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By: Jacob McClendon
On September 6, 2022, the National Labor Relations Board proposed a new rule that would expand the definition of “joint employer” under the National Labor Relations Act. The new rule proposes a much broader definition that would include a significantly wider array of businesses as joint employers.
Under the current rule, an employer could be categorized as a joint employer of another entity if it has direct and immediate control over the “essential terms and conditions” of the other entity’s workers. The proposed new rule would dramatically expand this definition. The proposed rule would consider two entities “joint employers” if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.” The proposed rule would define “share or codetermine” to mean that the employer possesses the authority to control, whether directly, indirectly, or both, or exercises the authority to control, the employees’ essential terms and conditions of employment.
The key change to the joint employer rule is the NLRB’s focus on an employer’s authority to control another entity’s workers. Many employment service businesses retain some authority to control another entity’s workers but never exercise the retained authority. For example, franchisors, PEOs, businesses with onsite contractors, and staffing companies typically have authority to control another entity’s employees for purposes of training, payroll, or benefits. Under the new proposed rule, these types of business may be considered joint employers.
Unionization efforts are experiencing a high profile uptick in success, with Amazon and Starbucks recently seeing successful union efforts. Thus, the impact of the rule will expand if unionization continues to expand as more businesses find themselves dealing directly or indirectly with unions.
In addition, it is worth noting that the NLRB’s joint employer rule is cited by courts to determine whether a joint employment arrangement exists in other contexts, such as discrimination claims or wage and hour claims. See In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 683 F.3d 462, 468 (3d Cir. 2012) (applying NLRB joint employer rule in FLSA context). If implemented, the impact of the proposed rule will likely expand beyond the NLRB’s labor law enforcement actions. For example, an employer may be deemed to be a joint employer based only on the authority to control another employer’s workers’ wages, hours, or other essential terms and conditions of employment and, therefore, may be subjected to liability to the same degree as the employer exercising actual control over the workers’ essential terms and conditions of employment.
The proposed rule is not finalized and may experience significant changes during the notice and comment period. All comments on the proposed rule are due to be submitted by November 7, 2022. We are continuing to monitor how these changes will impact employers.