NLRB Seeks to Broadly Expand Joint Employer Standard

In a notice of proposed rulemaking (NPRM) published on September 7, 2022, the National Labor Relations Board (NLRB) proposes an initial regulation that would fundamentally change the definition of “joint employer,” replacing the prior legal standards with vastly broader ones and likely sweeping many more business relationships under its coverage.

The definition of “joint employer” has been in flux for much of the last decade. Prior to 2015, the NLRB’s decades-old joint employer standard required direct and immediate control over terms and conditions of employment. The NPRM seeks to return to, and even expand, the 2015 standard that direct, indirect, or reserved authority to control one or more essential terms and conditions of employment leads to a finding of joint employer status. Joint employer status under the National Labor Relations Act results in, among other things, a shared obligation to bargain collectively with an existing union directly representing one of the employers, a shared obligation to recognize a union newly certified at one of the employers, and shared unfair labor practice liability in certain circumstances.

Background

In 2015, the Obama-era NLRB issued a decision in Browning Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery (BFI),[1] which was a major change from the previous standard requiring direct and immediate control over terms and conditions of employment. In BFI, the NLRB decided that the right to control, even if indirect or reserved (i.e., unexercised), could be probative enough to establish a joint employer relationship, regardless of the absence of direct control. The NLRB held that joint employer status depended on whether a putative joint employer had sufficient enough reserved or indirect control over essential terms and conditions of employment to permit meaningful collective bargaining.

The US Court of Appeals for the DC Circuit later concluded that the NLRB’s decision in BFI correctly could consider both indirect and reserved control in making a joint employer determination, but incorrectly failed to adequately distinguish between indirect control that affected the terms and conditions of employment of the allegedly jointly employed employees, which was salient, and evidence that merely reflected routine parameters of contracting between companies, which was not.[2]

Following an unsuccessful attempt to set a new standard through case adjudication, in 2020, the Trump-era NLRB issued a final rule to reverse BFI and return to the former standard for determining a joint employer relationship: direct and immediate control over essential terms and conditions of employment that would need to be substantial and not limited in degree. The final rule issued in 2020 also provided parties with examples of how it would be applied.

Notice of Proposed Rulemaking

The NPRM,[3] which would replace the 2020 rule, is the Biden-Harris NLRB’s attempt to return to the decision in BFI but it arguably goes even further. Several times the NPRM provides that “common law” principles of agency will be used to determine whether a joint employer relationship exists between two employers, but it does not provide guidance as to how those principles will be applied. As a result, the lack of guidance results in a lack of predictability as to how the NPRM would be applied.

One thing the NPRM makes clear is that, just as under BFI, direct, indirect, or reserved authority to control one or more essential terms and conditions of employment leads to a finding of joint employer status. This is regardless of whether the power to control is actually exercised and whether such power is directly or indirectly exercised. Notably, the NPRM does not contain the qualification from BFI that the control must lead to meaningful collective bargaining. It simply presumes that the exercise of any control will make any required bargaining meaningful.

In essence, where BFI could be faulted for failing to specify the amount of evidence necessary before resulting in a joint employer finding, the NPRM, fairly read, contemplates that any evidence of control will establish joint employer status:

Possessing the authority to control is sufficient to establish status as a joint employer, regardless of whether control is exercised. Exercising the power to control indirectly is sufficient to establish status as a joint employer, regardless of whether the power is exercised directly.[4]

The NPRM also features an extremely broad definition of “essential terms and conditions of employment.” In addition to wages, benefits, and hiring and discharge, the NPRM also includes as essential terms and conditions “work rules and directions governing the manner, means, or methods of work performance.” This could cover almost every contractual arrangement between businesses because almost every contract contains some direction or service-level standards about how work ought to be performed. Potentially moderating this problem, the NLRB has solicited comments in the NPRM as to “all aspects of its approach to essential terms and conditions of employment, including the specific terms it should (or should not) generally consider ‘essential.’”

The bottom line for businesses is that the NPRM contains a standard for joint employer status that both is broader and provides less guidance than the NLRB’s decision in BFI.

Directly Impacted Businesses

The sweeping nature of the NPRM’s standard threatens joint employer status for any company that (1) contracts with another company that has employees and (2) pays any minimal attention to contract administration.

In other words, the NPRM places nearly all employers of a significant size at considerable risk of being a joint employer. The NLRB stated as much in its description of what evidence could trigger joint employer status:

[E]vidence that a putative joint employer communicates work assignments and directives to another entity’s managers or exercises ongoing oversight to ensure that job tasks are performed properly may demonstrate the type of indirect control over essential terms and conditions of employment that is necessary to establish a joint-employer relationship.[5]

It is hard to imagine any businesses of significant size that do not communicate assignments to their contractors’ management or that do not exercise ongoing oversight over their contractors. All businesses should be concerned about the NPRM standard.

