The National Labor Relations Board (NLRB) has issued a final rule officially withdrawing the 2023 “Standard for Determining Joint Employer Status” and reinstating the 2020 version of the rule. This action follows a March 8, 2024, order from the U.S. District Court for the Eastern District of Texas, which vacated the 2023 Rule.
Background of the Joint Employer Standard
In October 2023, the NLRB published a rule intended to broaden the criteria for determining when two separate entities are considered joint employers of a group of employees. However, because this rule was vacated by a district court before it could take effect, the 2020 Rule has remained the operative standard for employers. The NLRB’s recent filing is a ministerial action to align the federal regulatory text with the court’s decision.
Key Elements of the Reinstated 2020 Rule
Under the reinstated standard, an entity is considered a joint employer only if it shares or codetermines the “essential terms and conditions of employment”. To meet this threshold, the entity must possess and exercise substantial direct and immediate control over these terms.
- Essential Terms and Conditions: These include wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
- Direct and Immediate Control: The entity must actually determine the specific terms, such as setting wage rates, deciding who to hire or fire, or instructing employees exactly how to perform their work.
- Limitations on Indirect Control: Evidence of indirect control or contractually reserved authority that has never been exercised is only considered “probative” if it supplements existing evidence of direct and immediate control.
- Exclusions from Control: Routine business activities, such as entering into cost-plus contracts, setting operating hours for a facility, or notifying a vendor of poor performance do not constitute direct and immediate control.
What This Means for Employers
The return to the 2020 standard provides a more predictable framework for organizations that utilize third-party contractors, staffing agencies, or franchise models. By requiring “substantial direct and immediate control,” the rule offers greater clarity on how to structure business relationships without inadvertently assuming joint-employer liability under the National Labor Relations Act.
Important Distinction: NLRA vs. FLSA Joint Employment
Employers should distinguish between joint employer standards under the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) because each law governs different obligations and applies a different legal test. The NLRB’s final rule addresses joint employment only for purposes of collective bargaining and unfair labor practices under the NLRA. It does not change an employer’s responsibilities for minimum wage and overtime under the FLSA. As a result, an entity may not qualify as a joint employer under the NLRA’s stricter direct control standard but could still be considered a joint employer under the FLSA’s broader economic reality test. Employers should therefore evaluate workforce and vendor relationships under both frameworks to ensure full federal compliance.
Next Steps for Employers
To ensure continued compliance and manage potential risks, employers should:
- Review Vendor and Staffing Agreements. Examine contracts to understand reserved rights and ensure that the level of control exercised over third-party workers aligns with the 2020 standard.
- Evaluate Operational Practices. Train managers on the distinction between routine direction and “direct and immediate control” to ensure that changes made to avoid joint-employer status under the NLRA do not create new liabilities under the FLSA.
- Monitor Legal Developments. While the 2020 Rule is currently in effect, stay informed on any further litigation or future rulemaking efforts from the NLRB that could impact joint-employer status.
- Consult with Legal Counsel. Seek expert advice to evaluate how this standard applies to specific business models, particularly for those in the franchise or service-contracting industries.
