Joint Employer Status Under the National Labor Relations Act, 11184-11236 [2020-03373]

Download as PDF 11184 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations NATIONAL LABOR RELATIONS BOARD 29 CFR Part 103 RIN 3142–AA13 Joint Employer Status Under the National Labor Relations Act AGENCY: National Labor Relations Board. ACTION: Final rule. The National Labor Relations Board (NLRB or Board) has decided to issue this final rule for the purpose of carrying out the provisions of the National Labor Relations Act (NLRA or Act) by establishing the standard for determining whether two employers, as defined in Section 2(2) of the Act, are a joint employer under the NLRA. The Board believes that this rulemaking will foster predictability and consistency regarding determinations of jointemployer status in a variety of business relationships, thereby enhancing labormanagement stability, the promotion of which is one of the principal purposes of the Act. Under this final rule, an entity may be considered a joint employer of a separate employer’s employees only if the two share or codetermine the employees’ essential terms and conditions of employment, which are exclusively defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. SUMMARY: This rule has been classified as a major rule subject to Congressional review. The effective date is April 27, 2020. However, at the conclusion of the congressional review, if the effective date has been changed, the National Labor Relations Board will publish a document in the Federal Register to establish the new effective date or to withdraw the rule. FOR FURTHER INFORMATION CONTACT: Roxanne L. Rothschild, Executive Secretary, National Labor Relations Board, 1015 Half Street SE, Washington, DC 20570–0001, (202) 273–2917 (this is not a toll-free number), 1–866–315–6572 (TTY/TDD). SUPPLEMENTARY INFORMATION: DATES: khammond on DSKJM1Z7X2PROD with RULES2 I. Background A. The Act The NLRA sets forth a number of rights and responsibilities that apply to employers, employees, and labor organizations representing employees, in furtherance of the Act’s overarching goals of promoting labor relations VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 stability,1 protecting employees’ right to designate representatives of their own choosing ‘‘for the purpose of collective bargaining or other mutual aid or protection,’’ 2 and preventing unfair labor practices by employers and labor organizations.3 The NLRA also defines the terms ‘‘employer’’ and ‘‘employee.’’ Under Section 2(2) of the Act, ‘‘the term ‘employer’ includes any person acting as an agent of an employer, directly or indirectly,’’ but excludes certain governmental entities, entities subject to the Railway Labor Act, or any labor organization (other than when acting as an employer). Section 2(3) of the Act provides that ‘‘the term ‘employee’ shall include any employee, and shall not be limited to the employees of a particular employer, unless this subchapter [of the Act] explicitly states otherwise . . . but shall not include . . . any individual having the status of an independent contractor. . . .’’ 29 U.S.C. 152(3). The text of the Act and its legislative history further establish that, in determining whether an employment relationship exists between a putative employer and employee, common-law agency principles are controlling. See, e.g., NLRB v. United Ins. Co. of America, 390 U.S. 254, 256 (1968). Thus, in making this determination, the Board is bound by common-law principles, which require that it focus on the control exercised by a putative employer over a person performing work for it. Id; see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322– 323 (1992). The Act does not contain the term ‘‘joint employer,’’ much less define it. As discussed below, the Board and reviewing courts have developed that concept in adjudication over the years to address situations where two or more separate entities engaged in a business relationship jointly affect the terms and conditions of employment of a group of employees. See Boire v. Greyhound Corp., 376 U.S. 473 (1964) (holding that Board’s determination that bus company possessed ‘‘sufficient control over the work’’ of its cleaning contractor’s employees to be considered a joint employer was not reviewable in federal district court); Indianapolis Newspapers, Inc., 83 NLRB 407, 408– 409 (1949) (finding that two newspaper businesses, Star and INI, were not joint employers, despite their integration, because ‘‘there [wa]s no indication that Star, by virtue of such integration, t[ook] an active part in the formulation or 1 Section 1 of the Act, 29 U.S.C. 151. 7 of the Act, 29 U.S.C. 157. 3 Section 8 of the Act, 29 U.S.C. 158. 2 Section PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 application of the labor policy, or exercise[d] any immediate control over the operation, of INI’’). Consistent with the statutory requirement that the common law of agency be applied, jointemployer determinations have focused on the extent to which the separate companies exercise control over the persons performing the work. Id. As also discussed below, Section 6 of the Act authorizes the Board to ‘‘make, amend, and rescind . . . such rules and regulations as may be necessary to carry out the provisions of this subchapter.’’ See American Hosp. Ass’n v. NLRB, 499 U.S. 606 (1991) (affirming authority of NLRB to enact rules establishing bargaining units for acute care hospitals). The Board has determined that it is appropriate to do so now in order to define who may be a joint employer under the Act. B. The Development of the JointEmployment Doctrine Under the NLRA The general formulation of the Board’s joint-employer standard is firmly established. ‘‘The Board will find that two separate entities are joint employers of a single work force if the evidence shows that they ‘share or codetermine those matters governing the essential terms and conditions of employment.’ ’’ CNN America, Inc., 361 NLRB 439, 441 (2014) (quoting TLI, Inc., 271 NLRB 798 (1984), enfd. mem. sub nom. Gen. Teamsters Local Union No. 326 v. NLRB, 772 F.2d 894 (3d Cir. 1985)), enf. denied in part 865 F.3d 740 (DC Cir. 2017). This standard derives from language in Greyhound Corp., 153 NLRB 1488, 1495 (1965), enfd. 368 F.2d 778 (5th Cir. 1966), and was endorsed in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 691 F.2d 1117, 1122–1123 (3d Cir. 1982). It is rooted in longstanding Board precedent and has been consistently approved by reviewing courts. Notably, however, the Board has never attempted to comprehensively define the ‘‘essential terms and conditions of employment’’ that are relevant to the joint-employer inquiry, even though the standard itself inherently implies that it is control over those terms and conditions of employment that is determinative of joint-employer status.4 And even when a term or condition of employment is deemed ‘‘essential’’ for the purpose of 4 The Board has held that a joint-employer finding requires ‘‘a showing that the employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.’’ Laerco Transportation, 269 NLRB 324, 325 (1984); accord TLI, Inc., 271 NLRB at 798–799. But this list did not purport to be exhaustive. E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 determining joint-employer status, the joint-employer standard described above does not specify the extent of control that must be shown before the two entities may be found to ‘‘share or codetermine’’ that essential term or condition. As fully described in the Notice of Proposed Rulemaking (NPRM), the Board’s treatment of the latter issue has evolved over the years.5 Nevertheless, for at least 30 years (from no later than 1984 to 2015), evidence of indirect control was typically insufficient to prove that an entity was the joint employer of another employer’s workers. Even direct and immediate supervision of another employer’s employees was insufficient to establish joint-employer status where such supervision was ‘‘limited and routine.’’ 6 5 As more fully described in the NPRM, the Board has consistently recognized that direct control of essential terms and conditions is relevant to this determination, while the extent to which indirect control was a factor has changed over time. Compare Floyd Epperson, 202 NLRB 23, 23 (1973) (dairy company was the joint employer of truck drivers supplied to it by an independent trucking firm based on evidence of both direct and indirect control over the working conditions of the drivers), enfd. 491 F.2d 1390 (6th Cir. 1974), with Airborne Express, 338 NLRB 597, 597 fn. 1 (2002) (holding that ‘‘the essential element’’ in a joint-employer analysis ‘‘is whether a putative joint employer’s control over employment matters is direct and immediate’’ (citing TLI, Inc., 271 NLRB at 798– 799)); see also NLRB v. CNN America, Inc., 865 F.3d 740, 748–751 (D.C. Cir. 2017) (finding that Board erred by failing to adhere to ‘‘direct and immediate control’’ standard); SEIU Local 32BJ v. NLRB, 647 F.3d 435, 442 (2d Cir. 2011) (‘‘An essential element’ of any joint employer determination is ‘sufficient evidence of immediate control over the employees.’’ (quoting Clinton’s Ditch Co-op Co. v. NLRB, 778 F.2d 132, 138 (2d Cir. 1985))). As also described in the NPRM, the relevance to the joint-employer determination of an entity’s contractually reserved but unexercised authority over another company’s employees has also changed over time. See Hychem Constructors, Inc., 169 NLRB 274 (1968) (petrochemical manufacturer was not a joint employer of its construction subcontractor’s employees even though their costplus agreement reserved to the manufacturer a right to approve wage increases and overtime hours and the right to require the subcontractor to remove any employee whom the manufacturer deemed undesirable); Jewel Tea Co., 162 NLRB 508, 510 (1966) (department store was a joint employer of the employees of two independent companies licensed to operate specific departments of its store based on its reserved contractual authority). In AM Property Holding Corp., the Board found that a ‘‘contractual provision giving [a property owner] the right to approve [its cleaning contractor’s] hires, standing alone, [was] insufficient to show the existence of a joint employer relationship.’’ 350 NLRB 998, 1000 (2007), enfd. in relevant part sub nom. SEIU Local 32BJ v. NLRB, 647 F.3d 435 (2d Cir. 2011). The Board explained that ‘‘[i]n assessing whether a joint employer relationship exists, the Board does not rely merely on the existence of such contractual provisions, but rather looks to the actual practice of the parties.’’ Id. 6 See, e.g., AM Property Holding Corp., 350 NLRB at 998; Airborne Express, 338 NLRB at 597; TLI, Inc., 271 NLRB at 798. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 The law governing joint-employer determinations changed significantly in August 2015. At that time, a divided Board overruled the then-extant precedent described above and substantially relaxed the requirements for proving a joint-employer relationship. Specifically, a Board majority held that it would no longer require proof that a putative joint employer has exercised any ‘‘direct and immediate’’ control over the essential terms and conditions of employment of another company’s workers. BrowningFerris Industries of California, Inc. d/b/ a BFI Newby Island Recyclery, 362 NLRB 1599, 1600 (2015) (BrowningFerris), affd. in part, reversed in part and remanded 911 F.3d 1195 (D.C. Cir. 2018). The majority in Browning-Ferris explained that, under its new standard, a company could be deemed a joint employer even if its control over the essential working conditions of another business’s employees was indirect, limited and routine, or contractually reserved but never exercised. Id. at 1613–1614. At the same time, however, the Browning-Ferris majority stated that ‘‘[e]ven where the common law does permit the Board to find joint employer status in a particular case, the Board must determine whether it would serve the purposes of the Act to do so. . . .’’ Id. at 1610 (emphasis in original); see also id. at 1614 (‘‘[I]t is certainly possible that in a particular case, a putative joint employer’s control might extend only to terms and conditions of employment too limited in scope or significance to permit meaningful collective bargaining.’’). In December 2018, the United States Court of Appeals for the District of Columbia Circuit issued its decision on review of the Board’s Browning-Ferris decision. See Browning-Ferris Industries of California, Inc. v. NLRB, 911 F.3d 1195 (Browning-Ferris v. NLRB). Consistent with the principles stated above, the court held that the Board was required to apply the common law of agency in determining whether an entity was a joint employer of particular employees. Whether proceeding by adjudication or rulemaking, then, the Board ‘‘must color within the commonlaw lines identified by the judiciary.’’ Id. at 1208. The court upheld the Board’s longstanding right-to-control standard as ‘‘an established aspect of the common law of agency.’’ Id. at 1209. In addition, the court also concluded that the common law ‘‘permits consideration of those forms of indirect control that play a relevant part in determining the essential terms and conditions of employment.’’ Id. at 1199–1200. The PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 11185 court therefore affirmed BrowningFerris’s ‘‘articulation of the jointemployer test as including consideration of both an employer’s reserved right to control and its indirect control over employees’ terms and conditions of employment.’’ Id. at 1200. In so holding, the court recognized that Browning-Ferris did not present the issue of whether either indirect control or a contractually reserved but unexercised right to control can be dispositive of joint-employer status absent evidence of exercised direct and immediate control. Id. at 1213, 1218. The court, however, faulted the Browning-Ferris Board for failing to confine its inquiry to ‘‘indirect control over the essential terms and conditions of the workers’ employment.’’ Id. at 1209. Specifically, the court found that, in considering the factor of indirect control, Browning-Ferris failed to hew to the relevant common-law boundaries that prevent the Board from trenching on the common and routine decisions that employers make when hiring third-party contractors and defining the terms of those contracts. To inform the joint-employer analysis, the relevant forms of indirect control must be those that ‘‘share or codetermine those matters governing essential terms and conditions of employment.’’ By contrast, those types of employer decisions that set the objectives, basic ground rules, and expectations for a third-party contractor cast no meaningful light on joint-employer status. Id. at 1219–1220 (internal citations omitted). The court remanded the case to the Board, and the Board accepted the remand.7 C. NPRM On September 14, 2018, the Board issued its joint-employer NPRM. There, the Board proposed the following rule: An employer, as defined by Section 2(2) of the National Labor Relations Act (the Act), may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine. 7 The court also found that the Browning-Ferris Board had neglected to apply the second step of its newly-fashioned standard, under which, ‘‘even if it finds that the common law would deem a business to be a joint employer, the Board will also ask whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.’’ Id. at 1221 (internal quotation omitted). The court directed the Board to address this issue on remand as well. E:\FR\FM\26FER2.SGM 26FER2 11186 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations 83 FR at 46696. The proposed rule also included a number of hypothetical examples illustrating how it would apply to particular scenarios. In the NPRM, the Board acknowledged that the Agency historically has made major policy determinations through adjudication, but stated that it interpreted Section 6 of the Act as authorizing the Board to engage in this rulemaking, adding that rulemaking on the issue of determining joint-employer status was preferable to adjudication in order to provide clarity and stability to this area of the law. The NPRM further stated the Board’s preliminary view, subject to potential revision in response to comments, that a joint-employer doctrine under which the duty to bargain is imposed only on entities that have played an active role in establishing essential terms and conditions of employment best serves the Act’s purposes of promoting collective bargaining and minimizing industrial strife. The NPRM invited comments on these issues and, indeed, on all aspects of the proposed rule, including input from employees, unions, and employers regarding their experience in workplaces where multiple entities have some authority over the workplace. The Board set an initial comment period of 60 days, with 7 additional days allotted for reply comments. Thereafter, the Board extended these deadlines three times, including an extension to allow interested parties to comment on the impact of the D.C. Circuit’s decision in Browning-Ferris v. NLRB.8 II. Summary of Changes to the Proposed Rule In this section, we provide a summary overview of changes to the proposed rule. khammond on DSKJM1Z7X2PROD with RULES2 A. Overview The final rule, like the NPRM, provides that an entity is a joint employer of a separate employer’s employees only if the two employers 8 See Order dated January 11, 2019. The NPRM set the deadline for initial comments as November 13, 2018, and comments replying to comments submitted during the initial comment period were due November 20, 2018. On October 30, 2018, the Board extended the deadlines for submitting initial and reply comments for 30 days, to December 13, 2018, and December 20, 2018, respectively. On December 10, 2018, the deadlines were extended for an additional 30 days, to January 14, 2019, and January 22, 2019, respectively. After the D.C. Circuit issued its decision in Browning-Ferris v. NLRB, the Board extended the deadlines a third and final time to permit commenters to address issues raised by the court’s decision. The deadline for initial comments was extended to January 28, 2019, and for reply comments to February 11, 2019. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 share or codetermine the employees’ essential terms or conditions of employment. However, the Board has modified the proposed rule to define ‘‘share or codetermine’’ as the possession and exercise of ‘‘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 Board has also modified the proposed rule to factor indirect control over essential terms or conditions of employment, contractually reserved control over essential terms or conditions of employment, and control over mandatory subjects of bargaining other than essential terms and conditions of employment into the joint-employer analysis, ‘‘but only to the extent [they] supplement[] and reinforce[] evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.’’ Consistent with these provisions, evidence of contractually reserved control over an essential term or condition of employment is probative for the purpose of determining whether an entity possesses or exercises direct and immediate control over that essential term or condition. Plainly, the fact that an entity has a contractually reserved right to control an essential term or condition is probative of whether it possesses control over that term. Such evidence may also be probative of whether the control possessed and exercised is ‘‘substantial,’’ as that term is defined in the final rule (see Sec. II.E, ‘‘ ‘Substantial’ direct and immediate control’’, infra). Similarly, evidence of indirect control over an essential term or condition of employment may be probative of whether the control possessed and exercised is substantial. Depending on the circumstances of a particular case, evidence of control over a nonessential term or condition that nonetheless constitutes a mandatory subject of bargaining may be probative of whether an entity possesses and exercises substantial direct and immediate control over an essential term or condition of employment. One can readily foresee cases where the parties dispute the significance or sufficiency of evidence that an entity exercises substantial direct and immediate control over an essential term or condition of employment, such as by claiming that the evidence is not credible or is too isolated or sporadic to meet the substantiality standard, but PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 where the entity’s control over one or more related nonessential terms may tend to support a finding of substantial direct and immediate control over an essential term or condition. For example, an entity’s control over grievance adjustment or drug or alcohol testing might be probative of its direct and immediate control over discipline or supervision, and an entity’s control over dress codes or attendance rules might be probative of its direct and immediate control over discipline. Evidence of an entity’s contractually reserved or indirect control over an essential term or condition of employment, or its control over mandatory but nonessential subjects of bargaining, is not, however, otherwise probative of whether the entity ‘‘meaningfully affects matters relating to the employment relationship.’’ Under the final rule, a putative joint employer reaches that threshold only through possession and exercise of substantial direct and immediate control over one or more essential terms and conditions of employment. B. Indirect Control The Board has modified the proposed rule to factor indirect control into the joint-employer analysis, but not to find it sufficient without more to make an entity a joint employer. Accordingly, the final rule provides that evidence of indirect control over essential terms and conditions of employment is probative of joint-employer status, but only to the extent that it supplements and reinforces evidence of direct and immediate control over essential terms and conditions. The definitions of the several essential terms and conditions of employment include statements of what does and does not count as direct and immediate control over the essential term and condition being defined. These statements may bear on indirect control, since what does not count as direct and immediate control may count as indirect control. However, consistent with the D.C. Circuit’s decision in BrowningFerris v. NLRB, the definition of ‘‘indirect control’’ excludes ‘‘control or influence over setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract,’’ and evidence of control that by definition does not count as direct and immediate control may fall within this exclusion and so not constitute indirect control, either. For example, the definition of ‘‘[h]ours of [w]ork’’ states that ‘‘[a]n entity does not exercise direct and immediate control over hours of work by establishing an enterprise’s operating hours or when it needs the E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 services provided by another employer.’’ But establishing an enterprise’s operating hours may not be evidence of indirect control, either. A business that contracts, for example, with a food service contractor to staff its employee lunchroom surely sets ‘‘basic ground rules or expectations’’ for that contractor by specifying the hours when the lunchroom will be open. Thus, specifying those hours would be neither direct and immediate control nor indirect control. In other instances, however, what is excluded by definition from direct and immediate control may constitute indirect control. Accordingly, what is indirect control over an essential term and condition of employment versus what is merely a setting of objectives, basic ground rules or expectations for a contractor’s performance is an issue of fact to be determined on a case-by-case basis. C. Contractually Reserved But Unexercised Right To Control The final rule recognizes contractually reserved but unexercised control as a potentially relevant consideration. It provides that evidence of an entity’s contractually reserved but never exercised authority over the essential terms and conditions of another employer’s employees is probative of joint-employer status, but only to the extent it supplements and reinforces evidence of direct and immediate control over essential terms and conditions of employment. In addition, although not stated explicitly in the regulatory text, the distinction drawn between indirect control that may be relevant to a jointemployer determination and ‘‘decisions that set the objectives, basic ground rules, and expectations for a third-party contractor’’ 9—i.e., the ‘‘routine components of a company-to-company contract’’ 10—also applies to contractually reserved but unexercised control. That is, if a contract reserves to an entity a right to control one or more matters involving the objectives, basic ground rules, or expectations for a thirdparty contractor, such evidence will not be probative of joint-employer status. For example, contractual safety, performance, and quality standards are generally ‘‘routine components of a company-to-company contract’’ 11 and do not support a finding of jointemployer status. This necessarily follows from the final rule’s definition of indirect control. If actual influence over the objectives, basic ground rules, 9 Browning-Ferris 10 Id. v. NLRB, 911 F.3d at 1220. at 1221. 11 Id. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 or expectations for a third-party contractor is not probative of jointemployer status, as the D.C. Circuit held in Browning-Ferris v. NLRB, then necessarily a contractual but unexercised right to control such matters cannot be probative of such status, either. See Browning-Ferris v. NLRB, 911 F.3d at 1221 (‘‘[A] joint employer’s control—whether direct or indirect, exercised or reserved—must bear on the essential terms and conditions of employment, and not on the routine components of a companyto-company contract.’’) (emphasis added; internal quotation and citation omitted). D. Limited and Routine Control The proposed rule stated, in relevant part, that ‘‘[a] putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine’’ (emphasis added). The Board has decided to revise the proposed rule to delete ‘‘limited and routine’’ as a general qualifying term and instead to use that term solely in the context of defining what is and is not direct and immediate control over supervision. Thus, the final rule provides that an entity does not exercise direct and immediate control over supervision when its instructions are limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it. The final rule does not otherwise use the phrase ‘‘limited and routine.’’ E. ‘‘Substantial’’ Direct and Immediate Control The final rule retains the requirement that direct and immediate control over essential terms and conditions of employment be ‘‘substantial’’ to give rise to joint-employer status. The Board has decided, however, to define ‘‘substantial direct and immediate control’’ in the final rule. As defined, ‘‘substantial’’ direct and immediate control means direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. Such control is not ‘‘substantial’’ if it is only exercised on a sporadic, isolated, or de minimis basis. Thus, the exercise of even direct and immediate control may be so isolated, sporadic or de minimis that it fails to establish that the putative joint employer meaningfully affects matters relating to the employment relationship. PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 11187 F. ‘‘Essential’’ Terms And Conditions of Employment The proposed rule, in relevant part, states that ‘‘[a]n employer may be considered a joint employer of a separate employer’s employees only if the two entities share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction’’ (emphasis added). The phrase ‘‘such as’’ suggested that the specifically enumerated essential terms—hiring, firing, discipline, supervision, and direction—might not be exhaustive, but the proposed rule left unanswered whether additional terms and conditions could be deemed essential, and if so, what those terms and conditions might be. The final rule expands the list of essential terms and conditions to include wages, benefits, and hours of work. Additionally, to provide greater certainty and remove a potential issue from litigation, the final rule makes the list of essential terms exhaustive. Finally, the final rule has been revised to provide that an entity’s control over other mandatory subjects of bargaining not considered essential terms and conditions of employment is probative of joint-employer status, but only to the extent it supplements and reinforces evidence of direct and immediate control over essential terms and conditions of employment. G. Hypothetical Scenarios in the NPRM The proposed rule included a number of hypothetical scenarios, termed ‘‘examples.’’ They were included to provide additional guidance on the practical application of the proposed rule. The Board has decided to omit the hypothetical scenarios from the final rule and has instead provided more specific guidance in the text of the rule itself, as discussed below. III. Justification for Using Rulemaking, Rather Than Adjudication, To Revise the Joint-Employer Standard A. Authority To Engage in Rulemaking Congress has delegated general rulemaking authority to the Board. Specifically, Section 6 of the National Labor Relations Act, 29 U.S.C. 156, provides that the Board ‘‘shall have authority from time to time to make, amend, and rescind, in the manner prescribed by the [Administrative Procedure Act (APA)], such rules and regulations as may be necessary to carry out the provisions of [the Act].’’ Although the Board historically has made most substantive policy determinations through case E:\FR\FM\26FER2.SGM 26FER2 11188 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 adjudication, it has, with Supreme Court approval, engaged in substantive rulemaking. American Hosp. Ass’n. v. NLRB, 499 U.S. 606 (1991) (upholding Board’s rulemaking on appropriate bargaining units in the healthcare industry); see also NLRB v. Bell Aerospace Co., 416 U.S. 267, 294 (1974) (‘‘[T]he choice between rulemaking and adjudication lies in the first instance within the Board’s discretion.’’). Further, Section 6 authorizes the final rule as necessary to carry out Sections 2, 7, 8, 9, and 10 of the Act, 29 U.S.C. 152, 157, 158, 159, and 160, respectively. Specifically, Section 2(2) of the Act defines ‘‘employer’’ and Section 2(3) defines ‘‘employee.’’ Section 7 of the Act defines the employee rights that the Act protects, including the right to bargain collectively through representatives of their own choosing, the right to engage in other concerted activities for the purpose of collective bargaining or mutual aid or protection, and the right to refrain from these activities. Section 8 of the Act defines unfair labor practices under the Act. Of particular relevance is Section 8(a)(5), which provides that it is an unfair labor practice for an employer ‘‘to refuse to bargain collectively with the representatives of his employees’’ (emphasis added). Section 9 of the Act sets forth the Board’s responsibilities for conducting representation elections, and Section 10 of the Act provides the Board with the authority to investigate, prevent, and remedy unfair labor practices. The Board’s joint-employer doctrine implicates each of these provisions of the Act, and Section 6 grants the Board the authority to promulgate rules that carry out those provisions. B. The Preference for Rulemaking Over Adjudication In the NPRM, we expressed a preliminary belief that rulemaking in this area of the law is desirable for several reasons. Specifically, the NPRM stated that rulemaking, rather than adjudication, would enable the Board to gather information from a wide variety of interested parties and to provide greater clarity to the joint-employer analysis. Rulemaking would also respect the reasonable expectations of regulated parties by ensuring that further changes to the law in this area would only be made prospectively in a new rulemaking proceeding, whereas with case adjudication, changes in the law may be made retroactively. After carefully considering nearly 29,000 comments, the Board continues to believe that rulemaking, rather than VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 adjudication, is the better method to revise and clarify the standard for determining joint-employer status under the Act. First, the Board has been well served by public comment on the issue. The Board received numerous helpful comments from a wide variety of sources, many with considerable legal expertise and/or a great deal of relevant experience. Having considered these comments, the Board has refined the proposed rule in several ways, outlined above in Section II and discussed more fully below in Sections V and VI. It is likely that the Board would not have received as much input from revisiting the joint-employer standard through adjudication rather than rulemaking. Rulemaking has given interested persons a way to provide input through the convenient comment process, and participation was not limited, as in the adjudicatory setting, to legal briefs filed by the parties and amici. Further, the comments confirm that it was especially important for the Board to receive feedback in light of the recent oscillation on the joint-employer standard, after decades of stability, beginning with Browning-Ferris, which overruled longstanding Board precedent and substantially relaxed the evidentiary requirements for finding a joint-employer relationship, and followed by Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co., 365 NLRB No. 156 (2017) (HyBrand I), which restored the prior standard, but which was then vacated for procedural reasons in Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co., 366 NLRB No. 26 (2018) (Hy-Brand II),12 resulting in reinstatement by default of the jointemployer standard adopted in Browning-Ferris. Second, rulemaking has made it possible for the Board to provide greater clarity with respect to the standard than would likely be accomplished through adjudication. Although the Board has decided, in response to comments, to omit the examples that were set forth in the text of the proposed rule, the final rule provides clarity by, for example, setting forth actions that will and actions that will not constitute direct and immediate control over each essential term and condition of employment. This is regulatory guidance that could be dismissed as dicta if set forth in an adjudicatory decision in a case in which it was not essential to the outcome. By providing such guidance, the final rule will 12 Mot. for reconsideration denied 366 NLRB No. 93 (2018) (Hy-Brand III). PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 comport with the Supreme Court’s instruction that the Board should provide parties with ‘‘certainty beforehand as to when [they] may proceed to reach decisions without fear of later evaluations labeling [their] conduct an unfair labor practice.’’ First Nat’l Maint. Corp. v. NLRB, 452 U.S. 666, 679 (1981). Third, the Board continues to believe, as discussed in the NPRM, that by establishing the joint-employer standard through the Board’s Rules and Regulations, the final rule will enable employers, unions, and employees to plan their affairs free of the uncertainty that significant changes to the jointemployer doctrine could be made, and retroactively applied, via case adjudication. NLRB v. Wyman-Gordon Co., 394 U.S. 759, 777 (1969) (Douglas, J., dissenting) (‘‘The rule-making procedure performs important functions. It gives notice to an entire segment of society of those controls or regimentation that is forthcoming.’’). Finally, the decision to engage in rulemaking regarding the standard for determining joint-employer status is consistent with the similar determinations, by the United States Department of Labor (DOL) and the United States Equal Employment Opportunity Commission (EEOC), to similarly address this issue through rulemaking.13 In sum, and as indicated in the NPRM with respect to the proposed rule, the Board believes that the final rule will foster predictability and consistency regarding determinations of jointemployer status in a variety of business relationships, thereby enhancing labormanagement stability, the promotion of which is one of the principal purposes of the Act. IV. Recusal Issues A number of commenters claim that Chairman Ring, Member Emanuel, and/ or Member Kaplan entered into this rulemaking with unalterably closed minds as to the outcome and consequently that each should recuse himself from participating in it. For the reasons that follow, the Board rejects these contentions. ‘‘[A]n individual should be disqualified from rulemaking only when there has been a clear and convincing showing’’ that the official ‘‘has an 13 See Joint Employer Status Under the Fair Labor Standards Act, 85 FR 2820 (Jan. 16, 2020) (to be codified 29 CFR part 791); Introduction to the Fall 2019 Regulatory Plan, 84 FR 71091 (Dec. 26, 2019) (listing EEOC Fall 2019 Unified Rulemaking Agenda, Joint Employer Status Under the Federal Equal Employment Opportunity Statutes (RIN: 3046–AB16)). E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations unalterably closed mind on matters critical to the disposition of the proceeding.’’ Air Transp. Ass’n of America, Inc. v. NMB, 663 F.3d 476, 487 (D.C. Cir. 2011) (quoting C & W Fish Co. v. Fox, 931 F.2d 1556, 1564 (D.C. Cir. 1991)). Moreover, ‘‘[a]n administrative official is presumed to be objective and ‘capable of judging a particular controversy fairly on the basis of its own circumstances.’ ’’ Steelworkers v. Marshall, 647 F.2d 1189, 1208 (D.C. Cir. 1980) (quoting United States v. Morgan, 313 U.S. 409, 421 (1941)). Further, ‘‘[w]hether the official is engaged in adjudication or rulemaking,’’ the fact that he or she ‘‘has taken a public position, or has expressed strong views, or holds an underlying philosophy with respect to an issue in dispute cannot overcome that presumption.’’ Id. That presumption is also not overcome ‘‘when the official’s alleged predisposition derives from [his or] her participation in earlier proceedings on the same issue.’’ Id. at 1209. Expanding on the latter point, the D.C. Circuit has explained that ‘‘[t]o disqualify administrators because of opinions they expressed or developed in earlier proceedings would mean that ‘experience acquired from their work . . . would be a handicap instead of an advantage.’ ’’ Id. (quoting FTC v. Cement Inst., 333 U.S. 683, 702 (1948)). More recently, the D.C. Circuit has similarly emphasized that it would ‘‘‘eviscerate the proper evolution of policymaking were we to disqualify every administrator who has opinions on the correct course of his agency’s future actions.’ ’’ Air Transp. Ass’n of America, 663 F.3d at 488 (quoting C & W Fish Co., 931 F.2d at 1565). Consistent with the foregoing precedent, each participating Member has determined that there is no basis to recuse himself from this rulemaking. Indeed, comparison of the final rule with the proposed rule in itself clearly demonstrates that the Members did not engage in this endeavor with ‘‘an unalterably closed mind.’’ After considering nearly 29,000 comments, the Board has revised the proposed rule in several significant respects. Throughout this rulemaking process, the Board has been willing to reconsider the preliminary views expressed in the NPRM and to revise the rule as found appropriate. One commenter raises arguments based on section 1, paragraph 6 of Executive Order 13770, entitled ‘‘Ethics Commitments by Executive Branch Appointees,’’ 82 FR 9333 (Jan. 28, VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 2017).14 As other commenters correctly note, the cited provision is inapplicable.15 Section 1, paragraph 6 of Executive Order 13770 is a pledge that states: ‘‘I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.’’ This paragraph, read together with the definitions of ‘‘former employer,’’ ‘‘former client,’’ and ‘‘directly and substantially related’’ set forth in Executive Order 13770, prohibits a Board Member from participating in a ‘‘particular matter involving specific parties’’ in which his or her former employer or own former client is a party or the representative of a party. Section 2(s) of Executive Order 13770 provides that a particular matter involving specific parties has the same meaning as set forth in 5 CFR 2641.201(h).16 5 CFR 2641.201, which contains interpretive guidance for the post-employment restrictions found in 18 U.S.C. 207, states that ‘‘only those particular matters that involve a specific party or parties fall within the prohibition’’ of 18 U.S.C. 207(a)(1), and that [s]uch a matter typically involves a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identified parties, such as a specific contract, grant, license, product approval application, enforcement action, administrative adjudication, or court case. 5 CFR 2641.201(h)(1). Further, the regulation states that ‘‘[l]egislation or rulemaking of general applicability and the formulation of general policies, standards or objectives, or other matters of general applicability are not particular matters involving specific parties.’’ Id. 2641.201(h)(2). Here, the joint-employer rulemaking—unlike an administrative adjudication of a case—is not a ‘‘specific proceeding affecting the legal rights of the parties’’ to that proceeding. Rather, this rulemaking is a matter of general applicability. See 5 CFR 2641.201(h)(1)14 See comment of Service Employees International Union (SEIU). 15 See comments of Ranking Member Virginia Foxx of the U.S. House of Representatives Committee on Education and Labor (Ranking Member Foxx); HR Policy Association. 16 Section 2(s) additionally states that the definition of a particular matter involving specific parties shall also include ‘‘any meeting or other communication relating to the performance of one’s official duties with a former employer or former client, unless the communication applies to a particular matter of general applicability and participation in the meeting or other event is open to all interested parties.’’ This portion of the provision does not apply here. PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 11189 (2). Further, the phrase ‘‘including regulations’’ in the pledge recusal provision in section 1, paragraph 6 of Executive Order 13770 ‘‘is not intended to suggest that all rulemakings are covered,’’ but instead is a ‘‘reminder that regulations sometimes may be particular matters involving specific parties, although in rare circumstances.’’ Ethics Pledge: Revolving Door Ban—All Appointees Entering Government, DO– 09–11 at 2 (Mar. 26, 2009) (‘‘certain rulemakings may be so focused on the rights of specifically identified parties as to be considered a particular matter involving specific parties’’); see also Guidance on Executive Order 13770, LA–17–03 (Mar. 20, 2017). Because the joint employer rulemaking is not directed at specific parties, the cited provision of Executive Order 13770 does not apply, and arguments based on Executive Order 13770 are misplaced. Citing Member Emanuel’s participation in Hy-Brand I, one commenter argues that Member Emanuel should recuse himself because ‘‘[i]t is clear where [he] stands on the important issues at stake in this rulemaking’’ and because he has ‘‘expressed those strong views.’’ 17 However, the fact that Member Emanuel expressed views on the joint-employer standard in Hy-Brand I is insufficient to demonstrate that Member Emanuel has engaged in this rulemaking with an unalterably closed mind. See Air Transp. Ass’n of America, Inc., 663 F.3d at 487–488; Steelworkers, 647 F.2d at 1208–1209. Accordingly, the AFT’s argument is unfounded. Commenters also argue that Member Emanuel should recuse himself because his participation in this rulemaking would ‘‘accomplish the same goals’’ that he could not accomplish in Hy-Brand I, and this would be inconsistent with his ‘‘ethical obligations.’’ 18 As an initial matter, Member Emanuel’s disqualification from Hy-Brand I was unrelated to the substantive issues in that case. It was based on the fact that Member Emanuel had been a shareholder in the law firm that represented Leadpoint Business Services, one of the parties before the Board in Browning-Ferris; it had nothing to do with the substance of the case or the joint-employer standard. See Browning-Ferris v. NLRB, 911 F.3d at 1205–1206. To the extent the AFT is suggesting that Member Emanuel should be disqualified from participating in this 17 See comment of American Federation of Teachers (AFT) at 4. 18 Id.; see also comments of AFL–CIO; SEIU; Congressional Progressive Caucus; Attorneys General of New York, Pennsylvania, et al.; Center for American Progress Action Fund. E:\FR\FM\26FER2.SGM 26FER2 11190 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 rulemaking because he has ‘‘[policy] goals,’’ neither Member Emanuel’s underlying philosophy, nor his previously expressed views, nor his initial participation in Hy-Brand I constitute grounds for his disqualification or establish that Member Emanuel has an unalterably closed mind on matters critical to this rulemaking. See Air Transp. Ass’n of America, Inc., 663 F.3d at 487–488; Steelworkers, 647 F.2d at 1208–1209. Moreover, and as emphasized above, the final joint-employer rule applies prospectively only. Thus, the final rule will not effectively reinstate the Board’s vacated decision in Hy-Brand I, it will not affect the outcome in BrowningFerris (currently pending before the Board on remand from the D.C. Circuit), and it will not affect Leadpoint or any other party in Browning-Ferris.19 Although the Board’s Designated Agency Ethics Official (DAEO) determined that Member Emanuel was disqualified from participation in the Hy-Brand cases, the DAEO subsequently determined that Member Emanuel was not disqualified from participating in this rulemaking and provided guidance to all Board members with respect to general recusal considerations. With respect to the DAEO’s latter determination, one comment faulted the DAEO’s memorandum for purportedly failing to apply the recusal standard for rulemaking ‘‘in light of the NPRM’s particularly suspect history,’’ asserting that there should be a ‘‘more fulsome’’ public examination of the DAEO’s opinion or memorandum.20 This vague claim does not undermine the DAEO’s determination. Another commenter has suggested that the DAEO’s memorandum is flawed because it was issued while the Board’s recusal procedures were under review.21 The Board’s report on those procedures issued on November 19, 2019.22 Nothing in that report or in the fact that the review was underway at the time the DAEO issued her memorandum 19 The question of what standard should apply in Browning-Ferris on remand was not addressed by the D.C. Circuit, which declined to rule on BFI’s challenge to the retroactive application of the Browning-Ferris standard in that case. See 911 F.3d at 1222. 20 Comment of Chairman Robert C. ‘‘Bobby’’ Scott of the House Committee on Education and Labor and Ranking Member Patty Murray of the Senate Committee on Health, Education, Labor, and Pensions (Chairman Scott and Ranking Member Murray) at 16. 21 Comment of Congressional Progressive Caucus. 22 See NLRB’s Ethics Recusal Report, https:// www.nlrb.gov/reports/other-agency-reports/ethicsrecusal-report (last visited Jan.15, 2020). The Board subsequently announced plans to modify aspects of the report not material to the issues discussed here. Id. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 undermines the DAEO’s opinion regarding Member Emanuel’s participation. One commenter also contends that Member Emanuel’s participation in this rulemaking creates an appearance of preferential treatment of a client (Leadpoint) of his former law firm because the client would ‘‘derive the same impermissible benefit as it would have from Hy-Brand I.’’ 23 Accordingly, this commenter argues that Member Emanuel’s participation ‘‘runs afoul’’ of section 1, paragraph 6 of Executive Order 13770, as well as 5 CFR 2635.101(b)(8) and (14). Id. 5 CFR 2635.101(b)(8) states: ‘‘Employees shall act impartially and not give preferential treatment to any private organization or individual.’’ 5 CFR 2635.101(b)(14) similarly requires employees to ‘‘endeavor to avoid’’ any actions that would create the appearance that they are violating the law or applicable ethical standards, as ‘‘determined from the perspective of a reasonable person with knowledge of the relevant facts.’’ As discussed above, section 1, paragraph 6 of Executive Order 13770 does not apply to this rulemaking and thus does not support SEIU’s claim. Further, because the final rule will apply prospectively only and will not affect pending unfair labor practice cases such as Browning-Ferris, and because there is no evidence that Member Emanuel has acted other than impartially or given preferential treatment to anyone through this rulemaking, there is no basis for finding that Member Emanuel’s participation is contrary to 5 CFR 2635.101(b)(8), and no reasonable person with knowledge of the relevant facts would find that Member Emanuel’s participation in this rulemaking would create an appearance that the law or ethical standards have been or are being violated. Two commenters argue that Chairman Ring and Member Emanuel are ‘‘too biased to participate in rulemaking’’ based on unfair labor practice litigation involving McDonald’s USA, LLC (the McDonald’s litigation).24 Those commenters cite Chairman Ring’s and Member Emanuel’s former law firms’ work in connection with the McDonald’s litigation and then-pending motions for Chairman Ring and Member Emanuel to recuse themselves from that case. These commenters argue that the 23 Comment of SEIU at 20. of SEIU National Fast Food Workers Union at 2 (capitalization altered); see also id. at 3 (citing McDonald’s USA, LLC, a Joint Employer, et al. ‘‘Charging Parties’ Motion for Recusal of Chairman Ring and Member Emanuel,’’ Case 02– CA–093893 et al. (Aug. 14, 2018)); see also comment of SEIU at 21. 24 Comment PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 participation of Chairman Ring and Member Emanuel in this rulemaking is ‘‘no less problematic’’ because it would enable Chairman Ring and Member Emanuel ‘‘to tailor a rule for the McDonald’s case that would directly benefit their former firms’ client.’’ The Board issued its decision approving a proposed settlement of the McDonald’s litigation on December 12, 2019. See McDonald’s USA, LLC, 368 NLRB No. 134 (2019). Chairman Ring took no part in the consideration of the case, and the motion for his recusal was dismissed as moot. Id., slip op. at 1 fn. 2. For the reasons explained in the decision, the motion to recuse Member Emanuel was denied. Id. Moreover, as discussed above, the final rule applies prospectively only and thus will have no substantive effect on the nowconcluded McDonald’s litigation.25 As such, there is no reasonable basis for concluding that the participation of Chairman Ring and Member Emanuel in this rulemaking would involve preferential treatment of any party to the McDonald’s litigation or create an appearance of partiality or preferential treatment. Accordingly, the pendency of the McDonald’s litigation at the time the NPRM was published neither requires nor supports Chairman Ring’s or Member Emanuel’s recusal from participation in this rulemaking. Finally, to the extent that any commenter’s argument regarding the McDonald’s litigation is based on 5 CFR 2635.502(a)–(b), the argument is misplaced. 5 CFR 2635.502(a)(1) states that, unless he receives prior authorization, an employee should not participate in a particular matter involving specific parties that he knows is likely to affect the financial interests of a member of his household, or in which he knows that a person with whom he has a covered relationship is 25 The fact that the Board had proposed a jointemployer rule was taken into consideration in the decision to approve the settlement in the McDonald’s litigation, but only to the extent that the Board recognized that the standard adopted in a final rule ‘‘[would] likely supplant any standard arising from the [McDonald’s] litigation,’’ and therefore ‘‘a decision regarding joint-employer status’’ in that litigation ‘‘may have limited precedential value.’’ 368 NLRB No. 134, slip op. at 7. Importantly, in weighing the risks inherent in continued litigation, the Board observed that ‘‘there [was] no guarantee that McDonald’s would be found to be a joint employer with its Franchisees’’ ‘‘[e]ven under the joint-employer standard articulated in Browning-Ferris,’’ considering that the Board ‘‘has generally not held franchisors to be joint employers with their franchisees’’ and that ‘‘the Board in [Browning-Ferris] explicitly disclaimed an intent to address the joint-employer standard in the context of the relationship between a franchisor and a franchisee.’’ Id., slip op. at 6–7. E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations or represents a party,26 if he determines that a reasonable person with knowledge of the relevant facts would question his impartiality in the matter. For reasons already stated, because this CFR provision applies to ‘‘particular matters involving specific parties,’’ it does not apply to a rulemaking of broad application such as this one. Id.; see also Office of Government Ethics Legal Advisory, DO–06–029, ‘‘Particular Matter Involving Specific Parties,’’ ‘‘Particular Matter,’’ and ‘‘Matter,’’ at 9 fn. 10 (Oct. 4, 2006) (‘‘[R]ulemaking ‘would not, except in unusual circumstances covered under section 502(a)(2), raise an issue under section 502(a)[.]’ ’’) (quoting OGE Informal Advisory Letter 93 x 25 (Oct. 1, 1993)). 5 CFR 2635.502(a)(2) also includes a ‘‘catchall’’ provision, which states: ‘‘An employee who is concerned that circumstances other than those specifically described in this section would raise a question regarding his impartiality should use the process described in this section to determine whether he should or should not participate in a particular matter’’ (emphasis added). But because the final rule applies prospectively only and does not affect the outcome of any pending litigation, no such concerns are present here. khammond on DSKJM1Z7X2PROD with RULES2 V. Response to Comments The Board received almost 29,000 comments from interested organizations, labor unions, business owners, members of Congress, state attorneys general, academics, and other individuals. The Board has carefully reviewed and considered these comments as discussed below. A. Comments Regarding the Development of the Joint-Employer Doctrine Under the Act The Board received numerous comments on the development of the joint-employer doctrine under the Act. In general, those comments acknowledge the accuracy of the Board’s description of that development in the NPRM, which is briefly summarized above in Section I. As more fully developed there, for at least 30 years (from no later than 1984 to 2015), evidence of direct and immediate control over essential terms and conditions of employment was required to prove that an entity was the joint employer of another business’s workers. 26 Pursuant to 5 CFR 2635.502(b)(1)(iv), an employee is considered to have a ‘‘covered relationship’’ with ‘‘[a]ny person for whom the employee has, within the last year, served as officer, director, trustee, general partner, agent, attorney, consultant, contractor, or employee.’’ VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 This requirement disappeared in August 2015 with the issuance of BrowningFerris, which held that joint-employer status could be based on evidence of indirect or reserved-but-unexercised control, without more. Several commenters criticize the proposed rule’s return to the Board’s joint-employer standard as it existed before Browning-Ferris.27 These commenters contend that the Board cannot simply revert to the pre– Browning-Ferris joint-employer standard because the Board precedent upon which that standard was based— Laerco and its progeny—departed without explanation from the standard articulated in Greyhound Corp., 153 NLRB at 1488, by disregarding evidence of contractually reserved authority and indirect control as evidence of jointemployer status and discounting evidence of supervision and direction that was ‘‘limited and routine.’’ See Laerco, 269 NLRB at 326; TLI, 271 NLRB at 798–799. In the view of these commenters, these departures led to a narrowing of the joint-employer standard without ‘‘the benefit of any explicit modification of the earlier Greyhound standard.’’ 28 In addition, some commenters contend that the final rule’s ‘‘direct and immediate’’ standard was ‘‘manufactured’’ by the Board in Airborne Express, with no explanation and no citation to the common law.29 These commenters point to Restatement (Second) of Agency (1958) Sec. 220(1), comment d, which states that ‘‘the control or right to control needed to establish the relation of master and servant may be very attenuated.’’ Some commenters argue that the proposed rule’s requirement that a putative joint employer must possess and actually exercise substantial direct and immediate control over employees’ working conditions ‘‘amounts to little more than a ‘categorical rule’ that drains reserved and/or indirect control of any relevance.’’ At least one commenter observes that the common-law ‘‘right-tocontrol’’ principle is consistent with Section 2(11) of the NLRA, which defines ‘‘supervisor’’ as ‘‘any individual having authority, in the interest of the employer,’’ to perform one or more of 12 supervisory functions. 29 U.S.C. 152(11) (emphasis added).30 Contrary to these comments, the pre– Browning-Ferris Board precedent 27 See comments of Laborers’ International Union of North America (LIUNA); International Union of Operating Engineers (IUOE); AFL–CIO. 28 See comment of IUOE. 29 See comments of State Attorneys General; the AFL–CIO. 30 See comment of AFL–CIO. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 11191 described above is consistent with the common law of joint-employment relationships in the context of the Act. Even assuming that Laerco, TLI, and Airborne Express did not adequately explain the basis for requiring substantial direct and immediate control, the Board has provided that explanation here. As the D.C. Circuit has held, ‘‘the common law inquiry is not woodenly confined to indicia of direct and immediate control; an employer’s indirect control over employees can be a relevant consideration.’’ BrowningFerris v. NLRB, 911 F.3d at 1209 (emphasis added). And again, the court upheld ‘‘as fully consistent with the common law the Board’s determination’’ in Browning-Ferris ‘‘that both reserved authority to control and indirect control can be relevant factors in the joint-employer analysis.’’ Id. at 1222 (emphasis added). The Board agrees that reserved authority to control and indirect control are relevant considerations. To state the obvious, however, the court also acknowledged the significance of direct and immediate control to the common-law jointemployer analysis when it stated that ‘‘the common-law inquiry is not woodenly confined to indicia of direct and immediate control,’’ id. at 1209 (emphasis added), and the court expressly did not decide whether either indirect control or contractually reserved but unexercised authority, without more, could establish jointemployer status under the Act, id. at 1213, 1218. Accordingly, the final rule makes evidence of indirect control and contractually reserved but unexercised authority probative of joint-employer status insofar as it supplements and reinforces evidence of direct and immediate control over essential terms and conditions of employment. The final rule is therefore consistent with the D.C. Circuit’s decision in BrowningFerris. And by requiring evidence of direct and immediate control, it is also consistent with Laerco and its progeny. The final rule, moreover, is consistent with the Board’s pre-1984 precedent, which deemed indirect control relevant to joint-employer status without holding that it was sufficient, standing alone, to establish that status. For example, in Floyd Epperson, 202 NLRB at 23, the Board considered the fact that the putative joint employer, a dairy company, had indirect control over the wages of drivers supplied by another employer. But the Board’s conclusion that the dairy company was a joint employer of the drivers relied on ‘‘all the circumstances’’ of the case, including the fact that the company E:\FR\FM\26FER2.SGM 26FER2 11192 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations dictated the specific routes that drivers were required to take when transporting its goods, ‘‘generally supervise[d]’’ the drivers, and had authority to modify their work schedules. Id. As explained in the NPRM, in Floyd Epperson and like cases arising before 1984, the Board was not called upon to decide, nor did it assert, that an entity’s indirect influence over another company’s workers’ essential working conditions, standing alone, could establish a jointemployer relationship. Some commenters argue that the rule conflicts with the policies and purposes of the NLRA by purportedly diminishing opportunities for collective bargaining and eliminating protections for those seeking to exercise their rights under the Act.31 Another commenter argues that while the Browning-Ferris standard facilitates collective bargaining when chosen by workers, promotes enforcement of the Act, and provides clear standards, the proposed rule fails on each of these counts.32 Other commenters take the opposite position, arguing that the proposed rule encourages collective bargaining by fostering predictable joint-employer determinations in a variety of business relationships, thereby promoting labormanagement stability, one of the principal purposes of the Act.33 In agreement with the latter commenters, the Board believes that the final rule promotes national labor policy by appropriately imposing bargaining obligations solely on entities that have actually exercised substantial direct and immediate control over essential terms and conditions of employment. B. Comments Regarding Indirect Control khammond on DSKJM1Z7X2PROD with RULES2 Many commenters support requiring actual exercise of substantial direct and immediate control in order to establish joint-employer status. In this regard, commenters assert, among other things, that this requirement is practical; 34 is long-accepted 35 and has always been a fundamental aspect of the jointemployer standard; 36 is consistent with court precedent, the common law, the pertinent Restatements, and/or congressional intent; 37 appropriately 31 See comments of National Employment Law Project (NELP); Economic Policy Institute (EPI). 32 See comment of State Attorneys General. 33 See comments of American Supply Association; Chamber of Commerce. 34 Comment of International Foodservice Distributors Association. 35 Comments of International Foodservice Distributors Association; Restaurant Law Center. 36 Comment of National Retail Federation. 37 Comments of Coalition for a Democratic Workplace (CDW); Chamber of Commerce; HR Policy Association; Ranking Member Foxx; VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 assigns unfair labor practice liability to the employer responsible for the violation; 38 and enables businesses to enter into a variety of business relationships and to establish certain high-level requirements (e.g., minimum training levels) with the confidence that they will not be held responsible for another entity’s employees.39 Further, some commenters state that pre– Browning-Ferris precedent addressing the meaning of direct and immediate control will provide helpful guidance to parties.40 Relatedly, several commenters state that evidence of indirect control may be ‘‘probative,’’ 41 relevant, or permissibly considered, but that the common law, the courts, and/or the Taft-Hartley Congress would not support finding joint-employer status absent evidence of direct or immediate control.42 In this connection, one commenter states that the Board may choose to address whether indirect control could be ‘‘dispositive,’’ noting that the D.C. Circuit in Browning-Ferris v. NLRB left that question unanswered.43 However, another commenter takes the position that the extent to which control is exercised has limited or no relevance.44 In contrast, several commenters say that consideration of indirect control is consistent with the common law, the pertinent Restatements, court decisions (including Browning-Ferris v. NLRB),45 and the practices of other federal agencies that consider indirect control under other statutes.46 One commenter asserts that considering indirect control is necessary in order to capture how American Staffing Association; Council on Labor Law Equality (COLLE); Restaurant Law Center. 38 Comments of COLLE; Americans for Tax Reform. 39 Comment of National Association of Truckstop Operators. 40 Comments of International Bancshares Corporation; Restaurant Law Center; COLLE. 41 Comment of CDW. 42 Comments of CDW; HR Policy Association; American Staffing Association; Retail Industry Leaders Association (RILA). 43 Comment of Jenner & Block, LLP. 44 Comment of SEIU. 45 Comments of Southern Poverty Law Center; United Brotherhood of Carpenters and Joiners of America; Congressional Progressive Caucus; Greater Boston Legal Services; International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW); AFL–CIO; International Brotherhood of Teamsters (IBT); United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, AFL–CIO (UA); 1199SEIU United Healthcare Workers East; LIUNA; Spivak Lipton LLP; IUOE; Members of Congress; Chairman Scott and Ranking Member Murray; Communications Workers of America, AFL–CIO (CWA); NELP; James van Wagtendonk; SEIU; Attorneys General of New York, Pennsylvania, et al.; SEIU Local 32BJ. 46 Comments of UA; James van Wagtendonk. PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 control is actually exercised in the workplace.47 Some commenters state that indirect control can be just as effective and significant as direct control.48 Further, some commenters state that the Board failed to adequately justify its ‘‘preliminary belief’’ in the NPRM that, without requiring direct and immediate control, it would be difficult to police the line between independent commercial contractors and genuine joint employers.49 Citing various sections of the Act, several commenters argue that indirect control is either relevant to, or an independently sufficient basis for finding, joint-employer status. Specifically, they cite the definition of ‘‘employer’’ in Section 2(2),50 of ‘‘supervisor’’ in Section 2(11),51 and of ‘‘agent’’ in Section 2(13),52 and the policies set forth in Section 1.53 Under the common law, some forms of indirect control are relevant to the joint-employer analysis. Consistent with this principle, the final rule makes clear that evidence of indirect control over essential terms and conditions of employment is probative of jointemployer status, but only to the extent that it supplements and reinforces evidence of direct and immediate control over essential terms and conditions of employment. Nothing in the Act itself or joint-employer precedent compels us to adopt a rule that permits a finding of joint-employer status based solely on an entity’s indirect control over another entity’s employees, and the Board declines to do so. With regard to comments that cite various sections of the Act, none of the cited sections requires a conclusion that one entity’s exercise of merely indirect control over another entity’s employees is sufficient to make the former entity a joint employer. Further, the Board believes that the policies of the Act are furthered, not hindered, by requiring only those entities to come to the bargaining table that have sufficient control over essential terms and conditions of employment to warrant a finding that they meaningfully affect matters relating to the employment relationship, and that direct and immediate control over at least one essential term is necessary to warrant such a finding. 47 Comment of NELP. e.g., Comment of Kelly Sagaser. 49 Comments of Chairman Scott and Ranking Member Murray; Attorneys General of New York, Pennsylvania, et al. 50 Comments of A. Feola; AFL–CIO; UA; SEIU. 51 Comments of UAW; AFL–CIO. 52 Comment of SEIU. 53 Comments of IUOE; Members of Congress. 48 See, E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 Several commenters state that the term ‘‘direct and immediate control’’ is unclear and will lead to uncertainty and litigation over its meaning.54 Some commenters also state that the final rule should define the term,55 and some propose definitions or advocate for particular interpretations of that phrase.56 For the reasons stated by many commenters, the final rule provides guidance on distinguishing what does and does not evidence direct and immediate control over each essential term and condition of employment. We believe that that this approach helps clarify the meaning of ‘‘direct and immediate control.’’ Moreover, the several definitions of essential terms and conditions of employment— specifically, of what does not constitute evidence of direct and immediate control—also shed light on the meaning of indirect control. Many commenters are critical of the term ‘‘indirect control,’’ saying, among other things, that it is undefined, ambiguous, and/or seemingly limitless.57 Some commenters note that there are different types of indirect control, and they cite the BrowningFerris court’s distinction between forms of indirect control that involve sharing or codetermining those matters governing essential terms and conditions of employment, which may be relevant to a joint-employer determination, and employer decisions that set the objectives, basic ground rules, and expectations for a third-party contractor, which are not.58 Relatedly, other commenters state or imply that joint-employer status should not be found based solely on a business having the ability to cancel a contract with a subcontractor or franchisee.59 Further, several commenters propose defining, or describe, ‘‘indirect control’’ as involving or including control exercised through intermediaries or controlled third parties,60 or some 54 Comments of UAW; 1199SEIU United Healthcare Workers East; SEIU; Signatory Wall and Ceiling Contractors Alliance. 55 See, e.g., Comment of Restaurant Law Center. 56 Comments of SEIU; National Retail Federation; American Hotel & Lodging Association. 57 Comments of American Staffing Association; American Action Forum; International Sign Association; Restaurant Law Center; American Hotel & Lodging Association; FedEx Corporation; HR Policy Association; National Association of Home Builders; General Counsel Peter Robb; Chamber of Commerce. 58 Comments of the American Hotel & Lodging Association; COLLE; Restaurant Law Center. 59 See, e.g., Comment of Dean Johnson. 60 Comments of Selby Schwartz; United Brotherhood of Carpenters and Joiners of America; UAW; Spivak Lipton LLP; HR Policy Association; SEIU; Wholesale Delivery Drivers, General Truck VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 version of that concept.61 Relatedly, other commenters state that, in determining the meaning of indirect control, it may be useful to consider the common-law ‘‘subservant doctrine.’’ 62 Based on these comments, the Board has decided to provide more clarity by expressly defining ‘‘indirect control’’ in the final rule in a manner that largely tracks the distinction that the D.C. Circuit articulated in Browning-Ferris v. NLRB. Thus, under the final rule, ‘‘indirect control’’ means indirect control over essential terms and conditions of employment of another employer’s employees, but not control or influence over setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract. In defining indirect control, the Board has opted to focus on the connection between the entity’s actions and the employees’ essential terms and conditions of employment, rather than on how alleged control is communicated. However, the final rule is not intended to immunize an entity from joint-employer status based solely on how its control is communicated, if the other requirements of joint-employer status otherwise are met. In this connection, as the D.C. Circuit observed in Browning-Ferris v. NLRB, the common law has never countenanced the use of intermediaries or controlled third parties to avoid the creation of a master-servant relationship, and we do not intend this rule to do so. Relatedly, as Browning-Ferris v. NLRB discussed, the subservant doctrine takes into account control exercised through an intermediary. One commenter states that indirect control should be considered along with all of the facts and circumstances, including how often indirect control is actually exercised, how many employees are impacted by the indirect control, and whether the indirect control governs a significant number of essential terms and conditions of employment.63 In addition, several commenters propose examples of indirect control or other arrangements that should not demonstrate jointemployer status, such as determining the skills of the individuals who will perform services; 64 establishing conduct requirements to ensure that the company’s employees, property, and Drivers, Chauffeurs, Sales, Industrial and Allied Workers, Local 848, IBT; Chairman Scott and Ranking Member Murray. 61 See, e.g., Comment of Kentucky Equal Justice Center (‘‘via supervisors and other lower-level direct overseers’’). 62 See, e.g., Comment of SEIU. 63 Comment of Jenner & Block, LLP. 64 Comment of Restaurant Law Center. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 11193 customers are protected; 65 deciding that the services of temporary workers supplied by another company are no longer needed at one’s worksite; 66 establishing the amount that the customer is willing to pay for services; 67 cost-plus contracts; 68 corporate social-responsibility policies; 69 ensuring compliance with regulatory obligations; 70 permitting employees to participate in basic benefit plans such as retirement, health, dental, and life insurance; 71 establishing minimum wages, where the direct employer is permitted to pay more; 72 and establishing requirements concerning performance management, products, quality, or safety.73 The final rule incorporates several aspects of these comments. Preliminarily and as a general matter, the rule states that joint-employer status must be determined on the totality of the relevant facts in each employment setting. More specifically, the final rule provides guidance as to kinds of indirect control that may not be probative of joint-employer status. It does so in the several definitions of essential terms and conditions in stating what does not constitute direct and immediate control of each essential term. Thus, for example, the final rule provides that direct and immediate control excludes setting minimal hiring standards; setting minimal standards of performance or conduct; refusing to allow another employer’s employee to continue performing work under a contract; entering into a cost-plus contract; maintaining standards that are required by government regulation; and permitting another employer, under an arms-length contract, to participate in its benefit plans. These same acts also would not constitute evidence of indirect control to the extent they involve setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract.74 See Browning-Ferris v. NLRB, 911 F.3d at 1220 (‘‘[E]mployer 65 Id. 66 Comment of Jenner & Block, LLP. of Restaurant Law Center. 68 Comments of Restaurant Law Center; COLLE. 69 Comments of COLLE; RILA; HR Policy Association. 70 Comment of HR Policy Association. 71 Id. 72 Comment of John B. Hirsch. 73 Comment of HR Policy Association. 74 On the other hand, conduct excluded by definition from evidencing direct and immediate control may evidence indirect control where it does not involve setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract. See Sec. II.B, ‘‘Summary of Changes to the Proposed Rule: Indirect Control.’’ 67 Comment E:\FR\FM\26FER2.SGM 26FER2 11194 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 decisions that set the objectives, basic ground rules, and expectations for a third-party contractor cast no meaningful light on joint-employer status.’’). While not specifically addressed in the text of the final rule, so-called social responsibility provisions, such as contractual provisions requiring workplace safety practices, sexual harassment policies, morality clauses,75 wage floors, or other measures to encourage compliance with the law or to promote desired business practices generally will not make joint-employer status more likely under the Act. Typically, such provisions will constitute the setting of basic ground rules or expectations for a third-party contractor. We cannot rule out the possibility, however, that a socialresponsibility provision may be probative of joint-employer status to the extent it goes beyond merely setting basic ground rules or expectations for a third-party contractor and evidences substantial control over one or more essential terms or conditions of employment. One commenter asserts that the NPRM created confusion by providing that joint-employer status would be limited to entities that play an active role in ‘‘establishing’’ essential terms and conditions of employment.76 The commenter states that it would undermine the Act’s goals if the Board immunized from joint-employer status entities that did not initially establish terms and conditions of employment, but that were nonetheless instrumental in post-establishment interpretation and implementation of those terms and conditions, in preventing modifications of them, or in ‘‘endorsing, ratifying, and incorporating’’ them.77 The proposed rule was not intended to limit joint-employer status in this way. The text of the proposed rule did not thus limit joint-employer status, and neither does the text of the final rule. Thus, an entity may be found to be a joint employer where it possesses and exercises substantial direct and immediate control over essential terms and conditions of employment by maintaining or revising them without having established them in the first instance. 75 Morality clauses require employees to maintain standards of behavior to protect the reputation of their employer. See, e.g., Galaviz v. Post-Newsweek Stations, 380 Fed. Appx. 457, 459 (5th Cir. 2010), and Bernsen v. Innovative Legal Marketing, LLC, No. 2:11CV546, 2012 WL 3525612 (E.D. Va. June 20, 2012), for examples of morality clauses. 76 Comment of SEIU. 77 Id. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 One commenter states that we should rely on indirect control that is ‘‘actual and measurable’’—i.e., indirect control would be probative of joint-employer status if it can be readily identified and objectively measured.78 While the final rule does not incorporate the commenter’s proposed ‘‘actual and measurable’’ standard, it does limit the scope of probative ‘‘indirect control’’ evidence in other ways. Consistent with the D.C. Circuit’s decision in BrowningFerris v. NLRB, the final rule provides that control or influence over setting the objectives, basic ground rules, or expectations for a third-party contractor does not constitute ‘‘indirect control’’ for the purpose of determining jointemployer status. Moreover, the several definitions of essential terms and conditions of employment—specifically, of the statements in those definitions of what does not count as evidence of direct and immediate control—also furnish guidance on what may not count as evidence of indirect control, either. Finally, as to evidence of indirect control that may factor into a jointemployer determination, the final rule provides that such evidence is probative of joint-employer status only to the extent it supplements and reinforces evidence of direct and immediate control. Some commenters describe various fact patterns they said would be problematic under the proposed rule, including a situation where an entity uses a pretextual reason to ask an undisputed employer to discharge an employee, where the request is unlawfully motivated.79 Rather than lengthening or complicating the final rule with a variety of examples or fact patterns, the final rule clarifies that joint-employer status must be determined on the totality of the relevant facts in each particular employment setting. One commenter states that the Board should first conduct an independentcontractor analysis to determine whether the Board has jurisdiction before assessing whether direct and immediate control has been exercised.80 But an entity alleged to be a joint employer of another employer’s employees will be the direct employer of its own employees, and the Board’s jurisdiction over that entity will be established on this basis, provided the usual statutory and discretionary jurisdictional standards are met. From that point forward, the independentcontractor analysis has little if any 78 Comment of HR Policy Association. e.g., Comment of LIUNA. 80 Comment of Employment Law Alliance. 79 See, PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 bearing on the joint-employer determination. As the Browning-Ferris court discussed, the issue of whether a worker is an independent contractor or an employee is distinct from the issue of whether a worker who is undisputedly the employee of one employer also has a second, joint employer. Accordingly, the Board has not amended the rule to make the suggested change. C. Comments Regarding Contractually Reserved But Unexercised Control Many commenters address the question of whether reserved but unexercised control is relevant to the joint-employer analysis. A number of commenters argue that the Board should not consider contractually reserved but unexercised control in its joint-employer analysis. One commenter argues that under the right-to-control standard set forth in the Board’s decision in Browning-Ferris, virtually all user employers, franchisors, etc., would be joint employers simply because their contracts with undisputed primary employers almost always give them the potential to control the terms and conditions of employment of the primary employer’s employees, if only because such user employers can simply cancel such contracts if not satisfied with the terms and conditions of employment set by the primary employer.81 Another commenter argues that finding an entity to be an employer of another entity’s employees based solely on the conditions under which the entities have agreed that they might terminate their relationship unjustifiably restricts parties’ liberty to contract and contravenes private rights long recognized in Anglo-Saxon jurisprudence.82 Commenters also argue that a standard incorporating contractually reserved control is vague, elusive, and uncertain, difficult to apply, or unworkable, and that such a standard may be used in an outcomedeterminative manner to support a particular result.83 Another commenter states that considering reserved control may inappropriately or unfairly enmesh an entity, especially a franchisor, in another entity’s labor dispute.84 Finally, a commenter argues that extending joint-employer status to entities on the basis of potential control would conflict with other federal and state statutory schemes, creating unwarranted 81 See comment of General Counsel Robb. comment of Chamber of Commerce. 83 See comments of American Hotel & Lodging Association; International Bancshares Corporation; CDW; International Sign Association; International Foodservice Distributors Association. 84 See comment of FordHarrison LLP. 82 See E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations difficulties for businesses in their attempts to comply with various federal and state employment-related laws.85 In contrast, many commenters argue that the Board’s standard should give at least some weight to evidence of an entity’s contractually reserved control over essential terms and conditions of employment of another employer’s employees.86 These commenters argue that contractually reserved rights are relevant because they impact and, in some cases, set terms and conditions of employment and claim that the common law deems reserved control relevant because an entity’s authority over the work, even if unexercised, prevents another from deciding to render service in a manner different from that which serves the entity holding the reserved control.87 Another commenter argues that a contractual reservation of authority, particularly when paired with a clause allowing for at-will termination of the contractual relationship, gives the undisputed primary employer a powerful incentive to comply with the wishes of the putative joint employer, without the necessity of any actual exercise of control by the latter.88 Many commenters argue that the common law, as reflected in relevant Restatements and judicial decisions, permits or requires the consideration of reserved but unexercised control.89 These commenters argue that the D.C. Circuit’s recent decision in Browning-Ferris v. NLRB held that consideration of a company’s reserved authority to control terms and conditions of employment is an established aspect of the common law of agency. Commenters also contend that the common law permits or requires consideration of contractually reserved control because the Second Restatement of Agency defines a master as, among other things, someone who has the ‘‘right to control,’’ defines a servant as someone subject to the master’s right to control, and looks to the extent of control that the master may exercise ‘‘by the agreement.’’ 90 Commenters further argue that the Act itself supports considering contractually reserved but unexercised control, citing the Act’s purpose of promoting collective bargaining, which is expressly stated in Section 1 of the Act, and the khammond on DSKJM1Z7X2PROD with RULES2 85 See comment of General Counsel Robb. comments of IBT; NELP. 87 NELP cites Restatement of Employment Law Sec. 1.04. 88 Comment of CWA. 89 See comments of Chairman Scott and Ranking Member Murray; Equal Justice Center; Spivak Lipton LLP; IUOE. 90 See comments of Chairman Scott and Ranking Member Murray; AFL–CIO; IBT; IUOE; Attorneys General of New York, Pennsylvania, et al. asserted need to adapt to changes in today’s workforce by extending the right to collective bargaining to a wide variety of contingent workers as a matter of policy.91 Other commenters claim that effective collective bargaining requires that all entities with the ability to control workers’ terms and conditions of employment must participate in collective bargaining, thereby preventing an entity with reserved but unexercised control from upending, after the fact, collective-bargaining agreements made by the primary employer of the employees over whom the entity possesses reserved control.92 Another commenter argues that general statutory requirements of good-faith bargaining require the presence at the bargaining table of, for instance, an exclusive purchaser of a manufacturer’s products, or a major donor that conditions donations to a nonprofit on specified terms and conditions for the nonprofit’s employees, each of which possesses effective control over employees’ essential terms and conditions of employment by virtue of its economic relationship with their employer.93 Two commenters argue that a jointemployer standard that does not consider reserved control would be inconsistent with Section 2(11) of the Act, which defines who is a ‘‘supervisor’’ under the Act.94 These commenters contend that established Board interpretations of Section 2(11) exclude individuals who possess supervisory authority as defined in Section 2(11) from employee status under Section 2(3), whether or not such authority is exercised.95 Thus, they maintain, it is inconsistent to hold that a person may be a Section 2(11) supervisor based solely on reserved but unexercised control, but not to find his or her employer a joint employer of the supervised employee based on the same reserved but unexercised control. For example, one commenter argues that no one could dispute that a Director of Nursing in a hospital is a statutory supervisor if the Director retains authority, expressly or implicitly, to direct nurses supplied by a staffing agency when the Director observes that the nurses are not providing services correctly. In that commenter’s view, a proper joint-employer framework would 86 See VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 91 See comments of IUOE; Professor Alexia Kulwiec. 92 See comments of IUOE; NELP. 93 See comment of International Brotherhood of Electrical Workers Local 21 (IBEW Local 21). 94 See comments of UAW; AFL–CIO. 95 AFL–CIO cites Yamada Transfer, 115 NLRB 1330, 1332 (1956), and U.S. Gypsum Co., 93 NLRB 91, 92 fn. 8 (1951). PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 11195 provide that the hospital that employs the Director of Nursing must be a joint employer of the supplied nurses.96 Other commenters point out that the NPRM does not exclude consideration of reserved but unexercised control, but merely clarifies that it is insufficient to establish joint-employer status absent evidence of actual exercise of such control.97 Having carefully considered these comments, the Board has decided to modify the proposed rule to provide that an entity’s contractually reserved but never exercised authority over the essential terms and conditions of employment of another employer’s employees is probative of jointemployer status, but only to the extent that evidence of such authority supplements and reinforces evidence of actually exercised direct and immediate control. The Board agrees with those commenters who suggest that an entity’s ability to cancel a contract or terminate a business relationship with another entity should not be deemed reserved control relevant to the joint-employer inquiry.98 As stated above, reserved or indirect control is not relevant to the joint-employer analysis, whether such control is exercised or not, where it bears on ‘‘the objectives, basic ground rules, or expectations for another entity’s performance under a contract.’’ See text of Final Rule (Rule) Sec. 103.40(E), infra; Browning-Ferris v. NLRB, 911 F.3d at 1221 (‘‘[A] joint employer’s control—whether direct or indirect, exercised or reserved—must bear on the essential terms and conditions of employment, and not on the routine components of a companyto-company contract.’’) (internal quotation and citation omitted). Consistent with this principle, entities’ decisions about the conditions under which their business relationships may end are ordinary incidents of contractual relationships that are not probative of joint-employer status. Cf., e.g., First Nat’l Maint. Corp. v. NLRB, 452 U.S. 666, 677–679, 687–688 (1981) (company had no duty to bargain with representative of its own employees over decision to terminate contract and discharge employees). The Board agrees with commenters who observe that the common law and the Act permit consideration of reserved control, the approach adopted by the final rule. In response to commenters’ concerns about vague and unlimited 96 See comment of AFL–CIO. comments of Ranking Member Foxx; CDW. 98 See, e.g., comments of General Counsel Robb; Job Creators Network; Dean Johnson. 97 See E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11196 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations ‘‘potential’’ control that might have been found probative of joint-employer status under the Browning-Ferris standard, the final rule defines and limits what will constitute probative evidence of contractually reserved authority. Under the final rule, such contractually reserved authority, to be probative of joint-employer status, (1) means reserved authority over the essential terms and conditions of employment of another employer’s employees, and (2) must supplement and reinforce evidence of direct and immediate control over essential terms and conditions of employment of the other employer’s employees. Rule Sec. 103.40(F), (A), infra. It therefore follows that an entity’s contractual authority to cancel a contract or terminate a business relationship with another entity is not evidence that the former shares or codetermines matters governing essential terms and conditions of employment of the latter’s employees. Accordingly, the rule’s approach is consistent with contract-respecting principles of Anglo-Saxon jurisprudence. Similarly, and consistent with the congressional purpose expressed in the Taft-Hartley amendments,99 an entity’s reserved ‘‘control’’ in the sense of its ability to indirectly affect the terms and conditions of employment of another entity’s employees as a matter of economic reality—including by being the exclusive purchaser of a manufacturer’s products or by a donor conditioning donations to a nonprofit on changes to terms and conditions of employment of the nonprofit’s employees—will not be the kind of control that is relevant to the jointemployer analysis. As a matter of economic reality, an employer producing goods or performing services under a contract that is terminable at will has strong incentives to respond to any complaints, suggestions, or requests that the contracting entity may have. The Board is, however, precluded from taking such considerations into account in determining employer status under the Act. See, e.g., Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 324–325 (discussing Congress’s 1947 amendments to NLRA in response to Supreme Court’s expansive interpretation of Sec. 2(3) in Hearst); NLRB v. United Ins. Co. of America, 390 U.S. at 254 (same). It necessarily follows 99 See, e.g., Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 324–325 (1992) (discussing Congress’s 1947 amendments to NLRA in response to Supreme Court’s expansive interpretation of Sec. 2(3) ‘‘employee’’ in NLRB v. Hearst Publ’s Inc., 322 U.S. 111 (1944)); NLRB v. United Ins. Co. of America, 390 U.S. 254 (1968) (same). VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 that the Board cannot rely on such considerations in determining jointemployer status, either. For the following reasons, the Board is unpersuaded by the arguments by analogy to the Board’s analysis of supervisory status under Section 2(11) of the Act. First, determining supervisory status under Section 2(11) turns on the interpretation of statutory language that differs from the statutory language governing employer or employee status under Section 2(2) and 2(3), respectively. The history of interpretation of Section 2(11) has not been straightforward or free from controversy. See, e.g., NLRB v. Kentucky River Commty. Care, Inc., 532 U.S. 706, 712–721 (2001) (discussing history of interpretation of parts of Sec. 2(11)). Given the intricacy of Section 2(11) and its different purpose from Section 2(2), it should not be surprising that the Board applies different standards to the analysis of supervisory status and jointemployer status. Second, while the commenters correctly observe that the possession of authority under Section 2(11) establishes supervisory status, it is well established that the Board looks beyond mere job titles or conclusory statements of supervisory status in order to determine whether an individual is actually a supervisor under Section 2(11). See, e.g., Coral Harbor Rehab. & Nursing Ctr., 366 NLRB No. 75, slip op. at 1, 17 (2018) (‘‘[W]hat the statute requires is evidence of actual supervisory authority visibly translated into tangible examples demonstrating the existence of such authority.’’). Accordingly, while the Board need not apply congruent standards to analyze these different statutory relationships, the legal tests are in fact less divergent than the commenters suggest. Finally, ‘‘an individual must exercise supervisory authority over employees of the employer at issue, and not employees of another employer, in order to qualify as a supervisor under Section 2(11) of the Act.’’ Crenulated Co., 308 NLRB 1216, 1216 (1992) (citing cases). Thus, an individual, employed by a hospital, who possesses contractually reserved but unexercised authority responsibly to direct nurses supplied to the hospital by a staffing agency would not, on that basis, be a Section 2(11) supervisor, nor would the hospital, on that basis, be a joint employer of the nurses employed by the staffing agency. However, if the hospital, through the individual, possessed and exercised substantial direct and immediate control over essential terms and conditions of employment of the supplied staffing- PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 agency nurses, the hospital might well be found to be a joint employer of the supplied nurses, and the individual might accordingly be found to be a statutory supervisor. Accordingly, in practice, the legal tests for joint employer and supervisory status are likely to converge on consistent results in individual cases. Many commenters provide examples of industries or business relationships involving what the commenters identify as potential or reserved control.100 The final rule incorporates the wellestablished legal principle that jointemployer status must be determined on the totality of the relevant facts in each particular employment setting. Rule Sec. 103.40(A), infra. Accordingly, the outcome of a joint-employer analysis in individual cases will not be determined based on the industry or type of business relationship involved, but rather will result from application of the standards set forth in the final rule to the particular facts of the case. See, e.g., Boire v. Greyhound Corp., 376 U.S. at 481 (‘‘[W]hether Greyhound possessed sufficient indicia of control to be an ‘employer’ is essentially a factual issue.’’). Further, many commenters provide examples of specific kinds of contractual reservations of control that should or should not be probative of an entity’s status as a joint employer. As made clear above, kinds of reserved ‘‘control’’ that are ‘‘routine components of a company-to-company contract,’’ Browning-Ferris v. NLRB, 911 F.3d at 1221, will not be probative of jointemployer status under the rule, and, when necessary, the Board will evaluate evidence of an entity’s alleged contractually reserved but unexercised control over another company’s employees within this framework. (Consistent with the provisions of the final rule, such an evaluation need not be conducted unless the proponent of joint-employer status proves that the entity exercises direct and immediate 100 For example, commenters including International Bancshares Corporation, Chamber of Commerce, General Counsel Robb, COLLE, International Sign Association, Job Creators Network, FordHarrison LLP, and Jim Steitz, discuss potential or reserved control in business relationships including those between franchisors and franchisees, contractors and subcontractors, parent and subsidiary companies, and companies that generally provide and receive goods or services, including labor, from one another. Commenters including SEIU Local 32BJ, COLLE, Professor Kulwiec; National Association of Home Builders, International Sign Association, American Hotel & Lodging Association, and FordHarrison LLP discuss potential or reserved control in industries including building cleaning and security, food service and hospitality, home healthcare, agriculture, home building, visual communications, and professional employee organizations. E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 control over at least one essential term and condition of employment.) More specifically, some commenters discuss whether the joint-employer analysis can or should turn on contractual performance requirements and general work standards,101 or contractually required compliance with regulations or codes, including government-required nondiscrimination provisions.102 These kinds of contractual requirements are ordinary incidents of any contractual relationship, and they will generally not be probative of joint-employer status under the final rule. See, e.g., Aldworth Co., 338 NLRB 137, 139 (2002) (‘‘[A]ctions taken pursuant to government statutes and regulations are not indicative of joint employer status.’’), enfd. sub nom. Dunkin’ Donuts Mid-Atlantic Distrib. Ctr., Inc. v. NLRB, 363 F.3d 437 (D.C. Cir. 2004). Some commenters discuss whether the joint-employer analysis can or should consider the ability of an entity that uses services provided by another entity’s employees to have input on who provides those services, to monitor performance, to dictate times, manner, and method of performance, or a user entity’s reservation of the right to reject individual workers provided by a supplier entity and to require that supplied workers comply with the user entity’s plant rules and regulations.103 The final rule clarifies the conditions under which such contractually reserved controls may be probative of a user entity’s joint-employer status.104 Thus, the contractually reserved but unexercised right to have input on who provides services may be probative of joint-employer status if the evidence demonstrates that such input, if provided, would determine which particular individuals another employer will hire and which it will not or would directly result in the discharge of another employer’s employee. Rule Sec. 103.40(C)(4) and (5), infra; see also NLRB v. Browning-Ferris Indus. of Pennsylvania, 691 F.2d at 1125 (facts that BFI ‘‘shared with the brokers the power to approve drivers, and devised the rules under which the drivers were to operate at BFI sites’’ contributed to ‘‘substantial evidence which supports the Board’s finding that BFI exerted 101 CDW; General Counsel Robb. Association of Home Builders; Center for Workplace Compliance. 103 See comments of General Counsel Robb; Chamber of Commerce. 104 Again, in all cases, contractually reserved but unexercised control is probative only to the extent it supplements and reinforces evidence of direct and immediate control. Rule Sec. 103.40(A), infra. 102 National VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 significant control over the work of the drivers’’). An entity’s contractually reserved authority to monitor performance ordinarily will not be probative of jointemployer status. If, however, the evidence were to demonstrate that conduct characterized as ‘‘monitoring performance’’ also encompasses instructing individual employees how to perform their work or issuing performance appraisals to individual employees, that conduct may be probative of joint-employer status. Rule Sec. 103.40(C)(7), infra. And an entity’s reserved authority to dictate times, manner, and method of performance may be probative of joint-employer status to the extent such authority encompasses determining work schedules or work hours, including overtime, of another employer’s employees, instructing another employer’s employees how to perform their work, or assigning particular employees their individual work schedules, positions, and tasks. Rule Sec. 103.40(C)(3), (7), and (8); see also Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 751 (1989) (‘‘In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished.’’) (emphasis added); Restatement of Employment Law Sec. 1.01(a)(3) (‘‘[A]n individual renders services as an employee of an employer if . . . the employer controls the manner and means by which the individual renders services.’’) (emphasis added).105 One commenter also questions whether the joint-employer analysis could consider a user entity’s reservation of authority to prevent disruption of its operations or unlawful conduct by a supplier entity’s employees on its property, or the user’s efforts to monitor, evaluate, and improve the performance of supplied 105 Sections 103.40(C)(1)–(8), the definitions of the several essential terms and conditions of employment, do not directly address contractually reserved but unexercised control. Those definitions specify what does, and give examples of what does not, count as direct and immediate control. But as with indirect control, so also with contractually reserved but unexercised control: In many if not most cases, examples of what does not count as direct and immediate control will also come within the scope of routine components of company-tocompany contracting and thus not be probative of joint-employer status. However, we are unable to state, a priori, that this will hold true in all cases. Ultimately, therefore, whether a particular type of contractually reserved but unexercised control that would not, if exercised, count as direct and immediate control may nonetheless be probative of joint-employer status is a question of fact to be determined on the evidence in each case. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 11197 employees where such efforts fall short of controlling the manner, means and details of their performance.106 In general, policies prohibiting disruption of operations or unlawful conduct constitute the type of basic ground rules and expectations that ‘‘cast no meaningful light on joint-employer status.’’ Browning-Ferris v. NLRB, 911 F.3d at 1219–1220. Efforts to monitor, evaluate, and improve the performance of supplied employees would constitute direct and immediate control of essential terms and conditions if those efforts entailed a decision by the user entity to actually discharge, suspend, or otherwise discipline another entity’s employees, to instruct them how to perform their work or issue performance appraisals, or to assign them individual work schedules, positions, and tasks. Rule Sec. 103.40(C)(5)–(8). Thus, contractually reserved authority that, if exercised, would result in the foregoing would be probative of joint-employer status to the extent it supplements and reinforces evidence of direct and immediate control. Another commenter observes that many businesses outsource janitorial and security services, or production, delivery, and marketing functions.107 It suggests that any reserved control inherent in such outsourcing should not establish a joint-employment relationship. Under the rule, such ordinary contractual relationships do not make the outsourcing company a joint employer so long as it does not possess and exercise substantial direct and immediate control over essential terms and conditions of employment of employees performing the outsourced functions. Rule Sec. 130.40(A), infra. The commenter further observes that companies have sound business reasons for establishing operational, production, and safety standards in their agreements with suppliers and contractors. For example, it suggests that an aircraft manufacturer’s contractual specification of timeframe and production standards for a parts supplier and requirement that the supplier certify that it has a drug and alcohol testing program in place should not weigh towards finding the manufacturer an employer of the supplier’s employees. Under the rule, such standards are likely ordinary incidents of contractual relationships that merely set basic ground rules for the supplier’s performance under the contract and are therefore not probative of joint-employer status. Rule Sec. 103.40(E), infra. 106 See 107 See E:\FR\FM\26FER2.SGM comment of General Counsel Robb. comment of COLLE. 26FER2 11198 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 Two commenters suggest that the Board should clarify that an entity does not exercise control over a term or condition of employment by entering into a contract that dictates a particular employment term for individuals performing services under that contract.108 To the contrary, another commenter suggests that the Board should examine whether an agreement between contracting parties sets wages and/or other working conditions of one party’s employees.109 The final rule adopts the latter suggestion. Under the final rule, if a contract between two employers actually sets essential terms and conditions of employment for employees who will manufacture goods or perform services under the contract, the two employers have shared or codetermined those essential terms. In this regard, the rule is consistent with the Board’s pre–Browning-Ferris precedent and with the Third Circuit’s formulation of the joint-employer test in NLRB v. Browning-Ferris Industries of Pennsylvania, 691 F.2d at 1124 (‘‘[W]here two or more employers . . . share or co-determine those matters governing essential terms and conditions of employment—they constitute ‘joint employers’ within the meaning of the NLRA.’’). One commenter suggests that the Board should require proof that a joint employer exercises actual supervision and direction on an ongoing basis.110 The final rule is partially consistent with this suggestion, in that a finding that an entity exercises ongoing supervision and direction (as the rule defines those terms) over the employees of another entity will likely suffice to establish a joint-employer relationship. However, because supervision and direction are only two of eight essential terms and conditions of employment defined by the rule, the final rule does not adopt the commenter’s suggestion to the extent it implies that control over supervision and direction are necessary to a joint-employer finding. Evidence of control over other essential terms and conditions of employment may suffice to establish joint-employer status even absent supervision and direction. Many commenters suggest that if the Board decides to consider indicia of reserved, unexercised control, it do so with specific limits.111 The final rule 108 See comments of General Counsel Robb; Job Creators Network. 109 See comment of IBEW Local 21. 110 See comment of HR Policy Association. 111 For example, Center for Workplace Compliance suggests that the Board should accord reserved control less weight than actual control, and quantify the weight that should be given. Relatedly, HR Policy Association suggests VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 makes clear that evidence of reserved, unexercised control will only be found probative to the extent it supplements and reinforces evidence of actually exercised direct and immediate control. However, the Board finds it impractical to attempt to quantitatively predetermine how specific factual evidence will weigh in all future cases. Two commenters suggest that the Board should draw clear lines between the kinds of reserved control it will not find probative of joint-employer status (such as brand standards in franchise agreements) and those it will find probative (such as contractually reserved authority to codetermine essential terms and conditions of employment).112 The Board agrees with this comment and has attempted to provide the guidance requested in both the regulatory text and this accompanying supplementary material. Another commenter suggests that the Board should consider reserved control probative of joint-employer status only insofar as it embodies an entity’s specific right to displace another entity and directly control the other entity’s employees, as opposed to possession by the first entity of some economic influence over the entity that retains day-to-day control over its own employees.113 The final rule adopts this suggestion insofar as the rule will not permit finding joint-employer status solely on the basis of an entity’s economic influence. However, the ‘‘share or codetermine’’ standard does not require displacement by one entity of another company’s control because the underlying premise of that standard is that two entities together determine the terms and conditions of employment of a single group of employees. See, e.g., NLRB v. Browning-Ferris Indus. of Pennsylvania, 691 F.2d at 1125 (finding joint-employer relationship where ‘‘BFI and the brokers together determined the drivers’ compensation and shared in the day to day supervision of the drivers’’). A commenter suggests that the Board should not consider reserved control as a sufficient basis to permit, as primary, activity otherwise prohibited as secondary under Section 8(b)(4) of the Act.114 The final rule is consistent with this suggestion. Thus, under the rule, Company A’s contractually reserved but unexercised control over terms and conditions of employment of Company B’s employees will not, standing alone, specifically limiting the consideration of reserved control to ten percent of the analysis. 112 See comments of Restaurant Law Center; International Franchise Association (IFA). 113 See comment of RILA. 114 See comment of HR Policy Association. PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 permit a union representing Company B’s employees to picket against Company A with an object prohibited by Section 8(b)(4). However, under the final rule, evidence of Company A’s contractually reserved but unexercised control over essential terms and conditions of employment of Company B’s employees will be probative of jointemployer status to the extent it supplements and reinforces evidence of exercised direct and immediate control. Rule Sec. 103.40(A). If Company A is found to be a joint employer of Company B’s employees, action by Company’s B’s employees’ bargaining representative against Company A that would otherwise be secondary and unlawful absent the joint-employer finding would be lawful primary activity. Another commenter suggests that the Board should consider, in individual unfair labor practice cases, whether a putative joint employer actually controls the specific term(s) or condition(s) of employment implicated in the case, whether or not it possesses or exercises control over other terms and conditions of employment.115 In brief, the current rule does not change the Board’s existing policies with regard to the allocation of unfair labor practice liability among multiple employers. Finally, a commenter suggests that the Board explain the term ‘‘active role’’ used in the NPRM and define the frequency with which an entity must actually exercise contractually reserved control and the scope of such exercise in order to be found a joint employer.116 The final rule does not include the term ‘‘active role,’’ but it does provide guidance on these issues. The rule requires possession and exercise of ‘‘substantial direct and immediate control over one or more essential terms or conditions’’ of employment, it specifies what will constitute ‘‘direct and immediate’’ control over each essential term or condition of employment, and it defines ‘‘substantial’’ direct and immediate control. Rule Sec. 103.40(A), (C)(1)–(8), (D). The rule does not otherwise specify predetermined thresholds of exercised control that will be necessary to support a finding of a joint-employer status. Rather, such status will be determined within the framework of the rule based on the totality of the relevant facts in each particular employment setting. Rule Sec. 103.40(A). 115 See 116 See E:\FR\FM\26FER2.SGM comment of IFA. comment of CWA. 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 D. Comments Regarding Actual Exercise Requirement Many commenters present practical and legal arguments for and against the proposed rule’s requirement that an entity actually exercise control over terms and conditions of employment of another entity’s employees in order to be found a joint employer of those employees. As reflected in the final rule and discussed below, the Board has decided to retain this requirement. Beginning with practical arguments about an actual exercise requirement, many commenters argue that such a requirement introduces ambiguity into the analysis, makes outcomes less predictable, or otherwise prejudices interested parties in any potential litigation of joint-employer issues.117 These commenters argue that an exercise requirement complicates the analysis because, unlike contractually reserved control, exercised control cannot be analyzed simply by reference to documents. In contrast, these commenters argue, a standard that did not require evidence of exercised control would allow parties to set expectations at the outset of their contractual relationship and to allocate rights and duties in advance of any allegation of joint employment. With regard to litigation, one commenter argues that an exercise requirement introduces a ‘‘worst evidence rule,’’ where the Board will ignore express language of the contract unless a party can show that an entity has actually exercised control.118 Commenters argue that an exercise requirement will subject the outcome to the vagaries of the litigation process, with slight factual differences leading to opposite outcomes, will require extensive minitrials—which may take place months or years after the fact—over individual instances of alleged exercised control, and will impose an unfair evidentiary burden on unions.119 Commenters also argue that an actual exercise requirement will prevent effective collective bargaining, because an entity subject to another entity’s reserved authority will be unable to effectively bargain over terms and conditions of employment subject to that authority, and could allow an entity that had not participated in bargaining to upend any collective-bargaining agreement covering terms and conditions of employment over which the entity possessed contractually 117 See comments of IBT; SEIU Local 32BJ; Employment Law Alliance; AFL–CIO. 118 See comment of LIUNA. 119 See comments of LIUNA; SEIU Local 32BJ. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 reserved, unexercised control.120 Another commenter suggests that justcause provisions in collectivebargaining agreements between a staffing agency and its employees would be meaningless if entities to which the agency supplied services retained a contractual right to exclude employees from the worksite without cause.121 Relatedly, commenters argue that an exercise requirement would erode the duty to bargain under Section 8(a)(5) by allowing an entity to move in and out of joint-employer status tactically by acting to control employment conditions when it finds it necessary to do so, but refraining from exercising its reserved control when it prefers to avoid the legal obligations incumbent upon a joint employer.122 Finally, a commenter argues that imposing an actual exercise requirement is not supported by the Board’s expressed desire to avoid involving uninterested entities in the bargaining relationships of their business partners because an entity that contracts to reserve control over terms and conditions of employment of another entity’s employees may be as interested in the employment relationship as is the undisputed employer.123 Other commenters argue that an actual exercise requirement is a brightline rule that will make it easier for parties to predict outcomes, encourage economically fruitful business relationships and contractual arrangements, and promote stability by providing the Board and the courts with a consistent standard.124 One commenter argues that an exercise requirement ensures meaningful collective bargaining, while a standard that permits finding joint-employer status based solely on contractually reserved control does not.125 Finally, one commenter seeks guidance as to how much weight, if any, the Board will afford various factors evidencing reserved control, guidance that assertedly was missing from BrowningFerris.126 After carefully considering all of the commenters’ arguments, the Board has decided to retain the actual exercise requirement in the final rule. Whether or not evidence of actual exercise of control was required, it would clearly be relevant under any permissible jointemployer standard. Accordingly, the 120 See comments of LIUNA; IUOE. comment of IBT. 122 See comments of AFL–CIO; IUOE. 123 See comment of LIUNA. 124 See comments of National Retail Federation; CDW; FedEx Corporation. 125 See comment of CDW. 126 See comment of General Counsel Robb. 121 See PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 11199 Board disagrees with any contention that requiring evidence of actual exercise of direct and immediate control unnecessarily complicates the jointemployer analysis. For similar reasons, the Board disagrees with the suggestion that the rule’s approach introduces a ‘‘worst evidence rule.’’ To the contrary, an entity’s actual exercise of direct and immediate control over essential terms and conditions of employment of another entity’s employees is the best evidence that the first entity is a joint employer of those employees and is properly subjected to the consequences of that finding under the Act. Moreover, the rule does take parties’ contractual allocation of rights and responsibilities into account as part of the totality of the relevant facts in each particular employment setting. This approach is consistent with the long line of Board and court decisions emphasizing the fact-dependent nature of the jointemployer inquiry. E.g., Boire v. Greyhound Corp., 376 U.S. at 481. The Board has concluded that an actual exercise requirement will provide businesses more certainty over whether the Board will or will not find them to be joint employers of another employer’s employees and to conduct themselves accordingly. An actual exercise requirement is also a bright-line rule that will make it easier for the Board, and ultimately for the courts, to reach consistent decisions across a range of individual cases. And the Board has responded to commenters’ requests for guidance about the meaning of contractually reserved but unexercised control and the extent to which we will find it probative of a joint-employer relationship in Part V.C, ‘‘Response to Comments: Comments Regarding Contractually Reserved But Unexercised Control,’’ above. The Board finds unpersuasive arguments that an exercise requirement imposes an unfair burden of proof on unions. To the contrary, a putative joint employer’s actual exercise of direct and immediate control is readily observable by employees, who can then share the information with unions or others. Evidence of reserved but unexercised control, in contrast, is more likely to be known only by the contracting parties themselves. In any event, in unfair labor practice cases, the burden in every case is on the General Counsel to establish the complaint allegations,127 while in representation cases, NLRA Section 9(c) instructs the Board to investigate a 127 See, e.g., Laborers Local 1177 (QualicareWalsh), 269 NLRB 746, 746 (1984) (‘‘The burden of proof regarding jurisdiction, as with all other elements of a prima facie case, is on the General Counsel.’’) (emphasis added). E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11200 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations petition and direct a hearing ‘‘if it has reasonable cause to believe that a question of representation affecting commerce exists.’’ Section 11 of the Act further provides for the issuance of subpoenas on the application of any party with respect to ‘‘all hearings and investigations.’’ Accordingly, the rule’s actual exercise requirement does not unfairly burden unions. Finally, the Board disagrees with arguments that an exercise requirement will impede collective bargaining, interfere with the formation of efficacious collective-bargaining relationships, or permit entities to move in and out of joint-employer status and thus selectively affect terms and conditions of employment of other employers’ employees without incurring obligations under the Act. Nothing in this rule changes the ordinary rights and obligations of employees, employers, and unions under the Act. Every employer remains subject to all rights and obligations defined by Sections 8 and 9 of the Act with respect to its employees. Thus, an employer that possesses and exercises substantial direct and immediate control over employees’ terms and conditions of employment must, if those employees are represented, bargain on request with their representative as required by Section 8(a)(5). The rule does not excuse joint employers from that duty, nor does it deprive represented employees of their remedies under Section 8(a)(5) with respect to an employer that unilaterally changes their terms and conditions of employment without first giving their representative notice and an opportunity to request bargaining, or of their remedies under Section 8(a)(5) within the meaning of Section 8(d) with respect to an employer that fails to adhere to the terms of a collectivebargaining agreement with their representative. Moreover, a collectivebargaining agreement may, in certain circumstances, impose restraints on an entity’s exercise of contractually reserved authority over essential terms and conditions of employment governed by the agreement, though the entity is not party to the agreement. Cf. Atterbury v. United States Marshals Serv., 941 F.3d 56, 62–64 (2d Cir. 2019) (U.S. Marshals Service acted unlawfully by requiring discharge of security guards employed by a contractor without providing process required by ‘‘just cause’’ provision of guards’ collectivebargaining agreement with contractor). Accordingly, an exercise requirement will not prevent parties with an actual interest in controlling terms and conditions of employment of another VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 employer’s employees from safeguarding their contractually reserved authority to do so by engaging in bargaining, either directly or through a representative. Turning to legal arguments about an exercise requirement, some commenters assert that the Board only began in 1984 to require evidence that an entity had exercised control over another entity’s employees as part of the joint-employer analysis, and that, at that time, the Board did not articulate a legal justification for doing so.128 Without accepting the commenters’ characterization of the Board’s pre– Browning-Ferris precedent, the Board has concluded that the final rule’s approach is warranted for the reasons explained herein. Some commenters oppose an actual exercise requirement by arguing that the common law, as reflected in judicial decisions, restatements of the law, and elsewhere, requires giving contractually reserved but unexercised control dispositive weight.129 Other commenters note that contractual rights exist even if they have never been exercised, and contend that an exercise requirement is inconsistent with court and Board decisions recognizing that while highly skilled professionals like nurses or low-skilled workers like janitors may require little or only ‘‘routine’’ supervision, such workers nevertheless remain employees of the employer providing that supervision.130 One commenter further argues that imposing an actual exercise requirement raises predictability concerns similar to those that motivated the Supreme Court’s rejection of an actual-control test in favor of a reserved-control test in a dispute over copyright ownership in 128 See comments of Senator Murray and Representative Scott (joined by numerous other Senators and Representatives); IBT. 129 See comments of Julia Tomassetti; AFL–CIO; NELP; SEIU; Attorneys General of New York, Pennsylvania, et al. Commenters cite, inter alia, Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992) (quoting Reid, 490 U.S. at 751–752); Singer Mfg. Co. v. Rahn, 132 U.S. 518, 523 (1889); Garcia-Celestino v. Ruiz Harvesting, Inc., 898 F.3d 1110, 1121 (11th Cir. 2018) (quoting NLRB v. Associated Diamond Cabs, Inc., 702 F.2d 912, 920 (11th Cir. 1983)); Local 777, Democratic Union Org. Comm., Seafarers Int’l Union of North Am. v. NLRB, 603 F.2d 862, 874 (D.C. Cir. 1978) (quoting Williams v. United States, 126 F.2d 129, 132 (7th Cir. 1942)), cert. denied 317 U.S. 655 (1942); Dovell v. Arundel Supply Corp., 361 F.2d 543, 545 (D.C. Cir. 1966) (quoting Grace v. Magruder, 148 F.2d 679, 681 (D.C. Cir. 1945)); Restatement (Second) of Agency, Secs. 2(1), 2(2), 220(1), 220(2)(a), and 220 cmt. d; William A. Gregory, The Law of Agency and Partnership 114 at Sec. 50 (West Group Hornbook Series, 3d ed. 2001). 130 See comments of LIUNA; AFL–CIO. AFL–CIO cites Holyoke Visiting Nurses Ass’n v. NLRB, 11 F.3d 302, 307 (1st Cir. 1993), and Syufy Enterprises, 220 NLRB 738, 740 (1975). PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989).131 Finally, commenters argue that imposing an exercise requirement puts the Board’s standard in conflict with other state and federal standards, including Health Insurance Portability and Accountability Act, Medicaid and Medicare, the Affordable Care Act, Title VII of the Civil Rights Act of 1964 (Title VII), the Fair Labor Standards Act (FLSA), and Uniformed Services Employment and Reemployment Rights Act—and with guidance from the EEOC, Internal Revenue Service (IRS), U.S. Citizenship and Immigration Services, and DOL.132 On the other side of the issue, commenters argue that an exercise requirement is consistent with the common law as reflected in court decisions, prior Board decisions, legislative history of the NLRA, and relevant restatements of law.133 Other commenters argue that courts have approved the Board’s focus on actual control.134 Many of the same commenters also point out that the D.C. Circuit in Browning-Ferris v. NLRB held that reserved control was relevant to 131 See comment of AFL–CIO. comments of Representative Scott and Senator Murray; UA; Professor Kulwiec; James van Wagtendonk. 133 See comments of HR Policy Association; General Counsel Robb; CDW; IFA; RILA; Center for Workplace Compliance. Commenters cite, inter alia, Kelley v. S. Pac. Co., 419 U.S. 318, 324 (1974); Shenker v. Baltimore & Ohio R.R. Co., 374 U.S. 1, 6 (1963); NLRB v. Pennsylvania Greyhound Lines, Inc., 303 U.S. 261, 263 (1938); Jones v. Royal Admin. Servs., Inc., 887 F.3d 443 (9th Cir. 2018); NLRB v. CNN America, Inc., 865 F.3d 740 (D.C. Cir. 2017); Butler v. Drive Auto. Indus. of America, Inc., 793 F.3d 404, 409, 410 (4th Cir. 2015); Doe I v. WalMart Stores, Inc., 572 F.3d 677, 683 (9th Cir. 2009); Gulino v. New York State Education Dep’t, 460 F.3d 361, 379 (2d Cir. 2006); Clinton’s Ditch Co-op Co. v. NLRB, 778 F.2d at 138; NLRB v. Browning-Ferris Indus. of Pennsylvania, 691 F.2d 1117 (3d Cir. 1982); Zapex Corp. v. NLRB, 621 F.2d 328, 333 (9th Cir. 1980); Herbert Harvey, Inc. v. NLRB, 424 F.2d 770, 776–777 (D.C. Cir. 1969); NLRB v. Greyhound Corp., 368 F.2d 778, 781 (5th Cir. 1966), enfg. 153 NLRB 1488 (1965); Vernon v. California, 10 Cal. Rptr. 3d 121, 130–131 (Cal. Ct. App. 2004); SEIU Local 434 v. City of Los Angeles, 275 Cal. Rptr. 508 (Cal. Ct. App. 1990); Airborne Express, 338 NLRB 597 (2002); TLI, Inc., 271 NLRB 798 (1984); Laerco Transportation, 269 NLRB 324 (1984); Sun-Maid Growers of California, 239 NLRB 346 (1978); Clayton B. Metcalf, 223 NLRB 642 (1976); Hamburg Industries, Inc., 193 NLRB 67 (1971); Greyhound Corp., 153 NLRB 1488 (1965); H.R. Rep. No. 80– 245, at 18 (1947), reprinted in 1 NLRB, Legislative History of the Labor Management Relations Act, 1947, at 292, 309 (1959); H.R. Rep. No. 80–510, at 32–33 (1947) (Conf. Rep.), reprinted in 1 NLRB, Legislative History of the Labor Management Relations Act, 1947, at 505, 536–537 (1959); Restatement (Second) of Agency Secs. 5(2), 226, 227 & cmt. d; Restatement of Employment Law Secs. 1.01(a)(3) & cmts. a and c and illus. 5, 1.04(b). 134 See comments of International Foodservice Distributors Association; National Retail Federation; CDW. 132 See E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations determining joint-employer status under the common law, but the court did not find that it was sufficient, in and of itself and absent any actual exercise of control, to establish a joint-employment relationship under the Act. 911 F.3d at 1213.135 Finally, one commenter argues that the Board, as an executive agency with subject-matter expertise, is not required to apply the common law in its rulemaking, that nothing in the Act or in Supreme Court precedent interpreting the Act requires the Board to follow the common law, and that there are, in any case, no relevant uniform common-law principles.136 After carefully considering all of the comments on both sides of the issue, we conclude that the rule’s approach falls within the boundaries of the common law as applied in the particular context of the NLRA. We disagree with the argument that an actual exercise requirement is inconsistent with Board and court cases finding employment relationships where employees require little or only routine supervision.137 Under the rule, supervision is only one of eight essential terms and conditions of employment relevant to the jointemployer analysis, and an entity that possesses and exercises substantial direct and immediate control over other essential terms may be found to be a joint employer absent evidence that the entity exercises such control over supervision. In any case, in each of the decisions the commenter cites in support of this argument, the Board found that the entity at issue not only possessed but actually exercised substantial direct and immediate control over terms and conditions of employment of the employees at issue. See Holyoke Visiting Nurses Ass’n, 310 NLRB 684, 685–686 (1993); Syufy Enterprises, 220 NLRB at 739. Nor is an exercise requirement inconsistent with Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). The issue in Reid was who owned the copyright in a statue created by an artist on commission. The Supreme Court reviewed several conflicting interpretations of the statutory phrase ‘‘a work prepared by an employee within the scope of his or her employment’’ in Sec. 101(1) of the Copyright Act of 1976. 490 U.S. at 738– 739. Possible alternative interpretations included (1) ‘‘that a work is prepared by an employee whenever the hiring party retains the right to control the product,’’ (2) ‘‘that a work is prepared by an employee . . . when the hiring party has actually wielded control with respect to the creation of a particular work,’’ and (3) ‘‘that the term ‘employee’ within Sec. 101(1) carries its commonlaw agency meaning.’’ Id. at 739 (emphasis added). The Court did not reject an actual control test (the second interpretation) in favor of a reserved control test (the first interpretation). Rather, the Court rejected both of these interpretations as inappropriately focused on the relationship between the hiring party and the product, while the statutory language at issue focused on the relationship between the hired and hiring parties. Id. at 741–742. Having concluded that the Copyright Act requires a court to ascertain, under the common law of agency, whether a work was prepared by an employee or an independent contractor, the Court proceeded to analyze the record under the factors relevant to the independentcontractor determination, set forth in Section 220(2) of the Restatement (Second) of Agency. Id. at 750–753. The Court found that ‘‘the extent of control the hiring party exercises over the details of the product is not dispositive,’’ but the Court’s independent-contractor analysis suggests that the hiring party there neither possessed nor exercised any control over the manner in which and means by which the independentcontractor artist produced the work. Id. at 752–753 (emphasis added). Accordingly, Reid is no more instructive on the specific issue here than myriad other judicial decisions finding that a worker was an independent contractor absent either reserved or exercised control by a common-law principal. The Board also disagrees with the numerous arguments that an actual exercise requirement puts the Board’s standard in conflict with other statutory regimes. First, vastly different areas of law identified by commenters involve widely different concerns and should not, as a normative matter, necessarily require the application of identical tests to determine joint-employer status. Second, to the extent that different standards stem from different statutory definitions of employment relationships, those differences reflect the judgment of Congress that different standards should apply in those settings—differences the Board is not at liberty to ignore.138 While the Board 135 General Counsel Robb also advances this argument. 136 See comment of General Counsel Robb. 137 See comment of AFL–CIO. 138 Compare, for example, NLRA Sec. 2(2) (exempting ‘‘any State or political subdivision thereof’’ from definition of ‘‘employer’’) with FLSA Sec. 203(d) (‘‘ ‘Employer’ includes any person VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 11201 recognizes that divergent standards may pose difficulties for businesses seeking to achieve—or courts to enforce— compliance with different statutory obligations, this is nothing new. Businesses and courts are accustomed to this state of affairs. Moreover, it is likely that no joint-employer rule the Board could adopt could achieve uniformity with all the statutory standards identified by the commenters. Thus, failure to achieve such uniformity cannot be a valid criticism of the rule. Finally, the Board agrees that it may reasonably expect some deference from the courts with regard to our exercise, through rulemaking, of Congressional authority delegated to us in Section 6 of the Act. See NLRB v. Food & Commercial Workers, 484 U.S. 112, 123 (1987); Chevron, U.S.A., Inc. v. N. Res. Def. Council, Inc., 467 U.S. 837 (1984). But it is well established that where the Supreme Court has determined the clear meaning of statutory terms, agencies, including the Board, are not thereafter free to depart from the Court’s interpretation. Lechmere, Inc. v. NLRB, 502 U.S. 527, 536–537 (1992); Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 131 (1990). Here—as the Board and the courts have previously recognized—the Court has determined that the Taft-Hartley amendments reflect Congressional intent that the terms ‘‘employer’’ and ‘‘employee’’ within the Act are to be given their common-law agency meaning. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 324–325 (citing NLRB v. United Ins. Co. of America, 390 U.S. at 254).139 And as stated by the D.C. Circuit in BrowningFerris v. NLRB, the Board ‘‘must color within the common-law lines identified by the judiciary.’’ Browning-Ferris v. NLRB, supra at 1208. The final rule respects this principle. The Board is also not persuaded by the argument that there are no relevant uniform common-law principles because the joint-employer concept is foreign to the common law. As courts and the Board have observed, ‘‘[t]he basis of the [joint-employer] finding is simply that one employer while contracting in good faith with an acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency . . . .’’). 139 See also Browning-Ferris v. NLRB, 911 F.3d at 1206 (‘‘Under Supreme Court and circuit precedent, the National Labor Relations Act’s test for jointemployer status is determined by the common law of agency.’’); id. at 1228 (Randolph, J., dissenting) (‘‘[T]he common law . . . is supposed to control our decision and should have controlled the Board’s.’’); Browning-Ferris, 362 NLRB at 1610 (‘‘In determining whether an employment relationship exists for purposes of the Act, the Board must follow the common-law agency test.’’). E:\FR\FM\26FER2.SGM 26FER2 11202 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations otherwise independent company, has retained for itself sufficient control of the terms and conditions of employment of the employees who are employed by the other employer’’ to permit a finding that the first entity is also an employer of the employees. NLRB v. BrowningFerris Indus. of Pennsylvania, 691 F.2d at 1123 (citing Walter B. Cooke, 262 NLRB 626, 640 (1982)). Common-law principles governing the employer/ employee relationship, while sometimes difficult to ascertain with precision, are far from non-existent.140 Finally, the Board is unpersuaded by the argument that the Supreme Court’s discussion in Hearst, 322 U.S. at 125–126, warrants departing from the common-law analysis in this area. See Nationwide Mut. Ins., 503 U.S. at 325 (‘‘[A] principle of statutory construction can endure just so many legislative revisitations, and Reid’s presumption that Congress means an agency law definition for ‘employee’ unless it clearly indicates otherwise signaled our abandonment of Silk’s emphasis on construing that term ‘in the light of the mischief to be corrected and the end to be attained.’ ’’ (quoting Hearst, 322 U.S. at 124, and citing U.S. v. Silk, 331 U.S. 704, 713 (1947)). khammond on DSKJM1Z7X2PROD with RULES2 stating: ‘‘The Board generally [has] found supervision to be limited and routine where a supervisor’s instructions consist[ ] mostly of directing another business’s employees what work to perform, or where and when to perform the work, but not how to perform it.’’ 144 Further, some commenters note that there is a body of case law to which the Board, the courts, and parties may look for guidance regarding the term’s meaning.145 On the other side, some commenters argue that failing to consider limited and routine control as evidence of jointemployer status is inconsistent with the Act, the common law, court decisions, and/or pertinent Restatements.146 One commenter asserts that, in the commonlaw master-servant relationship, the relevant question is whether the entity can exercise meaningful control, not the extent to which that control is exercised.147 One commenter notes that pre–Browning-Ferris decisions did not adequately explain their holding that limited and routine control does not tend to support a joint-employer finding.148 Further, many commenters assert that the terms are vague, undefined, confusing, or contradictory, and/or that E. Comments About Limited and their use in the rule would create Routine Control unanswered, potentially fact-intensive Several commenters state that treating questions that will require litigation to limited and routine control as irrelevant answer.149 Some commenters also state to determining joint-employer status is that excluding ‘‘limited or routine’’ consistent with and/or required by the control as probative evidence of jointAct, court decisions, the common law, employer status creates a loophole that and/or pertinent Restatements.141 In this will enable entities to exercise control regard, one commenter notes that the over employees’ working conditions D.C. Circuit in Browning-Ferris v. NLRB while avoiding responsibilities under did not hold that limited and routine the Act.150 control could establish jointUpon consideration of these employment status.142 Additionally, comments, the Board has decided to several commenters suggest definitions modify the proposed rule to eliminate or interpretations of the words ‘‘limited and routine’’ as a general ‘‘limited’’ and ‘‘routine,’’ or the phrase qualifying term and to use that term ‘‘limited or routine,’’ and make solely in the context of defining what is, arguments for or against the rule based and what is not, direct and immediate on their suggested definitions or control over supervision. Thus, under 143 interpretations. One commenter notes the final rule, an entity does not that the NPRM itself suggested a exercise direct and immediate control definition of ‘‘limited or routine’’ by over supervision where its instructions 140 Cf. Cimorelli v. New York Century R. Co., 148 F.2d 575, 577 (6th Cir. 1945) (‘‘We are dealing here with a legal problem so difficult that law writers were unclear and perplexed about it long before we came on the scene and no doubt they will so continue after we have gone, but there are extant certain intelligible, if imperfect, legal rules by which there may be an ascertainment of when a person is the employee of another, although his contract of employment is not directly made with such person.’’). 141 Comments of HR Policy Association; Chamber of Commerce; National Retail Federation. 142 Comment of RILA. 143 Comments of 1199SEIU United Healthcare Workers East; SEIU; AFL–CIO; UAW; NELP; CWA; IUOE; HR Policy Association. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 144 Comment of AFL–CIO. e.g., Comment of International Bancshares Corporation. 146 Comments of AFL–CIO; NELP; CWA; IUOE; IBT; UAW. 147 Comment of SEIU. 148 Comment of AFL–CIO. 149 Comments of SEIU Local 32BJ; SEIU; Southern Poverty Law Center; Asian Pacific American Labor Alliance, AFL–CIO (APALA); CWA; Texas RioGrande Legal Aid; IBT; AFL–CIO; Signatory Wall and Ceiling Contractors Alliance; 1199SEIU United Healthcare Workers East. 150 Comments of SEIU; Equal Justice Center; Southern Poverty Law Center; Labor & Employment Committee of the National Lawyers Guild. 145 See, PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 are ‘‘limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it.’’ Rule Sec. 103.40(C)(7). This is consistent with how the term was discussed in the NPRM’s supplementary information and the case law cited therein. See 83 FR at 46683 (citing Flagstaff Medical Center, 357 NLRB 659, 667 (2011), enfd. in relevant part 715 F.3d 928 (D.C. Cir. 2013); AM Property Holding Corp., 350 NLRB at 1001; G. Wes Ltd. Co., 309 NLRB 225, 226 (1992)). None of the authorities cited by commenters supports an absolutist position—i.e., as requiring the Board to treat limited and routine control of all essential terms and conditions as either categorically irrelevant or categorically relevant to determining joint-employer status. Indeed, some of the cited authorities deal with the issue of independentcontractor status, which is analytically distinct from joint-employer status.151 See Browning-Ferris v. NLRB, 911 F.3d at 1213–1215. As noted above, the final rule defines ‘‘substantial direct and immediate control’’ as ‘‘direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment’’ and further provides that the exercise of direct and immediate control over an essential term or condition of employment is not ‘‘substantial’’ if it is ‘‘only exercised on a sporadic, isolated, or de minimis basis.’’ This definition is necessary to specify what constitutes ‘‘substantial’’ direct and immediate control, and the inclusion of clear standards for determining substantiality avoids the concerns identified by commenters with the NPRM’s exclusion of ‘‘limited and routine’’ control as evidence of joint-employer status. Several commenters provide examples of limited or routine control that should not be deemed probative of joint-employer status. These examples include contracted-for standards,152 requiring another party to adopt corporate social-responsibility policies,153 timeliness-of-completion requirements,154 statutory and 151 See, e.g., comment of CWA (citing FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009)); comment of IBT (citing McGuire v. United States, 349 F.2d 644 (9th Cir. 1965)); see also Browning-Ferris v. NLRB, 911 F.3d at 1214 (‘‘[A]t bottom, the independent-contractor and jointemployer tests ask different questions.’’). 152 Comments of CDW; National Retail Federation; International Bancshares Corporation. 153 Comment of National Retail Federation. 154 Comment of HR Policy Association. E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 regulatory compliance requirements,155 isolated instances of notifying a supplier company that certain employees are not welcome on the user entity’s property due to misconduct,156 a retailer controlling the hours that a vendor can operate in the retailer’s store,157 requiring a contracting employer to provide services during certain hours,158 and economic controls such as cost-plus contracts or generalized caps on contract costs.159 Conversely, several commenters provide examples of control that is not limited or routine, such as setting employee pay and/or paying them directly,160 hiring or being involved in hiring decisions,161 firing employees,162 disciplining employees,163 and directing ‘‘the manner in which the business shall be done, as well as the result to be accomplished.’’ 164 The final rule incorporates many of the commenters’ examples in appropriate places. For example, most of the examples in the former category— i.e., examples of control that should not be deemed probative of joint-employer status—are identical, or nearly so, to examples excluded by the rule from constituting evidence of direct and immediate control of essential terms and conditions of employment: Various standards set by contract, setting schedules for completion of a project, setting standards required by government regulation, refusing to allow another employer’s employees to access one’s premises or to perform work under a contract, establishing an enterprise’s operating hours or when it needs the services provided by another employer, and entering into cost-plus contracts. Rule Sec. 103.40(C)(1)–(8). Indeed, those same examples involve setting the objectives, basic ground rules, and expectations for another entity’s performance under a contract, which does not count as even indirect control of essential terms and conditions and is irrelevant to determining joint-employer status. Rule Sec. 103.40(E). With regard to examples in the latter category—i.e., examples of control that is not limited or routine— these are incorporated in the final rule in provisions specifying what 155 Comments of HR Policy Association; National Retail Federation. 156 Comment of COLLE. 157 Comment of National Retail Federation. 158 Comments of International Bancshares Corporation; National Retail Federation. 159 Comment of CDW. 160 Comment of David Kaufmann. 161 Comment of HR Policy Association. 162 Comment of COLLE. 163 Id. 164 Comment of HR Policy Association. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 constitutes direct and immediate control over the several essential terms and conditions of employment. Rule Sec. 103.40(C)(1)–(8). One commenter asserts that the common law requires the Board to weigh ‘‘all of the incidents of the relationship’’ or to consider the amount of control necessary for the particular work or workplace.165 The final rule clarifies that joint-employer status ‘‘must be determined on the totality of the relevant facts in each particular employment setting.’’ One commenter states that the Board should consider that, in some cases, a ‘‘routine’’ contractual term will directly implicate the terms and conditions of employment, particularly in industries where the cost of a contract is almost entirely the cost of labor, or where an entity has only one customer.166 The proposed rule used the term ‘‘routine’’ to characterize a kind of control over terms and conditions of employment, not a kind of contractual term. Thus, the comment has no bearing on what role ‘‘limited and routine’’ control over terms and conditions of employment should play in the joint-employer analysis. Nevertheless, the final rule clarifies that the ‘‘limited and routine’’ qualifier applies only in the context of supervision. However, to the extent that the commenter is suggesting that jointemployer status is established based solely on the circumstances the commenter posits, the Board disagrees. The final rule makes clear that entering into a cost-plus contract, ‘‘with or without a maximum reimbursable wage rate,’’ is not direct and immediate control over wages. In the Board’s view, it is improper to find a jointemployment relationship merely because one entity, in an arms-length transaction, negotiates the maximum wage rate that it is willing to reimburse under a cost-plus contract. While the direct employer may face economic pressures that make it difficult to negotiate a higher wage rate with its employees, this should not be sufficient to make the other party to the contract a joint employer with the direct employer. See Browning-Ferris v. NLRB, 911 F.3d at 1220 (‘‘[R]outine contractual terms, such as a very generalized cap on contract costs, . . . would seem far too close to the routine aspects of companyto-company contracting to carry weight in the joint-employer analysis.’’). One commenter states that, in jobs where employees are rarely directly supervised in their day-to-day tasks, the employer’s level of day-to-day 165 Comment 166 Comment PO 00000 Frm 00021 of IBT. of SEIU Local 32BJ. Fmt 4701 Sfmt 4700 11203 supervision is less relevant.167 That may be true, but substantial direct and immediate control in the area of supervision is only one of the ways in which joint-employer status can be established. In various workplace situations, one or another of the essential terms and conditions of employment, such as supervision, may have greater or lesser significance in making a joint-employer determination. See also Supplementary Information Section V.D, ‘‘Response to Comments: Comments Regarding Actual Exercise Requirement,’’ supra. One commenter states that much supervision by undisputed employers is routine, and therefore the fact that supervision is routine should not be a basis for declining to find jointemployer status.168 Even assuming that some undisputed employers supervise their employees in a manner that would not be sufficient, standing alone, to make a separate entity a joint employer if the separate entity engaged in such supervision, there is no support in the law and no sound reason to draw the conclusion that a separate entity that engages in only limited and routine supervision must be deemed a joint employer on that basis. Moreover, even if an undisputed employer supervises its employees in a routine manner, it exercises direct and immediate control over other essential terms and conditions of employment, including wages, benefits, hiring, and discharge. Thus, the comment posits a false equivalency between the undisputed employer and the putative joint employer. F. Comments About ‘‘Substantial’’ Direct and Immediate Control Many commenters provide positive feedback regarding the requirement of ‘‘substantial’’ direct and immediate control. Specifically, commenters state that this requirement is clear, predictable, and/or rational; 169 is consistent with the common law and court decisions, including BrowningFerris v. NLRB; 170 was the well-settled legal standard before the Board’s decision in Browning-Ferris; 171 ensures that entities are not forced into relationships as ‘‘joint employers’’ with 167 Comment of NELP. of CWA. 169 Comments of then-Chairwoman Virginia Foxx of the U.S. House of Representatives Committee on Education and the Workforce and then-Chairman Tim Walberg of the U.S. House Subcommittee on Health, Employment, Labor, and Pensions; General Counsel Robb. 170 Comment of Ranking Member Foxx; cf. comment of National Retail Federation (discussing ‘‘significant’’ control). 171 Comment of American Staffing Association. 168 Comment E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11204 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations others they deal with only in armslength transactions; 172 promotes collective bargaining by ensuring that only the necessary parties are in attendance at the bargaining table; 173 and preserves franchisees’ ability to run the day-to-day operations of their businesses without compromising the brand standards required of the franchise model.174 Further, some commenters cite Section 8(b)(4) of the Act and argue that entities with attenuated control over another business’s employees should not be deemed a primary employer and embroiled in that business’s labor disputes.175 In contrast, many commenters argue that the Board should not impose the ‘‘substantial’’ qualifier, effectively advocating that any exercise of direct and immediate control over an essential term, no matter how limited, should render an entity a joint employer. Some argue that the ‘‘substantial’’ qualifier is contrary to the Act, the common law, court decisions, and/or pertinent Restatements.176 Others assert that it would impair employees’ ability to engage in meaningful collective bargaining.177 For many of the reasons discussed in the positive comments, the Board continues to believe that it is appropriate to include the ‘‘substantial’’ qualifier in the final rule. Contrary to some of the negative comments, inclusion of the qualifier will not impair meaningful collective bargaining. In fact, meaningful bargaining would be impaired if the final rule dispensed with a substantiality requirement, since the requirement ensures that only those entities that meaningfully affect matters relating to the employment relationship are present at the bargaining table. Rule Sec. 103.40(A). It also would be contrary to the purposes and policies of the Act to impose liability for another company’s unfair labor practices on an entity that does not exercise ‘‘substantial’’ direct and immediate control over essential terms and conditions of employment of that company’s employees, or to subject that entity to secondary economic pressure. Further, the substantiality requirement is consistent with longstanding pre– Browning-Ferris Board precedent. See, e.g., Quantum Resources Corp., 305 NLRB 759, 760 (1991) (relying on entity’s ‘‘substantial’’ control over 172 Comment of COLLE. of Restaurant Law Center. 174 Comment of Brian Carmody. 175 See, e.g., comment of General Counsel Robb. 176 Comments of SEIU;IBT. 177 See, e.g., comment of UA. 173 Comment VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 hiring, promotion, base wage rates, hours, and working conditions of another employer’s employees to find the entity a joint employer). As discussed in the NPRM, prior to Browning-Ferris the Board held that even direct and immediate control may not establish joint-employer status where that control is too limited in scope. See NPRM, 83 FR at 46686– 46687 (citing Flagstaff Medical Center, 357 NLRB at 667; Lee Hospital, 300 NLRB 947, 948–950 (1990)). Nothing in the critical comments cited above undercuts the reasonableness of this precedent or of the substantiality requirement. Several commenters contend that the term ‘‘substantial’’ is undefined, vague, and/or will require litigation to clarify.178 Some commenters pose specific questions about its meaning, such as whether it is quantitative (i.e., whether it designates control over a large number of essential terms and conditions), qualitative (i.e., whether it designates ‘‘massive’’ control over just one essential term), or both.179 Further, several commenters suggest that the final rule should define the term and/or explain what is, and what is not, substantial control, and many commenters suggest definitions.180 One commenter claims that the NPRM’s suggestion that controlling only one essential term or condition is insufficient would permit the Board to find not only that an entity that controls only wages is not an employer, but also that employees have no employer at all where control over essential terms and conditions is sufficiently splintered among multiple entities.181 One commenter asserts that if the Board does not find joint-employer status where control is ‘‘exercised rarely,’’ this would allow an entity that sets initial wages not to be an employer, and it would also be inconsistent with the Act’s definition of ‘‘supervisor’’ in Section 2(11).182 The same commenter also asserts that the NPRM’s description of the term suggests that a hospital whose employees are the sole supervisors of visiting nurses would not be their joint employer, contrary to the Act and the common law.183 178 Comments of SEIU; CWA; IBT; Center for American Progress Action Fund; General Counsel Robb; LIUNA; AFL–CIO; SEIU Local 32BJ. 179 See, e.g., comment of Texas RioGrande Legal Aid. 180 Comments of Jenner & Block, LLP; International Franchise Association; CDW; Restaurant Law Center; National Retail Federation; Associated Builders and Contractors, Inc. 181 Comment of AFL–CIO. 182 Id. 183 Id. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 In response to the comments, the Board has decided to expressly define ‘‘substantial direct and immediate control’’ in the final rule. Specifically, the final rule provides that ‘‘[s]ubstantial direct and immediate control’ means direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees.’’ The rule further specifies that control is not ‘‘substantial’’ if it is ‘‘exercised on a sporadic, isolated, or de minimis basis.’’ The final rule thus clarifies that a party asserting joint-employer status must prove that the putative joint employer (i) exercises direct and immediate control over one or more essential terms or conditions of employment of another entity’s employees, (ii) that the control exercised over that essential term or those essential terms has ‘‘a regular or continuous consequential effect’’ and is not ‘‘sporadic, isolated, or de minimis,’’ and (iii) that the substantial direct and immediate control thus exercised over that essential term or those essential terms warrants finding that the putative joint employer ‘‘meaningfully affects matters relating to the employment relationship’’ with another employer’s employees. Of course, the final rule is necessarily general, and future cases adjudicated under the rule will give further meaning and guidance. The example proposed by one commenter of employees with no employer at all because control is divided among numerous entities no one of which exercises substantial control over any essential term or condition strikes us as unrealistic. The rule presumes that employees have a direct employer, and the comment does not persuade us to abandon that presumption. Regarding the example of setting wages, the commenter seems to assume that a one-time setting of initial wages would compel a finding of jointemployer status. The Board would not make that assumption. Suppose a user entity is party to a long-term contract with a supplier employer. The user entity sets the initial wages to be paid the supplied workers. Years go by, the user entity never exercises any further control or influence over wages, and the supplier employer repeatedly adjusts the supplied employees’ wages. Whether the user entity is a joint employer of the supplied employees based on that one-time initial setting of wages does not have a self-evident affirmative answer. On the other hand, where a user entity’s one-time setting of supplied employees’ wages has a continuous consequential effect on E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 those employees’ wages, such evidence may suffice to establish that entity’s joint-employer status. Finally, regarding the hospital example and the interplay of Section 2(11) and joint-employer status, see the discussion in Section V.C, ‘‘Response to Comments: Comments Regarding Contractually Reserved But Unexercised Control,’’ supra. One commenter states that the Board must clarify the relationship between ‘‘substantial’’ direct and immediate control and ‘‘limited and routine’’ control.184 The final rule provides the requested clarification. It deletes ‘‘limited and routine’’ as a general qualifying term and, instead, specifies that the phrase applies only to supervision. It explains what limited and routine supervision means: Telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it. Rule Sec. 103.40(C)(7). And it contrastingly defines direct and immediate control over supervision to mean actually instructing another employer’s employees how to perform their work or actually issuing employee performance appraisals. Several commenters suggest examples of what should not be deemed substantial direct and immediate control, such as establishing eligibility criteria to provide services,185 requiring corporate social-responsibility initiatives,186 and requiring supplier employers to provide minimum amounts of leave to their employees.187 Many of the suggested examples have been incorporated in the final rule. For example, in defining what is and is not ‘‘direct and immediate control’’ over specific essential terms and conditions of employment, the final rule excludes setting minimal hiring standards or minimum standards of performance or conduct. G. Comments Regarding ‘‘Essential’’ Terms and Conditions of Employment In the NPRM, the Board proposed that ‘‘an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction.’’ The majority of comments concerning this aspect of the proposed rule do not contest the overarching principle that the Board’s joint-employer standard 184 Id. 185 Comment of HR Policy Association. of RILA. 187 Comment of HR Policy Association. 186 Comment VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 should focus on a putative joint employer’s control over employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction.188 A few comments, however, contend that a joint-employer analysis should examine whether an entity shares or codetermines any term or condition of employment that is a mandatory subject of bargaining, whether deemed ‘‘essential’’ or not.189 Additional comments ask the Board to clarify whether or not the proposed list of essential terms and conditions of employment is exclusive, i.e., whether it consists of the enumerated terms and conditions and no others.190 Still other comments ask the Board to clarify the number of essential terms and conditions of employment an employer must share or codetermine to be considered a joint employer. Finally, the Board received comments proposing expansion of the proposed list of essential terms and conditions to include wages,191 benefits,192 hours of work,193 health and safety,194 training,195 drug testing,196 and access for union representatives,197 among others. After carefully considering these comments, the Board has decided to modify the proposed rule in several respects. Under the final rule, essential terms and conditions of employment ‘‘means wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.’’ Thus, the list of essential terms and conditions of employment has been expanded and made exclusive. To be found a joint employer under the final rule, an entity must possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of employment as would 188 Comments of CDW (supporting the general framework of the proposed rule’s focus on essential terms and conditions of employment); U.S. House of Representatives Committee on Education and the Workforce (supporting a rule that examines an employer’s control over essential terms and conditions of employment); SEIU (agreeing that the common law requires the Board to examine control over essential terms and conditions of employment); United Brotherhood of Carpenters and Joiners of America (same). 189 Comments of UAW; IUOE; AFL–CIO. 190 Comments of General Counsel Robb; IUOE. 191 Comments of National Retail Federation; United Brotherhood of Carpenters and Joiners of America. 192 Comments of SEIU Local 32BJ; Jenner & Block, LLP. 193 Comments of General Counsel Robb; SEIU Local 32BJ. 194 Comments of 1199SEIU United Healthcare Workers East; IUOE. 195 Comment of IUOE. 196 Comment of SEIU Local 32BJ. 197 Id. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 11205 warrant finding that the entity meaningfully affects matters related to the employment relationship, and jointemployer status is determined on ‘‘the totality of the relevant facts in each particular employment setting.’’ Thus, direct and immediate control over at least one essential term or condition is necessary, but the final rule makes clear that it is not necessarily sufficient. Moreover, under the final rule, control over mandatory subjects other than essential terms and conditions may be relevant to joint-employer status, depending upon the other evidence in the case. As provided in the final rule, ‘‘the entity’s control over mandatory subjects of bargaining other than the essential terms and conditions of employment is probative of jointemployer 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 Board believes a standard that requires an entity to possess and exercise substantial direct and immediate control over essential terms and conditions of employment is consistent with the purposes and policies of the Act, as discussed in greater detail below in the justification for the final rule. The Act’s purpose of promoting collective bargaining is best served by a joint-employer standard that places at the bargaining table only those entities that control terms and conditions that are most material to collective bargaining. Moreover, a less demanding standard would unjustly subject innocent parties to liability for others’ unfair labor practices and coercion in others’ labor disputes. A fuzzier standard with no bright lines would make it difficult for the Board to distinguish between arm’s-length contracting parties and genuine joint employers. Accordingly, preserving the element of direct and immediate control over essential terms and conditions draws a discernible and predictable line, providing ‘‘certainty beforehand’’ for the regulated community. See First Nat’l Maint. Corp. v. NLRB, 452 U.S. at 679. Turning to the merits of specific comments, the Board agrees that a proper standard should not disregard control over mandatory subjects of bargaining that do not qualify as essential terms or conditions, and the final rule does not limit the jointemployer analysis to essential terms. That said, the Board has long focused the joint-employer analysis primarily on a putative joint employer’s control over essential terms and conditions of E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11206 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations employment. See, e.g., Browning-Ferris, 362 NLRB at 1613 (adhering to the Board’s traditional focus on ‘‘those matters governing the essential terms and conditions of employment’’); Laerco Transportation, 269 NLRB at 325 (the ‘‘joint employer concept recognizes that two or more business entities are in fact separate but that they share or codetermine those matters governing the essential terms and conditions of employment’’); Greyhound Corp., 153 NLRB at 1495 (finding joint-employer relationship where an employer shared or codetermined ‘‘matters governing essential terms and conditions’’); Maas Bros., 88 NLRB 129, 135 (1950) (employees working for entrepreneurs that ran individual departments within a larger department store not included in a storewide unit where the entrepreneurs, not the department store, controlled ‘‘the essential terms and conditions of employment’’ governing the employees). Two commenters argue that the Ninth Circuit’s decision in Sun-Maid Growers of California v. NLRB, 618 F.2d 56 (9th Cir. 1980), supports a standard that renders an entity a joint employer if it controls any term or condition of employment, regardless of whether the term or condition is deemed ‘‘essential.’’ 198 The Board finds this argument unpersuasive. To be sure, in Sun-Maid, the court stated that a ‘‘joint employer relationship exists when an employer exercises authority over employment conditions which are within the area of mandatory collective bargaining.’’ Id. at 59. However, the court in Sun-Maid was not called upon to decide whether joint-employer status may be established absent control over essential terms and conditions, since the court found that the putative joint employer in Sun-Maid did control at least one essential term (hours of work) and possibly two (hours of work and direction). Id. at 59 (finding jointemployer status where entity controlled ‘‘work schedules, assigned the work and decided when additional electricians were needed’’); see also Tanforan Park Food Purveyors Council v. NLRB, 656 F.2d 1358, 1361 (9th Cir. 1981) (finding joint-employer relationship where putative joint employer controlled ‘‘wage rates, vacation, holiday, and work schedules, and employee supervision[, which] lie within the core of mandatory collective bargaining’’). Moreover, several federal appellate courts have approved the Board’s longstanding insistence on control of essential terms and conditions of employment to make an entity a joint employer. See Adams & Assoc., Inc. v. NLRB, 871 F.3d 358, 377 (5th Cir. 2017); Dunkin’ Donuts Mid-Atlantic Distrib. Ctr., Inc. v. NLRB, 363 F.3d 437, 440 (D.C. Cir. 2004); Rivera-Vega v. ConAgra, Inc., 70 F.3d 153, 163 (1st Cir. 1995); Carrier Corp. v. NLRB, 768 F.2d 778, 781 (6th Cir. 1985); NLRB v. Browning-Ferris Indus. of Pennsylvania, Inc., 691 F.2d at 1124; ; see also Browning-Ferris v. NLRB, 911 F.3d at 1220 (‘‘ ‘[G]lobal oversight’ is a routine feature of independent contracts. Wielding direct and indirect control over the ‘essential terms and conditions’ of employees’ work lives is not.’’) (internal citation omitted). Some commenters argue that the Board should require direct and immediate control of all essential terms and conditions of employment to subject an entity to the duty to bargain collectively as a joint employer.199 The Board rejects this position. The Board has never required direct and immediate control of all essential employment terms in order to deem an entity a joint employer of another employer’s employees. Rather, it has consistently evaluated joint-employer status based on the totality of the relevant facts in each case. Contrary to a commenter’s contention, the Board’s longstanding requirement of control over essential terms and conditions of employment, to which both the proposed and final rules adhere, is consistent with the Supreme Court’s decision in Boire v. Greyhound Corp., 376 U.S. 473 (1964).200 In Boire, the question presented was a narrow one: Whether an employer could challenge in federal district court the Board’s determination that two entities constituted a joint employer of a group of employees and its direction of an election in a unit composed of those employees based on a petition that named both entities as the employer. See id. at 476–477. The Court held that Congress had limited judicial review to the courts of appeals and that Greyhound could not challenge the Board’s decision and direction of election in federal district court. See id. The Court did not reach the merits of the Board’s joint-employer finding, but it observed that ‘‘whether Greyhound possessed sufficient indicia of control to be an ‘employer’ is essentially a factual issue.’’ Id. at 481. The commenter asserts that because the Court did not reference ‘‘essential terms and conditions of employment,’’ the Board may not require control over essential terms. However, the Court did not pass While economic terms are certainly important aspects of the employment relationship, they are not the only subjects sought to be negotiated at the bargaining table. Indeed, monetary terms may not necessarily be the most critical issues between the parties. . . . [I]t may be that the parties’ primary interest is in the noneconomic area. It was shortsighted, therefore, for the Board to declare that bargaining is meaningless unless it includes the entire range of economic issues. Id. The proposed rule was, and the final rule is, consistent with Management Training. The Board in Management Training faulted Res-Care for making wages and benefits the sine qua non of collective bargaining. The proposed and final rules do not limit essential terms and conditions to wages and benefits. Essential terms and conditions include non-economic as well as economic terms, and joint-employer status may be found under the rule based on an entity’s control over non-economic essential terms only. Nothing in Section 8(a)(5) and (d) of the Act prohibits the Board from promulgating a joint-employer rule that requires control over essential terms and conditions of employment. Under Section 8(a)(5) and (d), an employer is obligated to bargain with its unit employees’ representative ‘‘with respect to wages, hours, and other terms and conditions of employment,’’ commonly 199 See, 198 See comments of UAW; AFL–CIO. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 200 See PO 00000 e.g. comment of General Counsel Robb. comment of UAW. on the joint-employer determination in Greyhound, much less preclude the standard adopted in the final rule. Indeed, the final rule is consistent with the Court’s observation that jointemployer status is ‘‘essentially a factual issue.’’ Under the final rule, ‘‘[j]ointemployer status must be determined on the totality of the relevant facts in each particular employment setting.’’ Rule Sec. 103.40(A). We also disagree with the assertion that requiring control of essential terms and conditions cannot be squared with Management Training Corp., 317 NLRB 1355 (1995).201 Prior to Management Training, the Board asserted jurisdiction over a government contractor only if the contractor controlled ‘‘the entire package of employee compensation, i.e., wages and fringe benefits.’’ Res-Care, Inc., 280 NLRB 670, 674 (1986). In Management Training, the Board rejected this standard. 317 NLRB at 1358. In doing so, the Board criticized the ‘‘emphasis in Res-Care on control of economic terms and conditions [as] an oversimplification of the bargaining process.’’ Id. at 1357. The Board explained: Frm 00024 Fmt 4701 Sfmt 4700 201 See E:\FR\FM\26FER2.SGM comment of AFL–CIO. 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 referred to as ‘‘mandatory’’ subjects of bargaining. NLRB v. Borg-Warner Corp., 356 U.S. 342, 349 (1958). But there is no inconsistency between this obligation and basing joint-employer status on control over a subset of mandatory subjects, i.e., essential terms and conditions. The two issues are widely different. Section 8(d) mandates what the unit employees’ undisputed employer must bargain about; the instant joint-employer rule provides the standard for determining whether an entity other than the unit employees’ undisputed employer is also an employer, i.e., a joint employer, with a duty to bargain. Whether one has a duty to bargain is analytically prior to, and distinct from, what one must bargain about if one has a duty to bargain.202 That said, the Board believes, after considering the relevant comments, that control over mandatory subjects other than essential terms and conditions should play a role in the joint-employer analysis. Accordingly, the final rule provides that evidence of such control is probative of joint-employer status ‘‘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.’’ Rule Sec. 103.40(A). Several commenters addressed whether the final rule should make the list of essential terms and conditions of employment exhaustive—i.e., the enumerated terms and conditions and no others—and how many essential terms and conditions an entity must control to be deemed a joint employer. As to the latter, comments suggest a range of possibilities—from any essential term and condition,203 to more than one,204 a significant number,205 or all essential terms and conditions of employment.206 After careful consideration, the Board has decided to modify the proposed rule in two relevant respects. First, the final rule makes the list of essential terms 202 This distinction was clearly recognized in Browning-Ferris, where the Board majority stated: For example, it is certainly possible that in a particular case, a putative joint employer’s control might extend only to terms and conditions of employment too limited in scope or significance to permit meaningful collective bargaining. Moreover, as a rule, a joint employer will be required to bargain only with respect to such terms and conditions which it possesses the authority to control. 362 NLRB at 1614. 203 See comment of AFL–CIO. 204 See comment of American Staffing Association. 205 See comment of Jenner & Block, LLP. 206 See comments of International Warehouse Logistics Association; Association of Corporate Counsel. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 and conditions of employment exclusive. This will provide clarity and predictability for the regulated community and remove an issue from litigation. Second, under the final rule, an entity must ‘‘possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of . . . employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship’’ with another employer’s employees. This reflects the Board’s recognition that direct and immediate control over one essential term may warrant a finding of joint-employer status—but on the other hand, it may not, and control even over more than one essential term may fall short of the mark where an entity has exercised such control so infrequently that the evidence fails to support a finding that the entity meaningfully affects matters relating to the employment relationship. Finally, the Board agrees that wages, benefits, and hours of work should be included in the list of essential terms and conditions of employment. The language of the Act supports including wages and hours of work. Section 8(d) defines collective bargaining as the ‘‘performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment’’ (emphasis added). Section 9(a) provides that ‘‘[r]epresentatives designated or selected for the purposes of collective bargaining by the majority of the employees in a unit appropriate for such purposes, shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment, or other conditions of employment’’ (emphasis added). Congress clearly understood that wages and hours of work would be central to collective bargaining, and this supports adding them to the list of essential terms and conditions of employment. Board precedent likewise supports including wages, hours of work, and benefits among the essential terms and conditions. See, e.g., Quantum Resources Corp., 305 NLRB at 760–761 (finding that entity shared or codetermined ‘‘those matters governing the essential terms and conditions of employment’’ based in part on evidence of its substantial control over ‘‘levels of compensation . . . hours . . . and benefits’’); Lee Hospital, 300 NLRB at 950 (corporation hired by hospital to operate anesthesia department and PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 11207 recovery room not a joint employer of nurses where hospital exclusively determined essential terms and conditions of employment, including ‘‘wages’’ and ‘‘fringe benefit policies’’); Pacific Mutual Door Co., 278 NLRB 854, 858–859 (1986) (finding joint-employer status based on entity’s sufficient control over essential terms and conditions of employment, including hours, wages, and ‘‘benefits received as paid holidays and paid vacations’’). The courts, too, have understood essential terms and conditions of employment to include wages, hours of work, and benefits. See Adams & Assoc., Inc. v. NLRB, 871 F.3d at 378 (finding joint-employer status where entity ‘‘jointly developed the wage structure’’ and exclusively determined ‘‘the holiday schedule’’ for all employees) (internal quotation marks omitted); Dunkin’ Donuts Mid-Atlantic Distrib. Ctr., Inc. v. NLRB, 363 F.3d at 440–441 (finding joint-employer status where entity determined ‘‘employee wage and benefit rates . . . discontinued an employee bonus program . . . [and set] rating categories used to determine whether drivers received incentive awards’’); RiveraVega v. ConAgra, Inc., 70 F.3d at 163 (factors in a joint-employer determination include ‘‘ultimate power over changes in employer compensation [and] benefits’’); Carrier Corp. v. NLRB, 768 F.2d at 781 (finding joint-employer status where employer ‘‘consulted the [putative joint employer] over wages and fringe benefits’’); Jefferson County Cmty. Ctr. For Developmental Disabilities, Inc. v. NLRB, 732 F.2d 122, 127 (10th Cir. 1984) (employer maintained sufficient control over terms and conditions of employment ‘‘to be capable of effective bargaining’’ where it had ‘‘final decision-making authority over the essential terms and conditions of employment, including wages [and] fringe benefits’’) (internal quotation marks omitted); NLRB v. BrowningFerris Indus. of Pennsylvania, Inc., 691 F.2d 1117, 1124 (3d Cir. 1982) (finding joint-employer status where entity ‘‘established work hours’’ and ‘‘determined [employees’] compensation’’). Two commenters contend that the list of essential terms and conditions of employment must or should include each of the indicia of supervisory status set forth in Section 2(11).207 The final 207 See comments of AFL–CIO; UAW. Sec. 2(11) defines ‘‘supervisor’’ as ‘‘any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to E:\FR\FM\26FER2.SGM Continued 26FER2 11208 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 rule’s list of essential terms and conditions does not include several of these supervisory indicia,208 but there is no contradiction between the final rule and Section 2(11) of the Act. Nothing in the text of the Act or its legislative history links Section 2(11) and jointemployer status. Nor does the Act or its legislative history otherwise suggest that the Board must find that an entity is a joint employer of another employer’s employees based solely on supervisory indicia such as the authority to lay off, recall, promote, etc. To the contrary, under longstanding Board precedent, it is possible for two businesses to remain separate employers despite the fact that employees of the first business assertedly exercise Section 2(11) authority over employees of the second business. Crenulated Co., 308 NLRB at 1216 (‘‘It is well established that an individual must exercise supervisory authority over employees of the employer at issue, and not employees of another employer, in order to qualify as a supervisor under Section 2(11) of the Act’’); Eureka Newspapers, Inc., 154 NLRB 1181, 1185 (1965) (finding that district dealers employed by newspaper were not statutory supervisors despite alleged supervisory authority over carriers who were not employed by newspaper). See also Section V.C, ‘‘Response to Comments: Comments Regarding Contractually Reserved But Unexercised Control,’’ supra. Two additional points should be emphasized here. First, as described above, control over a mandatory subject of bargaining that is not an ‘‘essential’’ term is relevant in a joint-employer analysis under this final rule. Such control can supplement and reinforce evidence of possession or exercise of direct and immediate control over a particular essential term and condition of employment, as discussed above. Second, when applying this final rule, the Board will not be bound by a putative joint employer’s characterization of its conduct. For example, under the circumstances of a particular case, an employment action codetermined by a putative joint employer and characterized as a ‘‘layoff’’ could in fact be a discharge. Similarly, ‘‘rewarding’’ another employer’s employee could, depending on the circumstances, be tantamount to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.’’ 208 The essential terms and conditions of employment set forth in Sec. 103.40(C)(1)–(8) does not include transfer, lay off, recall, promote, reward, or adjustment of grievances. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 bestowing a benefit. Relatedly, if a putative joint employer directly and immediately resolved (i.e., adjusted) another employer’s employee’s grievance over rate of pay or suspension for misconduct, that would evidence direct and immediate control over the essential terms and conditions of wages and discipline. H. Comments on Employer Status Under Other Statutes and the Common Law Several comments address the doctrine of joint employment as it has been interpreted under other statutes. In general, as explained below, we believe that joint-employer determinations under other statutes are instructive but of limited utility to the joint-employer inquiry under the NLRA. Several commenters observe that the FLSA broadly defines ‘‘employ’’ as to ‘‘suffer or permit to work’’ and ‘‘employer’’ as ‘‘any person acting directly or indirectly in the interest of an employer in relation to an employee.’’ 209 But Congress defined ‘‘employer’’ in the FLSA more broadly than under the NLRA. Joint-employer determinations under the FLSA, therefore, are unreliable guides for determining joint-employer status under the NLRA. Two commenters assert that courts consider evidence of indirect control and the ‘‘economic realities’’ of the work relationship when determining whether an entity is a joint employer under the FLSA.210 Again, however, joint-employer status under the FLSA is based on that statute’s expansive definition of ‘‘employer,’’ and has been based as well on federal regulations providing that joint-employer determinations under the FLSA may be based solely on evidence of indirect control. See In re Enter. Rent–A–Car Wage & Hour Emp’t Practices Litig., 683 F.3d 462, 468 (3d Cir. 2012) (finding joint employment ‘‘[w]here the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly’’ (quoting 29 CFR Sec. 791.2(b))) (emphasis added).211 The NLRA does not define ‘‘employer’’ thus broadly. Other commenters point out that the Occupational Safety and Health Administration (OSHA) applies a policy 209 See comments of NELP; UA; Professor Kulwiec. 210 See comments of Greater Boston Legal Services; Justice at Work. 211 On January 16, 2020, the Department of Labor issued a final rule that made relevant revisions to the regulatory text quoted above. See 85 FR 2820 (Jan. 16, 2020). PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 under which, on multi-employer worksites, more than one employer may be cited for a hazardous condition that violates an OSHA standard.212 See Solis v. Summit Contractors, Inc., 558 F.3d 815 (8th Cir. 2009) (holding that OSHA regulations (29 CFR Sec.1910.12) permitted the issuance of citations to ‘‘controlling employers,’’ even when they did not create the safety hazard and when its employees were not exposed to the hazard). Likewise, a commenter observes that IRS regulations provide that an entity may be considered an employer based on the right to control the way services are performed, and that the right need not be exercised.213 The Board’s task, however, is to formulate a joint-employer standard based on the common law applied in the context of the NLRA. Since a joint-employer finding under the NLRA entails a duty to bargain, the Board must consider when a putative joint employer’s participation in collective bargaining is required for such bargaining to be meaningful. And since such a finding renders otherwise secondary activity primary, the Board also must consider Congress’s concern with limiting third parties’ exposure to economic warfare in labor disputes. These considerations have no bearing on joint-employer determinations by OSHA or the IRS, which therefore shed little light on joint-employer determinations under the Act. Some commenters observe that the joint-employer inquiry under the FLSA is performed on a case-by-case basis, and that this inquiry is always factspecific under the common law.214 Consistent with these comments, jointemployer determinations under the final rule will be determined on the totality of the relevant facts in each particular employment setting. Some commenters contend that the proposed joint-employer standard will impact numerous areas of labormanagement relations and federal and state workplace laws.215 Such impact is the inevitable consequence of any jointemployer standard, and the Board believes that the final rule sets forth a standard that best furthers the purposes and policies of the NLRA. One commenter observes that indirect and reserved control are relevant factors in joint-employer determinations under Title VII, citing, inter alia, Myers v. Garfield & Johnson Enters., 679 F. Supp. 2d 598, 611 (E.D. Pa. 2010) (‘‘[A]n 212 See comments of NELP; UA. comment of UA. 214 See comments of NELP; SEIU. 215 See comments of NELP; Weinberg, Roger & Rosenfeld. 213 See E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations employee may be considered ‘employed’ by a third party as well as by the nominal employer if the third party has a right to control the employee’s conduct, either directly or through the third party’s control over the employer.’’), and Virgo v. Riviera Beach Assocs., Ltd., 30 F.3d 1350, 1361 (11th Cir. 1994) (‘‘We find that actual control is a factor to be considered when deciding the ‘joint employer’ issue, but the authority or power to control is also highly relevant.’’) 216 Under the final rule, evidence of indirect and reserved but unexercised control are probative of joint-employer status, but only to the extent that such evidence supplements and reinforces evidence of direct and immediate control. To the extent the latter proviso makes the joint-employer standard under the Act narrower than the comparable standard under Title VII, our task is to formulate a jointemployer standard based on the common law applied in the particular context of the NLRA, as explained above. In any event, the decisions in Myers and Virgo relied on evidence of direct and immediate control over essential terms and conditions of employment. In Myers, which was before the court on a motion to dismiss for failure to state a claim, the court cited a complaint allegation that the putative joint employer participated in the daily supervision of the direct employer’s employees. 679 F. Supp. 2d at 610. In Virgo, the court cited evidence that the putative joint employer paid all costs and expenses related to all the employees of the direct employer. 30 F.3d at 1361. Several commenters cite the Restatement (Second) of Agency, in particular Sections 2(2) and 220, for the proposition that an employee is a worker who is subject to the employer’s ‘‘control or right to control’’ and complain that the proposed rule ‘‘wholly discounts’’ reserved control.217 These commenters also point out that Restatement (Second) of Agency Sec. 220 cmt. d states that this right of control may be ‘‘very attenuated.’’ Some commenters observe that in BrowningFerris v. NLRB, 911 F.3d at 1211, the D.C. Circuit stated that ‘‘the ‘right to control’ runs like a leitmotif through the Restatement (Second) of Agency (emphasis in original).’’ 218 Other commenters contend that the ‘‘right to control’’ standard is a core component comment of UA. comments of IBT; Greater Boston Legal Services; State Attorneys General; AFL–CIO; SEIU (citing Sec. 220(1) (emphasis added)). 218 See comments of State Attorneys General; Spivak Lipton LLP. and widely recognized feature of case law applying common-law agency principles and assert that the right of control is sufficient to establish a common-law master-servant relationship.219 Initially, as explained more fully below, a master-servant relationship under the common law of independentcontractor status is not synonymous with joint-employer status. In any case, the Board agrees with one commenter that, although the court in Browning-Ferris v. NLRB stated that the Board is required to ‘‘color within the common-law lines’’ with respect to its joint-employer rule, 911 F.3d at 1208, the final rule does not exceed the bounds of common-law principles.220 Like that commenter, the Board is aware of no court that has found that reserved, unexercised control, standing alone, was sufficient to create a joint-employer relationship under the NLRA. Moreover, the final rule does not ‘‘wholly discount’’ or otherwise exclude consideration of reserved, unexercised control. Rather, it provides that contractually reserved but never exercised authority over essential terms and conditions of employment of another employer’s employees is probative of joint-employer status, but only to the extent that it supplements and reinforces evidence of direct and immediate control. Again, the narrowing proviso reflects a jointemployer standard based on the common law applied in the particular context of the NLRA. One comment contends that consideration of indirect control over employees’ wages and working conditions is consistent with commonlaw agency doctrine.221 The Board agrees, and observes that the D.C. Circuit has likewise held that an entity’s ‘‘indirect control over employees can be a relevant consideration’’ in the common-law inquiry. Browning-Ferris v. NLRB, 911 F.3d at 1209. Accordingly, under the final rule, evidence of an entity’s indirect control over essential terms and conditions of employment of a direct employer’s employees is probative of joint-employer status to the extent it supplements and reinforces evidence of direct and immediate control over a particular essential term and condition of employment. One commenter observes that Section 220 of the Restatement (Second) of Agency includes many considerations 216 See 217 See VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 219 See comments of SEIU; UA. comment of CDW. 221 See comment of Labor Law, Antitrust Law, and Economics Professors (Law and Economics Professors). 11209 that are broader and less formalistic than the proposed rule, such as whether the one employed is engaged in a distinct occupation or business and whether the work is a part of the regular business of the putative employer.222 However, these considerations relate to determining whether a worker is an employee or an independent contractor. As explained more fully below, they are instructive but of limited utility in the joint-employer context. Another commenter argues that when determining what the D.C. Circuit and the common law mean by indirect control, it may be useful to consider the so-called subservant doctrine, under which employer-employee relationships are established by indirect control.223 See Restatement (Second) of Agency Sec. 5(2); see also id., cmt. e. In defining indirect control in the final rule, the Board has focused on the connection between the entity’s actions and the employees’ essential terms and conditions of employment, not on how alleged control is communicated. However, the final rule is not intended to immunize an entity from jointemployer status based solely on how its control is exercised. Direct and immediate control exercised through an intermediary remains direct and immediate. See Browning-Ferris v. NLRB, 911 F.3d at 1217 (‘‘[T]he common law has never countenanced the use of intermediaries or controlled third parties to avoid the creation of a master-servant relationship.’’). I. Comments on Independent-Contractor Precedent Many commenters address the relevance—or lack of relevance—of independent-contractor precedent to the joint-employer inquiry. As noted by one commenter, in NLRB v. United Insurance Co. of America, 390 U.S. at 256, the Supreme Court held that the determination of whether a worker is a statutorily protected employee or a statutorily exempt independent contractor is governed by common-law agency principles.224 In Community for Creative Non-Violence v. Reid, the Supreme Court listed common-law factors relevant to making the employeeversus-independent contractor determination: In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the 220 See PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 222 See comment of NELP. comment of SEIU. 224 See comment of State Attorneys General. 223 See E:\FR\FM\26FER2.SGM 26FER2 11210 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. 490 U.S. at 751–752; see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 323–324. These so-called Reid factors are largely adopted from Section 220(2) of the Restatement (Second) of Agency. As another commenter notes, the Supreme Court has instructed that, in assessing employee status, ‘‘all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.’’ United Ins., 390 U.S. at 256.225 Several commenters acknowledge that various elements of the independentcontractor test are inapplicable to determining joint-employer status.226 These commenters point out that where there is no dispute that certain workers are employees of some entity, many of the factors of the common-law test are already satisfied and provide no meaningful guidance to help determine whether another entity constitutes a joint employer. Cf. Clackamas Gastroenterology Assoc., P.C. v. Wells, 538 U.S. 440, 445 fn. 5 (2003) (explaining that the independentcontractor factors ‘‘[we]re not directly applicable’’ in determining whether physician shareholders who owned a professional corporation were ‘‘employees’’ because the court was ‘‘not faced with drawing a line between independent contractors and employees’’). Moreover, as observed by one commenter, in Browning-Ferris v. NLRB, 911 F.3d at 1212–1213, the D.C. Circuit rejected the contention that the independent-contractor and jointemployer inquiries are ‘‘essentially the same,’’ adding that the argument ‘‘lacks any precedential grounding.’’ 227 As noted by another commenter, the court explained that although independentcontractor cases can be ‘‘instructive in the joint-employer inquiry to the extent that they elaborate on the nature and extent of control necessary to establish a common-law employment relationship,’’ the independentcontractor inquiry omits the key questions, for deciding the jointemployer issue, of who controls the workers and when and how that control is exercised. Id. at 1215.228 ‘‘In short,’’ the court concluded, ‘‘using the independent-contractor test exclusively to answer the joint-employer question would be rather like using a hammer to drive in a screw: it only roughly assists the task because the hammer is designed for a different purpose.’’ Id. Consistent with these commenters, the Board believes that the common-law factors relative to determining employee or independent-contractor status are instructive but of limited utility in the joint-employer context. Application of those factors is appropriate to determine whether a putative employer has the ‘‘right to control the manner and means by which the product is accomplished,’’ Reid, 490 U.S. at 751–752, and therefore independent-contractor principles assist in determining whether a putative employer has such a ‘‘right to control.’’ But they do not assist in answering the key questions in the joint-employer inquiry: who is exercising that control, when, and how. This is consistent with the court’s decision in Browning-Ferris v. NLRB, 911 F.3d at 1214–1215. A commenter contends that the common law of independent-contractor status is instructive in the jointemployer context to the extent it assists in identifying the forms of control that are relevant to employer status.229 In this regard, the Board agrees with a different commenter that under the Reid factors, both indirect and reserved control are relevant to determining employer status under the common law. 490 U.S. at 751–752.230 The Board further agrees that independentcontractor precedent also makes reserved control relevant to determining employer status. Thus, under the final rule, evidence of indirect control and of unexercised, contractually reserved authority is relevant in the jointemployer inquiry to the extent such evidence supplements and reinforces evidence of direct and immediate control over essential terms and conditions. One of the above commenters further argues that the common law of independent-contractor status— specifically, the Restatement (Second) of Agency—makes clear that contractually reserved authority, standing alone, is sufficient to establish an employment relationship.231 The commenter cites, inter alia, Sections 2 and 220, which 225 See 228 See 226 See 229 See comment of AFL–CIO. comments of AFL–CIO; Restaurant Law Center; COLLE. 227 See comment of State Attorneys General. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 comment of CDW. comment of AFL–CIO. 230 See comment of CDW. 231 See comment of AFL–CIO. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 define a ‘‘master’’ as someone who ‘‘controls or has the right to control’’ another and a ‘‘servant’’ as someone employed by the master who is ‘‘subject to the [master’s] control or right to control’’ (commenter’s emphasis). But ‘‘sufficient to establish an employment relationship’’ under the Restatement of Agency, which summarizes the common law of independent-contractor status, is not the same as sufficient to establish joint-employer status under the NLRA for all the reasons explained above. J. Comments About the Impact of the D.C. Circuit’s Decision in BrowningFerris Industries of California, Inc. v NLRB The Board received many comments regarding the impact of the D.C. Circuit’s decision in Browning-Ferris v. NLRB on this rulemaking. Commenters debate whether the court’s decision permits the proposed rule, requires changes to the proposed rule, or removes the authority of the Board to engage in this rulemaking at all. Those comments and the Board’s responses are described below. Some commenters contend that the proposed rule is inconsistent with the D.C. Circuit’s conclusions in BrowningFerris v. NLRB.232 They point out that the court upheld the Browning-Ferris standard’s consideration of reserved and indirect control as rooted in the common law and instructed the Board to color within common-law lines in the joint-employer rulemaking. They argue that the final rule must include consideration of reserved and indirect control, and they claim that the proposed rule, which did not expressly acknowledge a role for those forms of control, contradicts the D.C. Circuit’s decision. Some commenters, on the other hand, argue the proposed rule is consistent with the D.C. Circuit’s decision.233 One commenter, for example, argues that although the court held that consideration of indirect and reserved control is rooted in the common law, it did not hold that the joint-employer standard must be coextensive with the common law. To the contrary, the court acknowledged the Browning-Ferris two232 See, e.g., comments of Legal Aid Society; United Brotherhood of Carpenters and Joiners of America; Congressional Progressive Caucus; UAW; IBT; National Women’s Law Center; United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, SEIU; 1199SEIU United Healthcare Workers East; SEIU National Fast Food Workers Union; LIUNA; IUOE; Senator Murray and Representative Scott; NELP; AFT; James van Wagtendonk. 233 See comments of Restaurant Law Center; CDW. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations step standard: A necessary-but-notsufficient common-law analysis at step one, followed by an NLRA-based analysis of whether the common-law joint employer exercises sufficient control over the terms and conditions of employment of another employer’s employees to permit meaningful collective bargaining. A second commenter also points out that the proposed rule does not expressly prohibit consideration of indirect or reserved control and therefore does not contradict the court’s decision. Another commenter argues that it is irrelevant whether the rule is consistent with Browning-Ferris v. NLRB because the court’s decision does not control the Board’s rulemaking.234 Because the propriety of the rulemaking was not before the court, the commenter maintains that the court’s instruction that the rulemaking must ‘‘color within the common-law lines identified by the judiciary,’’ 911 F.3d at 1208, is dicta. The commenter also states that rulemaking is an executive function, not a judicial one, and he concludes from this that the judiciary cannot dictate what the Board’s rule should say unless the rule contradicts the Act or Supreme Court precedent, and the proposed rule does not. The Board believes that the final rule is consistent with Browning-Ferris v. NLRB. It incorporates indirect and reserved-but-unexercised control over essential terms and conditions and treats them as probative of jointemployer status to the extent they supplement and reinforce evidence of direct and immediate control. The latter limitation serves a purpose similar to the second step of the Browning-Ferris standard—i.e., to ensure that only those entities that ‘‘meaningfully affect[] matters relating to the employment relationship’’ are found to be joint employers. Rule Sec. 103.40(A). But whereas Browning-Ferris left the regulated community utterly at sea as to what ‘‘sufficient control . . . to permit meaningful collective bargaining’’ actually meant, the final rule provides ample guidance. Moreover, the final rule’s treatment of these factors as nondispositive does not contradict the court’s decision because the court did not decide whether either indirect or reserved-but-unexercised control can be dispositive of joint-employer status. 911 F.3d at 1213, 1218. The final rule thus comports with the court’s decision. Commenters propose multiple changes to the proposed rule based on the D.C. Circuit’s criticisms of Browning-Ferris. Specifically, 234 See comment of General Counsel Robb. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 commenters propose (1) to provide legal scaffolding distinguishing between control over essential terms and conditions of employment and control over the basic contours of contracted-for service; and (2) to specify the terms and conditions that are essential to meaningful collective bargaining, and to clarify what meaningful collective bargaining entails.235 As explained below, we believe the final rule appropriately resolves the court’s critiques of the Browning-Ferris standard. The first set of comments responds to the court’s criticism of the Board’s application of the indirect control factor in Browning-Ferris. The court criticized the Browning-Ferris Board for failing ‘‘to hew to the relevant common-law boundaries that prevent the Board from trenching on the common and routine decisions that employers make when hiring third-party contractors and defining the terms of those contracts.’’ Id. at 1219. The court remanded the case with instructions ‘‘to erect some legal scaffolding that keeps the inquiry within traditional common-law bounds.’’ Id. at 1220. Commenters make various proposals for how the rule could erect the ‘‘legal scaffolding’’ the D.C. Circuit directed the Board to provide. One commenter proposes that the Board list and define essential terms and conditions of employment.236 Two other commenters propose that the rule explain the difference between global oversight of a company-to-company business relationship and actual control over the essential terms and conditions of employment of another employer’s employees.237 Some commenters propose that the rule exclude from the joint-employer inquiry specific actions they say fall within the routine contours of most joint undertakings. One commenter, for example, proposes the rule state that the following factors do not support jointemployer status: Decisions that set the objectives, basic ground rules, and expectations for a third-party contractor; use of a cost-plus contract; routine contractual terms; supervision that is inherent to any joint undertaking; global oversight; cooperation and coordination between a service recipient and a contractor’s employees; and the basic contours of a contracted-for service.238 235 See comments of CDW; RILA; HR Policy Association; Associated Builders and Contractors Inc.; IFA; American Hotel & Lodging Association; General Counsel Robb; Jenner & Block, LLP; Restaurant Law Center. 236 See comment of Restaurant Law Center. 237 See comments of Job Creators Network; IFA. 238 See comment of RILA. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 11211 A second commenter proposes that the rule define ‘‘substantial control’’ to exclude control asserted for the following reasons: To achieve compliance with legally mandated requirements, to enforce product and service standards in the franchise industry, to implement corporate social responsibility initiatives, to establish deadlines, to preserve quality control, to protect the brand, to implement and enforce employee uniform guidelines, to implement third-party delivery and courier services, to provide optional training programs, and to authorize multi-employer associations to bargain on behalf of employer-members.239 The final rule provides the legal scaffolding the D.C. Circuit found lacking in the Board’s Browning-Ferris standard. It responds to the Court’s holding that indirect control over the basic contours of a contracted-for service does not support joint-employer status by defining ‘‘indirect control’’ to exclude ‘‘setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract.’’ It also addresses the D.C. Circuit’s admonishment that ‘‘not every aspect of control counts. . . . The critical question is what is being controlled,’’ 911 F.3d at 1220 (emphasis in original), by requiring that indirect control be asserted over essential terms and conditions of employment and by listing those essential terms exhaustively. The rule thus provides the legal scaffolding necessary to keep the joint-employer inquiry within commonlaw bounds and to ensure that routine control inherent to any joint undertaking does not support jointemployer status. The final rule should also provide a satisfactory response to the specific exclusions sought by several commenters because it provides examples of specific acts that will not constitute direct and immediate control over essential terms and conditions.240 The rule provides, for example, that allowing another employer’s employees to participate in benefit plans, establishing an enterprise’s operating hours, setting deadlines for services, setting minimal hiring, performance, or conduct standards pursuant to regulatory requirements, bringing misconduct or poor performance to another employer’s attention, entering into a cost-plus contract, or instructing employees regarding what work to perform and where and when to perform it but not how to perform it, among other similar actions, will not 239 See 240 See E:\FR\FM\26FER2.SGM comment of CDW. comments of RILA; CDW. 26FER2 11212 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 constitute direct and immediate control. These examples provide the specificity sought by some commenters and further clarify the distinction between control over essential terms of employment that supports joint-employer status and routine features of company-to-company contracting that do not.241 The second set of comments responds to the court’s criticism of the BrowningFerris standard’s second step, which requires consideration of ‘‘whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.’’ Browning-Ferris, 362 NLRB at 1600. Regarding this step, the Court criticized the Browning-Ferris Board on two counts. First, it said that ‘‘the Board never delineated what terms and conditions are ‘essential’ to make collective bargaining ‘meaningful.’ ’’ Browning-Ferris v. NLRB, 911 F.3d at 1221–1222 (quoting Browning-Ferris, 362 NLRB at 1600). Second, it said that the Board failed to ‘‘clarify what ‘meaningful collective bargaining’ might require.’’ Id. at 1222. In response to the Court’s critique, commenters request that the rule define the terms and conditions ‘‘essential’’ to make collective bargaining ‘‘meaningful’’ and clarify what ‘‘meaningful collective bargaining’’ requires. To that end, one commenter proposes the rule identify the subjects over which a joint employer must negotiate and specify that they do not include decisions to change aspects of the contracting arrangement affecting employment terms, to reallocate bargaining responsibilities between employers, or to end a service arrangement.242 The final rule addresses the shortcomings the court identified in Browning-Ferris’s treatment of the second step of its framework by eliminating that step and returning to the traditional standard requiring substantial direct and immediate control over essential terms and conditions of employment. Moreover, the final rule lists the essential terms and conditions, thus providing the definition the court requested. The final rule also sheds light on what meaningful collective 241 As explained above, however, not every instance of control that fails by definition to qualify as direct and immediate control necessarily also fails to qualify as indirect control as a routine feature of company-to-company contracting. Although this will typically be the case, it remains a question of fact to be resolved on a case-by-case basis. See Sec. II.B, ‘‘Summary of Changes to the Proposed Rule: Indirect Control,’’ supra; Sec. V.B, ‘‘Response to Comments: Comments Regarding Indirect Control,’’ supra. 242 See comment of RILA. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 bargaining requires by specifying that to qualify as a joint employer of another employer’s employees, an entity ‘‘must possess and exercise 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.’’ Rule Sec. 103.40(A). Concerned that the court’s decision in Browning-Ferris v. NLRB may lead the Board to give indirect and reserved control too much weight, several commenters propose that the rule limit the roles that these forms of control play in the joint-employer analysis. One commenter, for example, requests that the rule specify that indirect and reserved control are relevant only insofar as they are asserted over essential terms and conditions of employment.243 Another commenter proposes limiting indirect and reserved control to a specific right to displace a contractor and directly control its employees, or alternatively, to decisions made by the putative joint employer and conveyed indirectly using the contractor as intermediary.244 The final rule clarifies the contours and limits of indirect and reserved control consistent with both the commenters’ requests and the D.C. Circuit’s opinion. The final rule specifies that indirect and reserved control are probative of joint-employer status only to the extent they supplement and reinforce evidence of direct and immediate control. However, for reasons explained above, the Board has not limited indirect and reserved control to a specific right to displace a contractor and directly control its employees,245 and has not alternatively defined indirect control as control conveyed through an intermediary.246 Other comments advance additional proposals based on Browning-Ferris v. NLRB. One commenter, for example, proposes that the Board create a twopart standard to comply with the court’s decision.247 The first part would require the putative joint employer to be a joint employer under the common law, and the second part would be the standard in the proposed rule. The Board declines this proposal because the final 243 See comment of Associated Builders and Contractors, Inc. 244 See comment of RILA. 245 See Sec. V.C, ‘‘Response to Comments: Comments Regarding Contractually Reserved But Unexercised Control,’’ supra. 246 See Sec. V.B, ‘‘Response to Comments: Comments Regarding Indirect Control,’’ supra. 247 See comment of World Floor Covering Association. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 rule does not need to consist of a twopart standard to comply with the court’s decision. The court did not require a two-part structure for the joint-employer standard. It held only that the standard must stay within the bounds of the common law. Browning-Ferris v. NLRB, 911 F.3d at 1208. As explained above, the final rule is consistent with that holding. Another commenter requests that the Board add ‘‘significant’’ to the rule to match the phrasing used by the D.C. Circuit where it stated that ‘‘for roughly the last 25 years, the governing framework for the joint-employer inquiry has been whether both employers ‘exert significant control over the same employees’ in that they ‘share or co-determine those matters governing the essential terms and conditions of employment.’ ’’ Id. at 1209 (quoting NLRB v. Browning-Ferris Indus. of Pennsylvania, Inc., 691 F.2d at 1124).248 The Board declines the invitation because the final rule already requires significant control for joint-employer status. It requires an entity to share or codetermine employees’ essential terms and conditions of employment, which is what the D.C. Circuit referred to as ‘‘significant’’ control. Again, in the quote above, the D.C. Circuit explained that the traditional standard required joint employers to ‘‘exert significant control . . . in that they share or codetermine those matters governing the essential terms and conditions of employment.’’ Id. (emphasis added). The Third Circuit posited the same equivalence, stating that ‘‘where two or more employers exert significant control over the same employees—where from the evidence it can be shown that they share or co-determine those matters governing essential terms and conditions of employment—they constitute ‘joint employers’ within the meaning of the NLRA.’’ Browning-Ferris Indus. of Pennsylvania v. NLRB, 691 F.2d at 1124. Thus, ‘‘significant’’ control means sharing or codetermining those matters governing essential terms and conditions of employment. The proposed and final rules require as much and thus require ‘‘significant’’ control as defined by the D.C. Circuit. Commenters also discuss whether the D.C. Circuit’s decision affects the Board’s authorization to promulgate a joint-employer standard via rulemaking rather than case adjudication, or at least the propriety of doing so. Two commenters argue that by advising that the rulemaking must color within common-law lines rather than directing the Board to adopt a specific rule or no 248 See E:\FR\FM\26FER2.SGM comment of Jenner & Block, LLP. 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations rule at all, the court acknowledged the propriety of the rulemaking.249 Another commenter notes the court appeared deferential to the rulemaking process because it emphasized that it issued its decision only after the Board specifically requested it to proceed notwithstanding the rulemaking process.250 Other commenters argue that Browning-Ferris v. NLRB undermines the authority of the Board to engage in rulemaking on the joint-employer standard. One commenter, for example, argues that under the logic of the court’s decision, the Board’s authority extends only to applying common-law principles to specific facts, thus rendering the rulemaking beyond its statutory authority.251 Another commenter argues that the Board cannot engage in rulemaking regarding the meaning of Section 2(2) of the Act because it does not have discretion to define the employment relationship other than how it is defined by the common law, which the Board must apply in adjudication.252 The Board does not agree that Browning-Ferris v. NLRB limits its authority to engage in rulemaking on the joint-employer standard. That issue was not before the court. Moreover, the D.C. Circuit did not indicate at any point in its decision that rulemaking regarding joint-employer status is inappropriate. If anything, the court’s majority decision implicitly accepted the rulemaking as appropriate by acknowledging it and instructing the Board, in its rulemaking, to ‘‘color within the common-law lines identified by the judiciary.’’ BrowningFerris v. NLRB, 911 F.3d at 1208. The dissent also acknowledged that ‘‘the Board may establish standards through rulemaking or adjudication.’’ Id. at 1226 (citing 29 U.S.C. 156). There is thus nothing in the court’s decision indicating that the Board does not have the authority to engage in this rulemaking, and much to indicate the opposite. Moreover, the arguments against the rulemaking mistake substance for process. The common law of agency must inform the substance of the jointemployer rule, not the process by which it is promulgated. The Board is free to establish the joint-employer standard through rulemaking or case adjudication, so long as the substance of the standard colors within common-law lines. The final rule stays within those 249 See comments of HR Policy Association; General Counsel Robb. 250 See comment of Chamber of Commerce. 251 See comment of Paul Thomas. 252 See comment of Professor Michael Harper. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 bounds and is therefore consistent with Browning-Ferris v. NLRB. One commenter argues that any rulemaking is premature while Browning-Ferris v. NLRB is pending and could still be reviewed en banc by the full D.C. Circuit or appealed to the Supreme Court.253 The Board does not agree that the status of Browning-Ferris v. NLRB undermines the rulemaking process because, as the Board informed the D.C. Circuit, the final rule will be prospective only and thus not affect that case. Id. at 1206. Also, as explained in the NPRM, the Board initiated this rulemaking to invite broad public participation in formulating a jointemployer standard and to provide certainty and stability that will allow employers, unions, and employees to plan their affairs free of the fear that the standard may change at any time through case adjudication, and possibly retroactively. See Standard for Determining Joint-Employer Status, 83 FR 46681, 46686. Browning-Ferris v. NLRB does not affect the validity of these reasons and therefore does not affect the propriety of the rulemaking. K. Comments Regarding Empirical Data on the Joint-Employer Standard’s Impact on Workplaces With Multiple Possible Employer Entities Many commenters cite the rise of contingent employment and alternative workforce arrangements as a significant reason for opposing the proposed rule, and many commenters have described this economic trend in detail. For example, one commenter represents that the percentage of U.S. workers who participate in flexible contract work as their primary job increased 56 percent between 2007 and 2017, and that roughly 10 percent of workers in 2017 were employed in ‘‘alternative work arrangements,’’ including 10.6 million independent contractors, 2.6 million oncall workers, 1.4 million temporary help agency workers, and 933,000 workers provided by contract firms.254 Another commenter similarly asserts that 94 percent of the net growth in employment between 2005 and 2014 involved alternative work arrangements.255 Many commenters contend that contingent employment results in lower wages and poor workplace conditions.256 253 See comment of SEIU National Fast Food Workers Union. 254 See comment of SEIU. 255 See comment of Congressman Scott, Senator Murray, et al. 256 See comments of Law and Economics Professors; Congressman Scott and Senator Murray; Legal Aid at Work; APALA. PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 11213 Relatedly, other commenters argue that the increased outsourcing of business functions to contractors and subcontractors has resulted in the ‘‘fissuring’’ of the workplace, where two or more firms control the terms and conditions of employment.257 Often, the commenter argues, large corporations enter into contracts that restrict subcontractors’ ability to grant wage increases or institute other changes in the workplace. The commenter further contends that for workers in such circumstances to be able to engage in meaningful collective bargaining, the law must bring large corporations that reserve control over or indirectly control those workers’ terms and conditions of employment to the bargaining table along with the subcontractors. Without such a requirement, it contends, companies can use alternative workforce arrangements to evade liability for violations of labor standards and avoid collective bargaining.258 Other commenters argue that the Board’s refusal to address these issues would constitute a failure on the part of the Board to adapt the Act to the changing patterns of industrial life.259 Numerous commenters cite these trends as reasons why the Board should retain the Browning-Ferris standard, arguing that it better enables workers to bargain with entities like franchisors and contractors and hold them accountable for labor law violations.260 Moreover, several commenters argue or suggest that the Board should consider economic factors when determining whether an entity is a joint employer.261 After considering these comments, the Board is not persuaded that the trend toward increased contingent or temporary employment relationships warrants abandoning the initial proposal to restore to the joint-employer standard the requirement that a putative joint employer exercise substantial direct and immediate control over essential terms and conditions of employment. Instead, meaningful collective bargaining is best promoted by a standard that places at the bargaining table only those entities that actually control, directly and immediately, the essential terms and conditions of employment of another 257 See, e.g., comment of EPI. also comments of Attorneys General of New York, Pennsylvania, et al.; AFT; Teamsters Local 848. 259 Comments of Congressman Scott and Senator Murray; see also IUOE; Wimmer. 260 See comments of Members of Congress; EPI; Congressman Scott and Senator Murray; Justice in Motion; Karyn Panitch. 261 See comments of Law and Economics Professors; Southern Poverty Law Center; CWA. 258 See E:\FR\FM\26FER2.SGM 26FER2 11214 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 employer’s employees. That said, the final rule makes indirect and reservedbut-unexercised control over essential terms and conditions probative of jointemployer status to the extent they supplement and reinforce direct and immediate control. Accordingly, the final rule does make indirect and reserved control relevant to the jointemployer analysis. Opponents of the proposed rule cite research purportedly indicating that the proposed rule would have negative economic consequences for workers. Specifically, one commenter contends that the proposed rule would make collective bargaining among subcontracted and temporary workers nearly impossible, and that this would result in an annual transfer of $1.3 billion from workers to employers.262 In contrast, supporters of the proposed rule contend that BrowningFerris has had negative economic consequences, including causing franchisors to ‘‘distance’’ themselves from franchisees so that franchisors will not be found joint employers.263 One commenter cites as an example a franchisee who stopped receiving employee handbooks, job application materials, and recruitment assistance from the franchisor.264 According to a study by economist Ronald Bird, franchisor ‘‘distancing’’ has resulted in lost output of between $17.2 billion and $33.3 billion per year.265 Additionally, commenters cite a study claiming that Browning-Ferris has caused job growth in the hotel industry to slow.266 Many commenters argue that the BrowningFerris standard has subjected potential joint employers to higher litigation costs.267 Against these negative consequences, one commenter suggests that the Browning-Ferris standard would not necessarily improve economic outcomes for workers.268 It also argues that it is proper for the Board to rely on the experience of commenters in this rulemaking, especially in the absence of comprehensive data. One commenter contends that the negative economic and social effects of outsourcing cited by critics of the proposed rule have to be weighed against the economic opportunities that 262 See comment of EPI; see also comments of IBT; Equal Justice Center. 263 See comments of IFA; Johnson and Graham. 264 Comment of Ranking Member Foxx. 265 Comment of Chamber of Commerce. 266 Comments of American Action Forum; U.S. Senate Committee on Health, Education, Labor, and Pensions (Senate HELP Committee). 267 Comments of International Warehouse Logistics Association; Competitive Enterprise Institute; Restaurant Law Center. 268 Comment of IFA. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 outsourcing provides.269 The commenter also contends that the growth of contingent employment was not a valid reason for adopting the Browning-Ferris standard and is not a valid reason for keeping it. Further, the commenter argues that a joint-employer standard based on economic influence would be unworkable and would not necessarily result in better outcomes for employees. The commenter adds that it is not the purpose of the Act to support collective bargaining outcomes favoring labor. Relatedly, another commenter points out that 500,000 SEIU members provide security services and are employed by contractors, and it argues this shows that outsourcing has not prevented unionization or stifled collective bargaining.270 The final rule is not based on a prediction by the Board regarding purported economic impacts, if any, on workers’ wages or the economy generally. Rather, as explained throughout, returning to the jointemployer framework that predated Browning-Ferris—a framework that no court has ever found impermissible on common-law grounds—is warranted on policy grounds. Its requirement of direct and immediate control over essential terms and conditions of employment will best promote meaningful collective bargaining. That same requirement, plus the rule’s exhaustive enumeration of those essential terms and conditions and its descriptions of what does and does not count as direct and immediate control with respect to each essential term or condition all draw clear and readily discernible lines. Thus, the final rule should produce predictable outcomes, and accordingly provide members of the regulated community with the ability to structure their affairs with at least one contingency removed from consideration. L. Comments on the Hypothetical Scenarios Contained in the Text of the Proposed Rule Many commenters write favorably regarding the hypothetical scenarios— called ‘‘examples’’ in the NPRM— contained in the regulatory text of the proposed rule, stating, among other things, that they are helpful; 271 address common situations that the Board has not necessarily had the opportunity to address before; 272 allow the Board to advise, now, whether those situations satisfy the proposed rule’s standard 269 Comment of Chamber of Commerce. of FordHarrison LLP. 271 Comments of the Restaurant Law Center; International Bancshares Corporation; and Associated Builders and Contractors, Inc. 272 Comment of COLLE. 270 Comment PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 rather than leaving them unresolved to some indefinite future time; 273 and provide the type of additional ‘‘scaffolding’’ that the D.C. Circuit in Browning-Ferris v. NLRB said was missing from the Browning-Ferris jointemployer standard.274 By contrast, many commenters criticize the scenarios, stating, among other things, that they are unhelpful; 275 some of them are inconsistent with the text of the proposed rule or the commentary in the NPRM; 276 many of them raise unanswered questions; 277 the NPRM failed to explain their regulatory force; 278 they assume that employers make explicit exercises of power that are not always made explicit in the real world; 279 they fail to consider the interplay of multiple factors, which is what actual cases almost always involve; 280 and they suggest that exercising control over a single term of employment, without regard to its significance, could create joint-employer status.281 Having considered these comments and on further review, the Board has decided not to include in the final rule the examples from the proposed rule. As several commenters note, real-life fact patterns are likely to be far more complex than those portrayed in the examples’ hypothetical scenarios, and therefore the scenarios are not that useful. Nevertheless, as discussed elsewhere, the Board has sought to clarify the joint-employer standard by adding definitions of its key terms to the regulatory text. The Board believes that this captures the benefits of the examples while avoiding the more negative aspects noted by some commenters. The Board also believes that this approach helps provide the ‘‘scaffolding’’ that the court in Browning-Ferris v. NLRB found lacking in the Browning-Ferris standard. Additionally, one commenter states that the Board should consider the totality of the circumstances in each case, including both evidence of a putative joint employer’s control as well as evidence of its lack of control.282 273 Id. 274 Id. 275 Comment of 1199SEIU United Healthcare Workers East. 276 Comments of 1199SEIU United Healthcare Workers East; SEIU; Employment Law Alliance. 277 Comment of SEIU. 278 Id. 279 Comment of IBT. 280 Comments of General Counsel Robb; AFL– CIO; SEIU Local 32BJ; 1199SEIU United Healthcare Workers East; IUOE; SEIU; Employment Law Alliance. 281 Comments of General Counsel Robb; SEIU; Employment Law Alliance. 282 Comment of the Employment Law Alliance. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations Consistent with this comment, the final rule makes clear that joint-employer status ‘‘must be determined on the totality of the relevant facts in each particular employment setting.’’ Rule Sec. 103.40(A). The final rule also incorporates, in various ways, other feedback received on the hypothetical scenarios from the proposed rule. Specifically, one commenter notes that Examples 1 and 2 did not provide any guidance as to the impact of a finding of control over the wage rate.283 The final rule clarifies what ‘‘direct and immediate control’’ over wages is and is not. Regarding Examples 2 and 11, one commenter states that, in the contractsecurity industry, a company must be able to impose certain requirements and should be able to have a contract employee removed from its property for poor or unprofessional performance or for engaging in illegal activities.284 The final rule clarifies that an entity does not exercise ‘‘direct and immediate control’’ where it refuses to allow another employer’s employee to access its premises or to continue performing work under a contract. Regarding Example 6, one commenter suggests making it clear that Franchisor has not exercised direct and immediate control over essential terms and conditions of employment of Franchisee’s employees to the extent Franchisor merely recommends or coordinates the availability of certain benefits that Franchisee is not obligated to offer to its employees.285 The final rule makes clear that an entity does not exercise direct and immediate control over benefits by permitting another employer, under an arms-length contract, to participate in its benefit plans. Regarding Example 2, one commenter notes that some employers may use unfounded complaints from other entities to terminate employees’ employment.286 Regarding Example 3, one commenter asks whether a user entity that makes use of coded language and thinly veiled complaints to direct a supplier of temporary employees not to furnish African-American employees would qualify as having exercised ‘‘direct and immediate’’ control over those workers’ terms of employment.287 The final rule makes clear that jointemployer status will be determined ‘‘on the totality of the relevant facts in each 283 Comment of General Counsel Robb. of John B. Hirsch. 285 Comment of Polsinelli PC. 286 Comment of Wholesale Delivery Drivers, General Truck Drivers, Chauffeurs, Sales, Industrial and Allied Workers, Local 848, IBT. 287 Comment of Legal Aid Justice Center. 284 Comment VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 particular employment setting.’’ Thus, the Board will consider the facts of each case, including the degree of control that the putative joint employer exercises. One commenter states that the examples do not indicate how many instances of direct and immediate control are required and that, while several examples describe control that is ‘‘direct and immediate,’’ none explains whether an entity would be deemed a joint employer based on the facts in those examples, or how many other ‘‘essential terms and conditions’’ an employer must control.288 As discussed above, the definition of ‘‘substantial direct and immediate control’’ in the final rule states that the entity must ‘‘possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of . . . employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship’’ with another employer’s employees. M. Comments Regarding the Propriety of Using Rulemaking To Revisit the JointEmployer Standard and of the Adequacy of the Rulemaking Process The Board’s general rulemaking authority has been recognized both by commenters supporting the rule and by those opposing the rule.289 Several commenters favor using rulemaking to revise the joint-employer standard. They contend that rulemaking will promote predictability and stability in a way that ‘‘sequential adjudications’’ will not,290 that rulemaking allows for the submission of comments that are not tied to the particular facts in a specific case,291 and that rulemaking permits more thorough deliberation via the notice-and-comment process.292 In addition, some commenters argue that the proposed rule would further policy goals that have been stalled in Congress.293 One commenter acknowledges that the Board has statutory authority to promulgate a rule on joint-employer status, but urges the Board to rely on several other provisions of the Act, as well as Section 6, in promulgating this 288 Comment of SEIU. Comment of Senate HELP Committee; Society of Human Resource Management; see also comment of IUOE (acknowledging as a general matter that Sec. 6 authorizes the Board to engage in rulemaking, but arguing that rulemaking is not necessary in these circumstances). 290 Comment of Jenner & Block, LLP. 291 Comment of Restaurant Law Center. 292 Comment of Chamber of Commerce. 293 See comments of Members of Congress; Society of Human Resource Management. 289 See PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 11215 rule.294 As noted by that commenter, Section 6 authorizes the Board to make rules and regulations ‘‘as may be necessary to carry out the provisions of this Act.’’ 295 The commenter cites Chamber of Commerce of the United States v. NLRB, 721 F.3d 152, 160 (4th Cir. 2013), where the court explained that Section 6 requires some other section of the Act to provide either explicit or implicit authority to issue a particular rule. The court there found that the Board had exceeded its statutory authority when it promulgated a rule requiring employers to post in the workplace a notice informing employees of their rights under the Act. As noted above, the Board has determined that Section 6 authorizes the final rule as necessary to carry out Sections 2, 7, 8, 9, and 10 of the Act, 29 U.S.C. 152, 157, 158, 159, and 160, respectively. In contrast, other commenters oppose the Board’s use of rulemaking to establish the joint-employer standard. For the following reasons, the Board finds these arguments unpersuasive. One commenter states that a desire by the Board to avoid policy oscillation cannot serve as a proper basis for rulemaking because the proposed rule would represent further oscillation with respect to the joint-employer standard.296 However, the Board’s desire is not to avoid change in this area of the law altogether but to best effectuate the policies of the Act, consistent with the common law and informed by the comments we have received. Further, the Board believes that rulemaking will provide greater predictability for members of the regulated community than a standard established through adjudication, where retroactive application of new policies and standards is the Board’s usual practice. See, e.g., SNE Enterprises, 344 NLRB 673, 673 (2005). Some commenters argue that the Board’s reference in the NPRM to ‘‘continuing uncertainty’’ in the labormanagement community in the wake of the Board’s decision in Browning-Ferris was unfounded.297 The Board disagrees. The continuing uncertainty referred to arose from the adjudicatory shifts in the joint-employer standard that had taken place within a relatively short period of 294 Comment of National Federation of Independent Businesses (NFIB). 295 Comment of NFIB at 2. See also comment of Professor Harper (arguing that the proposed rule was not within the Board’s authority because it purports to articulate an abstractly stated law defining the employment relationship, rather than the relevance of that relationship to particular provisions of Sec. 8 or 9 of the Act). 296 See comment of IUOE. 297 Comment of Law and Economics Professors at 10; EPI at 2–3. E:\FR\FM\26FER2.SGM 26FER2 11216 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 time beginning with Browning-Ferris, as noted above.298 Moreover, the vacatur of Hy-Brand I in Hy-Brand II did not reflect a Board majority to return to the Browning-Ferris standard on doctrinal grounds, and this certainly prompted reasonable doubt among the Board’s stakeholders regarding the post–HyBrand II status of the Browning-Ferris standard, which sprang back into place by default rather than conviction. It is surely the case that this state of affairs was unstable and demanded resolution. One commenter argues that rulemaking is inappropriate because the reasons justifying past rulemakings by the Board—judicial rejection of adjudicatory attempts to formulate a standard regarding bargaining units in the healthcare industry; the purported need to provide a comprehensive update of the Board’s representationelection rules—are absent here.299 But Section 6 of the Act broadly authorizes the Board to make rules and regulations ‘‘as may be necessary to carry out the provisions of [the Act],’’ and the Board has identified the provisions of the Act that this rulemaking effectuates.300 Supreme Court precedent also supports the Board’s discretion to act through rulemaking rather than adjudication. See NLRB v. Bell Aerospace Co., 416 U.S. at 294 (‘‘[T]he choice between rulemaking and adjudication lies in the first instance within the Board’s discretion.’’). Nothing in the Act or judicial precedent warrants a conclusion that the Board may only engage in rulemaking for reasons the Board has cited in the past. Another commenter suggests that rulemaking is suspect because it is a ‘‘purely political process’’ and because adjudication is the Board’s ‘‘normal’’ process.301 Preliminarily, it is not clear what the commenter means by a ‘‘purely political process.’’ To the extent the commenter refers to policy-based views that influence how a Board member applies the Act and that tend to correlate with a member’s party affiliation, case adjudication is no less ‘‘political’’ than rulemaking. No less than case adjudication, rulemaking involves reasoned decision-making, conducted within the constraints of the APA and subject to judicial review. As demonstrated below, the Board has 298 See Sec. III.B, ‘‘Justification for Using Rulemaking, Rather than Adjudication, to Revise the Joint-Employer Standard: The Preference for Rulemaking over Adjudication,’’ supra. 299 Comment of IUOE. 300 See Sec. III.A, ‘‘Justification for Using Rulemaking, Rather than Adjudication, to Revise the Joint-Employer Standard: Authority to Engage in Rulemaking,’’ supra. 301 Comment of Professor George Gonos at 2–3. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 carefully considered all comments with an open mind, and the final rule we have formulated represents our reasoned determination regarding the appropriate standard for determining joint-employer status. The fact that the Board has not routinely engaged in rulemaking in the past does not preclude us from doing so now (see Bell Aerospace Co., 416 U.S. at 294), and while the Board typically makes substantive policy determinations through adjudication rather than rulemaking, this has been criticized by numerous commentators.302 Several commenters contend that adjudication is preferable to rulemaking because adjudication assertedly permits the Board to develop joint-employer doctrine more carefully, one case at a time.303 But rulemaking enables the Board to provide the regulated community greater certainty beforehand, as the Supreme Court has instructed that we should do. First Nat’l Maint. Corp. v. NLRB, 452 U.S. at 679. The Board also observes that in substance, the final rule codifies the Board’s joint-employer law as it existed before Browning-Ferris, and therefore it reflects the Board’s application of the joint-employer doctrine in numerous pre–Browning-Ferris cases. Moreover, disputes over joint-employer status will continue to arise and be resolved through adjudication under the standard set forth in the final rule, and the jointemployer doctrine will therefore continue to develop. One commenter argues that it is a vice, rather than a virtue, that a standard 302 See R. Alexander Acosta, Rebuilding the Board: An Argument for Structural Change, over Policy Prescriptions, at the NLRB, 5 FIU L. Rev. 347, 351–52 (2010); Merton C. Bernstein, The NLRB’s Adjudication-Rule Making Dilemma Under the Administrative Procedure Act, 79 Yale L.J. 571, 589–90, 593–98 (1970); Samuel Estreicher, Policy Oscillation at the Labor Board: A Plea for Rulemaking, 37 Admin. L. Rev. 163, 170 (1985); Jeffrey S. Lubbers, The Potential of Rulemaking by the NLRB, 5 FIU L. Rev. 411, 414–17, 435 (2010); Kenneth Kahn, The NLRB and Higher Education: The Failure of Policymaking Through Adjudication, 21 UCLA L. Rev. 63, 84 (1973); Charles J. Morris, The NLRB in the Dog House—Can an Old Board Learn New Tricks?, 24 San Diego L. Rev. 9, 27–42 (1987); Cornelius Peck, The Atrophied Rule-making Powers of the National Labor Relations Board, 70 Yale L.J. 729, 730–34 (1961); Cornelius J. Peck, A Critique of the National Labor Relations Board’s Performance in Policy Formulation: Adjudication and Rule-Making, 117 U. Pa. L. Rev. 254, 260, 269– 72 (1968); David L. Shapiro, The Choice of Rulemaking or Adjudication in the Development of Administrative Policy, 78 Harv. L. Rev. 921, 922 (1965); Carl S. Silverman, The Case for the National Labor Relations Board’s Use of Rulemaking in Asserting Jurisdiction, 25 Lab. L.J. 607 (1974); Berton B. Subrin, Conserving Energy at the Labor Board: The Case for Making Rules on Collective Bargaining Units, 32 Lab. L.J. 105 (1981). 303 See comments of NC National Employment Lawyers Association; UA. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 codified in a regulation is more difficult to change than one developed through adjudication, especially because a regulation would, in its view, deprive the Board of the flexibility needed to take into account ‘‘ever-changing factors in our dynamic economy.’’ 304 As discussed above, however, we believe that the comparative stability of rulemaking over case adjudication as the means of establishing the jointemployer standard is a virtue, as it will enhance labor-management stability, the promotion of which is one of the principal purposes of the Act. To the extent the commenter is arguing that the Board should consider economic factors, the Board declines to base the final rule on consideration of ‘‘the wider universe of all underlying economic facts that surround an employment relationship,’’ as the Board did in Browning-Ferris itself. Browning-Ferris, 362 NLRB at 1611 fn. 68, 1615. And the Board agrees with former Members Miscimarra and Johnson that ‘‘the inescapable conclusion to be drawn from the Taft-Hartley legislation repudiating [NLRB v. Hearst Publications, 322 U.S. 111 (1944)] is that Congress must have intended that common-law agency principles, rather than . . . policy-based economic realities . . . govern the definition of employer . . . under the Act.’’ Browning-Ferris, 362 NLRB at 1625. Moreover, while the Board believes that the stability and predictability provided through rulemaking is both beneficial and consistent with the Supreme Court’s guidance in First National Maintenance, the final rule will not prevent the Board from implementing change when appropriate, either through adjudication that further refines the rule, consistent with its text, or through additional rulemaking. One commenter argues that rulemaking is an inefficient use of Board resources.305 While the Board has devoted significant resources to this effort, we have done so efficiently and reasonably and have concluded that the effort is worth the long-term stability and predictability the final rule will provide. Another commenter suggests that it would have been more efficient for the Board to have engaged in interpretive rulemaking, as an interpretative rule could accomplish similar goals and would not require the Board to respond to comments.306 As an initial matter, the commenter does not explain how an interpretive rule would be appropriate 304 Comment of IUOE at 8. of Cohen. 306 Comment of Thomas. 305 Comment E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations in these circumstances. ‘‘[T]he critical feature of interpretive rules is that they are ‘issued by an agency to advise the public of the agency’s construction of the statutes and rules which it administers.’ ’’ Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 97 (2015) (quoting Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87, 99 (1995)). ‘‘If the rule cannot fairly be seen as interpreting a statute or a regulation, and if . . . it is enforced, ‘the rule is not an interpretative rule exempt from notice-and-comment rulemaking.’ ’’ Catholic Health Initiatives v. Sebelius, 617 F.3d 490, 494 (D.C. Cir. 2010) (quoting Cent. Texas Tel. Coop., Inc. v. FCC, 402 F.3d 205, 212 (D.C. Cir. 2005)). ‘‘Joint employer’’ is not a statutory term, and no Board rule or regulation currently defines it, so interpretive rulemaking is not an option here. Even if it were, the opportunity to receive input through the notice-andcomment process was one of the reasons the Board decided to embark on this rulemaking, and being able to receive, consider, and respond to comments outweighs any efficiency that might be gained from foregoing that process. Furthermore, an interpretive rule would not provide the stability and predictability that will be provided by the final rule as the culmination of notice-and-comment rulemaking. See Perez, 575 U.S. at 101 (‘‘Because an agency is not required to use notice-andcomment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule.’’). One commenter asserts that the proposed rule runs counter to the APA’s ‘‘presumption against changes in current policy.’’ 307 The commenter further argues that an agency ‘‘must provide a more substantial explanation for a policy that departs from its former views where ‘its new policy rests upon factual findings that contradict those which underlay its prior policy.’ ’’ Comment of Attorneys General of New York, Pennsylvania, et al. (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)). In Fox, the Court clarified that its ‘‘opinion in State Farm neither held nor implied that every agency action representing a policy change must be justified by reasons more substantial than those required to adopt a policy in the first instance.’’ 556 U.S. at 514. Moreover, the Court explained that while an agency must provide a more detailed justification when, for example, 307 See comment of Attorneys General of New York, Pennsylvania, et al., at 8 (citing Motor Vehicle Manufacturers Assn. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)). VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 ‘‘its new policy rests upon factual findings that contradict those which underlay its prior policy,’’ further explanation was needed ‘‘for disregarding facts’’ rather than for ‘‘the mere fact of policy change.’’ Id. at 515– 516. Because there is no heightened standard that must be met in order to justify a change in the Board’s jointemployer standard, and because the Board has fully explained its reasoning and has not disregarded any relevant facts, the claim of the commenter is misplaced. In any event, the Board is firmly convinced that the final rule is an improvement over the standard set forth in Browning-Ferris, for several reasons. As discussed above, at the first step of the Browning-Ferris analysis, where the Board considered the putative joint employer’s control over the terms and conditions of employment of another employer’s workers, the Board failed to draw meaningful distinctions between direct control and indirect and/or reserved-but-unexercised control, giving them equal weight. At the second step of the Browning-Ferris analysis, the Board seemingly recognized that these different kinds of control cannot be accorded equal weight by requiring consideration of whether the putative joint employer’s control is ‘‘too limited in scope or significance to permit meaningful collective bargaining.’’ 362 NLRB at 1614. However, BrowningFerris provided no guidance for determining when ‘‘meaningful collective bargaining’’ is possible, and the Browning-Ferris Board neglected even to attempt that analysis. Moreover, Browning-Ferris failed to provide meaningful guidance on the definition of ‘‘essential’’ terms and conditions of employment, and it also provided ‘‘no blueprint for what counts as ‘indirect’ control.’’ Browning-Ferris v. NLRB, 911 F.3d at 1220. As a result of these flaws, the Browning-Ferris Board impermissibly based its joint-employer finding on ‘‘routine feature[s] of independent contracts,’’ precluding enforcement of its decision. Id. The final rule comprehensively addresses all these shortcomings more fully than would be possible in the adjudication of a case. It re-establishes a commonsense hierarchy that recognizes the superior force of evidence of actually exercised direct and immediate control as compared with indirect and reserved-butunexercised control. It provides an exhaustive list of ‘‘essential’’ terms and conditions of employment, and for each essential term it specifies what will and will not count as direct and immediate control over that essential term. In these PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 11217 ways, the final rule provides vital guidance regarding the circumstances in which joint-employer status will and will not attach. The final rule also erects the ‘‘legal scaffolding’’ demanded by the D.C. Circuit in Browning-Ferris v. NLRB to ensure that the joint-employer inquiry will be confined ‘‘within traditional common-law bounds.’’ Id. And by defining the relative weight of direct and immediate control and other types of control, the final rule eliminates the cumbersome two-step Browning-Ferris analysis, with its standardless inquiry into whether meaningful collective bargaining is possible. One commenter argues that the Board has failed to adequately consider the costs of the proposed rule relative to its benefits, beyond mere costs to small businesses and labor unions.308 The commenter argues that courts have required consideration of cost, citing Michigan v. EPA, 135 S. Ct. 2699, 2711 (2015); Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011); and Corrosion Proof Fittings v. EPA, 947 F.2d 1201 (5th Cir. 1991). The commenter also argues that the Board is ignoring economic theory and research on the consolidation and abuse of indirect power wielded by third parties over market wages and, hence, direct employers’ wage-setting decisions. In addition, the commenter contends that the NPRM fails to comply with Executive Order 13725, ‘‘Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy,’’ which, the commenter asserts, encourages agencies to ‘‘build upon efforts to detect abuses such as . . . anticompetitive behavior in labor and other input markets, exclusionary conduct, and blocking access to critical resources that are needed for competitive entry.’’ Law and Economics Professors at 16 (ellipsis in original) (quoting Executive Order 13725, Sec. 2(b), 81 FR 23417 (Apr. 15, 2016)). In this regard, the commenter argues that the Board must at least explain why it failed to deem franchisors that include no-poaching clauses in franchise agreements as joint employers. Contrary to the suggestion of the commenter, and for reasons already explained, it is inappropriate to base the joint-employer standard on studies regarding economic impact because the Board is constrained to base the standard on the common law, applied in the particular context of the Act. 308 See comment of Law and Economics Professors. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11218 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations Moreover, the cases cited by the commenter involve statutes that, unlike the Act, contain wording indicating that costs must be considered. See Michigan v. EPA, 135 S. Ct. at 2704, 2707–2708, 2711–2712 (finding provision of the Clean Air Act directing agency to regulate emissions from power plants if the agency finds regulation ‘‘appropriate and necessary’’ indicated, when read naturally and in context with related provision concerning costs, that agency had to consider cost when making the finding); Business Roundtable, 647 F.3d at 1146, 1156 (finding agency failed to adequately consider effect on efficiency, competition, and capital formation, as required by Section 3(f) of the Exchange Act and Section 2(c) of the Investment Company Act of 1940, in promulgating rule at issue); Corrosion Proof Fittings, 947 F.2d at 1207–1208, 1215 (finding agency failed to give adequate weight to the requirement under the Toxic Substances Control Act that it promulgate the least burdensome reasonable regulation required to protect the environment). Accordingly, this argument is misplaced. With respect to Executive Order 13725, that order encourages, but does not require, independent agencies to comply with the order. Id. Sec. 3(b). As the NLRB is an independent agency, see 44 U.S.C. 3502(5), it is not required to comply with Executive Order 13725. Finally, the Board does not agree with the notion that joint-employer status should arise from the purported effect on competition for labor from franchisor-franchisee no-poaching agreements. For one thing, competition for labor is only one factor in the wage an employer offers. Moreover, the disputed no-poaching agreements, as described by the commenter, limit the ability of franchisees to hire employees of the franchisor or other franchisees of that franchisor. Such provisions place no limit on cross-franchise competition for labor. Regardless of whether one fast food franchise can hire an employee away from another franchisee of the same franchisor, a no-poaching agreement between a franchisee and franchisor would not prevent the franchisee from hiring an employee away from franchisees of a different franchisor. Whatever highly attenuated influence no-poaching agreements may have on market wages, it is a far cry from direct and immediate control over wages as defined in the final rule—the kind of control that warrants placing the entity that exercises it at the bargaining table. One commenter argues that the proposed rule violates Executive Order 13771, ‘‘Reducing Regulation and VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 Controlling Regulatory Costs,’’ which requires that ‘‘for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.’’ 309 However, Executive Order 13371 does not govern independent regulatory agencies, such as the NLRB, under 44 U.S.C. 3502(5). OMB Memorandum M– 17–21–OMB, Guidance Implementing Executive Order 13771, Titled ‘‘Reducing Regulation and Controlling Regulatory Costs’’ (Apr. 5, 2017) at 3, 9. Accordingly, the Board is not obligated to eliminate any regulations in connection with promulgating this final rule. Several commenters argue that the Board failed to properly consider the value of taking no action, or the value of promulgating a standard that makes entities with sufficient market power joint employers, because the Board did not base its decision on empirical data or economic and public policy research.310 To the extent the commenters are contending that the Board failed to consider alternatives, the contention is incorrect. The Board sought comment on ‘‘all aspects’’ of the proposed rule, including whether the common law dictated the approach of the proposed rule or of Browning-Ferris or left room for either approach, and the Board has received and considered thousands of comments concerning the proper jointemployer standard. Standard for Determining Joint-Employer Status, 83 FR at 46687; see also id. at 46696 (noting that Board considered and rejected possibility of taking no action). To the extent the commenters are arguing that the Board should have engaged in an economic analysis assessing the value of taking no action, the argument has no merit. As stated repeatedly herein, the joint-employer standard is governed by the common law as applied within the context of the Act, not by broader economic factors. See, e.g., Browning-Ferris, 362 NLRB at 1611 fn. 68, 1615 (rejecting consideration of ‘‘the wider universe of all underlying economic facts that surround an employment relationship’’); id. at 1625 (dissenting opinion) (indicating that common-law agency principles, rather than an expansive policy-based economic realities and statutory purpose approach, govern the 309 See comment of Texas RioGrande Legal Aid at 4 (quoting Executive Order 13371, 82 FR 9339 (Jan. 30, 2017)). 310 See comments of Law and Economics Professors; CWA; SEIU. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 definition of employer and employee under the Act). One commenter asserts that the Board has failed to provide sufficient time for comments.311 Specifically, it contends that the NPRM provided only seven days after initial comments were due for the filing of reply comments, and that this amount of time was insufficient to review the 26,197 comments that had been submitted as of January 28, 2019. Contrary to this commenter, the time provided for comments was more than sufficient. Preliminarily, the APA provides no minimum comment period, and many agencies, including the Board in past rulemaking proceedings, have afforded comment periods of only 30 days. Agencies have discretion to provide still shorter periods and are simply ‘‘encouraged to provide an appropriate explanation for doing so.’’ Administrative Conference of the United States Recommendation 2011–2 (June 16, 2011), at 3. The NPRM, which issued September 14, 2018, announced a deadline for initial comments of November 13, 2018, and that reply comments needed to be received on or before November 20, 2018. The Board then extended the comment period three times, for a total of 76 additional days. This included an extension the Board granted following the D.C. Circuit’s decision in BrowningFerris v. NLRB in order to permit the public an opportunity to address that decision. Ultimately, comments needed to be received on or before January 28, 2019, and comments replying to the comments submitted during the initial comment period needed to be received no later than 14 days later, February 11, 2019.312 Although the APA does not require this reply period, the Board provided it to give itself the best opportunity to gain all information necessary to make an informed decision. The nearly 29,000 comments submitted and the depth of analysis many of them provide are ample testament to the adequacy of the comment period. Several commenters argue that the Board should have held public hearings in connection with this rulemaking, as it has done in prior rulemakings. Commenters assert that hearings would provide more input and would help dispel the impression that the outcome was preordained.313 However, the APA 311 See comment of AFL–CIO. Further Extends Time for Submitting Comments on Proposed Joint-Employer Rulemaking in Light of D.C. Circuit’s Recent Browning-Ferris Decision, NLRB (Jan. 11, 2019), https:// www.nlrb.gov/news-outreach/news-story/nlrbfurther-extends-time-submitting-commentsproposed-joint-employer-1. 313 See comments of AFL–CIO; IUOE; Members of Congress; Cohen; IBT. 312 NLRB E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 does not require public hearings. Further, while the Board understands the value of public hearings and is willing to hold hearings in appropriate circumstances, it has seen public hearings devolve into nothing more than individuals reading their alreadysubmitted written comments aloud. In those circumstances, the Board gains little additional information from a public hearing while expending significant time and resources to hold it.314 In light of these considerations, the Board decided not to hold public hearings in connection with this rulemaking. However, as noted above, the nearly 29,000 comments submitted and the depth of analysis many of them provide are ample testament to the adequacy of the opportunities for public participation in this rulemaking process. In addition, the Board stated in the NPRM that it would review the public’s comments and consider joint-employer issues ‘‘afresh, with the good-faith participation of all members of the Board,’’ 83 FR at 46687, and has done so. The Board thus rejects the suggestion that the outcome of this rulemaking was preordained. Indeed, the several changes to the proposed rule reflected in the final rule, based on comments received, clearly demonstrate the contrary. The AFL–CIO argues that the Board violated the APA by relying on arguments and evidence outside the rulemaking record 315—specifically, petitions for rulemaking filed by the CDW and other organizations (including the HR Policy Association, the Restaurant Law Center, and the IFA). The AFL–CIO notes that the Board did not mention the petitions in the NPRM, that the petitions had not otherwise been disclosed, that the AFL–CIO did not learn about the petitions until December 6, 2018, and that the petitions were not made part of the rulemaking record. Further, the AFL–CIO asserts that the Board departed from past practice by failing to disclose the petitions in the NPRM. Additionally, the AFL–CIO asserts that the NPRM did not explain the change in practice. 