The NLRB, Biden administration, and Democrats in Congress are working to radically alter the joint-employer standard under the National Labor Relations Act (NLRA), which is used to determine when two or more entities are jointly responsible for the terms and conditions of employment over the same group of employees.
On February 28, 2023, Congressional Democrats reintroduced the Protecting the Right to Organize (PRO) Act (H.R. 20, S. 567), which includes a provision that drastically expands the joint-employer standard, and in October 2023, the NLRB issued a new final rule that pushes the standard beyond anything we’ve seen previously. Fortunately, efforts are underway to block these policies. A bicameral group of members of Congress has introduced a Congressional Review Act resolution to nullify the Board’s final rule, and CDW filed a lawsuit in the U.S. District Court for the Eastern District of Texas in November challenging the legality of the rule. On March 8, the District Court invalidated the rule, reinstating the traditional joint employer standard, but the NLRB is expected to appeal the decision to the US Court of Appeals for the 5th Circuit. (CDW also filed comments on the Board’s proposed rule in December 2022.)
Joint-employer status results in significant changes to an employer’s liabilities and responsibilities under the law, so dramatic changes to what triggers joint employer status will therefore have significant consequences for the economy. Joint employers are responsible for bargaining with any union representing the joint employees and are mutually liable for any NLRA violations either entity commits with respect to those employees.
Under the traditional, decades-old standard, entities can only be joint-employers if they exercised direct and immediate control over the essential terms and conditions of employment. This standard provided clarity for businesses and protected them from unnecessary involvement in labor negotiations and disputes involving workplaces over which they do not have such control. This is especially necessary in today’s world, where large and small businesses alike have contractual relationships with dozens, hundreds, or even thousands of franchisees, vendors, and contractors.
Under the PRO Act and the final rule, however, the joint-employer standard would include situations where companies shared only indirect or even just reserved, unexercised control over the terms and conditions of employment. This standard was originally conceived by the Obama-era NLRB in its 2015 Browning-Ferris Industries (BFI) decision. The final rule goes further than both the PRO Act and BFI standard in that it would require a joint employer determination based on reserved or unexercised control in certain circumstances. Under either standard, nearly every contractual relationship could trigger joint-employer status, from the franchise model to relationships between contractors and subcontractors and suppliers and vendors, needlessly exposing vastly more businesses to unwarranted joint-employer liability.
The franchise model, for example, which is rooted in the traditional joint-employer standard, allowed individuals to open their own small business with the support of the larger, more experienced franchisor. The franchisor provided the business model, well-known logo, and some assurances and support, but the franchisee was responsible for making the individual business succeed and was liable for its business practices. The standards established by either the PRO Act or the new proposed rulemaking, however, could potentially impose significant liability on the franchisor, forcing them to protect themselves via ending and/or limiting their support to their franchisees or exerting increased authority over them, essentially converting those small business owners into employees.
The traditional standard also allowed larger businesses to rely on goods and services provided by local businesses without facing uncertainty around joint-employer liability. Under the PRO Act and final rule, however, larger companies would be more likely to subsume local small businesses rather than work with individually owned enterprises, stifling entrepreneurship, business innovation, and flexibility. The expanded standard even hampers businesses’ efforts to encourage “corporate responsibility” among franchisees, contractors, and vendors to the detriment of workers, consumers, and their communities.
To make matters worse neither the PRO Act nor the BFI decision defined key terms or provided guidance as to how to implement the new standard, resulting in massive uncertainty for the business community. This lack of clarity resulted in the US Court of Appeals for the DC Circuit returning the BFI case to the Board. The DC Circuit criticized the BFI standard for ignoring a crucial step in the joint-employer analysis – that in order to qualify as a joint employer, an employer must possess sufficient control over the essential terms and conditions of employment to permit meaningful bargaining.
The Trump-era NLRB and Republicans in Congress have attempted to reinstate the traditional joint-employer standard, but the Biden administration is working to undo those efforts. In February 2020, the Trump-era NLRB issued its own Joint-Employer Final Rule, which established that an entity can only be a joint-employer if it actually exercises control over the essential terms and conditions of another employer’s employees. CDW filed comments on the Board’s proposed rulemaking with nearly 90 other employer organizations in January 2019. Additionally, then-NLRB General Counsel Peter Robb issued Memorandum GC 18-02 in December 2017, which instructed all Regional Offices to submit for review all cases involving “significant legal issues” to the NLRB’s Division of Advice, including cases that dealt with the joint-employer standard and the application of the BFI decision. The US Department of Labor (DOL) under President Trump also issued a Joint Employer Final Rule, restoring the traditional standard under federal wage and hour laws. CDW submitted comments on the proposal in June 2019. Unfortunately, several state Attorneys General challenged DOL’s Final Rule in federal court, successfully limiting its reach, and the Biden-era DOL rescinded the Final Rule.
Republicans in Congress and on the NLRB must continue to fight against Democrats’ unwarranted attacks on small and local businesses and continue to pursue all available avenues to reinstate the traditional standard.