Joint Employment Rules Vary by Agency: Different Tests Explained

Companies that use contract labor or franchise their brands have been navigating continuing policy pendulum swings on the issue of joint employment, leaving the regulated community and workers with a complicated roadmap to determine legal responsibilities in working relationships.

The issue of joint employment status ranks as one of the most contentious in the labor landscape over the past decade, because a joint employment finding could put businesses on the hook for violations of various labor laws committed by a subcontractor or franchisee, including paying back wages or meeting with representatives of a subcontractors’ union.

Federal regulators have flip-flopped on their approach to defining a joint employer under multiple labor laws. Democrats and worker advocates have called for strengthening the joint employer test, arguing that parent companies use franchise and subcontracting arrangements to control major aspects of the working relationship while shedding any legal liability over their workforce. But businesses say broad joint employment findings chill expansion and take away franchise operators’ control over their small businesses.

The legal back-and-forth on joint employment over the past decade has left members of the regulated community confused over how to approach the issue. While the National Labor Relations Board has forged ahead with a rule that would generally make it easier for companies to be found as joint employers under federal labor law, the US Department of Labor currently has no plans to regulate on the issue for purposes of wage and hour law.

1. How does the DOL approach joint employer status?

Early in the Biden administration, the DOL rescinded a Trump-era rule defining joint employment status under the Fair Labor Standards Act in a way that generally limited the circumstances under which an employer could be found liable as a joint employer.

The Trump rule considered four factors—the ability to hire and fire, supervise and control schedules, set pay rates, and maintain employment records—to determine whether a company qualified as a joint employer. The Trump standard required that businesses actually exercise control over one of those conditions to be found jointly liable for workers.

The Biden DOL said the agency would instead return to a broader totality-of-the-circumstances economic realities approach to joint employment, but hasn’t issued any guidance to clarify that position. Jim Paretti, a shareholder at Littler Mendelson PC, says the change has made conversations with clients and examinations of their relationships “longer and harder” than they’ve been in the past.

“We’re back to where we were prior to the Trump rule, which is sort of using that multifactor economic realities test, which varies from circuit to circuit,” Paretti said. “So you’re looking at everything from control to who’s supplying the tools? Who’s doing the work from day to day? It’s a longer process.”

2. What’s in the new NLRB rule?

The Democratic-controlled NLRB issued a rule Thursday clarifying that entities that share control over the terms and conditions of a job could be found as joint employers for purposes of collective bargaining law, including in cases where an employer’s control is “indirect” or “reserved.”

Companies also could be considered joint employers if they co-determine the most important terms of the job, like scheduling, wages, and benefits, under the NLRB’s rule. Even if an employer doesn’t “actually” exercise control over working conditions, it could be found liable under the law as long as it reserves the contractual right to set certain terms of employment.

Overall, the rule will make it easier for the NLRB to consider multiple companies to be joint employers that are liable for labor law violations and that are obligated to bargain with unions.

The proposal would replace the test finalized by the Republican-controlled board in 2020, which required an entity to exercise “substantial direct and immediate” control over the essential terms of employment to be found a joint employer.

3. What does the NLRB test mean for joint employment liability at DOL?

Attorneys are split as to whether a joint employer finding under the new NLRB rule would lead to a joint employer finding for the DOL’s purposes.

“I think as a practical matter, if an employer is found to be a joint employer under the NLRA new regulations,” said Mark Kisicki, a shareholder at Ogletree Deakins’ Phoenix office, “there’s no question that under standing DOL interpretations, that entity is going to be deemed a joint employer for DOL purposes under those wage and hour laws.”

He added that such a finding from the DOL wouldn’t likely be based on any specific legal determination by the NLRB, but rather that the circumstances of the working relationship that lead to a finding at the NLRB would likely lead to a similar finding by the DOL.

But Paretti disagreed. “I absolutely would not say that if you’re a joint employer under the NLRA, you’re going to be a joint employer under the FLSA. I mean it really does depend,” he said. “It is certainly not if you’re a joint employer under one, you’re a joint employer under the other one. These tests will be slightly different, slightly more nuanced.”

However, Paretti cautioned that if an entity is a joint employer under the new NLRB test, that “should at least give you a reason to look at the FLSA test and say ‘Can we see daylight between these two tests with respect to our specific employees and our specific results?’”

4. How are employers navigating this issue?

Considering the high stakes and contentious nature of the joint employer legal question, it’s likely that any major regulatory moves will be subject to litigation. Management-side attorneys say that employers have been maintaining a holding pattern in recent years over their approach to joint employment in their contracts until the issue is resolved.

“I don’t know that we have seen a sea change, certainly in the way yet that employers are sort of monitoring their business relations,” said Glenn Grant, senior counsel at Crowell & Moring’s Labor & Employment Group in Washington, D.C.

Based on the proposed version of the rule, which is identical to the final rule released Thursday, “I think there is great danger that a lot of unknowing employers will be deemed to be a joint employer under the NLRB’s test,” he said.

Kisicki added that the issue of joint employment will probably remain unsettled considering the likely challenges against the NLRB’s joint employer rule.

“I think there’s some important arguments that the courts are going to grapple with in terms of an agency kind of flip flopping in terms of rulemaking as opposed to kind of the historical case law,” he said.

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