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NLRB expands joint employer standard

The National Labor Relations Board (NLRB) has issued a final rule that expands the standard for when two businesses are considered joint employers under the National Labor Relations Act (NLRA). The rule replaces a standard last updated in 2020 and will be effective December 26, 2023.

Two businesses are considered to be joint employers if they share or co-determine essential terms and conditions of employment, including compensation, scheduling, duty assignment, supervision, or safety. The final rule establishes a broad standard for joint employment under which one company can be considered a joint employer of another not only where it directly exercises control over another company’s workforce, but also when its control is indirect or even reserved, even if not actually exercised.

Joint employer status can have significant implications for businesses. A joint employer may be required to bargain with a union representing a joint employer’s workforce and may be subject to labor picketing. Moreover, one joint employer can be held liable for unfair labor practices committed by the other.

“The Board’s new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA,” said NLRB Chairman Lauren McFerran in a statement.

Many in the business community voiced quick and strident opposition to the new rule, saying that the “indirect control” standard muddies the waters and will entangle franchise businesses, subcontractors, and small businesses.

Analysts say the NLRB’s new rule is likely to be challenged in federal court. In the meantime, U.S. Senators Bill Cassidy (R-LA) and Joe Manchin (D-WV) issued a press release indicating that they plan to introduce a Congressional Review Act to overturn the rule, focusing on the potential impact to franchisers.

“Saddling franchisers with liability for thousands of franchise owners that actually operate the day-to-day activities of small business would be a sure way to destroy the system of franchising,” Cassidy said in the statement.