Mar 06, 2020

NLRB Issues Final Joint-Employer Rule (Finally)

On February 26, 2020, the National Labor Relations Board (“NLRB”) issued its long-awaited final rule establishing the analysis required to determine whether two separate companies might be considered “joint employers” under the National Labor Relations Standards Act. The distinction is an important one, particularly in the construction industry, because if an employer is considered to be a joint employer of another company’s employees, that employer may become burdened with the other entity’s liabilities including wage and hour obligations to the employee, being required to participate in collective bargaining, or becoming liable for claims against the other for unfair labor practices and picketing.

Prior to this clarification, employers working with subcontractors or vendors were left with significant confusion over whether their interactions with employees of a different employer might deem them joint employers merely by exercising indirect control over the person, or by reserving the authority to do so at a point in the future. This uncertainty left employers potentially exposed even where they did not have an active role in making decisions over the terms and conditions of employment for another’s employee.

The new rule will only create joint employer liability where the two businesses both share or codetermine substantial, immediate and direct control over the essential terms and conditions of a given employee’s employment. “Essential terms and conditions” are defined to be the employee’s wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. Examples are given by the new rule to illustrate actions which might deem a business to be a joint employer:

  • Company A supplies labor to Company B through a “cost plus” arrangement establishing a maximum reimbursable labor expense which allows Company A to set the wages and benefits of its employees as Company A sees fit. Company B does not possess and has not exercised direct and immediate control over the employees’ wage rates and benefits.
  • Company A supplies labor to Company B under a business contract establishing the wage rate that Company A must pay to its employees. Company B possesses and exercises sufficient direct and immediate control over the Company A employees’ wage rates.
  • Company A supplies line workers and first-line supervisors to Company B at B’s manufacturing plant. On-site managers from Company B regularly complaint to Company A’s supervisors about poor production. In response, Company A supervisors reassign its employees and change several of their tasks. Company B has not exercised direct and immediate control over essential terms and conditions of employment of Company A’s line workers.
  • Business contract between Company A and its contractor reserves the right for Company A to discipline contractor’s employees for misconduct or poor performance, but Company A has never exercised this authority. Therefore, Company A has not exercised direct and immediate control over the contractor’s employee’s terms and conditions of employment.

The new rule takes effect April 27, 2020. Legal challenges have already been threatened by stakeholders and certain state attorneys. For now, NLRB Chairman John Ring asserts that the final rule being issued gives employers more certainty in structuring their business relationships and affords employees a better understanding of the circumstances of their employment. Clearly, the analysis of each scenario remains fact-specific, and questions should forwarded to legal counsel for more thorough review. If you have additional questions, please contact Bob Watson at Eastburn and Gray, PC.

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