On October 26, 2023, the National Labor Relations Board (NLRB) eased the way for it to designate companies as “joint employers” of workers directly hired by their contractors, vendors, suppliers, and franchisees. This move, expected to have widespread ramifications in the labor market, reflects a significant shift in regulatory approach.
The NLRB’s final rule, as it is formally known, could alter the liability landscape for large corporations and open up new avenues for union organization, collective bargaining, and employee rights protections.
Before this rule, the NLRB applied a broader standard, considering companies as joint employers under the National Labor Relations Act (NLRA) only if they shared or co-determined essential employment terms. The test focused on whether the potential joint employer not only possessed the authority to control the employees’ terms and conditions but also had exercised this authority in some manner.
With the new final rule, however, the NLRB has broadened its scope. It can now find a company to be a joint employer of persons directly employed by its contractors, vendors, suppliers, or franchisees irrespective of whether the company has exercised control over these workers’ employment conditions. The entrenched legal concept of “direct and immediate control” is no longer a deciding factor in establishing joint-employer status.
This change is not without controversy, as it potentially places a heavy burden on corporations. Companies may find themselves responsible for policies and practices of other businesses, simply because they have a working relationship with them.
Indeed, critics argue that this development could disrupt existing business models, with potentially serious implications for the franchising industry, among others. It could lead to changes in the way corporations interact with their franchisees, vendors, and contractors, and force them to assume responsibilities previously shouldered by these third-party entities.
It’s worth noting that these are early interpretations of the final rule. The full impact on corporations will only become clear in the wake of legal challenges and further regulatory developments. At this juncture, it would be prudent for corporations to review their existing relationships and agreements with franchisees, contractors, vendors, and suppliers, to mitigate potential risks arising from this regulatory shift. As always, engaging competent legal counsel is advisable to navigate such complex labor law transformations.