314 See Letter from Chairman Ring to Senator Murray (Nov. 8, 2019), https://www.nlrb.gov/sites/ default/files/attachments/news-story/node-7827/ ring-murray-rulemakings-final.pdf. 315 The AFL–CIO contends that an agency ‘‘cannot rely on arguments or evidence that are not made part of the rulemaking record.’’ Comment of AFL–CIO at 59. For support, the AFL–CIO states that 5 U.S.C. Sec. 706 ‘‘direct[s] courts to ‘review the whole record or those parts of it cited by a party’ in determining whether agency action was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ ’’ Id. (quoting 5 U.S.C. Sec. 706). VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 The HR Policy Association counters that the Board did not act improperly, and it asserts that (1) the Board did not rely on the petitions; (2) the Board was not required to include the petitions in the record; (3) by submitting the petitions with its comments, the AFL– CIO has provided the public an opportunity to comment on the petitions; and (4) many of the organizations involved issued press releases regarding their petitions, and there was media coverage about potential rulemaking. HR Policy Association at 3–5 and fn. 8 (citing June 2018 press releases and news reports regarding rulemaking petitions).316 The Board has not relied on materials outside of the administrative record in this rulemaking. The administrative record contains each of the petitions for rulemaking, including those cited by the AFL–CIO. In addition, the Board did not undertake this rulemaking based on any of these petitions. Each of the petitions was filed after the Board had publicly announced that it planned to promulgate a rule on the joint-employer standard. One commenter also argues that changes made to the proposed rule in response to the D.C. Circuit’s decision in Browning-Ferris v. NLRB would likely result in a final rule that is not a logical outgrowth of the proposed rule.317 In this regard, the commenter asserts that the D.C. Circuit has held that ‘‘a final rule was not a logical outgrowth of the proposed rule because the court could not conclude ‘that petitioners, ex ante, should have anticipated the changes to be made in the course of the [2012] rulemaking.’ ’’ Comment of AFL–CIO at 62 (alteration in original) (quoting Daimler Trucks North America, LLC v. EPA, 737 F.3d 95, 103 (D.C. Cir. 2013)). The commenter asserts that interested 316 Specifically, HR Policy Association cites the following: Callie Harman, NAM Joins Business Groups to Petition NLRB on Joint-Employer Rulemaking, National Association of Manufacturers (June 14, 2018), https://www.shopfloor.org/2018/06/ nam-joins-business-groups-petition-nlrb-jointemployer-rulemaking/; Sean P. Redmond, Coalition Files Petition for Joint Employer Rulemaking, U.S. Chamber of Commerce (June 19, 2018), https:// www.uschamber.com/article/coalition-filespetition-joint-employer-rulemaking; Joyce Hanson, Restaurant Group Pushes NLRB on Joint Employer Issue, Law360 (June 20, 2018), https:// www.law360.com/articles/1055108/restaurantgroup-pushes-nlrb-on-jointemployer-issue; CDW Seeks Rulemaking to Remedy BFI, CDW (June 13, 2018), https://myprivateballot.com/2018/06/13/ cdw-seeks-rulemaking-remedy-bfi/; Industry Petitions NLRB for Joint-Employer Rulemaking, Independent Lubricant Manufacturers Association (June 18, 2018), https://www.ilma.org/ILMA/ILMA/ ILMA-News/June/Industry_Petitions_NLRB_for_ Joint-Employer_Rulemaking.aspx. 317 See comment of AFL–CIO. PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 11219 parties could not anticipate and meaningfully comment on changes made in response to the D.C. Circuit’s decision. In addition, the commenter argues that ‘‘ ‘[a]gency notice must describe the range of alternatives being considered with reasonable specificity. Otherwise, interested parties will not know what to comment on, and notice will not lead to better-informed agency decisionmaking.’ ’’ Id. at 63 (quoting Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 549 (D.C. Cir. 1983)). Apparently assuming that the commenter’s ‘‘logical outgrowth’’ argument concerns the role that indirect and reserved-but-unexercised control may play in the final rule, other commenters counter that the proposed rule did not require the Board to ignore indirect or reserved control.318 One such commenter contends that Examples 4 and 11 in the proposed rule concerned indirect control.319 Moreover, the commenter argues that the NPRM asked for feedback regarding the common law and thus indicated that such feedback could result in changes to the proposed rule. ‘‘To satisfy the [APA]’s notice requirement, 5 U.S.C. Sec. 553(b)(3), an agency’s final action must be a logical outgrowth of its proposed rule.’’ Idaho Conservation League v. Wheeler, 930 F.3d 494, 508 (D.C. Cir. 2019). ‘‘A final rule qualifies as a logical outgrowth ’if interested parties should have anticipated that the change was possible, and thus reasonably should have filed their comments on the subject during the notice-and-comment period.’ ’’ Id. (quoting CSX Transp., Inc. v. Surface Transp. Board, 584 F.3d 1076, 1079 (D.C. Cir. 2009)). ‘‘On the other hand, a final rule is not a logical outgrowth if ‘interested parties would have had to divine [the agency’s] unspoken thoughts, because the final rule was surprisingly distant from the proposed rule.’ ’’ Id. (quoting CSX Transp., 584 F.3d at 1080 (alteration in original)). Here, the rule proposed in the NPRM relevantly stated: ‘‘A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.’’ The NPRM stated that the proposed rule ‘‘reflects the Board’s preliminary view, subject to potential revision in response to comments, that the Act’s purposes of promoting collective bargaining and 318 See, e.g., comment of CDW. 319 Id. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11220 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations minimizing industrial strife are best served by a joint-employer doctrine that imposes bargaining obligations on putative joint employers that have actually played an active role in establishing essential terms and conditions of employment.’’ The NPRM also stated that the Board ‘‘seeks comment on all aspects of its proposed rule,’’ including whether ‘‘the common law dictate[s] the approach of the proposed rule or of Browning-Ferris.’’ In Browning-Ferris v. NLRB, the D.C. Circuit partially affirmed the Board’s articulation of the joint-employer test in Browning-Ferris, ‘‘including [its] consideration of both an employer’s reserved right to control and its indirect control over employees’ terms and conditions of employment.’’ 911 F.3d at 1199–1200. The court expressly did not decide, however, whether either reserved or indirect control, without more, could establish a joint-employer relationship. Id. at 1213, 1218. Consistent with the D.C. Circuit’s decision in Browning-Ferris v. NLRB, the final rule refines the rule proposed in the NPRM by providing that an entity’s indirect control and unexercised, contractually reserved authority over essential terms and conditions of employment of another employer’s employees are probative of joint-employer status. For the reasons explained herein, the final rule provides that these factors are probative only to the extent that they supplement and reinforce evidence of direct and immediate control over essential terms and conditions of employment. Although the final rule modifies the proposed rule in this and other respects, the final rule remains a logical outgrowth of the proposed rule. First, the final rule, like the proposed rule, requires proof of ‘‘substantial direct and immediate control’’ to establish jointemployer status. The final rule provides that indirect and reserved control are also probative, but the proposed rule was merely silent regarding those forms of control. The proposed rule did not expressly exclude them. The proposed rule also made clear the Board’s understanding that the joint-employer standard had to be consistent with the common law, and it referred to the Browning-Ferris standard and requested comments regarding whether the common law dictated that standard. Thus, the proposed rule reasonably signaled that inclusion in the final rule of indirect and reserved-but-unexercised control was entirely possible. Moreover, the NPRM described the development of the joint-employer doctrine, including cases such as Floyd Epperson, 202 NLRB at 23, in which the Board VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 considered evidence of both direct and indirect control in finding jointemployer status. Given all this, interested parties should have anticipated that the change was possible, and thus reasonably should have filed their comments on the subject during the notice-and-comment period. See Idaho Conservation League, 930 F.3d at 508. In short, the final rule is a logical outgrowth of the proposed rule. N. Comments Regarding the Practical Consequences of Adopting the Final Rule Versus Retaining Browning-Ferris Many commenters argue that clarifying the joint-employer standard as proposed in the NPRM will make jointemployer determinations more predictable, and that greater predictability in this regard is desirable.320 More specifically, commenters contend that businesses desire guidance on this issue and have delayed plans to grow as they wait for a ‘‘permanent fix.’’ 321 On the other side, commenters argue that retaining the Browning-Ferris standard will promote predictability because it is a recent precedent that the Board has infrequently applied,322 and it will continue to govern in pending cases given the final rule’s prospective application.323 Some commenters claim that while the NPRM cited a need to counteract uncertainty, it cited no evidence that Browning-Ferris actually created uncertainty.324 Having considered these comments, the Board believes that the final rule will promote predictability and certainty and will do so more effectively than retaining the Browning-Ferris standard. As recounted in the NPRM, the last several years have seen oscillation in this area of labor law, starting with Browning-Ferris’s overruling of preexisting precedent, the overruling of Browning-Ferris in HyBrand I, and the vacatur of Hy-Brand I in Hy-Brand II, which reinstated Browning-Ferris by default, not based on the doctrinal convictions of a Board majority. See 83 FR at 46682. Thereafter, the D.C. Circuit remanded the Board’s decision in Browning-Ferris, citing its overbroad and erroneous application of the ‘‘indirect control’’ factor and its failure to explain or apply the second 320 Comments of Senate HELP Committee; Polsinelli PC; Carpets Plus Color Tile. 321 Comment of Tamra Kennedy, small business owner; see also comments of Food Marketing Institute; IFA Franchisee Forum. 322 Comments of AFL–CIO; IUOE; CWA. 323 Comments of Attorneys General of New York, Pennsylvania, et al. 324 Comments of AFL–CIO; Attorneys General of New York, Pennsylvania, et al. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 step of the standard announced in that decision. In addition to the uncertainties created by this recent history, there is the vagueness of the Browning-Ferris standard itself, which failed to draw meaningful distinctions between direct control and indirect and/ or reserved-but-unexercised control. The final rule addresses these shortcomings, better effectuates applicable common-law principles, provides more guidance to the regulated community, and prevents the unsettling of expectations that occurs when precedent is overruled by adjudication and the new standard is applied retroactively. Commenters also variously claim that retaining or discarding Browning-Ferris will have an adverse effect on the economy. Some contend that BrowningFerris encourages entities to bring job functions in-house, which can increase costs.325 Others argue that BrowningFerris discourages entities from contracting with small businesses, which may be owned by minorities.326 In contrast, some commenters argue that exempting from joint-employer status entities that exercise only indirect control will encourage ‘‘fissuring’’ of the workplace through widespread outsourcing of contract work.327 Commenters argue that such contracting shifts costs onto employees and unions,328 allows companies to evade their legal obligations,329 impedes employees from organizing and engaging in other protected activities to improve their working conditions,330 and harms minority workers employed by subcontractors,331 among other deleterious consequences.332 In addition, the one commenter contends that no commenter has provided specific evidence of Browning-Ferris’s adverse economic impact.333 325 Comments of Competitive Enterprise Institute; American Staffing Association. 326 Comments of Chamber of Commerce; IFA. 327 Comments of Law and Economics Professors; Attorneys General of New York, Pennsylvania et al.; Southern Poverty Law Center. 328 Comments of Law and Economics Professors; SEIU. 329 Comments of LIUNA; 1199SEIU United Healthcare Workers East. 330 Comments of NELP; Jobs with Justice; Karyn Panitch. 331 Comments of APALA. 332 See, e.g., comment of Law and Economics Professors (arguing that to protect competition in fissured labor markets, the Board should retain Browning-Ferris or, alternatively, adopt a test similar to those used by antitrust authorities that asks whether an entity has sufficient market power to justify joint-employer status). 333 See comment of AFL–CIO; see also comment of Pacific Management Consulting Group (asserting the absence of reliable evidence that BrowningFerris negatively impacted the revenues of publiclytraded franchise restaurants). E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations In determining the appropriate jointemployer standard, the Board does not rely on the various purported economic effects that commenters predict the final rule will have on the economy at large or on workers’ wages. The final rule is governed by the common law of jointemployer relationships in the particular context of the Act and further based on a policy judgment that it would frustrate, rather than promote, national labor policy to draw into a collectivebargaining relationship an entity that has never exercised any substantial direct and immediate control over essential terms and conditions of employment of another employer’s employees. Thus, as it did in BrowningFerris, the Board rejects consideration of ‘‘the wider universe of all underlying economic facts that surround an employment relationship.’’ 362 NLRB at 1611 fn. 68, 1615 (citing, inter alia, Hearst, 322 U.S. 111) (internal quotes omitted). The Board also finds unpersuasive comments stating that this approach will limit employees’ rights under the Act when an entity is found not to be a joint employer because it has not actually exercised substantial direct and immediate control over the essential terms and conditions of another employer’s employees. In that situation, the employees will still have a statutory employer, and they will have all the rights safeguarded by Section 7 of the Act: The right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, to engage in other concerted activities for mutual aid or protection, and to refrain from any or all of these activities. None of those rights will be forfeited. Again, the standard is based on applicable common-law principles in the context of the Act, not on favoring more (or fewer) statutory employers of a given group of employees as a matter of socio-economic policy. Some commenters argue that legally required actions franchisors take to protect their trademark and service mark should not be considered evidence of joint-employer status.334 Relatedly, some commenters argue that corporate social responsibility standards, or ethics-based policies that entities require their subcontractors to follow, should not be considered evidence of joint-employer status.335 By contrast, the one commenter argues that the Board should not disregard evidence of influence where it is subjectively motivated by concerns such as compliance with the law or 335 Comments of HR Policy Association; Competitive Enterprise Institute. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 protection of a brand.336 The commenter also argues that any negative impact of Browning-Ferris on franchising is minimal given that a franchisor can allocate liability by imposing an indemnification clause on its franchisees. Other commenters argue that, under a narrower joint-employer standard, franchisors will exert more control because there is less risk of liability, and this will undermine franchisees’ independence.337 And according to another commenter, Browning-Ferris or a similar standard is necessary to countermand ‘‘blatant restrictions’’ on labor-market competition in the franchising industry, such as franchisors’ use of ‘‘nopoaching’’ agreements.338 As explained elsewhere, the Board has decided not to include in the final rule any provisions that are tailored to particular industries or business models. Instead, the final rule establishes a single, generally applicable standard that assesses the ‘‘totality of the relevant facts in each particular employment setting.’’ As appropriate, the Board will take the nature of the particular business or industry into consideration in applying the standard articulated in the final rule to the facts of the specific case. Importantly, however, we note that routine contracting practices of independent businesses will not evidence joint-employer status under the final rule. Such practices include provisions in business contracts that set the objectives, basic ground rules, or expectations for another entity’s performance under a contract. As discussed above, and in agreement with the D.C. Circuit, the final rule differentiates ‘‘those aspects of indirect control relevant to status as an employer’’ from ‘‘those quotidian aspects of common-law third-party contract relationships,’’ which ‘‘cast no meaningful light on joint-employer status.’’ Browning-Ferris v. NLRB, 911 F.3d at 1220. For example, a franchisor’s maintenance of brand-recognition standards (e.g., a requirement that the employees of its franchisees wear a particular uniform) will not evidence direct control over employees’ ‘‘essential’’ working conditions. See Love’s Barbeque 336 See Comment of AFL–CIO. of Chairman Scott and Ranking Member Murray; Franchisee Advocacy Consulting. 338 See comment of Law and Economics Professors; see also comment of American Association of Franchisees & Dealers (arguing that the Board should determine whether a franchisor’s direct economic control, such as over the cost of labor, undermines the franchisee’s equity ownership in the business). 337 Comments PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 11221 Restaurant No. 62, 245 NLRB 78, 120 (1979), and cases cited therein, enfd. in part sub nom. Kallmann v. NLRB, 640 F.2d 1094 (9th Cir. 1981). Of course, the Board will examine the circumstances of the franchisorfranchisee relationship in each particular case to determine whether the franchisor has exercised direct and immediate control over the essential terms and conditions of employment of the franchisee’s employees. Whether a franchisor exercises control over essential working conditions is measured objectively and is not based on the franchisor’s subjective intent. The possibility that the franchisor can ‘‘work around’’ joint-employer liability by negotiating an indemnification clause is not a sufficient reason to find that its brand-protection measures should be considered evidence of jointemployer status. Put somewhat differently, as between franchisors and franchisees, we decline to put our thumb on the scale. That is exactly what we would do if we imposed a jointemployer standard that compels franchisors to contract around an otherwise forced choice between protecting their brand and incurring joint-employer status, or avoiding jointemployer status by abandoning their legal duty to protect their brand. Similarly, a variety of corporate social responsibility standards are routine contracting practices and will not be considered evidence of joint-employer status. Examples include an entity’s requirement that another employer adopt safety and quality standards 339 or harassment guidance.340 As to the claimed economic effects of nopoaching agreements on market wages, the Board has addressed that comment already.341 Commenters present conflicting views regarding the effect the proposed rule would have on collective bargaining. Some contend that Browning-Ferris improperly places at the negotiating table entities with widely different interests or attenuated control over employment terms.342 Others say that a more restrictive standard will impede meaningful bargaining. These commenters argue that workers will be unable to bargain with the entity that effectively controls their working 339 See comments of COLLE; Restaurant Law Center. 340 See comments of HR Policy Association; Center for Workplace Compliance. 341 See Sec. V.M, ‘‘Response to Comments: Comments Regarding the Propriety of Using Rulemaking to Revisit the Joint-Employer Standard and of the Adequacy of the Rulemaking Process,’’ supra. 342 Comments of General Counsel Robb; CDW. E:\FR\FM\26FER2.SGM 26FER2 11222 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations conditions 343—an entity that can terminate its contract with the subcontractor without any legal consequences 344—or that they will be unable to bargain over a particular issue if the entity that controls that issue and that issue only is not their joint employer,345 among other things.346 And some commenters, citing Management Training Corp., 317 NLRB 1355 (1995), argue that limiting consideration of control to ‘‘essential’’ working conditions will frustrate bargaining.347 The Board shares the concerns of those commenters who observe that the Browning-Ferris standard may place at the table entities that lack sufficient control over terms and conditions of employment to warrant their participation in collective bargaining. The Board recognizes that the second step of that standard addressed that concern, but the Browning-Ferris Board’s failure to flesh out the requirements of that step or provide illustrative guidance through application rendered that step effectively meaningless. In contrast, the Board believes that the final rule fosters meaningful bargaining by requiring that an entity exercise such substantial direct and immediate control over one or more essential working conditions ‘‘as would warrant a finding that the entity meaningfully affects matters relating to the employment relationship.’’ 348 Contrary to 343 Comments of NELP; EPI; and SEIU Local 32BJ. of Professor Kulwiec (citing Local No. 447, Plumbers (Malbaff Landscape Construction), 172 NLRB 128 (1968)); see also James Hannley (noting that a franchisor can terminate its relationship with the franchisee if employees of the franchisee engage in organizing). Professor Kulwiec also posits that the concern over having too many employers at the bargaining table is overstated because the existence of a jointemployer relationship does not require bargaining unless the Board finds that the unit is appropriate for collective bargaining. 345 Comments of AFL–CIO; SEIU Local 32BJ. 346 See, e.g., Law and Economics Professors (citing Sec. 1 of the NLRA in arguing that the NLRA was designed to restore ‘‘equal[ ] . . . bargaining power between employers and employees’’ and ‘‘stabiliz[e] . . . competitive wage rates and working conditions within and between industries,’’ through bargaining between workers with ‘‘full freedom of association [and] actual liberty of contract’’ and employers ‘‘organized in the corporate or other forms of ownership association’’). 347 Comments of AFL–CIO; SEIU Local 32BJ. 348 In this regard, we adhere to the view articulated in the NPRM that the NLRA’s ‘‘policy of promoting collective bargaining to avoid labor strife and its impact on commerce is not best effectuated by inserting into a collective-bargaining relationship a third party that does not actively participate in decisions establishing unit employees’ wages, benefits, and other essential terms and conditions of employment.’’ 83 FR at 46687. khammond on DSKJM1Z7X2PROD with RULES2 344 Comment VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 commenters who cite Management Training against the proposed rule, that decision supports the standard adopted in the final rule. See 317 NLRB at 1355, 1357–1359. In Management Training, a government entity that was exempt from the NLRA had to approve certain economic terms and conditions before the private-sector government contractor could implement them. However, the contractor was able to effect noneconomic terms without approval. Despite the government entity’s control over some working conditions, the Board found it appropriate to assert jurisdiction over the contractor. The Board’s decision in Management Training demonstrates its conviction that employees can engage in meaningful collective bargaining with their employer even though another entity controls some essential terms and conditions and cannot be compelled to participate in collective bargaining, whether on jurisdictional grounds as in Management Training or because it is not a joint employer of the employees at issue.349 One commenter contends that an entity’s requirement that another employer comply with government regulations should be considered evidence of direct control, citing Watsonville Register-Pajaronian, 327 NLRB 957 (1999), and related cases.350 In those cases, the Board held that an employer has a duty to bargain over ‘‘discretionary action taken to comply with [a government regulation].’’ 327 NLRB at 959; accord DickersonChapman, Inc., 313 NLRB 907, 942 (1994); Long Island Day Care Services, 303 NLRB 112, 116–117 (1991); Hanes Corp., 260 NLRB 557, 557, 562 (1982). This argument is misplaced. The rule does not provide that employers have no duty to bargain over discretionary action taken to comply with a government regulation. Rather, it addresses which entity—the employees’ direct employer, or a third party—must engage in such bargaining. Requiring the direct employer to comply with government regulations does not evidence joint-employer status because requiring such compliance is part of the basic ground rules or expectations for that employer’s performance under a contract. Thus, considering such requirements as evidence of jointemployer status would be contrary to the common-law principles stated in 349 See also Supplementary Information Sec. V.G, ‘‘Response to Comments: Comments Regarding ‘Essential’ Terms and Conditions of Employment,’’ supra. 350 See comment of AFL–CIO. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 Browning-Ferris v. NLRB, 911 F.3d at 1219–1220. Commenters argue that by eliminating the bargaining obligation of an entity that exercises indirect control over the terms and conditions of employment of another employer’s employees, the proposed rule will cause labor unrest, such as strikes.351 This concern is overstated. The commenters present no evidence that there was more labor unrest prior to Browning-Ferris, when indirect control alone was not dispositive of joint-employer status. In any event, the Board has modified the proposed rule to make indirect control of essential terms and conditions probative of such status, provided it supplements and reinforces evidence of direct and immediate control. Some commenters advance arguments related to Section 8(b)(4)’s prohibition on secondary picketing. For example, the one commenter contends that jointemployer status should not render an otherwise neutral entity a ‘‘primary’’ employer lawfully subject to picketing unless the entity is directly and substantially involved in controlling the term or condition of employment in dispute.352 In contrast, some commenters argue that by narrowing the joint-employer standard, the proposed rule undermines First Amendment and other precedent that grants employees wide leeway to engage in picketing.353 This rulemaking solely concerns the joint-employer standard, not other legal doctrines. The Board therefore declines the request to modify standards regarding secondary picketing. Certainly, as was stated in the NPRM, a finding of joint-employer status may determine whether picketing directed at a particular business is primary and lawful, or secondary and unlawful. In that sense, the final rule’s clarification of the joint-employer standard should make it easier to determine whether an entity is a joint employer and thus a lawful target of picketing along with employees’ direct employer. The Board is not inclined, however, to rule that an entity may be a joint employer and remain shielded from picketing under certain circumstances, as the above comments effectively request. By the same token, the Board is equally unwilling to use this rulemaking to narrow the range of activity prohibited by Section 8(b)(4). Both goals are extraneous to the task at hand. In addition, commenters argue that narrowing the joint-employer standard 351 Comment of UA. comments of General Counsel Robb; World Floor Covering Association. 353 Comments of SEIU Local 32BJ; AFT. 352 See E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations for example, suggests imposing liability only where the joint employer is involved in the unlawful act or controls the essential term or condition of employment at issue in the unlawful act, or where the unfair labor practice cannot be adequately remedied without its participation.357 Similarly, another commenter urges the Board to adopt an ‘‘instrumentality test,’’ under which liability would be imposed on a joint employer only if it controls or has the right to control the particular instrumentality alleged to have caused the harm.358 Other commenters urge the Board to apply the standard set forth in Capitol EMI Music, 311 NLRB 997 (1993), enfd. 23 F.3d 399 (4th Cir. 1994), and impose liability on a joint employer for non-bargaining-related unfair labor practices only where the joint employer knew or should have known of the unlawful act and acquiesced in it by failing to protest or otherwise resist it.359 Finally, some commenters request that the rule eliminate joint-employer liability altogether and state that a joint employer is not liable for actions taken by another employer.360 The Board declines to expand the scope of the proposed rule to change Board precedent regarding the joint-andseveral liability of one joint employer for the unfair labor practices committed by another joint employer. Although O. Comments Regarding the joint-employer status is a predicate of Circumstances Under Which a Joint joint liability, the analyses of the two Employer Will Be Found Liable for concepts have often been distinct, each Another Employer’s Unfair Labor with its own considerations and Practices caselaw. Capitol EMI Music, for Many commenters favor the proposed example, is longstanding precedent rule to the extent it exposes an entity to regarding an exception to joint-andunfair labor practice liability as a joint several liability of the kind some employer only if it exercises substantial commenters request, but it and other direct and immediate control over precedent regarding exceptions to joint another employer’s employees’ terms liability are not cited or discussed in the 356 and conditions of employment. These NPRM. It is thus doubtful that the commenters observe that the ‘‘direct and public has been properly apprised that immediate control’’ requirement will this issue could be addressed in the allow their members, such as instant rulemaking. See Idaho franchisors and large retailers, to Conservation League v. Wheeler, 930 oversee the general performance of F.3d at 508 (‘‘[A] final rule is not a franchisees or retail business partners logical outgrowth if interested parties without being held liable for events in would have had to divine [the agency’s] workplaces over which they have little unspoken thoughts, because the final or no control. rule was surprisingly distant from the Other commenters urge us to adopt a proposed rule.’’) (second alteration in final rule that would further limit unfair original) (internal quotation marks labor practice liability even when an omitted). entity is found to be a joint employer of Moreover, as explained in the NPRM, another’s employees. One commenter, a significant motive for this rulemaking is to resolve the recent oscillations in 354 Comments of AFL–CIO; IUOE. Board law regarding joint-employer status that have occurred in the past several years. The NPRM explained that the rule was necessary ‘‘[i]n light of the continuing uncertainty in the labormanagement community created by these adjudicatory variations in defining the appropriate joint-employer standard under the Act.’’ 83 FR at 46682. There has been no recent oscillation in the law, however, regarding the issue of joint liability, which the Board did not change or even address in BrowningFerris. Indeed, the Board majority in Browning-Ferris emphasized that the decision ‘‘[did] not modify any other legal doctrine, create ‘different tests’ for ‘other circumstances,’ or change the way that the Board’s joint-employer doctrine interacts with other rules or restrictions under the Act.’’ Browning-Ferris, 362 NLRB at 1618 fn. 120. The issue of joint liability is also best resolved on a case-by-case basis. Determining whether one joint employer is jointly and severally liable for the other joint employer’s unfair labor practices depends on the nature of the joint-employment relationship and the type of violation alleged. As the Board explained in Capitol EMI Music, ‘‘traditional’’ joint-employment relationships, where each joint employer has a representative at a worksite and shares supervision of the employees, might call for a different analysis of liability than an arrangement where one joint employer simply supplies employees to another but takes no part in their daily direction. 311 NLRB at 1000. The Board was also careful to limit the exception to joint liability announced in Capitol EMI Music not just to a specific kind of jointemployment relationship but also to a specific unfair labor practice, one that depends on an unlawful motive. Id. at 1001. The Board also observed that the result might be different where a purportedly ‘‘innocent’’ joint employer nevertheless benefits from a coemployer’s unlawful conduct, or where an employer arrangement allows a joint employer to inquire into its coemployer’s actions. Id. at 999. The Board believes this case-by-case approach is sound, and therefore decline the invitation to address joint liability in the final rule. 355 See comment of AFL–CIO. Conversely, the IFA argues that Browning-Ferris has increased legal spending by encouraging individuals to pursue the ‘‘deeper pockets’’ of larger entities. 356 See comments of the Restaurant Law Center; National Retail Federation; American Road & Transportation Builders Association. Several commenters discuss particular industries or business relationships,361 such as home will cause small employers to become solely liable for the NLRA violations of larger contracting entities.354 However, this rulemaking is not outcome-driven. The Board’s task is not to craft a rule that either maximizes or minimizes third-party exposure to unfair labor practice liability. It is to ensure that a third party genuinely is the joint employer of a separate employer’s employees before exposing it to such liability and to otherwise-secondary economic pressures, and before imposing on it a duty to bargain with the representative of those employees. For all the reasons stated herein, the final rule fulfills that task and does so with greater clarity, predictability, and fidelity to the purposes and policies of the Act than did Browning-Ferris. Finally, one commenter argues that eliminating the relevance of contractually reserved authority, which is objective and documentable, will engender litigation and impose recordkeeping and related costs.355 However, the proposed rule did not eliminate contractually reserved authority, and the final rule deems evidence of contractually reserved authority probative of joint-employer status to the extent it supports and reinforces evidence of direct and immediate control. khammond on DSKJM1Z7X2PROD with RULES2 11223 VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 357 See comment of Job Creators Network. comment of IFA. 359 See comments of General Counsel Robb; HR Policy Association. 360 See comments of World Floor Covering Association; Glover. 358 See PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 P. Comments Regarding IndustrySpecific Standards 361 Comments of General Counsel Robb; World Floor Covering Association. E:\FR\FM\26FER2.SGM 26FER2 11224 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations builders,362 the contract-security industry,363 retailers,364 and the franchisor-franchisee relationship.365 As to franchising, for example, some commenters contend that legally required actions franchisors take to protect their trademark and service mark should not be considered evidence of joint-employer status.366 Commenters say that franchisors protect their brand by providing franchisees, among other things, training,367 information systems,368 and guidance on marketing 369 and customer service.370 The Board has decided not to address particular industries or types of business relationships in the final rule, because doing so would unnecessarily lengthen and complicate the rule. Instead, the final rule provides definitions and other clarifications that are intended to apply to a wide range of industries and business relationships, and the final rule also emphasizes that joint-employer status ‘‘must be determined on the totality of the relevant facts in each particular employment setting.’’ The rule addresses contracting practices common to many industries, such as the use of cost-plus contracts and control asserted pursuant to regulatory requirements. The Board anticipates that any industryspecific refinements will be developed case by case through adjudication. VI. Justification for the Final Rule khammond on DSKJM1Z7X2PROD with RULES2 The joint-employer doctrine plays an important role in the administration of the National Labor Relations Act (NLRA or the Act). Most notably, the doctrine determines when an entity other than the direct employer of certain employees has a duty to bargain with the representative of those employees, may be liable for unfair labor practices it did not directly commit, and may be targeted as a primary employer in a labor dispute. The joint-employer analysis set forth in this final rule is based on the common law as applied in the particular context of the NLRA. 362 Comment of National Association of Home Builders. 363 Comment of John B. Hirsch. 364 Comment of National Retail Federation. 365 Comment of IFA. 366 Comments of General Counsel Robb; David Kaufmann, lead author of ABA Franchise Law Journal article (discussing the Lanham Act, 15 U.S.C. Secs. 1051–1141, the FTC Franchise Rule, 16 CFR part 436, Secs. 436.1 et seq., and the FTC 2007 Franchise Rule Compliance Guide); see also comment of Kaufmann (discussing various state laws). 367 Comments of IFA; CDW; Polsinelli PC. 368 Comment of IFA. 369 Comments of Kaufmann; Keith Randall, franchise business owner. 370 Comments of CDW. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 Certain considerations must be taken into account under the Act that may not apply in other contexts. The Board must consider when an entity’s participation in collective bargaining is required for there to be meaningful bargaining over the terms and conditions of employees directly employed by another employer. The Board also must consider under what circumstances it is appropriate to impose liability on an entity that did not directly commit an unfair labor practice. And the Board must consider Congress’s concern with limiting third parties’ exposure to economic warfare in labor disputes. The Board intends in this final rule to return, with clarifying guidance, to the carefully balanced law as it existed before the Board’s departure in Browning-Ferris. Before, the Board found joint-employer status only when the additional entity had direct and immediate control, as opposed to indirect influence or unexercised, contractually reserved authority, over one or more of the most contextually meaningful, essential terms and conditions of employment such that, considering all of the circumstances, the entity meaningfully affected matters relating to the employment relationship. Indirect influence or unexercised, contractually reserved authority were considered, in weighing the circumstances, as supplementing and reinforcing evidence of direct and immediate control, but neither was dispositive. The Browning-Ferris Board disrupted this precedent—without due regard to issues of liability and limiting the scope of labor disputes, and with inadequate consideration of meaningful bargaining—to establish that indirect or unexercised, contractually reserved control could alone be dispositive. As noted above, in reviewing the Board’s Browning-Ferris decision, the United States Court of Appeals for the District of Columbia Circuit held that, under the common law, indirect and unexercised reserved control can factor in the Board’s joint-employer analysis, but the Board exceeded the bounds of the common law by ‘‘failing to distinguish evidence of indirect control that bears on workers’ essential terms and conditions from evidence that simply documents the routine parameters of company-to-company contracting.’’ Browning-Ferris v. NLRB, 911 F.3d at 1213, 1216. The court did not pass on whether indirect or unexercised reserved control could ever alone be dispositive. By returning to the Board’s prior precedent, this final rule answers that open question. In applying the common law in the context of the NLRA, the PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 Board will not find indirect or unexercised reserved control, alone, dispositive, but such control will be relevant to the extent it supplements and reinforces evidence of direct and immediate control. The Board’s analysis here, in the words of the D.C. Circuit, ‘‘color[s] within the common-law lines identified by the judiciary.’’ Id. at 1208. The standard we adopt in this final rule dates back at least to the Board’s adoption in Laerco Transportation, 269 NLRB 324 (1984), and TLI, Inc., 271 NLRB at 798–799, of the United States Court of Appeals for the Third Circuit’s explication of the joint-employer doctrine in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 691 F.2d 1117, 1124 (3d Cir. 1982). In the ensuing decades, no reviewing court ever suggested the Board’s standard was at variance with the common law, or that it must be extended to the outer bounds of the common law. Nevertheless, the Board’s 2015 Browning-Ferris decision departed from this established body of precedent. With this final rule, the Board has endeavored to provide greater clarity, guided by the many comments received, as to how it will determine jointemployer status. Joint-employer determinations have always been factintensive, and they will continue to be so. The Board is confident, however, that a more precise definition of the key terms and analytical points will facilitate consistent application of the standard across a broad spectrum of industries and business-to-business relationships. This specificity stands in contrast to the uncertainty the Board’s Browning-Ferris decision created and that the D.C. Circuit justifiably criticized, including by its failure to stay within common-law bounds in its treatment of indirect control and to give any content whatsoever to the second, NLRA-based step of the standard announced therein. Broadly, an entity shares or codetermines the essential terms and conditions of another employer’s employees—that is, may be considered a joint employer of those employees— when it possesses and exercises substantial direct and immediate control over the employees’ essential terms and conditions. The final rule’s definitions of ‘‘essential terms and conditions of employment,’’ ‘‘direct and immediate control,’’ and when direct and immediate control is ‘‘substantial’’ are explained below, as is the final rule’s treatment of indirect control and unexercised, contractually reserved authority and of certain common business practices. E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations A. Essential Terms and Conditions of Employment In Laerco Transportation, the Board first described the essential terms and conditions of employment in the jointemployer analysis as including, nonexhaustively, ‘‘hiring, firing, discipline, supervision, and direction.’’ 269 NLRB at 325. Browning-Ferris aside, the Board has repeated this non-exclusive list ever since, including in the NPRM. The final rule adds wages, benefits, and hours of work to this list, and it makes the list of essential terms and conditions of employment an exclusive, closed list. First, the inclusion of these three terms and conditions, urged by many commenters, is a commonsense addition. ‘‘Wages’’ and ‘‘hours’’ feature prominently in the NLRA. See Sections 8(d) and 9 of the Act. And Board precedent has assumed wages, benefits, and hours of work are essential terms and conditions of employment for purposes of the joint-employer analysis. See, e.g., Quantum Resources Corp., 305 NLRB at 760–761 (wages); G. Heileman Brewing Co., 290 NLRB 991, 1000 (1988) (benefits), enfd. 879 F.2d 1526 (7th Cir. 1989); Gourmet Award Foods, Northeast, 336 NLRB 872, 874–875 (2001) (hours of work). Second, setting essential terms and conditions of employment as including only wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction brings much needed certainty to the joint-employer analysis. An entity’s control relating to these matters, moreover, has proven most relevant, in the Board’s experience, in determining when it is warranted to find a bargaining obligation, liability for unfair labor practices, and status as a primary in a labor dispute. Indeed, no Board case has been identified where control over any other term or condition of employment carried the day in a joint-employer analysis. As provided in the final rule, however, control over other mandatory subjects of bargaining is also probative, but only to the extent it supplements and reinforces evidence of direct and immediate control over essential terms and conditions of employment. khammond on DSKJM1Z7X2PROD with RULES2 B. Direct and Immediate Control Direct and immediate control distinguishes the obvious, meaningful control exercised over employees from attenuated indirect and unexercised reserved control, which is much less significant in identifying a joint employer, and from routine features of company-to-company contracting that are not relevant to joint-employer status at all. The final rule defines direct and VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 immediate control with respect to each of the eight essential terms and conditions of employment based on lines drawn in the Board’s preBrowning-Ferris precedent. The Board determined that this approach provided better and more precise guidance than the hypothetical factual examples in the proposed rule, which were widely criticized in the comments. Over wages, an entity exercises direct and immediate control if it actually determines the wage rates, salary, or other rate of pay that is paid to another employer’s individual employees or job classifications. See, e.g., Quantum Resources Corp., 305 NLRB at 760–761 (finding the user employer jointly employed the supplier employer’s employees in part because the user employer designated wage rates, authorized changes in wage rates, and pushed through raises for employees). But it does not exercise such control by entering into a cost-plus contract (with or without a maximum reimbursable wage rate). See, e.g., Goodyear Tire & Rubber Co., 312 NLRB 674, 678 (1993) (a cost-plus contract setting forth the wage reimbursement is not evidence of a joint-employer relationship); see also Browning-Ferris, 911 F.3d at 1220. Over benefits, an entity exercises direct and immediate control if it actually determines the fringe benefits to be provided or offered to another employer’s employees. This would include selecting the benefit plans (such as health insurance plans and pension plans) and/or level of benefits provided. Compare G. Heileman Brewing, 290 NLRB at 1000 (finding joint-employer status in part because the user employer exercised authority over granting benefits), with TLI, Inc., 271 NLRB at 798–799 (attendance of the user employer’s representative at bargaining sessions and outlining the user employer’s need to cut labor costs did not show direct control over terms and conditions because the representative made no specific proposals; it was up to the supplier employer and union to work out needed savings from wages and benefits). An entity does not exercise direct and immediate control by permitting another employer, under an arm’s-length contract, to participate in its benefit plans. Over hours of work, an entity exercises direct and immediate control if it actually determines work schedules or the work hours, including overtime, of another employer’s employees. See Gourmet Award Foods, 336 NLRB at 874–875 (finding joint-employer status in part because the user employer determined hours of work and work schedules, including overtime); G. PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 11225 Heileman Brewing, 290 NLRB at 1000 (finding joint-employer status in part because the user employer set work schedules). An entity does not exercise such control by establishing an enterprise’s operating hours or the times when it needs the services provided by another employer. See Service Employees Local 254 (Women & Infants Hospital), 324 NLRB 743, 749 (1997) (‘‘The contractual provisions affecting when work must be performed are not indicia of joint employer status. It is not surprising that [the user employer] would require that cleaning be done at times most convenient for the college, or that a cleaner be available at all times to handle emergencies.’’). Over hiring, an entity exercises direct and immediate control if it actually determines which employees will be hired and which employees will not. Compare Le Rendezvous Restaurant, 332 NLRB 336, 336 (2000) (finding jointemployer status in part because of the user employer’s active involvement in hiring a nonunion workforce to replace its existing workforce), with Flagstaff Medical Center, 357 NLRB at 667 (interviewing candidates and making recommendations on whom the primary employer should hire did not prove joint-employer status; the direct employer retained final authority over hiring decisions and, in fact, did not follow all the recommendations), and AM Property Holding Corp., 350 NLRB at 1002 (not indicative of joint-employer status for the user employer to suggest individuals for the supplier employer to hire whom the supplier employer independently interviewed before making hiring decisions). An entity does not exercise such control by requesting changes in staffing levels to accomplish tasks or by setting minimal hiring standards such as those required by government regulation. See Aldworth Co., 338 NLRB at 139 (‘‘[A]ctions taken pursuant to government statutes and regulations are not indicative of joint employer status.’’). Over discharge, an entity exercises direct and immediate control if it actually decides to terminate the employment of another employer’s employee. See, e.g., Whitewood Maintenance Co., 292 NLRB 1159, 1162–1163 (1989) (finding jointemployer status in part because the user employer made the decision to discharge the supplier employers’ employees, which the supplier employer carried out), enfd. sub nom. Texas World Serv. Co. v. NLRB, 928 F.2d 1426 (5th Cir. 1991). An entity does not exercise such control by bringing misconduct or poor performance to the attention of another E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 11226 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations employer that makes the actual discharge decision, by expressing a negative opinion of another employer’s employee, by refusing to allow another employer’s employee to continue performing work under a contract, or by setting minimal standards of performance or conduct, such as those required by government regulation. See Aldworth Co., 338 NLRB at 139 (‘‘[A]ctions taken pursuant to government statutes and regulations are not indicative of joint employer status.’’); Southern California Gas Co., 302 NLRB 456, 462 (1991) (not evidence of joint-employer status for the user employer to indicate it no longer wanted a particular employee to work at the facility; the user employer was only ‘‘exercis[ing] . . . the right of an owner or occupant to protect his premises’’); Chesapeake Foods, 287 NLRB 405, 407 (1987) (user employer did not exercise control by referring complaints about supplied employees to the supplier employer, and the supplier employer made the decision whether to discharge an employee); H&W Motor Express, Inc., 271 NLRB 466, 468 (1984) (not evidence of joint-employer status for user employer to ask that certain employees to be removed from work under its contract). Over discipline, an entity exercises direct and immediate control if it actually decides to suspend or otherwise discipline another employer’s employee. See Hobbs & Oberg Mining Co., 297 NLRB 575, 587 (1990) (finding joint-employer status partly in reliance on the user and supplier employer jointly giving a supplied employee a written reprimand), affd. 940 F.2d 1538 (10th Cir. 1991), cert. denied 503 U.S. 959 (1992); G. Heileman Brewing, 290 NLRB at 1000 (finding joint-employer status in part because the user employer exercised authority over discipline). An entity does not exercise such control by bringing misconduct or poor performance to the attention of another employer that makes the actual disciplinary decision, by expressing a negative opinion of another employer’s employee, or by refusing to allow another employer’s employee to access its premises or perform work under a contract. See TLI, Inc., 271 NLRB at 799 (finding the user employer did not control discipline because ‘‘[w]hen a driver engages in conduct adverse to [the user employer’s] operation, [it] supplies [the supplier employer], not the employee, with an ‘incident report’ whereupon a [supplier employer] representative investigates. Disciplinary notices, or necessary actions, are issued by [the supplier employer]. In addition, VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 although accidents on the road are reported to [the user employer], it is [the supplier employer] which investigates and determines whether or not the accident was preventable and whether further action is necessary’’). Over supervision, an entity exercises direct and immediate control by actually instructing another employer’s employees how to perform their work or by actually issuing employee performance appraisals. See, e.g., International Transfer of Florida, Inc., 305 NLRB 150, 150 (1991) (finding the user employer jointly employed the supplier employer’s employees because the user employer exercised exclusive daily supervision and direction over those employees, including as to the manner and means of performing the work). An entity does not exercise such control when its instructions are limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it. See AM Property Holding Corp., 350 NLRB at 1001 (supervision is ‘‘limited and routine where a supervisor’s instructions consist primarily of telling employees what work to perform, or where and when to perform the work, but not how to perform the work’’); see also G. Wes Ltd. Co., 309 NLRB 225, 226 (1992) (concluding user employer’s day-to-day supervision was limited and routine where employees were not told ‘‘specifically how to do the work or the manner in which they were to perform the assigned tasks . . . . [they] were told what areas were to be worked and with whom the employees were to work, and the work was then left to the employees to perform’’); Southern California Gas, 302 NLRB at 462 (finding that the ‘‘[r]espondent’s orders and directions to the day-shift employees were in the nature of routine directions of what tasks were required and where they were to be performed . . . such direction [was] consistent with [r]espondent’s object of obtaining results, i.e., the work it contracted for’’); Laerco Transportation, 269 NLRB at 326 (finding only limited and routine supervision where the user employer resolved ‘‘minor problems such as employee personality conflicts’’ and its involvement was ‘‘limited both as to the nature and number of employee problems’’; major problems were referred to the supplier employer). Over direction, an entity exercises direct and immediate control by assigning particular employees their individual work schedules, positions, and tasks. See, e.g., G. Heileman Brewing, 290 NLRB at 1000 (finding PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 joint-employer status in part because the user employer assigned work and schedules). An entity does not exercise such control by setting schedules for completion of a project or by describing the work to be accomplished on a project. See Chesapeake Foods, 287 NLRB at 407 (finding it was not significant control for the user employer to ‘‘schedul[e] . . . the farms to be worked’’); TLI, Inc., 271 NLRB at 799 (finding it was not evidence of jointemployer status where ‘‘[t]he Crown foreman instruct[ed] the drivers as to which deliveries [were] to be made on a given day,’’ but ‘‘the drivers themselves select[ed] their own assignments, on a seniority basis’’); Laerco Transportation, 269 NLRB at 325–326 (finding it was not evidence of joint-employer status where the user employer set routes to be followed and the supplier employer provided drivers for those predetermined routes). C. When Direct and Immediate Control Is Substantial It is a well-settled principle in Board law that ‘‘[t]o establish joint employer status there must be a showing that the employer meaningfully affects matters relating to the employment relationship.’’ Laerco Transportation, 269 NLRB at 325. This has required careful consideration of the totality of the relevant facts in each particular employment setting. Boire v. Greyhound Corp., 376 U.S. 473, 481 (1964) (‘‘[W]hether Greyhound possessed sufficient indicia of control to be an ‘employer’ is essentially a factual issue.’’); AM Property Holding Corp., 350 NLRB at 1000 (‘‘The question of joint employer status turns on the facts of each particular case.’’); Southern California Gas, 302 NLRB at 461 (‘‘Primarily, the question of joint employer status must be decided on the totality of the facts of the particular case.’’). Under precedent predating the sharp departure in Browning-Ferris, the Board reasonably found entities meaningfully affected matters relating to the employment relationship only where they had direct and immediate control over at least one essential term or condition of employment. Depending on the circumstances, however, direct and immediate control over only one essential term or condition of employment, or even more than one, has sometimes been found insufficient to meaningfully affect matters relating to the employment relationship. The direct-and-immediate control may be too isolated or sporadic to be meaningful for purposes of imposing bargaining obligations and potential unfair labor practice liability. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations See G. Wes Ltd., 309 NLRB at 225 fn. 5 (one isolated incident of user employer interviewing employee whom the supplier employer later hired insufficient to prove that the user employer controlled hiring); International Shipping Assn., 297 NLRB 1059, 1067 (1990) (finding evidence insufficient to prove a joint-employer relationship where the ‘‘few occasions when [the user employer] asked certain [supplied] workers to do certain tasks were isolated,’’ and there was ‘‘one isolated, vague incident’’ of the user employer telling an applicant he should tell the supplier employer he should be hired, and he was). Likewise, the direct and immediate control an entity exercises may fall short of meaningfully affecting the employment relationship in the context of other control not exercised. See Flagstaff Medical Center, 357 NLRB at 666–667 (the putative joint-employer’s limited direct and immediate control was insufficient to establish joint-employer status under the circumstances); AM Property Holding Corp., 350 NLRB at 1001–1002 (user employer’s direct and immediate control regarding hiring and setting the wages and benefits of one particular employee and ‘‘occasional assignment of work’’ to other employees was not enough to establish joint-employer relationship under the circumstances); Women & Infants Hospital, 324 NLRB at 749 (recurring direction by the user employer necessitated by the lack of a supplier-employer onsite supervisor was not itself enough to warrant a jointemployer finding absent other meaningful evidence); Pitney Bowes, Inc., 312 NLRB 386, 387 (1993) (user employer’s issuing undocumented verbal warnings and routine instructions did not meaningfully affect the employment relationship in light of the supplier employer’s ‘‘nearly complete control over all other significant aspects of the employment relationship, such as hiring, wages, benefits, work rules, assignment of tasks, transfers to other [supplieremployer] customers, and termination’’). The final rule reflects this precedent by providing that the Board will consider the totality of the relevant facts in each particular employment setting and that ‘‘[s]ubstantial direct and immediate control’’ means ‘‘direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. Such control is not ‘substantial’ if only exercised on a sporadic, isolated, or de minimis basis.’’ VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 The final rule also specifies, as has always been the case, that the party asserting joint-employer status bears the burden of proof. See, e.g., Hobbs & Oberg Mining Co., 297 NLRB at 586. D. The Role of Indirect Control and Unexercised, Contractually Reserved Authority As referenced above, indirect control and unexercised, contractually reserved authority generally reference control that is not direct and immediate. However, the final rule specifies that, within the meaning of the rule, indirect control does not encompass indirect control or influence over setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract. This distinction is discussed further in the following section on business practices that are not probative of joint-employer status. By contractually reserved authority, the final rule means the authority that an entity reserves to itself, under the terms of a contract with another employer, over the essential terms and conditions of employment of that other employer’s employees, but that has never been exercised. Under Board law as it existed prior to Browning-Ferris, indirect control and unexercised, contractually reserved authority were not alone dispositive of joint-employer status. See AM Property Holding Corp., 350 NLRB at 1000, 1002 (‘‘We find that the contractual provision giving AM the right to approve PBS hires, standing alone, is insufficient to show the existence of a joint employer relationship. In assessing whether a joint employer relationship exists, the Board does not rely merely on the existence of such contractual provisions, but rather looks to the actual practice of the parties . . . . The Board’s inquiry with regard to the direction and supervision of Servco employees is properly focused on the practice of the parties, not the language of the contract.’’); National Metal Processing, Inc., 331 NLRB 866, 869 (2000) (finding user employer was not a joint employer where it only affected unit employees indirectly and had unexercised contractual authority to suspend employees up to 3 days); J. P. Mascaro & Sons, 313 NLRB 385, 389 (1993) (‘‘Respondent of necessity may exercise some implicit or indirect control over the operations of [the subcontractor] at the facility to ensure against disruption of its own operations or to assure it secures the services promised, but this is no basis to find the customer-employer is a joint employer of its contractor’s employees.’’), enfd. sub nom. NLRB v. Solid Waste Services, PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 11227 Inc., 38 F.3d 93 (2d Cir. 1994); Goodyear Tire & Rubber, 312 NLRB at 677 (contractual provision reserving operational control, including over direction and supervision, ‘‘in and of itself, was not evidence of joint employer status . . . . [I]t was more appropriate to look to the actual handling of day-to-day business’’). But the Board did consider such evidence insofar as it supplemented and reinforced evidence of direct and immediate control over essential terms and conditions of employment. See, e.g., Le Rendezvous Restaurant, 332 NLRB at 336 (considering evidence of contractually reserved authority in conjunction with user employer’s exercise of direct and immediate control over hiring and discipline); M.B. Sturgis, Inc., 331 NLRB 1298, 1301–1302 (2000) (finding that the contract’s broad grant of authority to the user employer over supervision and direction supported evidence of exercised direct control over supervision, direction, and discipline). The final rule is in lockstep with this approach. Indirect control or unexercised, contractually reserved authority cannot alone be dispositive, but either or both are probative of jointemployer status to the extent they supplement or reinforce evidence of direct and immediate control over essential terms and conditions of employment. E. Business Practices That Are Not Probative of Joint-Employer Status The Board is mindful, as was implicit in its pre–Browning-Ferris precedent, that there are business practices that are merely ‘‘quotidian aspects of commonlaw third-party contract relationships’’ that do not make joint-employer status any more or less likely. Browning-Ferris v. NLRB, 911 F.3d at 1220. A contracting entity commonly seeks to ‘‘set the objectives, basic ground rules, and expectations for a third-party contractor,’’ and doing so is not indicative of joint-employer status. Id. This includes contractual provisions obligating the third party to maintain certain practices to comply with legal requirements or for corporate social responsibility reasons. See Doe I v. WalMart Stores, Inc., 572 F.3d at 680–683 (contracts that contained a code of conduct requiring Wal-Mart’s foreign suppliers to comply with foreign labor laws and permitting Wal-Mart to monitor compliance, and that set forth ‘‘deadlines, quality of products, materials used, prices, and other common buyer-seller contract terms’’ were not evidence that Wal-Mart was a common-law joint employer of its suppliers’ employees); Aldworth Co., E:\FR\FM\26FER2.SGM 26FER2 11228 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations 338 NLRB at 139 (‘‘[A]ctions taken pursuant to government statutes and regulations are not indicative of joint employer status.’’). Accordingly, under the final rule, the Board does not intend the following to be evidence of joint-employer status: Entering a cost-plus contract (with or without a maximum reimbursable rate); setting minimal standards for hiring, performance, or conduct, such as those required by government regulation; requiring the contractor to institute safety or sexual-harassment policies; a franchisor’s protection of its trademark or service mark; or anything else that promotes legal compliance or sets the objectives, basic ground rules, or expectations for a contractor’s performance. VII. Other Statutory Requirements khammond on DSKJM1Z7X2PROD with RULES2 A. The Regulatory Flexibility Act The Regulatory Flexibility Act of 1980, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (RFA), 5 U.S.C. 601–612, requires an agency promulgating a final rule to prepare a Final Regulatory Flexibility Analysis (FRFA) when the regulation will have a significant impact on a substantial number of small entities. An agency is not required to prepare a FRFA if the Agency head certifies that the rule will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). In the NPRM, although the Board believed that this rule would not have a significant economic impact on a substantial number of small entities, the Board issued its Initial Regulatory Flexibility Analysis (IRFA) to provide the public the fullest opportunity to comment on the proposed rule. See 83 FR at 46693. The Board solicited comments from the public that would shed light on potential compliance costs that may result from the rule that it had not identified or anticipated. The RFA does not define either ‘‘significant economic impact’’ or ‘‘substantial number of small entities.’’ 371 Additionally, ‘‘[i]n the absence of statutory specificity, what is ‘significant’ will vary depending on the economics of the industry or sector to be regulated. The agency is in the best position to gauge the small entity impacts of its regulations.’’ 372 The Board anticipates low costs of 371 5 U.S.C. 601. Small Business Administration (SBA) Office of Advocacy, A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act (SBA Guide) 18 (Aug. 2017), https:// www.sba.gov/sites/default/files/advocacy/How-toComply-with-the-RFA-WEB.pdf. 372 U.S. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 compliance with the rule for small entities, related to reviewing and understanding the substantive changes to the joint-employer standard. 1. Statement of the Need for, and Objectives of, the Rule The final rule establishes the standard for determining, under the NLRA, whether a business is a joint employer of a group of employees directly employed by another employer. This rule is necessary to foster predictability and consistency in joint-employer determinations under the NLRA, particularly in light of considerable uncertainty regarding the status of the current standard, which was established through adjudication. The guidance furnished by the final rule will enable regulated parties to determine in advance whether their actions are likely to result in a joint-employer finding, which entails or may entail significant consequences under the NLRA: A duty to bargain collectively, exposure to what would otherwise be unlawful secondary union activity, and derivative unfair labor practice liability. Accordingly, a final rule setting forth a comprehensive and detailed standard is vitally important to businesses covered by the NLRA, employees employed by those businesses, and labor organizations that represent or seek to represent those employees. Defining the joint-employer standard through rulemaking also permits the Board to provide more guidance than would be readily achievable through adjudication. The final rule accomplishes these objectives by defining critical elements of the joint-employer standard that have heretofore been undefined and by focusing the inquiry on the factors most relevant to joint-employer status in light of the policies and purposes of the NLRA. 2. Statement of the Significant Issues Raised by the Public Comments in Response to the Initial Regulatory Flexibility Analysis, a Statement of the Assessment of the Agency of Such Issues, and a Statement of Any Changes Made in the Proposed Rule as a Result of Such Comments a. Response to Comments Concerning Economic Impact on Small Employers As stated in the Board’s IRFA, the rule ‘‘will only be applied as a matter of law when . . . businesses are alleged to be joint employers in a Board proceeding.’’ 83 FR at 46693. After analyzing recent case statistics, the Board found that only .028% of all 5.9 million American business firms with employees (both large and small) found themselves in PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 that position between 2013 and 2017. Id. Because a significant number of these Board proceedings involved large employers, the IRFA concluded that ‘‘an even lower percentage of small businesses [would] be most directly impacted by the Board’s application of the rule.’’ Id. The Board also examined less direct impacts to small entities— that is, impacts that might arise ‘‘[i]rrespective of an Agency proceeding,’’ id.—but found those impacts to be very limited in scope or modest in size. For example, the Board acknowledged that a variety of small entities would bear compliance costs related to reviewing and understanding the rule but found that those costs would not be considered ‘‘significant’’ under the RFA. Id. at 46693–95 (estimating compliance costs of $80.26 for unions and $124.37 for small employers). Some comments criticized the Board’s IRFA for finding that the businesses ‘‘most directly impacted by the proposed rule’’ are those alleged to be joint employers in a Board proceeding. 83 FR at 46693. By measuring ‘‘most direct[] impact’’ in this manner, one commenter argues that the Board has ignored that businesses structure their transactions based in part on the applicable legal costs of compliance and that workers and small businesses bear these costs when the indirect employers have substantial market power, whether or not they are subject to a Board proceeding.373 Another commenter believes that the Board’s approach fails to account for the current, stable jointemployer bargaining relationships that might be disrupted by the rule.374 Thus, that commenter’s view, the proposed rule would cause prolonged labor disputes because larger entities with control over certain terms and conditions of employment would no longer be at the bargaining table. Other comments similarly criticized the Board for failing to analyze whether the proposed rule would cause competitive harm to small businesses on a broad basis. According to these comments, because the proposed rule allows indirect employers to avoid the cost and responsibility of complying with the NLRA, the rule places small employers at a competitive disadvantage to larger employers.375 For example, a commenter argues that the revised definition will provide indirect employers that possess substantial 373 See comment of Law and Economics Professors. 374 See comment of AFT. 375 See Center for American Progress Action Fund; CWA; NELP. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations market power greater leverage in their contracting arrangements with businesses that supply labor.376 Accordingly, larger indirect employers will use this added leverage to siphon off profits from smaller direct employers, limiting the ability of those small businesses to grow. As a result, the commenter argues, the rule will cause a further shift in market power away from small employers. It states that harm to the competitive ability of small businesses, vis-a`-vis larger firms, is a direct, cognizable economic impact under the RFA that the Board should have considered. Respectfully, the foregoing commenters do not raise direct economic impacts under the RFA. The RFA does not require an agency to consider speculative and wholly discretionary responses to the rule, or the indirect impact on every stratum of the economy. What the statute requires is that the regulatory agency consider the direct burden that compliance with a new regulation will likely impose on small entities. See Mid-Tex Elec. Co-op v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985) (‘‘[I]t is clear that Congress envisioned that the relevant ‘economic impact’ was the impact of compliance with the proposed rule on regulated small entities’’); accord White Eagle Coop. Ass’n v. Conner, 553 F.3d 467, 478 (7th Cir. 2009); Colorado State Banking Bd. v. Resolution Trust Corp., 926 F.2d 931, 948 (10th Cir. 1991). This construction of the RFA, requiring agencies to consider only direct compliance costs, finds support in the text of the Act. Section 603(a) of the RFA states that if an IRFA is required, it ‘‘shall describe the impact of the proposed rule on small entities.’’ 5 U.S.C. 603(a). Although the term ‘‘impact’’ is undefined, its meaning can be gleaned from Section 603(b), which recites the required elements of an initial regulatory flexibility analysis. One such element is ‘‘a description of the projected reporting, recordkeeping and other compliance requirements of the proposed rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record.’’ 5 U.S.C. 603(b)(4) (emphasis added). Section 604 further corroborates the Board’s conclusion, as it contains an identical list of requirements for a FRFA (if one is required). 5 U.S.C. 604(b)(4). Additional support for confining the regulatory analysis to direct compliance costs is found in an authoritative guide 376 See comment of Law and Economics Professors. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 published by the Office of Advocacy of the SBA. In the SBA Guide, the SBA explains that ‘‘other compliance requirements’’ under Section 603 include the following examples: (a) Capital costs for equipment needed to meet the regulatory requirements; (b) costs of modifying existing processes and procedures to comply with the proposed rule; (c) lost sales and profits resulting from the proposed rule; (d) changes in market competition as a result of the proposed rule and its impact on small entities or specific submarkets of small entities; (e) extra costs associated with the payment of taxes or fees associated with the proposed rule; and (f) hiring employees dedicated to compliance with regulatory requirements. SBA Guide at 37. These are all direct, compliance-based costs. In the IRFA, the Board noted that the only identifiable compliance cost imposed by the proposed rule for entities not named in a Board proceeding related to reviewing and understanding the substantive changes to the joint-employer standard. 83 FR at 46695. Otherwise, there will be no ‘‘reporting, recordkeeping and other compliance requirements’’ for these small entities. See 5 U.S.C. 603(b)(4) & 604(b)(4). The same is true of the final rule. And the final rule imposes no mandatory capital costs, no mandatory costs of modifying existing process, no costs of lost sales or profits, and, as discussed further below, no appreciable changes in market competition. See SBA Guide at 37. Lastly, for small entities not party to Board proceedings, there are no costs associated with taxes or fees and no costs for additional employees dedicated to compliance, as no compliance requirements exist. Id. Consistent with these principles, the Board rejects the view that it must analyze how indirect employers exercise market power within their contracting arrangements to determine the impact upon small businesses, as suggested by the comments discussed above. The D.C. Circuit has firmly rejected the notion that a regulating agency must analyze every indirect and remote economic impact. See Mid-Tex Elec. Co-op., Inc. 773 F.2d at 343 (‘‘Congress did not intend to require that every agency consider every indirect effect that any regulation might have on small businesses in any stratum of the national economy.’’). ‘‘[R]equir[ing] an agency to assess the impact on all of the nation’s small businesses possibly affected by a rule would be to convert every rulemaking process into a massive exercise in economic modeling, an approach we have already rejected.’’ Cement Kiln Recycling Coal. v. EPA, 255 PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 11229 F.3d 855, 869 (D.C. Cir. 2001) (citing Mid-Tex Elec. Coop., 773 F.2d at 343). But a massive exercise in economic modeling is exactly what the commenter asks the Board to undertake. The rule does not require contracting parties to alter their arrangements now or in the future. If indirect employers with market power drive harder bargains with direct employers than they do now, as the commenter predicts, such outcomes will result from the individual choices of economic actors, not from actions required to comply with the rule.377 Notwithstanding the indirect nature of the potential impacts raised by these comments, the Board also disagrees that the rule will upset existing collectivebargaining relationships. The Board believes that the rule will promote labor-management stability because it simplifies the test for joint employment, provides for a more consistent standard, and ends the unpredictable oscillations between differing tests for joint employment. Furthermore, the Board finds no evidence to support the notion that the rule places small employers at a competitive disadvantage to large employers. Employers of all sizes routinely enter into service contracts, and all have an interest in the applicable joint-employer standard. Those private-sector employers that exercise substantial direct and immediate control over the essential working conditions of employees maintain the same legal responsibilities under the NLRA as they had before the rule. And while the rule does decrease liability and responsibilities of employers that do not exercise such control over those essential terms and conditions of employment, the rule does not intrude upon the contractual liberties of direct and indirect entities. Those employers may negotiate contractual terms of their choosing without the undue burden of a complicated joint-employer standard. Accordingly, this rule would provide no additional leverage for employers of any size to manipulate the supply of and demand for labor, nor interfere with market access. One commenter argues that ‘‘[u]nder the proposed narrow standard, small businesses that can’t afford to 377 According to the Law and Economics Professors, large indirect employers with substantial market power will have greater leverage to artificially suppress workers’ wages and capture these asserted monetary losses experienced by workers affected by the rule. Assuming solely for the sake of argument that this is true, it would not constitute an RFA concern because such transfers would not result in changes to small direct employers’ bottom-line profitability. E:\FR\FM\26FER2.SGM 26FER2 11230 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations subcontract out operations will be at a competitive disadvantage to large corporations that can and do outsource.’’ 378 The commenter presented no evidence to support this conclusion. And other comments in support of the proposed rule note that there is no empirical evidence supporting the proposition that the new rule will place small businesses at a competitive disadvantage to larger companies just because the latter are better situated to subcontract their operations.379 Absent empirical evidence, the Board is not persuaded that the new standard impacts outsourcing in this manner. Many critics of the Board’s IRFA contend that the Board did not fully consider the impact of requiring direct employers, including small businesses, to bear the full cost of liability under the NLRA. For example, one commenter contends that, since the rule applies to business relationships where the larger entity contracts for services of the smaller employer, the smaller employer will shoulder all liability under the NLRA.380 This increased legal exposure, says another commenter, will cause significant harm to small businesses because their large customers or franchisors will not be jointly responsible for bargaining, or jointly and severally liable for unfair labor practices. Many other comments offered the same argument.381 In the NPRM, the Board noted that liability and liability insurance costs may increase for small entities because they may no longer have larger entities with which to share the cost of any NLRA backpay remedies ordered in unfair labor practice proceedings. There, the Board further stated that these costs could arguably fall within the SBA Guide’s category of ‘‘extra costs associated with the payment of taxes or fees associated with the proposed rule.’’ 382 Having reviewed the comments and further considered the subject, the Board no longer believes that these can be characterized as direct compliance costs since these costs are not directly mandated by the rule. 378 See comment of NELP. comments of Chamber of Commerce; IFA. 380 See comment of IUOE. 381 See comment of AFL–CIO; see also comments of AFT; SEIU; Congressmen Scott and Senator Murray; EPI; CWA; Texas Rio-Grande Legal Aid. 382 The Board also observed that it is without the means to quantify such costs. The RFA explains that in providing initial and final regulatory flexibility analyses, ‘‘an agency may provide either a quantifiable or numerical description of the effects of a proposed rule or alternatives to the proposed rule, or more general descriptive statements if quantification is not practicable or reliable.’’ 5 U.S.C. Sec. 607 (emphasis added). khammond on DSKJM1Z7X2PROD with RULES2 379 See VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 Unfair labor practice liability is the cost of not complying with the NLRA, not a cost of compliance with the Board’s joint-employer rule.383 Even if increased unfair labor practice liability were a direct cost attributable to the rule, those costs would not impact a substantial number of small entities. As the Board explained in the NPRM, only .028% of all 5.9 million business firms in the United States were alleged to be joint employers in Board proceedings from 2013 to 2017. See 83 FR at 46693. And since the data counts only allegations, not prosecutions or Board decisions, the number of employers who were actually impacted by the Board’s joint-employer standard in recent years is even smaller. Accordingly, the Board is not persuaded that any changes to unfair labor practice liability arising from this rule will impact a substantial number of small entities. Nor does the Board believe the rule creates the prospect of added liability for direct employers subject to organizing campaigns or engaged in collective bargaining. These direct employers have always been the primary target of union organizing aimed at their workers by virtue of their direct control over payroll and other essential terms and conditions of employment. And as the Board stated in the NPRM, the proposed rule may make it easier for employers to collectively bargain without the complications of fragmented bargaining while providing much greater certainty as to their bargaining obligations. See 83 FR at 46695. As was also pointed out there, for at least 30 years (from no later than 1984 to 2015) evidence of indirect control was typically insufficient to prove that one company was the joint employer of another business’s workers. See id. at 46693. And the contrary Browning-Ferris standard was under challenge for the entirety of its relatively brief existence and, therefore, shrouded in uncertainty. Given this history, the possibility of disturbing existing labor relations for direct employers is very small. But again, the Board believes that these types of costs, if any, are indirect; they arise from a series of subsequent decisions made by individual actors that are not compelled by the rule itself. 383 Likewise, liability insurance is also a cost not mandated by the rule. In response to the NPRM’s statement that there may be compliance costs that are unknown to the Board such as potential increases in liability insurance costs, one comment states that on a local level even minimal impacts on insurance rates could hurt small businesses. The commenter did not provide any supporting data, and the Board believes any potential increases in insurance rates would be minimal and not a direct impact of the rule. PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 b. Response to Comments Concerning Economic Impact on Small Labor Unions Several comments assert that the Board should have provided a more detailed consideration of the impact upon labor unions, a specific category of small entities directly impacted by the proposed rule. One commenter, for example, believe that the alleged shift in market power away from direct employers will reduce employment and suppress pay and, in turn, cause a reduction in dues contributions to labor unions.384 Another commenter similarly predicts that, by removing franchisors and larger indirect employers from reach of the NLRA, the proposed rule might frustrate collective bargaining and, thereby, alienate employees.385 These comments assert that labor unions will find it more difficult to organize employees and maintain existing membership, which will adversely impact dues income. Thus, one commenter contends that the Board should estimate the additional organizing, communications, and bargaining costs imposed upon small unions.386 Other labor organizations offer similar comments.387 The comments on this issue present no reliable empirical evidence to show that the rule would have a significant economic impact on a substantial number of small entity labor unions. One commenter estimates $1.3 billion in yearly transfers from workers in contract firms and temporary help agencies to employers as a result of the rule, and argues that this $1.3 billion annual transfer will necessarily reduce union dues since dues are often calculated as a percentage of gross pay.388 The Board finds this analysis unreliable because it makes several critical and unsubstantiated assumptions.389 Based on the disparity in pay between union and nonunion employees in the economy as a whole (from other research), the comment first assumes that union-organized workers in contract firms and temporary help 384 See comment of Law and Economics Professors. 385 See comment of AFL–CIO. 386 See comment of AFT. Comments offered in support of the proposed rule suggest just the opposite—that the narrower standard could be beneficial to labor unions because they will no longer be expending resources seeking to establish bargaining relationships with larger indirect employers that have thousands of employees. 387 See, e.g., comments of CWA; AFT. 388 See comment of Law and Economics Professors. This estimate is based on information from the comment submitted by EPI. 389 We refer here to the analysis contained in the comment of EPI, on which the Law and Economics Professors rely. E:\FR\FM\26FER2.SGM 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations agencies, on average, earn $146 more per week (or $1.3 billion per year on an aggregate basis) than their nonunion counterparts in these same industries. Then, without any empirical evidence, the comment assumes that the new rule would automatically eliminate the higher pay afforded unionized workers and transfer the $1.3 billion to employers. The stated rationale for taking this analytical leap is that ‘‘the narrow proposed joint-employer standard will make collective bargaining among subcontracted and temporary workers nearly impossible.’’ 390 This analysis is flawed. Initially, it assumes that a pay disparity exists between union and nonunion workers in these industries, that the assumed disparity is consistent in magnitude with the disparity that exists in the overall economy, and that the impact of unionization (and not, for example, cost of living differentials) is the sole explanation for any pay disparity. The commenter presented no evidence to support these assumptions. But, most troublesome, the comment assumes that the new rule will cause union workers to automatically lose their union wages because, in its view, subcontracted and temporary workers will immediately forego union representation rather than bargain with just their direct employers. There is no reason to accept the proposition that workers in these industries will abandon collective bargaining en masse. At the very least, the comment presented no evidence to back it up. The contract firms and temporary help agencies that directly control employee payrolls and other essential terms and conditions of employment will continue to do so before and after the rule takes effect. Since the relationships between direct employers, their employees, and employee bargaining representatives will remain intact, there is no reason to assume that unionized employees will automatically lose their union wages. The Board, therefore, rejects this comment’s prediction and the corollary assertion advanced by another commenter concerning union dues.391 In the NPRM, the Board’s IRFA assumed for purposes of analysis that a substantial number of small entity labor unions would be impacted by the rule. See 83 FR at 46693. But the Board also stated its belief that the cost of compliance with the rule would be very low, related to reviewing and understanding the substantive changes to the joint employer standard, meaning 390 See comment of EPI. comment of Law and Economics Professors. that there would not be a significant impact on a substantial number of small unions. See 83 FR at 46693 and 46695. In reviewing the comments on this subject, the Board finds no other compliance costs to labor unions, and no evidence showing a significant impact. Labor unions certainly have an interest in the rule, as with any other standard or substantive application of the NLRA, but the negative economic impacts on labor unions raised by the comments are wholly speculative and based upon perceived indirect consequences of the rule. In fact, the rule leaves undisturbed the statutory duties and bargaining obligations of those employers that directly control payroll and other essential terms and conditions of employment for employees. As such, labor unions will still be able organize the workforces of direct employers, engage in collective bargaining with direct employers, and file unfair labor practices charges against direct employers. And the Board has made clear that the new standard will foster predictability and consistency regarding determinations of joint-employer status in a variety of business relationships, thereby promoting labor-management stability. Hence, the Board finds that there is no reliable evidence to support the proposition that the rule will have a significant impact on union organizing or union membership. requirement. Additionally, these suggested costs are speculative. There is no reason for direct employers to maintain more detailed records of their work with indirect employers as a result of this rule than the records that they already keep in the normal course of business. In fact, the opposite would be more likely given that the rule will foster predictability and consistency in determining joint-employer status and will reduce the incentive for indirect employers to maintain records solely for the purpose of defending themselves against liability premised on the existence of an alleged joint-employer relationship. Nor is the Board persuaded that any changes to the evidentiary burden placed upon parties to establish a jointemployer relationship will meaningfully affect the cost of litigation. Assuming an increase in litigation costs for a particular case, the commenter makes no effort to analyze the impact in order to assess the significance. The Board also expects that the new rule will decrease the overall amount of litigation involving the joint-employer standard, which would also decrease litigation costs to unions. In any event, beyond familiarization costs, the Board finds that the new rule imposes no additional costs for reporting, recordkeeping, or other direct compliance requirements, and none of the comments present empirical evidence to the contrary. c. Response to Comments Concerning Reporting Requirements The Board’s IRFA stated that the Board did not believe that the rule would impose any new recordkeeping or reporting requirements on small entities. See 83 FR at 46695. One commenter speculates that the rule will actually impose more onerous recordkeeping costs because small businesses will be required to maintain more detailed records of the actual control exercised upon their employees (by those small employers and their larger business partners).392 The commenter further suggests that the proposed rule may increase litigation costs to small businesses and labor unions because they would have to invest more resources in developing witness-intensive facts in support of a joint-employer theory. But the commenter has not identified cognizable recordkeeping requirements. The RFA defines a ‘‘recordkeeping requirement’’ as ‘‘a requirement imposed by an agency on persons to maintain specified records,’’ 5 U.S.C. 601(8), and the rule imposes no such d. Response to Comments Concerning Duplication, Overlap, and Conflict With Other Rules Some comments contend that the Board has failed to identify all relevant rules and regulations which may ‘‘duplicate, overlap or conflict with the proposed rule,’’ as Section 603(b)(5) of the RFA requires.393 These comments argue that the proposed rule is discordant with the standard under the FLSA,394 or inconsistent with the definition of ‘‘employer’’ used by other agencies such as the IRS.395 These contentions stretch ‘‘duplicate, overlap or conflict’’ beyond their intended meanings.396 The rule does not duplicate or overlap with any other rule for identifying joint employers under 391 See VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 11231 392 See PO 00000 comment of AFL–CIO. Frm 00049 Fmt 4701 Sfmt 4700 393 See Comments of AFL–CIO; United Association of Plumbers and Pipe Fitters (Plumbers). 394 See Comment of AFL–CIO. 395 See Comment of Plumbers. 396 According to the SBA Guide, at 40: Rules are duplicative or overlapping if they are based on the same or similar reasons for the regulation, the same or similar regulatory goals, and if they regulate the same classes of industry. Rules are conflicting when they impose two conflicting regulatory requirements on the same classes of industry. E:\FR\FM\26FER2.SGM 26FER2 11232 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations the NLRA, and, in fact, will be the only joint-employer standard maintained by the NLRB. Nor does the rule expose regulated entities to conflicting obligations, even if other agencies apply different standards for determining when a joint-employment relationship exists under other statutes. khammond on DSKJM1Z7X2PROD with RULES2 e. Response to Comments Concerning Public Outreach One commenter argues that the Board failed to conduct sufficient outreach to small businesses, including small local unions, that will be impacted by the rule. 5 U.S.C. 609.397 But there have been no surprises: the issues addressed by this rule have been the subject of a robust public debate for several years. And in conjunction with the official publication of the NPRM, the Board worked to widely publicize the proposed rule. Upon issuance, the Board published the NPRM and facts sheets on its website. See The Standard for Determining Joint-Employer Status, NLRB, https://www.nlrb.gov/about-nlrb/ what-we-do/national-labor-relationsboard-rulemaking/standarddetermining-joint-employer (last visited Feb. 11, 2020). On September 13, 2018, the Board issued a press release, which was published on its website and distributed by email to subscribers, notifying the public of the proposed rule. See NLRB Office of Public Affairs, Board Proposes Rule to Change its JointEmployer Standard (Sept. 13, 2018) https://www.nlrb.gov/news-outreach/ news-story/board-proposes-rule-changeits-joint-employer-standard. The press release was also shared on social media through the Board’s official Twitter and Facebook accounts. The Board members themselves have also discussed the proposed rule at various public speaking engagements, including the annual meeting of the Labor and Employment Law Section of the American Bar Association. Given the foregoing efforts and the thousands of comments the Board received in response to the NPRM, the Board believes that the public has been well informed, the pros and cons of the rule have been thoroughly examined, and the impact of the rule on the full range of business entities governed by it have been brought into sharp focus by individuals, businesses, labor unions, and industry trade groups. 397 See Comment of AFL–CIO. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 3. Response of the Agency to Any Comments Filed by the Chief Counsel for Advocacy of the Small Business Administration in Response to the Proposed Rule, and a Detailed Statement of Any Change Made to the Proposed Rule in the Final Rule as a Result of the Comments The Chief Counsel of Advocacy of the Small Business Administration did not submit comments in response to the NPRM. 4. Description and Estimate of Number of Small Entities to Which the Rule Applies In order to evaluate the impact of the proposed rule, the Board first identified the entire universe of businesses that could be impacted by a change in the joint-employer standard. According to the United States Census Bureau, there were approximately 5.95 million business firms with employees in 2016.398 Of those, the Census Bureau estimates that about 5,934,985 million were firms with fewer than 500 employees.399 While this final rule does not apply to employers that do not meet the Board’s jurisdictional requirements, the Board does not have the data to determine the number of excluded entities (nor was data received on this particular issue).400 398 ‘‘Establishments’’ refer to single location entities—an individual ‘‘firm’’ can have one or more establishments in its network. As we did in the NPRM, the Board has used firm-level data for this FRFA because establishment data is not available for certain types of employers discussed below. Census Bureau definitions of ‘‘establishment’’ and ‘‘firm’’ can be found at https:// www.census.gov/programs-surveys/susb/about/ glossary.html (last visited Feb. 10, 2020). 399 The U.S. Census Bureau does not specifically define small business, but does break down its data into firms with 500 or more employees and those with fewer than 500 employees. See U.S Department of Commerce, Bureau of Census, 2016 Statistics of U.S. Businesses (SUSB) Annual Data Tables by Establishment Industry (Dec. 2018), https://www.census.gov/data/tables/2016/econ/ susb/2016-susb-annual.html (from downloaded Excel Table entitled ‘‘U.S., 6-digit NAICS’’). Consequently, the 500-employee threshold is commonly used to describe the universe of small employers. For defining small businesses among specific industries, the standards are defined by the North American Industry Classification System (NAICS), which we set forth below. 400 Pursuant to 29 U.S.C. 152(6) and (7), the Board has statutory jurisdiction over private sector employers whose activity in interstate commerce exceeds a minimal level. NLRB v. Fainblatt, 306 U.S. 601, 606–607 (1939). To this end, the Board has adopted monetary standards for the assertion of jurisdiction that are based on the volume and character of the business of the employer. In general, the Board asserts jurisdiction over employers in the retail business industry if they have a gross annual volume of business of $500,000 or more. Carolina Supplies & Cement Co., 122 NLRB 88 (1959). But shopping center and office building retailers have a lower threshold of $100,000 per year. Carol Management Corp., 133 PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 The final rule will only be applied as a matter of law when small businesses are alleged to be joint employers in a Board proceeding. Therefore, the frequency with which the issue comes before the Board is indicative of the number of small entities most directly impacted by the final rule. A review of the Board’s representation petitions and unfair labor practice charges provides a basis for estimating the frequency with which the joint-employer issue comes before the Agency. During the five-year period between January 1, 2013, and December 31, 2017, a total of 114,577 representation and unfair labor practice cases were initiated with the Agency. In 1598 of those filings, the representation petition or unfair labor practice charge filed with the Agency asserted a jointemployer relationship between at least two employers.401 Accounting for repetitively alleged joint-employer relationships in these filings, the Board has identified 823 separate alleged jointemployer relationships involving an estimated 1646 employers.402 Accordingly, the joint-employer standard most directly impacted approximately .028% of all 5.95 million business firms (including both large and small businesses) over the five-year period. Since a large share of our jointemployer cases involve large employers, the Board expects an even lower percentage of small businesses to be most directly impacted by the Board’s application of the rule. As discussed in the NPRM, irrespective of an Agency proceeding, the rule may be more relevant to certain types of small employers because their NLRB 1126 (1961). The Board asserts jurisdiction over non-retailers generally where the value of goods and services purchased from entities in other states is at least $50,000. Siemons Mailing Service, 122 NLRB 81 (1959). The following employers are excluded from the NLRB’s jurisdiction by statute: • Federal, state and local governments, including public schools, libraries, and parks, Federal Reserve banks, and wholly-owned government corporations. 29 U.S.C. 152(2). • Employers that employ only agricultural laborers, those engaged in farming operations that cultivate or harvest agricultural commodities or prepare commodities for delivery. 29 U.S.C. 153(3). • Employers subject to the Railway Labor Act, such as interstate railroads and airlines. 29 U.S.C. 152(2). 401 This includes initial representation-case petitions (RC petitions) and unfair labor practice charges (CA cases) filed against employers. 402 Since a joint-employer relationship requires at least two employers, the Board has estimated the number of employers by multiplying the number of asserted joint-employer relationships by two. Some of these filings assert more than two joint employers; but, on the other hand, some of the same employers are named multiple times in these filings. Additionally, this number is certainly inflated because the data does not reveal those cases where joint-employer status is not in dispute. E:\FR\FM\26FER2.SGM 26FER2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 business relationships involve the exchange of employees or operational control.403 83 FR at 46693. In addition, labor unions, as organizations representing or seeking to represent employees, will be impacted by the Board’s change in its joint-employer standard. Thus, the Board identified the following five types of small businesses or entities as those most likely to be impacted by the rule: Contractors/ subcontractors, temporary help service suppliers, temporary help service users, franchisees, and labor unions. (1) Businesses commonly enter into contracts with vendors to receive a wide range of services that may satisfy their primary business objectives or solve discrete problems they are not qualified to address. And there are seemingly unlimited types of vendors who provide these types of contract services. Businesses may also subcontract work to vendors to satisfy their own contractual obligations—an arrangement common to the construction industry. Businesses that contract to receive or provide services often share workspaces and sometimes share control over workers, rendering their relationships subject to application of the Board’s joint-employer standard. The Board does not have the means to identify precisely how many businesses are impacted by contracting and subcontracting within the United States, or how many contractors and subcontractors would be small businesses as defined by the SBA.404 403 The Board acknowledges that there are other types of entities and/or relationships between entities that may be affected by this change in the joint-employer rule. Such relationships include but are not limited to lessor/lessee and parent/ subsidiary. However, the Board does not believe that entities involved in these relationships would be impacted more than the entities discussed below. 404 The only data known to the Board relating to contractor business relationships involve businesses that contract with the federal government. In 2014, the DOL reported that approximately 500,000 federal contractor firms were registered with the General Services Administration. Establishing a Minimum Wage for Contractors, 79 FR 60634, 60697. However, the Board is without the means to identify the precise number of firms that actually receive federal contracts or to determine what portion of those are small businesses as defined by the SBA. No comments were received on this topic. Even if these data were available, the Board does not have jurisdiction over government entities, and therefore business relationships between federal contractors and the federal agencies will not be impacted by the Board’s joint-employer rule. The business relationships between federal contractors and their subcontractors could be subject to the Board’s jointemployer rule. However, the Board also lacks the means for estimating the number of businesses that subcontract with federal contractors or determine what portion of those would be defined as small businesses, and no comments were received on this subject. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 (2) Temporary help service suppliers (NAICS #561320) are primarily engaged in supplying workers to supplement a client employer’s workforce. To be defined as a small business temporary help service supplier by the SBA, the entity must generate receipts of less than $27.5 million annually.405 In 2012, there were 13,202 temporary service supplier firms in the U.S.406 Of these business firms, 6,372 had receipts of less than $1,000,000; 3947 had receipts between $1,000,000 and $4,999,999; 1639 had receipts between $5,000,000 and $14,999,999; and 444 had receipts between $15,000,000 and $24,999,999. In aggregate, at least 12,402 temporary help service supplier firms (93.9% of total) are definitely small businesses according to SBA standards. Since the Board cannot determine how many of the 130 business firms with receipts between $25,000,000 and $29,999,999 fall below the $27.5 million annual receipt threshold (nor were any comments submitted on this topic), it will assume that these are small businesses as defined by the SBA. For purposes of this FRFA, as in the NPRM, the Board assumes that 12,532 temporary help service supplier firms (94.9% of total) are small businesses. (3) Entities that use temporary help services in order to staff their businesses are widespread throughout many types of industries and include both large and small employers. A 2012 survey of business owners by the Census Bureau revealed that at least 266,006 firms obtained staffing from temporary help services in that calendar year.407 This survey provides the only gauge of employers that obtain staffing from temporary help services, and the Board is without the means to estimate what portion of those are small businesses as defined by the NAICS. Nor were comments received on this topic. For purposes of this FRFA, the Board assumes that all users of temporary services are small businesses. (4) Franchising is a method of distributing products or services in which a franchisor lends its trademark or trade name and a business system to a franchisee, which pays a royalty and 405 13 CFR 121.201. Census Bureau only provides data about receipts in years ending in 2 or 7. The 2017 data has not been published, so the 2012 data is the most recent available information regarding receipts. See U.S Department of Commerce, Bureau of Census, 2012 SUSB Annual Data Tables by Establishment Industry, NAICS classification #561320, https:// www2.census.gov/programs-surveys/susb/tables/ 2012/us_6digitnaics_r_2012.xlsx. 407 See U.S. Department of Commerce, Bureau of Census, 2012 Survey of Business Owners, https:// factfinder.census.gov/bkmk/table/1.0/en/SBO/ 2012/00CSCB46 (last visited Feb. 11, 2020). 406 The PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 11233 often an initial fee for the right to conduct business under the franchisor’s name and system.408 The nature and degree of control exercised by franchisors over franchisee operations vary widely and may, depending on the circumstances of a particular franchising relationship, render the relationship subject to application of the Board’s joint-employer standard. The Board explained in the NPRM that it does not have the means to identify precisely how many franchisees operate within the United States, or how many are small businesses as defined by the SBA. A 2012 survey of business owners by the Census Bureau revealed that at least 507,834 firms operated a portion of their business as a franchise. But only 197,204 of these firms had paid employees.409 In the Board’s view, only franchisees with paid employees are potentially impacted by the jointemployer standard. Of the franchisees with employees, 126,858 (64.3%) had sales receipts totaling less than $1 million. Based on this available data and the SBA’s definitions of small businesses, which generally define small businesses as having receipts well over $1 million, the Board assumes that almost two-thirds of franchisees would be defined as small businesses.410 (5) Labor unions, as defined by the NLRA, are entities ‘‘in which employees participate and which exist for the purpose . . . of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.’’ 411 By defining which employers are joint employers under the NLRA, the final rule impacts labor unions generally, and more directly impacts those labor unions that organize the specific business sectors discussed above. The SBA’s ‘‘small business’’ standard for ‘‘Labor Unions and Similar Labor Organizations’’ (NAICS #813930) is $7.5 408 See IFA FAQs, found at https:// www.franchise.org/faqs-about-franchising (last visited Feb. 10, 2020). 409 See U.S. Department of Commerce, Bureau of Census, 2012 Survey of Business Owners, https:// factfinder.census.gov/bkmk/table/1.0/en/SBO/ 2012/00CSCB67 (last visited Feb. 11, 2020). The Board received comments from the IFA and Chamber of Commerce stating that there are 233,000 small business franchisees in the United States. However, the Board is unable to verify the methodology of the underlying study producing that number. Nevertheless, the statistic supplied by these commenters is not far off from Census data showing the total number of franchisees with paid employees in 2012. In the Board’s view, Census data is more reliable than a number that is derived from unknown means. Therefore, the Board has decided to rely on the Census’s data in performing this analysis. 410 See 13 CFR 121.201. 411 29 U.S.C. 152(5). E:\FR\FM\26FER2.SGM 26FER2 11234 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations million in annual receipts.412 In 2012, there were 13,740 labor union firms in the U.S.413 Of these firms, 11,245 had receipts of less than $1,000,000, 2022 labor unions had receipts between $1,000,000 and $4,999,999, and 141 had receipts between $5,000,000 and $7,499,999. In aggregate, 13,408 labor union firms (97.6% of total) are small businesses according to SBA standards. Based on the foregoing, the Board assumes there are 12,532 temporary help supplier firms, 197,204 franchise firms, and 13,408 union firms that are small businesses; and it further assumes that all 266,006 temporary help user firms are small businesses. Therefore, among these four categories of employers that are most interested in the final rule, 489,150 business firms are assumed to be small businesses as defined by the SBA. The Board believes that all of these small businesses, and also those businesses regularly engaged in contracting/subcontracting, have a general interest in the rule and would be impacted by the compliance costs, discussed below, related to reviewing and understanding the rule. But, as previously noted, employers will only be most directly impacted when they are alleged to be a joint employer in a Board proceeding. Given the Board’s historic filing data, this number is very small relative to the number of small employers in these five categories. Throughout the IRFA, the Board requested comments or data that might improve its analysis, 83 FR at 46693, 46695–46696, but no additional data was received regarding the number of small entities to which the rule will apply, other than the comments referenced in n. 409, above. 5. Description of the Projected Reporting, Recordkeeping and Other Compliance Requirements of the Rule, Including an Estimate of the Classes of Small Entities That Will Be Subject to the Requirement and the Type of Professional Skills Necessary for Preparation of the Report or Record The RFA requires an agency to consider the direct burden that compliance with a new regulation will likely impose on small entities.414 Thus, the RFA requires the Agency to 412 13 CFR 121.201 U.S Department of Commerce, Bureau of Census, 2012 SUSB Annual Data Tables by Establishment Industry, NAICS classification #722513, https://www2.census.gov/programssurveys/susb/tables/2012/us_6digitnaics_r_ 2012.xlsx. 414 See Mid-Tex Elec. Co-op v. FERC, 773 F.2d at 342 (‘‘[I]t is clear that Congress envisioned that the relevant ‘economic impact’ was the impact of compliance with the proposed rule on regulated small entities.’’). khammond on DSKJM1Z7X2PROD with RULES2 413 See VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 determine the amount of ‘‘reporting, recordkeeping and other compliance requirements’’ imposed on small entities.415 In providing its FRFA, an agency may provide either a quantifiable or numerical description of the effects of a rule or alternatives to the rule, or ‘‘more general descriptive statements if quantification is not practicable or reliable.’’416 The Board concludes that the final rule imposes no capital costs for equipment needed to meet the regulatory requirements; no costs of modifying existing processes and procedures to comply with the final rule; no lost sales and profits resulting from the final rule; no changes in market competition as a result of the final rule and its impact on small entities or specific submarkets of small entities; and no costs of hiring employees dedicated to compliance with regulatory requirements.417 The final rule also does not impose any new information collection or reporting requirements on small entities. Small entities may incur some costs from reviewing the rule in order to understand the substantive changes to the joint-employer standard. The Board estimates that a labor compliance employee at a small employer who undertook to become generally familiar with the proposed changes may take at most one hour to read the summary of the rule in the introductory section of the preamble. It is also possible that a small employer may wish to consult with an attorney, which we estimated to require one hour as well.418 Using the Bureau of Labor Statistics (BLS)’ most recent estimated wage and benefit costs, the Board has assessed these labor costs to be $144.69.419 As to the impact on unions, the Board anticipates they may also incur costs 415 See 5 U.S.C. 604(a)(4). U.S.C. 607. 417 See SBA Guide at 37. 418 The Board does not believe that more than one hour of time by each would be necessary to read and understand the rule. This is because the new standard constitutes a return to the pre-BrowningFerris standard, with which most employers are already familiar if relevant to their businesses, and with which most labor-management attorneys are also familiar. 419 For wage figures, see May 2018 National Occupancy Employment and Wage Estimates, found at https://www.bls.gov/oes/current/oes_ nat.htm. The Board has been administratively informed that BLS estimates that fringe benefits are approximately equal to 40 percent of hourly wages. Thus, to calculate total average hourly earnings, BLS multiplies average hourly wages by 1.4. In May 2018, average hourly wages for labor relations specialists (BLS #13–1075) were $34.01. The same figure for a lawyer (BLS # 23–1011) is $69.34. Accordingly, the Board multiplied each of those wage figures by 1.4 and added them to arrive at its estimate. 416 5 PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 from reviewing the rule. The Board believes a union would consult with an attorney, which is estimated to require no more than one hour of attorney time costing $97.08 (see fns. 418 and 419)) because union counsel should already be familiar with the pre-Browning-Ferris standard. Additionally, the Board expects that the additional clarity of the final rule will serve to reduce litigation expenses for unions and other small entities. The Board does not find the estimated $144.69 cost to small employers and the estimated $97.08 cost to unions in order to review and understand the rule to be significant within the meaning of the RFA. In making this finding, one important indicator is the cost of compliance in relation to the revenue of the entity or the percentage of profits affected.420 Other criteria to be considered are the following: —Whether the rule will cause long-term insolvency, i.e., regulatory costs that may reduce the ability of the firm to make future capital investment, thereby severely harming its competitive ability, particularly against larger firms; —Whether the cost of the proposed regulation will (a) eliminate more than 10 percent of the businesses’ profits; (b) exceed one percent of the gross revenues of the entities in a particular sector, or (c) exceed five percent of the labor costs of the entities in the sector.421 The minimal cost to read and understand the rule, $144.69 for small employers and $97.08 for small unions, will not generate any such significant economic impacts. In the NPRM, the Board requested comments from the public that would shed light on any potential compliance costs, 83 FR 46693, and considered those responses in the comments section above. 6. Description of the Steps the Agency Has Taken To Minimize the Significant Economic Impact on Small Entities Consistent With the Stated Objectives of Applicable Statutes, Including a Statement of the Factual, Policy, and Legal Reasons for Selecting the Alternative Adopted in the Final Rule and Why Each One of the Other Significant Alternatives to the Rule Considered by the Agency Which Affect the Impact on Small Entities Was Rejected Pursuant to 5 U.S.C. Sec. 604(a)(6), agencies are directed to examine ‘‘why each one of the other significant 420 See 421 Id. E:\FR\FM\26FER2.SGM SBA Guide at 18. at 19. 26FER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations alternatives to the rule considered by the agency which affect the impact on small entities was rejected.’’ In the NPRM, the Board requested comments identifying any other issues and alternatives that it had not considered. See 83 FR 46696. Several comments suggest that the Board withdraw the proposed rule and leave in place the Browning-Ferris jointemployer standard.422 We considered and rejected this alternative for the reasons stated in Sections V.N and VI, supra. The Board finds it desirable to revise the Browning-Ferris standard and to do so through the rulemaking process. Consequently, the Board rejects maintaining the status quo. One comment proposes two additional alternatives.423 It suggests that if the Board is to depart from the Browning-Ferris standard, the final rule should expand the definition of ‘‘joint employer’’ to explicitly include indirect employers ‘‘with sufficient market power in the direct employer’s product market or the relevant labor market to determine workers’ wages and/or terms and conditions of work.’’ The comment further suggests that the Board should, at a minimum, include franchisors that include no-poaching, non-compete, and similar clauses in their franchise agreements, since those provisions restrict labor market competition. The Board discussed these alternatives in Section V.M and V.N and rejected those alternatives for the reasons explained above. In the NPRM, the Board considered exempting certain small entities. See 83 FR 46696. The Board received no comments on this potential alternative and again rejects this exemption as impractical because such a large percentage of employers and unions would be exempt under the SBA definitions, thereby substantially undermining the purpose of the final rule. Moreover, as this rule often applies to relationships involving a small entity (such as a franchisee) and a large enterprise (such as a franchisor), exemptions for small businesses would decrease the application of the rule to larger businesses as well, potentially undermining the policy behind this rule. Additionally, given the very small quantifiable cost of compliance, it is possible that the burden on a small business of determining whether it fell within a particular exempt category might exceed the burden of compliance. Congress gave the Board very broad 422 See comments of Law and Economics Professors; AFL–CIO; CWA. 423 See comment of Law and Economics Professors. VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 jurisdiction, with no suggestion that it wanted to limit coverage of any part of the Act to only larger employers.424 As the Supreme Court has noted, ‘‘[t]he [NLRA] is federal legislation, administered by a national agency, intended to solve a national problem on a national scale.’’ 425 As such, this alternative is contrary to the objectives of this rulemaking and of the NLRA. None of the alternatives considered accomplished the objectives of issuing this rule while minimizing costs on small businesses. Accordingly, the Board believes that promulgating this final rule is the best regulatory course of action. B. Paperwork Reduction Act In the NPRM, the Board explained that the proposed rule would not impose any information collection requirements and accordingly, the proposed rule is not subject to the Paperwork Reduction Act (PRA), 44 U.S.C. 3501–3521. See 83 FR 46696. No substantive comments were received relevant to the Board’s analysis of its obligations under the PRA. C. Congressional Review Act In the NPRM, the Board explained that the provisions of the proposed rule were substantive and that the Board would submit this rule and required accompanying information to the Senate, the House of Representatives, and the Comptroller General as required by the Small Business Regulatory Enforcement Fairness Act (Congressional Review Act or CRA), 5 U.S.C. 801–808. Pursuant to the Congressional Review Act, the Office of Information and Regulatory Affairs designated this rule as a major rule. Accordingly, the rule will become effective April 27, 2020. Final Rule This rule is published as a final rule. List of Subjects in 29 CFR Part 103 Jurisdictional standards, Election procedures, Appropriate bargaining units, Joint Employers, Remedial Orders. For the reasons stated in the preamble, the National Labor Relations Board amends 29 CFR part 103 as follows: 424 However, there are standards that prevent the Board from asserting authority over entities that fall below certain jurisdictional thresholds. This means that extremely small entities outside of the Board’s jurisdiction will not be affected by the final rule. See 29 CFR 104.204. 425 NLRB v. Nat. Gas Util. Dist. of Hawkins Cty., Tenn., 402 U.S. 600, 603–604 (1971) (quotation omitted). PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 11235 PART 103—OTHER RULES 1. The authority citation for part 103 continues to read as follows: ■ Authority: 29 U.S.C. 156, in accordance with the procedure set forth in 5 U.S.C. 553. 2. Add subpart D, consisting of § 103.40, to read as follows: ■ Subpart D—Joint Employers § 103.40 Joint Employers. (a) An employer, as defined by Section 2(2) of the National Labor Relations Act (the Act), may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment. To establish that an entity shares or codetermines the essential terms and conditions of another employer’s employees, the entity must possess and exercise 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. Evidence of the entity’s indirect control over essential terms and conditions of employment of another employer’s employees, the entity’s contractually reserved but never exercised authority over the essential terms and conditions of employment of another employer’s employees, or the entity’s control over mandatory subjects of bargaining other than the essential terms and conditions of employment 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. Joint-employer status must be determined on the totality of the relevant facts in each particular employment setting. The party asserting that an entity is a joint employer has the burden of proof. (b) ‘‘Essential terms and conditions of employment’’ means wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. (c) ‘‘Direct and Immediate Control’’ means the following with respect to each respective essential employment term or condition: (1) Wages. An entity exercises direct and immediate control over wages if it actually determines the wage rates, salary or other rate of pay that is paid to another employer’s individual employees or job classifications. An entity does not exercise direct and immediate control over wages by E:\FR\FM\26FER2.SGM 26FER2 11236 Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 entering into a cost-plus contract (with or without a maximum reimbursable wage rate). (2) Benefits. An entity exercises direct and immediate control over benefits if it actually determines the fringe benefits to be provided or offered to another employer’s employees. This would include selecting the benefit plans (such as health insurance plans and pension plans) and/or level of benefits provided to another employer’s employees. An entity does not exercise direct and immediate control over benefits by permitting another employer, under an arm’s-length contract, to participate in its benefit plans. (3) Hours of work. An entity exercises direct and immediate control over hours of work if it actually determines work schedules or the work hours, including overtime, of another employer’s employees. An entity does not exercise direct and immediate control over hours of work by establishing an enterprise’s operating hours or when it needs the services provided by another employer. (4) Hiring. An entity exercises direct and immediate control over hiring if it actually determines which particular employees will be hired and which employees will not. An entity does not exercise direct and immediate control over hiring by requesting changes in staffing levels to accomplish tasks or by setting minimal hiring standards such as those required by government regulation. (5) Discharge. An entity exercises direct and immediate control over discharge if it actually decides to terminate the employment of another employer’s employee. An entity does VerDate Sep<11>2014 17:41 Feb 25, 2020 Jkt 250001 not exercise direct and immediate control over discharge by bringing misconduct or poor performance to the attention of another employer that makes the actual discharge decision, by expressing a negative opinion of another employer’s employee, by refusing to allow another employer’s employee to continue performing work under a contract, or by setting minimal standards of performance or conduct, such as those required by government regulation. (6) Discipline. An entity exercises direct and immediate control over discipline if it actually decides to suspend or otherwise discipline another employer’s employee. An entity does not exercise direct and immediate control over discipline by bringing misconduct or poor performance to the attention of another employer that makes the actual disciplinary decision, by expressing a negative opinion of another employer’s employee, or by refusing to allow another employer’s employee to access its premises or perform work under a contract. (7) Supervision. An entity exercises direct and immediate control over supervision by actually instructing another employer’s employees how to perform their work or by actually issuing employee performance appraisals. An entity does not exercise direct and immediate control over supervision when its instructions are limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it. PO 00000 Frm 00054 Fmt 4701 Sfmt 9990 (8) Direction. An entity exercises direct and immediate control over direction by assigning particular employees their individual work schedules, positions, and tasks. An entity does not exercise direct and immediate control over direction by setting schedules for completion of a project or by describing the work to be accomplished on a project. (d) ‘‘Substantial direct and immediate control’’ means direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. Such control is not ‘‘substantial’’ if only exercised on a sporadic, isolated, or de minimis basis. (e) ‘‘Indirect control’’ means indirect control over essential terms and conditions of employment of another employer’s employees but not control or influence over setting the objectives, basic ground rules, or expectations for another entity’s performance under a contract. (f) ‘‘Contractually reserved authority over essential terms and conditions of employment’’ means the authority that an entity reserves to itself, under the terms of a contract with another employer, over the essential terms and conditions of employment of that other employer’s employees, but that has never been exercised. Dated: February 14, 2020. Roxanne L. Rothschild, Executive Secretary. [FR Doc. 2020–03373 Filed 2–25–20; 8:45 am] BILLING CODE 7545–01–P E:\FR\FM\26FER2.SGM 26FER2

