November 2, 2023
On October 27, 2023, the National Labor Relations Board (“NLRB”) published a final rule adopting a new standard for determining joint-employer status. This new rule replaces a prior rule issued by the NLRB in 2020. Notably, the final rule replaces the prior “substantial direct and immediate control” standard with an analysis of whether the putative joint employer has the authority to control the essential terms and conditions of employment, regardless of whether such control is exercised. The final rule is set to take effect on December 26, 2023.
The NLRB’s new final rule could have far-reaching implications for employers in a wide range of industries. Thus, in preparation for the final rule’s implementation, covered employers should engage in a careful, case-specific examination to grasp and clearly define their employment relationships with other entities, including roles, job duties, and the extent of control exerted over the essential terms and conditions of employment. The following are five key takeaways for covered employers doing business in Puerto Rico.
- Inclusion of Reserved Control. The new standard’s inclusion of reserved control contemplates situations where an entity maintains the authority to control the essential terms and conditions of employment, even if it has not exercised it and remains passive in day-to-day operations. This is similar to the Labor Department’s proposed rule regarding employee and independent contractor classification under the Fair Labor Standards Act, which proposes to eliminate a regulatory provision stating that actual practice is more probative of employment status than what is contractually or theoretically possible. See 87 Fed. Reg. 62,218,62,258-59 (Oct. 13, 2022). The Labor Department recently submitted its draft rule to the White House’s Office of Management and Budget for review, which is usually the first step in the rulemaking process.
- Recognition of Indirect Control. In addition to reserved control, the NLRB’s final rule considers control exercised through an intermediary or controlled third parties, a concept drawn from Section 2(2) of the National Labor Relations Act. The NLRB explained that the inclusion of indirect control as a means for establishing joint employment is intended to prevent entities from evading joint-employer status by using intermediaries to make decisions about the essential terms and conditions of employment.
- Defined Essential Terms and Conditions of Employment. The final rule broadly defines essential terms and conditions of employment to include wages, benefits, hours of work, scheduling, job assignments, supervision, work rules, tenure, and working conditions related to safety and health. Joint-employer status is only found under the final rule when an entity employs workers and has the authority to control at least one of these terms or conditions, regardless of whether they exercise that control directly or indirectly.
- Collective Bargaining Obligations. Once an entity is deemed a joint employer due to its control over the essential terms and conditions of employment, the NLRB takes the position that it must engage in collective bargaining regarding these specific terms. Note, however, that the final rule clarifies that a joint employer is only required to bargain over subjects it has the authority to control, not those beyond its purview.
- Challenges to the Final Rule Likely Ahead. The NLRB’s new rule is likely to face litigation and challenges from Congress. On October 26, Senators Bill Cassidy (R-La.) and Joe Manchin (D-W.Va.) announced that they will introduce a Congressional Review Act (“CRA”) resolution to overturn the new rule considering their concern abouts its implications for small businesses and the American franchise model. If successful, the CRA would not only nullify the new rule but also prohibit the NLRB from publishing a rule that is “substantially the same.”
SMC attorneys are closely monitoring these developments and available to assist in addressing any questions you may have. For more information, please contact Elaine M. Maldonado-Matias (firstname.lastname@example.org) or Gerardo J. Cruz Ortiz (email@example.com).