On February 26, 2020, the National Labor Relations Board (NLRB) issued a final rule changing the standard for determining joint-employer status under the National Labor Relations Act. This final rule will affect companies across industries, but could be particularly impactful on entities operating in the transportation, automotive, and logistics industries.
The final rule requires that the party alleging joint-employer status show proof that the entity possesses “substantial direct and immediate control over one or more essential terms or conditions” of employment. The final rule follows years of back-and-forth over the applicable test, and has kicked off a firestorm of additional controversy.
The joint-employer saga started in 2015 when the NLRB under the Obama administration overruled more than 30 years of precedent and expanded the definition of a joint employer. This was significant because a company may be liable for NLRA violations if it is a joint employer, and the expanded definition meant that a company could be a joint employer even in circumstances where it exercised indirect control over essential terms and conditions of employment. Suddenly, companies had to reevaluate their business relationships to determine whether under the new test they could be deemed a joint employer.
The Board under the Trump administration attempted to change the joint-employer test back and reinstated the pre-2015 joint-employer standard. However, it then had to withdraw the Hy-Brand decision on February 26, 2018, when the NLRB inspector general disqualified Board member William Emanuel from deciding the case due to a legal conflict.
All of this back-and-forth created a lot of difficulty for various types of business entities. For example, the joint-employer test can apply in a variety of different business relationships, such as franchiser/franchisee, contractor/subcontractor, parent/subsidiary, and user/supplier. Each time the rule changed, companies had to evaluate their business relationships and contracts, and assess potential exposure under the applicable test.
In September of 2018, the NLRB announced that it would address the joint-employer standard through the formal agency rulemaking process and proposed a new rule that it would codify as an agency regulation. After a year-and-a-half long comment period, the NLRB published the final rule on February 26, 2020.
The final rule, which will go into effect on April 27, 2020, requires that the party alleging joint-employer status show proof that the entity possesses “substantial direct and immediate control over one or more essential terms or conditions” of employment. It explains that control is not “substantial” if it is only exercised on a sporadic, isolated or de minimis basis. Under the rule, evidence of indirect control may be used to show joint-employer status, but indirect control alone is not enough to determine that an entity is a joint employer. The rule’s definition of indirect control specifically excludes control or influence over setting the objectives, basic ground rules or expectations for another entity’s performance under a contract.
Employers and other entities operating in transportation, automotive and logistics industries should evaluate current and future contracts for potential joint-employer status under this new test. For example, if a company hires a contractor to transport its goods, could the company be a joint employer under National Labor Relations Act? Depending on the amount of control that the company exercises over the contractor’s employees, it is possible.
The new joint-employer rule is generally good news for companies because it narrows the instances in which an entity may be considered a joint employer, but companies should continue to keep an eye on future challenges or changes. For example, if we see a change in presidential administrations, the joint-employer rule will likely be at the top of the list for the new Board majority to reverse. There may also be attempts in federal court to invalidate the rule. Relatedly, states are currently challenging the Department of Labor’s new joint-employer rule, which similarly narrows the circumstances under which an entity is a joint employer.
Overall, only time will tell if this final rule is indeed “final.” In the meantime, though, starting April 27, 2020, companies will have a reprieve from the expansive joint-employer standard enacted in 2015 by the NLRB.