Q: When is a business entity considered a joint employer under the National Labor Relations Act (“NLRA”)?
A: Whether or not a business entity is considered a joint employer is critical because a joint employer determination requires a business to engage in collective bargaining practices under the NLRA.
On March 8, 2024, a judge in the United State District Court Eastern District of Texas, (Chambers of Commerce of the United States v. National Labor Relations Board) vacated the National Labor Relation Board’s (“NLRB” or the “Board”) new rule (the “2023 Rule”) and restored the previous joint employer rule established in 2020 (the “2020 rule”). The judge determined that the 2023 Rule “broadly classifies many aspects of work as essential terms and conditions of employment and broadly classifies many entities’ potential influence over those aspects as sufficient to establish joint-employer status.” The implication being that an entity exercising or reserving the power to exercise direct or indirect control over at least one essential term or condition is a joint-employer. The court found that the impact of this result “would treat virtually every entity that contracts for labor as a joint-employer because virtually every contract for third party labor has terms that impact at least indirectly, at least one of the specified essential terms and conditions of employment.”
Based on the above reasoning, the court vacated the 2023 Rule and criticized the Board for its failure to “reasonably address the disruptive impact of the new rule on various industries, [to] resolve ambiguities in a way making the rule more predictable than common-law adjudication, or [to] explain how the rule does anything other than mandate piecemeal bargaining that will likely promote labor strife…”.
The 2023 Joint-Employer Rule
Under the 2023 Rule, joint-employer status was assigned to a business entity when the business was engaged in the “sharing or codetermining of essential terms and conditions of employment” with a common-law employer. To share or codetermine essential terms and conditions is satisfied when a business entity possesses or reserves the authority to control (whether directly, indirectly, or both), or exercises the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment. Essential terms and conditions of employment for purposes of the joint-employer analysis include, compensation, work schedule, assignment of duties, supervision, tenure of employment, and working conditions related to safety and health.
The 2020 Joint-Employer Rule
Under the 2020 joint-employer rule, business entities are joint-employers if the business exercised actual, direct, and immediate control over the essential employment terms and conditions, and such control was substantial. Effectively, the 2020 Rule makes it more difficult to hold businesses liable as joint-employers. Consequently, businesses may opt to enter service and/or labor contracts to fulfill certain business operations rather than hiring employees themselves while also maintaining some degree of control over terms and conditions of the employment of another entity’s employees, although not substantial.
Conclusion
Although the Board must now follow the 2020 joint-employer rule, it is quite possible that the Board will appeal the decision, and more litigation is to follow. The legal uncertainty is disturbing for businesses, particularly those that enter labor contracts. Considering the significant ramifications to businesses determined to be joint-employers, businesses should remain attentive and careful when entering into contracts that have even a degree of influence on employment terms. Most importantly, businesses are advised to seek guidance from their employment legal counsel.
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