties with which they do business.
Outlook: The final rule will become effective December 26, 2023 (Merry Christmas!), although a legal challenge is likely. Employers should take steps now to review their relationships with third parties and minimize, as much as possible, the scope of such relationships to the extent that they touch upon the working conditions of the employees of third parties.