Agencies

[Federal Register Volume 85, Number 38 (Wednesday, February 26, 2020)]
[Rules and Regulations]
[Pages 11184-11236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03373]



[[Page 11183]]

Vol. 85

Wednesday,

No. 38

February 26, 2020

Part II





 National Labor Relations Board





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29 CFR Part 103





 Joint Employer Status Under the National Labor Relations Act; Final 
Rule

Federal Register / Vol. 85 , No. 38 / Wednesday, February 26, 2020 / 
Rules and Regulations

[[Page 11184]]


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NATIONAL LABOR RELATIONS BOARD

29 CFR Part 103

RIN 3142-AA13


Joint Employer Status Under the National Labor Relations Act

AGENCY: National Labor Relations Board.

ACTION: Final rule.

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SUMMARY: The National Labor Relations Board (NLRB or Board) has decided 
to issue this final rule for the purpose of carrying out the provisions 
of the National Labor Relations Act (NLRA or Act) by establishing the 
standard for determining whether two employers, as defined in Section 
2(2) of the Act, are a joint employer under the NLRA. The Board 
believes that this rulemaking will foster predictability and 
consistency regarding determinations of joint-employer status in a 
variety of business relationships, thereby enhancing labor-management 
stability, the promotion of which is one of the principal purposes of 
the Act. Under this final rule, an entity may be considered a joint 
employer of a separate employer's employees only if the two share or 
codetermine the employees' essential terms and conditions of 
employment, which are exclusively defined as wages, benefits, hours of 
work, hiring, discharge, discipline, supervision, and direction.

DATES: This rule has been classified as a major rule subject to 
Congressional review. The effective date is April 27, 2020. However, at 
the conclusion of the congressional review, if the effective date has 
been changed, the National Labor Relations Board will publish a 
document in the Federal Register to establish the new effective date or 
to withdraw the rule.

FOR FURTHER INFORMATION CONTACT: Roxanne L. Rothschild, Executive 
Secretary, National Labor Relations Board, 1015 Half Street SE, 
Washington, DC 20570-0001, (202) 273-2917 (this is not a toll-free 
number), 1-866-315-6572 (TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Background

A. The Act

    The NLRA sets forth a number of rights and responsibilities that 
apply to employers, employees, and labor organizations representing 
employees, in furtherance of the Act's overarching goals of promoting 
labor relations stability,\1\ protecting employees' right to designate 
representatives of their own choosing ``for the purpose of collective 
bargaining or other mutual aid or protection,'' \2\ and preventing 
unfair labor practices by employers and labor organizations.\3\
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    \1\ Section 1 of the Act, 29 U.S.C. 151.
    \2\ Section 7 of the Act, 29 U.S.C. 157.
    \3\ Section 8 of the Act, 29 U.S.C. 158.
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    The NLRA also defines the terms ``employer'' and ``employee.'' 
Under Section 2(2) of the Act, ``the term `employer' includes any 
person acting as an agent of an employer, directly or indirectly,'' but 
excludes certain governmental entities, entities subject to the Railway 
Labor Act, or any labor organization (other than when acting as an 
employer). Section 2(3) of the Act provides that ``the term `employee' 
shall include any employee, and shall not be limited to the employees 
of a particular employer, unless this subchapter [of the Act] 
explicitly states otherwise . . . but shall not include . . . any 
individual having the status of an independent contractor. . . .'' 29 
U.S.C. 152(3).
    The text of the Act and its legislative history further establish 
that, in determining whether an employment relationship exists between 
a putative employer and employee, common-law agency principles are 
controlling. See, e.g., NLRB v. United Ins. Co. of America, 390 U.S. 
254, 256 (1968). Thus, in making this determination, the Board is bound 
by common-law principles, which require that it focus on the control 
exercised by a putative employer over a person performing work for it. 
Id; see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-323 
(1992).
    The Act does not contain the term ``joint employer,'' much less 
define it. As discussed below, the Board and reviewing courts have 
developed that concept in adjudication over the years to address 
situations where two or more separate entities engaged in a business 
relationship jointly affect the terms and conditions of employment of a 
group of employees. See Boire v. Greyhound Corp., 376 U.S. 473 (1964) 
(holding that Board's determination that bus company possessed 
``sufficient control over the work'' of its cleaning contractor's 
employees to be considered a joint employer was not reviewable in 
federal district court); Indianapolis Newspapers, Inc., 83 NLRB 407, 
408-409 (1949) (finding that two newspaper businesses, Star and INI, 
were not joint employers, despite their integration, because ``there 
[wa]s no indication that Star, by virtue of such integration, t[ook] an 
active part in the formulation or application of the labor policy, or 
exercise[d] any immediate control over the operation, of INI''). 
Consistent with the statutory requirement that the common law of agency 
be applied, joint-employer determinations have focused on the extent to 
which the separate companies exercise control over the persons 
performing the work. Id.
    As also discussed below, Section 6 of the Act authorizes the Board 
to ``make, amend, and rescind . . . such rules and regulations as may 
be necessary to carry out the provisions of this subchapter.'' See 
American Hosp. Ass'n v. NLRB, 499 U.S. 606 (1991) (affirming authority 
of NLRB to enact rules establishing bargaining units for acute care 
hospitals). The Board has determined that it is appropriate to do so 
now in order to define who may be a joint employer under the Act.

B. The Development of the Joint-Employment Doctrine Under the NLRA

    The general formulation of the Board's joint-employer standard is 
firmly established. ``The Board will find that two separate entities 
are joint employers of a single work force if the evidence shows that 
they `share or codetermine those matters governing the essential terms 
and conditions of employment.' '' CNN America, Inc., 361 NLRB 439, 441 
(2014) (quoting TLI, Inc., 271 NLRB 798 (1984), enfd. mem. sub nom. 
Gen. Teamsters Local Union No. 326 v. NLRB, 772 F.2d 894 (3d Cir. 
1985)), enf. denied in part 865 F.3d 740 (DC Cir. 2017). This standard 
derives from language in Greyhound Corp., 153 NLRB 1488, 1495 (1965), 
enfd. 368 F.2d 778 (5th Cir. 1966), and was endorsed in NLRB v. 
Browning-Ferris Industries of Pennsylvania, Inc., 691 F.2d 1117, 1122-
1123 (3d Cir. 1982). It is rooted in longstanding Board precedent and 
has been consistently approved by reviewing courts.
    Notably, however, the Board has never attempted to comprehensively 
define the ``essential terms and conditions of employment'' that are 
relevant to the joint-employer inquiry, even though the standard itself 
inherently implies that it is control over those terms and conditions 
of employment that is determinative of joint-employer status.\4\ And 
even when a term or condition of employment is deemed ``essential'' for 
the purpose of

[[Page 11185]]

determining joint-employer status, the joint-employer standard 
described above does not specify the extent of control that must be 
shown before the two entities may be found to ``share or codetermine'' 
that essential term or condition. As fully described in the Notice of 
Proposed Rulemaking (NPRM), the Board's treatment of the latter issue 
has evolved over the years.\5\ Nevertheless, for at least 30 years 
(from no later than 1984 to 2015), evidence of indirect control was 
typically insufficient to prove that an entity was the joint employer 
of another employer's workers. Even direct and immediate supervision of 
another employer's employees was insufficient to establish joint-
employer status where such supervision was ``limited and routine.'' \6\
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    \4\ The Board has held that a joint-employer finding requires 
``a showing that the employer meaningfully affects matters relating 
to the employment relationship such as hiring, firing, discipline, 
supervision, and direction.'' Laerco Transportation, 269 NLRB 324, 
325 (1984); accord TLI, Inc., 271 NLRB at 798-799. But this list did 
not purport to be exhaustive.
    \5\ As more fully described in the NPRM, the Board has 
consistently recognized that direct control of essential terms and 
conditions is relevant to this determination, while the extent to 
which indirect control was a factor has changed over time. Compare 
Floyd Epperson, 202 NLRB 23, 23 (1973) (dairy company was the joint 
employer of truck drivers supplied to it by an independent trucking 
firm based on evidence of both direct and indirect control over the 
working conditions of the drivers), enfd. 491 F.2d 1390 (6th Cir. 
1974), with Airborne Express, 338 NLRB 597, 597 fn. 1 (2002) 
(holding that ``the essential element'' in a joint-employer analysis 
``is whether a putative joint employer's control over employment 
matters is direct and immediate'' (citing TLI, Inc., 271 NLRB at 
798-799)); see also NLRB v. CNN America, Inc., 865 F.3d 740, 748-751 
(D.C. Cir. 2017) (finding that Board erred by failing to adhere to 
``direct and immediate control'' standard); SEIU Local 32BJ v. NLRB, 
647 F.3d 435, 442 (2d Cir. 2011) (``An essential element' of any 
joint employer determination is `sufficient evidence of immediate 
control over the employees.'' (quoting Clinton's Ditch Co-op Co. v. 
NLRB, 778 F.2d 132, 138 (2d Cir. 1985))).
    As also described in the NPRM, the relevance to the joint-
employer determination of an entity's contractually reserved but 
unexercised authority over another company's employees has also 
changed over time. See Hychem Constructors, Inc., 169 NLRB 274 
(1968) (petrochemical manufacturer was not a joint employer of its 
construction subcontractor's employees even though their cost-plus 
agreement reserved to the manufacturer a right to approve wage 
increases and overtime hours and the right to require the 
subcontractor to remove any employee whom the manufacturer deemed 
undesirable); Jewel Tea Co., 162 NLRB 508, 510 (1966) (department 
store was a joint employer of the employees of two independent 
companies licensed to operate specific departments of its store 
based on its reserved contractual authority). In AM Property Holding 
Corp., the Board found that a ``contractual provision giving [a 
property owner] the right to approve [its cleaning contractor's] 
hires, standing alone, [was] insufficient to show the existence of a 
joint employer relationship.'' 350 NLRB 998, 1000 (2007), enfd. in 
relevant part sub nom. SEIU Local 32BJ v. NLRB, 647 F.3d 435 (2d 
Cir. 2011). The Board explained that ``[i]n assessing whether a 
joint employer relationship exists, the Board does not rely merely 
on the existence of such contractual provisions, but rather looks to 
the actual practice of the parties.'' Id.
    \6\ See, e.g., AM Property Holding Corp., 350 NLRB at 998; 
Airborne Express, 338 NLRB at 597; TLI, Inc., 271 NLRB at 798.
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    The law governing joint-employer determinations changed 
significantly in August 2015. At that time, a divided Board overruled 
the then-extant precedent described above and substantially relaxed the 
requirements for proving a joint-employer relationship. Specifically, a 
Board majority held that it would no longer require proof that a 
putative joint employer has exercised any ``direct and immediate'' 
control over the essential terms and conditions of employment of 
another company's workers. Browning-Ferris Industries of California, 
Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB 1599, 1600 (2015) 
(Browning-Ferris), affd. in part, reversed in part and remanded 911 
F.3d 1195 (D.C. Cir. 2018). The majority in Browning-Ferris explained 
that, under its new standard, a company could be deemed a joint 
employer even if its control over the essential working conditions of 
another business's employees was indirect, limited and routine, or 
contractually reserved but never exercised. Id. at 1613-1614. At the 
same time, however, the Browning-Ferris majority stated that ``[e]ven 
where the common law does permit the Board to find joint employer 
status in a particular case, the Board must determine whether it would 
serve the purposes of the Act to do so. . . .'' Id. at 1610 (emphasis 
in original); see also id. at 1614 (``[I]t is certainly possible that 
in a particular case, a putative joint employer's control might extend 
only to terms and conditions of employment too limited in scope or 
significance to permit meaningful collective bargaining.'').
    In December 2018, the United States Court of Appeals for the 
District of Columbia Circuit issued its decision on review of the 
Board's Browning-Ferris decision. See Browning-Ferris Industries of 
California, Inc. v. NLRB, 911 F.3d 1195 (Browning-Ferris v. NLRB). 
Consistent with the principles stated above, the court held that the 
Board was required to apply the common law of agency in determining 
whether an entity was a joint employer of particular employees. Whether 
proceeding by adjudication or rulemaking, then, the Board ``must color 
within the common-law lines identified by the judiciary.'' Id. at 1208. 
The court upheld the Board's longstanding right-to-control standard as 
``an established aspect of the common law of agency.'' Id. at 1209. In 
addition, the court also concluded that the common law ``permits 
consideration of those forms of indirect control that play a relevant 
part in determining the essential terms and conditions of employment.'' 
Id. at 1199-1200. The court therefore affirmed Browning-Ferris's 
``articulation of the joint-employer test as including consideration of 
both an employer's reserved right to control and its indirect control 
over employees' terms and conditions of employment.'' Id. at 1200. In 
so holding, the court recognized that Browning-Ferris did not present 
the issue of whether either indirect control or a contractually 
reserved but unexercised right to control can be dispositive of joint-
employer status absent evidence of exercised direct and immediate 
control. Id. at 1213, 1218.
    The court, however, faulted the Browning-Ferris Board for failing 
to confine its inquiry to ``indirect control over the essential terms 
and conditions of the workers' employment.'' Id. at 1209. Specifically, 
the court found that, in considering the factor of indirect control, 
Browning-Ferris failed to

hew to the relevant common-law boundaries that prevent the Board 
from trenching on the common and routine decisions that employers 
make when hiring third-party contractors and defining the terms of 
those contracts. To inform the joint-employer analysis, the relevant 
forms of indirect control must be those that ``share or co-determine 
those matters governing essential terms and conditions of 
employment.'' By contrast, those types of employer decisions that 
set the objectives, basic ground rules, and expectations for a 
third-party contractor cast no meaningful light on joint-employer 
status.

