The National Labor Relations Act (NLRA) governs private sector labor/management relations in the United States. Under the NLRA, employers have certain responsibilities and restrictions with regard to their employees, including the obligation to bargain in good faith with a labor organization designated as the bargaining representative by an appropriate group of employees. When Congress enacted the NLRA in 1935, and even when it amended the law in 1947, it did so believing that it and the country understood which entities were “employers” and which individuals were “employees,” so the law itself does not helpfully define either term.
Two decades into the 21st century, however, the relationships between businesses and workers in the U.S. economy are far more complicated than the assumed paradigm that Congress considered in the 1930s and 1940s. Workers now provide services in a world of outsourcing, gig work, franchising, subcontracting, joint ventures, strategic alliances, and other long- and short- term business arrangements. Determining who is an employer, who is an employee, and when those parties are in an employment relationship has become ever more complicated.
The National Labor Relations Board (NLRB), the federal agency that interprets and applies the NLRA, has struggled with these issues for the past decade. Last summer, the NLRB announced a new rule designed to draw the line between workers who were employees and workers who were “independent contractors.” (See our previous alert.) Now, the NLRB has similarly adjusted the test for determining whether or not a particular business entity is an employer of particular workers. Specifically, the new rule addresses whether two or more businesses are “joint employers” under the NLRA such that both businesses share bargaining responsibilities and potential liabilities.
The new rule significantly expands the current rule’s definition of the “essential terms and conditions of employment.” Under the current rule, adopted in 2020, an entity may be considered a “joint employer” if it exercises actual and direct control over a specified list of essential terms and conditions of employment. The new rule eliminates the requirement that control be actually exercised, providing that a company may be a joint employer if, as the NLRB explained, it “possesses the authority to control (whether directly, indirectly, or both) or to exercise the power to control…one or more of the employees’ essential terms and conditions of employment” (emphasis added). Under the new rule, such a company has direct or indirect control regardless of whether the company actually exercises that control.
The new definition of essential terms and conditions of employment includes the following categories:
- Wages, benefits, and other compensation
- Hours of work and scheduling
- Assignment of duties to be performed
- 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
- Tenure of employment, including hiring and discharge
- Working conditions related to the safety and health of employees
These seven categories represent what the NLRB considers the “core subjects of collective bargaining.”
If two entities are found to be joint employers under the new rule, both entities would be required not to discriminate against employees for exercising rights under the NLRA, such as acting in concert or forming a union. Both entities would have the right to participate in any union-organizing campaign and to raise issues regarding the appropriateness of any such petition, including whether the particular group of employees is appropriate for collective bargaining. If the employees select a bargaining representative, both entities would need to coordinate collective bargaining. While a single joint employer will be required to bargain only over those terms and conditions that it “possesses the authority to control or exercises the power to control,” it must bargain about all terms and conditions over which it has such authority or exercises power to control, even those the rule does not define as “essential.”
Joint employment may complicate some business relationships that have been predicated on one entity not being the employer of the other entity’s employees. Collective bargaining with two employers, which may have different long- and short-term goals, will also be much more complicated than bargaining as a single employer.
The good news for employers is that the new rule is not so different from the old rule that there are likely to be only a small number of situations in which the change in the rule makes a difference. Many joint employment relationships exist already, and the new rule will move the line a bit to capture some additional relationships.
The new rule takes effect on December 26, 2023. Employers should consider reviewing their current and pending arrangements with third parties—especially when the workers are represented by a union or in industries and locations where unionization is common—to evaluate whether those agreements lead to the control (whether direct or indirect and whether or not actually exercised) of any essential enumerated terms or conditions of another organization’s employees. As with most NLRB rule changes, we expect that there will be legal challenges, and the rule could be delayed, reversed, or ultimately repealed in the future. McCarter & English will continue to monitor developments and keep its readers apprised.
On November 16, 2023 the Board extended the effective date of the new rule to February 26, 2024 in order to facilitate resolution of some legal challenges. The new standard will only be applied to cases filed after the rule becomes effective.