You may not think that you can be liable for the treatment of the employee(s) of another company, but under certain circumstances, you could be. Companies may not realize that, legally, they may be deemed to be the employer of individuals who are formally employed by another entity. That concept is called joint employment, and both (or all) joint employers of an employee may be responsible for compliance with the law as to that employee.
In late October, the National Labor Relations Board (the “Board”) issued its final rule creating a new standard for determining joint-employer status under the National Labor Relations Act (the “Act”). On November 16, 2023, the Board extended the effective date of the final rule to February 26, 2024 to facilitate resolution of legal challenges to the rule. This new standard rescinds the Board’s 2020 final rule under which joint employment was only found when an employer had substantial, direct and immediate control over essential terms and conditions of employment.
Joint employment status is established when two or more employers “share or codetermine those matters governing [an employee’s] essential terms and conditions of employment.” Under the new rule, this occurs when an employer “possess[es] the authority to control (whether directly, indirectly, or both), or [exercises] the power to control (whether directly, indirectly, or both), one or more of the employee[’s] essential terms and conditions of employment.”
The Board has stated that the new rule provides an exhaustive list of essential terms and conditions of employment, which are: (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 governing 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. The party asserting joint employment has the burden of establishing it by a preponderance of the evidence.
Under the new rule, more entities may be deemed to be joint employers because indirect control, such as through an intermediary, of even a single essential term could be sufficient to establish such status. Moreover, under the new rule, direct or indirect authority to exercise control over employees’ essential terms and conditions of employment may be sufficient to establish joint-employer status, regardless of whether such control is actually exercised.
There is a concern that certain industries, including staffing and healthcare, and certain kinds of businesses, like franchisees and small businesses, will have more frequent joint-employer findings under the new standard. However, the Board asserts that the final rule is an effort to ensure uniform enforcement of the Act in all industries. The Board emphasizes that control as a normal incident of a third-party contract, for example, if the third-party contract sets basic expectations or ground rules for the production or delivery of goods or services without otherwise reserving the authority or exercising the power to control the manner or methods by which the work is performed, does not meet the threshold requirement to establish joint employment. Similarly, the Board states that a general contractor having overall responsibility for overseeing operations on a jobsite without possessing or controlling particular employees’ essential terms and conditions of employment would not qualify as a joint employer as to those employees. The Board further illustrated that a franchisor’s reservation of the right to protect its brands or trade or service marks, like logos, store designs, décor, or product uniformity, by itself, will typically not meet the standard of control required to find joint employment under the new rule.
In contrast, an employer who “communicates work assignments and directives to another entity’s managers and exercises detailed ongoing oversight of the specific manner and means of employees’ performance of the individual work tasks may demonstrate the type of indirect control” sufficient to establish joint employment.
Given this new standard, employers should carefully consider whether they may be deemed to jointly employ another entity’s employees under the Act, as well as the consequences and legal risks associated with this status. Moreover, the risk of joint employer status is not limited to the Act; joint employer liability may be imposed under a variety of other employment statutes, and the standards for this determination vary. Employers should consult with employment counsel to assist them with the evaluation of their risks in connection with joint employer status.
