From JDSupra, Dan Rodriguez discusses the recent rule adopted by the National Labor Relations Board (NLRB) expanding the liability of companies for workers that are not its employees. Companies that engage with independent contractors may be liable for misclassification claims under the new rule. Dan writes:
In the latest of a string of decisions seemingly supporting President Biden’s claim of being the most pro-union president in history, the National Labor Relations Board (NLRB) this week issued its Final Rule on the Standard for Determining Joint Employer Status.
The immediate impact of the Rule is on union organizing and employee representation under the National Labor Relations Act (NLRA). However, the continued coordination between the NLRB and the Department of Labor (DOL) signals that this Rule could have far greater impact.
The NLRB issued the Rule Oct. 26, 2023, in an attempt to provide clarity on when an entity like a franchisor or contracting employer may be considered a joint employer of a group of employees (for example, those employed by a franchisee, acting as independent contractors or part of a contracting agency.)
The Rule will have far reaching implications, as it broadly affects industries that rely on staffing agencies and independent contractors. It also immediately impacts franchises and other organizations that rely on indirect employment models. (Of note: When an entity is deemed a “joint employer” under the Rule, that entity will be liable for those contracted workers and potentially liable for the conduct of the joint/primary employer.)
According to the Final Rule, beginning December 26, 2023, an entity may be considered a joint employer with a second entity under the NLRA 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. The Board exclusively defined essential terms and conditions as:
- wages, benefits and other compensation
- hours of work and scheduling
- the assignment of duties to be performed
- the supervision of the performance of duties
- work rules and directions governing the manner, means and methods of the performance of duties and the grounds for discipline
- the tenure of employment, including hiring and discharge
- working conditions related to the safety and health of employees
In 2020, the Board established a rule whereby entities were joint employers if they exercised direct control of essential terms and conditions of employment. The 2020 standard was based on the principle that to be considered an employer an entity must actually act like an employer and exercise control over employees. This new standard significantly moves away from that position.
According to Board Chair McFerran, the new Rule is a “return to common law principles.” However, the sole dissenter and only Republican member of the Board, Marvin Kaplan, called the Rule an “unprecedented and unwarranted expansion of the Board’s joint-employer doctrine.” Par for the course in today’s labor landscape, the Rule is likely to be challenged and not just based on political ideology.
The new Rule causes immediate concerns regarding application. Entities can be considered joint employers under the NLRA if they “share or codetermine” essential terms and conditions of employment. Unfortunately, we have no clarity on what constitutes “sharing or codetermining.” Moreover, there are questions regarding the impact on existing independent contractor agreements, staffing agreements and franchise agreements. Specifically, employers will need to evaluate whether to take the initiative to reassess relationships with industrial trades people, members of the gig economy and others who traditionally work as independent contractors.
The Rule also throws into question each entity’s role during union organizing and collective bargaining. For example, what rights are being waived or obligations being assumed if an entity decides to sit or not sit at the bargaining table.
Fox recommends that all employers who work with independent contractors, staffing agencies, and/or franchises engage counsel to begin an initial assessment of the current relationships potentially impacted by the Board’s Rule. The impact of this Rule is important for both the primary employer and the putative joint employer. Therefore, both sides of this equation should understand their current state and desired relationship moving forward. With guidance from experienced labor counsel, organizations can put in place the proper contractual language and day-to-day procedures necessary to guard against potential litigation.