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NLRB Finalizes Joint Employer Rule

Feb. 28, 2020
Employers get clarity on an issue that continues to generate controversy.

The National Labor Relations Board (NLRB) issued its final rule on joint employer liability that finally overturns an expansive re-interpretation of the standard adopted by the Obama-era board. The new rule goes into effect on April 27.

The rule is sure to draw legal challenges from labor unions because it largely removes from their reach the employees of franchise businesses and staffing firm workers for the purpose of organizing them. It also won’t be easy for a new Democrat administration NLRB to overturn if that party wins the White House this November because it was the product of a long, drawn-out rulemaking process and any future board will need to pursue a similarly lengthy process to undo the rule.

In this case, over the course of more than a year the NLRB said it reviewed and considered nearly 30,000 public comments on the regulation that it proposed in 2018 before crafting its final version of the rule released at the end of this February.

Under the final rule, an employer can be considered a joint employer under the National Labor Relations Act only where it exercises “substantial direct and immediate control” over the essential terms and conditions of another company’s employee.

These essential terms and conditions of employment are wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. Even where an employer exercises direct control over another employer’s workers, it will not be held to be a joint employer if such control can be proven to be “limited and routine.”

The final version of the rule also makes clear that joint-employer status cannot be based solely on indirect influence or a contractual reservation of a right to control when it has never been exercised.

Commenting on the importance of the policy change, NLRB chairman John F. Ring said, “This final rule gives our joint-employer standard the clarity, stability and predictability that is essential to any successful labor-management relationship and vital to our national economy.”

In his Feb. 25 statement announcing the new rule, Ring added that, “With the completion of today’s rule, employers will now have certainty in structuring their business relationships, employees will have a better understanding of their employment circumstances, and unions will have clarity regarding with whom they have a collective bargaining relationship.”

Voices Pro and Con

Employer groups also expressed their approval of the rule. “The retail industry applauds the NLRB’s final rule, as it reverses the controversial Obama-era joint employer standard and provides much-needed legal certainty surrounding business-to-business relationships,” said David French, senior vice president of government relations for the National Retail Federation. “It should be crystal clear what it means to be an employer, and that is exactly what this final rule will achieve,” he explained. “This rule ensures all parties are protected on a level playing field with a fair and reasonable interpretation of the law.”

Sean P. Redmond, executive director, labor policy at the U.S. Chamber of Commerce, observed, “With such a final rule in place, the board will finally have put to rest this vexing issue, and it will be more difficult for future boards to wantonly introduce so much uncertainty and volatility that harms workers and employers alike.”

Less happy with the outcome was AFL-CIO president Richard Trumka. “This rule will allow companies to manipulate the system to limit working people’s freedom to negotiate for fair wages and benefits by hiring contractors to serve as a shield between the companies and their obligations to employees,” he said.

Rep. Rosa DeLauro (D-Conn.), chair of a House Appropriations Labor, Health and Human Services and Education Appropriations Subcommittee, vowed to seek legislation that would overturn the decision, although there is no way such a measure will be enacted as long as the Republicans control the Senate and President Trump remains in the White House.

“Big businesses are looking to avoid responsibility for their egregious violations of workers’ rights, and the Trump-controlled NLRB is more than happy to let them off the hook by rigging the rules against people living paycheck to paycheck,” DeLauro declared.

Unions have long been stymied in their attempts to organize the employees of big franchising corporations, such as McDonald’s. Last December, the NLRB ordered an administrative law judge to recognize the board’s agreement with McDonald’s legal argument that it is not a joint employer and should not be held liable for its franchisees’ labor practices.

McDonald’s also recently won a federal appeals court judgment in a class action lawsuit that alleged the company is a joint employer of its franchisees’ workers under the Fair Labor Standards Act (FLSA) wage and hour provisions.

Following that court decision, the U.S. Department of Labor (DOL) in early February adopted a final rule that reduces the likelihood that an employer can be defined as a joint employer under FLSA’s wage and hour regulations. Although the DOL rule also won widespread approval, employers should keep in mind some states have their own joint employment wage and hour laws that can create joint employer status even when they differ from the federal standards.

The Equal Employment Opportunity Commission (EEOC) is expected to release its own joint employment rule in the near future. The EEOC standard will govern civil rights law liability for host employers and their franchises and staffing firms. For its part, the Occupational Safety and Health Administration (OSHA) is not likely to change its position on the subject, which for years has been that both the host employer and staffing firm share responsibility and liability for maintaining workplace safety and providing adequate training to all of their workers.

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