Id. at 1219-1220 (internal citations omitted). The court remanded the 
case to the Board, and the Board accepted the remand.\7\
---------------------------------------------------------------------------

    \7\ The court also found that the Browning-Ferris Board had 
neglected to apply the second step of its newly-fashioned standard, 
under which, ``even if it finds that the common law would deem a 
business to be a joint employer, the Board will also ask whether the 
putative joint employer possesses sufficient control over employees' 
essential terms and conditions of employment to permit meaningful 
collective bargaining.'' Id. at 1221 (internal quotation omitted). 
The court directed the Board to address this issue on remand as 
well.
---------------------------------------------------------------------------

C. NPRM

    On September 14, 2018, the Board issued its joint-employer NPRM. 
There, the Board proposed the following rule:

    An employer, as defined by Section 2(2) of the National Labor 
Relations Act (the Act), may be considered a joint employer of a 
separate employer's employees only if the two employers share or 
codetermine the employees' essential terms and conditions of 
employment, such as hiring, firing, discipline, supervision, and 
direction. A putative joint employer must possess and actually 
exercise substantial direct and immediate control over the 
employees' essential terms and conditions of employment in a manner 
that is not limited and routine.


[[Page 11186]]


83 FR at 46696. The proposed rule also included a number of 
hypothetical examples illustrating how it would apply to particular 
scenarios.
    In the NPRM, the Board acknowledged that the Agency historically 
has made major policy determinations through adjudication, but stated 
that it interpreted Section 6 of the Act as authorizing the Board to 
engage in this rulemaking, adding that rulemaking on the issue of 
determining joint-employer status was preferable to adjudication in 
order to provide clarity and stability to this area of the law. The 
NPRM further stated the Board's preliminary view, subject to potential 
revision in response to comments, that a joint-employer doctrine under 
which the duty to bargain is imposed only on entities that have played 
an active role in establishing essential terms and conditions of 
employment best serves the Act's purposes of promoting collective 
bargaining and minimizing industrial strife. The NPRM invited comments 
on these issues and, indeed, on all aspects of the proposed rule, 
including input from employees, unions, and employers regarding their 
experience in workplaces where multiple entities have some authority 
over the workplace.
    The Board set an initial comment period of 60 days, with 7 
additional days allotted for reply comments. Thereafter, the Board 
extended these deadlines three times, including an extension to allow 
interested parties to comment on the impact of the D.C. Circuit's 
decision in Browning-Ferris v. NLRB.\8\
---------------------------------------------------------------------------

    \8\ See Order dated January 11, 2019. The NPRM set the deadline 
for initial comments as November 13, 2018, and comments replying to 
comments submitted during the initial comment period were due 
November 20, 2018. On October 30, 2018, the Board extended the 
deadlines for submitting initial and reply comments for 30 days, to 
December 13, 2018, and December 20, 2018, respectively. On December 
10, 2018, the deadlines were extended for an additional 30 days, to 
January 14, 2019, and January 22, 2019, respectively. After the D.C. 
Circuit issued its decision in Browning-Ferris v. NLRB, the Board 
extended the deadlines a third and final time to permit commenters 
to address issues raised by the court's decision. The deadline for 
initial comments was extended to January 28, 2019, and for reply 
comments to February 11, 2019.
---------------------------------------------------------------------------

II. Summary of Changes to the Proposed Rule

    In this section, we provide a summary overview of changes to the 
proposed rule.

A. Overview

    The final rule, like the NPRM, provides that an entity is a joint 
employer of a separate employer's employees only if the two employers 
share or codetermine the employees' essential terms or conditions of 
employment. However, the Board has modified the proposed rule to define 
``share or codetermine'' as the possession and exercise of ``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 Board has also modified the 
proposed rule to factor indirect control over essential terms or 
conditions of employment, contractually reserved control over essential 
terms or conditions of employment, and control over mandatory subjects 
of bargaining other than essential terms and conditions of employment 
into the joint-employer analysis, ``but only to the extent [they] 
supplement[] and reinforce[] evidence of the entity's possession or 
exercise of direct and immediate control over a particular essential 
term and condition of employment.''
    Consistent with these provisions, evidence of contractually 
reserved control over an essential term or condition of employment is 
probative for the purpose of determining whether an entity possesses or 
exercises direct and immediate control over that essential term or 
condition. Plainly, the fact that an entity has a contractually 
reserved right to control an essential term or condition is probative 
of whether it possesses control over that term. Such evidence may also 
be probative of whether the control possessed and exercised is 
``substantial,'' as that term is defined in the final rule (see Sec. 
II.E, `` `Substantial' direct and immediate control'', infra). 
Similarly, evidence of indirect control over an essential term or 
condition of employment may be probative of whether the control 
possessed and exercised is substantial.
    Depending on the circumstances of a particular case, evidence of 
control over a nonessential term or condition that nonetheless 
constitutes a mandatory subject of bargaining may be probative of 
whether an entity possesses and exercises substantial direct and 
immediate control over an essential term or condition of employment. 
One can readily foresee cases where the parties dispute the 
significance or sufficiency of evidence that an entity exercises 
substantial direct and immediate control over an essential term or 
condition of employment, such as by claiming that the evidence is not 
credible or is too isolated or sporadic to meet the substantiality 
standard, but where the entity's control over one or more related 
nonessential terms may tend to support a finding of substantial direct 
and immediate control over an essential term or condition. For example, 
an entity's control over grievance adjustment or drug or alcohol 
testing might be probative of its direct and immediate control over 
discipline or supervision, and an entity's control over dress codes or 
attendance rules might be probative of its direct and immediate control 
over discipline.
    Evidence of an entity's contractually reserved or indirect control 
over an essential term or condition of employment, or its control over 
mandatory but nonessential subjects of bargaining, is not, however, 
otherwise probative of whether the entity ``meaningfully affects 
matters relating to the employment relationship.'' Under the final 
rule, a putative joint employer reaches that threshold only through 
possession and exercise of substantial direct and immediate control 
over one or more essential terms and conditions of employment.

B. Indirect Control

    The Board has modified the proposed rule to factor indirect control 
into the joint-employer analysis, but not to find it sufficient without 
more to make an entity a joint employer. Accordingly, the final rule 
provides that evidence of indirect control over essential terms and 
conditions of employment is probative of joint-employer status, but 
only to the extent that it supplements and reinforces evidence of 
direct and immediate control over essential terms and conditions.
    The definitions of the several essential terms and conditions of 
employment include statements of what does and does not count as direct 
and immediate control over the essential term and condition being 
defined. These statements may bear on indirect control, since what does 
not count as direct and immediate control may count as indirect 
control. However, consistent with the D.C. Circuit's decision in 
Browning-Ferris v. NLRB, the definition of ``indirect control'' 
excludes ``control or influence over setting the objectives, basic 
ground rules, or expectations for another entity's performance under a 
contract,'' and evidence of control that by definition does not count 
as direct and immediate control may fall within this exclusion and so 
not constitute indirect control, either. For example, the definition of 
``[h]ours of [w]ork'' states that ``[a]n entity does not exercise 
direct and immediate control over hours of work by establishing an 
enterprise's operating hours or when it needs the

[[Page 11187]]

services provided by another employer.'' But establishing an 
enterprise's operating hours may not be evidence of indirect control, 
either. A business that contracts, for example, with a food service 
contractor to staff its employee lunchroom surely sets ``basic ground 
rules or expectations'' for that contractor by specifying the hours 
when the lunchroom will be open. Thus, specifying those hours would be 
neither direct and immediate control nor indirect control. In other 
instances, however, what is excluded by definition from direct and 
immediate control may constitute indirect control. Accordingly, what is 
indirect control over an essential term and condition of employment 
versus what is merely a setting of objectives, basic ground rules or 
expectations for a contractor's performance is an issue of fact to be 
determined on a case-by-case basis.

C. Contractually Reserved But Unexercised Right To Control

    The final rule recognizes contractually reserved but unexercised 
control as a potentially relevant consideration. It provides that 
evidence of an entity's contractually reserved but never exercised 
authority over the essential terms and conditions of another employer's 
employees is probative of joint-employer status, but only to the extent 
it supplements and reinforces evidence of direct and immediate control 
over essential terms and conditions of employment.
    In addition, although not stated explicitly in the regulatory text, 
the distinction drawn between indirect control that may be relevant to 
a joint-employer determination and ``decisions that set the objectives, 
basic ground rules, and expectations for a third-party contractor'' 
\9\--i.e., the ``routine components of a company-to-company contract'' 
\10\--also applies to contractually reserved but unexercised control. 
That is, if a contract reserves to an entity a right to control one or 
more matters involving the objectives, basic ground rules, or 
expectations for a third-party contractor, such evidence will not be 
probative of joint-employer status. For example, contractual safety, 
performance, and quality standards are generally ``routine components 
of a company-to-company contract'' \11\ and do not support a finding of 
joint-employer status. This necessarily follows from the final rule's 
definition of indirect control. If actual influence over the 
objectives, basic ground rules, or expectations for a third-party 
contractor is not probative of joint-employer status, as the D.C. 
Circuit held in Browning-Ferris v. NLRB, then necessarily a contractual 
but unexercised right to control such matters cannot be probative of 
such status, either. See Browning-Ferris v. NLRB, 911 F.3d at 1221 
(``[A] joint employer's control--whether direct or indirect, exercised 
or reserved--must bear on the essential terms and conditions of 
employment, and not on the routine components of a company-to-company 
contract.'') (emphasis added; internal quotation and citation omitted).
---------------------------------------------------------------------------

    \9\ Browning-Ferris v. NLRB, 911 F.3d at 1220.
    \10\ Id. at 1221.
    \11\ Id.
---------------------------------------------------------------------------

D. Limited and Routine Control

    The proposed rule stated, in relevant part, that ``[a] putative 
joint employer must possess and actually exercise substantial direct 
and immediate control over the employees' essential terms and 
conditions of employment in a manner that is not limited and routine'' 
(emphasis added). The Board has decided to revise the proposed rule to 
delete ``limited and routine'' as a general qualifying term and instead 
to use that term solely in the context of defining what is and is not 
direct and immediate control over supervision. Thus, the final rule 
provides that an entity does not exercise direct and immediate control 
over supervision when its instructions are limited and routine and 
consist primarily of telling another employer's employees what work to 
perform, or where and when to perform the work, but not how to perform 
it. The final rule does not otherwise use the phrase ``limited and 
routine.''

E. ``Substantial'' Direct and Immediate Control

    The final rule retains the requirement that direct and immediate 
control over essential terms and conditions of employment be 
``substantial'' to give rise to joint-employer status. The Board has 
decided, however, to define ``substantial direct and immediate 
control'' in the final rule. As defined, ``substantial'' direct and 
immediate control means direct and immediate control that has a regular 
or continuous consequential effect on an essential term or condition of 
employment of another employer's employees. Such control is not 
``substantial'' if it is only exercised on a sporadic, isolated, or de 
minimis basis. Thus, the exercise of even direct and immediate control 
may be so isolated, sporadic or de minimis that it fails to establish 
that the putative joint employer meaningfully affects matters relating 
to the employment relationship.

F. ``Essential'' Terms And Conditions of Employment

    The proposed rule, in relevant part, states that ``[a]n employer 
may be considered a joint employer of a separate employer's employees 
only if the two entities share or codetermine the employees' essential 
terms and conditions of employment, such as hiring, firing, discipline, 
supervision, and direction'' (emphasis added). The phrase ``such as'' 
suggested that the specifically enumerated essential terms--hiring, 
firing, discipline, supervision, and direction--might not be 
exhaustive, but the proposed rule left unanswered whether additional 
terms and conditions could be deemed essential, and if so, what those 
terms and conditions might be.
    The final rule expands the list of essential terms and conditions 
to include wages, benefits, and hours of work. Additionally, to provide 
greater certainty and remove a potential issue from litigation, the 
final rule makes the list of essential terms exhaustive. Finally, the 
final rule has been revised to provide that an entity's control over 
other mandatory subjects of bargaining not considered essential terms 
and conditions of employment is probative of joint-employer status, but 
only to the extent it supplements and reinforces evidence of direct and 
immediate control over essential terms and conditions of employment.

G. Hypothetical Scenarios in the NPRM

    The proposed rule included a number of hypothetical scenarios, 
termed ``examples.'' They were included to provide additional guidance 
on the practical application of the proposed rule. The Board has 
decided to omit the hypothetical scenarios from the final rule and has 
instead provided more specific guidance in the text of the rule itself, 
as discussed below.

III. Justification for Using Rulemaking, Rather Than Adjudication, To 
Revise the Joint-Employer Standard

A. Authority To Engage in Rulemaking

    Congress has delegated general rulemaking authority to the Board. 
Specifically, Section 6 of the National Labor Relations Act, 29 U.S.C. 
156, provides that the Board ``shall have authority from time to time 
to make, amend, and rescind, in the manner prescribed by the 
[Administrative Procedure Act (APA)], such rules and regulations as may 
be necessary to carry out the provisions of [the Act].''
    Although the Board historically has made most substantive policy 
determinations through case

[[Page 11188]]

adjudication, it has, with Supreme Court approval, engaged in 
substantive rulemaking. American Hosp. Ass'n. v. NLRB, 499 U.S. 606 
(1991) (upholding Board's rulemaking on appropriate bargaining units in 
the healthcare industry); see also NLRB v. Bell Aerospace Co., 416 U.S. 
267, 294 (1974) (``[T]he choice between rulemaking and adjudication 
lies in the first instance within the Board's discretion.'').
    Further, Section 6 authorizes the final rule as necessary to carry 
out Sections 2, 7, 8, 9, and 10 of the Act, 29 U.S.C. 152, 157, 158, 
159, and 160, respectively. Specifically, Section 2(2) of the Act 
defines ``employer'' and Section 2(3) defines ``employee.'' Section 7 
of the Act defines the employee rights that the Act protects, including 
the right to bargain collectively through representatives of their own 
choosing, the right to engage in other concerted activities for the 
purpose of collective bargaining or mutual aid or protection, and the 
right to refrain from these activities. Section 8 of the Act defines 
unfair labor practices under the Act. Of particular relevance is 
Section 8(a)(5), which provides that it is an unfair labor practice for 
an employer ``to refuse to bargain collectively with the 
representatives of his employees'' (emphasis added). Section 9 of the 
Act sets forth the Board's responsibilities for conducting 
representation elections, and Section 10 of the Act provides the Board 
with the authority to investigate, prevent, and remedy unfair labor 
practices. The Board's joint-employer doctrine implicates each of these 
provisions of the Act, and Section 6 grants the Board the authority to 
promulgate rules that carry out those provisions.

B. The Preference for Rulemaking Over Adjudication

    In the NPRM, we expressed a preliminary belief that rulemaking in 
this area of the law is desirable for several reasons. Specifically, 
the NPRM stated that rulemaking, rather than adjudication, would enable 
the Board to gather information from a wide variety of interested 
parties and to provide greater clarity to the joint-employer analysis. 
Rulemaking would also respect the reasonable expectations of regulated 
parties by ensuring that further changes to the law in this area would 
only be made prospectively in a new rulemaking proceeding, whereas with 
case adjudication, changes in the law may be made retroactively. After 
carefully considering nearly 29,000 comments, the Board continues to 
believe that rulemaking, rather than adjudication, is the better method 
to revise and clarify the standard for determining joint-employer 
status under the Act.
    First, the Board has been well served by public comment on the 
issue. The Board received numerous helpful comments from a wide variety 
of sources, many with considerable legal expertise and/or a great deal 
of relevant experience. Having considered these comments, the Board has 
refined the proposed rule in several ways, outlined above in Section II 
and discussed more fully below in Sections V and VI.
    It is likely that the Board would not have received as much input 
from revisiting the joint-employer standard through adjudication rather 
than rulemaking. Rulemaking has given interested persons a way to 
provide input through the convenient comment process, and participation 
was not limited, as in the adjudicatory setting, to legal briefs filed 
by the parties and amici. Further, the comments confirm that it was 
especially important for the Board to receive feedback in light of the 
recent oscillation on the joint-employer standard, after decades of 
stability, beginning with Browning-Ferris, which overruled longstanding 
Board precedent and substantially relaxed the evidentiary requirements 
for finding a joint-employer relationship, and followed by Hy-Brand 
Industrial Contractors, Ltd. & Brandt Construction Co., 365 NLRB No. 
156 (2017) (Hy-Brand I), which restored the prior standard, but which 
was then vacated for procedural reasons in Hy-Brand Industrial 
Contractors, Ltd. & Brandt Construction Co., 366 NLRB No. 26 (2018) 
(Hy-Brand II),\12\ resulting in reinstatement by default of the joint-
employer standard adopted in Browning-Ferris.
---------------------------------------------------------------------------

    \12\ Mot. for reconsideration denied 366 NLRB No. 93 (2018) (Hy-
Brand III).
---------------------------------------------------------------------------

    Second, rulemaking has made it possible for the Board to provide 
greater clarity with respect to the standard than would likely be 
accomplished through adjudication. Although the Board has decided, in 
response to comments, to omit the examples that were set forth in the 
text of the proposed rule, the final rule provides clarity by, for 
example, setting forth actions that will and actions that will not 
constitute direct and immediate control over each essential term and 
condition of employment. This is regulatory guidance that could be 
dismissed as dicta if set forth in an adjudicatory decision in a case 
in which it was not essential to the outcome. By providing such 
guidance, the final rule will comport with the Supreme Court's 
instruction that the Board should provide parties with ``certainty 
beforehand as to when [they] may proceed to reach decisions without 
fear of later evaluations labeling [their] conduct an unfair labor 
practice.'' First Nat'l Maint. Corp. v. NLRB, 452 U.S. 666, 679 (1981).
    Third, the Board continues to believe, as discussed in the NPRM, 
that by establishing the joint-employer standard through the Board's 
Rules and Regulations, the final rule will enable employers, unions, 
and employees to plan their affairs free of the uncertainty that 
significant changes to the joint-employer doctrine could be made, and 
retroactively applied, via case adjudication. NLRB v. Wyman-Gordon Co., 
394 U.S. 759, 777 (1969) (Douglas, J., dissenting) (``The rule-making 
procedure performs important functions. It gives notice to an entire 
segment of society of those controls or regimentation that is 
forthcoming.'').
    Finally, the decision to engage in rulemaking regarding the 
standard for determining joint-employer status is consistent with the 
similar determinations, by the United States Department of Labor (DOL) 
and the United States Equal Employment Opportunity Commission (EEOC), 
to similarly address this issue through rulemaking.\13\
---------------------------------------------------------------------------

    \13\ See Joint Employer Status Under the Fair Labor Standards 
Act, 85 FR 2820 (Jan. 16, 2020) (to be codified 29 CFR part 791); 
Introduction to the Fall 2019 Regulatory Plan, 84 FR 71091 (Dec. 26, 
2019) (listing EEOC Fall 2019 Unified Rulemaking Agenda, Joint 
Employer Status Under the Federal Equal Employment Opportunity 
Statutes (RIN: 3046-AB16)).
---------------------------------------------------------------------------

    In sum, and as indicated in the NPRM with respect to the proposed 
rule, the Board believes that the final rule will foster predictability 
and consistency regarding determinations of joint-employer status in a 
variety of business relationships, thereby enhancing labor-management 
stability, the promotion of which is one of the principal purposes of 
the Act.

IV. Recusal Issues

    A number of commenters claim that Chairman Ring, Member Emanuel, 
and/or Member Kaplan entered into this rulemaking with unalterably 
closed minds as to the outcome and consequently that each should recuse 
himself from participating in it. For the reasons that follow, the 
Board rejects these contentions.
    ``[A]n individual should be disqualified from rulemaking only when 
there has been a clear and convincing showing'' that the official ``has 
an

[[Page 11189]]

unalterably closed mind on matters critical to the disposition of the 
proceeding.'' Air Transp. Ass'n of America, Inc. v. NMB, 663 F.3d 476, 
487 (D.C. Cir. 2011) (quoting C & W Fish Co. v. Fox, 931 F.2d 1556, 
1564 (D.C. Cir. 1991)). Moreover, ``[a]n administrative official is 
presumed to be objective and `capable of judging a particular 
controversy fairly on the basis of its own circumstances.' '' 
Steelworkers v. Marshall, 647 F.2d 1189, 1208 (D.C. Cir. 1980) (quoting 
United States v. Morgan, 313 U.S. 409, 421 (1941)). Further, 
``[w]hether the official is engaged in adjudication or rulemaking,'' 
the fact that he or she ``has taken a public position, or has expressed 
strong views, or holds an underlying philosophy with respect to an 
issue in dispute cannot overcome that presumption.'' Id. That 
presumption is also not overcome ``when the official's alleged 
predisposition derives from [his or] her participation in earlier 
proceedings on the same issue.'' Id. at 1209. Expanding on the latter 
point, the D.C. Circuit has explained that ``[t]o disqualify 
administrators because of opinions they expressed or developed in 
earlier proceedings would mean that `experience acquired from their 
work . . . would be a handicap instead of an advantage.' '' Id. 
(quoting FTC v. Cement Inst., 333 U.S. 683, 702 (1948)). More recently, 
the D.C. Circuit has similarly emphasized that it would ```eviscerate 
the proper evolution of policymaking were we to disqualify every 
administrator who has opinions on the correct course of his agency's 
future actions.' '' Air Transp. Ass'n of America, 663 F.3d at 488 
(quoting C & W Fish Co., 931 F.2d at 1565).
    Consistent with the foregoing precedent, each participating Member 
has determined that there is no basis to recuse himself from this 
rulemaking. Indeed, comparison of the final rule with the proposed rule 
in itself clearly demonstrates that the Members did not engage in this 
endeavor with ``an unalterably closed mind.'' After considering nearly 
29,000 comments, the Board has revised the proposed rule in several 
significant respects. Throughout this rulemaking process, the Board has 
been willing to reconsider the preliminary views expressed in the NPRM 
and to revise the rule as found appropriate.
    One commenter raises arguments based on section 1, paragraph 6 of 
Executive Order 13770, entitled ``Ethics Commitments by Executive 
Branch Appointees,'' 82 FR 9333 (Jan. 28, 2017).\14\ As other 
commenters correctly note, the cited provision is inapplicable.\15\ 
Section 1, paragraph 6 of Executive Order 13770 is a pledge that 
states: ``I will not for a period of 2 years from the date of my 
appointment participate in any particular matter involving specific 
parties that is directly and substantially related to my former 
employer or former clients, including regulations and contracts.'' This 
paragraph, read together with the definitions of ``former employer,'' 
``former client,'' and ``directly and substantially related'' set forth 
in Executive Order 13770, prohibits a Board Member from participating 
in a ``particular matter involving specific parties'' in which his or 
her former employer or own former client is a party or the 
representative of a party. Section 2(s) of Executive Order 13770 
provides that a particular matter involving specific parties has the 
same meaning as set forth in 5 CFR 2641.201(h).\16\ 5 CFR 2641.201, 
which contains interpretive guidance for the post-employment 
restrictions found in 18 U.S.C. 207, states that ``only those 
particular matters that involve a specific party or parties fall within 
the prohibition'' of 18 U.S.C. 207(a)(1), and that
---------------------------------------------------------------------------

    \14\ See comment of Service Employees International Union 
(SEIU).
    \15\ See comments of Ranking Member Virginia Foxx of the U.S. 
House of Representatives Committee on Education and Labor (Ranking 
Member Foxx); HR Policy Association.
    \16\ Section 2(s) additionally states that the definition of a 
particular matter involving specific parties shall also include 
``any meeting or other communication relating to the performance of 
one's official duties with a former employer or former client, 
unless the communication applies to a particular matter of general 
applicability and participation in the meeting or other event is 
open to all interested parties.'' This portion of the provision does 
not apply here.

[s]uch a matter typically involves a specific proceeding affecting 
the legal rights of the parties or an isolatable transaction or 
related set of transactions between identified parties, such as a 
specific contract, grant, license, product approval application, 
---------------------------------------------------------------------------
enforcement action, administrative adjudication, or court case.

5 CFR 2641.201(h)(1). Further, the regulation states that 
``[l]egislation or rulemaking of general applicability and the 
formulation of general policies, standards or objectives, or other 
matters of general applicability are not particular matters involving 
specific parties.'' Id. 2641.201(h)(2).
    Here, the joint-employer rulemaking--unlike an administrative 
adjudication of a case--is not a ``specific proceeding affecting the 
legal rights of the parties'' to that proceeding. Rather, this 
rulemaking is a matter of general applicability. See 5 CFR 
2641.201(h)(1)-(2). Further, the phrase ``including regulations'' in 
the pledge recusal provision in section 1, paragraph 6 of Executive 
Order 13770 ``is not intended to suggest that all rulemakings are 
covered,'' but instead is a ``reminder that regulations sometimes may 
be particular matters involving specific parties, although in rare 
circumstances.'' Ethics Pledge: Revolving Door Ban--All Appointees 
Entering Government, DO-09-11 at 2 (Mar. 26, 2009) (``certain 
rulemakings may be so focused on the rights of specifically identified 
parties as to be considered a particular matter involving specific 
parties''); see also Guidance on Executive Order 13770, LA-17-03 (Mar. 
20, 2017). Because the joint employer rulemaking is not directed at 
specific parties, the cited provision of Executive Order 13770 does not 
apply, and arguments based on Executive Order 13770 are misplaced.
    Citing Member Emanuel's participation in Hy-Brand I, one commenter 
argues that Member Emanuel should recuse himself because ``[i]t is 
clear where [he] stands on the important issues at stake in this 
rulemaking'' and because he has ``expressed those strong views.'' \17\ 
However, the fact that Member Emanuel expressed views on the joint-
employer standard in Hy-Brand I is insufficient to demonstrate that 
Member Emanuel has engaged in this rulemaking with an unalterably 
closed mind. See Air Transp. Ass'n of America, Inc., 663 F.3d at 487-
488; Steelworkers, 647 F.2d at 1208-1209. Accordingly, the AFT's 
argument is unfounded.
---------------------------------------------------------------------------

    \17\ See comment of American Federation of Teachers (AFT) at 4.
---------------------------------------------------------------------------

    Commenters also argue that Member Emanuel should recuse himself 
because his participation in this rulemaking would ``accomplish the 
same goals'' that he could not accomplish in Hy-Brand I, and this would 
be inconsistent with his ``ethical obligations.'' \18\ As an initial 
matter, Member Emanuel's disqualification from Hy-Brand I was unrelated 
to the substantive issues in that case. It was based on the fact that 
Member Emanuel had been a shareholder in the law firm that represented 
Leadpoint Business Services, one of the parties before the Board in 
Browning-Ferris; it had nothing to do with the substance of the case or 
the joint-employer standard. See Browning-Ferris v. NLRB, 911 F.3d at 
1205-1206. To the extent the AFT is suggesting that Member Emanuel 
should be disqualified from participating in this

[[Page 11190]]

rulemaking because he has ``[policy] goals,'' neither Member Emanuel's 
underlying philosophy, nor his previously expressed views, nor his 
initial participation in Hy-Brand I constitute grounds for his 
disqualification or establish that Member Emanuel has an unalterably 
closed mind on matters critical to this rulemaking. See Air Transp. 
Ass'n of America, Inc., 663 F.3d at 487-488; Steelworkers, 647 F.2d at 
1208-1209.
---------------------------------------------------------------------------

    \18\ Id.; see also comments of AFL-CIO; SEIU; Congressional 
Progressive Caucus; Attorneys General of New York, Pennsylvania, et 
al.; Center for American Progress Action Fund.
---------------------------------------------------------------------------

    Moreover, and as emphasized above, the final joint-employer rule 
applies prospectively only. Thus, the final rule will not effectively 
reinstate the Board's vacated decision in Hy-Brand I, it will not 
affect the outcome in Browning-Ferris (currently pending before the 
Board on remand from the D.C. Circuit), and it will not affect 
Leadpoint or any other party in Browning-Ferris.\19\
---------------------------------------------------------------------------

    \19\ The question of what standard should apply in Browning-
Ferris on remand was not addressed by the D.C. Circuit, which 
declined to rule on BFI's challenge to the retroactive application 
of the Browning-Ferris standard in that case. See 911 F.3d at 1222.
---------------------------------------------------------------------------

    Although the Board's Designated Agency Ethics Official (DAEO) 
determined that Member Emanuel was disqualified from participation in 
the Hy-Brand cases, the DAEO subsequently determined that Member 
Emanuel was not disqualified from participating in this rulemaking and 
provided guidance to all Board members with respect to general recusal 
considerations. With respect to the DAEO's latter determination, one 
comment faulted the DAEO's memorandum for purportedly failing to apply 
the recusal standard for rulemaking ``in light of the NPRM's 
particularly suspect history,'' asserting that there should be a ``more 
fulsome'' public examination of the DAEO's opinion or memorandum.\20\ 
This vague claim does not undermine the DAEO's determination.
---------------------------------------------------------------------------

    \20\ Comment of Chairman Robert C. ``Bobby'' Scott of the House 
Committee on Education and Labor and Ranking Member Patty Murray of 
the Senate Committee on Health, Education, Labor, and Pensions 
(Chairman Scott and Ranking Member Murray) at 16.
---------------------------------------------------------------------------

    Another commenter has suggested that the DAEO's memorandum is 
flawed because it was issued while the Board's recusal procedures were 
under review.\21\ The Board's report on those procedures issued on 
November 19, 2019.\22\ Nothing in that report or in the fact that the 
review was underway at the time the DAEO issued her memorandum 
undermines the DAEO's opinion regarding Member Emanuel's participation.
---------------------------------------------------------------------------

    \21\ Comment of Congressional Progressive Caucus.
    \22\ See NLRB's Ethics Recusal Report, https://www.nlrb.gov/reports/other-agency-reports/ethics-recusal-report (last visited 
Jan.15, 2020). The Board subsequently announced plans to modify 
aspects of the report not material to the issues discussed here. Id.
---------------------------------------------------------------------------

    One commenter also contends that Member Emanuel's participation in 
this rulemaking creates an appearance of preferential treatment of a 
client (Leadpoint) of his former law firm because the client would 
``derive the same impermissible benefit as it would have from Hy-Brand 
I.'' \23\ Accordingly, this commenter argues that Member Emanuel's 
participation ``runs afoul'' of section 1, paragraph 6 of Executive 
Order 13770, as well as 5 CFR 2635.101(b)(8) and (14). Id. 5 CFR 
2635.101(b)(8) states: ``Employees shall act impartially and not give 
preferential treatment to any private organization or individual.'' 5 
CFR 2635.101(b)(14) similarly requires employees to ``endeavor to 
avoid'' any actions that would create the appearance that they are 
violating the law or applicable ethical standards, as ``determined from 
the perspective of a reasonable person with knowledge of the relevant 
facts.''
---------------------------------------------------------------------------

    \23\ Comment of SEIU at 20.
---------------------------------------------------------------------------

    As discussed above, section 1, paragraph 6 of Executive Order 13770 
does not apply to this rulemaking and thus does not support SEIU's 
claim. Further, because the final rule will apply prospectively only 
and will not affect pending unfair labor practice cases such as 
Browning-Ferris, and because there is no evidence that Member Emanuel 
has acted other than impartially or given preferential treatment to 
anyone through this rulemaking, there is no basis for finding that 
Member Emanuel's participation is contrary to 5 CFR 2635.101(b)(8), and 
no reasonable person with knowledge of the relevant facts would find 
that Member Emanuel's participation in this rulemaking would create an 
appearance that the law or ethical standards have been or are being 
violated.
    Two commenters argue that Chairman Ring and Member Emanuel are 
``too biased to participate in rulemaking'' based on unfair labor 
practice litigation involving McDonald's USA, LLC (the McDonald's 
litigation).\24\ Those commenters cite Chairman Ring's and Member 
Emanuel's former law firms' work in connection with the McDonald's 
litigation and then-pending motions for Chairman Ring and Member 
Emanuel to recuse themselves from that case. These commenters argue 
that the participation of Chairman Ring and Member Emanuel in this 
rulemaking is ``no less problematic'' because it would enable Chairman 
Ring and Member Emanuel ``to tailor a rule for the McDonald's case that 
would directly benefit their former firms' client.''
---------------------------------------------------------------------------

    \24\ Comment of SEIU National Fast Food Workers Union at 2 
(capitalization altered); see also id. at 3 (citing McDonald's USA, 
LLC, a Joint Employer, et al. ``Charging Parties' Motion for Recusal 
of Chairman Ring and Member Emanuel,'' Case 02-CA-093893 et al. 
(Aug. 14, 2018)); see also comment of SEIU at 21.
---------------------------------------------------------------------------

    The Board issued its decision approving a proposed settlement of 
the McDonald's litigation on December 12, 2019. See McDonald's USA, 
LLC, 368 NLRB No. 134 (2019). Chairman Ring took no part in the 
consideration of the case, and the motion for his recusal was dismissed 
as moot. Id., slip op. at 1 fn. 2. For the reasons explained in the 
decision, the motion to recuse Member Emanuel was denied. Id. Moreover, 
as discussed above, the final rule applies prospectively only and thus 
will have no substantive effect on the now-concluded McDonald's 
litigation.\25\ As such, there is no reasonable basis for concluding 
that the participation of Chairman Ring and Member Emanuel in this 
rulemaking would involve preferential treatment of any party to the 
McDonald's litigation or create an appearance of partiality or 
preferential treatment. Accordingly, the pendency of the McDonald's 
litigation at the time the NPRM was published neither requires nor 
supports Chairman Ring's or Member Emanuel's recusal from participation 
in this rulemaking.
---------------------------------------------------------------------------

    \25\ The fact that the Board had proposed a joint-employer rule 
was taken into consideration in the decision to approve the 
settlement in the McDonald's litigation, but only to the extent that 
the Board recognized that the standard adopted in a final rule 
``[would] likely supplant any standard arising from the [McDonald's] 
litigation,'' and therefore ``a decision regarding joint-employer 
status'' in that litigation ``may have limited precedential value.'' 
368 NLRB No. 134, slip op. at 7. Importantly, in weighing the risks 
inherent in continued litigation, the Board observed that ``there 
[was] no guarantee that McDonald's would be found to be a joint 
employer with its Franchisees'' ``[e]ven under the joint-employer 
standard articulated in Browning-Ferris,'' considering that the 
Board ``has generally not held franchisors to be joint employers 
with their franchisees'' and that ``the Board in [Browning-Ferris] 
explicitly disclaimed an intent to address the joint-employer 
standard in the context of the relationship between a franchisor and 
a franchisee.'' Id., slip op. at 6-7.
---------------------------------------------------------------------------

    Finally, to the extent that any commenter's argument regarding the 
McDonald's litigation is based on 5 CFR 2635.502(a)-(b), the argument 
is misplaced. 5 CFR 2635.502(a)(1) states that, unless he receives 
prior authorization, an employee should not participate in a particular 
matter involving specific parties that he knows is likely to affect the 
financial interests of a member of his household, or in which he knows 
that a person with whom he has a covered relationship is

[[Page 11191]]

or represents a party,\26\ if he determines that a reasonable person 
with knowledge of the relevant facts would question his impartiality in 
the matter. For reasons already stated, because this CFR provision 
applies to ``particular matters involving specific parties,'' it does 
not apply to a rulemaking of broad application such as this one. Id.; 
see also Office of Government Ethics Legal Advisory, DO-06-029, 
``Particular Matter Involving Specific Parties,'' ``Particular 
Matter,'' and ``Matter,'' at 9 fn. 10 (Oct. 4, 2006) (``[R]ulemaking 
`would not, except in unusual circumstances covered under section 
502(a)(2), raise an issue under section 502(a)[.]' '') (quoting OGE 
Informal Advisory Letter 93 x 25 (Oct. 1, 1993)).
---------------------------------------------------------------------------

    \26\ Pursuant to 5 CFR 2635.502(b)(1)(iv), an employee is 
considered to have a ``covered relationship'' with ``[a]ny person 
for whom the employee has, within the last year, served as officer, 
director, trustee, general partner, agent, attorney, consultant, 
contractor, or employee.''
---------------------------------------------------------------------------

    5 CFR 2635.502(a)(2) also includes a ``catchall'' provision, which 
states: ``An employee who is concerned that circumstances other than 
those specifically described in this section would raise a question 
regarding his impartiality should use the process described in this 
section to determine whether he should or should not participate in a 
particular matter'' (emphasis added). But because the final rule 
applies prospectively only and does not affect the outcome of any 
pending litigation, no such concerns are present here.

V. Response to Comments

    The Board received almost 29,000 comments from interested 
organizations, labor unions, business owners, members of Congress, 
state attorneys general, academics, and other individuals. The Board 
has carefully reviewed and considered these comments as discussed 
below.

A. Comments Regarding the Development of the Joint-Employer Doctrine 
Under the Act

    The Board received numerous comments on the development of the 
joint-employer doctrine under the Act. In general, those comments 
acknowledge the accuracy of the Board's description of that development 
in the NPRM, which is briefly summarized above in Section I. As more 
fully developed there, for at least 30 years (from no later than 1984 
to 2015), evidence of direct and immediate control over essential terms 
and conditions of employment was required to prove that an entity was 
the joint employer of another business's workers. This requirement 
disappeared in August 2015 with the issuance of Browning-Ferris, which 
held that joint-employer status could be based on evidence of indirect 
or reserved-but-unexercised control, without more.
    Several commenters criticize the proposed rule's return to the 
Board's joint-employer standard as it existed before Browning-
Ferris.\27\ These commenters contend that the Board cannot simply 
revert to the pre-Browning-Ferris joint-employer standard because the 
Board precedent upon which that standard was based--Laerco and its 
progeny--departed without explanation from the standard articulated in 
Greyhound Corp., 153 NLRB at 1488, by disregarding evidence of 
contractually reserved authority and indirect control as evidence of 
joint-employer status and discounting evidence of supervision and 
direction that was ``limited and routine.'' See Laerco, 269 NLRB at 
326; TLI, 271 NLRB at 798-799. In the view of these commenters, these 
departures led to a narrowing of the joint-employer standard without 
``the benefit of any explicit modification of the earlier Greyhound 
standard.'' \28\
---------------------------------------------------------------------------

    \27\ See comments of Laborers' International Union of North 
America (LIUNA); International Union of Operating Engineers (IUOE); 
AFL-CIO.
    \28\ See comment of IUOE.
---------------------------------------------------------------------------

    In addition, some commenters contend that the final rule's ``direct 
and immediate'' standard was ``manufactured'' by the Board in Airborne 
Express, with no explanation and no citation to the common law.\29\ 
These commenters point to Restatement (Second) of Agency (1958) Sec. 
220(1), comment d, which states that ``the control or right to control 
needed to establish the relation of master and servant may be very 
attenuated.'' Some commenters argue that the proposed rule's 
requirement that a putative joint employer must possess and actually 
exercise substantial direct and immediate control over employees' 
working conditions ``amounts to little more than a `categorical rule' 
that drains reserved and/or indirect control of any relevance.'' At 
least one commenter observes that the common-law ``right-to-control'' 
principle is consistent with Section 2(11) of the NLRA, which defines 
``supervisor'' as ``any individual having authority, in the interest of 
the employer,'' to perform one or more of 12 supervisory functions. 29 
U.S.C. 152(11) (emphasis added).\30\
---------------------------------------------------------------------------

    \29\ See comments of State Attorneys General; the AFL-CIO.
    \30\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    Contrary to these comments, the pre-Browning-Ferris Board precedent 
described above is consistent with the common law of joint-employment 
relationships in the context of the Act. Even assuming that Laerco, 
TLI, and Airborne Express did not adequately explain the basis for 
requiring substantial direct and immediate control, the Board has 
provided that explanation here.
    As the D.C. Circuit has held, ``the common law inquiry is not 
woodenly confined to indicia of direct and immediate control; an 
employer's indirect control over employees can be a relevant 
consideration.'' Browning-Ferris v. NLRB, 911 F.3d at 1209 (emphasis 
added). And again, the court upheld ``as fully consistent with the 
common law the Board's determination'' in Browning-Ferris ``that both 
reserved authority to control and indirect control can be relevant 
factors in the joint-employer analysis.'' Id. at 1222 (emphasis added). 
The Board agrees that reserved authority to control and indirect 
control are relevant considerations. To state the obvious, however, the 
court also acknowledged the significance of direct and immediate 
control to the common-law joint-employer analysis when it stated that 
``the common-law inquiry is not woodenly confined to indicia of direct 
and immediate control,'' id. at 1209 (emphasis added), and the court 
expressly did not decide whether either indirect control or 
contractually reserved but unexercised authority, without more, could 
establish joint-employer status under the Act, id. at 1213, 1218. 
Accordingly, the final rule makes evidence of indirect control and 
contractually reserved but unexercised authority probative of joint-
employer status insofar as it supplements and reinforces evidence of 
direct and immediate control over essential terms and conditions of 
employment. The final rule is therefore consistent with the D.C. 
Circuit's decision in Browning-Ferris. And by requiring evidence of 
direct and immediate control, it is also consistent with Laerco and its 
progeny.
    The final rule, moreover, is consistent with the Board's pre-1984 
precedent, which deemed indirect control relevant to joint-employer 
status without holding that it was sufficient, standing alone, to 
establish that status. For example, in Floyd Epperson, 202 NLRB at 23, 
the Board considered the fact that the putative joint employer, a dairy 
company, had indirect control over the wages of drivers supplied by 
another employer. But the Board's conclusion that the dairy company was 
a joint employer of the drivers relied on ``all the circumstances'' of 
the case, including the fact that the company

[[Page 11192]]

dictated the specific routes that drivers were required to take when 
transporting its goods, ``generally supervise[d]'' the drivers, and had 
authority to modify their work schedules. Id. As explained in the NPRM, 
in Floyd Epperson and like cases arising before 1984, the Board was not 
called upon to decide, nor did it assert, that an entity's indirect 
influence over another company's workers' essential working conditions, 
standing alone, could establish a joint-employer relationship.
    Some commenters argue that the rule conflicts with the policies and 
purposes of the NLRA by purportedly diminishing opportunities for 
collective bargaining and eliminating protections for those seeking to 
exercise their rights under the Act.\31\ Another commenter argues that 
while the Browning-Ferris standard facilitates collective bargaining 
when chosen by workers, promotes enforcement of the Act, and provides 
clear standards, the proposed rule fails on each of these counts.\32\ 
Other commenters take the opposite position, arguing that the proposed 
rule encourages collective bargaining by fostering predictable joint-
employer determinations in a variety of business relationships, thereby 
promoting labor-management stability, one of the principal purposes of 
the Act.\33\ In agreement with the latter commenters, the Board 
believes that the final rule promotes national labor policy by 
appropriately imposing bargaining obligations solely on entities that 
have actually exercised substantial direct and immediate control over 
essential terms and conditions of employment.
---------------------------------------------------------------------------

    \31\ See comments of National Employment Law Project (NELP); 
Economic Policy Institute (EPI).
    \32\ See comment of State Attorneys General.
    \33\ See comments of American Supply Association; Chamber of 
Commerce.
---------------------------------------------------------------------------

B. Comments Regarding Indirect Control

    Many commenters support requiring actual exercise of substantial 
direct and immediate control in order to establish joint-employer 
status. In this regard, commenters assert, among other things, that 
this requirement is practical; \34\ is long-accepted \35\ and has 
always been a fundamental aspect of the joint-employer standard; \36\ 
is consistent with court precedent, the common law, the pertinent 
Restatements, and/or congressional intent; \37\ appropriately assigns 
unfair labor practice liability to the employer responsible for the 
violation; \38\ and enables businesses to enter into a variety of 
business relationships and to establish certain high-level requirements 
(e.g., minimum training levels) with the confidence that they will not 
be held responsible for another entity's employees.\39\ Further, some 
commenters state that pre-Browning-Ferris precedent addressing the 
meaning of direct and immediate control will provide helpful guidance 
to parties.\40\
---------------------------------------------------------------------------

    \34\ Comment of International Foodservice Distributors 
Association.
    \35\ Comments of International Foodservice Distributors 
Association; Restaurant Law Center.
    \36\ Comment of National Retail Federation.
    \37\ Comments of Coalition for a Democratic Workplace (CDW); 
Chamber of Commerce; HR Policy Association; Ranking Member Foxx; 
American Staffing Association; Council on Labor Law Equality 
(COLLE); Restaurant Law Center.
    \38\ Comments of COLLE; Americans for Tax Reform.
    \39\ Comment of National Association of Truckstop Operators.
    \40\ Comments of International Bancshares Corporation; 
Restaurant Law Center; COLLE.
---------------------------------------------------------------------------

    Relatedly, several commenters state that evidence of indirect 
control may be ``probative,'' \41\ relevant, or permissibly considered, 
but that the common law, the courts, and/or the Taft-Hartley Congress 
would not support finding joint-employer status absent evidence of 
direct or immediate control.\42\ In this connection, one commenter 
states that the Board may choose to address whether indirect control 
could be ``dispositive,'' noting that the D.C. Circuit in Browning-
Ferris v. NLRB left that question unanswered.\43\ However, another 
commenter takes the position that the extent to which control is 
exercised has limited or no relevance.\44\
---------------------------------------------------------------------------

    \41\ Comment of CDW.
    \42\ Comments of CDW; HR Policy Association; American Staffing 
Association; Retail Industry Leaders Association (RILA).
    \43\ Comment of Jenner & Block, LLP.
    \44\ Comment of SEIU.
---------------------------------------------------------------------------

    In contrast, several commenters say that consideration of indirect 
control is consistent with the common law, the pertinent Restatements, 
court decisions (including Browning-Ferris v. NLRB),\45\ and the 
practices of other federal agencies that consider indirect control 
under other statutes.\46\ One commenter asserts that considering 
indirect control is necessary in order to capture how control is 
actually exercised in the workplace.\47\ Some commenters state that 
indirect control can be just as effective and significant as direct 
control.\48\ Further, some commenters state that the Board failed to 
adequately justify its ``preliminary belief'' in the NPRM that, without 
requiring direct and immediate control, it would be difficult to police 
the line between independent commercial contractors and genuine joint 
employers.\49\
---------------------------------------------------------------------------

    \45\ Comments of Southern Poverty Law Center; United Brotherhood 
of Carpenters and Joiners of America; Congressional Progressive 
Caucus; Greater Boston Legal Services; International Union, United 
Automobile, Aerospace and Agricultural Implement Workers of America 
(UAW); AFL-CIO; International Brotherhood of Teamsters (IBT); United 
Association of Journeymen and Apprentices of the Plumbing and Pipe 
Fitting Industry of the United States and Canada, AFL-CIO (UA); 
1199SEIU United Healthcare Workers East; LIUNA; Spivak Lipton LLP; 
IUOE; Members of Congress; Chairman Scott and Ranking Member Murray; 
Communications Workers of America, AFL-CIO (CWA); NELP; James van 
Wagtendonk; SEIU; Attorneys General of New York, Pennsylvania, et 
al.; SEIU Local 32BJ.
    \46\ Comments of UA; James van Wagtendonk.
    \47\ Comment of NELP.
    \48\ See, e.g., Comment of Kelly Sagaser.
    \49\ Comments of Chairman Scott and Ranking Member Murray; 
Attorneys General of New York, Pennsylvania, et al.
---------------------------------------------------------------------------

    Citing various sections of the Act, several commenters argue that 
indirect control is either relevant to, or an independently sufficient 
basis for finding, joint-employer status. Specifically, they cite the 
definition of ``employer'' in Section 2(2),\50\ of ``supervisor'' in 
Section 2(11),\51\ and of ``agent'' in Section 2(13),\52\ and the 
policies set forth in Section 1.\53\
---------------------------------------------------------------------------

    \50\ Comments of A. Feola; AFL-CIO; UA; SEIU.
    \51\ Comments of UAW; AFL-CIO.
    \52\ Comment of SEIU.
    \53\ Comments of IUOE; Members of Congress.
---------------------------------------------------------------------------

    Under the common law, some forms of indirect control are relevant 
to the joint-employer analysis. Consistent with this principle, the 
final rule makes clear that evidence of indirect control over essential 
terms and conditions of employment is probative of joint-employer 
status, but only to the extent that it supplements and reinforces 
evidence of direct and immediate control over essential terms and 
conditions of employment. Nothing in the Act itself or joint-employer 
precedent compels us to adopt a rule that permits a finding of joint-
employer status based solely on an entity's indirect control over 
another entity's employees, and the Board declines to do so. With 
regard to comments that cite various sections of the Act, none of the 
cited sections requires a conclusion that one entity's exercise of 
merely indirect control over another entity's employees is sufficient 
to make the former entity a joint employer. Further, the Board believes 
that the policies of the Act are furthered, not hindered, by requiring 
only those entities to come to the bargaining table that have 
sufficient control over essential terms and conditions of employment to 
warrant a finding that they meaningfully affect matters relating to the 
employment relationship, and that direct and immediate control over at 
least one essential term is necessary to warrant such a finding.

[[Page 11193]]

    Several commenters state that the term ``direct and immediate 
control'' is unclear and will lead to uncertainty and litigation over 
its meaning.\54\ Some commenters also state that the final rule should 
define the term,\55\ and some propose definitions or advocate for 
particular interpretations of that phrase.\56\
---------------------------------------------------------------------------

    \54\ Comments of UAW; 1199SEIU United Healthcare Workers East; 
SEIU; Signatory Wall and Ceiling Contractors Alliance.
    \55\ See, e.g., Comment of Restaurant Law Center.
    \56\ Comments of SEIU; National Retail Federation; American 
Hotel & Lodging Association.
---------------------------------------------------------------------------

    For the reasons stated by many commenters, the final rule provides 
guidance on distinguishing what does and does not evidence direct and 
immediate control over each essential term and condition of employment. 
We believe that that this approach helps clarify the meaning of 
``direct and immediate control.'' Moreover, the several definitions of 
essential terms and conditions of employment--specifically, of what 
does not constitute evidence of direct and immediate control--also shed 
light on the meaning of indirect control.
    Many commenters are critical of the term ``indirect control,'' 
saying, among other things, that it is undefined, ambiguous, and/or 
seemingly limitless.\57\ Some commenters note that there are different 
types of indirect control, and they cite the Browning-Ferris court's 
distinction between forms of indirect control that involve sharing or 
codetermining those matters governing essential terms and conditions of 
employment, which may be relevant to a joint-employer determination, 
and employer decisions that set the objectives, basic ground rules, and 
expectations for a third-party contractor, which are not.\58\ 
Relatedly, other commenters state or imply that joint-employer status 
should not be found based solely on a business having the ability to 
cancel a contract with a subcontractor or franchisee.\59\
---------------------------------------------------------------------------

    \57\ Comments of American Staffing Association; American Action 
Forum; International Sign Association; Restaurant Law Center; 
American Hotel & Lodging Association; FedEx Corporation; HR Policy 
Association; National Association of Home Builders; General Counsel 
Peter Robb; Chamber of Commerce.
    \58\ Comments of the American Hotel & Lodging Association; 
COLLE; Restaurant Law Center.
    \59\ See, e.g., Comment of Dean Johnson.
---------------------------------------------------------------------------

    Further, several commenters propose defining, or describe, 
``indirect control'' as involving or including control exercised 
through intermediaries or controlled third parties,\60\ or some version 
of that concept.\61\ Relatedly, other commenters state that, in 
determining the meaning of indirect control, it may be useful to 
consider the common-law ``subservant doctrine.'' \62\
---------------------------------------------------------------------------

    \60\ Comments of Selby Schwartz; United Brotherhood of 
Carpenters and Joiners of America; UAW; Spivak Lipton LLP; HR Policy 
Association; SEIU; Wholesale Delivery Drivers, General Truck 
Drivers, Chauffeurs, Sales, Industrial and Allied Workers, Local 
848, IBT; Chairman Scott and Ranking Member Murray.
    \61\ See, e.g., Comment of Kentucky Equal Justice Center (``via 
supervisors and other lower-level direct overseers'').
    \62\ See, e.g., Comment of SEIU.
---------------------------------------------------------------------------

    Based on these comments, the Board has decided to provide more 
clarity by expressly defining ``indirect control'' in the final rule in 
a manner that largely tracks the distinction that the D.C. Circuit 
articulated in Browning-Ferris v. NLRB. Thus, under the final rule, 
``indirect control'' means indirect control over essential terms and 
conditions of employment of another employer's employees, but not 
control or influence over setting the objectives, basic ground rules, 
or expectations for another entity's performance under a contract. In 
defining indirect control, the Board has opted to focus on the 
connection between the entity's actions and the employees' essential 
terms and conditions of employment, rather than on how alleged control 
is communicated. However, the final rule is not intended to immunize an 
entity from joint-employer status based solely on how its control is 
communicated, if the other requirements of joint-employer status 
otherwise are met. In this connection, as the D.C. Circuit observed in 
Browning-Ferris v. NLRB, the common law has never countenanced the use 
of intermediaries or controlled third parties to avoid the creation of 
a master-servant relationship, and we do not intend this rule to do so. 
Relatedly, as Browning-Ferris v. NLRB discussed, the subservant 
doctrine takes into account control exercised through an intermediary.
    One commenter states that indirect control should be considered 
along with all of the facts and circumstances, including how often 
indirect control is actually exercised, how many employees are impacted 
by the indirect control, and whether the indirect control governs a 
significant number of essential terms and conditions of employment.\63\ 
In addition, several commenters propose examples of indirect control or 
other arrangements that should not demonstrate joint-employer status, 
such as determining the skills of the individuals who will perform 
services; \64\ establishing conduct requirements to ensure that the 
company's employees, property, and customers are protected; \65\ 
deciding that the services of temporary workers supplied by another 
company are no longer needed at one's worksite; \66\ establishing the 
amount that the customer is willing to pay for services; \67\ cost-plus 
contracts; \68\ corporate social-responsibility policies; \69\ ensuring 
compliance with regulatory obligations; \70\ permitting employees to 
participate in basic benefit plans such as retirement, health, dental, 
and life insurance; \71\ establishing minimum wages, where the direct 
employer is permitted to pay more; \72\ and establishing requirements 
concerning performance management, products, quality, or safety.\73\
---------------------------------------------------------------------------

    \63\ Comment of Jenner & Block, LLP.
    \64\ Comment of Restaurant Law Center.
    \65\ Id.
    \66\ Comment of Jenner & Block, LLP.
    \67\ Comment of Restaurant Law Center.
    \68\ Comments of Restaurant Law Center; COLLE.
    \69\ Comments of COLLE; RILA; HR Policy Association.
    \70\ Comment of HR Policy Association.
    \71\ Id.
    \72\ Comment of John B. Hirsch.
    \73\ Comment of HR Policy Association.
---------------------------------------------------------------------------

    The final rule incorporates several aspects of these comments. 
Preliminarily and as a general matter, the rule states that joint-
employer status must be determined on the totality of the relevant 
facts in each employment setting. More specifically, the final rule 
provides guidance as to kinds of indirect control that may not be 
probative of joint-employer status. It does so in the several 
definitions of essential terms and conditions in stating what does not 
constitute direct and immediate control of each essential term. Thus, 
for example, the final rule provides that direct and immediate control 
excludes setting minimal hiring standards; setting minimal standards of 
performance or conduct; refusing to allow another employer's employee 
to continue performing work under a contract; entering into a cost-plus 
contract; maintaining standards that are required by government 
regulation; and permitting another employer, under an arms-length 
contract, to participate in its benefit plans. These same acts also 
would not constitute evidence of indirect control to the extent they 
involve setting the objectives, basic ground rules, or expectations for 
another entity's performance under a contract.\74\ See Browning-Ferris 
v. NLRB, 911 F.3d at 1220 (``[E]mployer

[[Page 11194]]

decisions that set the objectives, basic ground rules, and expectations 
for a third-party contractor cast no meaningful light on joint-employer 
status.'').
---------------------------------------------------------------------------

    \74\ On the other hand, conduct excluded by definition from 
evidencing direct and immediate control may evidence indirect 
control where it does not involve setting the objectives, basic 
ground rules, or expectations for another entity's performance under 
a contract. See Sec. II.B, ``Summary of Changes to the Proposed 
Rule: Indirect Control.''
---------------------------------------------------------------------------

    While not specifically addressed in the text of the final rule, so-
called social responsibility provisions, such as contractual provisions 
requiring workplace safety practices, sexual harassment policies, 
morality clauses,\75\ wage floors, or other measures to encourage 
compliance with the law or to promote desired business practices 
generally will not make joint-employer status more likely under the 
Act. Typically, such provisions will constitute the setting of basic 
ground rules or expectations for a third-party contractor. We cannot 
rule out the possibility, however, that a social-responsibility 
provision may be probative of joint-employer status to the extent it 
goes beyond merely setting basic ground rules or expectations for a 
third-party contractor and evidences substantial control over one or 
more essential terms or conditions of employment.
---------------------------------------------------------------------------

    \75\ Morality clauses require employees to maintain standards of 
behavior to protect the reputation of their employer. See, e.g., 
Galaviz v. Post-Newsweek Stations, 380 Fed. Appx. 457, 459 (5th Cir. 
2010), and Bernsen v. Innovative Legal Marketing, LLC, No. 
2:11CV546, 2012 WL 3525612 (E.D. Va. June 20, 2012), for examples of 
morality clauses.
---------------------------------------------------------------------------

    One commenter asserts that the NPRM created confusion by providing 
that joint-employer status would be limited to entities that play an 
active role in ``establishing'' essential terms and conditions of 
employment.\76\ The commenter states that it would undermine the Act's 
goals if the Board immunized from joint-employer status entities that 
did not initially establish terms and conditions of employment, but 
that were nonetheless instrumental in post-establishment interpretation 
and implementation of those terms and conditions, in preventing 
modifications of them, or in ``endorsing, ratifying, and 
incorporating'' them.\77\
---------------------------------------------------------------------------

    \76\ Comment of SEIU.
    \77\ Id.
---------------------------------------------------------------------------

    The proposed rule was not intended to limit joint-employer status 
in this way. The text of the proposed rule did not thus limit joint-
employer status, and neither does the text of the final rule. Thus, an 
entity may be found to be a joint employer where it possesses and 
exercises substantial direct and immediate control over essential terms 
and conditions of employment by maintaining or revising them without 
having established them in the first instance.
    One commenter states that we should rely on indirect control that 
is ``actual and measurable''--i.e., indirect control would be probative 
of joint-employer status if it can be readily identified and 
objectively measured.\78\ While the final rule does not incorporate the 
commenter's proposed ``actual and measurable'' standard, it does limit 
the scope of probative ``indirect control'' evidence in other ways. 
Consistent with the D.C. Circuit's decision in Browning-Ferris v. NLRB, 
the final rule provides that control or influence over setting the 
objectives, basic ground rules, or expectations for a third-party 
contractor does not constitute ``indirect control'' for the purpose of 
determining joint-employer status. Moreover, the several definitions of 
essential terms and conditions of employment--specifically, of the 
statements in those definitions of what does not count as evidence of 
direct and immediate control--also furnish guidance on what may not 
count as evidence of indirect control, either. Finally, as to evidence 
of indirect control that may factor into a joint-employer 
determination, the final rule provides that such evidence is probative 
of joint-employer status only to the extent it supplements and 
reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------

    \78\ Comment of HR Policy Association.
---------------------------------------------------------------------------

    Some commenters describe various fact patterns they said would be 
problematic under the proposed rule, including a situation where an 
entity uses a pretextual reason to ask an undisputed employer to 
discharge an employee, where the request is unlawfully motivated.\79\ 
Rather than lengthening or complicating the final rule with a variety 
of examples or fact patterns, the final rule clarifies that joint-
employer status must be determined on the totality of the relevant 
facts in each particular employment setting.
---------------------------------------------------------------------------

    \79\ See, e.g., Comment of LIUNA.
---------------------------------------------------------------------------

    One commenter states that the Board should first conduct an 
independent-contractor analysis to determine whether the Board has 
jurisdiction before assessing whether direct and immediate control has 
been exercised.\80\ But an entity alleged to be a joint employer of 
another employer's employees will be the direct employer of its own 
employees, and the Board's jurisdiction over that entity will be 
established on this basis, provided the usual statutory and 
discretionary jurisdictional standards are met. From that point 
forward, the independent-contractor analysis has little if any bearing 
on the joint-employer determination. As the Browning-Ferris court 
discussed, the issue of whether a worker is an independent contractor 
or an employee is distinct from the issue of whether a worker who is 
undisputedly the employee of one employer also has a second, joint 
employer. Accordingly, the Board has not amended the rule to make the 
suggested change.
---------------------------------------------------------------------------

    \80\ Comment of Employment Law Alliance.
---------------------------------------------------------------------------

C. Comments Regarding Contractually Reserved But Unexercised Control

    Many commenters address the question of whether reserved but 
unexercised control is relevant to the joint-employer analysis.
    A number of commenters argue that the Board should not consider 
contractually reserved but unexercised control in its joint-employer 
analysis. One commenter argues that under the right-to-control standard 
set forth in the Board's decision in Browning-Ferris, virtually all 
user employers, franchisors, etc., would be joint employers simply 
because their contracts with undisputed primary employers almost always 
give them the potential to control the terms and conditions of 
employment of the primary employer's employees, if only because such 
user employers can simply cancel such contracts if not satisfied with 
the terms and conditions of employment set by the primary employer.\81\ 
Another commenter argues that finding an entity to be an employer of 
another entity's employees based solely on the conditions under which 
the entities have agreed that they might terminate their relationship 
unjustifiably restricts parties' liberty to contract and contravenes 
private rights long recognized in Anglo-Saxon jurisprudence.\82\ 
Commenters also argue that a standard incorporating contractually 
reserved control is vague, elusive, and uncertain, difficult to apply, 
or unworkable, and that such a standard may be used in an outcome-
determinative manner to support a particular result.\83\ Another 
commenter states that considering reserved control may inappropriately 
or unfairly enmesh an entity, especially a franchisor, in another 
entity's labor dispute.\84\ Finally, a commenter argues that extending 
joint-employer status to entities on the basis of potential control 
would conflict with other federal and state statutory schemes, creating 
unwarranted

[[Page 11195]]

difficulties for businesses in their attempts to comply with various 
federal and state employment-related laws.\85\
---------------------------------------------------------------------------

    \81\ See comment of General Counsel Robb.
    \82\ See comment of Chamber of Commerce.
    \83\ See comments of American Hotel & Lodging Association; 
International Bancshares Corporation; CDW; International Sign 
Association; International Foodservice Distributors Association.
    \84\ See comment of FordHarrison LLP.
    \85\ See comment of General Counsel Robb.
---------------------------------------------------------------------------

    In contrast, many commenters argue that the Board's standard should 
give at least some weight to evidence of an entity's contractually 
reserved control over essential terms and conditions of employment of 
another employer's employees.\86\ These commenters argue that 
contractually reserved rights are relevant because they impact and, in 
some cases, set terms and conditions of employment and claim that the 
common law deems reserved control relevant because an entity's 
authority over the work, even if unexercised, prevents another from 
deciding to render service in a manner different from that which serves 
the entity holding the reserved control.\87\ Another commenter argues 
that a contractual reservation of authority, particularly when paired 
with a clause allowing for at-will termination of the contractual 
relationship, gives the undisputed primary employer a powerful 
incentive to comply with the wishes of the putative joint employer, 
without the necessity of any actual exercise of control by the 
latter.\88\ Many commenters argue that the common law, as reflected in 
relevant Restatements and judicial decisions, permits or requires the 
consideration of reserved but unexercised control.\89\ These commenters 
argue that the D.C. Circuit's recent decision in Browning-Ferris v. 
NLRB held that consideration of a company's reserved authority to 
control terms and conditions of employment is an established aspect of 
the common law of agency. Commenters also contend that the common law 
permits or requires consideration of contractually reserved control 
because the Second Restatement of Agency defines a master as, among 
other things, someone who has the ``right to control,'' defines a 
servant as someone subject to the master's right to control, and looks 
to the extent of control that the master may exercise ``by the 
agreement.'' \90\
---------------------------------------------------------------------------

    \86\ See comments of IBT; NELP.
    \87\ NELP cites Restatement of Employment Law Sec. 1.04.
    \88\ Comment of CWA.
    \89\ See comments of Chairman Scott and Ranking Member Murray; 
Equal Justice Center; Spivak Lipton LLP; IUOE.
    \90\ See comments of Chairman Scott and Ranking Member Murray; 
AFL-CIO; IBT; IUOE; Attorneys General of New York, Pennsylvania, et 
al.
---------------------------------------------------------------------------

    Commenters further argue that the Act itself supports considering 
contractually reserved but unexercised control, citing the Act's 
purpose of promoting collective bargaining, which is expressly stated 
in Section 1 of the Act, and the asserted need to adapt to changes in 
today's workforce by extending the right to collective bargaining to a 
wide variety of contingent workers as a matter of policy.\91\ Other 
commenters claim that effective collective bargaining requires that all 
entities with the ability to control workers' terms and conditions of 
employment must participate in collective bargaining, thereby 
preventing an entity with reserved but unexercised control from 
upending, after the fact, collective-bargaining agreements made by the 
primary employer of the employees over whom the entity possesses 
reserved control.\92\ Another commenter argues that general statutory 
requirements of good-faith bargaining require the presence at the 
bargaining table of, for instance, an exclusive purchaser of a 
manufacturer's products, or a major donor that conditions donations to 
a nonprofit on specified terms and conditions for the nonprofit's 
employees, each of which possesses effective control over employees' 
essential terms and conditions of employment by virtue of its economic 
relationship with their employer.\93\
---------------------------------------------------------------------------

    \91\ See comments of IUOE; Professor Alexia Kulwiec.
    \92\ See comments of IUOE; NELP.
    \93\ See comment of International Brotherhood of Electrical 
Workers Local 21 (IBEW Local 21).
---------------------------------------------------------------------------

    Two commenters argue that a joint-employer standard that does not 
consider reserved control would be inconsistent with Section 2(11) of 
the Act, which defines who is a ``supervisor'' under the Act.\94\ These 
commenters contend that established Board interpretations of Section 
2(11) exclude individuals who possess supervisory authority as defined 
in Section 2(11) from employee status under Section 2(3), whether or 
not such authority is exercised.\95\ Thus, they maintain, it is 
inconsistent to hold that a person may be a Section 2(11) supervisor 
based solely on reserved but unexercised control, but not to find his 
or her employer a joint employer of the supervised employee based on 
the same reserved but unexercised control. For example, one commenter 
argues that no one could dispute that a Director of Nursing in a 
hospital is a statutory supervisor if the Director retains authority, 
expressly or implicitly, to direct nurses supplied by a staffing agency 
when the Director observes that the nurses are not providing services 
correctly. In that commenter's view, a proper joint-employer framework 
would provide that the hospital that employs the Director of Nursing 
must be a joint employer of the supplied nurses.\96\ Other commenters 
point out that the NPRM does not exclude consideration of reserved but 
unexercised control, but merely clarifies that it is insufficient to 
establish joint-employer status absent evidence of actual exercise of 
such control.\97\
---------------------------------------------------------------------------

    \94\ See comments of UAW; AFL-CIO.
    \95\ AFL-CIO cites Yamada Transfer, 115 NLRB 1330, 1332 (1956), 
and U.S. Gypsum Co., 93 NLRB 91, 92 fn. 8 (1951).
    \96\ See comment of AFL-CIO.
    \97\ See comments of Ranking Member Foxx; CDW.
---------------------------------------------------------------------------

    Having carefully considered these comments, the Board has decided 
to modify the proposed rule to provide that an entity's contractually 
reserved but never exercised authority over the essential terms and 
conditions of employment of another employer's employees is probative 
of joint-employer status, but only to the extent that evidence of such 
authority supplements and reinforces evidence of actually exercised 
direct and immediate control.
    The Board agrees with those commenters who suggest that an entity's 
ability to cancel a contract or terminate a business relationship with 
another entity should not be deemed reserved control relevant to the 
joint-employer inquiry.\98\ As stated above, reserved or indirect 
control is not relevant to the joint-employer analysis, whether such 
control is exercised or not, where it bears on ``the objectives, basic 
ground rules, or expectations for another entity's performance under a 
contract.'' See text of Final Rule (Rule) Sec. 103.40(E), infra; 
Browning-Ferris v. NLRB, 911 F.3d at 1221 (``[A] joint employer's 
control--whether direct or indirect, exercised or reserved--must bear 
on the essential terms and conditions of employment, and not on the 
routine components of a company-to-company contract.'') (internal 
quotation and citation omitted). Consistent with this principle, 
entities' decisions about the conditions under which their business 
relationships may end are ordinary incidents of contractual 
relationships that are not probative of joint-employer status. Cf., 
e.g., First Nat'l Maint. Corp. v. NLRB, 452 U.S. 666, 677-679, 687-688 
(1981) (company had no duty to bargain with representative of its own 
employees over decision to terminate contract and discharge employees).
---------------------------------------------------------------------------

    \98\ See, e.g., comments of General Counsel Robb; Job Creators 
Network; Dean Johnson.
---------------------------------------------------------------------------

    The Board agrees with commenters who observe that the common law 
and the Act permit consideration of reserved control, the approach 
adopted by the final rule. In response to commenters' concerns about 
vague and unlimited

[[Page 11196]]

``potential'' control that might have been found probative of joint-
employer status under the Browning-Ferris standard, the final rule 
defines and limits what will constitute probative evidence of 
contractually reserved authority. Under the final rule, such 
contractually reserved authority, to be probative of joint-employer 
status, (1) means reserved authority over the essential terms and 
conditions of employment of another employer's employees, and (2) must 
supplement and reinforce evidence of direct and immediate control over 
essential terms and conditions of employment of the other employer's 
employees. Rule Sec. 103.40(F), (A), infra. It therefore follows that 
an entity's contractual authority to cancel a contract or terminate a 
business relationship with another entity is not evidence that the 
former shares or codetermines matters governing essential terms and 
conditions of employment of the latter's employees. Accordingly, the 
rule's approach is consistent with contract-respecting principles of 
Anglo-Saxon jurisprudence.
    Similarly, and consistent with the congressional purpose expressed 
in the Taft-Hartley amendments,\99\ an entity's reserved ``control'' in 
the sense of its ability to indirectly affect the terms and conditions 
of employment of another entity's employees as a matter of economic 
reality--including by being the exclusive purchaser of a manufacturer's 
products or by a donor conditioning donations to a nonprofit on changes 
to terms and conditions of employment of the nonprofit's employees--
will not be the kind of control that is relevant to the joint-employer 
analysis. As a matter of economic reality, an employer producing goods 
or performing services under a contract that is terminable at will has 
strong incentives to respond to any complaints, suggestions, or 
requests that the contracting entity may have. The Board is, however, 
precluded from taking such considerations into account in determining 
employer status under the Act. See, e.g., Nationwide Mut. Ins. Co. v. 
Darden, 503 U.S. at 324-325 (discussing Congress's 1947 amendments to 
NLRA in response to Supreme Court's expansive interpretation of Sec. 
2(3) in Hearst); NLRB v. United Ins. Co. of America, 390 U.S. at 254 
(same). It necessarily follows that the Board cannot rely on such 
considerations in determining joint-employer status, either.
---------------------------------------------------------------------------

    \99\ See, e.g., Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 
318, 324-325 (1992) (discussing Congress's 1947 amendments to NLRA 
in response to Supreme Court's expansive interpretation of Sec. 2(3) 
``employee'' in NLRB v. Hearst Publ's Inc., 322 U.S. 111 (1944)); 
NLRB v. United Ins. Co. of America, 390 U.S. 254 (1968) (same).
---------------------------------------------------------------------------

    For the following reasons, the Board is unpersuaded by the 
arguments by analogy to the Board's analysis of supervisory status 
under Section 2(11) of the Act.
    First, determining supervisory status under Section 2(11) turns on 
the interpretation of statutory language that differs from the 
statutory language governing employer or employee status under Section 
2(2) and 2(3), respectively. The history of interpretation of Section 
2(11) has not been straightforward or free from controversy. See, e.g., 
NLRB v. Kentucky River Commty. Care, Inc., 532 U.S. 706, 712-721 (2001) 
(discussing history of interpretation of parts of Sec. 2(11)). Given 
the intricacy of Section 2(11) and its different purpose from Section 
2(2), it should not be surprising that the Board applies different 
standards to the analysis of supervisory status and joint-employer 
status.
    Second, while the commenters correctly observe that the possession 
of authority under Section 2(11) establishes supervisory status, it is 
well established that the Board looks beyond mere job titles or 
conclusory statements of supervisory status in order to determine 
whether an individual is actually a supervisor under Section 2(11). 
See, e.g., Coral Harbor Rehab. & Nursing Ctr., 366 NLRB No. 75, slip 
op. at 1, 17 (2018) (``[W]hat the statute requires is evidence of 
actual supervisory authority visibly translated into tangible examples 
demonstrating the existence of such authority.''). Accordingly, while 
the Board need not apply congruent standards to analyze these different 
statutory relationships, the legal tests are in fact less divergent 
than the commenters suggest.
    Finally, ``an individual must exercise supervisory authority over 
employees of the employer at issue, and not employees of another 
employer, in order to qualify as a supervisor under Section 2(11) of 
the Act.'' Crenulated Co., 308 NLRB 1216, 1216 (1992) (citing cases). 
Thus, an individual, employed by a hospital, who possesses 
contractually reserved but unexercised authority responsibly to direct 
nurses supplied to the hospital by a staffing agency would not, on that 
basis, be a Section 2(11) supervisor, nor would the hospital, on that 
basis, be a joint employer of the nurses employed by the staffing 
agency. However, if the hospital, through the individual, possessed and 
exercised substantial direct and immediate control over essential terms 
and conditions of employment of the supplied staffing-agency nurses, 
the hospital might well be found to be a joint employer of the supplied 
nurses, and the individual might accordingly be found to be a statutory 
supervisor. Accordingly, in practice, the legal tests for joint 
employer and supervisory status are likely to converge on consistent 
results in individual cases.
    Many commenters provide examples of industries or business 
relationships involving what the commenters identify as potential or 
reserved control.\100\ The final rule incorporates the well-established 
legal principle that joint-employer status must be determined on the 
totality of the relevant facts in each particular employment setting. 
Rule Sec. 103.40(A), infra. Accordingly, the outcome of a joint-
employer analysis in individual cases will not be determined based on 
the industry or type of business relationship involved, but rather will 
result from application of the standards set forth in the final rule to 
the particular facts of the case. See, e.g., Boire v. Greyhound Corp., 
376 U.S. at 481 (``[W]hether Greyhound possessed sufficient indicia of 
control to be an `employer' is essentially a factual issue.'').
---------------------------------------------------------------------------

    \100\ For example, commenters including International Bancshares 
Corporation, Chamber of Commerce, General Counsel Robb, COLLE, 
International Sign Association, Job Creators Network, FordHarrison 
LLP, and Jim Steitz, discuss potential or reserved control in 
business relationships including those between franchisors and 
franchisees, contractors and subcontractors, parent and subsidiary 
companies, and companies that generally provide and receive goods or 
services, including labor, from one another. Commenters including 
SEIU Local 32BJ, COLLE, Professor Kulwiec; National Association of 
Home Builders, International Sign Association, American Hotel & 
Lodging Association, and FordHarrison LLP discuss potential or 
reserved control in industries including building cleaning and 
security, food service and hospitality, home healthcare, 
agriculture, home building, visual communications, and professional 
employee organizations.
---------------------------------------------------------------------------

    Further, many commenters provide examples of specific kinds of 
contractual reservations of control that should or should not be 
probative of an entity's status as a joint employer. As made clear 
above, kinds of reserved ``control'' that are ``routine components of a 
company-to-company contract,'' Browning-Ferris v. NLRB, 911 F.3d at 
1221, will not be probative of joint-employer status under the rule, 
and, when necessary, the Board will evaluate evidence of an entity's 
alleged contractually reserved but unexercised control over another 
company's employees within this framework. (Consistent with the 
provisions of the final rule, such an evaluation need not be conducted 
unless the proponent of joint-employer status proves that the entity 
exercises direct and immediate

[[Page 11197]]

control over at least one essential term and condition of employment.) 
More specifically, some commenters discuss whether the joint-employer 
analysis can or should turn on contractual performance requirements and 
general work standards,\101\ or contractually required compliance with 
regulations or codes, including government-required nondiscrimination 
provisions.\102\ These kinds of contractual requirements are ordinary 
incidents of any contractual relationship, and they will generally not 
be probative of joint-employer status under the final rule. See, e.g., 
Aldworth Co., 338 NLRB 137, 139 (2002) (``[A]ctions taken pursuant to 
government statutes and regulations are not indicative of joint 
employer status.''), enfd. sub nom. Dunkin' Donuts Mid-Atlantic 
Distrib. Ctr., Inc. v. NLRB, 363 F.3d 437 (D.C. Cir. 2004).
---------------------------------------------------------------------------

    \101\ CDW; General Counsel Robb.
    \102\ National Association of Home Builders; Center for 
Workplace Compliance.
---------------------------------------------------------------------------

    Some commenters discuss whether the joint-employer analysis can or 
should consider the ability of an entity that uses services provided by 
another entity's employees to have input on who provides those 
services, to monitor performance, to dictate times, manner, and method 
of performance, or a user entity's reservation of the right to reject 
individual workers provided by a supplier entity and to require that 
supplied workers comply with the user entity's plant rules and 
regulations.\103\ The final rule clarifies the conditions under which 
such contractually reserved controls may be probative of a user 
entity's joint-employer status.\104\ Thus, the contractually reserved 
but unexercised right to have input on who provides services may be 
probative of joint-employer status if the evidence demonstrates that 
such input, if provided, would determine which particular individuals 
another employer will hire and which it will not or would directly 
result in the discharge of another employer's employee. Rule Sec. 
103.40(C)(4) and (5), infra; see also NLRB v. Browning-Ferris Indus. of 
Pennsylvania, 691 F.2d at 1125 (facts that BFI ``shared with the 
brokers the power to approve drivers, and devised the rules under which 
the drivers were to operate at BFI sites'' contributed to ``substantial 
evidence which supports the Board's finding that BFI exerted 
significant control over the work of the drivers'').
---------------------------------------------------------------------------

    \103\ See comments of General Counsel Robb; Chamber of Commerce.
    \104\ Again, in all cases, contractually reserved but 
unexercised control is probative only to the extent it supplements 
and reinforces evidence of direct and immediate control. Rule Sec. 
103.40(A), infra.
---------------------------------------------------------------------------

    An entity's contractually reserved authority to monitor performance 
ordinarily will not be probative of joint-employer status. If, however, 
the evidence were to demonstrate that conduct characterized as 
``monitoring performance'' also encompasses instructing individual 
employees how to perform their work or issuing performance appraisals 
to individual employees, that conduct may be probative of joint-
employer status. Rule Sec. 103.40(C)(7), infra. And an entity's 
reserved authority to dictate times, manner, and method of performance 
may be probative of joint-employer status to the extent such authority 
encompasses determining work schedules or work hours, including 
overtime, of another employer's employees, instructing another 
employer's employees how to perform their work, or assigning particular 
employees their individual work schedules, positions, and tasks. Rule 
Sec. 103.40(C)(3), (7), and (8); see also Cmty. for Creative Non-
Violence v. Reid, 490 U.S. 730, 751 (1989) (``In determining whether a 
hired party is an employee under the general common law of agency, we 
consider the hiring party's right to control the manner and means by 
which the product is accomplished.'') (emphasis added); Restatement of 
Employment Law Sec. 1.01(a)(3) (``[A]n individual renders services as 
an employee of an employer if . . . the employer controls the manner 
and means by which the individual renders services.'') (emphasis 
added).\105\
---------------------------------------------------------------------------

    \105\ Sections 103.40(C)(1)-(8), the definitions of the several 
essential terms and conditions of employment, do not directly 
address contractually reserved but unexercised control. Those 
definitions specify what does, and give examples of what does not, 
count as direct and immediate control. But as with indirect control, 
so also with contractually reserved but unexercised control: In many 
if not most cases, examples of what does not count as direct and 
immediate control will also come within the scope of routine 
components of company-to-company contracting and thus not be 
probative of joint-employer status. However, we are unable to state, 
a priori, that this will hold true in all cases. Ultimately, 
therefore, whether a particular type of contractually reserved but 
unexercised control that would not, if exercised, count as direct 
and immediate control may nonetheless be probative of joint-employer 
status is a question of fact to be determined on the evidence in 
each case.
---------------------------------------------------------------------------

    One commenter also questions whether the joint-employer analysis 
could consider a user entity's reservation of authority to prevent 
disruption of its operations or unlawful conduct by a supplier entity's 
employees on its property, or the user's efforts to monitor, evaluate, 
and improve the performance of supplied employees where such efforts 
fall short of controlling the manner, means and details of their 
performance.\106\ In general, policies prohibiting disruption of 
operations or unlawful conduct constitute the type of basic ground 
rules and expectations that ``cast no meaningful light on joint-
employer status.'' Browning-Ferris v. NLRB, 911 F.3d at 1219-1220. 
Efforts to monitor, evaluate, and improve the performance of supplied 
employees would constitute direct and immediate control of essential 
terms and conditions if those efforts entailed a decision by the user 
entity to actually discharge, suspend, or otherwise discipline another 
entity's employees, to instruct them how to perform their work or issue 
performance appraisals, or to assign them individual work schedules, 
positions, and tasks. Rule Sec. 103.40(C)(5)-(8). Thus, contractually 
reserved authority that, if exercised, would result in the foregoing 
would be probative of joint-employer status to the extent it 
supplements and reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------

    \106\ See comment of General Counsel Robb.
---------------------------------------------------------------------------

    Another commenter observes that many businesses outsource 
janitorial and security services, or production, delivery, and 
marketing functions.\107\ It suggests that any reserved control 
inherent in such outsourcing should not establish a joint-employment 
relationship. Under the rule, such ordinary contractual relationships 
do not make the outsourcing company a joint employer so long as it does 
not possess and exercise substantial direct and immediate control over 
essential terms and conditions of employment of employees performing 
the outsourced functions. Rule Sec. 130.40(A), infra. The commenter 
further observes that companies have sound business reasons for 
establishing operational, production, and safety standards in their 
agreements with suppliers and contractors. For example, it suggests 
that an aircraft manufacturer's contractual specification of timeframe 
and production standards for a parts supplier and requirement that the 
supplier certify that it has a drug and alcohol testing program in 
place should not weigh towards finding the manufacturer an employer of 
the supplier's employees. Under the rule, such standards are likely 
ordinary incidents of contractual relationships that merely set basic 
ground rules for the supplier's performance under the contract and are 
therefore not probative of joint-employer status. Rule Sec. 103.40(E), 
infra.
---------------------------------------------------------------------------

    \107\ See comment of COLLE.

