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Is It Too Soon for Employers to Celebrate the New “Joint Employer” Rules?

Over the last two months, we have seen two new “Joint Employer” rules issued, the first in January, when the Department of Labor issued a new joint employer rule for Fair Labor Standards Act (FLSA) cases, previously discussed here. The new regulation adopted a four-factor balancing test to determine whether a potential joint employer directly or indirectly controls the employees of another employer. Those factors were whether the potential joint employer:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment records.

The new regulation was probably most helpful to employers in that it identified factors that would not be relevant to a determination of FLSA joint employer status, such as whether the employee was economically dependent on the potential joint employer or whether there were contractual agreements with the employer requiring the joint employer to comply with certain legal obligations or meet certain safety standards.

At the end of February, the National Labor Relations Board issued its own joint employer rule under which an employer will be considered an employer of a separate employer’s employees only if the two employers share or codetermine the employee’s essential terms and conditions of employment. For that to occur, the joint employer “must possess and exercise . . . substantial direct and immediate control over one or more essential terms or conditions of their employment.”

While both of these rules are positive developments for joint employers, is it too soon for employers to celebrate? Especially with respect to the NLRB’s rule, there is a fair chance that the rule could be delayed by a court challenge because the NLRB enacted this change using a rule rather than the usual process of deciding a case involving a specific employer, as had been done by the Obama labor board in the Browning-Ferris decision. More importantly, both Bernie Sanders and Joe Biden have proposed codifying Browning-Ferris as a statute which would clearly trump the new rule.

If the Democrats were to win the White House and both houses of Congress, the NLRB’s rule would likely be short-lived. Even if the Democrats were unsuccessful in getting a majority in the Senate, a Democratic president would soon have a majority on the NLRB that could flip the standard back once again. Hence, while the new rules will certainly be helpful to employers facing FLSA lawsuits or NLRB charges brought under a joint employment theory, employers should still recognize that exercising even indirect control of another employer’s employees could remain problematic. Of course, there are also reasons — workers’ compensation coverage, for example — why a joint employer might want to be treated as an employer.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.