On September 6, 2022, the National Labor Relations Board issued a Notice of Proposed Rulemaking concerning the definition of joint-employment relationships under the National Labor Relations Act. The proposed rule would relax the standard for determining when a joint-employment relationship exists, thus allowing more workers to claim an employment relationship with their direct employer’s contractors. This change would prospectively allow the employees of franchised businesses to claim that the franchisor is their joint employer and responsible for the employment decisions, acts, or omissions of the franchisee because the franchise agreement obligates the franchisee to act in certain ways in connection with the employees’ terms and conditions of employment.
Historically, under NLRB rules, an indirect or joint employer had sufficient control over a third party’s employees only if it possessed and exercised control over the third party’s employees’ terms and conditions of employment.
Since 2015 however, the NLRB’s joint employment rules have fluctuated. Subsequent presidential administrations, beginning with the Obama administration and continuing with the Trump and Biden administrations, have changed or are changing the rules in a manner that creates ongoing uncertainty for employers and franchisors.
In 2015, the NLRB revised its joint-employment standards and stated it would no longer require a joint employer to both possess and exercise authority over the essential terms and conditions of employment. If the purported joint employer reserves authority to control the terms and conditions of employment, even if it does not exercise such control, the reservation of such rights is relevant to the determination of joint employment. In the same 2015 decision, the NLRB stated that the list of items qualifying as an essential term or condition of employment was “non-exhaustive” and therefore the specific conduct need not be explicitly identified in the rule to be an “essential term or condition of employment.”
In 2017, the NLRB reversed course, overruled its 2015 decision, and held that a joint employer must actually exercise control over the essential terms and conditions of employment, instead of simply reserving the right to exercise such control, and that the control must be exercised directly and immediately.
To complicate matters, in 2018, a federal circuit court of appeals upheld the NLRB’s 2015 decision that joint employment could be based on reserved and indirect control over the workers even though the 2015 rule was not the then current rule.
In September 2018, in an effort to smooth the inconsistent rules and decisions, the NLRB issued a Notice of Proposed Rulemaking on the joint-employer standard. The final rule took effect in April 2020. It rejected the NLRB’s 2015 decision that indirect control and reserving the right to exercise control were sufficient to establish a joint-employment relationship. The 2020 NLRB rule formalized the requirement that to be a joint employer, an employer must possess and exercise substantial direct and immediate control over the terms and conditions of employment. The rule further provides an exhaustive list of what constitutes the terms and conditions of employment: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. This rule remains in effect and is currently the appropriate standard to follow to determine whether a joint-employment relationship exists.
If instituted, the NLRB’s proposed 2022 rule would return the definition and determination of joint employment to the 2015 rule. This means that two employers could be considered “joint employers” if they each, directly or indirectly, decide, or even only reserve the right to decide employees’ essential terms and conditions of employment. This includes decisions regarding wages, benefits, scheduling, hiring, discharge, discipline, workplace health and safety, supervision, assignment, and work rules but there could be additional unlisted items that create joint employment. The proposed rule would also remove the “exhaustive” list of terms and conditions of employment from the 2020 rule, in favor of a non-exhaustive list.
Because the proposed rule considers employers’ indirect and direct control for purposes of assessing joint-employer status, franchisors may be subject to claims, lawsuits, and investigations based upon the employment decisions or actions of its independently owned and operated franchisees.
The public has until December 7, 2022, to comment on the NLRB’s proposed rule.
Joshua Becker is a shareholder with Gallagher & Kennedy. A forward-thinking adviser who anticipates how to best position his clients relative to regulatory changes, evolving market conditions and the competitive landscape, Becker’s proactive approach to problem solving adds real value for the clients he serves. With many years of experience in franchising and intellectual property law, Becker’s clients include companies of all sizes from myriad industries, established and fast-growth franchisors, technology development companies, service providers and distributors.