Guided by a Republican majority, the National Labor Relations Board—which is made up of political appointees—overruled its existing standard for joint employment, which was seen as controversial and overreaching by many. In effect since late 2015, the Obama-era rule allowed a separate entity to be considered a joint employer if there was proof that it had the right to exercise direct or indirect control over the essential terms of another entity’s employees, whether or not that right was actually exercised. Under the previous (now defunct) standard, proof of indirect control (such as through an intermediary), contractually reserved control that has never been exercised (such as a franchisor relationship), or control that is limited and routine was sufficient to establish a joint employer relationship (and accompanying liability).

Last month’s ruling changed all that. In a press release accompanying the Hy-Brand Industrial Contractors, Ltd. decision, the NLRB announced that in all future and currently pending cases, two or more entities will be deemed joint employers only if there is proof that one entity actually has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine. Now, proof of indirect control, contractually reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish joint employer liability.

This recent decision marked a return to the standard in effect prior to the Obama-era rule, such as we discussed in our June 2015 newsletter. According to the NLRB, the Obama-era standard exceeded and was contrary to statutory authority, lacked practical guidance or explanation for employers to implement or abide by, and prevented the NLRB from fostering stability in labor-management relations.

To be sure, the new (old) standard under the Trump administration is more employer-friendly than its Obama-era counterpart. This decision serves as a timely reminder that employers (including those involving franchises or utilizing independent contractors) may want to revisit their contractual arrangements to ensure that any NLRB joint employer liability is minimized.

By Rebecca D. Bullard, RBullard@dsda.com