The National Labor Relations Board (NLRB) has published a final rule that amends and clarifies the test for determining whether a joint-employer relationship exists for purposes of the National Labor Relations Act (NLRA). The final rule takes effect April 27, 2020.
Background:
The NLRA provides certain rights and responsibilities that apply to employers, employees, and labor organizations representing employees. For instance, the NLRA gives employees the right to work together to improve wages, benefits, and working conditions, to join unions, and to file unfair labor practice complaints when they believe their employer violated the law.
Under the NLRA, the determination of whether two entities are joint employers is important because both may be required to bargain with the union that represents the jointly employed employees, both may be potentially liable for unfair labor practices committed by the other, and both may be subject to economic pressure if there is a labor dispute. During the Obama administration, the NLRB adopted a broader definition of joint employment.
Final Joint-Employer Rule:
Under the new rule, a business is a joint employer of another employer's employees only if the two employers share or codetermine the employees' essential terms and conditions of employment. To be a joint employer, a business must possess and exercise such substantial direct and immediate control over one or more essential terms and conditions of employment of another employer's employees as would warrant a finding that the business meaningfully affects matters relating to the employment relationship.
The final rule defines "essential terms and conditions of employment" as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. Under the rule, "direct and immediate control" means the following with respect to each term or condition:
- Wages. An entity exercises direct and immediate control over wages if it actually determines the wage rates, salary or other rate of pay that is paid to another employer's individual employees or job classifications. An entity doesn't exercise direct and immediate control over wages by entering into a cost-plus contract (with or without a maximum reimbursable wage rate).
- Benefits. An entity exercises direct and immediate control over benefits if it actually determines the fringe benefits to be provided or offered to another employer's employees. This would include selecting the benefit plans (such as health insurance plans and pension plans) and/or level of benefits provided to another employer's employees. An entity doesn't exercise direct and immediate control over benefits by permitting another employer, under an arm's-length contract, to participate in its benefit plans.
- Hours of work. An entity exercises direct and immediate control over hours of work if it actually determines work schedules or the work hours, including overtime, of another employer's employees. An entity doesn't exercise direct and immediate control over hours of work by establishing an enterprise's operating hours or when it needs the services provided by another employer.
- Hiring. An entity exercises direct and immediate control over hiring if it actually determines which particular employees will be hired and which employees will not. An entity doesn't exercise direct and immediate control over hiring by requesting changes in staffing levels to accomplish tasks or by setting minimal hiring standards such as those required by government regulation.
- Discipline and discharge. An entity exercises direct and immediate control over discharge if it actually decides to terminate, suspend, or otherwise discipline another employer's employee. An entity doesn't exercise direct and immediate control over discharge or discipline by bringing misconduct or poor performance to the attention of another employer that makes the actual decision, by expressing a negative opinion of another employer's employee, by refusing to allow another employer's employee to continue performing work under a contract, or by setting minimal standards of performance or conduct, such as those required by government regulation.
- Supervision. An entity exercises direct and immediate control over supervision by actually instructing another employer's employees how to perform their work or by actually issuing employee performance appraisals. An entity doesn't exercise direct and immediate control over supervision when its instructions are limited and routine and consist primarily of telling another employer's employees what work to perform, or where and when to perform the work, but not how to perform it.
- Direction. An entity exercises direct and immediate control over direction by assigning particular employees their individual work schedules, positions, and tasks. An entity doesn't exercise direct and immediate control over direction by setting schedules for completion of a project or by describing the work to be accomplished on a project.
The final rule defines "substantial direct and immediate control" as having a regular or continuous consequential effect on an essential term or condition of employment of another employer's employees. Such control is not "substantial" if it is only exercised on a sporadic, isolated, or de minimis basis.
The final rule recognizes that evidence of indirect control and contractually reserved but never exercised control over essential terms and conditions may demonstrate joint-employer status, but only to the extent that it supplements and reinforces evidence of direct and immediate control.
Compliance Recommendations:
Employers should work with legal counsel to determine the impact of the final rule on their business. Keep in mind that the final rule only applies to the NLRA. There are different tests used for other federal laws and many states have their own tests for joint employment. Please contact your dedicated service professional with any questions.