On February 25, 2020, the National Labor Relations Board (“NLRB”) revealed the final version of its new rule for determining joint-employer status (the “Rule”). The Rule reinstates a test that was in place for decades prior to the current test being adopted in 2015 and will go into effect on April 27, 2020.
Under the Rule, a business must exercise “substantial direct and immediate control over essential terms and conditions of employment” to be considered a joint employer. These “essential terms and conditions” include “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.” Furthermore, the Rule clarifies that indirect control over essential terms and conditions of employment is only relevant to the extent that it supports evidence of direct or immediate control.
The Rule will replace a test adopted in 2015 that required only “indirect control” to establish joint-employer status. The 2015 test had the effect of forcing some previously-uninvolved employers into costly labor disputes and negotiations. This created a serious economic impact for some employers, and the more expansive test was widely criticized by business advocates. In contrast to the 2015 test, the new Rule does not classify businesses that exercise indirect control over third-party employees as joint employers.
After several years of confusion regarding the joint-employer test, the Rule provides employers with a concrete standard to follow. NLRB Chairman John Ring said “[w]ith the completion of today’s [R]ule, 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.”
If you have any questions regarding the issues raised in this client alert, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.