NLRB expands ‘joint employer’ rule to include kitchen sink

The National Labor Relations Board has issued its new rule for “joint employer status.” As expected, it extends the rule for when one company is legally liable for workplace violations at another company to include cases of “indirect control.” It is, in short, a vast expansion of corporate legal liability. Federal regulators will be limited only by their imaginations in the types of cases they can bring.

The term “joint employer” refers to situations where one company holds so much influence over the actions of another company that it can be said to control the latter’s workplace policies. A contractor hiring a subcontractor, for example, would be a potential joint employer scenario.  Under the prior rule, a business had to have “direct control” over the latter’s policies for it to be considered a joint employer. It’s a bright line standard that gives the rule crucial clarity.

“Indirect control,” by contrast, is a vague term of art with no clear definition. Theoretically any business that interacts with any other business can be said to have “indirect control” over the latter’s policies. The NLRB’s new policy is likely to be used by regulators as an all-purpose justification for any case they wish to bring.

NLRB Chairman Lauren McFerran hinted at this in the official announcement: “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”   

A fact sheet put out by the NLRB states that the new rule is needed to “account for situations in which an alleged joint employer maintains authority to control essential terms and conditions of employment but has not yet exercised such control” (emphasis added). In short, a company only needs to have the theoretical power to influence another company. Even if, by the NLRB’s own estimation, it has never exercised that influence, it can nevertheless still be on the hook.

Expanding joint employer rules would be a particular threat to the franchise business model, since it would make the corporations potentially liable for their franchisees. These are typically independent businesses that merely rent out the corporate brand. Rather than risk that legal exposure, corporations would likely either force franchisees to come under corporate control or stop franchising altogether. Either would undermine a business model that has allowed countless small entrepreneurs to get their starts.

Expanding joint employer would also be a boon to unions. “The expanded joint employer standard eases union organizing drives and entrenches unions in a workplace. Third parties would be redefined as joint employers with a unionized company or of a company where an organizing campaign is underway,” noted former Competitive Enterprise Institute research fellow Trey Kovacs.

Getting joint employer status expanded has been a long-running project of Democrats appointed to the NLRB. The effort has been stymied by the length of the rulemaking process,  changes in administration and opposition from courts. The rule announced Thursday was the third re-write in four years.

The rule is set to take effect Dec. 26. Business trade groups are certain to challenge it in court.