Labor & Employment Alert: New Rule From National Labor Relations Board Means Your Company Could Be a Joint Employer of Your Union Vendor's Employees Without Knowing It
By Stephen P. Bond on November 8, 2023
We’ve advised our clients many times about how the change in Administrations in Washington directly leads to the change in “management” of various federal-level administrative agencies, which then leads to a fundamental change in administrative rules which control employers (even though the underlying law originally enacted by Congress remains the same). Late last month brought the announcement of another significant change from the National Labor Relations Board (the Board).
About a year ago, the Board had publicly announced its intention to change the ground rules for defining what it means to be a “joint employer.” On October 26, it formally announced the final version of the new rules, which will become effective the day after Christmas.
Under the new rules, if you have the authority to control another company’s employees, you may be its joint employer, even if you have done nothing to affect its actions.
The new definitions state as follows:
- two or more employers of the same particular employees are joint employers of those employees if the employers share or codetermine those matters governing employees’ essential terms and conditions of employment.
- to “share or codetermine those matters governing employees’ essential terms and conditions of employment” means for an employer to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.
- “Essential terms and conditions of employment” are
- 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; and
- Working conditions related to the safety and health of employees.
(That list of essential terms and conditions is considered to be the exclusive delineation, one way or the other, in making this assessment.)
And, here is the real “payoff” to the new approach the Board is adopting for determining if an entity is a “joint employer”:
“Whether an employer possesses the authority to control or exercises the power to control one or more of the employees’ essential terms and conditions of employment is determined under common-law agency principles. For the purposes of this section:
(1) Possessing the authority to control one or more essential terms and conditions of employment is sufficient to establish status as a joint employer, regardless of whether control is exercised.
(2) Exercising the power to control indirectly (including through an intermediary) one or more essential terms and conditions of employment is sufficient to establish status as a joint employer, regardless of whether the power is exercised directly.”
What does that mean?
Suppose you have a company which retains another company to do anything on your behalf. You hire them as an independent contractor, assuming you have no responsibility for the actions of their management. So far so good.
You may already be aware that, to the extent that you/your company assumes some active role in the activities of that independent contractor, you may be deemed to be a “joint employer” of the contractor’s employees and might be liable for violating certain rights of the contractor’s employees. But, suppose that your contract gives you authority to oversee the actions of the contractor in one or more specific areas; yet your company has never exercised that authority [you may even consider it “boilerplate” language which the attorneys injected into your form contracts without anticipating that it would ever be used]. Under this new rule, if your company had the legal/contractual authority to control one of the contractor’s actions in connection with any one of the seven essential terms listed in the new rule, your company may be deemed a joint employer of the contractor’s employees.
Why should you care?
According to the rule itself, a joint employer of particular employees must bargain collectively with the representative of those employees with respect to any term and condition of employment that it possesses the authority to control or exercises the power to control, regardless of whether that term or condition is deemed to be an essential term and condition of employment under this section for the purposes of establishing joint-employer status.
Let me say that again: you are a non-union company. But, if you use a union company for virtually anything, and your contract with that contractor gives you some theoretical authority to control the terms and conditions of employment for the employees of that union contractor, you may now have a legal duty to bargain with that contractor’s union.
This may come into play in a variety of contexts. The most obvious one may be the world of franchising, in which the franchisee runs its own shop, hires, trains, and manages its own employees, and makes its own decisions concerning terms and conditions of employment. However, most franchisors maintain rules for how the operations are to be run, if only to maintain the good reputation of their “brand.” If the franchise agreement has, say, an innocent clause under which the franchisor insists that the franchisee will maintain a safe and clean workplace for its employees, the Board may now claim that the franchisor has retained the authority to control that factor of employment, becoming a “joint employer” – or, at least, that is the concern which franchisors now have in complaining about this rule.
Analogous issues can arise where a company uses a staffing or temporary worker agency to provide workers, or where a hospital utilizes traveling nurses to fill slots. But, in theory, it can even extend to vendors who come onsite with their own workers, who either are subjected to specific directives in their contracts which restrict how the vendor conducts business onsite, or who are generally subject to the workplace rules of the hiring company for anyone who enters the site – either way, the hiring company may be held to have retained authority to control terms and conditions of the vendor’s employees (particularly in the area of health and safety), and end up being held a joint employer.
One hypothetical example demonstrates the bizarre fashion in which the new definition could play out. Suppose CleanCo supplies office cleaning services to 100 different businesses to clean their offices. The standard contract used by CleanCo says that the clients have the right to prohibit CleanCo from using specific cleaning supplies in the interest of health and safety. Because each customer now has the contractual authority to control a health and safety issue relating to CleanCo’s employees, the Board could, using the new definition, now say that each of the 100 customers has become a joint employer of all of CleanCo’s maintenance employees. Now, suppose further that the employees at CleanCo vote in a union – theoretically, all 100 of the customers may now have a duty to be at the bargaining table when the new contract is being negotiated.
The dissenting member of the Board who opposed the rule change pointed out that this could also easily have an impact in construction where a general contractor may typically enter into an agreement with provisions like this:
- ‘‘The Contractor shall enforce strict discipline and good order among the Contractor’s employees and other persons carrying out the [w]ork. The Contractor shall not permit employment of unfit persons or persons not properly skilled in tasks assigned to them.’’
