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Many employment laws use the concept of joint employer to make more than one business entity responsible for complying with employment law obligations towards employees who to varying degrees work for, or under the direction of entities who are not technically the employees primary employer. Nowhere is that issue more prevalent than in contractor subcontractor relationships. Over the years the National Labor Relations Board (NLRB) has developed various tests for determining joint employer status. Unless a business entity is an employer of individuals, the NLRB has no jurisdiction over a dispute between the workers and a business entity for whom they work.
It
is important for contractors to understand the importance of being an employer
and the obligations that flow from such status.
Likewise, it is also important to understand when a contractor may be
classified as a “joint employer” over certain individuals. Depending on the specific laws involved, such
a finding of joint-employer status can happen under the “joint employer
doctrine” which often exists in subcontractor and temporary employment
arrangements. The “joint-employer
doctrine” may render a contractor responsible for another company’s employment
liabilities.
The
joint employer doctrine applies when two entities handle certain aspects of their
employee-employer relationship jointly which can result in an entity other than
an employee’s formal employer being liable as an employer. Arculeo v. On-Site Sales & Mkg, L.L.C.,
425 F.3d 193, 198 (2d Cir. 2005). This
occurs when two or more entities share control over a worker’s terms and
conditions of employment.
Various
rules and jurisprudence over the years have guided contractors to understanding
what can make an entity a joint employer. One such authority was the determination of a joint employer under the
National Labor Relations Act (NLRA). In
general, the NLRA is a federal law that defines rights of employees in
non-union and union workplaces to organize and act to improve working
conditions among other things. On
October 27, 2023, the NLRB issued a new rule addressing the standard of
determining Joint-Employer Status under the NLRA – see: 88 Fed. Reg. 73,946
codified at 29 C.F.R. §103.40,
also found here.
Prior to the new rule, the standard was based
on a rule adopted by the NLRB in 2020. Under
the 2020 rule, an entity was considered a joint employer of a separate
company’s employees only if the business possesses and exercises substantial
direct and immediate control over one or more essential terms and conditions of
employment of another company’s employees.
The
2023 rule rescinded the 2020 rule and established a new standard for
determining whether two employers, as defined in the NLRA, are joint employers
of particular employees within the meaning of the NLRA to be codified at 29
C.F.R. §103.40. The new rule expands the standard for finding
joint employment under the NLRA and has the potential to expose more employers
to the responsibilities of a joint employer.
Prior to this change, common-law standards had primarily governed
employment relationships and a finding of joint employment. The new rule establishes new standards for determining
a joint-employer relationship.
Shortly
after the new standard was passed, many parties including the Chamber of
Commerce of the United States, the American Hotel and Lodging Association,
Associated Builders and Contractors, Associated General Contractors of America,
and others filed a complaint in the Eastern District of Texas requesting a declaratory
judgment and injunctive relief against the NLRB seeking to (1) have the new
rule declared unlawful and have it set aside; (2) have the NLRB’s decision to
rescind the rule of 2020 declared arbitrary and capricious; and (3) enjoin the
NLRB from enforcing the new joint employer rule. See Complaint, Rec. Doc. 1, Chamber of
Commerce of United States v. NLRB, Case No. 23-00553, (E.D., Texas).
The
major complaint surrounding the new standard is that it is overly broad and
contradicts the established common-law definition of joint employer. The new standard states that two or more
employers of the same employees are joint employers if the employers share or
codetermine those matters governing an employees’ essential terms of
employment. 29 C.F.R. §103.40(b). Under the new rule, a business, such as a
contractor, can be a joint employer if it has the right or authority to
exercise control (whether directly, indirectly, or both) over essential terms
of employment even if the only way it could exercise such control would be with
the use of another party such as an intermediary. 29 C.F.R. §103.40(c). Thus,
an entity could be a joint employer if it has indirect control over a single
essential term of employment, even if it never exercises such control. The seven (7) essential terms and conditions
of employment are identified in the 2023 rule to include: (1) wages, benefits,
and other compensation; (2) hours of work and scheduling; (3) assignment of
duties to be performed; (4) the supervision of the performance of the duties;
(5) work rules and directions governing the manner, means, and methods of
performance of duties and grounds for discipline; (6) the tenure of employment
including hiring and firing; and (7) working conditions related to safety and
health of employees. 29 C.F.R. §103.40(d).
During
the construction process, there are almost always multiple different entities
working on a project – i.e. general contractor, subcontractors,
sub-subcontractors, laborers, etc.
Normally, each of these different entities are the employer of its own
employees. However, a general contractor
is normally in control of the entire project and usually exerts some level of
control over the various subcontractors and their employees to verify that the
project complies with certain requirements, such as safety, quality, and the
like. Under this new rule, a business,
such as a contractor, can arguably be a joint employer over every individual
employee working on a project if it simply has the right of control even if it
does not exercise that right. This
situation would likely exist in every contractor-subcontractor relationship. In addition, a contractor that routinely
exercises control in supervising all safety programs in connection with a
project would illustrate a contractor’s indirect control over working
conditions concerning health and safety of employees. This type of control would likely lead to a
finding of joint employment under the new rule because the contractor exercised
control over an essential term of employment under 29 C.F.R. §103.40(d) of the new
rule. The potential downside to such a
determination is that a general contractor could then be subject to actions
under the NLRA.
Further,
by reserving the right to exercise control, a party such as a contractor can be
deemed to be a joint employer of another company’s employees even if the right
of control is never exercised. The
potential for finding joint employer status under the new rule is argued by
many to be overly broad and lead to many problems. Under the new standard, employers would have
to consider reviewing its contracts with subcontractors, vendors, temp-agencies
and consider amending those agreements to remove any element of control to
potentially avoid an unintended finding of joint employment.
The New Joint Employer Rule is Vacated
The 2023 rule for a finding of joint employment by the NLRB was recently vacated by U.S. District Court for the Eastern District of Texas in Chamber of Commerce of United States v. NLRB, 2024 U.S. Dist. LEXIS 43016, at *1 (E.D. Tex. Mar. 8, 2024). In Chamber of Commerce of United States v. NLRB, the plaintiffs challenged the new rule on at least two grounds – the new rule is inconsistent with the common law and the new rule is arbitrary and capricious for ignoring various practical problems and failing to articulate a comprehensible standard. Id. at 25.
The
Eastern District of Texas agreed with the plaintiffs finding that the NLRB’s
new standard was contrary to law as to the rule’s addition of a new 29 C.F.R. §103.40 and arbitrary and
capricious as to its removal of the existing 29 C.F.R. §103.40 (2020). Therefore, the Court issued a final judgment vacating the new rule. Id. at 45. While it is unclear what will ultimately
happen with the new rule, it is suspected the Court’s ruling will soon be
appealed.
For
now, the determination of joint-employer status will be decided under the old
2020 rule and unless Chamber of Commerce of United States v. NLRB is
reversed, disputes will be governed by the old rule for some time to come as it
will likely take some time for this matter to be appealed and for the NLRB to
revise the rule to address some of the Court’s concerns.
