The National Labor Relations Board announced a new rule last week to clarify what constitutes a joint-employer relationship under the National Labor Relations Act, narrowing a company’s liability for federal labor law violations committed by franchisees and subcontractors.
Under the new rule, which goes into effect April 27, a company must exercise “substantial, direct and immediate” control over the terms of employment for another company’s workers to be considered a joint employer. These essential terms and conditions of employment include wages, hours, benefits, hiring, firing, discipline, direction and supervision. The new final rule, issued Feb. 26, reverses an Obama-era joint-employer standard, established in the NLRB’s Browning-Ferris decision of 2015, that required only indirect control over the terms of employment.
The broader Obama-era test left a lot more contract terms and conditions open to interpretation. Under the old standard, companies feared that even an agreement asking a subcontractor to comply with the Fair Labor Standards Act, state wage laws or anti-harassment policies could be viewed as evidence of indirect control over the subcontractor’s workers.
“As attorneys representing employers around the country, we had to review master service contracts and really take out as much as we could with respect to things that would be portrayed as terms or conditions of employment,” said Sherman & Howard member Patrick Scully.
Polsinelli shareholder Mark Nelson said that under the old rule, it was difficult to identify when a company would be liable for another entity’s actions. “What we have now is much more certainty of when there will be a joint-employer relationship and when there will not be,” Nelson said.