NLRB Issues Final Rule On Joint Employment(February 27, 2020)

Last month the U.S. Department of Labor issued a rule regarding how it would analyze joint employment in the Fair Labor Standards Act setting. Now the National Labor Relations Board (“NLRB” or “Board”) has issued its own rule regarding the joint employer analysis, in the context of the National Labor Relations Act. Adding to the mix, the Equal Employment Opportunity Commission (“EEOC”) is expected to issue its own joint employer rule soon.

The NLRB’s rule – which goes into effect on April 27th – provides considerable clarity, and the bottom-line result will be fewer situations where two separate entities are found to be joint employers of the same employees. A summary of key provisions follows.

First, the two employers must “share or co-determine the employees’ essential terms and conditions of employment.” An entity will be found to share or co-determine such conditions of employment only if it possesses and exercises “substantial direct and immediate control over one or more essential terms or conditions of” employment for the employees in question.

The reference to “essential terms and conditions of employment” begs the question of what are such terms and conditions? The Board is glad you asked, and has provided a definition in the new rule. That term means: “Wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.” Significantly, this list does not include matters such as uniforms, dress code, franchise requirements relative to operational matters (e.g. how to cook a Big Mac), and the like.

Well, now we know what the “essential terms and conditions” are. So what does it mean to exercise substantial direct and immediate control over them? The Board is glad you asked that as well, and its description as to each is summarized as follows.

Wages. An employer exercises such control when it “actually determines” wage rates that another employer pays to its employees. Entering a cost-plus contract does not meet this definition.

Benefits. Likewise, an employer exercise such control where it “actually determines” benefits to be provided by another employer. Notably, “permitting another employer, under an arm’s-length contract, to participate in its benefit plans” does not meet the standard for exercising direct control over this term of employment.

Hours of work. Again, this standard is met where an employer “actually determines” the work schedules or hours of work for another employer’s employees. This standard is not met where an entity establishes the operating hours of an enterprise or establishes the times when it needs the services of the other employer.

Hiring. This standard is met where an employer “actually determines” those who will be hired and those who will not. Setting staffing levels or qualification standards, especially those required by government regulation, will not establish the required level of control.

Discharge. This standard is met where one employer “actually decides to terminate the employment of another employer’s employee.” Significantly, the standard is not met where the employer brings misconduct or poor performance to the attention of the other employer, or where an employer will not allow a particular employee to continue work under a contract.

Discipline. This standard is met where an employer “actually decides” to impose disciplinary action – such as suspension – on another employer’s employee.

Supervision. This standard is met where on employer exercises control “by actually instructing another employer’s employees how to perform their work or by actually issuing employee performance appraisals.” Providing instruction that is “limited and routine” does not rise to the required level of control.

Direction. This standard is met where an employer assigns “particular employees their individual work schedules, positions and tasks.” Setting schedules for project completion or describing work to be done on a project does not rise to the required level of control.

Significantly, where an employer has contractually reserved authority over certain essential terms and conditions of employment but does not exercise such authority the requirement of “substantial direct and immediate control” is not met. This clarifies an issue that was the subject of much debate in previous case decisions.

Last but not least, the party contending that an entity is a joint employer bears the burden of proof.

These standards provide needed clarity on this important subject. Some employers may wish to revisit their contractual and other arrangements with other employers in view of these provisions, to further insulate themselves from potential joint employer findings. If this is of interest, we certainly recommend consulting with a Wimberly Lawson attorney for the analysis and plans for revising the terms of the relationship.