Continuing its trend of restoring standards to the pre-Obama Board era, the National Labor Relations Board issued its final joint employer rule, returning the Board to its pre-2015 joint employer rules, albeit with a bit more guidance. The five-member Board currently has two vacancies.

The rule, published on February 26, 2020, and effective April 27, 2020, takes the Board back to the “substantial direct and immediate control” joint employer test it employed before the 2015 Browning-Ferris decision. Under Browning-Ferris, a business that only exercised “indirect control” over the employees of a contractor or franchisee could be considered a joint employer. This test greatly expanded the circumstances in which a business could be considered a joint employer. The new rule rolls back Browning-Ferris and provides clarity to employers who should now be breathing a sigh of relief.

What is the New Joint Employer Standard?

Under the new rule, a business is considered a joint employer of a separate employer’s employees “only if the two employers share or codetermine the employees’ essential terms and conditions of employment.” To meet this standard, “the entity must possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” The Board provided further guidance by defining these terms as well.

“Substantial direct and immediate control” means “direct and immediate control that has a regular or continuous effect on an essential term or condition of employment of another employer’s employees. Such control is not ‘substantial’ if only exercised on a sporadic, isolated, or de minimis basis.”

“Essential terms and conditions of employment” means “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”

“Direct and immediate control” is also defined in detail with respect to each essential term and condition of employment. For example, “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.” Further, the rule provides that evidence of a business’s indirect control over essential terms and conditions of employment, the business’s contractually reserved but never exercised control over essential terms and conditions of employment, and the business’s control over mandatory subjects of bargaining that are not essential terms and conditions of employment may be relevant to the joint employer analysis, but only to the extent that it “supplements and reinforces” evidence of the business’s direct and immediate control over essential terms and conditions of employment. Such evidence cannot establish joint employer status without the requisite substantial direct and immediate control.

How Does the New Rule Affect Employers?

Since 2015, there has been confusion amongst businesses as to what constitutes a joint employer. The rule should clear up that confusion. Whether a business is a joint employer can have major impacts on how the business structures relationships with contractors and franchisees. When two entities are joint employers, both entities must bargain with the union, both entities are potentially liable for unfair labor practices, and both entities are subject to any picketing, striking, or other economic pressure applied by the union if there is a labor dispute.

Any business that has any questions about whether they are considered to be a joint employer under the new rule should contact a labor and employment attorney at Dykema.