[TEST] “Joint employer” whipsaw continues at the NLRB

The National Labor Relations Board, with its Republican majority, recently issued regulations on the standard to be applied in determining “joint employer” status under the National Labor Relations Act.

Under the new rule, an entity will generally be considered a “joint employer” with an otherwise separate employer only if the entities share or codetermine the employees’ essential terms and conditions of employment. More specifically, to be considered a joint employer, the entity must possess and exercise “substantial direct and immediate control” over one or more essential terms and conditions of employment of the employees of the other entity.

The new rule has a convoluted history. It all started in 2015 during the Obama Administration, in Board proceedings involving a California subsidiary of Browning-Ferris Industries that used a contractor at one of its facilities. A labor union sought to link Browning-Ferris to the contractor as a joint employer of the contractor’s employees. From that, Board and appeals court proceedings went back and forth for years, and ultimately the Board decided on administrative rulemaking as a possible solution to the whipsaw from the court to the Board and back.       

In 2020, during President Trump’s first term in office, relatively “business-friendly” joint employer regulations were issued. In 2023, after President Biden took office, the NLRB issued a new rule, which would have made it more likely for joint employment relationships to be found. However, the “Biden rule” was stopped in its tracks by a federal judge before it ever took effect. The “Trump II rule” issued two weeks ago essentially reverts to the standard in the “Trump I rule.”

Interestingly, the Trump I rule was also challenged in court by a labor organization, and it is likely the new rulemaking will be challenged on the same or similar grounds.

As will be discussed in more detail below, the standard under the new rule has positive potential implications for franchisor-franchisee agreements, general contractor-subcontractor operations, contracted-out departments, and “temporary” or personnel staffing agency workers who are directly employed and paid by one entity but used in the operations of another.

The joint employer standard now

As of two weeks ago, an entity is a “joint employer” only if it possesses and exercises “substantial direct and immediate control” over one or more essential terms and conditions of employment of the employees of another entity.

The NLRB will find “substantial direct and immediate control” when the would-be “joint employer” takes actions with “a regular or continuous consequential effect” on “essential terms and conditions of employment” listed in the rule. Those listed terms and conditions are as follows:

• Wages
• Benefits
• Hours of work
• Hiring
• Discharge
• Discipline
• Supervision
• Direction

If the exercise of control by the entity is only sporadic, isolated, or “de minimis,” the control will not be deemed “substantial,” and “joint employer” status will not be present. Likewise, authority that is “contractually reserved” but “never exercised” does not in itself establish joint employer status. However, reserved and unexercised authority may help to prove joint employer status when it supplements “evidence of the entity’s possession or exercise of direct and immediate control” over an essential term and condition of employment.    

Upshot for businesses

The 2026 standard, again, makes it less likely that a joint employment relationship will be found. Under the Biden-era standard, joint employer status would generally have been found whenever the entity had authority to control the other entity’s employees, even if that authority was unexercised and wholly indirect. Not surprisingly, that standard was favored by organized labor and its supporters because it would have expanded the potential responsibility for NLRA compliance and liability to a broader set of “employers.” This presumably would have given labor organizations greater leverage against employers, and tactical flexibility in deciding which entity or entities to target in labor organizing and disputes, such as strikes and picketing. 

At least for now, the Board will apply a standard focusing on the entity’s actual exercise of control and recognizing the separateness of entities with identifiably separate workforces. That said, businesses should not forget that the political winds change direction often, and so does the makeup of the NLRB. If President Trump has a Democratic successor, businesses can expect the “joint employer” standard to whipsaw once again.