The National Labor Relations Board (“NLRB”) announced that it is releasing a final rule (the “Rule”) on February 26, 2020 revising the prior joint-employer standard used to hold franchisors or businesses that use employees hired by third parties jointly liable for violations of federal labor law. The NLRB stated that this change in the Rule would allow “greater precision, clarity, and detail” in interpreting the joint-employer standard and incorporated the nearly 29,000 comments it received on the Rule which was initially proposed in 2018.

Under the prior Browning-Ferris standard, a company could be required to bargain with another employer’s union and/or face liability under the National Labor Relations Act if the company merely reserved the right to exert control over those employees’ terms and conditions of employment, however attenuated or indirect the right may be. Such ruling often exposed employers, such as franchisors or parent companies, to lawsuits due in part to the uncertain nature of what constituted “indirect” control.

Effective April 27, 2020, the Rule clarifies that joint employment will only be found in scenarios where a company exercises “substantial direct and immediate control” over the “essential terms and conditions” of employees.

Specifically, the Rule:

  • Specifies that 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;
  • Clarifies the list of “essential terms and conditions” as: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction;
  • Provides that 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;
  • Specifies that evidence of indirect and contractually reserved but never exercised control over essential terms and conditions, and of control over mandatory subjects of bargaining other than essential terms and conditions, is probative of joint-employer status, but only to the extent that it supplements and reinforces evidence of direct and immediate control;
  • Defines the key terms used in the final rule, including what does and does not constitute “substantial direct and immediate control” of each essential employment term;
  • Makes clear that joint-employer status cannot be based solely on indirect influence or a contractual reservation of a right to control that has never been exercised.

The Rule can be found here, and a factsheet issued by the NLRB can be found here.

The Hogan Lovells Employment Team will continue to monitor the Rule and provide further updates as they develop. For further information related to the Rule, or any other employment matter impacting your business, please contact the authors of this article or the attorney you regularly work with at Hogan Lovells.