Introduction
Understanding your business’s liability and where your responsibility begins and ends is an important legal consideration. This can be especially true when it comes to franchisor/franchisee relationships, contractors, and staffing agencies. With new rules being formalized for “joint employers”, it is crucial to make sure that you are as up to date as possible on which scenarios may spread the liability concerns.
Historical Context
The National Labor Relations Board (NLRB) created a rule[1] in 2020 providing that an employer would be a joint employer if they “possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees.” This ruling was more in favor of the joint employer because it made it harder to find a joint relationship, especially in the case of arm-length contracts with contractors. This ruling also created a definition for what could be ruled as substantial and clarified that “sporadic, isolated, or de minimis” doesn’t count as substantial.
In 2023, the rule[2] was updated to say that joint employment is established “if the entities share or codetermine one or more of the employees’ essential terms and conditions of employment.” The essential terms and conditions are things such as wages, hours of work/scheduling, assignment of duties, and work rules. The reason for the change was that the new ruling was believed to be based more in line with common-law agency principles which consider the ability to exercise control even if the control is never actually exercised. This ruling more favored the one providing the work because the definition of control was looser.
In February of this year, the NLRB reversed the 2023 rule and let the guiding rule fall back to the established 2020 rules. Therefore, a joint employer is established when an entity “possesses and exercises substantial direct and immediate control” over one of the essential terms and conditions mentioned previously.
Who this Affects
The main types of relationships this rule affects are franchises, contractors, and staffing agencies.
Franchises:
Franchisors face joint employer risk when they have direct or immediate control over how hiring, discipline, pay structure, or scheduling comes directly from them. They also run the risk when requiring specific HR policies, centralized payroll, or requiring approval before terminating employees. To reduce the risk, they should act more as a guiding hand on brand standards and product quality instead of employment terms.
Contractors:
General contractors run the risk of being considered joint employers if they set work hours, handle discipline, require wage policies, or supervise subcontractors. To reduce the risk, they should make sure they only enforce project deadlines, safety requirements, and overall quality controls.
Staffing Agencies:
When a staffing agent has their employees working at an entity’s location, that entity who hired the staffing agent could be considered a joint employer if they control any of the pay structure, work hours, or disciplinary policies. This can be more difficult for staffing agencies as they typically follow whatever the hiring entity requires so they are oftentimes considered to be in joint employment with the entity.
Conclusion
Making sure that you are in compliance with the current rules can be difficult as a business owner, especially for rules that flip back and forth over the course of several years. This can be expounded when multiple agencies and acts are controlling similar practices as the case is here where the NLRB is dipping into similar topics as the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA). For help keeping up to date with the changing landscape, reach out to Volpe Consulting & Accounting today!
If there’s a pain point within your operation that you’d like to discuss, we’re here. We’d appreciate the opportunity to look into it with you and hopefully provide some insight as to how you can move forward. For more information, or to just put a few faces to the name,
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