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

• 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:

• ‘‘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.’’

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.