---------------------------------------------------------------------------

[[Page 11198]]

    Two commenters suggest that the Board should clarify that an entity 
does not exercise control over a term or condition of employment by 
entering into a contract that dictates a particular employment term for 
individuals performing services under that contract.\108\ To the 
contrary, another commenter suggests that the Board should examine 
whether an agreement between contracting parties sets wages and/or 
other working conditions of one party's employees.\109\ The final rule 
adopts the latter suggestion. Under the final rule, if a contract 
between two employers actually sets essential terms and conditions of 
employment for employees who will manufacture goods or perform services 
under the contract, the two employers have shared or codetermined those 
essential terms. In this regard, the rule is consistent with the 
Board's pre-Browning-Ferris precedent and with the Third Circuit's 
formulation of the joint-employer test in NLRB v. Browning-Ferris 
Industries of Pennsylvania, 691 F.2d at 1124 (``[W]here two or more 
employers . . . share or co-determine those matters governing essential 
terms and conditions of employment--they constitute `joint employers' 
within the meaning of the NLRA.'').
---------------------------------------------------------------------------

    \108\ See comments of General Counsel Robb; Job Creators 
Network.
    \109\ See comment of IBEW Local 21.
---------------------------------------------------------------------------

    One commenter suggests that the Board should require proof that a 
joint employer exercises actual supervision and direction on an ongoing 
basis.\110\ The final rule is partially consistent with this 
suggestion, in that a finding that an entity exercises ongoing 
supervision and direction (as the rule defines those terms) over the 
employees of another entity will likely suffice to establish a joint-
employer relationship. However, because supervision and direction are 
only two of eight essential terms and conditions of employment defined 
by the rule, the final rule does not adopt the commenter's suggestion 
to the extent it implies that control over supervision and direction 
are necessary to a joint-employer finding. Evidence of control over 
other essential terms and conditions of employment may suffice to 
establish joint-employer status even absent supervision and direction.
---------------------------------------------------------------------------

    \110\ See comment of HR Policy Association.
---------------------------------------------------------------------------

    Many commenters suggest that if the Board decides to consider 
indicia of reserved, unexercised control, it do so with specific 
limits.\111\ The final rule makes clear that evidence of reserved, 
unexercised control will only be found probative to the extent it 
supplements and reinforces evidence of actually exercised direct and 
immediate control. However, the Board finds it impractical to attempt 
to quantitatively predetermine how specific factual evidence will weigh 
in all future cases.
---------------------------------------------------------------------------

    \111\ For example, Center for Workplace Compliance suggests that 
the Board should accord reserved control less weight than actual 
control, and quantify the weight that should be given. Relatedly, HR 
Policy Association suggests specifically limiting the consideration 
of reserved control to ten percent of the analysis.
---------------------------------------------------------------------------

    Two commenters suggest that the Board should draw clear lines 
between the kinds of reserved control it will not find probative of 
joint-employer status (such as brand standards in franchise agreements) 
and those it will find probative (such as contractually reserved 
authority to codetermine essential terms and conditions of 
employment).\112\ The Board agrees with this comment and has attempted 
to provide the guidance requested in both the regulatory text and this 
accompanying supplementary material.
---------------------------------------------------------------------------

    \112\ See comments of Restaurant Law Center; International 
Franchise Association (IFA).
---------------------------------------------------------------------------

    Another commenter suggests that the Board should consider reserved 
control probative of joint-employer status only insofar as it embodies 
an entity's specific right to displace another entity and directly 
control the other entity's employees, as opposed to possession by the 
first entity of some economic influence over the entity that retains 
day-to-day control over its own employees.\113\ The final rule adopts 
this suggestion insofar as the rule will not permit finding joint-
employer status solely on the basis of an entity's economic influence. 
However, the ``share or codetermine'' standard does not require 
displacement by one entity of another company's control because the 
underlying premise of that standard is that two entities together 
determine the terms and conditions of employment of a single group of 
employees. See, e.g., NLRB v. Browning-Ferris Indus. of Pennsylvania, 
691 F.2d at 1125 (finding joint-employer relationship where ``BFI and 
the brokers together determined the drivers' compensation and shared in 
the day to day supervision of the drivers'').
---------------------------------------------------------------------------

    \113\ See comment of RILA.
---------------------------------------------------------------------------

    A commenter suggests that the Board should not consider reserved 
control as a sufficient basis to permit, as primary, activity otherwise 
prohibited as secondary under Section 8(b)(4) of the Act.\114\ The 
final rule is consistent with this suggestion. Thus, under the rule, 
Company A's contractually reserved but unexercised control over terms 
and conditions of employment of Company B's employees will not, 
standing alone, permit a union representing Company B's employees to 
picket against Company A with an object prohibited by Section 8(b)(4). 
However, under the final rule, evidence of Company A's contractually 
reserved but unexercised control over essential terms and conditions of 
employment of Company B's employees will be probative of joint-employer 
status to the extent it supplements and reinforces evidence of 
exercised direct and immediate control. Rule Sec. 103.40(A). If Company 
A is found to be a joint employer of Company B's employees, action by 
Company's B's employees' bargaining representative against Company A 
that would otherwise be secondary and unlawful absent the joint-
employer finding would be lawful primary activity.
---------------------------------------------------------------------------

    \114\ See comment of HR Policy Association.
---------------------------------------------------------------------------

    Another commenter suggests that the Board should consider, in 
individual unfair labor practice cases, whether a putative joint 
employer actually controls the specific term(s) or condition(s) of 
employment implicated in the case, whether or not it possesses or 
exercises control over other terms and conditions of employment.\115\ 
In brief, the current rule does not change the Board's existing 
policies with regard to the allocation of unfair labor practice 
liability among multiple employers.
---------------------------------------------------------------------------

    \115\ See comment of IFA.
---------------------------------------------------------------------------

    Finally, a commenter suggests that the Board explain the term 
``active role'' used in the NPRM and define the frequency with which an 
entity must actually exercise contractually reserved control and the 
scope of such exercise in order to be found a joint employer.\116\ The 
final rule does not include the term ``active role,'' but it does 
provide guidance on these issues. The rule requires possession and 
exercise of ``substantial direct and immediate control over one or more 
essential terms or conditions'' of employment, it specifies what will 
constitute ``direct and immediate'' control over each essential term or 
condition of employment, and it defines ``substantial'' direct and 
immediate control. Rule Sec. 103.40(A), (C)(1)-(8), (D). The rule does 
not otherwise specify predetermined thresholds of exercised control 
that will be necessary to support a finding of a joint-employer status. 
Rather, such status will be determined within the framework of the rule 
based on the totality of the relevant facts in each particular 
employment setting. Rule Sec. 103.40(A).
---------------------------------------------------------------------------

    \116\ See comment of CWA.

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[[Page 11199]]

D. Comments Regarding Actual Exercise Requirement

    Many commenters present practical and legal arguments for and 
against the proposed rule's requirement that an entity actually 
exercise control over terms and conditions of employment of another 
entity's employees in order to be found a joint employer of those 
employees. As reflected in the final rule and discussed below, the 
Board has decided to retain this requirement.
    Beginning with practical arguments about an actual exercise 
requirement, many commenters argue that such a requirement introduces 
ambiguity into the analysis, makes outcomes less predictable, or 
otherwise prejudices interested parties in any potential litigation of 
joint-employer issues.\117\ These commenters argue that an exercise 
requirement complicates the analysis because, unlike contractually 
reserved control, exercised control cannot be analyzed simply by 
reference to documents. In contrast, these commenters argue, a standard 
that did not require evidence of exercised control would allow parties 
to set expectations at the outset of their contractual relationship and 
to allocate rights and duties in advance of any allegation of joint 
employment. With regard to litigation, one commenter argues that an 
exercise requirement introduces a ``worst evidence rule,'' where the 
Board will ignore express language of the contract unless a party can 
show that an entity has actually exercised control.\118\ Commenters 
argue that an exercise requirement will subject the outcome to the 
vagaries of the litigation process, with slight factual differences 
leading to opposite outcomes, will require extensive mini-trials--which 
may take place months or years after the fact--over individual 
instances of alleged exercised control, and will impose an unfair 
evidentiary burden on unions.\119\
---------------------------------------------------------------------------

    \117\ See comments of IBT; SEIU Local 32BJ; Employment Law 
Alliance; AFL-CIO.
    \118\ See comment of LIUNA.
    \119\ See comments of LIUNA; SEIU Local 32BJ.
---------------------------------------------------------------------------

    Commenters also argue that an actual exercise requirement will 
prevent effective collective bargaining, because an entity subject to 
another entity's reserved authority will be unable to effectively 
bargain over terms and conditions of employment subject to that 
authority, and could allow an entity that had not participated in 
bargaining to upend any collective-bargaining agreement covering terms 
and conditions of employment over which the entity possessed 
contractually reserved, unexercised control.\120\ Another commenter 
suggests that just-cause provisions in collective-bargaining agreements 
between a staffing agency and its employees would be meaningless if 
entities to which the agency supplied services retained a contractual 
right to exclude employees from the worksite without cause.\121\ 
Relatedly, commenters argue that an exercise requirement would erode 
the duty to bargain under Section 8(a)(5) by allowing an entity to move 
in and out of joint-employer status tactically by acting to control 
employment conditions when it finds it necessary to do so, but 
refraining from exercising its reserved control when it prefers to 
avoid the legal obligations incumbent upon a joint employer.\122\ 
Finally, a commenter argues that imposing an actual exercise 
requirement is not supported by the Board's expressed desire to avoid 
involving uninterested entities in the bargaining relationships of 
their business partners because an entity that contracts to reserve 
control over terms and conditions of employment of another entity's 
employees may be as interested in the employment relationship as is the 
undisputed employer.\123\
---------------------------------------------------------------------------

    \120\ See comments of LIUNA; IUOE.
    \121\ See comment of IBT.
    \122\ See comments of AFL-CIO; IUOE.
    \123\ See comment of LIUNA.
---------------------------------------------------------------------------

    Other commenters argue that an actual exercise requirement is a 
bright-line rule that will make it easier for parties to predict 
outcomes, encourage economically fruitful business relationships and 
contractual arrangements, and promote stability by providing the Board 
and the courts with a consistent standard.\124\ One commenter argues 
that an exercise requirement ensures meaningful collective bargaining, 
while a standard that permits finding joint-employer status based 
solely on contractually reserved control does not.\125\ Finally, one 
commenter seeks guidance as to how much weight, if any, the Board will 
afford various factors evidencing reserved control, guidance that 
assertedly was missing from Browning-Ferris.\126\
---------------------------------------------------------------------------

    \124\ See comments of National Retail Federation; CDW; FedEx 
Corporation.
    \125\ See comment of CDW.
    \126\ See comment of General Counsel Robb.
---------------------------------------------------------------------------

    After carefully considering all of the commenters' arguments, the 
Board has decided to retain the actual exercise requirement in the 
final rule. Whether or not evidence of actual exercise of control was 
required, it would clearly be relevant under any permissible joint-
employer standard. Accordingly, the Board disagrees with any contention 
that requiring evidence of actual exercise of direct and immediate 
control unnecessarily complicates the joint-employer analysis. For 
similar reasons, the Board disagrees with the suggestion that the 
rule's approach introduces a ``worst evidence rule.'' To the contrary, 
an entity's actual exercise of direct and immediate control over 
essential terms and conditions of employment of another entity's 
employees is the best evidence that the first entity is a joint 
employer of those employees and is properly subjected to the 
consequences of that finding under the Act. Moreover, the rule does 
take parties' contractual allocation of rights and responsibilities 
into account as part of the totality of the relevant facts in each 
particular employment setting. This approach is consistent with the 
long line of Board and court decisions emphasizing the fact-dependent 
nature of the joint-employer inquiry. E.g., Boire v. Greyhound Corp., 
376 U.S. at 481.
    The Board has concluded that an actual exercise requirement will 
provide businesses more certainty over whether the Board will or will 
not find them to be joint employers of another employer's employees and 
to conduct themselves accordingly. An actual exercise requirement is 
also a bright-line rule that will make it easier for the Board, and 
ultimately for the courts, to reach consistent decisions across a range 
of individual cases. And the Board has responded to commenters' 
requests for guidance about the meaning of contractually reserved but 
unexercised control and the extent to which we will find it probative 
of a joint-employer relationship in Part V.C, ``Response to Comments: 
Comments Regarding Contractually Reserved But Unexercised Control,'' 
above.
    The Board finds unpersuasive arguments that an exercise requirement 
imposes an unfair burden of proof on unions. To the contrary, a 
putative joint employer's actual exercise of direct and immediate 
control is readily observable by employees, who can then share the 
information with unions or others. Evidence of reserved but unexercised 
control, in contrast, is more likely to be known only by the 
contracting parties themselves. In any event, in unfair labor practice 
cases, the burden in every case is on the General Counsel to establish 
the complaint allegations,\127\ while in representation cases, NLRA 
Section 9(c) instructs the Board to investigate a

[[Page 11200]]

petition and direct a hearing ``if it has reasonable cause to believe 
that a question of representation affecting commerce exists.'' Section 
11 of the Act further provides for the issuance of subpoenas on the 
application of any party with respect to ``all hearings and 
investigations.'' Accordingly, the rule's actual exercise requirement 
does not unfairly burden unions.
---------------------------------------------------------------------------

    \127\ See, e.g., Laborers Local 1177 (Qualicare-Walsh), 269 NLRB 
746, 746 (1984) (``The burden of proof regarding jurisdiction, as 
with all other elements of a prima facie case, is on the General 
Counsel.'') (emphasis added).
---------------------------------------------------------------------------

    Finally, the Board disagrees with arguments that an exercise 
requirement will impede collective bargaining, interfere with the 
formation of efficacious collective-bargaining relationships, or permit 
entities to move in and out of joint-employer status and thus 
selectively affect terms and conditions of employment of other 
employers' employees without incurring obligations under the Act. 
Nothing in this rule changes the ordinary rights and obligations of 
employees, employers, and unions under the Act. Every employer remains 
subject to all rights and obligations defined by Sections 8 and 9 of 
the Act with respect to its employees. Thus, an employer that possesses 
and exercises substantial direct and immediate control over employees' 
terms and conditions of employment must, if those employees are 
represented, bargain on request with their representative as required 
by Section 8(a)(5). The rule does not excuse joint employers from that 
duty, nor does it deprive represented employees of their remedies under 
Section 8(a)(5) with respect to an employer that unilaterally changes 
their terms and conditions of employment without first giving their 
representative notice and an opportunity to request bargaining, or of 
their remedies under Section 8(a)(5) within the meaning of Section 8(d) 
with respect to an employer that fails to adhere to the terms of a 
collective-bargaining agreement with their representative. Moreover, a 
collective-bargaining agreement may, in certain circumstances, impose 
restraints on an entity's exercise of contractually reserved authority 
over essential terms and conditions of employment governed by the 
agreement, though the entity is not party to the agreement. Cf. 
Atterbury v. United States Marshals Serv., 941 F.3d 56, 62-64 (2d Cir. 
2019) (U.S. Marshals Service acted unlawfully by requiring discharge of 
security guards employed by a contractor without providing process 
required by ``just cause'' provision of guards' collective-bargaining 
agreement with contractor). Accordingly, an exercise requirement will 
not prevent parties with an actual interest in controlling terms and 
conditions of employment of another employer's employees from 
safeguarding their contractually reserved authority to do so by 
engaging in bargaining, either directly or through a representative.
    Turning to legal arguments about an exercise requirement, some 
commenters assert that the Board only began in 1984 to require evidence 
that an entity had exercised control over another entity's employees as 
part of the joint-employer analysis, and that, at that time, the Board 
did not articulate a legal justification for doing so.\128\ Without 
accepting the commenters' characterization of the Board's pre-Browning-
Ferris precedent, the Board has concluded that the final rule's 
approach is warranted for the reasons explained herein.
---------------------------------------------------------------------------

    \128\ See comments of Senator Murray and Representative Scott 
(joined by numerous other Senators and Representatives); IBT.
---------------------------------------------------------------------------

    Some commenters oppose an actual exercise requirement by arguing 
that the common law, as reflected in judicial decisions, restatements 
of the law, and elsewhere, requires giving contractually reserved but 
unexercised control dispositive weight.\129\ Other commenters note that 
contractual rights exist even if they have never been exercised, and 
contend that an exercise requirement is inconsistent with court and 
Board decisions recognizing that while highly skilled professionals 
like nurses or low-skilled workers like janitors may require little or 
only ``routine'' supervision, such workers nevertheless remain 
employees of the employer providing that supervision.\130\ One 
commenter further argues that imposing an actual exercise requirement 
raises predictability concerns similar to those that motivated the 
Supreme Court's rejection of an actual-control test in favor of a 
reserved-control test in a dispute over copyright ownership in 
Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989).\131\ 
Finally, commenters argue that imposing an exercise requirement puts 
the Board's standard in conflict with other state and federal 
standards, including Health Insurance Portability and Accountability 
Act, Medicaid and Medicare, the Affordable Care Act, Title VII of the 
Civil Rights Act of 1964 (Title VII), the Fair Labor Standards Act 
(FLSA), and Uniformed Services Employment and Reemployment Rights Act--
and with guidance from the EEOC, Internal Revenue Service (IRS), U.S. 
Citizenship and Immigration Services, and DOL.\132\
---------------------------------------------------------------------------

    \129\ See comments of Julia Tomassetti; AFL-CIO; NELP; SEIU; 
Attorneys General of New York, Pennsylvania, et al. Commenters cite, 
inter alia, Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 
(1992) (quoting Reid, 490 U.S. at 751-752); Singer Mfg. Co. v. Rahn, 
132 U.S. 518, 523 (1889); Garcia-Celestino v. Ruiz Harvesting, Inc., 
898 F.3d 1110, 1121 (11th Cir. 2018) (quoting NLRB v. Associated 
Diamond Cabs, Inc., 702 F.2d 912, 920 (11th Cir. 1983)); Local 777, 
Democratic Union Org. Comm., Seafarers Int'l Union of North Am. v. 
NLRB, 603 F.2d 862, 874 (D.C. Cir. 1978) (quoting Williams v. United 
States, 126 F.2d 129, 132 (7th Cir. 1942)), cert. denied 317 U.S. 
655 (1942); Dovell v. Arundel Supply Corp., 361 F.2d 543, 545 (D.C. 
Cir. 1966) (quoting Grace v. Magruder, 148 F.2d 679, 681 (D.C. Cir. 
1945)); Restatement (Second) of Agency, Secs. 2(1), 2(2), 220(1), 
220(2)(a), and 220 cmt. d; William A. Gregory, The Law of Agency and 
Partnership 114 at Sec. 50 (West Group Hornbook Series, 3d ed. 
2001).
    \130\ See comments of LIUNA; AFL-CIO. AFL-CIO cites Holyoke 
Visiting Nurses Ass'n v. NLRB, 11 F.3d 302, 307 (1st Cir. 1993), and 
Syufy Enterprises, 220 NLRB 738, 740 (1975).
    \131\ See comment of AFL-CIO.
    \132\ See comments of Representative Scott and Senator Murray; 
UA; Professor Kulwiec; James van Wagtendonk.
---------------------------------------------------------------------------

    On the other side of the issue, commenters argue that an exercise 
requirement is consistent with the common law as reflected in court 
decisions, prior Board decisions, legislative history of the NLRA, and 
relevant restatements of law.\133\ Other commenters argue that courts 
have approved the Board's focus on actual control.\134\ Many of the 
same commenters also point out that the D.C. Circuit in Browning-Ferris 
v. NLRB held that reserved control was relevant to

[[Page 11201]]

determining joint-employer status under the common law, but the court 
did not find that it was sufficient, in and of itself and absent any 
actual exercise of control, to establish a joint-employment 
relationship under the Act. 911 F.3d at 1213.\135\
---------------------------------------------------------------------------

    \133\ See comments of HR Policy Association; General Counsel 
Robb; CDW; IFA; RILA; Center for Workplace Compliance. Commenters 
cite, inter alia, Kelley v. S. Pac. Co., 419 U.S. 318, 324 (1974); 
Shenker v. Baltimore & Ohio R.R. Co., 374 U.S. 1, 6 (1963); NLRB v. 
Pennsylvania Greyhound Lines, Inc., 303 U.S. 261, 263 (1938); Jones 
v. Royal Admin. Servs., Inc., 887 F.3d 443 (9th Cir. 2018); NLRB v. 
CNN America, Inc., 865 F.3d 740 (D.C. Cir. 2017); Butler v. Drive 
Auto. Indus. of America, Inc., 793 F.3d 404, 409, 410 (4th Cir. 
2015); Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 683 (9th Cir. 
2009); Gulino v. New York State Education Dep't, 460 F.3d 361, 379 
(2d Cir. 2006); Clinton's Ditch Co-op Co. v. NLRB, 778 F.2d at 138; 
NLRB v. Browning-Ferris Indus. of Pennsylvania, 691 F.2d 1117 (3d 
Cir. 1982); Zapex Corp. v. NLRB, 621 F.2d 328, 333 (9th Cir. 1980); 
Herbert Harvey, Inc. v. NLRB, 424 F.2d 770, 776-777 (D.C. Cir. 
1969); NLRB v. Greyhound Corp., 368 F.2d 778, 781 (5th Cir. 1966), 
enfg. 153 NLRB 1488 (1965); Vernon v. California, 10 Cal. Rptr. 3d 
121, 130-131 (Cal. Ct. App. 2004); SEIU Local 434 v. City of Los 
Angeles, 275 Cal. Rptr. 508 (Cal. Ct. App. 1990); Airborne Express, 
338 NLRB 597 (2002); TLI, Inc., 271 NLRB 798 (1984); Laerco 
Transportation, 269 NLRB 324 (1984); Sun-Maid Growers of California, 
239 NLRB 346 (1978); Clayton B. Metcalf, 223 NLRB 642 (1976); 
Hamburg Industries, Inc., 193 NLRB 67 (1971); Greyhound Corp., 153 
NLRB 1488 (1965); H.R. Rep. No. 80-245, at 18 (1947), reprinted in 1 
NLRB, Legislative History of the Labor Management Relations Act, 
1947, at 292, 309 (1959); H.R. Rep. No. 80-510, at 32-33 (1947) 
(Conf. Rep.), reprinted in 1 NLRB, Legislative History of the Labor 
Management Relations Act, 1947, at 505, 536-537 (1959); Restatement 
(Second) of Agency Secs. 5(2), 226, 227 & cmt. d; Restatement of 
Employment Law Secs. 1.01(a)(3) & cmts. a and c and illus. 5, 
1.04(b).
    \134\ See comments of International Foodservice Distributors 
Association; National Retail Federation; CDW.
    \135\ General Counsel Robb also advances this argument.
---------------------------------------------------------------------------

    Finally, one commenter argues that the Board, as an executive 
agency with subject-matter expertise, is not required to apply the 
common law in its rulemaking, that nothing in the Act or in Supreme 
Court precedent interpreting the Act requires the Board to follow the 
common law, and that there are, in any case, no relevant uniform 
common-law principles.\136\
---------------------------------------------------------------------------

    \136\ See comment of General Counsel Robb.
---------------------------------------------------------------------------

    After carefully considering all of the comments on both sides of 
the issue, we conclude that the rule's approach falls within the 
boundaries of the common law as applied in the particular context of 
the NLRA.
    We disagree with the argument that an actual exercise requirement 
is inconsistent with Board and court cases finding employment 
relationships where employees require little or only routine 
supervision.\137\ Under the rule, supervision is only one of eight 
essential terms and conditions of employment relevant to the joint-
employer analysis, and an entity that possesses and exercises 
substantial direct and immediate control over other essential terms may 
be found to be a joint employer absent evidence that the entity 
exercises such control over supervision. In any case, in each of the 
decisions the commenter cites in support of this argument, the Board 
found that the entity at issue not only possessed but actually 
exercised substantial direct and immediate control over terms and 
conditions of employment of the employees at issue. See Holyoke 
Visiting Nurses Ass'n, 310 NLRB 684, 685-686 (1993); Syufy Enterprises, 
220 NLRB at 739.
---------------------------------------------------------------------------

    \137\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    Nor is an exercise requirement inconsistent with Community for 
Creative Non-Violence v. Reid, 490 U.S. 730 (1989). The issue in Reid 
was who owned the copyright in a statue created by an artist on 
commission. The Supreme Court reviewed several conflicting 
interpretations of the statutory phrase ``a work prepared by an 
employee within the scope of his or her employment'' in Sec. 101(1) of 
the Copyright Act of 1976. 490 U.S. at 738-739. Possible alternative 
interpretations included (1) ``that a work is prepared by an employee 
whenever the hiring party retains the right to control the product,'' 
(2) ``that a work is prepared by an employee . . . when the hiring 
party has actually wielded control with respect to the creation of a 
particular work,'' and (3) ``that the term `employee' within Sec. 
101(1) carries its common-law agency meaning.'' Id. at 739 (emphasis 
added). The Court did not reject an actual control test (the second 
interpretation) in favor of a reserved control test (the first 
interpretation). Rather, the Court rejected both of these 
interpretations as inappropriately focused on the relationship between 
the hiring party and the product, while the statutory language at issue 
focused on the relationship between the hired and hiring parties. Id. 
at 741-742. Having concluded that the Copyright Act requires a court to 
ascertain, under the common law of agency, whether a work was prepared 
by an employee or an independent contractor, the Court proceeded to 
analyze the record under the factors relevant to the independent-
contractor determination, set forth in Section 220(2) of the 
Restatement (Second) of Agency. Id. at 750-753. The Court found that 
``the extent of control the hiring party exercises over the details of 
the product is not dispositive,'' but the Court's independent-
contractor analysis suggests that the hiring party there neither 
possessed nor exercised any control over the manner in which and means 
by which the independent-contractor artist produced the work. Id. at 
752-753 (emphasis added). Accordingly, Reid is no more instructive on 
the specific issue here than myriad other judicial decisions finding 
that a worker was an independent contractor absent either reserved or 
exercised control by a common-law principal.
    The Board also disagrees with the numerous arguments that an actual 
exercise requirement puts the Board's standard in conflict with other 
statutory regimes. First, vastly different areas of law identified by 
commenters involve widely different concerns and should not, as a 
normative matter, necessarily require the application of identical 
tests to determine joint-employer status. Second, to the extent that 
different standards stem from different statutory definitions of 
employment relationships, those differences reflect the judgment of 
Congress that different standards should apply in those settings--
differences the Board is not at liberty to ignore.\138\ While the Board 
recognizes that divergent standards may pose difficulties for 
businesses seeking to achieve--or courts to enforce--compliance with 
different statutory obligations, this is nothing new. Businesses and 
courts are accustomed to this state of affairs. Moreover, it is likely 
that no joint-employer rule the Board could adopt could achieve 
uniformity with all the statutory standards identified by the 
commenters. Thus, failure to achieve such uniformity cannot be a valid 
criticism of the rule.
---------------------------------------------------------------------------

    \138\ Compare, for example, NLRA Sec. 2(2) (exempting ``any 
State or political subdivision thereof'' from definition of 
``employer'') with FLSA Sec. 203(d) (`` `Employer' includes any 
person acting directly or indirectly in the interest of an employer 
in relation to an employee and includes a public agency . . . .'').
---------------------------------------------------------------------------

    Finally, the Board agrees that it may reasonably expect some 
deference from the courts with regard to our exercise, through 
rulemaking, of Congressional authority delegated to us in Section 6 of 
the Act. See NLRB v. Food & Commercial Workers, 484 U.S. 112, 123 
(1987); Chevron, U.S.A., Inc. v. N. Res. Def. Council, Inc., 467 U.S. 
837 (1984). But it is well established that where the Supreme Court has 
determined the clear meaning of statutory terms, agencies, including 
the Board, are not thereafter free to depart from the Court's 
interpretation. Lechmere, Inc. v. NLRB, 502 U.S. 527, 536-537 (1992); 
Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 131 
(1990). Here--as the Board and the courts have previously recognized--
the Court has determined that the Taft-Hartley amendments reflect 
Congressional intent that the terms ``employer'' and ``employee'' 
within the Act are to be given their common-law agency meaning. 
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. at 324-325 (citing NLRB v. 
United Ins. Co. of America, 390 U.S. at 254).\139\ And as stated by the 
D.C. Circuit in Browning-Ferris v. NLRB, the Board ``must color within 
the common-law lines identified by the judiciary.'' Browning-Ferris v. 
NLRB, supra at 1208. The final rule respects this principle.
---------------------------------------------------------------------------

    \139\ See also Browning-Ferris v. NLRB, 911 F.3d at 1206 
(``Under Supreme Court and circuit precedent, the National Labor 
Relations Act's test for joint-employer status is determined by the 
common law of agency.''); id. at 1228 (Randolph, J., dissenting) 
(``[T]he common law . . . is supposed to control our decision and 
should have controlled the Board's.''); Browning-Ferris, 362 NLRB at 
1610 (``In determining whether an employment relationship exists for 
purposes of the Act, the Board must follow the common-law agency 
test.'').
---------------------------------------------------------------------------

    The Board is also not persuaded by the argument that there are no 
relevant uniform common-law principles because the joint-employer 
concept is foreign to the common law. As courts and the Board have 
observed, ``[t]he basis of the [joint-employer] finding is simply that 
one employer while contracting in good faith with an

[[Page 11202]]

otherwise independent company, has retained for itself sufficient 
control of the terms and conditions of employment of the employees who 
are employed by the other employer'' to permit a finding that the first 
entity is also an employer of the employees. NLRB v. Browning-Ferris 
Indus. of Pennsylvania, 691 F.2d at 1123 (citing Walter B. Cooke, 262 
NLRB 626, 640 (1982)). Common-law principles governing the employer/
employee relationship, while sometimes difficult to ascertain with 
precision, are far from non-existent.\140\ Finally, the Board is 
unpersuaded by the argument that the Supreme Court's discussion in 
Hearst, 322 U.S. at 125-126, warrants departing from the common-law 
analysis in this area. See Nationwide Mut. Ins., 503 U.S. at 325 (``[A] 
principle of statutory construction can endure just so many legislative 
revisitations, and Reid's presumption that Congress means an agency law 
definition for `employee' unless it clearly indicates otherwise 
signaled our abandonment of Silk's emphasis on construing that term `in 
the light of the mischief to be corrected and the end to be attained.' 
'' (quoting Hearst, 322 U.S. at 124, and citing U.S. v. Silk, 331 U.S. 
704, 713 (1947)).
---------------------------------------------------------------------------

    \140\ Cf. Cimorelli v. New York Century R. Co., 148 F.2d 575, 
577 (6th Cir. 1945) (``We are dealing here with a legal problem so 
difficult that law writers were unclear and perplexed about it long 
before we came on the scene and no doubt they will so continue after 
we have gone, but there are extant certain intelligible, if 
imperfect, legal rules by which there may be an ascertainment of 
when a person is the employee of another, although his contract of 
employment is not directly made with such person.'').
---------------------------------------------------------------------------

E. Comments About Limited and Routine Control

    Several commenters state that treating limited and routine control 
as irrelevant to determining joint-employer status is consistent with 
and/or required by the Act, court decisions, the common law, and/or 
pertinent Restatements.\141\ In this regard, one commenter notes that 
the D.C. Circuit in Browning-Ferris v. NLRB did not hold that limited 
and routine control could establish joint-employment status.\142\ 
Additionally, several commenters suggest definitions or interpretations 
of the words ``limited'' and ``routine,'' or the phrase ``limited or 
routine,'' and make arguments for or against the rule based on their 
suggested definitions or interpretations.\143\ One commenter notes that 
the NPRM itself suggested a definition of ``limited or routine'' by 
stating: ``The Board generally [has] found supervision to be limited 
and routine where a supervisor's instructions consist[ ] mostly of 
directing another business's employees what work to perform, or where 
and when to perform the work, but not how to perform it.'' \144\ 
Further, some commenters note that there is a body of case law to which 
the Board, the courts, and parties may look for guidance regarding the 
term's meaning.\145\
---------------------------------------------------------------------------

    \141\ Comments of HR Policy Association; Chamber of Commerce; 
National Retail Federation.
    \142\ Comment of RILA.
    \143\ Comments of 1199SEIU United Healthcare Workers East; SEIU; 
AFL-CIO; UAW; NELP; CWA; IUOE; HR Policy Association.
    \144\ Comment of AFL-CIO.
    \145\ See, e.g., Comment of International Bancshares 
Corporation.
---------------------------------------------------------------------------

    On the other side, some commenters argue that failing to consider 
limited and routine control as evidence of joint-employer status is 
inconsistent with the Act, the common law, court decisions, and/or 
pertinent Restatements.\146\ One commenter asserts that, in the common-
law master-servant relationship, the relevant question is whether the 
entity can exercise meaningful control, not the extent to which that 
control is exercised.\147\ One commenter notes that pre-Browning-Ferris 
decisions did not adequately explain their holding that limited and 
routine control does not tend to support a joint-employer finding.\148\
---------------------------------------------------------------------------

    \146\ Comments of AFL-CIO; NELP; CWA; IUOE; IBT; UAW.
    \147\ Comment of SEIU.
    \148\ Comment of AFL-CIO.
---------------------------------------------------------------------------

    Further, many commenters assert that the terms are vague, 
undefined, confusing, or contradictory, and/or that their use in the 
rule would create unanswered, potentially fact-intensive questions that 
will require litigation to answer.\149\ Some commenters also state that 
excluding ``limited or routine'' control as probative evidence of 
joint-employer status creates a loophole that will enable entities to 
exercise control over employees' working conditions while avoiding 
responsibilities under the Act.\150\
---------------------------------------------------------------------------

    \149\ Comments of SEIU Local 32BJ; SEIU; Southern Poverty Law 
Center; Asian Pacific American Labor Alliance, AFL-CIO (APALA); CWA; 
Texas RioGrande Legal Aid; IBT; AFL-CIO; Signatory Wall and Ceiling 
Contractors Alliance; 1199SEIU United Healthcare Workers East.
    \150\ Comments of SEIU; Equal Justice Center; Southern Poverty 
Law Center; Labor & Employment Committee of the National Lawyers 
Guild.
---------------------------------------------------------------------------

    Upon consideration of these comments, the Board has decided to 
modify the proposed rule to eliminate ``limited and routine'' as a 
general qualifying term and to use that term solely in the context of 
defining what is, and what is not, direct and immediate control over 
supervision. Thus, under the final rule, an entity does not exercise 
direct and immediate control over supervision where its instructions 
are ``limited and routine and consist primarily of telling another 
employer's employees what work to perform, or where and when to perform 
the work, but not how to perform it.'' Rule Sec. 103.40(C)(7). This is 
consistent with how the term was discussed in the NPRM's supplementary 
information and the case law cited therein. See 83 FR at 46683 (citing 
Flagstaff Medical Center, 357 NLRB 659, 667 (2011), enfd. in relevant 
part 715 F.3d 928 (D.C. Cir. 2013); AM Property Holding Corp., 350 NLRB 
at 1001; G. Wes Ltd. Co., 309 NLRB 225, 226 (1992)). None of the 
authorities cited by commenters supports an absolutist position--i.e., 
as requiring the Board to treat limited and routine control of all 
essential terms and conditions as either categorically irrelevant or 
categorically relevant to determining joint-employer status. Indeed, 
some of the cited authorities deal with the issue of independent-
contractor status, which is analytically distinct from joint-employer 
status.\151\ See Browning-Ferris v. NLRB, 911 F.3d at 1213-1215.
---------------------------------------------------------------------------

    \151\ See, e.g., comment of CWA (citing FedEx Home Delivery v. 
NLRB, 563 F.3d 492 (D.C. Cir. 2009)); comment of IBT (citing McGuire 
v. United States, 349 F.2d 644 (9th Cir. 1965)); see also Browning-
Ferris v. NLRB, 911 F.3d at 1214 (``[A]t bottom, the independent-
contractor and joint-employer tests ask different questions.'').
---------------------------------------------------------------------------

    As noted above, the final rule defines ``substantial direct and 
immediate control'' as ``direct and immediate control that has a 
regular or continuous consequential effect on an essential term or 
condition of employment'' and further provides that the exercise of 
direct and immediate control over an essential term or condition of 
employment is not ``substantial'' if it is ``only exercised on a 
sporadic, isolated, or de minimis basis.'' This definition is necessary 
to specify what constitutes ``substantial'' direct and immediate 
control, and the inclusion of clear standards for determining 
substantiality avoids the concerns identified by commenters with the 
NPRM's exclusion of ``limited and routine'' control as evidence of 
joint-employer status.
    Several commenters provide examples of limited or routine control 
that should not be deemed probative of joint-employer status. These 
examples include contracted-for standards,\152\ requiring another party 
to adopt corporate social-responsibility policies,\153\ timeliness-of-
completion requirements,\154\ statutory and

[[Page 11203]]

regulatory compliance requirements,\155\ isolated instances of 
notifying a supplier company that certain employees are not welcome on 
the user entity's property due to misconduct,\156\ a retailer 
controlling the hours that a vendor can operate in the retailer's 
store,\157\ requiring a contracting employer to provide services during 
certain hours,\158\ and economic controls such as cost-plus contracts 
or generalized caps on contract costs.\159\ Conversely, several 
commenters provide examples of control that is not limited or routine, 
such as setting employee pay and/or paying them directly,\160\ hiring 
or being involved in hiring decisions,\161\ firing employees,\162\ 
disciplining employees,\163\ and directing ``the manner in which the 
business shall be done, as well as the result to be accomplished.'' 
\164\
---------------------------------------------------------------------------

    \152\ Comments of CDW; National Retail Federation; International 
Bancshares Corporation.
    \153\ Comment of National Retail Federation.
    \154\ Comment of HR Policy Association.
    \155\ Comments of HR Policy Association; National Retail 
Federation.
    \156\ Comment of COLLE.
    \157\ Comment of National Retail Federation.
    \158\ Comments of International Bancshares Corporation; National 
Retail Federation.
    \159\ Comment of CDW.
    \160\ Comment of David Kaufmann.
    \161\ Comment of HR Policy Association.
    \162\ Comment of COLLE.
    \163\ Id.
    \164\ Comment of HR Policy Association.
---------------------------------------------------------------------------

    The final rule incorporates many of the commenters' examples in 
appropriate places. For example, most of the examples in the former 
category--i.e., examples of control that should not be deemed probative 
of joint-employer status--are identical, or nearly so, to examples 
excluded by the rule from constituting evidence of direct and immediate 
control of essential terms and conditions of employment: Various 
standards set by contract, setting schedules for completion of a 
project, setting standards required by government regulation, refusing 
to allow another employer's employees to access one's premises or to 
perform work under a contract, establishing an enterprise's operating 
hours or when it needs the services provided by another employer, and 
entering into cost-plus contracts. Rule Sec. 103.40(C)(1)-(8). Indeed, 
those same examples involve setting the objectives, basic ground rules, 
and expectations for another entity's performance under a contract, 
which does not count as even indirect control of essential terms and 
conditions and is irrelevant to determining joint-employer status. Rule 
Sec. 103.40(E). With regard to examples in the latter category--i.e., 
examples of control that is not limited or routine--these are 
incorporated in the final rule in provisions specifying what 
constitutes direct and immediate control over the several essential 
terms and conditions of employment. Rule Sec. 103.40(C)(1)-(8).
    One commenter asserts that the common law requires the Board to 
weigh ``all of the incidents of the relationship'' or to consider the 
amount of control necessary for the particular work or workplace.\165\ 
The final rule clarifies that joint-employer status ``must be 
determined on the totality of the relevant facts in each particular 
employment setting.''
---------------------------------------------------------------------------

    \165\ Comment of IBT.
---------------------------------------------------------------------------

    One commenter states that the Board should consider that, in some 
cases, a ``routine'' contractual term will directly implicate the terms 
and conditions of employment, particularly in industries where the cost 
of a contract is almost entirely the cost of labor, or where an entity 
has only one customer.\166\ The proposed rule used the term ``routine'' 
to characterize a kind of control over terms and conditions of 
employment, not a kind of contractual term. Thus, the comment has no 
bearing on what role ``limited and routine'' control over terms and 
conditions of employment should play in the joint-employer analysis. 
Nevertheless, the final rule clarifies that the ``limited and routine'' 
qualifier applies only in the context of supervision. However, to the 
extent that the commenter is suggesting that joint-employer status is 
established based solely on the circumstances the commenter posits, the 
Board disagrees. The final rule makes clear that entering into a cost-
plus contract, ``with or without a maximum reimbursable wage rate,'' is 
not direct and immediate control over wages. In the Board's view, it is 
improper to find a joint-employment relationship merely because one 
entity, in an arms-length transaction, negotiates the maximum wage rate 
that it is willing to reimburse under a cost-plus contract. While the 
direct employer may face economic pressures that make it difficult to 
negotiate a higher wage rate with its employees, this should not be 
sufficient to make the other party to the contract a joint employer 
with the direct employer. See Browning-Ferris v. NLRB, 911 F.3d at 1220 
(``[R]outine contractual terms, such as a very generalized cap on 
contract costs, . . . would seem far too close to the routine aspects 
of company-to-company contracting to carry weight in the joint-employer 
analysis.'').
---------------------------------------------------------------------------

    \166\ Comment of SEIU Local 32BJ.
---------------------------------------------------------------------------

    One commenter states that, in jobs where employees are rarely 
directly supervised in their day-to-day tasks, the employer's level of 
day-to-day supervision is less relevant.\167\ That may be true, but 
substantial direct and immediate control in the area of supervision is 
only one of the ways in which joint-employer status can be established. 
In various workplace situations, one or another of the essential terms 
and conditions of employment, such as supervision, may have greater or 
lesser significance in making a joint-employer determination. See also 
Supplementary Information Section V.D, ``Response to Comments: Comments 
Regarding Actual Exercise Requirement,'' supra.
---------------------------------------------------------------------------

    \167\ Comment of NELP.
---------------------------------------------------------------------------

    One commenter states that much supervision by undisputed employers 
is routine, and therefore the fact that supervision is routine should 
not be a basis for declining to find joint-employer status.\168\ Even 
assuming that some undisputed employers supervise their employees in a 
manner that would not be sufficient, standing alone, to make a separate 
entity a joint employer if the separate entity engaged in such 
supervision, there is no support in the law and no sound reason to draw 
the conclusion that a separate entity that engages in only limited and 
routine supervision must be deemed a joint employer on that basis. 
Moreover, even if an undisputed employer supervises its employees in a 
routine manner, it exercises direct and immediate control over other 
essential terms and conditions of employment, including wages, 
benefits, hiring, and discharge. Thus, the comment posits a false 
equivalency between the undisputed employer and the putative joint 
employer.
---------------------------------------------------------------------------

    \168\ Comment of CWA.
---------------------------------------------------------------------------

F. Comments About ``Substantial'' Direct and Immediate Control

    Many commenters provide positive feedback regarding the requirement 
of ``substantial'' direct and immediate control. Specifically, 
commenters state that this requirement is clear, predictable, and/or 
rational; \169\ is consistent with the common law and court decisions, 
including Browning-Ferris v. NLRB; \170\ was the well-settled legal 
standard before the Board's decision in Browning-Ferris; \171\ ensures 
that entities are not forced into relationships as ``joint employers'' 
with

[[Page 11204]]

others they deal with only in arms-length transactions; \172\ promotes 
collective bargaining by ensuring that only the necessary parties are 
in attendance at the bargaining table; \173\ and preserves franchisees' 
ability to run the day-to-day operations of their businesses without 
compromising the brand standards required of the franchise model.\174\ 
Further, some commenters cite Section 8(b)(4) of the Act and argue that 
entities with attenuated control over another business's employees 
should not be deemed a primary employer and embroiled in that 
business's labor disputes.\175\
---------------------------------------------------------------------------

    \169\ Comments of then-Chairwoman Virginia Foxx of the U.S. 
House of Representatives Committee on Education and the Workforce 
and then-Chairman Tim Walberg of the U.S. House Subcommittee on 
Health, Employment, Labor, and Pensions; General Counsel Robb.
    \170\ Comment of Ranking Member Foxx; cf. comment of National 
Retail Federation (discussing ``significant'' control).
    \171\ Comment of American Staffing Association.
    \172\ Comment of COLLE.
    \173\ Comment of Restaurant Law Center.
    \174\ Comment of Brian Carmody.
    \175\ See, e.g., comment of General Counsel Robb.
---------------------------------------------------------------------------

    In contrast, many commenters argue that the Board should not impose 
the ``substantial'' qualifier, effectively advocating that any exercise 
of direct and immediate control over an essential term, no matter how 
limited, should render an entity a joint employer. Some argue that the 
``substantial'' qualifier is contrary to the Act, the common law, court 
decisions, and/or pertinent Restatements.\176\ Others assert that it 
would impair employees' ability to engage in meaningful collective 
bargaining.\177\
---------------------------------------------------------------------------

    \176\ Comments of SEIU;IBT.
    \177\ See, e.g., comment of UA.
---------------------------------------------------------------------------

    For many of the reasons discussed in the positive comments, the 
Board continues to believe that it is appropriate to include the 
``substantial'' qualifier in the final rule. Contrary to some of the 
negative comments, inclusion of the qualifier will not impair 
meaningful collective bargaining. In fact, meaningful bargaining would 
be impaired if the final rule dispensed with a substantiality 
requirement, since the requirement ensures that only those entities 
that meaningfully affect matters relating to the employment 
relationship are present at the bargaining table. Rule Sec. 103.40(A). 
It also would be contrary to the purposes and policies of the Act to 
impose liability for another company's unfair labor practices on an 
entity that does not exercise ``substantial'' direct and immediate 
control over essential terms and conditions of employment of that 
company's employees, or to subject that entity to secondary economic 
pressure. Further, the substantiality requirement is consistent with 
longstanding pre-Browning-Ferris Board precedent. See, e.g., Quantum 
Resources Corp., 305 NLRB 759, 760 (1991) (relying on entity's 
``substantial'' control over hiring, promotion, base wage rates, hours, 
and working conditions of another employer's employees to find the 
entity a joint employer). As discussed in the NPRM, prior to Browning-
Ferris the Board held that even direct and immediate control may not 
establish joint-employer status where that control is too limited in 
scope. See NPRM, 83 FR at 46686-46687 (citing Flagstaff Medical Center, 
357 NLRB at 667; Lee Hospital, 300 NLRB 947, 948-950 (1990)). Nothing 
in the critical comments cited above undercuts the reasonableness of 
this precedent or of the substantiality requirement.
    Several commenters contend that the term ``substantial'' is 
undefined, vague, and/or will require litigation to clarify.\178\ Some 
commenters pose specific questions about its meaning, such as whether 
it is quantitative (i.e., whether it designates control over a large 
number of essential terms and conditions), qualitative (i.e., whether 
it designates ``massive'' control over just one essential term), or 
both.\179\ Further, several commenters suggest that the final rule 
should define the term and/or explain what is, and what is not, 
substantial control, and many commenters suggest definitions.\180\ One 
commenter claims that the NPRM's suggestion that controlling only one 
essential term or condition is insufficient would permit the Board to 
find not only that an entity that controls only wages is not an 
employer, but also that employees have no employer at all where control 
over essential terms and conditions is sufficiently splintered among 
multiple entities.\181\ One commenter asserts that if the Board does 
not find joint-employer status where control is ``exercised rarely,'' 
this would allow an entity that sets initial wages not to be an 
employer, and it would also be inconsistent with the Act's definition 
of ``supervisor'' in Section 2(11).\182\ The same commenter also 
asserts that the NPRM's description of the term suggests that a 
hospital whose employees are the sole supervisors of visiting nurses 
would not be their joint employer, contrary to the Act and the common 
law.\183\
---------------------------------------------------------------------------

    \178\ Comments of SEIU; CWA; IBT; Center for American Progress 
Action Fund; General Counsel Robb; LIUNA; AFL-CIO; SEIU Local 32BJ.
    \179\ See, e.g., comment of Texas RioGrande Legal Aid.
    \180\ Comments of Jenner & Block, LLP; International Franchise 
Association; CDW; Restaurant Law Center; National Retail Federation; 
Associated Builders and Contractors, Inc.
    \181\ Comment of AFL-CIO.
    \182\ Id.
    \183\ Id.
---------------------------------------------------------------------------

    In response to the comments, the Board has decided to expressly 
define ``substantial direct and immediate control'' in the final rule. 
Specifically, the final rule provides that ``[s]ubstantial direct and 
immediate control' means direct and immediate control that has a 
regular or continuous consequential effect on an essential term or 
condition of employment of another employer's employees.'' The rule 
further specifies that control is not ``substantial'' if it is 
``exercised on a sporadic, isolated, or de minimis basis.'' The final 
rule thus clarifies that a party asserting joint-employer status must 
prove that the putative joint employer (i) exercises direct and 
immediate control over one or more essential terms or conditions of 
employment of another entity's employees, (ii) that the control 
exercised over that essential term or those essential terms has ``a 
regular or continuous consequential effect'' and is not ``sporadic, 
isolated, or de minimis,'' and (iii) that the substantial direct and 
immediate control thus exercised over that essential term or those 
essential terms warrants finding that the putative joint employer 
``meaningfully affects matters relating to the employment 
relationship'' with another employer's employees. Of course, the final 
rule is necessarily general, and future cases adjudicated under the 
rule will give further meaning and guidance.
    The example proposed by one commenter of employees with no employer 
at all because control is divided among numerous entities no one of 
which exercises substantial control over any essential term or 
condition strikes us as unrealistic. The rule presumes that employees 
have a direct employer, and the comment does not persuade us to abandon 
that presumption.
    Regarding the example of setting wages, the commenter seems to 
assume that a one-time setting of initial wages would compel a finding 
of joint-employer status. The Board would not make that assumption. 
Suppose a user entity is party to a long-term contract with a supplier 
employer. The user entity sets the initial wages to be paid the 
supplied workers. Years go by, the user entity never exercises any 
further control or influence over wages, and the supplier employer 
repeatedly adjusts the supplied employees' wages. Whether the user 
entity is a joint employer of the supplied employees based on that one-
time initial setting of wages does not have a self-evident affirmative 
answer. On the other hand, where a user entity's one-time setting of 
supplied employees' wages has a continuous consequential effect on

[[Page 11205]]

those employees' wages, such evidence may suffice to establish that 
entity's joint-employer status. Finally, regarding the hospital example 
and the interplay of Section 2(11) and joint-employer status, see the 
discussion in Section V.C, ``Response to Comments: Comments Regarding 
Contractually Reserved But Unexercised Control,'' supra.
    One commenter states that the Board must clarify the relationship 
between ``substantial'' direct and immediate control and ``limited and 
routine'' control.\184\ The final rule provides the requested 
clarification. It deletes ``limited and routine'' as a general 
qualifying term and, instead, specifies that the phrase applies only to 
supervision. It explains what limited and routine supervision means: 
Telling another employer's employees what work to perform, or where and 
when to perform the work, but not how to perform it. Rule Sec. 
103.40(C)(7). And it contrastingly defines direct and immediate control 
over supervision to mean actually instructing another employer's 
employees how to perform their work or actually issuing employee 
performance appraisals.
---------------------------------------------------------------------------

    \184\ Id.
---------------------------------------------------------------------------

    Several commenters suggest examples of what should not be deemed 
substantial direct and immediate control, such as establishing 
eligibility criteria to provide services,\185\ requiring corporate 
social-responsibility initiatives,\186\ and requiring supplier 
employers to provide minimum amounts of leave to their employees.\187\ 
Many of the suggested examples have been incorporated in the final 
rule. For example, in defining what is and is not ``direct and 
immediate control'' over specific essential terms and conditions of 
employment, the final rule excludes setting minimal hiring standards or 
minimum standards of performance or conduct.
---------------------------------------------------------------------------

    \185\ Comment of HR Policy Association.
    \186\ Comment of RILA.
    \187\ Comment of HR Policy Association.
---------------------------------------------------------------------------

G. Comments Regarding ``Essential'' Terms and Conditions of Employment

    In the NPRM, the Board proposed that ``an employer may be 
considered a joint employer of a separate employer's employees only if 
the two employers share or codetermine the employees' essential terms 
and conditions of employment, such as hiring, firing, discipline, 
supervision, and direction.''
    The majority of comments concerning this aspect of the proposed 
rule do not contest the overarching principle that the Board's joint-
employer standard should focus on a putative joint employer's control 
over employees' essential terms and conditions of employment, such as 
hiring, firing, discipline, supervision, and direction.\188\ A few 
comments, however, contend that a joint-employer analysis should 
examine whether an entity shares or codetermines any term or condition 
of employment that is a mandatory subject of bargaining, whether deemed 
``essential'' or not.\189\ Additional comments ask the Board to clarify 
whether or not the proposed list of essential terms and conditions of 
employment is exclusive, i.e., whether it consists of the enumerated 
terms and conditions and no others.\190\ Still other comments ask the 
Board to clarify the number of essential terms and conditions of 
employment an employer must share or codetermine to be considered a 
joint employer. Finally, the Board received comments proposing 
expansion of the proposed list of essential terms and conditions to 
include wages,\191\ benefits,\192\ hours of work,\193\ health and 
safety,\194\ training,\195\ drug testing,\196\ and access for union 
representatives,\197\ among others.
---------------------------------------------------------------------------

    \188\ Comments of CDW (supporting the general framework of the 
proposed rule's focus on essential terms and conditions of 
employment); U.S. House of Representatives Committee on Education 
and the Workforce (supporting a rule that examines an employer's 
control over essential terms and conditions of employment); SEIU 
(agreeing that the common law requires the Board to examine control 
over essential terms and conditions of employment); United 
Brotherhood of Carpenters and Joiners of America (same).
    \189\ Comments of UAW; IUOE; AFL-CIO.
    \190\ Comments of General Counsel Robb; IUOE.
    \191\ Comments of National Retail Federation; United Brotherhood 
of Carpenters and Joiners of America.
    \192\ Comments of SEIU Local 32BJ; Jenner & Block, LLP.
    \193\ Comments of General Counsel Robb; SEIU Local 32BJ.
    \194\ Comments of 1199SEIU United Healthcare Workers East; IUOE.
    \195\ Comment of IUOE.
    \196\ Comment of SEIU Local 32BJ.
    \197\ Id.
---------------------------------------------------------------------------

    After carefully considering these comments, the Board has decided 
to modify the proposed rule in several respects. Under the final rule, 
essential terms and conditions of employment ``means wages, benefits, 
hours of work, hiring, discharge, discipline, supervision, and 
direction.'' Thus, the list of essential terms and conditions of 
employment has been expanded and made exclusive. To be found a joint 
employer under the final rule, an entity must possess and exercise such 
substantial direct and immediate control over one or more essential 
terms or conditions of employment as would warrant finding that the 
entity meaningfully affects matters related to the employment 
relationship, and joint-employer status is determined on ``the totality 
of the relevant facts in each particular employment setting.'' Thus, 
direct and immediate control over at least one essential term or 
condition is necessary, but the final rule makes clear that it is not 
necessarily sufficient. Moreover, under the final rule, control over 
mandatory subjects other than essential terms and conditions may be 
relevant to joint-employer status, depending upon the other evidence in 
the case. As provided in the final rule, ``the entity's control over 
mandatory subjects of bargaining other than the essential terms and 
conditions of employment 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 Board believes a standard that requires an entity to possess 
and exercise substantial direct and immediate control over essential 
terms and conditions of employment is consistent with the purposes and 
policies of the Act, as discussed in greater detail below in the 
justification for the final rule. The Act's purpose of promoting 
collective bargaining is best served by a joint-employer standard that 
places at the bargaining table only those entities that control terms 
and conditions that are most material to collective bargaining. 
Moreover, a less demanding standard would unjustly subject innocent 
parties to liability for others' unfair labor practices and coercion in 
others' labor disputes. A fuzzier standard with no bright lines would 
make it difficult for the Board to distinguish between arm's-length 
contracting parties and genuine joint employers. Accordingly, 
preserving the element of direct and immediate control over essential 
terms and conditions draws a discernible and predictable line, 
providing ``certainty beforehand'' for the regulated community. See 
First Nat'l Maint. Corp. v. NLRB, 452 U.S. at 679.
    Turning to the merits of specific comments, the Board agrees that a 
proper standard should not disregard control over mandatory subjects of 
bargaining that do not qualify as essential terms or conditions, and 
the final rule does not limit the joint-employer analysis to essential 
terms. That said, the Board has long focused the joint-employer 
analysis primarily on a putative joint employer's control over 
essential terms and conditions of

[[Page 11206]]

employment. See, e.g., Browning-Ferris, 362 NLRB at 1613 (adhering to 
the Board's traditional focus on ``those matters governing the 
essential terms and conditions of employment''); Laerco Transportation, 
269 NLRB at 325 (the ``joint employer concept recognizes that two or 
more business entities are in fact separate but that they share or 
codetermine those matters governing the essential terms and conditions 
of employment''); Greyhound Corp., 153 NLRB at 1495 (finding joint-
employer relationship where an employer shared or codetermined 
``matters governing essential terms and conditions''); Maas Bros., 88 
NLRB 129, 135 (1950) (employees working for entrepreneurs that ran 
individual departments within a larger department store not included in 
a storewide unit where the entrepreneurs, not the department store, 
controlled ``the essential terms and conditions of employment'' 
governing the employees).
    Two commenters argue that the Ninth Circuit's decision in Sun-Maid 
Growers of California v. NLRB, 618 F.2d 56 (9th Cir. 1980), supports a 
standard that renders an entity a joint employer if it controls any 
term or condition of employment, regardless of whether the term or 
condition is deemed ``essential.'' \198\ The Board finds this argument 
unpersuasive. To be sure, in Sun-Maid, the court stated that a ``joint 
employer relationship exists when an employer exercises authority over 
employment conditions which are within the area of mandatory collective 
bargaining.'' Id. at 59. However, the court in Sun-Maid was not called 
upon to decide whether joint-employer status may be established absent 
control over essential terms and conditions, since the court found that 
the putative joint employer in Sun-Maid did control at least one 
essential term (hours of work) and possibly two (hours of work and 
direction). Id. at 59 (finding joint-employer status where entity 
controlled ``work schedules, assigned the work and decided when 
additional electricians were needed''); see also Tanforan Park Food 
Purveyors Council v. NLRB, 656 F.2d 1358, 1361 (9th Cir. 1981) (finding 
joint-employer relationship where putative joint employer controlled 
``wage rates, vacation, holiday, and work schedules, and employee 
supervision[, which] lie within the core of mandatory collective 
bargaining'').
---------------------------------------------------------------------------

    \198\ See comments of UAW; AFL-CIO.
---------------------------------------------------------------------------

    Moreover, several federal appellate courts have approved the 
Board's longstanding insistence on control of essential terms and 
conditions of employment to make an entity a joint employer. See Adams 
& Assoc., Inc. v. NLRB, 871 F.3d 358, 377 (5th Cir. 2017); Dunkin' 
Donuts Mid-Atlantic Distrib. Ctr., Inc. v. NLRB, 363 F.3d 437, 440 
(D.C. Cir. 2004); Rivera-Vega v. ConAgra, Inc., 70 F.3d 153, 163 (1st 
Cir. 1995); Carrier Corp. v. NLRB, 768 F.2d 778, 781 (6th Cir. 1985); 
NLRB v. Browning-Ferris Indus. of Pennsylvania, Inc., 691 F.2d at 1124; 
; see also Browning-Ferris v. NLRB, 911 F.3d at 1220 (`` `[G]lobal 
oversight' is a routine feature of independent contracts. Wielding 
direct and indirect control over the `essential terms and conditions' 
of employees' work lives is not.'') (internal citation omitted).
    Some commenters argue that the Board should require direct and 
immediate control of all essential terms and conditions of employment 
to subject an entity to the duty to bargain collectively as a joint 
employer.\199\ The Board rejects this position. The Board has never 
required direct and immediate control of all essential employment terms 
in order to deem an entity a joint employer of another employer's 
employees. Rather, it has consistently evaluated joint-employer status 
based on the totality of the relevant facts in each case.
---------------------------------------------------------------------------

    \199\ See, e.g. comment of General Counsel Robb.
---------------------------------------------------------------------------

    Contrary to a commenter's contention, the Board's longstanding 
requirement of control over essential terms and conditions of 
employment, to which both the proposed and final rules adhere, is 
consistent with the Supreme Court's decision in Boire v. Greyhound 
Corp., 376 U.S. 473 (1964).\200\ In Boire, the question presented was a 
narrow one: Whether an employer could challenge in federal district 
court the Board's determination that two entities constituted a joint 
employer of a group of employees and its direction of an election in a 
unit composed of those employees based on a petition that named both 
entities as the employer. See id. at 476-477. The Court held that 
Congress had limited judicial review to the courts of appeals and that 
Greyhound could not challenge the Board's decision and direction of 
election in federal district court. See id. The Court did not reach the 
merits of the Board's joint-employer finding, but it observed that 
``whether Greyhound possessed sufficient indicia of control to be an 
`employer' is essentially a factual issue.'' Id. at 481. The commenter 
asserts that because the Court did not reference ``essential terms and 
conditions of employment,'' the Board may not require control over 
essential terms. However, the Court did not pass on the joint-employer 
determination in Greyhound, much less preclude the standard adopted in 
the final rule. Indeed, the final rule is consistent with the Court's 
observation that joint-employer status is ``essentially a factual 
issue.'' Under the final rule, ``[j]oint-employer status must be 
determined on the totality of the relevant facts in each particular 
employment setting.'' Rule Sec. 103.40(A).
---------------------------------------------------------------------------

    \200\ See comment of UAW.
---------------------------------------------------------------------------

    We also disagree with the assertion that requiring control of 
essential terms and conditions cannot be squared with Management 
Training Corp., 317 NLRB 1355 (1995).\201\ Prior to Management 
Training, the Board asserted jurisdiction over a government contractor 
only if the contractor controlled ``the entire package of employee 
compensation, i.e., wages and fringe benefits.'' Res-Care, Inc., 280 
NLRB 670, 674 (1986). In Management Training, the Board rejected this 
standard. 317 NLRB at 1358. In doing so, the Board criticized the 
``emphasis in Res-Care on control of economic terms and conditions [as] 
an oversimplification of the bargaining process.'' Id. at 1357. The 
Board explained:
---------------------------------------------------------------------------

    \201\ See comment of AFL-CIO.

    While economic terms are certainly important aspects of the 
employment relationship, they are not the only subjects sought to be 
negotiated at the bargaining table. Indeed, monetary terms may not 
necessarily be the most critical issues between the parties. . . . 
[I]t may be that the parties' primary interest is in the noneconomic 
area. It was shortsighted, therefore, for the Board to declare that 
bargaining is meaningless unless it includes the entire range of 
---------------------------------------------------------------------------
economic issues.

Id.
    The proposed rule was, and the final rule is, consistent with 
Management Training. The Board in Management Training faulted Res-Care 
for making wages and benefits the sine qua non of collective 
bargaining. The proposed and final rules do not limit essential terms 
and conditions to wages and benefits. Essential terms and conditions 
include non-economic as well as economic terms, and joint-employer 
status may be found under the rule based on an entity's control over 
non-economic essential terms only.
    Nothing in Section 8(a)(5) and (d) of the Act prohibits the Board 
from promulgating a joint-employer rule that requires control over 
essential terms and conditions of employment. Under Section 8(a)(5) and 
(d), an employer is obligated to bargain with its unit employees' 
representative ``with respect to wages, hours, and other terms and 
conditions of employment,'' commonly

[[Page 11207]]

referred to as ``mandatory'' subjects of bargaining. NLRB v. Borg-
Warner Corp., 356 U.S. 342, 349 (1958). But there is no inconsistency 
between this obligation and basing joint-employer status on control 
over a subset of mandatory subjects, i.e., essential terms and 
conditions. The two issues are widely different. Section 8(d) mandates 
what the unit employees' undisputed employer must bargain about; the 
instant joint-employer rule provides the standard for determining 
whether an entity other than the unit employees' undisputed employer is 
also an employer, i.e., a joint employer, with a duty to bargain. 
Whether one has a duty to bargain is analytically prior to, and 
distinct from, what one must bargain about if one has a duty to 
bargain.\202\
---------------------------------------------------------------------------

    \202\ This distinction was clearly recognized in Browning-
Ferris, where the Board majority stated:
    For example, it is certainly possible that in a particular case, 
a putative joint employer's control might extend only to terms and 
conditions of employment too limited in scope or significance to 
permit meaningful collective bargaining. Moreover, as a rule, a 
joint employer will be required to bargain only with respect to such 
terms and conditions which it possesses the authority to control.
    362 NLRB at 1614.
---------------------------------------------------------------------------

    That said, the Board believes, after considering the relevant 
comments, that control over mandatory subjects other than essential 
terms and conditions should play a role in the joint-employer analysis. 
Accordingly, the final rule provides that evidence of such control is 
probative of joint-employer status ``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.'' Rule Sec. 103.40(A).
    Several commenters addressed whether the final rule should make the 
list of essential terms and conditions of employment exhaustive--i.e., 
the enumerated terms and conditions and no others--and how many 
essential terms and conditions an entity must control to be deemed a 
joint employer. As to the latter, comments suggest a range of 
possibilities--from any essential term and condition,\203\ to more than 
one,\204\ a significant number,\205\ or all essential terms and 
conditions of employment.\206\
---------------------------------------------------------------------------

    \203\ See comment of AFL-CIO.
    \204\ See comment of American Staffing Association.
    \205\ See comment of Jenner & Block, LLP.
    \206\ See comments of International Warehouse Logistics 
Association; Association of Corporate Counsel.
---------------------------------------------------------------------------

    After careful consideration, the Board has decided to modify the 
proposed rule in two relevant respects. First, the final rule makes the 
list of essential terms and conditions of employment exclusive. This 
will provide clarity and predictability for the regulated community and 
remove an issue from litigation. Second, under the final rule, an 
entity must ``possess and exercise such substantial direct and 
immediate control over one or more essential terms or conditions of . . 
. employment as would warrant finding that the entity meaningfully 
affects matters relating to the employment relationship'' with another 
employer's employees. This reflects the Board's recognition that direct 
and immediate control over one essential term may warrant a finding of 
joint-employer status--but on the other hand, it may not, and control 
even over more than one essential term may fall short of the mark where 
an entity has exercised such control so infrequently that the evidence 
fails to support a finding that the entity meaningfully affects matters 
relating to the employment relationship.
    Finally, the Board agrees that wages, benefits, and hours of work 
should be included in the list of essential terms and conditions of 
employment. The language of the Act supports including wages and hours 
of work. Section 8(d) defines collective bargaining as the 
``performance of the mutual obligation of the employer and the 
representative of the employees to meet at reasonable times and confer 
in good faith with respect to wages, hours, and other terms and 
conditions of employment'' (emphasis added). Section 9(a) provides that 
``[r]epresentatives designated or selected for the purposes of 
collective bargaining by the majority of the employees in a unit 
appropriate for such purposes, shall be the exclusive representatives 
of all the employees in such unit for the purposes of collective 
bargaining in respect to rates of pay, wages, hours of employment, or 
other conditions of employment'' (emphasis added). Congress clearly 
understood that wages and hours of work would be central to collective 
bargaining, and this supports adding them to the list of essential 
terms and conditions of employment.
    Board precedent likewise supports including wages, hours of work, 
and benefits among the essential terms and conditions. See, e.g., 
Quantum Resources Corp., 305 NLRB at 760-761 (finding that entity 
shared or codetermined ``those matters governing the essential terms 
and conditions of employment'' based in part on evidence of its 
substantial control over ``levels of compensation . . . hours . . . and 
benefits''); Lee Hospital, 300 NLRB at 950 (corporation hired by 
hospital to operate anesthesia department and recovery room not a joint 
employer of nurses where hospital exclusively determined essential 
terms and conditions of employment, including ``wages'' and ``fringe 
benefit policies''); Pacific Mutual Door Co., 278 NLRB 854, 858-859 
(1986) (finding joint-employer status based on entity's sufficient 
control over essential terms and conditions of employment, including 
hours, wages, and ``benefits received as paid holidays and paid 
vacations'').
    The courts, too, have understood essential terms and conditions of 
employment to include wages, hours of work, and benefits. See Adams & 
Assoc., Inc. v. NLRB, 871 F.3d at 378 (finding joint-employer status 
where entity ``jointly developed the wage structure'' and exclusively 
determined ``the holiday schedule'' for all employees) (internal 
quotation marks omitted); Dunkin' Donuts Mid-Atlantic Distrib. Ctr., 
Inc. v. NLRB, 363 F.3d at 440-441 (finding joint-employer status where 
entity determined ``employee wage and benefit rates . . . discontinued 
an employee bonus program . . . [and set] rating categories used to 
determine whether drivers received incentive awards''); Rivera-Vega v. 
ConAgra, Inc., 70 F.3d at 163 (factors in a joint-employer 
determination include ``ultimate power over changes in employer 
compensation [and] benefits''); Carrier Corp. v. NLRB, 768 F.2d at 781 
(finding joint-employer status where employer ``consulted the [putative 
joint employer] over wages and fringe benefits''); Jefferson County 
Cmty. Ctr. For Developmental Disabilities, Inc. v. NLRB, 732 F.2d 122, 
127 (10th Cir. 1984) (employer maintained sufficient control over terms 
and conditions of employment ``to be capable of effective bargaining'' 
where it had ``final decision-making authority over the essential terms 
and conditions of employment, including wages [and] fringe benefits'') 
(internal quotation marks omitted); NLRB v. Browning-Ferris Indus. of 
Pennsylvania, Inc., 691 F.2d 1117, 1124 (3d Cir. 1982) (finding joint-
employer status where entity ``established work hours'' and 
``determined [employees'] compensation'').
    Two commenters contend that the list of essential terms and 
conditions of employment must or should include each of the indicia of 
supervisory status set forth in Section 2(11).\207\ The final

[[Page 11208]]

rule's list of essential terms and conditions does not include several 
of these supervisory indicia,\208\ but there is no contradiction 
between the final rule and Section 2(11) of the Act. Nothing in the 
text of the Act or its legislative history links Section 2(11) and 
joint-employer status. Nor does the Act or its legislative history 
otherwise suggest that the Board must find that an entity is a joint 
employer of another employer's employees based solely on supervisory 
indicia such as the authority to lay off, recall, promote, etc. To the 
contrary, under longstanding Board precedent, it is possible for two 
businesses to remain separate employers despite the fact that employees 
of the first business assertedly exercise Section 2(11) authority over 
employees of the second business. Crenulated Co., 308 NLRB at 1216 
(``It is well established that an individual must exercise supervisory 
authority over employees of the employer at issue, and not employees of 
another employer, in order to qualify as a supervisor under Section 
2(11) of the Act''); Eureka Newspapers, Inc., 154 NLRB 1181, 1185 
(1965) (finding that district dealers employed by newspaper were not 
statutory supervisors despite alleged supervisory authority over 
carriers who were not employed by newspaper). See also Section V.C, 
``Response to Comments: Comments Regarding Contractually Reserved But 
Unexercised Control,'' supra.
---------------------------------------------------------------------------

    \207\ See comments of AFL-CIO; UAW. Sec. 2(11) defines 
``supervisor'' as ``any individual having authority, in the interest 
of the employer, to hire, transfer, suspend, lay off, recall, 
promote, discharge, assign, reward, or discipline other employees, 
or responsibly to direct them, or to adjust their grievances, or 
effectively to recommend such action, if in connection with the 
foregoing the exercise of such authority is not of a merely routine 
or clerical nature, but requires the use of independent judgment.''
    \208\ The essential terms and conditions of employment set forth 
in Sec. 103.40(C)(1)-(8) does not include transfer, lay off, recall, 
promote, reward, or adjustment of grievances.
---------------------------------------------------------------------------

    Two additional points should be emphasized here. First, as 
described above, control over a mandatory subject of bargaining that is 
not an ``essential'' term is relevant in a joint-employer analysis 
under this final rule. Such control can supplement and reinforce 
evidence of possession or exercise of direct and immediate control over 
a particular essential term and condition of employment, as discussed 
above. Second, when applying this final rule, the Board will not be 
bound by a putative joint employer's characterization of its conduct. 
For example, under the circumstances of a particular case, an 
employment action codetermined by a putative joint employer and 
characterized as a ``layoff'' could in fact be a discharge. Similarly, 
``rewarding'' another employer's employee could, depending on the 
circumstances, be tantamount to bestowing a benefit. Relatedly, if a 
putative joint employer directly and immediately resolved (i.e., 
adjusted) another employer's employee's grievance over rate of pay or 
suspension for misconduct, that would evidence direct and immediate 
control over the essential terms and conditions of wages and 
discipline.

H. Comments on Employer Status Under Other Statutes and the Common Law

    Several comments address the doctrine of joint employment as it has 
been interpreted under other statutes. In general, as explained below, 
we believe that joint-employer determinations under other statutes are 
instructive but of limited utility to the joint-employer inquiry under 
the NLRA.
    Several commenters observe that the FLSA broadly defines ``employ'' 
as to ``suffer or permit to work'' and ``employer'' as ``any person 
acting directly or indirectly in the interest of an employer in 
relation to an employee.'' \209\ But Congress defined ``employer'' in 
the FLSA more broadly than under the NLRA. Joint-employer 
determinations under the FLSA, therefore, are unreliable guides for 
determining joint-employer status under the NLRA.
---------------------------------------------------------------------------

    \209\ See comments of NELP; UA; Professor Kulwiec.
---------------------------------------------------------------------------

    Two commenters assert that courts consider evidence of indirect 
control and the ``economic realities'' of the work relationship when 
determining whether an entity is a joint employer under the FLSA.\210\ 
Again, however, joint-employer status under the FLSA is based on that 
statute's expansive definition of ``employer,'' and has been based as 
well on federal regulations providing that joint-employer 
determinations under the FLSA may be based solely on evidence of 
indirect control. See In re Enter. Rent-A-Car Wage & Hour Emp't 
Practices Litig., 683 F.3d 462, 468 (3d Cir. 2012) (finding joint 
employment ``[w]here the employers are not completely disassociated 
with respect to the employment of a particular employee and may be 
deemed to share control of the employee, directly or indirectly'' 
(quoting 29 CFR Sec. 791.2(b))) (emphasis added).\211\ The NLRA does 
not define ``employer'' thus broadly.
---------------------------------------------------------------------------

    \210\ See comments of Greater Boston Legal Services; Justice at 
Work.
    \211\ On January 16, 2020, the Department of Labor issued a 
final rule that made relevant revisions to the regulatory text 
quoted above. See 85 FR 2820 (Jan. 16, 2020).
---------------------------------------------------------------------------

    Other commenters point out that the Occupational Safety and Health 
Administration (OSHA) applies a policy under which, on multi-employer 
worksites, more than one employer may be cited for a hazardous 
condition that violates an OSHA standard.\212\ See Solis v. Summit 
Contractors, Inc., 558 F.3d 815 (8th Cir. 2009) (holding that OSHA 
regulations (29 CFR Sec.1910.12) permitted the issuance of citations to 
``controlling employers,'' even when they did not create the safety 
hazard and when its employees were not exposed to the hazard). 
Likewise, a commenter observes that IRS regulations provide that an 
entity may be considered an employer based on the right to control the 
way services are performed, and that the right need not be 
exercised.\213\ The Board's task, however, is to formulate a joint-
employer standard based on the common law applied in the context of the 
NLRA. Since a joint-employer finding under the NLRA entails a duty to 
bargain, the Board must consider when a putative joint employer's 
participation in collective bargaining is required for such bargaining 
to be meaningful. And since such a finding renders otherwise secondary 
activity primary, the Board also must consider Congress's concern with 
limiting third parties' exposure to economic warfare in labor disputes. 
These considerations have no bearing on joint-employer determinations 
by OSHA or the IRS, which therefore shed little light on joint-employer 
determinations under the Act.
---------------------------------------------------------------------------

    \212\ See comments of NELP; UA.
    \213\ See comment of UA.
---------------------------------------------------------------------------

    Some commenters observe that the joint-employer inquiry under the 
FLSA is performed on a case-by-case basis, and that this inquiry is 
always fact-specific under the common law.\214\ Consistent with these 
comments, joint-employer determinations under the final rule will be 
determined on the totality of the relevant facts in each particular 
employment setting.
---------------------------------------------------------------------------

    \214\ See comments of NELP; SEIU.
---------------------------------------------------------------------------

    Some commenters contend that the proposed joint-employer standard 
will impact numerous areas of labor-management relations and federal 
and state workplace laws.\215\ Such impact is the inevitable 
consequence of any joint-employer standard, and the Board believes that 
the final rule sets forth a standard that best furthers the purposes 
and policies of the NLRA.
---------------------------------------------------------------------------

    \215\ See comments of NELP; Weinberg, Roger & Rosenfeld.
---------------------------------------------------------------------------

    One commenter observes that indirect and reserved control are 
relevant factors in joint-employer determinations under Title VII, 
citing, inter alia, Myers v. Garfield & Johnson Enters., 679 F. Supp. 
2d 598, 611 (E.D. Pa. 2010) (``[A]n

[[Page 11209]]

employee may be considered `employed' by a third party as well as by 
the nominal employer if the third party has a right to control the 
employee's conduct, either directly or through the third party's 
control over the employer.''), and Virgo v. Riviera Beach Assocs., 
Ltd., 30 F.3d 1350, 1361 (11th Cir. 1994) (``We find that actual 
control is a factor to be considered when deciding the `joint employer' 
issue, but the authority or power to control is also highly 
relevant.'') \216\ Under the final rule, evidence of indirect and 
reserved but unexercised control are probative of joint-employer 
status, but only to the extent that such evidence supplements and 
reinforces evidence of direct and immediate control. To the extent the 
latter proviso makes the joint-employer standard under the Act narrower 
than the comparable standard under Title VII, our task is to formulate 
a joint-employer standard based on the common law applied in the 
particular context of the NLRA, as explained above. In any event, the 
decisions in Myers and Virgo relied on evidence of direct and immediate 
control over essential terms and conditions of employment. In Myers, 
which was before the court on a motion to dismiss for failure to state 
a claim, the court cited a complaint allegation that the putative joint 
employer participated in the daily supervision of the direct employer's 
employees. 679 F. Supp. 2d at 610. In Virgo, the court cited evidence 
that the putative joint employer paid all costs and expenses related to 
all the employees of the direct employer. 30 F.3d at 1361.
---------------------------------------------------------------------------

    \216\ See comment of UA.
---------------------------------------------------------------------------

    Several commenters cite the Restatement (Second) of Agency, in 
particular Sections 2(2) and 220, for the proposition that an employee 
is a worker who is subject to the employer's ``control or right to 
control'' and complain that the proposed rule ``wholly discounts'' 
reserved control.\217\ These commenters also point out that Restatement 
(Second) of Agency Sec. 220 cmt. d states that this right of control 
may be ``very attenuated.'' Some commenters observe that in Browning-
Ferris v. NLRB, 911 F.3d at 1211, the D.C. Circuit stated that ``the 
`right to control' runs like a leitmotif through the Restatement 
(Second) of Agency (emphasis in original).'' \218\ Other commenters 
contend that the ``right to control'' standard is a core component and 
widely recognized feature of case law applying common-law agency 
principles and assert that the right of control is sufficient to 
establish a common-law master-servant relationship.\219\
---------------------------------------------------------------------------

    \217\ See comments of IBT; Greater Boston Legal Services; State 
Attorneys General; AFL-CIO; SEIU (citing Sec. 220(1) (emphasis 
added)).
    \218\ See comments of State Attorneys General; Spivak Lipton 
LLP.
    \219\ See comments of SEIU; UA.
---------------------------------------------------------------------------

    Initially, as explained more fully below, a master-servant 
relationship under the common law of independent-contractor status is 
not synonymous with joint-employer status.
    In any case, the Board agrees with one commenter that, although the 
court in Browning-Ferris v. NLRB stated that the Board is required to 
``color within the common-law lines'' with respect to its joint-
employer rule, 911 F.3d at 1208, the final rule does not exceed the 
bounds of common-law principles.\220\ Like that commenter, the Board is 
aware of no court that has found that reserved, unexercised control, 
standing alone, was sufficient to create a joint-employer relationship 
under the NLRA. Moreover, the final rule does not ``wholly discount'' 
or otherwise exclude consideration of reserved, unexercised control. 
Rather, it provides that contractually reserved but never exercised 
authority over essential terms and conditions of employment of another 
employer's employees is probative of joint-employer status, but only to 
the extent that it supplements and reinforces evidence of direct and 
immediate control. Again, the narrowing proviso reflects a joint-
employer standard based on the common law applied in the particular 
context of the NLRA.
---------------------------------------------------------------------------

    \220\ See comment of CDW.
---------------------------------------------------------------------------

    One comment contends that consideration of indirect control over 
employees' wages and working conditions is consistent with common-law 
agency doctrine.\221\ The Board agrees, and observes that the D.C. 
Circuit has likewise held that an entity's ``indirect control over 
employees can be a relevant consideration'' in the common-law inquiry. 
Browning-Ferris v. NLRB, 911 F.3d at 1209. Accordingly, under the final 
rule, evidence of an entity's indirect control over essential terms and 
conditions of employment of a direct employer's employees is probative 
of joint-employer status to the extent it supplements and reinforces 
evidence of direct and immediate control over a particular essential 
term and condition of employment.
---------------------------------------------------------------------------

    \221\ See comment of Labor Law, Antitrust Law, and Economics 
Professors (Law and Economics Professors).
---------------------------------------------------------------------------

    One commenter observes that Section 220 of the Restatement (Second) 
of Agency includes many considerations that are broader and less 
formalistic than the proposed rule, such as whether the one employed is 
engaged in a distinct occupation or business and whether the work is a 
part of the regular business of the putative employer.\222\ However, 
these considerations relate to determining whether a worker is an 
employee or an independent contractor. As explained more fully below, 
they are instructive but of limited utility in the joint-employer 
context.
---------------------------------------------------------------------------

    \222\ See comment of NELP.
---------------------------------------------------------------------------

    Another commenter argues that when determining what the D.C. 
Circuit and the common law mean by indirect control, it may be useful 
to consider the so-called subservant doctrine, under which employer-
employee relationships are established by indirect control.\223\ See 
Restatement (Second) of Agency Sec. 5(2); see also id., cmt. e. In 
defining indirect control in the final rule, the Board has focused on 
the connection between the entity's actions and the employees' 
essential terms and conditions of employment, not on how alleged 
control is communicated. However, the final rule is not intended to 
immunize an entity from joint-employer status based solely on how its 
control is exercised. Direct and immediate control exercised through an 
intermediary remains direct and immediate. See Browning-Ferris v. NLRB, 
911 F.3d at 1217 (``[T]he common law has never countenanced the use of 
intermediaries or controlled third parties to avoid the creation of a 
master-servant relationship.'').
---------------------------------------------------------------------------

    \223\ See comment of SEIU.
---------------------------------------------------------------------------

I. Comments on Independent-Contractor Precedent

    Many commenters address the relevance--or lack of relevance--of 
independent-contractor precedent to the joint-employer inquiry. As 
noted by one commenter, in NLRB v. United Insurance Co. of America, 390 
U.S. at 256, the Supreme Court held that the determination of whether a 
worker is a statutorily protected employee or a statutorily exempt 
independent contractor is governed by common-law agency 
principles.\224\ In Community for Creative Non-Violence v. Reid, the 
Supreme Court listed common-law factors relevant to making the 
employee-versus-independent contractor determination:
---------------------------------------------------------------------------

    \224\ See comment of State Attorneys General.