- ‘‘The Contractor shall be responsible for initiating, maintaining, and supervising all safety precautions and programs in connection with the performance of the [c]ontract.’’
- ‘‘Unless the Contract Documents instruct otherwise, [the general contractor] shall be responsible for the supervision and coordination of the [w]ork, including the construction means, methods, techniques, sequences, and procedures utilized.’’
Such a general contractor becomes contractually authorized to oversee these issues for all the subcontractors on the project – as a result, that general contractor could become the “joint employer” of everyone working on the project.
Employees of a union contractor can raise all manner of theoretical charges that management failed to follow the contract, or failed to negotiate a contract, or unilaterally changed the terms of a contract, in connection with work done at the site of the company that retained the contractor; and, if the union successfully makes the argument that the company in question had the authority to have controlled any of the seven terms of employment listed in the rule, that may now be enough to force that company to negotiate with the union to resolve the matter in dispute.
Perhaps more potentially concerning, non-union employees have rights under federal law to act in concert on behalf of one another. If an independent contractor takes action against one of its non-union employees (for example, let’s say it fired an employee for talking with other employees about their wage rates), the employee may now be able to raise a charge against not only that nonunion contractor, but also against the company which retained the contractor, if the employee can demonstrate that the company retained authority to control one of the seven terms of employment in the rule – the innocent company could still be held liable for the lost wages, etc., caused by the contractor’s unlawful discharge of the employee, because, in theory, they were “joint employers.”
In response to the initial proposed rule a year ago, thousands of comments were submitted to the Board. In many cases, commenters were trying to draw out from the Board specific examples of practices or language that would not trigger a “joint employer” being found, as if to say to the Board, “surely, this language, or that language, would not be crossing over the line?”
A number of commenters encourage the Board to modify the proposed rule to provide examples of contractual provisions that would not give rise to a finding of joint employer status or to otherwise illustrate or give examples about how the Board will apply the joint employer rule. These commenters offer a range of suggested ‘‘routine components of a company-to-company contract’’ to exclude as probative of joint employer status. These contractual provisions include, among others, those that set forth:
- the objectives, basic ground rules, and expectations of the relationship;
- instructions regarding work standards or expectations and about what work to perform, or where and when to perform work;
- minimum staffing requirements;
- quality, productivity, timing, and safety terms about providing a service or completing a project;
- requirements that deliveries be made during limited windows of time;
- requirements about monitoring or maintaining brand standards or the design, decor, logo, or image of a business;
- uniform requirements;
- generally applicable rules for individuals visiting a facility;
- general price terms or terms governed by third-party or customer demand;
- authority to cancel a contract, including at will;
- requirements that employees undergo background checks or drug tests, comply with equal employment opportunity, nondiscrimination and antiharassment policies, and satisfy licensure requirements;
- authority to bar certain individuals from the premises or reject particular employees;
- terms related to an entity’s control over its property, premises, or equipment, including training and safety requirements;
- provisions related to the nondisclosure or confidentiality of trade secrets, proprietary information, or intellectual property;
- construction project schedule requirements or safety programs or other site-specific requirements for entities visiting marine terminals, railyards, or other supply chain hubs;
- parties’ obligations under law or regulations;
- provisions requiring hospitals to superintend contract employees as part of their patient-care mission;
- goals related to diversity, equity, inclusion, and access (DEIA), corporate social responsibility (CSR), or environmental, social, and governance (ESG);
- cost-plus arrangements;
- minimum compensation requirements as determined by public contracting rules or regulations, including the Davis-Bacon Act, 40 U.S.C. 3141 et seq.
A few others urge the Board to clarify that the mere communication of work assignments, delivery times, or other details necessary to perform work under a contract is not material to the joint-employer inquiry if it is not accompanied by other evidence showing a common-law employment relationship.
Unfortunately, the Board refused to specify one way or the other – meaning that a union, or an employee, could still use any of these circumstances and urge that they existed, and they caused a company to become a joint employer even if the company never actually utilized the authority. We just won’t know until people are allowed to make the claims and the Board addresses them one at a time whether any of the terms on the list is enough to trigger a finding of “joint employer.”
Is there anything employers can do about this?
The change takes effect December 26, so we can anticipate the Board will try to enforce the rule in the new year. That said, there is some effort being made in Congress to block the rule entirely. Failing that effort, court challenges will certainly be made.
Those possibilities aside, you may consider a review of all your existing contracts by which your company works with another entity, or vendor contracts whereby contractors provide you services. Franchise agreements and staffing agreements would be first on the list. The task would be to look for clauses by which your company reserves the right to control the operations or conduct of the contractor – and then assess whether the value of having retained those rights overrides the risk of its being used to draw you into this kind of union relationship. You may consider adding language disclaiming the reservation of any of the seven specific rights of control. You may also consider adding language whereby the contractor agrees to indemnify your company for the financial impact of being deemed a joint employer.
Obviously, going forward, until some precedents develop with respect to how the rule will be applied/interpreted, this is an issue that should be part of the evaluation when setting up new relationships and contracts. While there may be value in clauses that give a company the authority to direct a contractor to do or not do something (say, for example, a clause that allows you to insist that a contractor’s employee be removed), some assessment should be made as to whether the clause is useful in actual practice and more valuable than the potential union issues it could give rise to.