Understanding the NLRB’s Joint-Employer Standard: Implications for California Employers

The National Labor Relations Board (NLRB) has experienced significant fluctuations in its joint-employer standard over the past decade, impacting various business models across California. Most recently, the NLRB reinstated the 2020 joint employer standard, crucial for organizations utilizing staffing agencies, subcontractors, franchises, or management agreements. Understanding these changes is vital for employers navigating collective bargaining agreements (CBAs) and liability concerns.

The Evolution of the Joint-Employer Standard

Pre-2015 Era

Before 2015, the NLRB required evidence of substantial, direct, and immediate control over essential employment terms for a joint-employer designation.

Expansion: 2015 Browning-Ferris Decision

In 2015, the NLRB’s Browning-Ferris ruling expanded the definition of joint-employer to include indirect control or even reserved authority—even if unexercised—broadening potential employer liability.

The 2020 Regulation

In response to this expansion, the NLRB adopted a more employer-friendly rule in 2020, requiring substantial direct and immediate control over essential terms, including wages and discipline, for joint-employer status.

The 2023 Rule and Recent Developments

A new majority on the Board attempted to broaden the joint-employer definition again in 2023, allowing indirect or reserved control to qualify. However, this rule faced legal challenges, and a federal court in Texas ruled against it in March 2024, reinstating the 2020 standard. As of now, the 2020 rule governs this area, but the possibility of future changes remains.

Navigating the Current Standard

Under the effective 2020 regulation, companies are considered joint employers only if they share or codetermine essential employment terms through substantial direct and immediate control. Simply having indirect influence or reserved contractual authority is not sufficient.

Potential Changes Ahead

The joint-employer standard is susceptible to rapid change due to:

• Appellate court rulings
• Revised NLRB regulations
• New congressional legislation
• Changes in NLRB composition

Given this instability, employers should remain vigilant.

Why the Joint-Employer Standard Matters for California Employers

California businesses face heightened risks, particularly under a broad joint-employer standard. Here are some critical areas of concern:

1. Collective Bargaining Obligations
   A joint-employer designation may require your business to negotiate with unions representing employees of other entities.

2. Unfair Labor Practice Liability
   Companies could face joint liability for unfair labor practices conducted by others, even if they were not directly involved.

3. Pension and Benefit Plan Exposure
   Joint-employer status can lead to various obligations, including:

   • Binding agreements to CBAs you did not negotiate.
   • Contributions to multi-employer pension or health funds.
   • Potential withdrawal liability under ERISA if relationships change.

For industries relying on multiemployer pension funds—such as construction, healthcare, logistics, and hospitality—these risks can be substantial.

4. Franchise and Staffing Models
   Routine compliance measures or brand controls could provide grounds for broader joint-employer findings under future regulations.

5. California’s Layered Standards
   The federal NLRA analysis is only one dimension; California labor laws have their own, potentially broader, joint-employment theories.

Practical Strategies for Employers

While the 2020 rule curtails many risks associated with joint-employer findings, proactive measures are essential. Employers should consider:

• Auditing Contracts: Review agreements with staffing agencies and contractors.
• Franchise Evaluations: Assess franchise agreements and relationships with franchisees.
• Operational Control: Minimize unnecessary oversight of third-party employees.
• Union Benefits Exposure: Evaluate potential obligations for union benefit contributions and withdrawal liabilities.
• Policy Planning: Prepare for expedited changes in federal labor policies that could affect the joint employer standard.

For businesses in California, the challenge extends beyond merely understanding who they employ. Employers must consider who the NLRB might designate as joint employers.

Next Steps

Given the potential impacts on operational and financial strategies, it is vital to evaluate current structures proactively. Regular reviews can mitigate risks associated with possible changes in the joint-employer standard.

For further assistance, consult resources on NLRB regulations or engage labor law experts to safeguard against evolving labor relations complexities.