By Nicholas Johns, National Taxpayers Union
The National Labor Relations Board (NLRB) recently issued a final rule that expands the definition of “joint employer” under the National Labor Relations Act (NLRA). This rule, which will take effect on December 26, 2023, will have serious consequences for small businesses, workers, and consumers across the country. That’s why Congress should immediately pass the Congressional Review Act (CRA) resolution introduced by Rep. John James (R-MI), House Education and Workforce Committee Chair Virginia Foxx (R-NC), Speaker Mike Johnson (R-LA), Senate Republican Leader Mitch McConnell (R-KY), Senator Bill Cassidy (R-LA), and Senator Joe Manchin (D-WV).
National Taxpayers Union warned of the potential threats of this rule when it was proposed, and now it seems the worst has been confirmed. The joint employer rule determines when two or more entities are considered to be jointly responsible for the labor rights and obligations of a group of employees. For example, a joint employer relationship could exist between a franchisor and a franchisee, a contractor and a subcontractor, or a staffing agency and a client company.
Under the previous standard, which was established by the NLRB in 1984, two entities were considered joint employers only if they shared or co-determined the essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. Moreover, the control over these terms had to be direct and immediate, not potential or indirect.
However, in 2015, the NLRB overturned this longstanding precedent in a case called Browning-Ferris Industries. The NLRB decided that two entities could be joint employers even if they only had indirect or reserved control over the essential terms and conditions of employment, or if they only exercised such control sporadically or rarely. This decision created uncertainty and confusion for businesses and workers, as it made it easier for the NLRB to find joint employer status in a variety of contractual arrangements.
In 2020, the NLRB issued a final rule that restored the 1984 standard, which was widely supported by the business community and the courts. However, in 2023, the NLRB rescinded and replaced the 2020 rule with a new proposed rule that reinstated the Browning-Ferris standard, with some modifications. The 2023 rule also added a list of essential terms and conditions of employment, which include wages, benefits, hours, scheduling, assignment, supervision, work rules, discipline, tenure, and working conditions.
This newly finalized joint employer rule poses several problems for small businesses, workers, and consumers. Here are some of them:
- It undermines the autonomy and flexibility of small businesses. The joint employer rule makes it more risky that franchisors, contractors, and staffing agencies will have to take on more compliance burdens or become liable for the labor practices of their franchisees, subcontractors, and clients, respectively. This could discourage them from entering into or maintaining these contractual relationships, or force them to exert more control over the operations of their partners. It could also create more uncertainty and confusion for contractors and franchisees if their counterparties can no longer provide as much advice or guidance. This would damage business relationships across the economy, ranging from cases like home health care franchises, travel nursing staffing agencies, to large retailers like Walmart or Amazon.
- It threatens the jobs and opportunities of workers. The joint employer rule could result in the loss of jobs and income for workers who benefit from the flexible and diverse arrangements that the rule jeopardizes. For instance, many workers choose to work for franchisees, subcontractors, or staffing agencies because they offer them more options, mobility, and training than traditional employers. Innovative companies like Uber, Lyft, or other apps like TaskRabbit could face enhanced scrutiny and compliance burden under this rule. The joint employer rule could limit employment choices and opportunities and make working more costly and burdensome.
- It increases the costs and risks of doing business. The joint employer rule exposes businesses to more litigation and regulation. By expanding the scope of joint employer liability, the rule exposes businesses to more lawsuits and fines for violations of labor laws that they may not have committed or controlled. These outcomes could increase the costs and risks of doing business, and ultimately harm the consumers who rely on their products and services.
Congress has the power to stop the joint employer rule by using the CRA or passing legislation. The CRA is a tool that allows Congress to overturn certain federal agency actions within a specified time period. Under the CRA, Congress can introduce a joint resolution of disapproval to nullify the joint employer rule, and prevent the NLRB from issuing a similar rule in the future. The CRA resolution would need a simple majority in both chambers, and the signature of the President, or a veto override, to become law.
Alternatively, Congress can pass legislation that codifies a clear and reasonable definition of joint employer, and preempts the NLRB from changing it. Such legislation could be based on the 1984 standard, or a similar standard that requires direct and immediate control over the essential terms and conditions of employment. Several bills have been introduced in the past to achieve this goal, such as the Save Local Business Act. Congress could also include a rider in the Labor-HHS appropriations bill to defund enforcement of this rule.
Regardless of which course is taken, Congress should act quickly and decisively to stop the joint employer rule, and protect the interests of small businesses, workers, and consumers. The joint employer rule is a misguided and harmful regulation that will create more problems than it solves. It is time to end the uncertainty and confusion that the NLRB has created, and restore the balance and stability that the economy needs right now.
Nicholas Johns is a Senior Policy and Government Affairs Manager for National Taxpayers Union.