    In determining whether a hired party is an employee under the 
general common law of agency, we consider the hiring party's right 
to control the manner and means by which the product is 
accomplished. Among the other factors relevant to this inquiry are 
the

[[Page 11210]]

skill required; the source of the instrumentalities and tools; the 
location of the work; the duration of the relationship between the 
parties; whether the hiring party has the right to assign additional 
projects to the hired party; the extent of the hired party's 
discretion over when and how long to work; the method of payment; 
the hired party's role in hiring and paying assistants; whether the 
work is part of the regular business of the hiring party; whether 
the hiring party is in business; the provision of employee benefits; 
---------------------------------------------------------------------------
and the tax treatment of the hired party.

490 U.S. at 751-752; see also Nationwide Mut. Ins. Co. v. Darden, 503 
U.S. at 323-324. These so-called Reid factors are largely adopted from 
Section 220(2) of the Restatement (Second) of Agency. As another 
commenter notes, the Supreme Court has instructed that, in assessing 
employee status, ``all of the incidents of the relationship must be 
assessed and weighed with no one factor being decisive.'' United Ins., 
390 U.S. at 256.\225\
---------------------------------------------------------------------------

    \225\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    Several commenters acknowledge that various elements of the 
independent-contractor test are inapplicable to determining joint-
employer status.\226\ These commenters point out that where there is no 
dispute that certain workers are employees of some entity, many of the 
factors of the common-law test are already satisfied and provide no 
meaningful guidance to help determine whether another entity 
constitutes a joint employer. Cf. Clackamas Gastroenterology Assoc., 
P.C. v. Wells, 538 U.S. 440, 445 fn. 5 (2003) (explaining that the 
independent-contractor factors ``[we]re not directly applicable'' in 
determining whether physician shareholders who owned a professional 
corporation were ``employees'' because the court was ``not faced with 
drawing a line between independent contractors and employees'').
---------------------------------------------------------------------------

    \226\ See comments of AFL-CIO; Restaurant Law Center; COLLE.
---------------------------------------------------------------------------

    Moreover, as observed by one commenter, in Browning-Ferris v. NLRB, 
911 F.3d at 1212-1213, the D.C. Circuit rejected the contention that 
the independent-contractor and joint-employer inquiries are 
``essentially the same,'' adding that the argument ``lacks any 
precedential grounding.'' \227\ As noted by another commenter, the 
court explained that although independent-contractor cases can be 
``instructive in the joint-employer inquiry to the extent that they 
elaborate on the nature and extent of control necessary to establish a 
common-law employment relationship,'' the independent-contractor 
inquiry omits the key questions, for deciding the joint-employer issue, 
of who controls the workers and when and how that control is exercised. 
Id. at 1215.\228\ ``In short,'' the court concluded, ``using the 
independent-contractor test exclusively to answer the joint-employer 
question would be rather like using a hammer to drive in a screw: it 
only roughly assists the task because the hammer is designed for a 
different purpose.'' Id.
---------------------------------------------------------------------------

    \227\ See comment of State Attorneys General.
    \228\ See comment of CDW.
---------------------------------------------------------------------------

    Consistent with these commenters, the Board believes that the 
common-law factors relative to determining employee or independent-
contractor status are instructive but of limited utility in the joint-
employer context. Application of those factors is appropriate to 
determine whether a putative employer has the ``right to control the 
manner and means by which the product is accomplished,'' Reid, 490 U.S. 
at 751-752, and therefore independent-contractor principles assist in 
determining whether a putative employer has such a ``right to 
control.'' But they do not assist in answering the key questions in the 
joint-employer inquiry: who is exercising that control, when, and how. 
This is consistent with the court's decision in Browning-Ferris v. 
NLRB, 911 F.3d at 1214-1215.
    A commenter contends that the common law of independent-contractor 
status is instructive in the joint-employer context to the extent it 
assists in identifying the forms of control that are relevant to 
employer status.\229\ In this regard, the Board agrees with a different 
commenter that under the Reid factors, both indirect and reserved 
control are relevant to determining employer status under the common 
law. 490 U.S. at 751-752.\230\ The Board further agrees that 
independent-contractor precedent also makes reserved control relevant 
to determining employer status. Thus, under the final rule, evidence of 
indirect control and of unexercised, contractually reserved authority 
is relevant in the joint-employer inquiry to the extent such evidence 
supplements and reinforces evidence of direct and immediate control 
over essential terms and conditions.
---------------------------------------------------------------------------

    \229\ See comment of AFL-CIO.
    \230\ See comment of CDW.
---------------------------------------------------------------------------

    One of the above commenters further argues that the common law of 
independent-contractor status--specifically, the Restatement (Second) 
of Agency--makes clear that contractually reserved authority, standing 
alone, is sufficient to establish an employment relationship.\231\ The 
commenter cites, inter alia, Sections 2 and 220, which define a 
``master'' as someone who ``controls or has the right to control'' 
another and a ``servant'' as someone employed by the master who is 
``subject to the [master's] control or right to control'' (commenter's 
emphasis). But ``sufficient to establish an employment relationship'' 
under the Restatement of Agency, which summarizes the common law of 
independent-contractor status, is not the same as sufficient to 
establish joint-employer status under the NLRA for all the reasons 
explained above.
---------------------------------------------------------------------------

    \231\ See comment of AFL-CIO.
---------------------------------------------------------------------------

J. Comments About the Impact of the D.C. Circuit's Decision in 
Browning-Ferris Industries of California, Inc. v NLRB

    The Board received many comments regarding the impact of the D.C. 
Circuit's decision in Browning-Ferris v. NLRB on this rulemaking. 
Commenters debate whether the court's decision permits the proposed 
rule, requires changes to the proposed rule, or removes the authority 
of the Board to engage in this rulemaking at all. Those comments and 
the Board's responses are described below.
    Some commenters contend that the proposed rule is inconsistent with 
the D.C. Circuit's conclusions in Browning-Ferris v. NLRB.\232\ They 
point out that the court upheld the Browning-Ferris standard's 
consideration of reserved and indirect control as rooted in the common 
law and instructed the Board to color within common-law lines in the 
joint-employer rulemaking. They argue that the final rule must include 
consideration of reserved and indirect control, and they claim that the 
proposed rule, which did not expressly acknowledge a role for those 
forms of control, contradicts the D.C. Circuit's decision.
---------------------------------------------------------------------------

    \232\ See, e.g., comments of Legal Aid Society; United 
Brotherhood of Carpenters and Joiners of America; Congressional 
Progressive Caucus; UAW; IBT; National Women's Law Center; United 
Association of Journeymen and Apprentices of the Plumbing and Pipe 
Fitting Industry of the United States and Canada, SEIU; 1199SEIU 
United Healthcare Workers East; SEIU National Fast Food Workers 
Union; LIUNA; IUOE; Senator Murray and Representative Scott; NELP; 
AFT; James van Wagtendonk.
---------------------------------------------------------------------------

    Some commenters, on the other hand, argue the proposed rule is 
consistent with the D.C. Circuit's decision.\233\ One commenter, for 
example, argues that although the court held that consideration of 
indirect and reserved control is rooted in the common law, it did not 
hold that the joint-employer standard must be coextensive with the 
common law. To the contrary, the court acknowledged the Browning-Ferris 
two-

[[Page 11211]]

step standard: A necessary-but-not-sufficient common-law analysis at 
step one, followed by an NLRA-based analysis of whether the common-law 
joint employer exercises sufficient control over the terms and 
conditions of employment of another employer's employees to permit 
meaningful collective bargaining. A second commenter also points out 
that the proposed rule does not expressly prohibit consideration of 
indirect or reserved control and therefore does not contradict the 
court's decision.
---------------------------------------------------------------------------

    \233\ See comments of Restaurant Law Center; CDW.
---------------------------------------------------------------------------

    Another commenter argues that it is irrelevant whether the rule is 
consistent with Browning-Ferris v. NLRB because the court's decision 
does not control the Board's rulemaking.\234\ Because the propriety of 
the rulemaking was not before the court, the commenter maintains that 
the court's instruction that the rulemaking must ``color within the 
common-law lines identified by the judiciary,'' 911 F.3d at 1208, is 
dicta. The commenter also states that rulemaking is an executive 
function, not a judicial one, and he concludes from this that the 
judiciary cannot dictate what the Board's rule should say unless the 
rule contradicts the Act or Supreme Court precedent, and the proposed 
rule does not.
---------------------------------------------------------------------------

    \234\ See comment of General Counsel Robb.
---------------------------------------------------------------------------

    The Board believes that the final rule is consistent with Browning-
Ferris v. NLRB. It incorporates indirect and reserved-but-unexercised 
control over essential terms and conditions and treats them as 
probative of joint-employer status to the extent they supplement and 
reinforce evidence of direct and immediate control. The latter 
limitation serves a purpose similar to the second step of the Browning-
Ferris standard--i.e., to ensure that only those entities that 
``meaningfully affect[] matters relating to the employment 
relationship'' are found to be joint employers. Rule Sec. 103.40(A). 
But whereas Browning-Ferris left the regulated community utterly at sea 
as to what ``sufficient control . . . to permit meaningful collective 
bargaining'' actually meant, the final rule provides ample guidance. 
Moreover, the final rule's treatment of these factors as non-
dispositive does not contradict the court's decision because the court 
did not decide whether either indirect or reserved-but-unexercised 
control can be dispositive of joint-employer status. 911 F.3d at 1213, 
1218. The final rule thus comports with the court's decision.
    Commenters propose multiple changes to the proposed rule based on 
the D.C. Circuit's criticisms of Browning-Ferris. Specifically, 
commenters propose (1) to provide legal scaffolding distinguishing 
between control over essential terms and conditions of employment and 
control over the basic contours of contracted-for service; and (2) to 
specify the terms and conditions that are essential to meaningful 
collective bargaining, and to clarify what meaningful collective 
bargaining entails.\235\ As explained below, we believe the final rule 
appropriately resolves the court's critiques of the Browning-Ferris 
standard.
---------------------------------------------------------------------------

    \235\ See comments of CDW; RILA; HR Policy Association; 
Associated Builders and Contractors Inc.; IFA; American Hotel & 
Lodging Association; General Counsel Robb; Jenner & Block, LLP; 
Restaurant Law Center.
---------------------------------------------------------------------------

    The first set of comments responds to the court's criticism of the 
Board's application of the indirect control factor in Browning-Ferris. 
The court criticized the Browning-Ferris Board for failing ``to hew to 
the relevant common-law boundaries that prevent the Board from 
trenching on the common and routine decisions that employers make when 
hiring third-party contractors and defining the terms of those 
contracts.'' Id. at 1219. The court remanded the case with instructions 
``to erect some legal scaffolding that keeps the inquiry within 
traditional common-law bounds.'' Id. at 1220.
    Commenters make various proposals for how the rule could erect the 
``legal scaffolding'' the D.C. Circuit directed the Board to provide. 
One commenter proposes that the Board list and define essential terms 
and conditions of employment.\236\ Two other commenters propose that 
the rule explain the difference between global oversight of a company-
to-company business relationship and actual control over the essential 
terms and conditions of employment of another employer's 
employees.\237\
---------------------------------------------------------------------------

    \236\ See comment of Restaurant Law Center.
    \237\ See comments of Job Creators Network; IFA.
---------------------------------------------------------------------------

    Some commenters propose that the rule exclude from the joint-
employer inquiry specific actions they say fall within the routine 
contours of most joint undertakings. One commenter, for example, 
proposes the rule state that the following factors do not support 
joint-employer status: Decisions that set the objectives, basic ground 
rules, and expectations for a third-party contractor; use of a cost-
plus contract; routine contractual terms; supervision that is inherent 
to any joint undertaking; global oversight; cooperation and 
coordination between a service recipient and a contractor's employees; 
and the basic contours of a contracted-for service.\238\ A second 
commenter proposes that the rule define ``substantial control'' to 
exclude control asserted for the following reasons: To achieve 
compliance with legally mandated requirements, to enforce product and 
service standards in the franchise industry, to implement corporate 
social responsibility initiatives, to establish deadlines, to preserve 
quality control, to protect the brand, to implement and enforce 
employee uniform guidelines, to implement third-party delivery and 
courier services, to provide optional training programs, and to 
authorize multi-employer associations to bargain on behalf of employer-
members.\239\
---------------------------------------------------------------------------

    \238\ See comment of RILA.
    \239\ See comment of CDW.
---------------------------------------------------------------------------

    The final rule provides the legal scaffolding the D.C. Circuit 
found lacking in the Board's Browning-Ferris standard. It responds to 
the Court's holding that indirect control over the basic contours of a 
contracted-for service does not support joint-employer status by 
defining ``indirect control'' to exclude ``setting the objectives, 
basic ground rules, or expectations for another entity's performance 
under a contract.'' It also addresses the D.C. Circuit's admonishment 
that ``not every aspect of control counts. . . . The critical question 
is what is being controlled,'' 911 F.3d at 1220 (emphasis in original), 
by requiring that indirect control be asserted over essential terms and 
conditions of employment and by listing those essential terms 
exhaustively. The rule thus provides the legal scaffolding necessary to 
keep the joint-employer inquiry within common-law bounds and to ensure 
that routine control inherent to any joint undertaking does not support 
joint-employer status.
    The final rule should also provide a satisfactory response to the 
specific exclusions sought by several commenters because it provides 
examples of specific acts that will not constitute direct and immediate 
control over essential terms and conditions.\240\ The rule provides, 
for example, that allowing another employer's employees to participate 
in benefit plans, establishing an enterprise's operating hours, setting 
deadlines for services, setting minimal hiring, performance, or conduct 
standards pursuant to regulatory requirements, bringing misconduct or 
poor performance to another employer's attention, entering into a cost-
plus contract, or instructing employees regarding what work to perform 
and where and when to perform it but not how to perform it, among other 
similar actions, will not

[[Page 11212]]

constitute direct and immediate control. These examples provide the 
specificity sought by some commenters and further clarify the 
distinction between control over essential terms of employment that 
supports joint-employer status and routine features of company-to-
company contracting that do not.\241\
---------------------------------------------------------------------------

    \240\ See comments of RILA; CDW.
    \241\ As explained above, however, not every instance of control 
that fails by definition to qualify as direct and immediate control 
necessarily also fails to qualify as indirect control as a routine 
feature of company-to-company contracting. Although this will 
typically be the case, it remains a question of fact to be resolved 
on a case-by-case basis. See Sec. II.B, ``Summary of Changes to the 
Proposed Rule: Indirect Control,'' supra; Sec. V.B, ``Response to 
Comments: Comments Regarding Indirect Control,'' supra.
---------------------------------------------------------------------------

    The second set of comments responds to the court's criticism of the 
Browning-Ferris standard's second step, which requires consideration of 
``whether the putative joint employer possesses sufficient control over 
employees' essential terms and conditions of employment to permit 
meaningful collective bargaining.'' Browning-Ferris, 362 NLRB at 1600. 
Regarding this step, the Court criticized the Browning-Ferris Board on 
two counts. First, it said that ``the Board never delineated what terms 
and conditions are `essential' to make collective bargaining 
`meaningful.' '' Browning-Ferris v. NLRB, 911 F.3d at 1221-1222 
(quoting Browning-Ferris, 362 NLRB at 1600). Second, it said that the 
Board failed to ``clarify what `meaningful collective bargaining' might 
require.'' Id. at 1222.
    In response to the Court's critique, commenters request that the 
rule define the terms and conditions ``essential'' to make collective 
bargaining ``meaningful'' and clarify what ``meaningful collective 
bargaining'' requires. To that end, one commenter proposes the rule 
identify the subjects over which a joint employer must negotiate and 
specify that they do not include decisions to change aspects of the 
contracting arrangement affecting employment terms, to reallocate 
bargaining responsibilities between employers, or to end a service 
arrangement.\242\
---------------------------------------------------------------------------

    \242\ See comment of RILA.
---------------------------------------------------------------------------

    The final rule addresses the shortcomings the court identified in 
Browning-Ferris's treatment of the second step of its framework by 
eliminating that step and returning to the traditional standard 
requiring substantial direct and immediate control over essential terms 
and conditions of employment. Moreover, the final rule lists the 
essential terms and conditions, thus providing the definition the court 
requested. The final rule also sheds light on what meaningful 
collective bargaining requires by specifying that to qualify as a joint 
employer of another employer's employees, an entity ``must possess and 
exercise 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.'' Rule Sec. 103.40(A).
    Concerned that the court's decision in Browning-Ferris v. NLRB may 
lead the Board to give indirect and reserved control too much weight, 
several commenters propose that the rule limit the roles that these 
forms of control play in the joint-employer analysis. One commenter, 
for example, requests that the rule specify that indirect and reserved 
control are relevant only insofar as they are asserted over essential 
terms and conditions of employment.\243\ Another commenter proposes 
limiting indirect and reserved control to a specific right to displace 
a contractor and directly control its employees, or alternatively, to 
decisions made by the putative joint employer and conveyed indirectly 
using the contractor as intermediary.\244\
---------------------------------------------------------------------------

    \243\ See comment of Associated Builders and Contractors, Inc.
    \244\ See comment of RILA.
---------------------------------------------------------------------------

    The final rule clarifies the contours and limits of indirect and 
reserved control consistent with both the commenters' requests and the 
D.C. Circuit's opinion. The final rule specifies that indirect and 
reserved control are probative of joint-employer status only to the 
extent they supplement and reinforce evidence of direct and immediate 
control. However, for reasons explained above, the Board has not 
limited indirect and reserved control to a specific right to displace a 
contractor and directly control its employees,\245\ and has not 
alternatively defined indirect control as control conveyed through an 
intermediary.\246\
---------------------------------------------------------------------------

    \245\ See Sec. V.C, ``Response to Comments: Comments Regarding 
Contractually Reserved But Unexercised Control,'' supra.
    \246\ See Sec. V.B, ``Response to Comments: Comments Regarding 
Indirect Control,'' supra.
---------------------------------------------------------------------------

    Other comments advance additional proposals based on Browning-
Ferris v. NLRB. One commenter, for example, proposes that the Board 
create a two-part standard to comply with the court's decision.\247\ 
The first part would require the putative joint employer to be a joint 
employer under the common law, and the second part would be the 
standard in the proposed rule. The Board declines this proposal because 
the final rule does not need to consist of a two-part standard to 
comply with the court's decision. The court did not require a two-part 
structure for the joint-employer standard. It held only that the 
standard must stay within the bounds of the common law. Browning-Ferris 
v. NLRB, 911 F.3d at 1208. As explained above, the final rule is 
consistent with that holding.
---------------------------------------------------------------------------

    \247\ See comment of World Floor Covering Association.
---------------------------------------------------------------------------

    Another commenter requests that the Board add ``significant'' to 
the rule to match the phrasing used by the D.C. Circuit where it stated 
that ``for roughly the last 25 years, the governing framework for the 
joint-employer inquiry has been whether both employers `exert 
significant control over the same employees' in that they `share or co-
determine those matters governing the essential terms and conditions of 
employment.' '' Id. at 1209 (quoting NLRB v. Browning-Ferris Indus. of 
Pennsylvania, Inc., 691 F.2d at 1124).\248\ The Board declines the 
invitation because the final rule already requires significant control 
for joint-employer status. It requires an entity to share or 
codetermine employees' essential terms and conditions of employment, 
which is what the D.C. Circuit referred to as ``significant'' control. 
Again, in the quote above, the D.C. Circuit explained that the 
traditional standard required joint employers to ``exert significant 
control . . . in that they share or codetermine those matters governing 
the essential terms and conditions of employment.'' Id. (emphasis 
added). The Third Circuit posited the same equivalence, stating that 
``where two or more employers exert significant control over the same 
employees--where from the evidence it can be shown that they share or 
co-determine those matters governing essential terms and conditions of 
employment--they constitute `joint employers' within the meaning of the 
NLRA.'' Browning-Ferris Indus. of Pennsylvania v. NLRB, 691 F.2d at 
1124. Thus, ``significant'' control means sharing or codetermining 
those matters governing essential terms and conditions of employment. 
The proposed and final rules require as much and thus require 
``significant'' control as defined by the D.C. Circuit.
---------------------------------------------------------------------------

    \248\ See comment of Jenner & Block, LLP.
---------------------------------------------------------------------------

    Commenters also discuss whether the D.C. Circuit's decision affects 
the Board's authorization to promulgate a joint-employer standard via 
rulemaking rather than case adjudication, or at least the propriety of 
doing so. Two commenters argue that by advising that the rulemaking 
must color within common-law lines rather than directing the Board to 
adopt a specific rule or no

[[Page 11213]]

rule at all, the court acknowledged the propriety of the 
rulemaking.\249\ Another commenter notes the court appeared deferential 
to the rulemaking process because it emphasized that it issued its 
decision only after the Board specifically requested it to proceed 
notwithstanding the rulemaking process.\250\
---------------------------------------------------------------------------

    \249\ See comments of HR Policy Association; General Counsel 
Robb.
    \250\ See comment of Chamber of Commerce.
---------------------------------------------------------------------------

    Other commenters argue that Browning-Ferris v. NLRB undermines the 
authority of the Board to engage in rulemaking on the joint-employer 
standard. One commenter, for example, argues that under the logic of 
the court's decision, the Board's authority extends only to applying 
common-law principles to specific facts, thus rendering the rulemaking 
beyond its statutory authority.\251\ Another commenter argues that the 
Board cannot engage in rulemaking regarding the meaning of Section 2(2) 
of the Act because it does not have discretion to define the employment 
relationship other than how it is defined by the common law, which the 
Board must apply in adjudication.\252\
---------------------------------------------------------------------------

    \251\ See comment of Paul Thomas.
    \252\ See comment of Professor Michael Harper.
---------------------------------------------------------------------------

    The Board does not agree that Browning-Ferris v. NLRB limits its 
authority to engage in rulemaking on the joint-employer standard. That 
issue was not before the court. Moreover, the D.C. Circuit did not 
indicate at any point in its decision that rulemaking regarding joint-
employer status is inappropriate. If anything, the court's majority 
decision implicitly accepted the rulemaking as appropriate by 
acknowledging it and instructing the Board, in its rulemaking, to 
``color within the common-law lines identified by the judiciary.'' 
Browning-Ferris v. NLRB, 911 F.3d at 1208. The dissent also 
acknowledged that ``the Board may establish standards through 
rulemaking or adjudication.'' Id. at 1226 (citing 29 U.S.C. 156). There 
is thus nothing in the court's decision indicating that the Board does 
not have the authority to engage in this rulemaking, and much to 
indicate the opposite.
    Moreover, the arguments against the rulemaking mistake substance 
for process. The common law of agency must inform the substance of the 
joint-employer rule, not the process by which it is promulgated. The 
Board is free to establish the joint-employer standard through 
rulemaking or case adjudication, so long as the substance of the 
standard colors within common-law lines. The final rule stays within 
those bounds and is therefore consistent with Browning-Ferris v. NLRB.
    One commenter argues that any rulemaking is premature while 
Browning-Ferris v. NLRB is pending and could still be reviewed en banc 
by the full D.C. Circuit or appealed to the Supreme Court.\253\ The 
Board does not agree that the status of Browning-Ferris v. NLRB 
undermines the rulemaking process because, as the Board informed the 
D.C. Circuit, the final rule will be prospective only and thus not 
affect that case. Id. at 1206. Also, as explained in the NPRM, the 
Board initiated this rulemaking to invite broad public participation in 
formulating a joint-employer standard and to provide certainty and 
stability that will allow employers, unions, and employees to plan 
their affairs free of the fear that the standard may change at any time 
through case adjudication, and possibly retroactively. See Standard for 
Determining Joint-Employer Status, 83 FR 46681, 46686. Browning-Ferris 
v. NLRB does not affect the validity of these reasons and therefore 
does not affect the propriety of the rulemaking.
---------------------------------------------------------------------------

    \253\ See comment of SEIU National Fast Food Workers Union.
---------------------------------------------------------------------------

K. Comments Regarding Empirical Data on the Joint-Employer Standard's 
Impact on Workplaces With Multiple Possible Employer Entities

    Many commenters cite the rise of contingent employment and 
alternative workforce arrangements as a significant reason for opposing 
the proposed rule, and many commenters have described this economic 
trend in detail. For example, one commenter represents that the 
percentage of U.S. workers who participate in flexible contract work as 
their primary job increased 56 percent between 2007 and 2017, and that 
roughly 10 percent of workers in 2017 were employed in ``alternative 
work arrangements,'' including 10.6 million independent contractors, 
2.6 million on-call workers, 1.4 million temporary help agency workers, 
and 933,000 workers provided by contract firms.\254\ Another commenter 
similarly asserts that 94 percent of the net growth in employment 
between 2005 and 2014 involved alternative work arrangements.\255\ Many 
commenters contend that contingent employment results in lower wages 
and poor workplace conditions.\256\
---------------------------------------------------------------------------

    \254\ See comment of SEIU.
    \255\ See comment of Congressman Scott, Senator Murray, et al.
    \256\ See comments of Law and Economics Professors; Congressman 
Scott and Senator Murray; Legal Aid at Work; APALA.
---------------------------------------------------------------------------

    Relatedly, other commenters argue that the increased outsourcing of 
business functions to contractors and subcontractors has resulted in 
the ``fissuring'' of the workplace, where two or more firms control the 
terms and conditions of employment.\257\ Often, the commenter argues, 
large corporations enter into contracts that restrict subcontractors' 
ability to grant wage increases or institute other changes in the 
workplace. The commenter further contends that for workers in such 
circumstances to be able to engage in meaningful collective bargaining, 
the law must bring large corporations that reserve control over or 
indirectly control those workers' terms and conditions of employment to 
the bargaining table along with the subcontractors. Without such a 
requirement, it contends, companies can use alternative workforce 
arrangements to evade liability for violations of labor standards and 
avoid collective bargaining.\258\
---------------------------------------------------------------------------

    \257\ See, e.g., comment of EPI.
    \258\ See also comments of Attorneys General of New York, 
Pennsylvania, et al.; AFT; Teamsters Local 848.
---------------------------------------------------------------------------

    Other commenters argue that the Board's refusal to address these 
issues would constitute a failure on the part of the Board to adapt the 
Act to the changing patterns of industrial life.\259\ Numerous 
commenters cite these trends as reasons why the Board should retain the 
Browning-Ferris standard, arguing that it better enables workers to 
bargain with entities like franchisors and contractors and hold them 
accountable for labor law violations.\260\ Moreover, several commenters 
argue or suggest that the Board should consider economic factors when 
determining whether an entity is a joint employer.\261\
---------------------------------------------------------------------------

    \259\ Comments of Congressman Scott and Senator Murray; see also 
IUOE; Wimmer.
    \260\ See comments of Members of Congress; EPI; Congressman 
Scott and Senator Murray; Justice in Motion; Karyn Panitch.
    \261\ See comments of Law and Economics Professors; Southern 
Poverty Law Center; CWA.
---------------------------------------------------------------------------

    After considering these comments, the Board is not persuaded that 
the trend toward increased contingent or temporary employment 
relationships warrants abandoning the initial proposal to restore to 
the joint-employer standard the requirement that a putative joint 
employer exercise substantial direct and immediate control over 
essential terms and conditions of employment. Instead, meaningful 
collective bargaining is best promoted by a standard that places at the 
bargaining table only those entities that actually control, directly 
and immediately, the essential terms and conditions of employment of 
another

[[Page 11214]]

employer's employees. That said, the final rule makes indirect and 
reserved-but-unexercised control over essential terms and conditions 
probative of joint-employer status to the extent they supplement and 
reinforce direct and immediate control. Accordingly, the final rule 
does make indirect and reserved control relevant to the joint-employer 
analysis.
    Opponents of the proposed rule cite research purportedly indicating 
that the proposed rule would have negative economic consequences for 
workers. Specifically, one commenter contends that the proposed rule 
would make collective bargaining among subcontracted and temporary 
workers nearly impossible, and that this would result in an annual 
transfer of $1.3 billion from workers to employers.\262\
---------------------------------------------------------------------------

    \262\ See comment of EPI; see also comments of IBT; Equal 
Justice Center.
---------------------------------------------------------------------------

    In contrast, supporters of the proposed rule contend that Browning-
Ferris has had negative economic consequences, including causing 
franchisors to ``distance'' themselves from franchisees so that 
franchisors will not be found joint employers.\263\ One commenter cites 
as an example a franchisee who stopped receiving employee handbooks, 
job application materials, and recruitment assistance from the 
franchisor.\264\ According to a study by economist Ronald Bird, 
franchisor ``distancing'' has resulted in lost output of between $17.2 
billion and $33.3 billion per year.\265\ Additionally, commenters cite 
a study claiming that Browning-Ferris has caused job growth in the 
hotel industry to slow.\266\ Many commenters argue that the Browning-
Ferris standard has subjected potential joint employers to higher 
litigation costs.\267\ Against these negative consequences, one 
commenter suggests that the Browning-Ferris standard would not 
necessarily improve economic outcomes for workers.\268\ It also argues 
that it is proper for the Board to rely on the experience of commenters 
in this rulemaking, especially in the absence of comprehensive data.
---------------------------------------------------------------------------

    \263\ See comments of IFA; Johnson and Graham.
    \264\ Comment of Ranking Member Foxx.
    \265\ Comment of Chamber of Commerce.
    \266\ Comments of American Action Forum; U.S. Senate Committee 
on Health, Education, Labor, and Pensions (Senate HELP Committee).
    \267\ Comments of International Warehouse Logistics Association; 
Competitive Enterprise Institute; Restaurant Law Center.
    \268\ Comment of IFA.
---------------------------------------------------------------------------

    One commenter contends that the negative economic and social 
effects of outsourcing cited by critics of the proposed rule have to be 
weighed against the economic opportunities that outsourcing 
provides.\269\ The commenter also contends that the growth of 
contingent employment was not a valid reason for adopting the Browning-
Ferris standard and is not a valid reason for keeping it. Further, the 
commenter argues that a joint-employer standard based on economic 
influence would be unworkable and would not necessarily result in 
better outcomes for employees. The commenter adds that it is not the 
purpose of the Act to support collective bargaining outcomes favoring 
labor. Relatedly, another commenter points out that 500,000 SEIU 
members provide security services and are employed by contractors, and 
it argues this shows that outsourcing has not prevented unionization or 
stifled collective bargaining.\270\
---------------------------------------------------------------------------

    \269\ Comment of Chamber of Commerce.
    \270\ Comment of FordHarrison LLP.
---------------------------------------------------------------------------

    The final rule is not based on a prediction by the Board regarding 
purported economic impacts, if any, on workers' wages or the economy 
generally. Rather, as explained throughout, returning to the joint-
employer framework that predated Browning-Ferris--a framework that no 
court has ever found impermissible on common-law grounds--is warranted 
on policy grounds. Its requirement of direct and immediate control over 
essential terms and conditions of employment will best promote 
meaningful collective bargaining. That same requirement, plus the 
rule's exhaustive enumeration of those essential terms and conditions 
and its descriptions of what does and does not count as direct and 
immediate control with respect to each essential term or condition all 
draw clear and readily discernible lines. Thus, the final rule should 
produce predictable outcomes, and accordingly provide members of the 
regulated community with the ability to structure their affairs with at 
least one contingency removed from consideration.

L. Comments on the Hypothetical Scenarios Contained in the Text of the 
Proposed Rule

    Many commenters write favorably regarding the hypothetical 
scenarios--called ``examples'' in the NPRM--contained in the regulatory 
text of the proposed rule, stating, among other things, that they are 
helpful; \271\ address common situations that the Board has not 
necessarily had the opportunity to address before; \272\ allow the 
Board to advise, now, whether those situations satisfy the proposed 
rule's standard rather than leaving them unresolved to some indefinite 
future time; \273\ and provide the type of additional ``scaffolding'' 
that the D.C. Circuit in Browning-Ferris v. NLRB said was missing from 
the Browning-Ferris joint-employer standard.\274\
---------------------------------------------------------------------------

    \271\ Comments of the Restaurant Law Center; International 
Bancshares Corporation; and Associated Builders and Contractors, 
Inc.
    \272\ Comment of COLLE.
    \273\ Id.
    \274\ Id.
---------------------------------------------------------------------------

    By contrast, many commenters criticize the scenarios, stating, 
among other things, that they are unhelpful; \275\ some of them are 
inconsistent with the text of the proposed rule or the commentary in 
the NPRM; \276\ many of them raise unanswered questions; \277\ the NPRM 
failed to explain their regulatory force; \278\ they assume that 
employers make explicit exercises of power that are not always made 
explicit in the real world; \279\ they fail to consider the interplay 
of multiple factors, which is what actual cases almost always involve; 
\280\ and they suggest that exercising control over a single term of 
employment, without regard to its significance, could create joint-
employer status.\281\
---------------------------------------------------------------------------

    \275\ Comment of 1199SEIU United Healthcare Workers East.
    \276\ Comments of 1199SEIU United Healthcare Workers East; SEIU; 
Employment Law Alliance.
    \277\ Comment of SEIU.
    \278\ Id.
    \279\ Comment of IBT.
    \280\ Comments of General Counsel Robb; AFL-CIO; SEIU Local 
32BJ; 1199SEIU United Healthcare Workers East; IUOE; SEIU; 
Employment Law Alliance.
    \281\ Comments of General Counsel Robb; SEIU; Employment Law 
Alliance.
---------------------------------------------------------------------------

    Having considered these comments and on further review, the Board 
has decided not to include in the final rule the examples from the 
proposed rule. As several commenters note, real-life fact patterns are 
likely to be far more complex than those portrayed in the examples' 
hypothetical scenarios, and therefore the scenarios are not that 
useful. Nevertheless, as discussed elsewhere, the Board has sought to 
clarify the joint-employer standard by adding definitions of its key 
terms to the regulatory text. The Board believes that this captures the 
benefits of the examples while avoiding the more negative aspects noted 
by some commenters. The Board also believes that this approach helps 
provide the ``scaffolding'' that the court in Browning-Ferris v. NLRB 
found lacking in the Browning-Ferris standard.
    Additionally, one commenter states that the Board should consider 
the totality of the circumstances in each case, including both evidence 
of a putative joint employer's control as well as evidence of its lack 
of control.\282\

[[Page 11215]]

Consistent with this comment, the final rule makes clear that joint-
employer status ``must be determined on the totality of the relevant 
facts in each particular employment setting.'' Rule Sec. 103.40(A).
---------------------------------------------------------------------------

    \282\ Comment of the Employment Law Alliance.
---------------------------------------------------------------------------

    The final rule also incorporates, in various ways, other feedback 
received on the hypothetical scenarios from the proposed rule. 
Specifically, one commenter notes that Examples 1 and 2 did not provide 
any guidance as to the impact of a finding of control over the wage 
rate.\283\ The final rule clarifies what ``direct and immediate 
control'' over wages is and is not.
---------------------------------------------------------------------------

    \283\ Comment of General Counsel Robb.
---------------------------------------------------------------------------

    Regarding Examples 2 and 11, one commenter states that, in the 
contract-security industry, a company must be able to impose certain 
requirements and should be able to have a contract employee removed 
from its property for poor or unprofessional performance or for 
engaging in illegal activities.\284\ The final rule clarifies that an 
entity does not exercise ``direct and immediate control'' where it 
refuses to allow another employer's employee to access its premises or 
to continue performing work under a contract.
---------------------------------------------------------------------------

    \284\ Comment of John B. Hirsch.
---------------------------------------------------------------------------

    Regarding Example 6, one commenter suggests making it clear that 
Franchisor has not exercised direct and immediate control over 
essential terms and conditions of employment of Franchisee's employees 
to the extent Franchisor merely recommends or coordinates the 
availability of certain benefits that Franchisee is not obligated to 
offer to its employees.\285\ The final rule makes clear that an entity 
does not exercise direct and immediate control over benefits by 
permitting another employer, under an arms-length contract, to 
participate in its benefit plans.
---------------------------------------------------------------------------

    \285\ Comment of Polsinelli PC.
---------------------------------------------------------------------------

    Regarding Example 2, one commenter notes that some employers may 
use unfounded complaints from other entities to terminate employees' 
employment.\286\ Regarding Example 3, one commenter asks whether a user 
entity that makes use of coded language and thinly veiled complaints to 
direct a supplier of temporary employees not to furnish African-
American employees would qualify as having exercised ``direct and 
immediate'' control over those workers' terms of employment.\287\ The 
final rule makes clear that joint-employer status will be determined 
``on the totality of the relevant facts in each particular employment 
setting.'' Thus, the Board will consider the facts of each case, 
including the degree of control that the putative joint employer 
exercises.
---------------------------------------------------------------------------

    \286\ Comment of Wholesale Delivery Drivers, General Truck 
Drivers, Chauffeurs, Sales, Industrial and Allied Workers, Local 
848, IBT.
    \287\ Comment of Legal Aid Justice Center.
---------------------------------------------------------------------------

    One commenter states that the examples do not indicate how many 
instances of direct and immediate control are required and that, while 
several examples describe control that is ``direct and immediate,'' 
none explains whether an entity would be deemed a joint employer based 
on the facts in those examples, or how many other ``essential terms and 
conditions'' an employer must control.\288\ As discussed above, the 
definition of ``substantial direct and immediate control'' in the final 
rule states that the entity must ``possess and exercise such 
substantial direct and immediate control over one or more essential 
terms or conditions of . . . employment as would warrant finding that 
the entity meaningfully affects matters relating to the employment 
relationship'' with another employer's employees.
---------------------------------------------------------------------------

    \288\ Comment of SEIU.
---------------------------------------------------------------------------

M. Comments Regarding the Propriety of Using Rulemaking To Revisit the 
Joint-Employer Standard and of the Adequacy of the Rulemaking Process

    The Board's general rulemaking authority has been recognized both 
by commenters supporting the rule and by those opposing the rule.\289\ 
Several commenters favor using rulemaking to revise the joint-employer 
standard. They contend that rulemaking will promote predictability and 
stability in a way that ``sequential adjudications'' will not,\290\ 
that rulemaking allows for the submission of comments that are not tied 
to the particular facts in a specific case,\291\ and that rulemaking 
permits more thorough deliberation via the notice-and-comment 
process.\292\ In addition, some commenters argue that the proposed rule 
would further policy goals that have been stalled in Congress.\293\
---------------------------------------------------------------------------

    \289\ See Comment of Senate HELP Committee; Society of Human 
Resource Management; see also comment of IUOE (acknowledging as a 
general matter that Sec. 6 authorizes the Board to engage in 
rulemaking, but arguing that rulemaking is not necessary in these 
circumstances).
    \290\ Comment of Jenner & Block, LLP.
    \291\ Comment of Restaurant Law Center.
    \292\ Comment of Chamber of Commerce.
    \293\ See comments of Members of Congress; Society of Human 
Resource Management.
---------------------------------------------------------------------------

    One commenter acknowledges that the Board has statutory authority 
to promulgate a rule on joint-employer status, but urges the Board to 
rely on several other provisions of the Act, as well as Section 6, in 
promulgating this rule.\294\ As noted by that commenter, Section 6 
authorizes the Board to make rules and regulations ``as may be 
necessary to carry out the provisions of this Act.'' \295\ The 
commenter cites Chamber of Commerce of the United States v. NLRB, 721 
F.3d 152, 160 (4th Cir. 2013), where the court explained that Section 6 
requires some other section of the Act to provide either explicit or 
implicit authority to issue a particular rule. The court there found 
that the Board had exceeded its statutory authority when it promulgated 
a rule requiring employers to post in the workplace a notice informing 
employees of their rights under the Act. As noted above, the Board has 
determined that Section 6 authorizes the final rule as necessary to 
carry out Sections 2, 7, 8, 9, and 10 of the Act, 29 U.S.C. 152, 157, 
158, 159, and 160, respectively.
---------------------------------------------------------------------------

    \294\ Comment of National Federation of Independent Businesses 
(NFIB).
    \295\ Comment of NFIB at 2. See also comment of Professor Harper 
(arguing that the proposed rule was not within the Board's authority 
because it purports to articulate an abstractly stated law defining 
the employment relationship, rather than the relevance of that 
relationship to particular provisions of Sec. 8 or 9 of the Act).
---------------------------------------------------------------------------

    In contrast, other commenters oppose the Board's use of rulemaking 
to establish the joint-employer standard. For the following reasons, 
the Board finds these arguments unpersuasive.
    One commenter states that a desire by the Board to avoid policy 
oscillation cannot serve as a proper basis for rulemaking because the 
proposed rule would represent further oscillation with respect to the 
joint-employer standard.\296\ However, the Board's desire is not to 
avoid change in this area of the law altogether but to best effectuate 
the policies of the Act, consistent with the common law and informed by 
the comments we have received. Further, the Board believes that 
rulemaking will provide greater predictability for members of the 
regulated community than a standard established through adjudication, 
where retroactive application of new policies and standards is the 
Board's usual practice. See, e.g., SNE Enterprises, 344 NLRB 673, 673 
(2005).
---------------------------------------------------------------------------

    \296\ See comment of IUOE.
---------------------------------------------------------------------------

    Some commenters argue that the Board's reference in the NPRM to 
``continuing uncertainty'' in the labor-management community in the 
wake of the Board's decision in Browning-Ferris was unfounded.\297\ The 
Board disagrees. The continuing uncertainty referred to arose from the 
adjudicatory shifts in the joint-employer standard that had taken place 
within a relatively short period of

[[Page 11216]]

time beginning with Browning-Ferris, as noted above.\298\ Moreover, the 
vacatur of Hy-Brand I in Hy-Brand II did not reflect a Board majority 
to return to the Browning-Ferris standard on doctrinal grounds, and 
this certainly prompted reasonable doubt among the Board's stakeholders 
regarding the post-Hy-Brand II status of the Browning-Ferris standard, 
which sprang back into place by default rather than conviction. It is 
surely the case that this state of affairs was unstable and demanded 
resolution.
---------------------------------------------------------------------------

    \297\ Comment of Law and Economics Professors at 10; EPI at 2-3.
    \298\ See Sec. III.B, ``Justification for Using Rulemaking, 
Rather than Adjudication, to Revise the Joint-Employer Standard: The 
Preference for Rulemaking over Adjudication,'' supra.
---------------------------------------------------------------------------

    One commenter argues that rulemaking is inappropriate because the 
reasons justifying past rulemakings by the Board--judicial rejection of 
adjudicatory attempts to formulate a standard regarding bargaining 
units in the healthcare industry; the purported need to provide a 
comprehensive update of the Board's representation-election rules--are 
absent here.\299\ But Section 6 of the Act broadly authorizes the Board 
to make rules and regulations ``as may be necessary to carry out the 
provisions of [the Act],'' and the Board has identified the provisions 
of the Act that this rulemaking effectuates.\300\ Supreme Court 
precedent also supports the Board's discretion to act through 
rulemaking rather than adjudication. See NLRB v. Bell Aerospace Co., 
416 U.S. at 294 (``[T]he choice between rulemaking and adjudication 
lies in the first instance within the Board's discretion.''). Nothing 
in the Act or judicial precedent warrants a conclusion that the Board 
may only engage in rulemaking for reasons the Board has cited in the 
past.
---------------------------------------------------------------------------

    \299\ Comment of IUOE.
    \300\ See Sec. III.A, ``Justification for Using Rulemaking, 
Rather than Adjudication, to Revise the Joint-Employer Standard: 
Authority to Engage in Rulemaking,'' supra.
---------------------------------------------------------------------------

    Another commenter suggests that rulemaking is suspect because it is 
a ``purely political process'' and because adjudication is the Board's 
``normal'' process.\301\ Preliminarily, it is not clear what the 
commenter means by a ``purely political process.'' To the extent the 
commenter refers to policy-based views that influence how a Board 
member applies the Act and that tend to correlate with a member's party 
affiliation, case adjudication is no less ``political'' than 
rulemaking. No less than case adjudication, rulemaking involves 
reasoned decision-making, conducted within the constraints of the APA 
and subject to judicial review. As demonstrated below, the Board has 
carefully considered all comments with an open mind, and the final rule 
we have formulated represents our reasoned determination regarding the 
appropriate standard for determining joint-employer status. The fact 
that the Board has not routinely engaged in rulemaking in the past does 
not preclude us from doing so now (see Bell Aerospace Co., 416 U.S. at 
294), and while the Board typically makes substantive policy 
determinations through adjudication rather than rulemaking, this has 
been criticized by numerous commentators.\302\
---------------------------------------------------------------------------

    \301\ Comment of Professor George Gonos at 2-3.
    \302\ See R. Alexander Acosta, Rebuilding the Board: An Argument 
for Structural Change, over Policy Prescriptions, at the NLRB, 5 FIU 
L. Rev. 347, 351-52 (2010); Merton C. Bernstein, The NLRB's 
Adjudication-Rule Making Dilemma Under the Administrative Procedure 
Act, 79 Yale L.J. 571, 589-90, 593-98 (1970); Samuel Estreicher, 
Policy Oscillation at the Labor Board: A Plea for Rulemaking, 37 
Admin. L. Rev. 163, 170 (1985); Jeffrey S. Lubbers, The Potential of 
Rulemaking by the NLRB, 5 FIU L. Rev. 411, 414-17, 435 (2010); 
Kenneth Kahn, The NLRB and Higher Education: The Failure of 
Policymaking Through Adjudication, 21 UCLA L. Rev. 63, 84 (1973); 
Charles J. Morris, The NLRB in the Dog House--Can an Old Board Learn 
New Tricks?, 24 San Diego L. Rev. 9, 27-42 (1987); Cornelius Peck, 
The Atrophied Rule-making Powers of the National Labor Relations 
Board, 70 Yale L.J. 729, 730-34 (1961); Cornelius J. Peck, A 
Critique of the National Labor Relations Board's Performance in 
Policy Formulation: Adjudication and Rule-Making, 117 U. Pa. L. Rev. 
254, 260, 269-72 (1968); David L. Shapiro, The Choice of Rulemaking 
or Adjudication in the Development of Administrative Policy, 78 
Harv. L. Rev. 921, 922 (1965); Carl S. Silverman, The Case for the 
National Labor Relations Board's Use of Rulemaking in Asserting 
Jurisdiction, 25 Lab. L.J. 607 (1974); Berton B. Subrin, Conserving 
Energy at the Labor Board: The Case for Making Rules on Collective 
Bargaining Units, 32 Lab. L.J. 105 (1981).
---------------------------------------------------------------------------

    Several commenters contend that adjudication is preferable to 
rulemaking because adjudication assertedly permits the Board to develop 
joint-employer doctrine more carefully, one case at a time.\303\ But 
rulemaking enables the Board to provide the regulated community greater 
certainty beforehand, as the Supreme Court has instructed that we 
should do. First Nat'l Maint. Corp. v. NLRB, 452 U.S. at 679. The Board 
also observes that in substance, the final rule codifies the Board's 
joint-employer law as it existed before Browning-Ferris, and therefore 
it reflects the Board's application of the joint-employer doctrine in 
numerous pre-Browning-Ferris cases. Moreover, disputes over joint-
employer status will continue to arise and be resolved through 
adjudication under the standard set forth in the final rule, and the 
joint-employer doctrine will therefore continue to develop.
---------------------------------------------------------------------------

    \303\ See comments of NC National Employment Lawyers 
Association; UA.
---------------------------------------------------------------------------

    One commenter argues that it is a vice, rather than a virtue, that 
a standard codified in a regulation is more difficult to change than 
one developed through adjudication, especially because a regulation 
would, in its view, deprive the Board of the flexibility needed to take 
into account ``ever-changing factors in our dynamic economy.'' \304\ As 
discussed above, however, we believe that the comparative stability of 
rulemaking over case adjudication as the means of establishing the 
joint-employer standard is a virtue, as it will enhance labor-
management stability, the promotion of which is one of the principal 
purposes of the Act. To the extent the commenter is arguing that the 
Board should consider economic factors, the Board declines to base the 
final rule on consideration of ``the wider universe of all underlying 
economic facts that surround an employment relationship,'' as the Board 
did in Browning-Ferris itself. Browning-Ferris, 362 NLRB at 1611 fn. 
68, 1615. And the Board agrees with former Members Miscimarra and 
Johnson that ``the inescapable conclusion to be drawn from the Taft-
Hartley legislation repudiating [NLRB v. Hearst Publications, 322 U.S. 
111 (1944)] is that Congress must have intended that common-law agency 
principles, rather than . . . policy-based economic realities . . . 
govern the definition of employer . . . under the Act.'' Browning-
Ferris, 362 NLRB at 1625. Moreover, while the Board believes that the 
stability and predictability provided through rulemaking is both 
beneficial and consistent with the Supreme Court's guidance in First 
National Maintenance, the final rule will not prevent the Board from 
implementing change when appropriate, either through adjudication that 
further refines the rule, consistent with its text, or through 
additional rulemaking.
---------------------------------------------------------------------------

    \304\ Comment of IUOE at 8.
---------------------------------------------------------------------------

    One commenter argues that rulemaking is an inefficient use of Board 
resources.\305\ While the Board has devoted significant resources to 
this effort, we have done so efficiently and reasonably and have 
concluded that the effort is worth the long-term stability and 
predictability the final rule will provide.
---------------------------------------------------------------------------

    \305\ Comment of Cohen.
---------------------------------------------------------------------------

    Another commenter suggests that it would have been more efficient 
for the Board to have engaged in interpretive rulemaking, as an 
interpretative rule could accomplish similar goals and would not 
require the Board to respond to comments.\306\ As an initial matter, 
the commenter does not explain how an interpretive rule would be 
appropriate

[[Page 11217]]

in these circumstances. ``[T]he critical feature of interpretive rules 
is that they are `issued by an agency to advise the public of the 
agency's construction of the statutes and rules which it administers.' 
'' Perez v. Mortg. Bankers Ass'n, 575 U.S. 92, 97 (2015) (quoting 
Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 99 (1995)). ``If the rule 
cannot fairly be seen as interpreting a statute or a regulation, and if 
. . . it is enforced, `the rule is not an interpretative rule exempt 
from notice-and-comment rulemaking.' '' Catholic Health Initiatives v. 
Sebelius, 617 F.3d 490, 494 (D.C. Cir. 2010) (quoting Cent. Texas Tel. 
Coop., Inc. v. FCC, 402 F.3d 205, 212 (D.C. Cir. 2005)). ``Joint 
employer'' is not a statutory term, and no Board rule or regulation 
currently defines it, so interpretive rulemaking is not an option here. 
Even if it were, the opportunity to receive input through the notice-
and-comment process was one of the reasons the Board decided to embark 
on this rulemaking, and being able to receive, consider, and respond to 
comments outweighs any efficiency that might be gained from foregoing 
that process. Furthermore, an interpretive rule would not provide the 
stability and predictability that will be provided by the final rule as 
the culmination of notice-and-comment rulemaking. See Perez, 575 U.S. 
at 101 (``Because an agency is not required to use notice-and-comment 
procedures to issue an initial interpretive rule, it is also not 
required to use those procedures when it amends or repeals that 
interpretive rule.'').
---------------------------------------------------------------------------

    \306\ Comment of Thomas.
---------------------------------------------------------------------------

    One commenter asserts that the proposed rule runs counter to the 
APA's ``presumption against changes in current policy.'' \307\ The 
commenter further argues that an agency ``must provide a more 
substantial explanation for a policy that departs from its former views 
where `its new policy rests upon factual findings that contradict those 
which underlay its prior policy.' '' Comment of Attorneys General of 
New York, Pennsylvania, et al. (quoting FCC v. Fox Television Stations, 
Inc., 556 U.S. 502, 515 (2009)).
---------------------------------------------------------------------------

    \307\ See comment of Attorneys General of New York, 
Pennsylvania, et al., at 8 (citing Motor Vehicle Manufacturers Assn. 
v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)).
---------------------------------------------------------------------------

    In Fox, the Court clarified that its ``opinion in State Farm 
neither held nor implied that every agency action representing a policy 
change must be justified by reasons more substantial than those 
required to adopt a policy in the first instance.'' 556 U.S. at 514. 
Moreover, the Court explained that while an agency must provide a more 
detailed justification when, for example, ``its new policy rests upon 
factual findings that contradict those which underlay its prior 
policy,'' further explanation was needed ``for disregarding facts'' 
rather than for ``the mere fact of policy change.'' Id. at 515-516. 
Because there is no heightened standard that must be met in order to 
justify a change in the Board's joint-employer standard, and because 
the Board has fully explained its reasoning and has not disregarded any 
relevant facts, the claim of the commenter is misplaced.
    In any event, the Board is firmly convinced that the final rule is 
an improvement over the standard set forth in Browning-Ferris, for 
several reasons. As discussed above, at the first step of the Browning-
Ferris analysis, where the Board considered the putative joint 
employer's control over the terms and conditions of employment of 
another employer's workers, the Board failed to draw meaningful 
distinctions between direct control and indirect and/or reserved-but-
unexercised control, giving them equal weight. At the second step of 
the Browning-Ferris analysis, the Board seemingly recognized that these 
different kinds of control cannot be accorded equal weight by requiring 
consideration of whether the putative joint employer's control is ``too 
limited in scope or significance to permit meaningful collective 
bargaining.'' 362 NLRB at 1614. However, Browning-Ferris provided no 
guidance for determining when ``meaningful collective bargaining'' is 
possible, and the Browning-Ferris Board neglected even to attempt that 
analysis. Moreover, Browning-Ferris failed to provide meaningful 
guidance on the definition of ``essential'' terms and conditions of 
employment, and it also provided ``no blueprint for what counts as 
`indirect' control.'' Browning-Ferris v. NLRB, 911 F.3d at 1220. As a 
result of these flaws, the Browning-Ferris Board impermissibly based 
its joint-employer finding on ``routine feature[s] of independent 
contracts,'' precluding enforcement of its decision. Id.
    The final rule comprehensively addresses all these shortcomings 
more fully than would be possible in the adjudication of a case. It re-
establishes a commonsense hierarchy that recognizes the superior force 
of evidence of actually exercised direct and immediate control as 
compared with indirect and reserved-but-unexercised control. It 
provides an exhaustive list of ``essential'' terms and conditions of 
employment, and for each essential term it specifies what will and will 
not count as direct and immediate control over that essential term. In 
these ways, the final rule provides vital guidance regarding the 
circumstances in which joint-employer status will and will not attach. 
The final rule also erects the ``legal scaffolding'' demanded by the 
D.C. Circuit in Browning-Ferris v. NLRB to ensure that the joint-
employer inquiry will be confined ``within traditional common-law 
bounds.'' Id. And by defining the relative weight of direct and 
immediate control and other types of control, the final rule eliminates 
the cumbersome two-step Browning-Ferris analysis, with its standardless 
inquiry into whether meaningful collective bargaining is possible.
    One commenter argues that the Board has failed to adequately 
consider the costs of the proposed rule relative to its benefits, 
beyond mere costs to small businesses and labor unions.\308\ The 
commenter argues that courts have required consideration of cost, 
citing Michigan v. EPA, 135 S. Ct. 2699, 2711 (2015); Bus. Roundtable 
v. SEC, 647 F.3d 1144 (D.C. Cir. 2011); and Corrosion Proof Fittings v. 
EPA, 947 F.2d 1201 (5th Cir. 1991). The commenter also argues that the 
Board is ignoring economic theory and research on the consolidation and 
abuse of indirect power wielded by third parties over market wages and, 
hence, direct employers' wage-setting decisions. In addition, the 
commenter contends that the NPRM fails to comply with Executive Order 
13725, ``Steps to Increase Competition and Better Inform Consumers and 
Workers to Support Continued Growth of the American Economy,'' which, 
the commenter asserts, encourages agencies to ``build upon efforts to 
detect abuses such as . . . anticompetitive behavior in labor and other 
input markets, exclusionary conduct, and blocking access to critical 
resources that are needed for competitive entry.'' Law and Economics 
Professors at 16 (ellipsis in original) (quoting Executive Order 13725, 
Sec. 2(b), 81 FR 23417 (Apr. 15, 2016)). In this regard, the commenter 
argues that the Board must at least explain why it failed to deem 
franchisors that include no-poaching clauses in franchise agreements as 
joint employers.
---------------------------------------------------------------------------

    \308\ See comment of Law and Economics Professors.
---------------------------------------------------------------------------

    Contrary to the suggestion of the commenter, and for reasons 
already explained, it is inappropriate to base the joint-employer 
standard on studies regarding economic impact because the Board is 
constrained to base the standard on the common law, applied in the 
particular context of the Act.

[[Page 11218]]

    Moreover, the cases cited by the commenter involve statutes that, 
unlike the Act, contain wording indicating that costs must be 
considered. See Michigan v. EPA, 135 S. Ct. at 2704, 2707-2708, 2711-
2712 (finding provision of the Clean Air Act directing agency to 
regulate emissions from power plants if the agency finds regulation 
``appropriate and necessary'' indicated, when read naturally and in 
context with related provision concerning costs, that agency had to 
consider cost when making the finding); Business Roundtable, 647 F.3d 
at 1146, 1156 (finding agency failed to adequately consider effect on 
efficiency, competition, and capital formation, as required by Section 
3(f) of the Exchange Act and Section 2(c) of the Investment Company Act 
of 1940, in promulgating rule at issue); Corrosion Proof Fittings, 947 
F.2d at 1207-1208, 1215 (finding agency failed to give adequate weight 
to the requirement under the Toxic Substances Control Act that it 
promulgate the least burdensome reasonable regulation required to 
protect the environment). Accordingly, this argument is misplaced.
    With respect to Executive Order 13725, that order encourages, but 
does not require, independent agencies to comply with the order. Id. 
Sec. 3(b). As the NLRB is an independent agency, see 44 U.S.C. 3502(5), 
it is not required to comply with Executive Order 13725.
    Finally, the Board does not agree with the notion that joint-
employer status should arise from the purported effect on competition 
for labor from franchisor-franchisee no-poaching agreements. For one 
thing, competition for labor is only one factor in the wage an employer 
offers. Moreover, the disputed no-poaching agreements, as described by 
the commenter, limit the ability of franchisees to hire employees of 
the franchisor or other franchisees of that franchisor. Such provisions 
place no limit on cross-franchise competition for labor. Regardless of 
whether one fast food franchise can hire an employee away from another 
franchisee of the same franchisor, a no-poaching agreement between a 
franchisee and franchisor would not prevent the franchisee from hiring 
an employee away from franchisees of a different franchisor. Whatever 
highly attenuated influence no-poaching agreements may have on market 
wages, it is a far cry from direct and immediate control over wages as 
defined in the final rule--the kind of control that warrants placing 
the entity that exercises it at the bargaining table.
    One commenter argues that the proposed rule violates Executive 
Order 13771, ``Reducing Regulation and Controlling Regulatory Costs,'' 
which requires that ``for every one new regulation issued, at least two 
prior regulations be identified for elimination, and that the cost of 
planned regulations be prudently managed and controlled through a 
budgeting process.'' \309\ However, Executive Order 13371 does not 
govern independent regulatory agencies, such as the NLRB, under 44 
U.S.C. 3502(5). OMB Memorandum M-17-21-OMB, Guidance Implementing 
Executive Order 13771, Titled ``Reducing Regulation and Controlling 
Regulatory Costs'' (Apr. 5, 2017) at 3, 9. Accordingly, the Board is 
not obligated to eliminate any regulations in connection with 
promulgating this final rule.
---------------------------------------------------------------------------

    \309\ See comment of Texas RioGrande Legal Aid at 4 (quoting 
Executive Order 13371, 82 FR 9339 (Jan. 30, 2017)).
---------------------------------------------------------------------------

    Several commenters argue that the Board failed to properly consider 
the value of taking no action, or the value of promulgating a standard 
that makes entities with sufficient market power joint employers, 
because the Board did not base its decision on empirical data or 
economic and public policy research.\310\
---------------------------------------------------------------------------

    \310\ See comments of Law and Economics Professors; CWA; SEIU.
---------------------------------------------------------------------------

    To the extent the commenters are contending that the Board failed 
to consider alternatives, the contention is incorrect. The Board sought 
comment on ``all aspects'' of the proposed rule, including whether the 
common law dictated the approach of the proposed rule or of Browning-
Ferris or left room for either approach, and the Board has received and 
considered thousands of comments concerning the proper joint-employer 
standard. Standard for Determining Joint-Employer Status, 83 FR at 
46687; see also id. at 46696 (noting that Board considered and rejected 
possibility of taking no action).
    To the extent the commenters are arguing that the Board should have 
engaged in an economic analysis assessing the value of taking no 
action, the argument has no merit. As stated repeatedly herein, the 
joint-employer standard is governed by the common law as applied within 
the context of the Act, not by broader economic factors. See, e.g., 
Browning-Ferris, 362 NLRB at 1611 fn. 68, 1615 (rejecting consideration 
of ``the wider universe of all underlying economic facts that surround 
an employment relationship''); id. at 1625 (dissenting opinion) 
(indicating that common-law agency principles, rather than an expansive 
policy-based economic realities and statutory purpose approach, govern 
the definition of employer and employee under the Act).
    One commenter asserts that the Board has failed to provide 
sufficient time for comments.\311\ Specifically, it contends that the 
NPRM provided only seven days after initial comments were due for the 
filing of reply comments, and that this amount of time was insufficient 
to review the 26,197 comments that had been submitted as of January 28, 
2019.
---------------------------------------------------------------------------

    \311\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    Contrary to this commenter, the time provided for comments was more 
than sufficient. Preliminarily, the APA provides no minimum comment 
period, and many agencies, including the Board in past rulemaking 
proceedings, have afforded comment periods of only 30 days. Agencies 
have discretion to provide still shorter periods and are simply 
``encouraged to provide an appropriate explanation for doing so.'' 
Administrative Conference of the United States Recommendation 2011-2 
(June 16, 2011), at 3.
    The NPRM, which issued September 14, 2018, announced a deadline for 
initial comments of November 13, 2018, and that reply comments needed 
to be received on or before November 20, 2018. The Board then extended 
the comment period three times, for a total of 76 additional days. This 
included an extension the Board granted following the D.C. Circuit's 
decision in Browning-Ferris v. NLRB in order to permit the public an 
opportunity to address that decision. Ultimately, comments needed to be 
received on or before January 28, 2019, and comments replying to the 
comments submitted during the initial comment period needed to be 
received no later than 14 days later, February 11, 2019.\312\ Although 
the APA does not require this reply period, the Board provided it to 
give itself the best opportunity to gain all information necessary to 
make an informed decision. The nearly 29,000 comments submitted and the 
depth of analysis many of them provide are ample testament to the 
adequacy of the comment period.
---------------------------------------------------------------------------

    \312\ NLRB Further Extends Time for Submitting Comments on 
Proposed Joint-Employer Rulemaking in Light of D.C. Circuit's Recent 
Browning-Ferris Decision, NLRB (Jan. 11, 2019), https://www.nlrb.gov/news-outreach/news-story/nlrb-further-extends-time-submitting-comments-proposed-joint-employer-1.
---------------------------------------------------------------------------

    Several commenters argue that the Board should have held public 
hearings in connection with this rulemaking, as it has done in prior 
rulemakings. Commenters assert that hearings would provide more input 
and would help dispel the impression that the outcome was 
preordained.\313\ However, the APA

[[Page 11219]]

does not require public hearings. Further, while the Board understands 
the value of public hearings and is willing to hold hearings in 
appropriate circumstances, it has seen public hearings devolve into 
nothing more than individuals reading their already-submitted written 
comments aloud. In those circumstances, the Board gains little 
additional information from a public hearing while expending 
significant time and resources to hold it.\314\ In light of these 
considerations, the Board decided not to hold public hearings in 
connection with this rulemaking. However, as noted above, the nearly 
29,000 comments submitted and the depth of analysis many of them 
provide are ample testament to the adequacy of the opportunities for 
public participation in this rulemaking process. In addition, the Board 
stated in the NPRM that it would review the public's comments and 
consider joint-employer issues ``afresh, with the good-faith 
participation of all members of the Board,'' 83 FR at 46687, and has 
done so. The Board thus rejects the suggestion that the outcome of this 
rulemaking was preordained. Indeed, the several changes to the proposed 
rule reflected in the final rule, based on comments received, clearly 
demonstrate the contrary.
---------------------------------------------------------------------------

    \313\ See comments of AFL-CIO; IUOE; Members of Congress; Cohen; 
IBT.
    \314\ See Letter from Chairman Ring to Senator Murray (Nov. 8, 
2019), https://www.nlrb.gov/sites/default/files/attachments/news-story/node-7827/ring-murray-rulemakings-final.pdf.
---------------------------------------------------------------------------

    The AFL-CIO argues that the Board violated the APA by relying on 
arguments and evidence outside the rulemaking record \315\--
specifically, petitions for rulemaking filed by the CDW and other 
organizations (including the HR Policy Association, the Restaurant Law 
Center, and the IFA). The AFL-CIO notes that the Board did not mention 
the petitions in the NPRM, that the petitions had not otherwise been 
disclosed, that the AFL-CIO did not learn about the petitions until 
December 6, 2018, and that the petitions were not made part of the 
rulemaking record. Further, the AFL-CIO asserts that the Board departed 
from past practice by failing to disclose the petitions in the NPRM. 
Additionally, the AFL-CIO asserts that the NPRM did not explain the 
change in practice.
---------------------------------------------------------------------------

    \315\ The AFL-CIO contends that an agency ``cannot rely on 
arguments or evidence that are not made part of the rulemaking 
record.'' Comment of AFL-CIO at 59. For support, the AFL-CIO states 
that 5 U.S.C. Sec. 706 ``direct[s] courts to `review the whole 
record or those parts of it cited by a party' in determining whether 
agency action was `arbitrary, capricious, an abuse of discretion, or 
otherwise not in accordance with law.' '' Id. (quoting 5 U.S.C. Sec. 
706).
---------------------------------------------------------------------------

    The HR Policy Association counters that the Board did not act 
improperly, and it asserts that (1) the Board did not rely on the 
petitions; (2) the Board was not required to include the petitions in 
the record; (3) by submitting the petitions with its comments, the AFL-
CIO has provided the public an opportunity to comment on the petitions; 
and (4) many of the organizations involved issued press releases 
regarding their petitions, and there was media coverage about potential 
rulemaking. HR Policy Association at 3-5 and fn. 8 (citing June 2018 
press releases and news reports regarding rulemaking petitions).\316\
---------------------------------------------------------------------------

    \316\ Specifically, HR Policy Association cites the following: 
Callie Harman, NAM Joins Business Groups to Petition NLRB on Joint-
Employer Rulemaking, National Association of Manufacturers (June 14, 
2018), https://www.shopfloor.org/2018/06/nam-joins-business-groups-petition-nlrb-joint-employer-rulemaking/; Sean P. Redmond, Coalition 
Files Petition for Joint Employer Rulemaking, U.S. Chamber of 
Commerce (June 19, 2018), https://www.uschamber.com/article/coalition-files-petition-joint-employer-rulemaking; Joyce Hanson, 
Restaurant Group Pushes NLRB on Joint Employer Issue, Law360 (June 
20, 2018), https://www.law360.com/articles/1055108/restaurant-group-pushes-nlrb-on-jointemployer-issue; CDW Seeks Rulemaking to Remedy 
BFI, CDW (June 13, 2018), https://myprivateballot.com/2018/06/13/cdw-seeks-rulemaking-remedy-bfi/; Industry Petitions NLRB for Joint-
Employer Rulemaking, Independent Lubricant Manufacturers Association 
(June 18, 2018), https://www.ilma.org/ILMA/ILMA/ILMA-News/June/Industry_Petitions_NLRB_for_Joint-Employer_Rulemaking.aspx.
---------------------------------------------------------------------------

    The Board has not relied on materials outside of the administrative 
record in this rulemaking. The administrative record contains each of 
the petitions for rulemaking, including those cited by the AFL-CIO. In 
addition, the Board did not undertake this rulemaking based on any of 
these petitions. Each of the petitions was filed after the Board had 
publicly announced that it planned to promulgate a rule on the joint-
employer standard.
    One commenter also argues that changes made to the proposed rule in 
response to the D.C. Circuit's decision in Browning-Ferris v. NLRB 
would likely result in a final rule that is not a logical outgrowth of 
the proposed rule.\317\ In this regard, the commenter asserts that the 
D.C. Circuit has held that ``a final rule was not a logical outgrowth 
of the proposed rule because the court could not conclude `that 
petitioners, ex ante, should have anticipated the changes to be made in 
the course of the [2012] rulemaking.' '' Comment of AFL-CIO at 62 
(alteration in original) (quoting Daimler Trucks North America, LLC v. 
EPA, 737 F.3d 95, 103 (D.C. Cir. 2013)). The commenter asserts that 
interested parties could not anticipate and meaningfully comment on 
changes made in response to the D.C. Circuit's decision. In addition, 
the commenter argues that `` `[a]gency notice must describe the range 
of alternatives being considered with reasonable specificity. 
Otherwise, interested parties will not know what to comment on, and 
notice will not lead to better-informed agency decisionmaking.' '' Id. 
at 63 (quoting Small Refiner Lead Phase-Down Task Force v. EPA, 705 
F.2d 506, 549 (D.C. Cir. 1983)).
---------------------------------------------------------------------------

    \317\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    Apparently assuming that the commenter's ``logical outgrowth'' 
argument concerns the role that indirect and reserved-but-unexercised 
control may play in the final rule, other commenters counter that the 
proposed rule did not require the Board to ignore indirect or reserved 
control.\318\ One such commenter contends that Examples 4 and 11 in the 
proposed rule concerned indirect control.\319\ Moreover, the commenter 
argues that the NPRM asked for feedback regarding the common law and 
thus indicated that such feedback could result in changes to the 
proposed rule.
---------------------------------------------------------------------------

    \318\ See, e.g., comment of CDW.
    \319\ Id.
---------------------------------------------------------------------------

    ``To satisfy the [APA]'s notice requirement, 5 U.S.C. Sec. 
553(b)(3), an agency's final action must be a logical outgrowth of its 
proposed rule.'' Idaho Conservation League v. Wheeler, 930 F.3d 494, 
508 (D.C. Cir. 2019). ``A final rule qualifies as a logical outgrowth 
'if interested parties should have anticipated that the change was 
possible, and thus reasonably should have filed their comments on the 
subject during the notice-and-comment period.' '' Id. (quoting CSX 
Transp., Inc. v. Surface Transp. Board, 584 F.3d 1076, 1079 (D.C. Cir. 
2009)). ``On the other hand, a final rule is not a logical outgrowth if 
`interested parties would have had to divine [the agency's] unspoken 
thoughts, because the final rule was surprisingly distant from the 
proposed rule.' '' Id. (quoting CSX Transp., 584 F.3d at 1080 
(alteration in original)).
    Here, the rule proposed in the NPRM relevantly stated: ``A putative 
joint employer must possess and actually exercise substantial direct 
and immediate control over the employees' essential terms and 
conditions of employment in a manner that is not limited and routine.'' 
The NPRM stated that the proposed rule ``reflects the Board's 
preliminary view, subject to potential revision in response to 
comments, that the Act's purposes of promoting collective bargaining 
and

[[Page 11220]]

minimizing industrial strife are best served by a joint-employer 
doctrine that imposes bargaining obligations on putative joint 
employers that have actually played an active role in establishing 
essential terms and conditions of employment.'' The NPRM also stated 
that the Board ``seeks comment on all aspects of its proposed rule,'' 
including whether ``the common law dictate[s] the approach of the 
proposed rule or of Browning-Ferris.''
    In Browning-Ferris v. NLRB, the D.C. Circuit partially affirmed the 
Board's articulation of the joint-employer test in Browning-Ferris, 
``including [its] consideration of both an employer's reserved right to 
control and its indirect control over employees' terms and conditions 
of employment.'' 911 F.3d at 1199-1200. The court expressly did not 
decide, however, whether either reserved or indirect control, without 
more, could establish a joint-employer relationship. Id. at 1213, 1218.
    Consistent with the D.C. Circuit's decision in Browning-Ferris v. 
NLRB, the final rule refines the rule proposed in the NPRM by providing 
that an entity's indirect control and unexercised, contractually 
reserved authority over essential terms and conditions of employment of 
another employer's employees are probative of joint-employer status. 
For the reasons explained herein, the final rule provides that these 
factors are probative only to the extent that they supplement and 
reinforce evidence of direct and immediate control over essential terms 
and conditions of employment.
    Although the final rule modifies the proposed rule in this and 
other respects, the final rule remains a logical outgrowth of the 
proposed rule. First, the final rule, like the proposed rule, requires 
proof of ``substantial direct and immediate control'' to establish 
joint-employer status. The final rule provides that indirect and 
reserved control are also probative, but the proposed rule was merely 
silent regarding those forms of control. The proposed rule did not 
expressly exclude them. The proposed rule also made clear the Board's 
understanding that the joint-employer standard had to be consistent 
with the common law, and it referred to the Browning-Ferris standard 
and requested comments regarding whether the common law dictated that 
standard. Thus, the proposed rule reasonably signaled that inclusion in 
the final rule of indirect and reserved-but-unexercised control was 
entirely possible. Moreover, the NPRM described the development of the 
joint-employer doctrine, including cases such as Floyd Epperson, 202 
NLRB at 23, in which the Board considered evidence of both direct and 
indirect control in finding joint-employer status. Given all this, 
interested parties should have anticipated that the change was 
possible, and thus reasonably should have filed their comments on the 
subject during the notice-and-comment period. See Idaho Conservation 
League, 930 F.3d at 508. In short, the final rule is a logical 
outgrowth of the proposed rule.

N. Comments Regarding the Practical Consequences of Adopting the Final 
Rule Versus Retaining Browning-Ferris

    Many commenters argue that clarifying the joint-employer standard 
as proposed in the NPRM will make joint-employer determinations more 
predictable, and that greater predictability in this regard is 
desirable.\320\ More specifically, commenters contend that businesses 
desire guidance on this issue and have delayed plans to grow as they 
wait for a ``permanent fix.'' \321\ On the other side, commenters argue 
that retaining the Browning-Ferris standard will promote predictability 
because it is a recent precedent that the Board has infrequently 
applied,\322\ and it will continue to govern in pending cases given the 
final rule's prospective application.\323\ Some commenters claim that 
while the NPRM cited a need to counteract uncertainty, it cited no 
evidence that Browning-Ferris actually created uncertainty.\324\
---------------------------------------------------------------------------

    \320\ Comments of Senate HELP Committee; Polsinelli PC; Carpets 
Plus Color Tile.
    \321\ Comment of Tamra Kennedy, small business owner; see also 
comments of Food Marketing Institute; IFA Franchisee Forum.
    \322\ Comments of AFL-CIO; IUOE; CWA.
    \323\ Comments of Attorneys General of New York, Pennsylvania, 
et al.
    \324\ Comments of AFL-CIO; Attorneys General of New York, 
Pennsylvania, et al.
---------------------------------------------------------------------------

    Having considered these comments, the Board believes that the final 
rule will promote predictability and certainty and will do so more 
effectively than retaining the Browning-Ferris standard. As recounted 
in the NPRM, the last several years have seen oscillation in this area 
of labor law, starting with Browning-Ferris's overruling of preexisting 
precedent, the overruling of Browning-Ferris in Hy-Brand I, and the 
vacatur of Hy-Brand I in Hy-Brand II, which reinstated Browning-Ferris 
by default, not based on the doctrinal convictions of a Board majority. 
See 83 FR at 46682. Thereafter, the D.C. Circuit remanded the Board's 
decision in Browning-Ferris, citing its overbroad and erroneous 
application of the ``indirect control'' factor and its failure to 
explain or apply the second step of the standard announced in that 
decision. In addition to the uncertainties created by this recent 
history, there is the vagueness of the Browning-Ferris standard itself, 
which failed to draw meaningful distinctions between direct control and 
indirect and/or reserved-but-unexercised control. The final rule 
addresses these shortcomings, better effectuates applicable common-law 
principles, provides more guidance to the regulated community, and 
prevents the unsettling of expectations that occurs when precedent is 
overruled by adjudication and the new standard is applied 
retroactively.
    Commenters also variously claim that retaining or discarding 
Browning-Ferris will have an adverse effect on the economy. Some 
contend that Browning-Ferris encourages entities to bring job functions 
in-house, which can increase costs.\325\ Others argue that Browning-
Ferris discourages entities from contracting with small businesses, 
which may be owned by minorities.\326\ In contrast, some commenters 
argue that exempting from joint-employer status entities that exercise 
only indirect control will encourage ``fissuring'' of the workplace 
through widespread outsourcing of contract work.\327\ Commenters argue 
that such contracting shifts costs onto employees and unions,\328\ 
allows companies to evade their legal obligations,\329\ impedes 
employees from organizing and engaging in other protected activities to 
improve their working conditions,\330\ and harms minority workers 
employed by subcontractors,\331\ among other deleterious 
consequences.\332\ In addition, the one commenter contends that no 
commenter has provided specific evidence of Browning-Ferris's adverse 
economic impact.\333\
---------------------------------------------------------------------------

    \325\ Comments of Competitive Enterprise Institute; American 
Staffing Association.
    \326\ Comments of Chamber of Commerce; IFA.
    \327\ Comments of Law and Economics Professors; Attorneys 
General of New York, Pennsylvania et al.; Southern Poverty Law 
Center.
    \328\ Comments of Law and Economics Professors; SEIU.
    \329\ Comments of LIUNA; 1199SEIU United Healthcare Workers 
East.
    \330\ Comments of NELP; Jobs with Justice; Karyn Panitch.
    \331\ Comments of APALA.
    \332\ See, e.g., comment of Law and Economics Professors 
(arguing that to protect competition in fissured labor markets, the 
Board should retain Browning-Ferris or, alternatively, adopt a test 
similar to those used by antitrust authorities that asks whether an 
entity has sufficient market power to justify joint-employer 
status).
    \333\ See comment of AFL-CIO; see also comment of Pacific 
Management Consulting Group (asserting the absence of reliable 
evidence that Browning-Ferris negatively impacted the revenues of 
publicly-traded franchise restaurants).

