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NLRB Follows Up with Comparable Rules to U.S. Department of Labor Joint Employer Rules

March 5, 2020

By Michael Burns, courtesy of SBAM Approved Partner ASE

Last week (2/26/2020) the National Labor Relations Board (NLRB) published its rules on joint employer status following closely with the U.S. Department of Labor rules under the Fair Labor Standards Act (FLSA) published in January of this year.

In the past, the NLRB rules would be applied when the agency was asked to determine labor practice issues between two different employers affiliated by way of vendor contract or franchise agreements. The new FLSA joint employer rules would more often than not be applied where questions of minimum wage and overtime were concerned between a parent company and a franchisor or vendor employer (also temporary staffing firms).

The DOL’s rules determining joint employer status are based upon four factors:

  • whether it hires and fires employees of the franchisee;

  • whether it supervises the employees and controls their schedules;

  • whether it determines their pay; and

  • whether it manages their employment records.

The NLRB rules find joint employer status when the business:

  • Possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees;

  • Defines “essential terms and conditions of employment,” and what does, and what does not, constitute “direct and immediate control” as to each of these essential employment terms;

  • Specifies that evidence of indirect and/or contractually reserved control over essential employment terms may be a consideration for finding joint-employer status under the final rule, but it cannot give rise to such status without substantial direct and immediate control; and

  • Makes clear that the routine elements of an arm’s-length contract cannot turn a contractor into a joint employer.

“The labor board said in its final rule that various common elements of third-party contracts won’t be enough to convert businesses into joint employers, such as a business ‘setting minimal standards for hiring, performance, or conduct’ for a contractor, requiring that a contractor maintain workplace safety or sexual-harassment policies, or a franchiser taking steps to protect its trademark.” NLRB Finalizes Long-Awaited Joint Employer Rule  By Vin Gurrieri   Law360 (February 25, 2020).

The NLRB rule on joint employer status seeks to formally codify and change a controversial holding under the Obama administration’s NLRB that significantly altered the relationships between workers in franchise operations and subcontracting relationships that virtually eliminated those two long held relationships as separate employers. The new rule returns the basis for separate employers back to its historical definitions, and as for the NLRB puts the definition in a more formal structure whereby future NLRB’s cannot change it without new rules being published.

The DOL’s attempt to change the joint employer rules back through regulation is not going unchallenged. Certain state’s Attorneys General are bringing a lawsuit arguing the new rules unduly narrow the FLSA and overturns a 1947 U.S. Supreme Court (Rutherford v. McComb) decision analyzing employment relationships approved by that court.

Though these rules do offer some standardization to the differing interpretations of joint employment, depending upon the issue (such as unemployment compensation, workers compensation, or other state based situation where two businesses engage their own workers for work in or on a common entity), differing state laws on common employment may be applied.

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