The National Labor Relations Board has decided to issue a final rule rescinding and replacing the final rule entitled “Joint Employer Status Under the National Labor Relations Act,” which was published on February 26, 2020, and took effect on April 27, 2020.

The final rule establishes a new standard for determining whether two employers, as defined in the Act, are joint employers of particular employees within the meaning of the Act.

The Board believes that this rule will more explicitly ground the joint-employer standard in established common-law agency principles and provide guidance to parties covered by the Act regarding their rights and responsibilities when more than one statutory employer possesses the authority to control or exercises the power to control particular employees’ essential terms and conditions of employment.

Under the final rule, an entity may be considered a joint employer of another employer’s employees if the two share or codetermine the employees’ essential terms and conditions of employment. Joint employment issues typically arise when using professional employment organizations, in contractor-subcontractor, parent-subsidiary, and franchisor-franchisee situations, and in other arrangements. .

Section 2(2) of the National Labor Relations Act defines an “employer” to include “any person acting as an agent of an employer, directly or indirectly.” In turn, the Act provides that the “term ’employee’ shall include any employee, and shall not be limited to the employees of a particular employer, unless [the Act] explicitly states otherwise . . . .”

The Act does not specifically address situations in which statutory employees are employed jointly by two or more statutory employers ( i.e., it is silent as to the definition of “joint employer”), but the Board, with court approval, has long applied common-law agency principles to determine when one or more entities share or codetermine the essential terms and conditions of employment of a particular group of employees.

Following a change in the Board’s composition under the Trump administration, a divided Board issued a notice of proposed rulemaking with the goal of establishing a joint-employer standard that departed in significant respects from the prior common-law standard. Thereafter, on February 26, 2020, the Board promulgated a final rule that introduced control-based restrictions that narrowed the joint-employer standard.

With the intent of reversing the 2020 standard created during the Trump era law, on September 7, 2022, the Board issued a new joint-employer proposed rule, and now a final rule that takes effect on the end of the year. In reversing course over the Trump era standard, the Board concluded that the actual-exercise requirement reflected in the 2020 rule is contrary to the common-law agency principles that must govern the joint-employer standard under the Act and that the Board has no statutory authority to adopt such a requirement.

The new final rule, like the proposed rule, provides that a common-law employer of particular employees shares or co-determines those matters governing employees’ essential terms and conditions of employment if the employer possesses the authority to control (whether directly, indirectly, or both) or exercises the power to control (whether directly, indirectly, or both) one or more of the employees’ essential terms and conditions of employment, regardless of whether the employer exercises such control or the manner in which such control is exercised.

The Board has however modified the proposed rule (1) to clarify the definition of “essential terms and conditions of employment,” (2) to identify the types of control that are necessary to establish joint-employer status and the types that are irrelevant to the joint-employer inquiry, and (3) to describe the bargaining obligations of joint employers. Further details about the new 2023 standard, please see the NLRB Fact Sheet on the new rule.

The Board received almost 13,000 comments from interested organizations, labor unions, trade associations, business owners, United States Senators and Members of Congress, State Attorneys General, academics, and other individuals. The Board has carefully reviewed and considered these comments, as discussed on its website.