Published May 21, 2024
In October 2023, the National Labor Relations Board (NLRB) issued a new version of its Joint Employer Rule, which defines the employer-employee relationship for people who work as subcontractors.
It was intended to address legal issues concerning the previous version of the rule, but just as it was scheduled to take effect in early 2024, it was struck down by a U.S. District Court in Texas in a lawsuit brought by a coalition of industry trade groups.
So the rule remains deeply contested. But what is it, and why should you care?
Joint Employer Rule in a nutshell
At its heart, the joint employer rule is about union organization, and its targets appear to be franchises, staffing agencies and other low-wage industries that have been subject to complaints about working conditions.
It says that when two different companies control “essential terms and conditions of employment,” there is a joint employer relationship and both employers are obliged to engage in any collective bargaining efforts by employees.
The old version of the rule, which has been in effect since April 2020, holds that a contractor must exert direct control over one or more essential terms of employment to be deemed a joint employer.
The new version of the rule went further. It said a company can be deemed a joint employer just by reserving the right to control any of those terms, because “…even when the entity remains on the sidelines, it may cast a shadow over the other employer’s decision-making with respect to such terms,” according to a fact sheet from the NLRB.
Here are the seven essential terms of employment as defined in the new rule:
- Wages, benefits and other compensation
- Hours of work and scheduling
- Assignment of duties to be performed
- Supervision of the performance of duties
- Work rules and directions governing the manner, means and methods of the performance of duties and the grounds for discipline
- Tenure of employment, including hiring and discharge
- Working conditions related to the safety and health of employees.
It’s the last of these terms that caused the most worry for construction businesses.
The Concern
“The new rule may cause absurd results…” wrote Todd Lebowitz, a partner at BakerHostetler corporate law firm, shortly after the new rule was published last year. “The combination of maintaining a safe worksite and allowing another business’s employees onto the site to perform work would make your business a joint employer of those workers. Nonsensical.”
The Center for Law and Social Policy (CLASP) said the new rule “is especially important to workers earning low wages and in dangerous jobs, who need the protections of the National Labor Relations Act the most. …” It adds: “Corporations such as Amazon, Starbucks, and Trader Joe’s desire to ban the NLRB entirely due to the increase in union drives. Therefore, as corporations continue to attack agencies and rules that are meant to hold employers accountable, workers are left in the precarious positions they already find themselves against employers.”
On the other side of the issue is the possible harm the rule could do to the many small businesses – particularly in construction – that exist almost exclusively as subcontractors.
“Contractors may be vulnerable to increased liability and risk [under the new rule], making them less likely to hire subcontractors, most of which are small businesses,” the national trade group Associated Builders and Contractors (ABC) warned last November. “This will ultimately cause needless delays and cost inflation on taxpayer-supported infrastructure projects.”
The JacksonLewis law firm wrote the new rule would have had “profound impact” on the construction industry by making it possible “for virtually all contractor-subcontractor relationships to fall under the joint-employer umbrella without any exceptions for the construction industry.”
The Upshot
Right now, the old version of the rule remains in effect. But with the essential issue being how to strike the proper balance between business interests and workers’ rights, arguments on both sides are likely to continue.
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