NLRB Proposes Rewidening of Joint-Employer Standard

On September 6, 2022, the National Labor Relations Board (NLRB) unveiled a draft notice of proposed rulemaking (NPRM) to replace its current rule, which clearly defines when two separate entities can be deemed joint employers under the National Labor Relations Act (NLRA), with the short-lived and much criticized standard it had articulated in its 2015 Browning-Ferris Industries decision. Although the Board’s current rule was adopted in 2020, it codified and clarified Board law that had, for decades before Browning-Ferris, limited joint-employer status to entities that actually exercised direct and immediate control over the employment terms of another entity’s employees. Browning-Ferris eliminated the requirement of actual direct and immediate control and held that indirect control of an essential employment term of another entity’s employees—or even the mere potential or reserved ability to control an essential employment term—was sufficient to turn an independent entity into a joint employer under the NLRA. The Board’s current NPRM seeks to resurrect and codify that ill-fated Browning-Ferris standard, undoing not merely the standard articulated in the current rule, but one that had been the NLRB’s standard for more than 30 years before Browning-Ferris.

The proposed rule would replace the certainty the current rule provides with generalities and ambiguity. The current rule provides clarity by including detailed examples of what constitutes the actual exercise of substantial direct and immediate control. In its place, the proposed rule generally references centuries of common law agency principles, without any guidance as to how the common law of agency helps answer the entirely different question of whether the employee of one entity could also be deemed the employee of another. Additionally, the current rule provides clarity by including an exhaustive list of essential employment terms and conditions; if the employment term is not on the list, then it cannot be an essential term of employment. The proposed rule instead provides an illustrative but nonexhaustive list of essential employment terms. What else might be an essential employment term is anyone’s guess, and the answers will be provided sporadically and only following years of costly NLRB litigation.

Comments on the proposed rule will be accepted until November 7, 2022, with replies to the comments accepted until November 21, 2022.

NLRB members John Ring and Marvin Kaplan dissented from the NPRM. In their dissent, they  explained why the current rule is correct and the proposed rule is both fatally flawed and inconsistent with settled law and the purposes of the NLRA. They also emphasized that the Board majority had failed to identify any significant change that would justify the Board not merely revisiting but reversing the current regulation that it adopted just two years earlier following extensive public comment and consideration.

Key Takeaways

The proposed rule demonstrates the current NLRB’s push to facilitate union organizing by resurrecting novel positions the Obama NLRB had adopted but were short-lived, as they had been undone during the subsequent Board’s tenure. The proposed rule, like its prior iteration in Browning-Ferris, has been advocated for and broadly supported by the Board’s union constituents. It dramatically expands which businesses will be deemed joint employers, and it expands even more dramatically the number of entities that are at risk of being deemed joint employers because of the uncertainty it creates. All business entities may need to carefully evaluate these risks, as being deemed a joint employer with a third-party company carries substantial obligations and, perhaps more importantly for businesses in our economy, may saddle them with long-term relationships with companies they justifiably viewed as independent third-party businesses whose contracts could be terminated according to their terms. Such freedom does not exist for an entity once it is deemed a joint employer under the NLRA.

Employers can express their views to the NLRB about the proposed rule during the 60-day comment period. That time also provides employers the opportunity to evaluate their risks by reviewing their operations and contracts and, to the greatest possible extent, modifying both to eliminate procedures and provisions that reflect reserved and potential control over another entity’s employees. Employers may also want to take the time now to educate their management teams to ensure they avoid either taking actions that would likely be deemed direct or indirect supervision and control of other entities’ employees.

Ogletree Deakins’ Traditional Labor Relations Practice Group will continue to monitor these regulatory developments and will provide updates on the Traditional Labor Relations blog. Important information for employers is also available via the firm’s webinar and podcast programs.