Labor & EmploymentNational Labor Relations Act Joint-Employer Status: What the New “Final Rule” Means for Employers

12/05/2023by Thomas Fee

The new “final rule” establishes new guidelines that employers must adhere to if they want to be compliant with federal law. It is important to ascertain the meaning of joint-employer status when considering the meaning of the new rule for employers. The relationship between employer and employee is important to the economy, and it is necessary for all employers to ensure they remain knowledgeable about changes in federal law and state law.

The New Rule for Employers

The Final Rule establishes that a business entity may be categorized as a joint employer of another business entity’s employees if both businesses have a common law employment status which applies to the individual employees. Also, this common law employment status relationship must share at least one of the employees’ essential terms of employment.

The central question which determines whether joint-employer status is applicable is whether or not the employers have the authority to control or to exercise power over the essential terms and conditions of employment which apply to the employees.

Separate Businesses May Be Joint Employers

The National Labor Relations Board (NLRB) issued its Final Rule on October 26, 2023. The question of whether a business is defined as a joint employer is important because business organizations need to know if they will need to recognize unions or negotiate with unions regarding specific employees. Also, some employees may be bound by collective bargaining agreements, and employers need to know their status regarding these same agreements.

The Final Rule issued on October 26, 2023 takes the place of the Rule issued in 2020 under the Trump Administration. However, the new Final Rule will not be effective until December 26, 2023, which provides employers and employees with enough time to make any personnel changes in light of the provisions contained in the new rule.

Under the new Final Rule, separate employers may be considered joint employers, and this classification makes each employer legally obligated to bargain with unions. Also, the joint employers would both be liable for unfair labor practices. Lastly, joint employers are both subject to picketing during labor disputes with unionized employees. Therefore, employers must recognize that they will need to protect themselves and their interests by taking all necessary steps to ensure that they reduce both financial and professional risks.

Direct Authority, Indirect Authority, and Joint Employers

The touchstones of joint employer status determination include (1) whether or not an employer has direct authority or (2) whether indirect authority is exerted by the employer. The relevant authority is used to oversee the essential conditions of employment regarding an employee working with another business. It does not matter if this authority is never used by the employer.

Future cases will determine how the language contained in the Final Rule will be interpreted and applied to unique scenarios. However, it is certain that the National Labor Relations Board believes reserved control held by an employer creates joint employer status. The 2020 rule and the new Final Rule both arise out of common law agency principles, and this area of law will overlap with employment law as new cases are brought under the Final Rule.

The National Labor Relations Act will also remain important to cases involving the interpretation of the Final Rule. Employment lawyers, business organizations, and employees will need to understand how the new Final Rule will alter their rights and obligations after December 26, 2023.

Corporations, limited liability companies, and sole proprietorships are only some examples of business entities which may need to assess the contours of the new Final Rule and revise their internal policies to protect their interests under both state law and federal law.

Essential Terms and Conditions of Employment

The list of essential terms and conditions of employment is included in the Final Rule to assist employers and employees in comprehending the parameters of the Final Rule. The following are some of the most important essential terms included in the language of the rule:

  • Working conditions regarding the health and safety of employees
  • Hiring, discharge, and employment tenure
  • Employee performance assessments and employment rules
  • The performance of work duties
  • The assignment of employment duties
  • Work hours and scheduling
  • Earnings, benefits, and other forms of compensation

These terms are relevant to the interpretation and application of the provisions contained in the Final Rule. Joint employer status may be found if an employer possesses direct, indirect, or reserved control over one essential term of employment.

Business-to-Business Contract Drafting

Employers need to consult with business attorneys to determine how to draft business-to-business contracts in a manner that will reduce the potential risks of any court being able to establish that reserved control exists in the contract terms. An employer may include language in a contract that explicitly disclaims any reserved control over the essential terms and conditions of an employee who works for another employer. These considerations need to be analyzed on an ongoing basis to ensure that business entities can reduce the risks posed by the National Labor Relations Board’s new Final Rule.

Future Litigation and the National Labor Relation Board’s Final Rule

The contours of the Final Rule will be established through future litigation. However, business entities can still reduce their risk by continuing to stay informed about future decisions regarding the Final Rule established by the National Labor Relations Board. It is essential that business entities work together with their legal departments to verify that company policies and procedures are aligned with the parameters of the new Final Rule.

Texas Business Lawyers

Employers need to understand their rights and duties so they can be compliant with both federal and state laws. The Texas labor and employment attorneys at Fee Smith & Sharp LLP are here to assist employers with their short-term and long-term goals. We put the needs of our clients first, and our dedicated team remains committed to providing our clients with exceptional legal representation. If you are seeking legal advice regarding the National Labor Relations Board’s new Final Rule or any other aspect of your business, contact us today.

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