March 13, 2024 Update:

On March 8, 2024, a federal judge entered summary judgment in favor of the U.S. Chamber of Commerce vacating the NLRB’s new joint employer rule. Under that new rule, a business might be deemed a joint employer if it merely had the right to control aspects of the employment, even if it did not in fact exercise that control. The federal court held the new rule unlawful because it impermissibly expanded the joint employer concept beyond its common law meaning. The ruling means that the prior rule once again controls: a joint employer is one who actually possesses and exercises substantial, direct, and immediate control over the terms and conditions of employment. A copy of the ruling can be accessed here.

Original post published October 27, 2023:

On October 26, 2023, the National Labor Relations Board (NLRB) issued a new rule that substantially expands the scope of what it means to be a “joint employer” under the National Labor Relations Act (NLRA). The ultimate determination under the prior rule and the new rule are the same: did the alleged joint employer control the essential terms and conditions of employment? But where the prior rule narrowly examined whether the alleged joint employer actually possessed and exercised substantial, direct, and immediate control over the terms and conditions of employment, the new rule expands the control analysis to consider whether the alleged joint employer possesses the authority to control, whether directly or indirectly, or exercises the power to control, whether directly or indirectly. In other words, under the new rule, rights that a party reserved, directly or indirectly, under a contract could satisfy the right to control part of the test even if the party never actually exercised those rights. In addition, where the prior rule narrowly limited the essential terms and conditions of employment to (a) wages, (b) benefits, (c) hours of work, and (d) hiring, discharge, discipline, supervision, and direction, the new rule expands each of those terms and conditions and adds additional terms and conditions to consider such as (e) the assignment of duties, (f) rules and directions governing the manner, means, and methods of performance of duties, and (g) working conditions related to the safety and health of employees.

The new rule tracks the language of the proposed rule issued by the NLRB last year and represents another pendulum swing in the expansion and constriction of the NLRB’s joint employer test over the past decade.  In light of the new rule, franchisors should review their form franchise agreements to avoid retaining any authority over matters which could be interpreted to fall under this new expansive test.  However, franchisors should bear in mind that although this broader standard increases their risk of being held a joint employer of their franchisees’ employees under the NLRA—which governs, among other things, employees’ right to unionize and bargain collectively—it does not change the joint employer test under the Fair Labor Standards Act or state wage and hour statutes.

 The text of the new rule (29 C.F.R. § 103.40) can be found here.