NLRB Issues Final Rule for Joint-Employer Standard: What Do Employers Need to Know?

On October 26, 2023, the National Labor Relations Board (NLRB) issued a final rule¹ establishing a new standard for joint-employer status: An entity is a joint employer of another entity’s employees if it maintains the authority to control essential terms and conditions of employment, which is broadly defined under the new rule. A joint-employer relationship exists whether or not that control is exercised (reserved authority to control is sufficient) or direct (indirect control through an intermediary is sufficient).

Seven illustrative, but not exhaustive, categories are considered essential terms and conditions of employment:

1. Wages, benefits, and other compensation
2. Hours of work and scheduling
3. Assignment of duties to be performed
4. Supervision of performance of duties
5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline
6. The tenure of employment, including hiring and discharge
7. Working conditions related to the safety and health of employees

To be considered a joint employer under the new standard, an entity must control only a single one of the above conditions.

Once it is determined to be a joint employer, an entity is required to participate in collective bargaining only over the essential terms and conditions over which it possesses or exercises control and other mandatory subjects of collective bargaining over which it possesses or exercises control, but not over items it does not have authority to control.

Note that the NLRB declined to define factual circumstances or a set of examples that establish indirect control. Given the countless scenarios that surround employment and independent contractor relationships, we expect that applications of the new standard will differ depending on specific factual circumstance of individual cases.

Employers are reminded that the Department of Labor’s definition of a “joint employer” for the purposes of the Fair Labor Standards Act (FLSA), 29 U.S.C. 203 et seq., remains unchanged. That definition remains based on an economic realities test.

Finally, employers should be aware of the definitions of “joint employer” in the states in which they do business, as state labor and employment interpretations may vary with this new standard and with each other.

The rule goes into effect on December 26, 2023, and the new standard will only be applied to cases filed with the NLRB after that date. We do expect the rule to be challenged based on its breadth.