The Franchise Memorandum

On February 26, 2020, the National Labor Relations Board issued its final rule defining the standard for a “joint employer” under the National Labor Relations Act. Under the final rule, a business must exert “such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” The rule further provides that the “essential terms and conditions” of employment consist solely of the following enumerated list: wages, benefits, hours of work, hiring, discharge, discipline, and direction. This list is intended to be exhaustive, and other terms and conditions are not considered “essential.” Evidence of indirect control or contractually reserved control may be considered, but only to the extent that it may supplement or reinforce evidence of direct and immediate control over a particular essential term and condition of employment.

This final rule is significant because it represents a return to the analytical framework that defined the joint-employer standard prior to the landmark 2015 federal decision in Browning-Ferris Industries, Inc., 362 NLRB 1599, 1600 (2015), affd. in part, reversed in part and remanded 911 F.3d 1195 (D.C. Cir. 2018). Under Browning-Ferris, an entity’s ability to exercise actual or potential control, including indirect control or contractually-reserved control, could be sufficient to warrant a finding of joint-employer status. The Browning-Ferris standard was substantially broader than the standard implemented under the final rule. This final rule of the NLRB has been referred to as “business friendly,” and praised by some as bringing helpful clarity to the joint-employer analysis.

During the comment period, the NLRB received nearly 29,000 comments on the proposed rule. The effective date of the new rule is April 27, 2020, subject to congressional review.