Quick Hits
- The NLRB issued a final rule that reinstates the 2020 standard for joint employer status, formally withdrawing a broader 2023 rule struck down in federal court.
- The rule narrows the meaning of “essential terms and conditions of employment” for joint employer status purposes to wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
- The return to the 2020 rule provides greater clarity and predictability for employers, particularly those operating in franchise, staffing, subcontracting, or other arrangements involving multiple entities.
The NLRB is issuing the final rule, which is set to be published in the Federal Register on February 27, 2026, without a period of notice and comment. The final rule reinstates the 2020 rule that has functionally been in effect since a March 2024 decision by U.S. District Court for the Eastern District of Texas vacated the rule before it ever took effect, finding it was unlawfully broad and was “arbitrary and capricious.”
The Board determined a notice and public comment period to be unnecessary given the 2023 rule never took effect after it was vacated and the Board voluntarily dismissed its appeal of that decision. The reinstated 2020 joint-employer rule turns on an entity’s substantial direct control over essential employment terms and conditions as opposed to indirect control or unexercised authority.
The Prior 2023 Joint-Employer Rule
The prior 2023 rule would have made it more likely that an entity could be deemed a joint employer of another employer’s workers, focusing the inquiry on whether an entity has authority or control over any essential term or condition of employment, regardless of whether it ever actually exercised that control. The 2023 further would have set forth “essential terms and conditions of employment,” including some vague terms, and would have required joint employers to bargain with workers’ bargaining representative over all terms and conditions with which the joint-employer has control, even if they are not deemed “essential.”
Key Requirements of the Reinstated 2020 Rule
While both the 2020 and 2023 joint-employer standards focused on an entity’s control over essential terms and conditions of employment, the now-reinstated 2020 standard shifts the inquiry to whether the entity actually exercises direct control, rather than whether it arguably possesses authority to control, either indirectly or based on authority that it has not actually exercised.
Under the reinstated 2020 rule, an employer may be considered a joint employer of another employer’s employees only if the two employers “share or codetermine the employees’ essential terms and conditions of employment.” Critically, establishing joint employer status requires demonstrating that an entity possesses and exercises “substantial direct and immediate control” over one or more essential terms or conditions of employment such that it “meaningfully affects matters relating to the employment relationship.” The rule further clarifies that “substantial direct and immediate control” must have a “regular or continuous consequential effect” on employment terms, not control exercised only on a “sporadic, isolated, or de minimis basis.”
The rule limits the role of indirect control, including “contractually reserved but never exercised authority,” over mandatory bargaining subjects other than essential employment terms. Such “indirect control” explicitly does not include “control or influence over setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract.”
Furthermore, evidence of indirect control “is probative of joint-employer status, but only to the extent it supplements and reinforces evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.” The rule states that “contractually reserved authority” that has “never been exercised” does not, on its own, establish joint employer status. Additionally, the party claiming there is a joint employer relationship bears the burden of proof.
‘Essential Terms and Conditions’
The reinstated 2020 rule narrows the defined “essential terms and conditions of employment” to an eight-factor list traditionally considered to be core terms and conditions of employment: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
The rule provides detailed guidance on what constitutes “direct and immediate control” for each factor:
- Wages: An entity must actually determine wage rates, salaries, or pay rates for individual employees or job classifications. Cost-plus contracts, even those with a maximum reimbursable wage rate, do not establish direct control sufficient to establish joint employer status.
- Benefits: An entity must actually determine fringe benefits, such as selecting health insurance or pension plans. Permitting another employer to participate in benefit plans under an arm’s-length contract does not establish direct control.
- Hours of Work: An entity must actually determine work schedules or overtime. The rule states that simply establishing operating hours or when services are needed does not suffice to establish a joint employer relationship.
- Hiring: An entity must actually decide which particular employees will be hired. Requesting staffing level changes or setting minimal hiring standards (such as government-required qualifications) does not constitute the requisite direct control.
- Discharge: An entity must actually decide to terminate an employee. Reporting misconduct, expressing a negative opinion, refusing to allow an employee to continue performing work, or setting minimal performance standards does not establish requisite direct control.
- Discipline: An entity must actually decide to suspend or otherwise discipline an employee. Notably, simply reporting issues to the actual employer or “refusing to allow another employer’s employee to access its premises or perform work under a contract,” does not qualify to establish a joint employer relationship.
- Supervision: An entity must actually instruct employees on how to perform their work or issue “performance appraisals” beyond routine instructions on “what work to perform, or where and when to perform the work, but not how to perform it.”
- Direction: An entity must assign employees their “individual work schedules, positions, and tasks.” Employers do not exercise control by setting project completion schedules or describing work objectives.
Key Takeaways
The formal return to the 2020 rule is a welcome sign for employers following several years of uncertainty. The reinstated 2020 rule provides greater clarity and predictability for employers, particularly those operating in franchise, staffing, subcontracting, or other arrangements involving multiple entities.
While joint employer status will still be determined by a totality of the circumstances, under the current framework, the focus remains squarely on whether an entity actually exercises substantial direct and immediate control over the core aspects of an employment relationship based on wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. Thus, entities that simply set broad parameters, establish performance expectations, or maintain contractual rights that they never exercise may be less likely to be found to be joint employers.
Businesses may want to review their contracts, operational practices, and day-to-day interactions with workers and business partners, including franchise, staffing, subcontracting, and other similar business arrangements, to ensure they understand the potential for joint employer liability and can structure their relationships accordingly.
Ogletree Deakins’ Traditional Labor Relations Practice Group will continue to monitor developments and will provide updates on the Traditional Labor Relations blog as additional information becomes available.
This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.
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