On October 26, 2023, the National Labor Relations Board announced its final rule defining the standard for determining joint-employer status under the National Labor Relations Act (NLRA). This new rule makes it much easier to find joint employment status exists – even without the exercise of control.

Who this Affects:

• Franchisors and Franchisees;
• Businesses outsourcing work through independent contractors; and 
• Businesses engaging staffing companies for temporary support.

Why this Matters:  

• Franchisees may now be required to bargain with employees for union matters when they previously were exempted;
• Franchisors may now be liable for franchisee employment actions; and
• Businesses using staffing agencies or contracting with independent contractors may now be liable for actions taken by those third-party employing parties, even if the business was not involved or aware of actions taken.

Summary of Changes

Under the prior rule, an employer was only considered a joint employer if it maintained “substantial and immediate control” over the terms and conditions of employment.  The new rule eliminates the requirement for control to be exercised.

Now, businesses will be considered joint employers if they “share or codetermine” matters governing the “essential terms and conditions of employment.” Under the new rule, “share or codetermine” means that the business only needs to possess, directly or indirectly, the authority to control the employee’s essential terms and conditions, as opposed to actually exercising control over the employee. “Essential terms and conditions” are now defined as:

1. Wages, benefits, and other compensation;
2. Hours of working and scheduling;
3. Assignment of duties to be performed;
4. Supervision of the 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; and
7. Working conditions relating to the safety and health of employees.

Under the new rule, if a business has authority to control any one of the above seven terms of employment, even if they do not exercise such authority, they may be deemed a joint employer under the NLRA.

Businesses following this issue over the years may be experiencing whiplash from the political pendulum swings coupled with a feeling of déjà vu since this new rule is similar to, but broader than, the Obama-era joint employer standard that was subsequently reversed under the GOP administration. The new rule will most certainly be subjected to legal challenge. The International Franchise Association has vowed to stop the rule, threatening a lawsuit and asking Congress to act, while Senators Cassidy and Manchin are already planning to introduce legislation under the Congressional Review Act to kill the regulation. Notwithstanding these intended efforts, businesses should act now to mitigate risk.

Takeaways

This new rule directly threatens the franchise model that shields franchisors from liability for decisions made by franchisees affecting workplace conditions under the NLRA and subjects franchisees to bargaining obligations that did not previously exist. Further, businesses outsourcing labor may find themselves suddenly liable for employment decisions made by independent contractor companies or staffing agencies, despite having no involvement in the same. To prepare for these changes, that go into effect December 26, 2023, businesses should immediately:

• Review and consider amending all contracts with independent contractors, vendors, staffing agencies and subcontractors to remove any “authority” for decisions effecting terms and conditions of employment and to ensure appropriate indemnity provisions apply.
• Train managers on risks and best practices in dealing with franchisees, contractors, and other third-party labor.
• Review franchise agreements to assess and mitigate risk.
• Talk to labor counsel to understand potential bargaining obligations.

Ice Miller Workplace Solutions attorneys are available to help evaluate your risk under this change and plan for the future to mitigate against such risk.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.