As an employer, you often don’t consider whether your employees have side hustles, which usually are not a concern. Under the Fair Labor Standards Act of 1938, an individual can simultaneously have two or more employers. Nothing in the Act prevents someone from having multiple employment relationships. However, concern may arise if two or more employers aren’t acting independently.  In such a case, they may be deemed “joint employers”, and the employee’s work for both can be considered one employment.

Why does this matter? If an employee is working for two employers, performing 25 hours of work for one employer and 25 for a second, if the employers are “joint employers,” they may be jointly responsible for overtime pay. A new federal rule about whether a business is a joint employer may have unexpected consequences for some types of companies.

What Is a Joint Employer?

The National Labor Relations Board (NLRB) regulations define the standard for determining whether two or more employers are “joint employers,” one that all employers should know and understand. Whether multiple entities are joint employers depends largely on how much control each has over the employee’s essential terms of employment. Essential employment terms include things such as scheduling, wages, and supervision.

In October, the NLRB issued a final rule clarifying a new standard for defining “joint employers.” The old rule, in effect since April 27, 2020, allowed employers to avoid joint employer status because it set a high threshold to define control over essential employment terms. Under the 2020 rule, this control had to be “substantial direct and immediate control.” This higher standard effectively limited when a business and its affiliated businesses could be considered joint employers. In rescinding the old rule, the NLRB stated it was “contrary to the common-law agency principles that must govern the joint-employer standard under the Act.”

The New Joint Employer Standard

The new rule from the NLRB aims to cast a broader net over joint employers and more closely follows the common law. Now, two or more entities may be considered joint employers if they both have the authority to control at least one essential term of employment, even if they fail to exercise them.

In its final rule, the NLRB cited seven of these “essential” terms and conditions of employment:

1. “Wages, benefits, and other compensation;
2. Hours of work and scheduling;
3. The assignment of duties to be performed;
4. The supervision of the performance of duties;
5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
6. The tenure of employment, including hiring and discharge; and
7. Working conditions related to the safety and health of employees.”

The new rule took effect on December 26, 2023, and only applies to cases filed after that date.

What Should Employers Watch For?

There are certainly going to be court challenges to this broad and potentially unrealistic new rule. In the meantime, there will likely be more joint employer findings in NLRB cases. Some industries, such as retail, staffing agencies, temporary employment agencies, and franchises, may see more of an impact. For employers using contracted services or commercial agreements, it may be necessary to revisit your contract language. Many contracts drafted to ensure compliance with the 2020 joint employment rule may no longer be sufficient to prevent joint employer status.

For example, one commenter on the proposed NLRB rule noted that “virtually every client of a staffing firm predictably will be the joint employer of that firm’s supplied employees.” Because the client will no doubt have control over at least one of the seven essential employment terms cited by the new rule, the commenter may be correct.  There is also concern that the safety and health conditions will apply to anyone on the premises, even vendors and contractors, therefore possibly creating a joint employment relationship that is not controlled jointly in any other way.

What Should Employers Do?

What can you do to determine if you have any joint employment concerns?

• Look at your contractual and employment arrangements, particularly any subcontractors, staffing agencies, or vendors you use, to see if they may fit this new definition of joint employment.
• Can you modify your contracts to avoid joint employment? Will new contract terms or changes to how you work together help?
• Consider adding contract language that expressly states you have no control over specific vendors, subcontractors, or staffing agencies.
• Contact an experienced labor and employment attorney to review your contracts and informal arrangements with staffing agencies, vendors, and subs.

If you’re concerned about how the new NLRB joint employer rule may affect your business, contact Carol Harding at 856-354-7700 or csharding@earpcohn.com. Carol represents individuals, businesses, and public entities in employment matters. As a seasoned litigator, she uses her practical experience to help others avoid future legal risks.