NLRB Releases Final Joint Employer Rule

The National Labor Relations Board released its latest joint employer standard Oct. 26, significantly impacting small businesses’ ability to provide services to larger companies. 

The rule makes larger companies and franchisors responsible and liable for the employment practices of their franchisees, suppliers, vendors, contractors, and subcontractors.

It expands the definition of “joint employers,” determining that an employer is a joint employer of another’s employees if such control is contractually reserved but not actually exercised.

In a statement, the board noted “an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employees’ essential terms and conditions of employment.”

Terms and Conditions

Those terms and conditions were defined as:

1. Wages, benefits, and other compensation;
2. Hours of work 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. Tenure of employment, including hiring and discharge;
7. Working conditions related to the safety and health of employees.

The rule rescinds the previous standard adopted in 2020, which allowed that an employer could be a joint employer of another entity if it had direct and immediate control over the essential terms and conditions of employment.

The joint employer standard has been one of the most contested topics addressed by the NLRB, with its interpretation shifting every few years based on the board’s political composition.

U.S. Chamber of Commerce senior vice president Glenn Spencer said it “defies common sense to say that businesses can be held liable for workers they don’t employ at workplaces they don’t own or control, yet that is exactly what the new NLRB joint employer rule does.”

Small Business Impact

The breadth of the latest rule subjects employers to potential liability as a result of virtually any third-party contractual relationship.

For example, an employer faces liability for temporary employees provided by a staffing agency solely by dictating to the employee requirements over schedules or performance standards. 

The rule will also have the hardest impact on small businesses, with larger employers likely to bring more services in-house, causing economic harm to smaller third party businesses. 

“This new joint employer standard is catastrophic.”

NFIB’s Beth Milito

“The arbitrary standards outlined in this rule will make compliance a nightmare for small business owners who do not have the teams of lawyers, accountants, and compliance staff needed to navigate these vague and subjective definitions,” Beth Milito, executive director of NFIB’s Small Business Legal Center, said in a statement.

“Also concerning is that the rule expressly declined to exempt franchises and small businesses. Independent franchisees may lose control over their workforce under the new standard.

“This new joint employer standard is catastrophic and [we urge] the NLRB to seek a standard that provides the clarity and consistency that small businesses need.”