On October 26, 2023, the National Labor Relations Board (NLRB or the Board) issued a new rule addressing how the Board will assess joint employer status under the National Labor Relations Act. In short, the new rule lowers the bar significantly for finding two entities to be joint employers and raises heightened concerns about the careful use of contractors and potentially franchisor-franchisee relationships. Here are some key takeaways:
- The prior rule focused on whether a putative joint employer’s control over employment matters is direct and immediate. However, the new rule focuses on whether the putative joint employer indirectly affects employees’ terms and conditions of employment or has reserved the right to control, even if it does not actually exercise this right. In other words, if an employer can indirectly control or influence another employer’s employees’ terms and conditions of employment, or it has somehow reserved its authority to do so (e.g., via a contract or potentially certain Brand standards), it is at risk of being found a joint employer.
- Under the new rule, the relevant terms and conditions of employment are defined by the following broad, exhaustive list: 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.
- Based upon what we have seen from the Biden Board, we expect the new rule will be interpreted very broadly and will expand the universe of joint employers. As a result, we expect more joint employer relationships to be found in entity-contractor and entity-subcontractor situations. Concerningly, as expressly indicated in the new rule, the Board is likely to give increased scrutiny of relationships between a franchisor and the employees of a franchisee.
- The new rule makes clear that the putative joint employer must bargain with the relevant Union as to the terms and conditions over which it exercises control (directly or indirectly), and over which it has retained authority. This is in addition to the historic rule that a putative joint employer would be jointly and severally liable for the primary employer’s unfair labor practices.
- The new rule will be applied retroactively to all pending election cases.
The key change under the new rule is that the alleged joint employer no longer must exercise power over the primary employer’s employees’ essential terms and conditions of employment. Instead, a putative joint employer, either by itself or through an intermediary (e.g., another entity or agent), need only have the authority or potential to impact terms and conditions to be considered a joint employer.
As a result of the new rule, it will become easier for employees of franchisees and staffing agencies to show that the franchisor or contracting entity is their joint employer. In other words, a franchisor or user firm may be required to negotiate with the unionized workers of the franchisee or contractor if it directly or indirectly controls their job terms and conditions or retains the right to do so, even if those rights have never been exercised. In addition, the joint employer will be jointly liable for all unfair labor practices committed by its contractor or franchisee. Although the new rule establishes a purportedly uniform joint-employer standard, the NLRB will still conduct a “fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.” This will create uncertainty for employers until Board cases are issued or there is a change in the political makeup of the Board following an election. It is important to contact legal counsel to understand and discuss the implications of the new rule, especially in the context of franchisor-franchisee relationships.
The NLRB’s new rule will take effect 60 days after publication, on December 26, 2023. We expect there will be challenges brought as to the new standards and we will provide updates as they become available. Nonetheless, this is a good time not only to review your staffing and other contracts and relationships, but also to assess risk tolerance as you review your franchise agreements and related Brand standards.
For more information, contact Keith Grossman, Monte Grix, or Aram Karagueuzian in the Los Angeles office of Hirschfeld Kraemer LLP. Keith can be reached at 310 255 1821 or kgrossman@HKemploymentlaw.com. Monte can be reached at 415 835 9016 or mgrix@HKemploymentlaw.com. Aram can be reached at 310 255 1836 or email@example.com.