Joint Employer Rule: Where Are We Now?

The National Labor Relations Board rescinded its rule to assess joint employment relationships in February and returned to a previous standard that imposes heightened requirements on employees to establish an employment relationship under U.S. labor law. The change should benefit restaurant industry owners and managers because employees of fast-casual or quick-serve franchisees will have more difficult paths to proving any legal employment relationship with their applicable franchisor. On February 27, the NLRB published a final rule that reinstated its 2020 standard for determining whether two or more employers share responsibility for labor law violations or obligations. Under the revamped standard, the NLRB will only find a joint employment relationship if the putative joint employer exercises “substantial direct and immediate control” over one or more “essential terms and conditions” of employment.  Under the new rule, routine elements of an arms-length contractual relationship like high-level brand standards or general staffing expectations do not create joint employment liability.  Instead, a franchisor or putative joint employer will only face liability to an employee if it exercises direct control over issues like wages, benefits or hours of work by directly determining rates of pay, hiring decisions, schedules or benefit plans. Such control must also be “substantial”—isolated, sporadic or de minimis exercises of control will not suffice to create liability.  The rule reinstates a limited list of “essential terms and conditions of employment”: wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. Under previous precedent, essential terms and conditions of employment were not defined,…

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