Audit, Compliance and Risk Blog

NLRB Redefines “Joint Employer”

Posted by Jon Elliott on Wed, May 06, 2020

men-1979261_1280When someone receives occupational direction and/or compensation from more than one entity, who’s the boss? Sometimes it’s obviously one or the other, sometimes it’s not clear which one is, and sometimes the answer may be “both.” These unclear situations are fairly common; consider franchise operations where the franchisor exerts some controls over how the franchisee does business, workplaces where “temp agencies” supply workers who receive at least some directions from the host but get paid by the agency, and worksites where a prime contractor integrates services by subcontractors and their employees. Identifying the boss(es) has important implications, not just for who writes a paycheck but for who is subject to legal responsibilities and prohibitions.

The National Labor Relations Board (NLRB) has addressed joint employment many times since 1949, and its approach has evolved – gradually since guidance from a seminal 1982 court decision evolved through new factual situations litigated before NLRB, and abruptly since 2015 as the political and policy positions of the board’s majority have cycled. NLRB has just issued the latest such pronouncement, in a new Joint Employer Rule (29 CFR 103.40). This final rule completes the agency’s reversal of 2015 provision, and  includes significant differences from NLRB’s 2018 proposal (which I wrote about, along with a comparison to the 2015 provisions, here). The latest version codifies the present majority’s narrowing of situations where more than one employer might accrue responsibilities and liabilities.

How do the National Labor Relations Act and NLRB Approach Joint Employers?

The National Labor Relations Act (NLRA) does not include a statutory definition of “joint employer” (or even “employer”, for that matter, other than to clarify that “any person acting as an agent of an employer” is also considered an employer (29 USC § 152(2))). Absent a statutory definition, NLRB has looked to other labor laws and the “common law” when considering whether an employer-employee relationship exists.

In 2015, a 3-member majority of the NLRB reviewed decades of policies and cases, and “restated” the standard for joint employment to be:

“…We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.” [Browning-Ferris Industries of California (BFI); emphasis added]

Under this BFI policy, an employer could now qualify as a joint employer if it exerted control indirectly through a second employer, and even if it merely retained the ability to exert control (e.g., through contractual agreement with the second employer).

After the partisan and policy majority of the 5-member NLRB board shifted in 2017, the agency initiated the present rulemaking to repudiate BFI and adopt new provisions. (I provided more details in my discussion of the proposed rule).

What has NLRB Just Adopted?

In 2020, NLRB has adopted a somewhat cumbersome new regulation to define “joint employers,” which can be unpacked as though it were a multi-step process. The core sentence is:

“An employer … may be 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. …” (103.40(a); emphasis added)

The definition then continues, clarifying (somewhat) the meaning of “share or codetermine”:

“… To establish that an entity shares or codetermines the essential terms and conditions of another employer’s employees, 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. …” (103.40(a); emphasis added)

The definition provides explanations of “direct and immediate control” for a list of eight “essential employment terms and conditions”:

  • wages

  • benefits

  • hours of work

  • hiring

  • discharge

  • discipline

  • supervision

  • direction

For example, the explanation for direct and immediate control of “supervision” provides:

“Supervision. An entity exercises direct and immediate control over supervision by actually instructing another employer’s employees how to perform their work or by actually issuing employee performance appraisals. An entity does not exercise direct and immediate control over supervision when its instructions are limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it.” (103.40(c)(7))

NLRB also provides a contrasting definition of “indirect control” to mean: “indirect control over essential terms and conditions of employment of another employer’s employees but not control or influence over setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract.” Readers should note that these explanations replace twelve specific examples provided by NLRB in its 2018 draft of this rule.

A separate subsection provides further guidance about the degree of direct and immediate control necessary to be found “substantial”:

 ‘‘Substantial direct and immediate control’’ means direct and immediate control that has a regular or continuous consequential 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.” (103.40(d); emphasis added)

Although this cascade of sub-definitions cannot provide crystal clear guidance in every situation, it is clear that NLRB will not identify a “joint employer” without express – probably formal in contractual documentation – direct and immediate controls sufficient to be “substantial,” and with evidence of frequent and/or pervasive actual exercise of these controls.

What Now?

This new definition becomes effective on April 27, 2020. Any organization that has direct or indirect employment relationships with individuals, in which the organization and at least one other organization have the formal ability to share responsibilities for those individuals’ work, should review contractual documentation, formal policies and procedures, and practical work-related practices with NLRB’s new definition and explanations in mind. Situations that approach or meet the new standards for “joint employment” should be reviewed closely, to determine whether the organization actually needs formal influence/control over worker actions to justify being a joint employer.

Because NLRB requires actual control, it seems that an organization can still insert contingent authority into its agreement with a second organization. In that situation, the first organization can avoid NLRB's definition of "employer", while still inducing the second employer to follow its indirect direction or risk breaching the agreement between the two organizations. Who has effective control then?

In considering the new answer to these questions, organizations should also keep in mind that President Obama’s appointees to NLRB forcefully took one direction in 2015, only to be reversed by President Trump’s appointees. If President Trump is reelected I expect the new approach will remain in place through the end of 2024, but if a Democrat wins then future changes could be applied, to situations created in reliance on these 2020 rules.

Self-Assessment Checklist

Does the organization conduct activities in concert with other entities, under which any personnel are subject to actual or potential direction from more than one entity?

Does the organization provide personnel to other entities, where those personnel are subject to direction from the host entity?

Does any other entity provide personnel to the organization, who become subject to direction from the organization?

Does the organization represent individuals (e.g., as a labor union) who may qualify as employees of joint employers?

Do any of the organization’s employment contracts or contracts with other employing organizations allocate responsibilities and controls for workplace activities to more than one organization?

Where Do I Go For More Information?

STP ComplianceEHS (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. 

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About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

Image by Werner Heiber from Pixabay

Tags: Business & Legal, Employer Best Practices, Employee Rights, NLRB