However, the following types of businesses (which would include any private entity that contracts with another such entity with employees) should be particularly concerned:

• Businesses that contract with already unionized employers
• Businesses that have long-term contracting arrangements
• Businesses with onsite contractors or vendors
• Businesses that contract with many small employers
• Businesses that utilize a number of workers, employees, headcount, FTE equivalents, or person hours as a contracted-for metric; for example, a contract that calls for the contractor to deploy a certain number of people for a project, and allows adjustments to that number
• Businesses that have specific contracted-for performance standards or metrics that they make some attempt to monitor
• Businesses that assign periodic projects, statement of work additions, or new assignments under a master contract
• Businesses that require any minimum wage, benefit, or working condition standards from their contractors, including vendors, as a condition of contracting; this would include minimum vacation or leave standards, and any standards created for environmental, social, and governance (ESG) reasons, including any company philosophy of corporate social responsibility
• Businesses that have codes of conduct for their contractors or vendors
• Businesses that have dismissed, or could dismiss, a contractor employee from their project
• Businesses that reserve many rights in their contracts
• Businesses that share benefits plans
• Third-party benefits administrators
• Businesses that are required by government regulations or standards to exercise control over their contractors; for example, the government may require certain safety or anti-harassment standards of businesses and make a business liable for contractor safety failures or harassment episodes
• Associations that have rules that apply to members’ employees
• Sports associations like the National Collegiate Athletic Association or other athletic conferences
• Franchisors and franchisees
• Businesses that operate with separate subsidiaries with employees
• Joint ventures and partnerships where one member or partner has employees

Next Steps: Bringing the Board Back to Reality Through Comments

At this time the NPRM is only a proposed rule, subject to the NLRB’s review of public comments and the publication of a final rule. Until it is finalized, the 2020 rule and its traditional standard of direct and immediate control remain in effect.

The NLRB specifically solicited comments on several issues, including the following:

• How to define essential terms and conditions of employment, and particularly what terms should be considered “essential”
• Whether evidence of indirect and reserved forms of control, provided that such forms of control impact essential terms and conditions of employment, should contribute to a finding of joint employer status
• Replacing the requirement from BFI that a putative joint employer have sufficient control to allow for meaningful bargaining with an effective presumption that bargaining will be meaningful if the employer has any control over essential terms and conditions of employment

We strongly encourage employers to submit comments to the NLRB for several purposes. First, intelligent and specific comments can demonstrate that the NPRM sweeps too broadly or lacks a solid grounding in legal principles, given the discussion above.

Second, comments that are well supported by examples and evidence can illustrate how the NPRM, if finalized, would impact real-world employers’ operations.

Third, in soliciting comments on service-level standards, the NLRB suggested an openness to considering routine contract terms between companies as not affording proof of joint employer status:

However, the Board agrees with the BFI Board and the District of Columbia Circuit that contractual terms limited to “dictat[ing] the results of a contracted service,” that aim “to control or protect [the employer’s] own property,” or to “set the objective, basic ground rules, and expectations for a third-party contractor” will generally not be relevant to the inquiry (assuming those terms do not otherwise affect the employees’ essential terms and conditions of employment). In addition, the Board agrees that “routine components of a company-to-company contract,” like a “very generalized cap on contract costs,” or an “advance description of the tasks to be performed under the contract,” will generally not be material to the existence of an employment relationship under common-law agency principles. The Board specifically seeks public comment regarding this portion of its proposed rule and invites commenters to address which “routine components of a company-to-company contract” the Board should not consider relevant to the joint-employer analysis.[6]

Key action items for employers originate from this passage in the NPRM, which allows parties (e.g., employers) to basically propose their own safe harbors from the otherwise presumptive joint employer standard. If the NLRB correctly takes note of well-reasoned and justified safe harbors and incorporates them into the regulation, that is an acceptable outcome. If the NLRB ignores or arbitrarily dismisses proposed safe harbors that are demonstrated and justified, that will be another basis to challenge the regulation.

For instance, a business could do the following:

• Submit an actual contractor or vendor agreement to show the basic terms of this type of contract for its industry
• Explain that these contract provisions are typical and routine in its industry
• Explain the basic ground rules and expectations of typical types of industry contracts and the rationale behind each one
• Explain why these provisions are typical and routine for the employer as well
• Explain why monitoring for quality of performance and service levels is important and how its industry typically accomplishes these functions in its contracts
• Explain that new assignments are an essential and unavoidable feature of the contract and industry
• Describe any ESG or corporate responsibility minimum standards that the business requires from its vendors, and explain that they are a basic contract feature and no different than a price or quantity term

However, this ability to argue contract features goes both ways. The NPRM also allows parties (e.g., unions) to argue that typical contract terms are dispositive of joint employer status.

Taking this into consideration, companies are well advised to at least “defensively comment” to prevent the NLRB from specifically declaring that key contract terms on which a business relies instead automatically make the business a joint employer with its contractor.

Initial comments are due by November 7, 2022. Comments replying to comments submitted during the initial comment period are due by November 21, 2022.