In a positive development for businesses, the National Labor Relations Board (NLRB) has published a final rule setting a new, stricter standard for determining joint employer status under the National Labor Relations Act (NLRA). The new rule, which takes effect on April 27, 2020, comes on the heels of a recent rule published by the Department of Labor narrowing the scope of joint employment under the Fair Labor Standards Act.

The new NLRB rule specifies that a business will be deemed a joint employer of another entity’s employees only if the business has “substantial direct and immediate control” over one or more essential terms of employment. Essential terms of employment are wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

The rule replaces a more expansive Obama-era standard adopted by the Board in its 2015 Browning-Ferris decision. Browning-Ferris required only indirect control of another entity’s employees to demonstrate joint employer status, and thus swept many businesses under the joint employer umbrella. Under the new rule, however, indirect control is relevant only if it supplements evidence of direct and immediate control of an essential term of employment. For example, under Browning-Ferris, contractually reserving but never exercising authority to control essential terms and conditions of another businesses’ employees may have been sufficient to establish joint employer status. The new rule, on the other hand, specifies that such contractual provisions are not evidence of direct and immediate control. Likewise, certain business practices such as setting minimal standards for hiring, performance, or conduct are now specifically excluded as evidence determinative of an employment relationship.

The NLRB rule is good news for businesses, and particularly those that rely on franchisees and subcontracted workers. In particular, under the NLRA, if two businesses are joint employers both must bargain with the union representing jointly employed employees and both would potentially be liable for unfair labor practice violations committed by either entity and subject to lawful boycott and picketing targeting either entity. With a stricter standard for joint employment, it will be more difficult for franchisee employees to unionize across franchises in the first place and more difficult to hold companies liable for unfair labor practices by their contractors and franchisees.

To view the NLRB’s fact sheet on the new rule, click here.