The US National Labor Relations Board on Oct. 26 finalized the standard for determining joint-employer status under the National Labor Relations Act. The new rule, which replaces a joint employer rule that took effect in April 2020, dictates when two companies that conduct business together can be considered joint employers and thus liable for one another’s — or their contractors and franchisees’ — labor law violations.

The new standard takes effect Dec. 26 and will only be applied to cases filed after that date.

The new NLRB standard provides that an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and share or codetermine one or more of the employees’ essential terms and conditions of employment, including wages, hours of work and scheduling, assignment of duties and supervision.

Franchisors and companies that rely on workers obtained via staffing firms and other business-to-business arrangements have the most at stake under the rule issued today by the NLRB’s Democratic majority, Bloomberg Law reported.

The prior rule, issued under the Trump administration, made it easier to avoid a finding of joint-employer status because it set a high threshold, according to a law firm Husch Blackwell LLP blog post. Under that rule, joint-employer status could be demonstrated by an employer having “substantial direct and immediate control” over an employee’s essential terms and conditions of employment.

The new rule has a lower threshold — similar to a 2015 Obama administration standard — that may be met whether or not such control is exercised and regardless of whether the exercise of control is direct or indirect.

“For example, a manufacturer contracting with a temporary staffing agency for temporary workers may be considered a joint employer with the staffing agency if the contract reserves the right to supervise the performances of the temporary workers, even if the right is never exercised,” the law firm states in the post.

“The board’s new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA,” NLRB Chairman Lauren McFerran said in a press statement. “While the final rule establishes a uniform joint-employer standard, the board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”

Essential terms and conditions of employment are defined 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
  • Working conditions related to the safety and health of employees

The joint-employer standard is only implicated if an entity employs the workers at issue and has authority to control at least one of these terms or conditions. Authority over other matters is not sufficient.

The new rule also provides guidance to parties regarding their rights and responsibilities in situations where joint-employer status has been established.

The Notice of Proposed Rulemaking was published by the Federal Register on Sept. 6, 2022, and the period for initial comments closed Dec. 7, 2022. The board received over 13,000 comments.

fact sheet on the new rule is available online.