NLRB Releases New Joint Employer Rule—What it Means for Small Businesses

Date: November 02, 2023

The National Labor Relations Board (NLRB) issued a new rule that changes the standard for determining whether two businesses are “joint employers” under the National Labor Relations Act (NLRA).

If two businesses are joint employers under the NLRA, both must bargain with the union that represents the jointly employed workers, both are liable for unfair labor practices, and both are subject to union picketing during a labor dispute.

Summary of New Rule’s Requirements

The new rule states that a business, other than the main employer, will be considered a joint employer if it has any authority to control the following employment terms:

  1. Wages, benefits, and other compensation;
  2. Hours of work and scheduling;
  3. The assignment of duties to be performed;
  4. The supervision of the performance of duties;
  5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
  6. The tenure of employment, including hiring and discharge; and
  7. Working conditions related to the safety and health of employees.

While the previous rule required the third party to directly exercise authority over these employment terms, all that’s required to define a business as a joint employer under the new rule is to indirectly use or even just possess such authority.

Practically, this rule means that more businesses will have to bargain with labor unions and may be subject to union picketing and boycotts, as well as unfair labor practice claims. The rule applies to every business that falls under the National Labor Relations Act, which is most private-sector businesses.

Small Business Impact Including Franchises

Under the new rule, a business could face labor law liability for temporary employees provided by a staffing agency. The rule also means that larger employers are likely to bring more services in-house and do less outsourcing to small businesses.

Franchises will be particularly affected by this rule. Though individual franchises are often operated by a small business owner (the franchisee), they work alongside a larger company (the franchisor) who may reserve the right to determine some conditions of employment. If a franchisor keeps even the hypothetical authority to influence any of the above terms of employment, the NLRB will likely find them to be a joint employer. This puts businesses in a particularly difficult position of either reducing a franchisor’s influence on the franchisees’ operations, or else opening themselves up to collective bargaining—as well as aggressive union negotiation tactics and any resulting litigation—based on an individual franchise’s union activities.

Small business owners should evaluate their agreements—including franchise agreements—as well as training materials or any other documents to ensure that they have not established a joint employer relationship. Avoiding joint employer status will now require a careful review, and when in doubt, business owners should contact an attorney.

NFIB Opposition to New Rule

The National Federation of Independent Business (NFIB) expressed disappointment in the Board’s rule. In a statement, Beth Milito, Executive Director of NFIB’s Small Business Legal Center, said, “The arbitrary standards outlined in this rule will make compliance a nightmare for small business owners who do not have the teams of lawyers, accountants, and compliance staff needed to navigate these vague and subjective definitions. Also concerning is that the rule expressly declined to exempt franchises and small businesses.” NFIB filed comments opposing the new rule.

More information about the rule is available on NLRB’s website here.

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