In October 2023, the National Labor Relations Board (NLRB) issued a final rule establishing a new standard for determining when two or more entities may be considered joint employers under the National Labor Relations Act. Following publication of the 2023 rule, legal challenges to the rule commenced. On March 8, 2024, the 2023 rule was vacated by the U.S. District Court for the Eastern District of Texas. As a result, the 2023 rule did not take effect and the previously established 2020 rule remains in place. However, the fate of the 2023 rule is not sealed while the potential for further litigation looms. Therefore, it is important that employers, particularly those in the construction industry, are aware of the changes proposed under the 2023 rule, the potential for exposure to liability based on those proposed changes, and how to best safeguard against those changes should the 2023 rule, or similar version thereof, ever take effect.
Joint Employment Background and the 2023 Rule
The Act does not define “joint employer,” so the NLRB and courts have applied common law principles to determine the joint-employment standard. For decades, the longstanding precedent was that joint employers were those entities that exercised direct, immediate, and substantial control over the same set of employees’ essential terms of employment. The first change to that standard occurred in 2015. At that time the NLRB put forth a standard that introduced indirect control, or even potential control, over the terms of employment of another entity’s employees as a basis for finding a joint-employer relationship. The 2015 standard faced its own set of legal challenges and prompted the NLRB in 2020 to reinstate the longstanding standard, requiring an entity to possess and exercise substantial, direct, and immediate control over the essential terms and conditions of employment of another entity’s employees in order to meet the threshold of joint-employment status.
The 2023 rule establishes that two or more entities may be considered joint employers over a group of employees if each entity has an employment relationship with the employees, and if the entities share or codetermine one or more of the employees’ essential terms and conditions of employment. Essential terms and conditions of employment being exclusively defined as: (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.
Further, the 2023 rule considers an alleged joint employer’s authority to control essential terms and conditions of employment, whether or not such control is exercised, and without regard as to whether such exercise of control is direct or indirect. Therefore, the 2023 rule appears to be a call back to the 2015 standard.
Allowing indirect or reserved control, even if such control is not exercised, to serve as a basis for finding a joint-employer relationship between two or more entities was one of the main criticisms of the 2023 rule. This critique was expressed by many employer groups, including those in the construction industry, and understandably so. On any given worksite there may be multiple entities, or a general contractor with multiple trades working under it. Many of the enumerated essential terms and conditions of employment under the 2023 rule could arguably be viewed as a term or condition of employment that a general contractor has at least indirect or reserved control over as it relates to employees of its subcontractors. Take for example, “working conditions related to the safety and health of employees.” General contractors, among others, are subject to many federal and state-level regulations requiring them to provide safe and healthy worksites to all individuals performing work on their sites, regardless of whether the individual is one of its direct employees or an employee of a subcontractor. The 2023 rule fails to clearly indicate whether a general contractor’s compliance with other rules and regulations for safe working conditions could ultimately result in it being found as a joint employer with one or more of its subcontractors. Therefore, the standard established by the 2023 rule has the potential to significantly increase a general contractor’s exposure to liability as a joint employer with other entities working on the same site. Furthermore, the result may be that general contractors start cutting out the use of subcontractors in an attempt to avoid that potential liability.
Preparation and Best Practices
Ultimately, the legal arguments contesting implementation of the 2023 rule prevailed. However, further litigation of the 2023 rule is anticipated, and for that reason it is important that employers, particularly those in the construction industry, consider what steps they can take to minimize their potential exposure to liability as a joint employer under the standard established by the 2023 rule. Solid contracting practices and properly educating onsite leadership are two key components.
Clear contract terms and subsequently following through with those terms play a significant role in helping general contractors to protect against being found liable for their subcontractors’ employees. Agreements between general contractors and their subcontractors should define each entity’s role clearly. The seven essential terms and conditions of employment from the 2023 rule may serve as guidance, and the agreement could outline a subcontractor’s responsibility for each of those items or any other terms and conditions the entities believe would better clarify each entity’s role. Contractors may also consider including explicit language stating that the entities do not intend on establishing a joint-employment relationship by entering into the agreement. Of course, there is no magic language that can guarantee any particular outcome or result, but structuring contracts in a clear manner can help to put a contractor in the best position to defend itself from any claim that it is liable to a subcontractor’s employees.
Additionally, it is important that a general contractor’s onsite leadership understands their role as it relates to interactions with subcontractors. An employee of a general contractor should merely provide general direction to subcontractors and should not be engaged in any direct control over a particular employee of a subcontractor. It is important that general contractors not only communicate these defined roles to their onsite leadership, but that their employees also have an understanding that if roles become co-mingled it puts the general contractor at risk for liability beyond its intent.
These measures are certainly not exhaustive. However, they do highlight some of the more prevalent areas where employment relationships can become fuzzy if not handled properly in situations where multiple employers have individuals working together on the same jobsite. If you are an employer and you have concerns about how joint employment law may affect your business, it is essential that you reach out to an attorney to provide proper legal guidance and advice.
Author’s note: The above article is not, and should not be construed as, legal advice. For specific advice, consult with an attorney licensed in your state.
About the author: Felicia M. Haigh is an attorney with Raleigh, N.C.-based Anderson Jones PLLC. Questions about this article can be directed to her at [email protected].
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