---------------------------------------------------------------------------

[[Page 11221]]

    In determining the appropriate joint-employer standard, the Board 
does not rely on the various purported economic effects that commenters 
predict the final rule will have on the economy at large or on workers' 
wages. The final rule is governed by the common law of joint-employer 
relationships in the particular context of the Act and further based on 
a policy judgment that it would frustrate, rather than promote, 
national labor policy to draw into a collective-bargaining relationship 
an entity that has never exercised any substantial direct and immediate 
control over essential terms and conditions of employment of another 
employer's employees. Thus, as it did in Browning-Ferris, the Board 
rejects consideration of ``the wider universe of all underlying 
economic facts that surround an employment relationship.'' 362 NLRB at 
1611 fn. 68, 1615 (citing, inter alia, Hearst, 322 U.S. 111) (internal 
quotes omitted). The Board also finds unpersuasive comments stating 
that this approach will limit employees' rights under the Act when an 
entity is found not to be a joint employer because it has not actually 
exercised substantial direct and immediate control over the essential 
terms and conditions of another employer's employees. In that 
situation, the employees will still have a statutory employer, and they 
will have all the rights safeguarded by Section 7 of the Act: The right 
to self-organization, to form, join, or assist labor organizations, to 
bargain collectively through representatives of their own choosing, to 
engage in other concerted activities for mutual aid or protection, and 
to refrain from any or all of these activities. None of those rights 
will be forfeited. Again, the standard is based on applicable common-
law principles in the context of the Act, not on favoring more (or 
fewer) statutory employers of a given group of employees as a matter of 
socio-economic policy.
    Some commenters argue that legally required actions franchisors 
take to protect their trademark and service mark should not be 
considered evidence of joint-employer status.\334\ Relatedly, some 
commenters argue that corporate social responsibility standards, or 
ethics-based policies that entities require their subcontractors to 
follow, should not be considered evidence of joint-employer 
status.\335\
---------------------------------------------------------------------------

    \335\ Comments of HR Policy Association; Competitive Enterprise 
Institute.
---------------------------------------------------------------------------

    By contrast, the one commenter argues that the Board should not 
disregard evidence of influence where it is subjectively motivated by 
concerns such as compliance with the law or protection of a brand.\336\ 
The commenter also argues that any negative impact of Browning-Ferris 
on franchising is minimal given that a franchisor can allocate 
liability by imposing an indemnification clause on its franchisees. 
Other commenters argue that, under a narrower joint-employer standard, 
franchisors will exert more control because there is less risk of 
liability, and this will undermine franchisees' independence.\337\ And 
according to another commenter, Browning-Ferris or a similar standard 
is necessary to countermand ``blatant restrictions'' on labor-market 
competition in the franchising industry, such as franchisors' use of 
``no-poaching'' agreements.\338\
---------------------------------------------------------------------------

    \336\ See Comment of AFL-CIO.
    \337\ Comments of Chairman Scott and Ranking Member Murray; 
Franchisee Advocacy Consulting.
    \338\ See comment of Law and Economics Professors; see also 
comment of American Association of Franchisees & Dealers (arguing 
that the Board should determine whether a franchisor's direct 
economic control, such as over the cost of labor, undermines the 
franchisee's equity ownership in the business).
---------------------------------------------------------------------------

    As explained elsewhere, the Board has decided not to include in the 
final rule any provisions that are tailored to particular industries or 
business models. Instead, the final rule establishes a single, 
generally applicable standard that assesses the ``totality of the 
relevant facts in each particular employment setting.'' As appropriate, 
the Board will take the nature of the particular business or industry 
into consideration in applying the standard articulated in the final 
rule to the facts of the specific case.
    Importantly, however, we note that routine contracting practices of 
independent businesses will not evidence joint-employer status under 
the final rule. Such practices include provisions in business contracts 
that set the objectives, basic ground rules, or expectations for 
another entity's performance under a contract. As discussed above, and 
in agreement with the D.C. Circuit, the final rule differentiates 
``those aspects of indirect control relevant to status as an employer'' 
from ``those quotidian aspects of common-law third-party contract 
relationships,'' which ``cast no meaningful light on joint-employer 
status.'' Browning-Ferris v. NLRB, 911 F.3d at 1220. For example, a 
franchisor's maintenance of brand-recognition standards (e.g., a 
requirement that the employees of its franchisees wear a particular 
uniform) will not evidence direct control over employees' ``essential'' 
working conditions. See Love's Barbeque Restaurant No. 62, 245 NLRB 78, 
120 (1979), and cases cited therein, enfd. in part sub nom. Kallmann v. 
NLRB, 640 F.2d 1094 (9th Cir. 1981).
    Of course, the Board will examine the circumstances of the 
franchisor-franchisee relationship in each particular case to determine 
whether the franchisor has exercised direct and immediate control over 
the essential terms and conditions of employment of the franchisee's 
employees. Whether a franchisor exercises control over essential 
working conditions is measured objectively and is not based on the 
franchisor's subjective intent. The possibility that the franchisor can 
``work around'' joint-employer liability by negotiating an 
indemnification clause is not a sufficient reason to find that its 
brand-protection measures should be considered evidence of joint-
employer status. Put somewhat differently, as between franchisors and 
franchisees, we decline to put our thumb on the scale. That is exactly 
what we would do if we imposed a joint-employer standard that compels 
franchisors to contract around an otherwise forced choice between 
protecting their brand and incurring joint-employer status, or avoiding 
joint-employer status by abandoning their legal duty to protect their 
brand.
    Similarly, a variety of corporate social responsibility standards 
are routine contracting practices and will not be considered evidence 
of joint-employer status. Examples include an entity's requirement that 
another employer adopt safety and quality standards \339\ or harassment 
guidance.\340\ As to the claimed economic effects of no-poaching 
agreements on market wages, the Board has addressed that comment 
already.\341\
---------------------------------------------------------------------------

    \339\ See comments of COLLE; Restaurant Law Center.
    \340\ See comments of HR Policy Association; Center for 
Workplace Compliance.
    \341\ See Sec. V.M, ``Response to Comments: Comments Regarding 
the Propriety of Using Rulemaking to Revisit the Joint-Employer 
Standard and of the Adequacy of the Rulemaking Process,'' supra.
---------------------------------------------------------------------------

    Commenters present conflicting views regarding the effect the 
proposed rule would have on collective bargaining. Some contend that 
Browning-Ferris improperly places at the negotiating table entities 
with widely different interests or attenuated control over employment 
terms.\342\ Others say that a more restrictive standard will impede 
meaningful bargaining. These commenters argue that workers will be 
unable to bargain with the entity that effectively controls their 
working

[[Page 11222]]

conditions \343\--an entity that can terminate its contract with the 
subcontractor without any legal consequences \344\--or that they will 
be unable to bargain over a particular issue if the entity that 
controls that issue and that issue only is not their joint 
employer,\345\ among other things.\346\ And some commenters, citing 
Management Training Corp., 317 NLRB 1355 (1995), argue that limiting 
consideration of control to ``essential'' working conditions will 
frustrate bargaining.\347\
---------------------------------------------------------------------------

    \342\ Comments of General Counsel Robb; CDW.
    \343\ Comments of NELP; EPI; and SEIU Local 32BJ.
    \344\ Comment of Professor Kulwiec (citing Local No. 447, 
Plumbers (Malbaff Landscape Construction), 172 NLRB 128 (1968)); see 
also James Hannley (noting that a franchisor can terminate its 
relationship with the franchisee if employees of the franchisee 
engage in organizing).
    Professor Kulwiec also posits that the concern over having too 
many employers at the bargaining table is overstated because the 
existence of a joint-employer relationship does not require 
bargaining unless the Board finds that the unit is appropriate for 
collective bargaining.
    \345\ Comments of AFL-CIO; SEIU Local 32BJ.
    \346\ See, e.g., Law and Economics Professors (citing Sec. 1 of 
the NLRA in arguing that the NLRA was designed to restore ``equal[ ] 
. . . bargaining power between employers and employees'' and 
``stabiliz[e] . . . competitive wage rates and working conditions 
within and between industries,'' through bargaining between workers 
with ``full freedom of association [and] actual liberty of 
contract'' and employers ``organized in the corporate or other forms 
of ownership association'').
    \347\ Comments of AFL-CIO; SEIU Local 32BJ.
---------------------------------------------------------------------------

    The Board shares the concerns of those commenters who observe that 
the Browning-Ferris standard may place at the table entities that lack 
sufficient control over terms and conditions of employment to warrant 
their participation in collective bargaining. The Board recognizes that 
the second step of that standard addressed that concern, but the 
Browning-Ferris Board's failure to flesh out the requirements of that 
step or provide illustrative guidance through application rendered that 
step effectively meaningless. In contrast, the Board believes that the 
final rule fosters meaningful bargaining by requiring that an entity 
exercise such substantial direct and immediate control over one or more 
essential working conditions ``as would warrant a finding that the 
entity meaningfully affects matters relating to the employment 
relationship.'' \348\ Contrary to commenters who cite Management 
Training against the proposed rule, that decision supports the standard 
adopted in the final rule. See 317 NLRB at 1355, 1357-1359. In 
Management Training, a government entity that was exempt from the NLRA 
had to approve certain economic terms and conditions before the 
private-sector government contractor could implement them. However, the 
contractor was able to effect noneconomic terms without approval. 
Despite the government entity's control over some working conditions, 
the Board found it appropriate to assert jurisdiction over the 
contractor. The Board's decision in Management Training demonstrates 
its conviction that employees can engage in meaningful collective 
bargaining with their employer even though another entity controls some 
essential terms and conditions and cannot be compelled to participate 
in collective bargaining, whether on jurisdictional grounds as in 
Management Training or because it is not a joint employer of the 
employees at issue.\349\
---------------------------------------------------------------------------

    \348\ In this regard, we adhere to the view articulated in the 
NPRM that the NLRA's ``policy of promoting collective bargaining to 
avoid labor strife and its impact on commerce is not best 
effectuated by inserting into a collective-bargaining relationship a 
third party that does not actively participate in decisions 
establishing unit employees' wages, benefits, and other essential 
terms and conditions of employment.'' 83 FR at 46687.
    \349\ See also Supplementary Information Sec. V.G, ``Response to 
Comments: Comments Regarding `Essential' Terms and Conditions of 
Employment,'' supra.
---------------------------------------------------------------------------

    One commenter contends that an entity's requirement that another 
employer comply with government regulations should be considered 
evidence of direct control, citing Watsonville Register-Pajaronian, 327 
NLRB 957 (1999), and related cases.\350\ In those cases, the Board held 
that an employer has a duty to bargain over ``discretionary action 
taken to comply with [a government regulation].'' 327 NLRB at 959; 
accord Dickerson-Chapman, Inc., 313 NLRB 907, 942 (1994); Long Island 
Day Care Services, 303 NLRB 112, 116-117 (1991); Hanes Corp., 260 NLRB 
557, 557, 562 (1982).
---------------------------------------------------------------------------

    \350\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    This argument is misplaced. The rule does not provide that 
employers have no duty to bargain over discretionary action taken to 
comply with a government regulation. Rather, it addresses which 
entity--the employees' direct employer, or a third party--must engage 
in such bargaining. Requiring the direct employer to comply with 
government regulations does not evidence joint-employer status because 
requiring such compliance is part of the basic ground rules or 
expectations for that employer's performance under a contract. Thus, 
considering such requirements as evidence of joint-employer status 
would be contrary to the common-law principles stated in Browning-
Ferris v. NLRB, 911 F.3d at 1219-1220.
    Commenters argue that by eliminating the bargaining obligation of 
an entity that exercises indirect control over the terms and conditions 
of employment of another employer's employees, the proposed rule will 
cause labor unrest, such as strikes.\351\ This concern is overstated. 
The commenters present no evidence that there was more labor unrest 
prior to Browning-Ferris, when indirect control alone was not 
dispositive of joint-employer status. In any event, the Board has 
modified the proposed rule to make indirect control of essential terms 
and conditions probative of such status, provided it supplements and 
reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------

    \351\ Comment of UA.
---------------------------------------------------------------------------

    Some commenters advance arguments related to Section 8(b)(4)'s 
prohibition on secondary picketing. For example, the one commenter 
contends that joint-employer status should not render an otherwise 
neutral entity a ``primary'' employer lawfully subject to picketing 
unless the entity is directly and substantially involved in controlling 
the term or condition of employment in dispute.\352\ In contrast, some 
commenters argue that by narrowing the joint-employer standard, the 
proposed rule undermines First Amendment and other precedent that 
grants employees wide leeway to engage in picketing.\353\
---------------------------------------------------------------------------

    \352\ See comments of General Counsel Robb; World Floor Covering 
Association.
    \353\ Comments of SEIU Local 32BJ; AFT.
---------------------------------------------------------------------------

    This rulemaking solely concerns the joint-employer standard, not 
other legal doctrines. The Board therefore declines the request to 
modify standards regarding secondary picketing. Certainly, as was 
stated in the NPRM, a finding of joint-employer status may determine 
whether picketing directed at a particular business is primary and 
lawful, or secondary and unlawful. In that sense, the final rule's 
clarification of the joint-employer standard should make it easier to 
determine whether an entity is a joint employer and thus a lawful 
target of picketing along with employees' direct employer. The Board is 
not inclined, however, to rule that an entity may be a joint employer 
and remain shielded from picketing under certain circumstances, as the 
above comments effectively request. By the same token, the Board is 
equally unwilling to use this rulemaking to narrow the range of 
activity prohibited by Section 8(b)(4). Both goals are extraneous to 
the task at hand.
    In addition, commenters argue that narrowing the joint-employer 
standard

[[Page 11223]]

will cause small employers to become solely liable for the NLRA 
violations of larger contracting entities.\354\ However, this 
rulemaking is not outcome-driven. The Board's task is not to craft a 
rule that either maximizes or minimizes third-party exposure to unfair 
labor practice liability. It is to ensure that a third party genuinely 
is the joint employer of a separate employer's employees before 
exposing it to such liability and to otherwise-secondary economic 
pressures, and before imposing on it a duty to bargain with the 
representative of those employees. For all the reasons stated herein, 
the final rule fulfills that task and does so with greater clarity, 
predictability, and fidelity to the purposes and policies of the Act 
than did Browning-Ferris.
---------------------------------------------------------------------------

    \354\ Comments of AFL-CIO; IUOE.
---------------------------------------------------------------------------

    Finally, one commenter argues that eliminating the relevance of 
contractually reserved authority, which is objective and documentable, 
will engender litigation and impose recordkeeping and related 
costs.\355\ However, the proposed rule did not eliminate contractually 
reserved authority, and the final rule deems evidence of contractually 
reserved authority probative of joint-employer status to the extent it 
supports and reinforces evidence of direct and immediate control.
---------------------------------------------------------------------------

    \355\ See comment of AFL-CIO. Conversely, the IFA argues that 
Browning-Ferris has increased legal spending by encouraging 
individuals to pursue the ``deeper pockets'' of larger entities.
---------------------------------------------------------------------------

O. Comments Regarding the Circumstances Under Which a Joint Employer 
Will Be Found Liable for Another Employer's Unfair Labor Practices

    Many commenters favor the proposed rule to the extent it exposes an 
entity to unfair labor practice liability as a joint employer only if 
it exercises substantial direct and immediate control over another 
employer's employees' terms and conditions of employment.\356\ These 
commenters observe that the ``direct and immediate control'' 
requirement will allow their members, such as franchisors and large 
retailers, to oversee the general performance of franchisees or retail 
business partners without being held liable for events in workplaces 
over which they have little or no control.
---------------------------------------------------------------------------

    \356\ See comments of the Restaurant Law Center; National Retail 
Federation; American Road & Transportation Builders Association.
---------------------------------------------------------------------------

    Other commenters urge us to adopt a final rule that would further 
limit unfair labor practice liability even when an entity is found to 
be a joint employer of another's employees. One commenter, for example, 
suggests imposing liability only where the joint employer is involved 
in the unlawful act or controls the essential term or condition of 
employment at issue in the unlawful act, or where the unfair labor 
practice cannot be adequately remedied without its participation.\357\ 
Similarly, another commenter urges the Board to adopt an 
``instrumentality test,'' under which liability would be imposed on a 
joint employer only if it controls or has the right to control the 
particular instrumentality alleged to have caused the harm.\358\ Other 
commenters urge the Board to apply the standard set forth in Capitol 
EMI Music, 311 NLRB 997 (1993), enfd. 23 F.3d 399 (4th Cir. 1994), and 
impose liability on a joint employer for non-bargaining-related unfair 
labor practices only where the joint employer knew or should have known 
of the unlawful act and acquiesced in it by failing to protest or 
otherwise resist it.\359\ Finally, some commenters request that the 
rule eliminate joint-employer liability altogether and state that a 
joint employer is not liable for actions taken by another 
employer.\360\
---------------------------------------------------------------------------

    \357\ See comment of Job Creators Network.
    \358\ See comment of IFA.
    \359\ See comments of General Counsel Robb; HR Policy 
Association.
    \360\ See comments of World Floor Covering Association; Glover.
---------------------------------------------------------------------------

    The Board declines to expand the scope of the proposed rule to 
change Board precedent regarding the joint-and-several liability of one 
joint employer for the unfair labor practices committed by another 
joint employer. Although joint-employer status is a predicate of joint 
liability, the analyses of the two concepts have often been distinct, 
each with its own considerations and caselaw. Capitol EMI Music, for 
example, is longstanding precedent regarding an exception to joint-and-
several liability of the kind some commenters request, but it and other 
precedent regarding exceptions to joint liability are not cited or 
discussed in the NPRM. It is thus doubtful that the public has been 
properly apprised that this issue could be addressed in the instant 
rulemaking. See Idaho Conservation League v. Wheeler, 930 F.3d at 508 
(``[A] final rule is not a logical outgrowth if interested parties 
would have had to divine [the agency's] unspoken thoughts, because the 
final rule was surprisingly distant from the proposed rule.'') (second 
alteration in original) (internal quotation marks omitted).
    Moreover, as explained in the NPRM, a significant motive for this 
rulemaking is to resolve the recent oscillations in Board law regarding 
joint-employer status that have occurred in the past several years. The 
NPRM explained that the rule was necessary ``[i]n light of the 
continuing uncertainty in the labor-management community created by 
these adjudicatory variations in defining the appropriate joint-
employer standard under the Act.'' 83 FR at 46682. There has been no 
recent oscillation in the law, however, regarding the issue of joint 
liability, which the Board did not change or even address in Browning-
Ferris. Indeed, the Board majority in Browning-Ferris emphasized that 
the decision ``[did] not modify any other legal doctrine, create 
`different tests' for `other circumstances,' or change the way that the 
Board's joint-employer doctrine interacts with other rules or 
restrictions under the Act.'' Browning-Ferris, 362 NLRB at 1618 fn. 
120.
    The issue of joint liability is also best resolved on a case-by-
case basis. Determining whether one joint employer is jointly and 
severally liable for the other joint employer's unfair labor practices 
depends on the nature of the joint-employment relationship and the type 
of violation alleged. As the Board explained in Capitol EMI Music, 
``traditional'' joint-employment relationships, where each joint 
employer has a representative at a worksite and shares supervision of 
the employees, might call for a different analysis of liability than an 
arrangement where one joint employer simply supplies employees to 
another but takes no part in their daily direction. 311 NLRB at 1000. 
The Board was also careful to limit the exception to joint liability 
announced in Capitol EMI Music not just to a specific kind of joint-
employment relationship but also to a specific unfair labor practice, 
one that depends on an unlawful motive. Id. at 1001. The Board also 
observed that the result might be different where a purportedly 
``innocent'' joint employer nevertheless benefits from a co-employer's 
unlawful conduct, or where an employer arrangement allows a joint 
employer to inquire into its co-employer's actions. Id. at 999. The 
Board believes this case-by-case approach is sound, and therefore 
decline the invitation to address joint liability in the final rule.

P. Comments Regarding Industry-Specific Standards

    Several commenters discuss particular industries or business 
relationships,\361\ such as home

[[Page 11224]]

builders,\362\ the contract-security industry,\363\ retailers,\364\ and 
the franchisor-franchisee relationship.\365\ As to franchising, for 
example, some commenters contend that legally required actions 
franchisors take to protect their trademark and service mark should not 
be considered evidence of joint-employer status.\366\ Commenters say 
that franchisors protect their brand by providing franchisees, among 
other things, training,\367\ information systems,\368\ and guidance on 
marketing \369\ and customer service.\370\ The Board has decided not to 
address particular industries or types of business relationships in the 
final rule, because doing so would unnecessarily lengthen and 
complicate the rule. Instead, the final rule provides definitions and 
other clarifications that are intended to apply to a wide range of 
industries and business relationships, and the final rule also 
emphasizes that joint-employer status ``must be determined on the 
totality of the relevant facts in each particular employment setting.'' 
The rule addresses contracting practices common to many industries, 
such as the use of cost-plus contracts and control asserted pursuant to 
regulatory requirements. The Board anticipates that any industry-
specific refinements will be developed case by case through 
adjudication.
---------------------------------------------------------------------------

    \361\ Comments of General Counsel Robb; World Floor Covering 
Association.
    \362\ Comment of National Association of Home Builders.
    \363\ Comment of John B. Hirsch.
    \364\ Comment of National Retail Federation.
    \365\ Comment of IFA.
    \366\ Comments of General Counsel Robb; David Kaufmann, lead 
author of ABA Franchise Law Journal article (discussing the Lanham 
Act, 15 U.S.C. Secs. 1051-1141, the FTC Franchise Rule, 16 CFR part 
436, Secs. 436.1 et seq., and the FTC 2007 Franchise Rule Compliance 
Guide); see also comment of Kaufmann (discussing various state 
laws).
    \367\ Comments of IFA; CDW; Polsinelli PC.
    \368\ Comment of IFA.
    \369\ Comments of Kaufmann; Keith Randall, franchise business 
owner.
    \370\ Comments of CDW.
---------------------------------------------------------------------------

VI. Justification for the Final Rule

    The joint-employer doctrine plays an important role in the 
administration of the National Labor Relations Act (NLRA or the Act). 
Most notably, the doctrine determines when an entity other than the 
direct employer of certain employees has a duty to bargain with the 
representative of those employees, may be liable for unfair labor 
practices it did not directly commit, and may be targeted as a primary 
employer in a labor dispute. The joint-employer analysis set forth in 
this final rule is based on the common law as applied in the particular 
context of the NLRA. Certain considerations must be taken into account 
under the Act that may not apply in other contexts. The Board must 
consider when an entity's participation in collective bargaining is 
required for there to be meaningful bargaining over the terms and 
conditions of employees directly employed by another employer. The 
Board also must consider under what circumstances it is appropriate to 
impose liability on an entity that did not directly commit an unfair 
labor practice. And the Board must consider Congress's concern with 
limiting third parties' exposure to economic warfare in labor disputes.
    The Board intends in this final rule to return, with clarifying 
guidance, to the carefully balanced law as it existed before the 
Board's departure in Browning-Ferris. Before, the Board found joint-
employer status only when the additional entity had direct and 
immediate control, as opposed to indirect influence or unexercised, 
contractually reserved authority, over one or more of the most 
contextually meaningful, essential terms and conditions of employment 
such that, considering all of the circumstances, the entity 
meaningfully affected matters relating to the employment relationship. 
Indirect influence or unexercised, contractually reserved authority 
were considered, in weighing the circumstances, as supplementing and 
reinforcing evidence of direct and immediate control, but neither was 
dispositive. The Browning-Ferris Board disrupted this precedent--
without due regard to issues of liability and limiting the scope of 
labor disputes, and with inadequate consideration of meaningful 
bargaining--to establish that indirect or unexercised, contractually 
reserved control could alone be dispositive.
    As noted above, in reviewing the Board's Browning-Ferris decision, 
the United States Court of Appeals for the District of Columbia Circuit 
held that, under the common law, indirect and unexercised reserved 
control can factor in the Board's joint-employer analysis, but the 
Board exceeded the bounds of the common law by ``failing to distinguish 
evidence of indirect control that bears on workers' essential terms and 
conditions from evidence that simply documents the routine parameters 
of company-to-company contracting.'' Browning-Ferris v. NLRB, 911 F.3d 
at 1213, 1216. The court did not pass on whether indirect or 
unexercised reserved control could ever alone be dispositive.
    By returning to the Board's prior precedent, this final rule 
answers that open question. In applying the common law in the context 
of the NLRA, the Board will not find indirect or unexercised reserved 
control, alone, dispositive, but such control will be relevant to the 
extent it supplements and reinforces evidence of direct and immediate 
control. The Board's analysis here, in the words of the D.C. Circuit, 
``color[s] within the common-law lines identified by the judiciary.'' 
Id. at 1208. The standard we adopt in this final rule dates back at 
least to the Board's adoption in Laerco Transportation, 269 NLRB 324 
(1984), and TLI, Inc., 271 NLRB at 798-799, of the United States Court 
of Appeals for the Third Circuit's explication of the joint-employer 
doctrine in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 
691 F.2d 1117, 1124 (3d Cir. 1982). In the ensuing decades, no 
reviewing court ever suggested the Board's standard was at variance 
with the common law, or that it must be extended to the outer bounds of 
the common law. Nevertheless, the Board's 2015 Browning-Ferris decision 
departed from this established body of precedent.
    With this final rule, the Board has endeavored to provide greater 
clarity, guided by the many comments received, as to how it will 
determine joint-employer status. Joint-employer determinations have 
always been fact-intensive, and they will continue to be so. The Board 
is confident, however, that a more precise definition of the key terms 
and analytical points will facilitate consistent application of the 
standard across a broad spectrum of industries and business-to-business 
relationships. This specificity stands in contrast to the uncertainty 
the Board's Browning-Ferris decision created and that the D.C. Circuit 
justifiably criticized, including by its failure to stay within common-
law bounds in its treatment of indirect control and to give any content 
whatsoever to the second, NLRA-based step of the standard announced 
therein.
    Broadly, an entity shares or codetermines the essential terms and 
conditions of another employer's employees--that is, may be considered 
a joint employer of those employees--when it possesses and exercises 
substantial direct and immediate control over the employees' essential 
terms and conditions. The final rule's definitions of ``essential terms 
and conditions of employment,'' ``direct and immediate control,'' and 
when direct and immediate control is ``substantial'' are explained 
below, as is the final rule's treatment of indirect control and 
unexercised, contractually reserved authority and of certain common 
business practices.

[[Page 11225]]

A. Essential Terms and Conditions of Employment

    In Laerco Transportation, the Board first described the essential 
terms and conditions of employment in the joint-employer analysis as 
including, non-exhaustively, ``hiring, firing, discipline, supervision, 
and direction.'' 269 NLRB at 325. Browning-Ferris aside, the Board has 
repeated this non-exclusive list ever since, including in the NPRM. The 
final rule adds wages, benefits, and hours of work to this list, and it 
makes the list of essential terms and conditions of employment an 
exclusive, closed list.
    First, the inclusion of these three terms and conditions, urged by 
many commenters, is a commonsense addition. ``Wages'' and ``hours'' 
feature prominently in the NLRA. See Sections 8(d) and 9 of the Act. 
And Board precedent has assumed wages, benefits, and hours of work are 
essential terms and conditions of employment for purposes of the joint-
employer analysis. See, e.g., Quantum Resources Corp., 305 NLRB at 760-
761 (wages); G. Heileman Brewing Co., 290 NLRB 991, 1000 (1988) 
(benefits), enfd. 879 F.2d 1526 (7th Cir. 1989); Gourmet Award Foods, 
Northeast, 336 NLRB 872, 874-875 (2001) (hours of work).
    Second, setting essential terms and conditions of employment as 
including only wages, benefits, hours of work, hiring, discharge, 
discipline, supervision, and direction brings much needed certainty to 
the joint-employer analysis. An entity's control relating to these 
matters, moreover, has proven most relevant, in the Board's experience, 
in determining when it is warranted to find a bargaining obligation, 
liability for unfair labor practices, and status as a primary in a 
labor dispute. Indeed, no Board case has been identified where control 
over any other term or condition of employment carried the day in a 
joint-employer analysis. As provided in the final rule, however, 
control over other mandatory subjects of bargaining is also probative, 
but only to the extent it supplements and reinforces evidence of direct 
and immediate control over essential terms and conditions of 
employment.

B. Direct and Immediate Control

    Direct and immediate control distinguishes the obvious, meaningful 
control exercised over employees from attenuated indirect and 
unexercised reserved control, which is much less significant in 
identifying a joint employer, and from routine features of company-to-
company contracting that are not relevant to joint-employer status at 
all. The final rule defines direct and immediate control with respect 
to each of the eight essential terms and conditions of employment based 
on lines drawn in the Board's pre-Browning-Ferris precedent. The Board 
determined that this approach provided better and more precise guidance 
than the hypothetical factual examples in the proposed rule, which were 
widely criticized in the comments.
    Over wages, an entity exercises direct and immediate control if it 
actually determines the wage rates, salary, or other rate of pay that 
is paid to another employer's individual employees or job 
classifications. See, e.g., Quantum Resources Corp., 305 NLRB at 760-
761 (finding the user employer jointly employed the supplier employer's 
employees in part because the user employer designated wage rates, 
authorized changes in wage rates, and pushed through raises for 
employees). But it does not exercise such control by entering into a 
cost-plus contract (with or without a maximum reimbursable wage rate). 
See, e.g., Goodyear Tire & Rubber Co., 312 NLRB 674, 678 (1993) (a 
cost-plus contract setting forth the wage reimbursement is not evidence 
of a joint-employer relationship); see also Browning-Ferris, 911 F.3d 
at 1220. Over benefits, an entity exercises direct and immediate 
control if it actually determines the fringe benefits to be provided or 
offered to another employer's employees. This would include selecting 
the benefit plans (such as health insurance plans and pension plans) 
and/or level of benefits provided. Compare G. Heileman Brewing, 290 
NLRB at 1000 (finding joint-employer status in part because the user 
employer exercised authority over granting benefits), with TLI, Inc., 
271 NLRB at 798-799 (attendance of the user employer's representative 
at bargaining sessions and outlining the user employer's need to cut 
labor costs did not show direct control over terms and conditions 
because the representative made no specific proposals; it was up to the 
supplier employer and union to work out needed savings from wages and 
benefits). An entity does not exercise direct and immediate control by 
permitting another employer, under an arm's-length contract, to 
participate in its benefit plans.
    Over hours of work, an entity exercises direct and immediate 
control if it actually determines work schedules or the work hours, 
including overtime, of another employer's employees. See Gourmet Award 
Foods, 336 NLRB at 874-875 (finding joint-employer status in part 
because the user employer determined hours of work and work schedules, 
including overtime); G. Heileman Brewing, 290 NLRB at 1000 (finding 
joint-employer status in part because the user employer set work 
schedules). An entity does not exercise such control by establishing an 
enterprise's operating hours or the times when it needs the services 
provided by another employer. See Service Employees Local 254 (Women & 
Infants Hospital), 324 NLRB 743, 749 (1997) (``The contractual 
provisions affecting when work must be performed are not indicia of 
joint employer status. It is not surprising that [the user employer] 
would require that cleaning be done at times most convenient for the 
college, or that a cleaner be available at all times to handle 
emergencies.'').
    Over hiring, an entity exercises direct and immediate control if it 
actually determines which employees will be hired and which employees 
will not. Compare Le Rendezvous Restaurant, 332 NLRB 336, 336 (2000) 
(finding joint-employer status in part because of the user employer's 
active involvement in hiring a nonunion workforce to replace its 
existing workforce), with Flagstaff Medical Center, 357 NLRB at 667 
(interviewing candidates and making recommendations on whom the primary 
employer should hire did not prove joint-employer status; the direct 
employer retained final authority over hiring decisions and, in fact, 
did not follow all the recommendations), and AM Property Holding Corp., 
350 NLRB at 1002 (not indicative of joint-employer status for the user 
employer to suggest individuals for the supplier employer to hire whom 
the supplier employer independently interviewed before making hiring 
decisions). An entity does not exercise such control by requesting 
changes in staffing levels to accomplish tasks or by setting minimal 
hiring standards such as those required by government regulation. See 
Aldworth Co., 338 NLRB at 139 (``[A]ctions taken pursuant to government 
statutes and regulations are not indicative of joint employer 
status.'').
    Over discharge, an entity exercises direct and immediate control if 
it actually decides to terminate the employment of another employer's 
employee. See, e.g., Whitewood Maintenance Co., 292 NLRB 1159, 1162-
1163 (1989) (finding joint-employer status in part because the user 
employer made the decision to discharge the supplier employers' 
employees, which the supplier employer carried out), enfd. sub nom. 
Texas World Serv. Co. v. NLRB, 928 F.2d 1426 (5th Cir. 1991). An entity 
does not exercise such control by bringing misconduct or poor 
performance to the attention of another

[[Page 11226]]

employer that makes the actual discharge decision, by expressing a 
negative opinion of another employer's employee, by refusing to allow 
another employer's employee to continue performing work under a 
contract, or by setting minimal standards of performance or conduct, 
such as those required by government regulation. See Aldworth Co., 338 
NLRB at 139 (``[A]ctions taken pursuant to government statutes and 
regulations are not indicative of joint employer status.''); Southern 
California Gas Co., 302 NLRB 456, 462 (1991) (not evidence of joint-
employer status for the user employer to indicate it no longer wanted a 
particular employee to work at the facility; the user employer was only 
``exercis[ing] . . . the right of an owner or occupant to protect his 
premises''); Chesapeake Foods, 287 NLRB 405, 407 (1987) (user employer 
did not exercise control by referring complaints about supplied 
employees to the supplier employer, and the supplier employer made the 
decision whether to discharge an employee); H&W Motor Express, Inc., 
271 NLRB 466, 468 (1984) (not evidence of joint-employer status for 
user employer to ask that certain employees to be removed from work 
under its contract).
    Over discipline, an entity exercises direct and immediate control 
if it actually decides to suspend or otherwise discipline another 
employer's employee. See Hobbs & Oberg Mining Co., 297 NLRB 575, 587 
(1990) (finding joint-employer status partly in reliance on the user 
and supplier employer jointly giving a supplied employee a written 
reprimand), affd. 940 F.2d 1538 (10th Cir. 1991), cert. denied 503 U.S. 
959 (1992); G. Heileman Brewing, 290 NLRB at 1000 (finding joint-
employer status in part because the user employer exercised authority 
over discipline). An entity does not exercise such control by bringing 
misconduct or poor performance to the attention of another employer 
that makes the actual disciplinary decision, by expressing a negative 
opinion of another employer's employee, or by refusing to allow another 
employer's employee to access its premises or perform work under a 
contract. See TLI, Inc., 271 NLRB at 799 (finding the user employer did 
not control discipline because ``[w]hen a driver engages in conduct 
adverse to [the user employer's] operation, [it] supplies [the supplier 
employer], not the employee, with an `incident report' whereupon a 
[supplier employer] representative investigates. Disciplinary notices, 
or necessary actions, are issued by [the supplier employer]. In 
addition, although accidents on the road are reported to [the user 
employer], it is [the supplier employer] which investigates and 
determines whether or not the accident was preventable and whether 
further action is necessary'').
    Over supervision, an entity exercises direct and immediate control 
by actually instructing another employer's employees how to perform 
their work or by actually issuing employee performance appraisals. See, 
e.g., International Transfer of Florida, Inc., 305 NLRB 150, 150 (1991) 
(finding the user employer jointly employed the supplier employer's 
employees because the user employer exercised exclusive daily 
supervision and direction over those employees, including as to the 
manner and means of performing the work). An entity does not exercise 
such control when its instructions are limited and routine and consist 
primarily of telling another employer's employees what work to perform, 
or where and when to perform the work, but not how to perform it. See 
AM Property Holding Corp., 350 NLRB at 1001 (supervision is ``limited 
and routine where a supervisor's instructions consist primarily of 
telling employees what work to perform, or where and when to perform 
the work, but not how to perform the work''); see also G. Wes Ltd. Co., 
309 NLRB 225, 226 (1992) (concluding user employer's day-to-day 
supervision was limited and routine where employees were not told 
``specifically how to do the work or the manner in which they were to 
perform the assigned tasks . . . . [they] were told what areas were to 
be worked and with whom the employees were to work, and the work was 
then left to the employees to perform''); Southern California Gas, 302 
NLRB at 462 (finding that the ``[r]espondent's orders and directions to 
the day-shift employees were in the nature of routine directions of 
what tasks were required and where they were to be performed . . . such 
direction [was] consistent with [r]espondent's object of obtaining 
results, i.e., the work it contracted for''); Laerco Transportation, 
269 NLRB at 326 (finding only limited and routine supervision where the 
user employer resolved ``minor problems such as employee personality 
conflicts'' and its involvement was ``limited both as to the nature and 
number of employee problems''; major problems were referred to the 
supplier employer).
    Over direction, an entity exercises direct and immediate control by 
assigning particular employees their individual work schedules, 
positions, and tasks. See, e.g., G. Heileman Brewing, 290 NLRB at 1000 
(finding joint-employer status in part because the user employer 
assigned work and schedules). An entity does not exercise such control 
by setting schedules for completion of a project or by describing the 
work to be accomplished on a project. See Chesapeake Foods, 287 NLRB at 
407 (finding it was not significant control for the user employer to 
``schedul[e] . . . the farms to be worked''); TLI, Inc., 271 NLRB at 
799 (finding it was not evidence of joint-employer status where ``[t]he 
Crown foreman instruct[ed] the drivers as to which deliveries [were] to 
be made on a given day,'' but ``the drivers themselves select[ed] their 
own assignments, on a seniority basis''); Laerco Transportation, 269 
NLRB at 325-326 (finding it was not evidence of joint-employer status 
where the user employer set routes to be followed and the supplier 
employer provided drivers for those predetermined routes).

C. When Direct and Immediate Control Is Substantial

    It is a well-settled principle in Board law that ``[t]o establish 
joint employer status there must be a showing that the employer 
meaningfully affects matters relating to the employment relationship.'' 
Laerco Transportation, 269 NLRB at 325. This has required careful 
consideration of the totality of the relevant facts in each particular 
employment setting. Boire v. Greyhound Corp., 376 U.S. 473, 481 (1964) 
(``[W]hether Greyhound possessed sufficient indicia of control to be an 
`employer' is essentially a factual issue.''); AM Property Holding 
Corp., 350 NLRB at 1000 (``The question of joint employer status turns 
on the facts of each particular case.''); Southern California Gas, 302 
NLRB at 461 (``Primarily, the question of joint employer status must be 
decided on the totality of the facts of the particular case.''). Under 
precedent predating the sharp departure in Browning-Ferris, the Board 
reasonably found entities meaningfully affected matters relating to the 
employment relationship only where they had direct and immediate 
control over at least one essential term or condition of employment.
    Depending on the circumstances, however, direct and immediate 
control over only one essential term or condition of employment, or 
even more than one, has sometimes been found insufficient to 
meaningfully affect matters relating to the employment relationship. 
The direct-and-immediate control may be too isolated or sporadic to be 
meaningful for purposes of imposing bargaining obligations and 
potential unfair labor practice liability.

[[Page 11227]]

See G. Wes Ltd., 309 NLRB at 225 fn. 5 (one isolated incident of user 
employer interviewing employee whom the supplier employer later hired 
insufficient to prove that the user employer controlled hiring); 
International Shipping Assn., 297 NLRB 1059, 1067 (1990) (finding 
evidence insufficient to prove a joint-employer relationship where the 
``few occasions when [the user employer] asked certain [supplied] 
workers to do certain tasks were isolated,'' and there was ``one 
isolated, vague incident'' of the user employer telling an applicant he 
should tell the supplier employer he should be hired, and he was). 
Likewise, the direct and immediate control an entity exercises may fall 
short of meaningfully affecting the employment relationship in the 
context of other control not exercised. See Flagstaff Medical Center, 
357 NLRB at 666-667 (the putative joint-employer's limited direct and 
immediate control was insufficient to establish joint-employer status 
under the circumstances); AM Property Holding Corp., 350 NLRB at 1001-
1002 (user employer's direct and immediate control regarding hiring and 
setting the wages and benefits of one particular employee and 
``occasional assignment of work'' to other employees was not enough to 
establish joint-employer relationship under the circumstances); Women & 
Infants Hospital, 324 NLRB at 749 (recurring direction by the user 
employer necessitated by the lack of a supplier-employer onsite 
supervisor was not itself enough to warrant a joint-employer finding 
absent other meaningful evidence); Pitney Bowes, Inc., 312 NLRB 386, 
387 (1993) (user employer's issuing undocumented verbal warnings and 
routine instructions did not meaningfully affect the employment 
relationship in light of the supplier employer's ``nearly complete 
control over all other significant aspects of the employment 
relationship, such as hiring, wages, benefits, work rules, assignment 
of tasks, transfers to other [supplier-employer] customers, and 
termination'').
    The final rule reflects this precedent by providing that the Board 
will consider the totality of the relevant facts in each particular 
employment setting and that ``[s]ubstantial direct and immediate 
control'' means ``direct and immediate control that has a regular or 
continuous consequential effect on an essential term or condition of 
employment of another employer's employees. Such control is not 
`substantial' if only exercised on a sporadic, isolated, or de minimis 
basis.'' The final rule also specifies, as has always been the case, 
that the party asserting joint-employer status bears the burden of 
proof. See, e.g., Hobbs & Oberg Mining Co., 297 NLRB at 586.

D. The Role of Indirect Control and Unexercised, Contractually Reserved 
Authority

    As referenced above, indirect control and unexercised, 
contractually reserved authority generally reference control that is 
not direct and immediate. However, the final rule specifies that, 
within the meaning of the rule, indirect control does not encompass 
indirect control or influence over setting the objectives, basic ground 
rules, or expectations for another entity's performance under a 
contract. This distinction is discussed further in the following 
section on business practices that are not probative of joint-employer 
status. By contractually reserved authority, the final rule means the 
authority that an entity reserves to itself, under the terms of a 
contract with another employer, over the essential terms and conditions 
of employment of that other employer's employees, but that has never 
been exercised.
    Under Board law as it existed prior to Browning-Ferris, indirect 
control and unexercised, contractually reserved authority were not 
alone dispositive of joint-employer status. See AM Property Holding 
Corp., 350 NLRB at 1000, 1002 (``We find that the contractual provision 
giving AM the right to approve PBS hires, standing alone, is 
insufficient to show the existence of a joint employer relationship. In 
assessing whether a joint employer relationship exists, the Board does 
not rely merely on the existence of such contractual provisions, but 
rather looks to the actual practice of the parties . . . . The Board's 
inquiry with regard to the direction and supervision of Servco 
employees is properly focused on the practice of the parties, not the 
language of the contract.''); National Metal Processing, Inc., 331 NLRB 
866, 869 (2000) (finding user employer was not a joint employer where 
it only affected unit employees indirectly and had unexercised 
contractual authority to suspend employees up to 3 days); J. P. Mascaro 
& Sons, 313 NLRB 385, 389 (1993) (``Respondent of necessity may 
exercise some implicit or indirect control over the operations of [the 
subcontractor] at the facility to ensure against disruption of its own 
operations or to assure it secures the services promised, but this is 
no basis to find the customer-employer is a joint employer of its 
contractor's employees.''), enfd. sub nom. NLRB v. Solid Waste 
Services, Inc., 38 F.3d 93 (2d Cir. 1994); Goodyear Tire & Rubber, 312 
NLRB at 677 (contractual provision reserving operational control, 
including over direction and supervision, ``in and of itself, was not 
evidence of joint employer status . . . . [I]t was more appropriate to 
look to the actual handling of day-to-day business''). But the Board 
did consider such evidence insofar as it supplemented and reinforced 
evidence of direct and immediate control over essential terms and 
conditions of employment. See, e.g., Le Rendezvous Restaurant, 332 NLRB 
at 336 (considering evidence of contractually reserved authority in 
conjunction with user employer's exercise of direct and immediate 
control over hiring and discipline); M.B. Sturgis, Inc., 331 NLRB 1298, 
1301-1302 (2000) (finding that the contract's broad grant of authority 
to the user employer over supervision and direction supported evidence 
of exercised direct control over supervision, direction, and 
discipline). The final rule is in lockstep with this approach. Indirect 
control or unexercised, contractually reserved authority cannot alone 
be dispositive, but either or both are probative of joint-employer 
status to the extent they supplement or reinforce evidence of direct 
and immediate control over essential terms and conditions of 
employment.

E. Business Practices That Are Not Probative of Joint-Employer Status

    The Board is mindful, as was implicit in its pre-Browning-Ferris 
precedent, that there are business practices that are merely 
``quotidian aspects of common-law third-party contract relationships'' 
that do not make joint-employer status any more or less likely. 
Browning-Ferris v. NLRB, 911 F.3d at 1220. A contracting entity 
commonly seeks to ``set the objectives, basic ground rules, and 
expectations for a third-party contractor,'' and doing so is not 
indicative of joint-employer status. Id. This includes contractual 
provisions obligating the third party to maintain certain practices to 
comply with legal requirements or for corporate social responsibility 
reasons. See Doe I v. Wal-Mart Stores, Inc., 572 F.3d at 680-683 
(contracts that contained a code of conduct requiring Wal-Mart's 
foreign suppliers to comply with foreign labor laws and permitting Wal-
Mart to monitor compliance, and that set forth ``deadlines, quality of 
products, materials used, prices, and other common buyer-seller 
contract terms'' were not evidence that Wal-Mart was a common-law joint 
employer of its suppliers' employees); Aldworth Co.,

[[Page 11228]]

338 NLRB at 139 (``[A]ctions taken pursuant to government statutes and 
regulations are not indicative of joint employer status.'').
    Accordingly, under the final rule, the Board does not intend the 
following to be evidence of joint-employer status: Entering a cost-plus 
contract (with or without a maximum reimbursable rate); setting minimal 
standards for hiring, performance, or conduct, such as those required 
by government regulation; requiring the contractor to institute safety 
or sexual-harassment policies; a franchisor's protection of its 
trademark or service mark; or anything else that promotes legal 
compliance or sets the objectives, basic ground rules, or expectations 
for a contractor's performance.

VII. Other Statutory Requirements

A. The Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980, as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (RFA), 5 U.S.C. 
601-612, requires an agency promulgating a final rule to prepare a 
Final Regulatory Flexibility Analysis (FRFA) when the regulation will 
have a significant impact on a substantial number of small entities. An 
agency is not required to prepare a FRFA if the Agency head certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities. 5 U.S.C. 605(b). In the NPRM, 
although the Board believed that this rule would not have a significant 
economic impact on a substantial number of small entities, the Board 
issued its Initial Regulatory Flexibility Analysis (IRFA) to provide 
the public the fullest opportunity to comment on the proposed rule. See 
83 FR at 46693. The Board solicited comments from the public that would 
shed light on potential compliance costs that may result from the rule 
that it had not identified or anticipated.
    The RFA does not define either ``significant economic impact'' or 
``substantial number of small entities.'' \371\ Additionally, ``[i]n 
the absence of statutory specificity, what is `significant' will vary 
depending on the economics of the industry or sector to be regulated. 
The agency is in the best position to gauge the small entity impacts of 
its regulations.'' \372\ The Board anticipates low costs of compliance 
with the rule for small entities, related to reviewing and 
understanding the substantive changes to the joint-employer standard.
---------------------------------------------------------------------------

    \371\ 5 U.S.C. 601.
    \372\ U.S. Small Business Administration (SBA) Office of 
Advocacy, A Guide for Government Agencies: How to Comply with the 
Regulatory Flexibility Act (SBA Guide) 18 (Aug. 2017), https://www.sba.gov/sites/default/files/advocacy/How-to-Comply-with-the-RFA-WEB.pdf.
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1. Statement of the Need for, and Objectives of, the Rule
    The final rule establishes the standard for determining, under the 
NLRA, whether a business is a joint employer of a group of employees 
directly employed by another employer. This rule is necessary to foster 
predictability and consistency in joint-employer determinations under 
the NLRA, particularly in light of considerable uncertainty regarding 
the status of the current standard, which was established through 
adjudication. The guidance furnished by the final rule will enable 
regulated parties to determine in advance whether their actions are 
likely to result in a joint-employer finding, which entails or may 
entail significant consequences under the NLRA: A duty to bargain 
collectively, exposure to what would otherwise be unlawful secondary 
union activity, and derivative unfair labor practice liability. 
Accordingly, a final rule setting forth a comprehensive and detailed 
standard is vitally important to businesses covered by the NLRA, 
employees employed by those businesses, and labor organizations that 
represent or seek to represent those employees. Defining the joint-
employer standard through rulemaking also permits the Board to provide 
more guidance than would be readily achievable through adjudication. 
The final rule accomplishes these objectives by defining critical 
elements of the joint-employer standard that have heretofore been 
undefined and by focusing the inquiry on the factors most relevant to 
joint-employer status in light of the policies and purposes of the 
NLRA.
2. Statement of the Significant Issues Raised by the Public Comments in 
Response to the Initial Regulatory Flexibility Analysis, a Statement of 
the Assessment of the Agency of Such Issues, and a Statement of Any 
Changes Made in the Proposed Rule as a Result of Such Comments
a. Response to Comments Concerning Economic Impact on Small Employers
    As stated in the Board's IRFA, the rule ``will only be applied as a 
matter of law when . . . businesses are alleged to be joint employers 
in a Board proceeding.'' 83 FR at 46693. After analyzing recent case 
statistics, the Board found that only .028% of all 5.9 million American 
business firms with employees (both large and small) found themselves 
in that position between 2013 and 2017. Id. Because a significant 
number of these Board proceedings involved large employers, the IRFA 
concluded that ``an even lower percentage of small businesses [would] 
be most directly impacted by the Board's application of the rule.'' Id. 
The Board also examined less direct impacts to small entities--that is, 
impacts that might arise ``[i]rrespective of an Agency proceeding,'' 
id.--but found those impacts to be very limited in scope or modest in 
size. For example, the Board acknowledged that a variety of small 
entities would bear compliance costs related to reviewing and 
understanding the rule but found that those costs would not be 
considered ``significant'' under the RFA. Id. at 46693-95 (estimating 
compliance costs of $80.26 for unions and $124.37 for small employers).
    Some comments criticized the Board's IRFA for finding that the 
businesses ``most directly impacted by the proposed rule'' are those 
alleged to be joint employers in a Board proceeding. 83 FR at 46693. By 
measuring ``most direct[] impact'' in this manner, one commenter argues 
that the Board has ignored that businesses structure their transactions 
based in part on the applicable legal costs of compliance and that 
workers and small businesses bear these costs when the indirect 
employers have substantial market power, whether or not they are 
subject to a Board proceeding.\373\ Another commenter believes that the 
Board's approach fails to account for the current, stable joint-
employer bargaining relationships that might be disrupted by the 
rule.\374\ Thus, that commenter's view, the proposed rule would cause 
prolonged labor disputes because larger entities with control over 
certain terms and conditions of employment would no longer be at the 
bargaining table.
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    \373\ See comment of Law and Economics Professors.
    \374\ See comment of AFT.
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    Other comments similarly criticized the Board for failing to 
analyze whether the proposed rule would cause competitive harm to small 
businesses on a broad basis. According to these comments, because the 
proposed rule allows indirect employers to avoid the cost and 
responsibility of complying with the NLRA, the rule places small 
employers at a competitive disadvantage to larger employers.\375\ For 
example, a commenter argues that the revised definition will provide 
indirect employers that possess substantial

[[Page 11229]]

market power greater leverage in their contracting arrangements with 
businesses that supply labor.\376\ Accordingly, larger indirect 
employers will use this added leverage to siphon off profits from 
smaller direct employers, limiting the ability of those small 
businesses to grow. As a result, the commenter argues, the rule will 
cause a further shift in market power away from small employers. It 
states that harm to the competitive ability of small businesses, vis-
[agrave]-vis larger firms, is a direct, cognizable economic impact 
under the RFA that the Board should have considered.
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    \375\ See Center for American Progress Action Fund; CWA; NELP.
    \376\ See comment of Law and Economics Professors.
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    Respectfully, the foregoing commenters do not raise direct economic 
impacts under the RFA. The RFA does not require an agency to consider 
speculative and wholly discretionary responses to the rule, or the 
indirect impact on every stratum of the economy. What the statute 
requires is that the regulatory agency consider the direct burden that 
compliance with a new regulation will likely impose on small entities. 
See Mid-Tex Elec. Co-op v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985) 
(``[I]t is clear that Congress envisioned that the relevant `economic 
impact' was the impact of compliance with the proposed rule on 
regulated small entities''); accord White Eagle Co-op. Ass'n v. Conner, 
553 F.3d 467, 478 (7th Cir. 2009); Colorado State Banking Bd. v. 
Resolution Trust Corp., 926 F.2d 931, 948 (10th Cir. 1991).
    This construction of the RFA, requiring agencies to consider only 
direct compliance costs, finds support in the text of the Act. Section 
603(a) of the RFA states that if an IRFA is required, it ``shall 
describe the impact of the proposed rule on small entities.'' 5 U.S.C. 
603(a). Although the term ``impact'' is undefined, its meaning can be 
gleaned from Section 603(b), which recites the required elements of an 
initial regulatory flexibility analysis. One such element is ``a 
description of the projected reporting, recordkeeping and other 
compliance requirements of the proposed rule, including an estimate of 
the classes of small entities which will be subject to the requirement 
and the type of professional skills necessary for preparation of the 
report or record.'' 5 U.S.C. 603(b)(4) (emphasis added). Section 604 
further corroborates the Board's conclusion, as it contains an 
identical list of requirements for a FRFA (if one is required). 5 
U.S.C. 604(b)(4).
    Additional support for confining the regulatory analysis to direct 
compliance costs is found in an authoritative guide published by the 
Office of Advocacy of the SBA. In the SBA Guide, the SBA explains that 
``other compliance requirements'' under Section 603 include the 
following examples:

    (a) Capital costs for equipment needed to meet the regulatory 
requirements; (b) costs of modifying existing processes and 
procedures to comply with the proposed rule; (c) lost sales and 
profits resulting from the proposed rule; (d) changes in market 
competition as a result of the proposed rule and its impact on small 
entities or specific submarkets of small entities; (e) extra costs 
associated with the payment of taxes or fees associated with the 
proposed rule; and (f) hiring employees dedicated to compliance with 
regulatory requirements.

SBA Guide at 37. These are all direct, compliance-based costs.
    In the IRFA, the Board noted that the only identifiable compliance 
cost imposed by the proposed rule for entities not named in a Board 
proceeding related to reviewing and understanding the substantive 
changes to the joint-employer standard. 83 FR at 46695. Otherwise, 
there will be no ``reporting, recordkeeping and other compliance 
requirements'' for these small entities. See 5 U.S.C. 603(b)(4) & 
604(b)(4). The same is true of the final rule. And the final rule 
imposes no mandatory capital costs, no mandatory costs of modifying 
existing process, no costs of lost sales or profits, and, as discussed 
further below, no appreciable changes in market competition. See SBA 
Guide at 37. Lastly, for small entities not party to Board proceedings, 
there are no costs associated with taxes or fees and no costs for 
additional employees dedicated to compliance, as no compliance 
requirements exist. Id.
    Consistent with these principles, the Board rejects the view that 
it must analyze how indirect employers exercise market power within 
their contracting arrangements to determine the impact upon small 
businesses, as suggested by the comments discussed above. The D.C. 
Circuit has firmly rejected the notion that a regulating agency must 
analyze every indirect and remote economic impact. See Mid-Tex Elec. 
Co-op., Inc. 773 F.2d at 343 (``Congress did not intend to require that 
every agency consider every indirect effect that any regulation might 
have on small businesses in any stratum of the national economy.''). 
``[R]equir[ing] an agency to assess the impact on all of the nation's 
small businesses possibly affected by a rule would be to convert every 
rulemaking process into a massive exercise in economic modeling, an 
approach we have already rejected.'' Cement Kiln Recycling Coal. v. 
EPA, 255 F.3d 855, 869 (D.C. Cir. 2001) (citing Mid-Tex Elec. Coop., 
773 F.2d at 343).
    But a massive exercise in economic modeling is exactly what the 
commenter asks the Board to undertake. The rule does not require 
contracting parties to alter their arrangements now or in the future. 
If indirect employers with market power drive harder bargains with 
direct employers than they do now, as the commenter predicts, such 
outcomes will result from the individual choices of economic actors, 
not from actions required to comply with the rule.\377\
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    \377\ According to the Law and Economics Professors, large 
indirect employers with substantial market power will have greater 
leverage to artificially suppress workers' wages and capture these 
asserted monetary losses experienced by workers affected by the 
rule. Assuming solely for the sake of argument that this is true, it 
would not constitute an RFA concern because such transfers would not 
result in changes to small direct employers' bottom-line 
profitability.
---------------------------------------------------------------------------

    Notwithstanding the indirect nature of the potential impacts raised 
by these comments, the Board also disagrees that the rule will upset 
existing collective-bargaining relationships. The Board believes that 
the rule will promote labor-management stability because it simplifies 
the test for joint employment, provides for a more consistent standard, 
and ends the unpredictable oscillations between differing tests for 
joint employment.
    Furthermore, the Board finds no evidence to support the notion that 
the rule places small employers at a competitive disadvantage to large 
employers. Employers of all sizes routinely enter into service 
contracts, and all have an interest in the applicable joint-employer 
standard. Those private-sector employers that exercise substantial 
direct and immediate control over the essential working conditions of 
employees maintain the same legal responsibilities under the NLRA as 
they had before the rule. And while the rule does decrease liability 
and responsibilities of employers that do not exercise such control 
over those essential terms and conditions of employment, the rule does 
not intrude upon the contractual liberties of direct and indirect 
entities. Those employers may negotiate contractual terms of their 
choosing without the undue burden of a complicated joint-employer 
standard. Accordingly, this rule would provide no additional leverage 
for employers of any size to manipulate the supply of and demand for 
labor, nor interfere with market access.
    One commenter argues that ``[u]nder the proposed narrow standard, 
small businesses that can't afford to

[[Page 11230]]

subcontract out operations will be at a competitive disadvantage to 
large corporations that can and do outsource.'' \378\ The commenter 
presented no evidence to support this conclusion. And other comments in 
support of the proposed rule note that there is no empirical evidence 
supporting the proposition that the new rule will place small 
businesses at a competitive disadvantage to larger companies just 
because the latter are better situated to subcontract their 
operations.\379\ Absent empirical evidence, the Board is not persuaded 
that the new standard impacts outsourcing in this manner.
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    \378\ See comment of NELP.
    \379\ See comments of Chamber of Commerce; IFA.
---------------------------------------------------------------------------

    Many critics of the Board's IRFA contend that the Board did not 
fully consider the impact of requiring direct employers, including 
small businesses, to bear the full cost of liability under the NLRA. 
For example, one commenter contends that, since the rule applies to 
business relationships where the larger entity contracts for services 
of the smaller employer, the smaller employer will shoulder all 
liability under the NLRA.\380\ This increased legal exposure, says 
another commenter, will cause significant harm to small businesses 
because their large customers or franchisors will not be jointly 
responsible for bargaining, or jointly and severally liable for unfair 
labor practices. Many other comments offered the same argument.\381\
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    \380\ See comment of IUOE.
    \381\ See comment of AFL-CIO; see also comments of AFT; SEIU; 
Congressmen Scott and Senator Murray; EPI; CWA; Texas Rio-Grande 
Legal Aid.
---------------------------------------------------------------------------

    In the NPRM, the Board noted that liability and liability insurance 
costs may increase for small entities because they may no longer have 
larger entities with which to share the cost of any NLRA backpay 
remedies ordered in unfair labor practice proceedings. There, the Board 
further stated that these costs could arguably fall within the SBA 
Guide's category of ``extra costs associated with the payment of taxes 
or fees associated with the proposed rule.'' \382\ Having reviewed the 
comments and further considered the subject, the Board no longer 
believes that these can be characterized as direct compliance costs 
since these costs are not directly mandated by the rule. Unfair labor 
practice liability is the cost of not complying with the NLRA, not a 
cost of compliance with the Board's joint-employer rule.\383\
---------------------------------------------------------------------------

    \382\ The Board also observed that it is without the means to 
quantify such costs. The RFA explains that in providing initial and 
final regulatory flexibility analyses, ``an agency may provide 
either a quantifiable or numerical description of the effects of a 
proposed rule or alternatives to the proposed rule, or more general 
descriptive statements if quantification is not practicable or 
reliable.'' 5 U.S.C. Sec. 607 (emphasis added).
    \383\ Likewise, liability insurance is also a cost not mandated 
by the rule. In response to the NPRM's statement that there may be 
compliance costs that are unknown to the Board such as potential 
increases in liability insurance costs, one comment states that on a 
local level even minimal impacts on insurance rates could hurt small 
businesses. The commenter did not provide any supporting data, and 
the Board believes any potential increases in insurance rates would 
be minimal and not a direct impact of the rule.
---------------------------------------------------------------------------

    Even if increased unfair labor practice liability were a direct 
cost attributable to the rule, those costs would not impact a 
substantial number of small entities. As the Board explained in the 
NPRM, only .028% of all 5.9 million business firms in the United States 
were alleged to be joint employers in Board proceedings from 2013 to 
2017. See 83 FR at 46693. And since the data counts only allegations, 
not prosecutions or Board decisions, the number of employers who were 
actually impacted by the Board's joint-employer standard in recent 
years is even smaller. Accordingly, the Board is not persuaded that any 
changes to unfair labor practice liability arising from this rule will 
impact a substantial number of small entities.
    Nor does the Board believe the rule creates the prospect of added 
liability for direct employers subject to organizing campaigns or 
engaged in collective bargaining. These direct employers have always 
been the primary target of union organizing aimed at their workers by 
virtue of their direct control over payroll and other essential terms 
and conditions of employment. And as the Board stated in the NPRM, the 
proposed rule may make it easier for employers to collectively bargain 
without the complications of fragmented bargaining while providing much 
greater certainty as to their bargaining obligations. See 83 FR at 
46695. As was also pointed out there, for at least 30 years (from no 
later than 1984 to 2015) evidence of indirect control was typically 
insufficient to prove that one company was the joint employer of 
another business's workers. See id. at 46693. And the contrary 
Browning-Ferris standard was under challenge for the entirety of its 
relatively brief existence and, therefore, shrouded in uncertainty. 
Given this history, the possibility of disturbing existing labor 
relations for direct employers is very small. But again, the Board 
believes that these types of costs, if any, are indirect; they arise 
from a series of subsequent decisions made by individual actors that 
are not compelled by the rule itself.
b. Response to Comments Concerning Economic Impact on Small Labor 
Unions
    Several comments assert that the Board should have provided a more 
detailed consideration of the impact upon labor unions, a specific 
category of small entities directly impacted by the proposed rule. One 
commenter, for example, believe that the alleged shift in market power 
away from direct employers will reduce employment and suppress pay and, 
in turn, cause a reduction in dues contributions to labor unions.\384\ 
Another commenter similarly predicts that, by removing franchisors and 
larger indirect employers from reach of the NLRA, the proposed rule 
might frustrate collective bargaining and, thereby, alienate 
employees.\385\ These comments assert that labor unions will find it 
more difficult to organize employees and maintain existing membership, 
which will adversely impact dues income. Thus, one commenter contends 
that the Board should estimate the additional organizing, 
communications, and bargaining costs imposed upon small unions.\386\ 
Other labor organizations offer similar comments.\387\
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    \384\ See comment of Law and Economics Professors.
    \385\ See comment of AFL-CIO.
    \386\ See comment of AFT. Comments offered in support of the 
proposed rule suggest just the opposite--that the narrower standard 
could be beneficial to labor unions because they will no longer be 
expending resources seeking to establish bargaining relationships 
with larger indirect employers that have thousands of employees.
    \387\ See, e.g., comments of CWA; AFT.
---------------------------------------------------------------------------

    The comments on this issue present no reliable empirical evidence 
to show that the rule would have a significant economic impact on a 
substantial number of small entity labor unions. One commenter 
estimates $1.3 billion in yearly transfers from workers in contract 
firms and temporary help agencies to employers as a result of the rule, 
and argues that this $1.3 billion annual transfer will necessarily 
reduce union dues since dues are often calculated as a percentage of 
gross pay.\388\
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    \388\ See comment of Law and Economics Professors. This estimate 
is based on information from the comment submitted by EPI.
---------------------------------------------------------------------------

    The Board finds this analysis unreliable because it makes several 
critical and unsubstantiated assumptions.\389\ Based on the disparity 
in pay between union and nonunion employees in the economy as a whole 
(from other research), the comment first assumes that union-organized 
workers in contract firms and temporary help

[[Page 11231]]

agencies, on average, earn $146 more per week (or $1.3 billion per year 
on an aggregate basis) than their nonunion counterparts in these same 
industries. Then, without any empirical evidence, the comment assumes 
that the new rule would automatically eliminate the higher pay afforded 
unionized workers and transfer the $1.3 billion to employers. The 
stated rationale for taking this analytical leap is that ``the narrow 
proposed joint-employer standard will make collective bargaining among 
subcontracted and temporary workers nearly impossible.'' \390\
---------------------------------------------------------------------------

    \389\ We refer here to the analysis contained in the comment of 
EPI, on which the Law and Economics Professors rely.
    \390\ See comment of EPI.
---------------------------------------------------------------------------

    This analysis is flawed. Initially, it assumes that a pay disparity 
exists between union and nonunion workers in these industries, that the 
assumed disparity is consistent in magnitude with the disparity that 
exists in the overall economy, and that the impact of unionization (and 
not, for example, cost of living differentials) is the sole explanation 
for any pay disparity. The commenter presented no evidence to support 
these assumptions. But, most troublesome, the comment assumes that the 
new rule will cause union workers to automatically lose their union 
wages because, in its view, subcontracted and temporary workers will 
immediately forego union representation rather than bargain with just 
their direct employers. There is no reason to accept the proposition 
that workers in these industries will abandon collective bargaining en 
masse. At the very least, the comment presented no evidence to back it 
up. The contract firms and temporary help agencies that directly 
control employee payrolls and other essential terms and conditions of 
employment will continue to do so before and after the rule takes 
effect. Since the relationships between direct employers, their 
employees, and employee bargaining representatives will remain intact, 
there is no reason to assume that unionized employees will 
automatically lose their union wages. The Board, therefore, rejects 
this comment's prediction and the corollary assertion advanced by 
another commenter concerning union dues.\391\
---------------------------------------------------------------------------

    \391\ See comment of Law and Economics Professors.
---------------------------------------------------------------------------

    In the NPRM, the Board's IRFA assumed for purposes of analysis that 
a substantial number of small entity labor unions would be impacted by 
the rule. See 83 FR at 46693. But the Board also stated its belief that 
the cost of compliance with the rule would be very low, related to 
reviewing and understanding the substantive changes to the joint 
employer standard, meaning that there would not be a significant impact 
on a substantial number of small unions. See 83 FR at 46693 and 46695. 
In reviewing the comments on this subject, the Board finds no other 
compliance costs to labor unions, and no evidence showing a significant 
impact. Labor unions certainly have an interest in the rule, as with 
any other standard or substantive application of the NLRA, but the 
negative economic impacts on labor unions raised by the comments are 
wholly speculative and based upon perceived indirect consequences of 
the rule.
    In fact, the rule leaves undisturbed the statutory duties and 
bargaining obligations of those employers that directly control payroll 
and other essential terms and conditions of employment for employees. 
As such, labor unions will still be able organize the workforces of 
direct employers, engage in collective bargaining with direct 
employers, and file unfair labor practices charges against direct 
employers. And the Board has made clear that the new standard will 
foster predictability and consistency regarding determinations of 
joint-employer status in a variety of business relationships, thereby 
promoting labor-management stability. Hence, the Board finds that there 
is no reliable evidence to support the proposition that the rule will 
have a significant impact on union organizing or union membership.
c. Response to Comments Concerning Reporting Requirements
    The Board's IRFA stated that the Board did not believe that the 
rule would impose any new recordkeeping or reporting requirements on 
small entities. See 83 FR at 46695. One commenter speculates that the 
rule will actually impose more onerous recordkeeping costs because 
small businesses will be required to maintain more detailed records of 
the actual control exercised upon their employees (by those small 
employers and their larger business partners).\392\ The commenter 
further suggests that the proposed rule may increase litigation costs 
to small businesses and labor unions because they would have to invest 
more resources in developing witness-intensive facts in support of a 
joint-employer theory. But the commenter has not identified cognizable 
recordkeeping requirements. The RFA defines a ``recordkeeping 
requirement'' as ``a requirement imposed by an agency on persons to 
maintain specified records,'' 5 U.S.C. 601(8), and the rule imposes no 
such requirement. Additionally, these suggested costs are speculative. 
There is no reason for direct employers to maintain more detailed 
records of their work with indirect employers as a result of this rule 
than the records that they already keep in the normal course of 
business. In fact, the opposite would be more likely given that the 
rule will foster predictability and consistency in determining joint-
employer status and will reduce the incentive for indirect employers to 
maintain records solely for the purpose of defending themselves against 
liability premised on the existence of an alleged joint-employer 
relationship.
---------------------------------------------------------------------------

    \392\ See comment of AFL-CIO.
---------------------------------------------------------------------------

    Nor is the Board persuaded that any changes to the evidentiary 
burden placed upon parties to establish a joint-employer relationship 
will meaningfully affect the cost of litigation. Assuming an increase 
in litigation costs for a particular case, the commenter makes no 
effort to analyze the impact in order to assess the significance. The 
Board also expects that the new rule will decrease the overall amount 
of litigation involving the joint-employer standard, which would also 
decrease litigation costs to unions. In any event, beyond 
familiarization costs, the Board finds that the new rule imposes no 
additional costs for reporting, recordkeeping, or other direct 
compliance requirements, and none of the comments present empirical 
evidence to the contrary.
d. Response to Comments Concerning Duplication, Overlap, and Conflict 
With Other Rules
    Some comments contend that the Board has failed to identify all 
relevant rules and regulations which may ``duplicate, overlap or 
conflict with the proposed rule,'' as Section 603(b)(5) of the RFA 
requires.\393\ These comments argue that the proposed rule is 
discordant with the standard under the FLSA,\394\ or inconsistent with 
the definition of ``employer'' used by other agencies such as the 
IRS.\395\ These contentions stretch ``duplicate, overlap or conflict'' 
beyond their intended meanings.\396\ The rule does not duplicate or 
overlap with any other rule for identifying joint employers under

[[Page 11232]]

the NLRA, and, in fact, will be the only joint-employer standard 
maintained by the NLRB. Nor does the rule expose regulated entities to 
conflicting obligations, even if other agencies apply different 
standards for determining when a joint-employment relationship exists 
under other statutes.
---------------------------------------------------------------------------

    \393\ See Comments of AFL-CIO; United Association of Plumbers 
and Pipe Fitters (Plumbers).
    \394\ See Comment of AFL-CIO.
    \395\ See Comment of Plumbers.
    \396\ According to the SBA Guide, at 40:
    Rules are duplicative or overlapping if they are based on the 
same or similar reasons for the regulation, the same or similar 
regulatory goals, and if they regulate the same classes of industry. 
Rules are conflicting when they impose two conflicting regulatory 
requirements on the same classes of industry.
---------------------------------------------------------------------------

e. Response to Comments Concerning Public Outreach
    One commenter argues that the Board failed to conduct sufficient 
outreach to small businesses, including small local unions, that will 
be impacted by the rule. 5 U.S.C. 609.\397\ But there have been no 
surprises: the issues addressed by this rule have been the subject of a 
robust public debate for several years. And in conjunction with the 
official publication of the NPRM, the Board worked to widely publicize 
the proposed rule. Upon issuance, the Board published the NPRM and 
facts sheets on its website. See The Standard for Determining Joint-
Employer Status, NLRB, https://www.nlrb.gov/about-nlrb/what-we-do/national-labor-relations-board-rulemaking/standard-determining-joint-employer (last visited Feb. 11, 2020). On September 13, 2018, the Board 
issued a press release, which was published on its website and 
distributed by email to subscribers, notifying the public of the 
proposed rule. See NLRB Office of Public Affairs, Board Proposes Rule 
to Change its Joint-Employer Standard (Sept. 13, 2018) https://www.nlrb.gov/news-outreach/news-story/board-proposes-rule-change-its-joint-employer-standard. The press release was also shared on social 
media through the Board's official Twitter and Facebook accounts. The 
Board members themselves have also discussed the proposed rule at 
various public speaking engagements, including the annual meeting of 
the Labor and Employment Law Section of the American Bar Association. 
Given the foregoing efforts and the thousands of comments the Board 
received in response to the NPRM, the Board believes that the public 
has been well informed, the pros and cons of the rule have been 
thoroughly examined, and the impact of the rule on the full range of 
business entities governed by it have been brought into sharp focus by 
individuals, businesses, labor unions, and industry trade groups.
---------------------------------------------------------------------------

    \397\ See Comment of AFL-CIO.
---------------------------------------------------------------------------

3. Response of the Agency to Any Comments Filed by the Chief Counsel 
for Advocacy of the Small Business Administration in Response to the 
Proposed Rule, and a Detailed Statement of Any Change Made to the 
Proposed Rule in the Final Rule as a Result of the Comments
    The Chief Counsel of Advocacy of the Small Business Administration 
did not submit comments in response to the NPRM.
4. Description and Estimate of Number of Small Entities to Which the 
Rule Applies
    In order to evaluate the impact of the proposed rule, the Board 
first identified the entire universe of businesses that could be 
impacted by a change in the joint-employer standard. According to the 
United States Census Bureau, there were approximately 5.95 million 
business firms with employees in 2016.\398\ Of those, the Census Bureau 
estimates that about 5,934,985 million were firms with fewer than 500 
employees.\399\ While this final rule does not apply to employers that 
do not meet the Board's jurisdictional requirements, the Board does not 
have the data to determine the number of excluded entities (nor was 
data received on this particular issue).\400\
---------------------------------------------------------------------------

    \398\ ``Establishments'' refer to single location entities--an 
individual ``firm'' can have one or more establishments in its 
network. As we did in the NPRM, the Board has used firm-level data 
for this FRFA because establishment data is not available for 
certain types of employers discussed below. Census Bureau 
definitions of ``establishment'' and ``firm'' can be found at 
https://www.census.gov/programs-surveys/susb/about/glossary.html 
(last visited Feb. 10, 2020).
    \399\ The U.S. Census Bureau does not specifically define small 
business, but does break down its data into firms with 500 or more 
employees and those with fewer than 500 employees. See U.S 
Department of Commerce, Bureau of Census, 2016 Statistics of U.S. 
Businesses (SUSB) Annual Data Tables by Establishment Industry (Dec. 
2018), https://www.census.gov/data/tables/2016/econ/susb/2016-susb-annual.html (from downloaded Excel Table entitled ``U.S., 6-digit 
NAICS''). Consequently, the 500-employee threshold is commonly used 
to describe the universe of small employers. For defining small 
businesses among specific industries, the standards are defined by 
the North American Industry Classification System (NAICS), which we 
set forth below.
    \400\ Pursuant to 29 U.S.C. 152(6) and (7), the Board has 
statutory jurisdiction over private sector employers whose activity 
in interstate commerce exceeds a minimal level. NLRB v. Fainblatt, 
306 U.S. 601, 606-607 (1939). To this end, the Board has adopted 
monetary standards for the assertion of jurisdiction that are based 
on the volume and character of the business of the employer. In 
general, the Board asserts jurisdiction over employers in the retail 
business industry if they have a gross annual volume of business of 
$500,000 or more. Carolina Supplies & Cement Co., 122 NLRB 88 
(1959). But shopping center and office building retailers have a 
lower threshold of $100,000 per year. Carol Management Corp., 133 
NLRB 1126 (1961). The Board asserts jurisdiction over non-retailers 
generally where the value of goods and services purchased from 
entities in other states is at least $50,000. Siemons Mailing 
Service, 122 NLRB 81 (1959).
    The following employers are excluded from the NLRB's 
jurisdiction by statute:
     Federal, state and local governments, including public 
schools, libraries, and parks, Federal Reserve banks, and wholly-
owned government corporations. 29 U.S.C. 152(2).
     Employers that employ only agricultural laborers, those 
engaged in farming operations that cultivate or harvest agricultural 
commodities or prepare commodities for delivery. 29 U.S.C. 153(3).
     Employers subject to the Railway Labor Act, such as 
interstate railroads and airlines. 29 U.S.C. 152(2).
---------------------------------------------------------------------------

    The final rule will only be applied as a matter of law when small 
businesses are alleged to be joint employers in a Board proceeding. 
Therefore, the frequency with which the issue comes before the Board is 
indicative of the number of small entities most directly impacted by 
the final rule. A review of the Board's representation petitions and 
unfair labor practice charges provides a basis for estimating the 
frequency with which the joint-employer issue comes before the Agency. 
During the five-year period between January 1, 2013, and December 31, 
2017, a total of 114,577 representation and unfair labor practice cases 
were initiated with the Agency. In 1598 of those filings, the 
representation petition or unfair labor practice charge filed with the 
Agency asserted a joint-employer relationship between at least two 
employers.\401\ Accounting for repetitively alleged joint-employer 
relationships in these filings, the Board has identified 823 separate 
alleged joint-employer relationships involving an estimated 1646 
employers.\402\ Accordingly, the joint-employer standard most directly 
impacted approximately .028% of all 5.95 million business firms 
(including both large and small businesses) over the five-year period. 
Since a large share of our joint-employer cases involve large 
employers, the Board expects an even lower percentage of small 
businesses to be most directly impacted by the Board's application of 
the rule.
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    \401\ This includes initial representation-case petitions (RC 
petitions) and unfair labor practice charges (CA cases) filed 
against employers.
    \402\ Since a joint-employer relationship requires at least two 
employers, the Board has estimated the number of employers by 
multiplying the number of asserted joint-employer relationships by 
two. Some of these filings assert more than two joint employers; 
but, on the other hand, some of the same employers are named 
multiple times in these filings. Additionally, this number is 
certainly inflated because the data does not reveal those cases 
where joint-employer status is not in dispute.
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    As discussed in the NPRM, irrespective of an Agency proceeding, the 
rule may be more relevant to certain types of small employers because 
their

[[Page 11233]]

business relationships involve the exchange of employees or operational 
control.\403\ 83 FR at 46693. In addition, labor unions, as 
organizations representing or seeking to represent employees, will be 
impacted by the Board's change in its joint-employer standard. Thus, 
the Board identified the following five types of small businesses or 
entities as those most likely to be impacted by the rule: Contractors/
subcontractors, temporary help service suppliers, temporary help 
service users, franchisees, and labor unions.
---------------------------------------------------------------------------

    \403\ The Board acknowledges that there are other types of 
entities and/or relationships between entities that may be affected 
by this change in the joint-employer rule. Such relationships 
include but are not limited to lessor/lessee and parent/subsidiary. 
However, the Board does not believe that entities involved in these 
relationships would be impacted more than the entities discussed 
below.
---------------------------------------------------------------------------

    (1) Businesses commonly enter into contracts with vendors to 
receive a wide range of services that may satisfy their primary 
business objectives or solve discrete problems they are not qualified 
to address. And there are seemingly unlimited types of vendors who 
provide these types of contract services. Businesses may also 
subcontract work to vendors to satisfy their own contractual 
obligations--an arrangement common to the construction industry. 
Businesses that contract to receive or provide services often share 
workspaces and sometimes share control over workers, rendering their 
relationships subject to application of the Board's joint-employer 
standard. The Board does not have the means to identify precisely how 
many businesses are impacted by contracting and subcontracting within 
the United States, or how many contractors and subcontractors would be 
small businesses as defined by the SBA.\404\
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    \404\ The only data known to the Board relating to contractor 
business relationships involve businesses that contract with the 
federal government. In 2014, the DOL reported that approximately 
500,000 federal contractor firms were registered with the General 
Services Administration. Establishing a Minimum Wage for 
Contractors, 79 FR 60634, 60697. However, the Board is without the 
means to identify the precise number of firms that actually receive 
federal contracts or to determine what portion of those are small 
businesses as defined by the SBA. No comments were received on this 
topic. Even if these data were available, the Board does not have 
jurisdiction over government entities, and therefore business 
relationships between federal contractors and the federal agencies 
will not be impacted by the Board's joint-employer rule. The 
business relationships between federal contractors and their 
subcontractors could be subject to the Board's joint-employer rule. 
However, the Board also lacks the means for estimating the number of 
businesses that subcontract with federal contractors or determine 
what portion of those would be defined as small businesses, and no 
comments were received on this subject.
---------------------------------------------------------------------------

    (2) Temporary help service suppliers (NAICS #561320) are primarily 
engaged in supplying workers to supplement a client employer's 
workforce. To be defined as a small business temporary help service 
supplier by the SBA, the entity must generate receipts of less than 
$27.5 million annually.\405\ In 2012, there were 13,202 temporary 
service supplier firms in the U.S.\406\ Of these business firms, 6,372 
had receipts of less than $1,000,000; 3947 had receipts between 
$1,000,000 and $4,999,999; 1639 had receipts between $5,000,000 and 
$14,999,999; and 444 had receipts between $15,000,000 and $24,999,999. 
In aggregate, at least 12,402 temporary help service supplier firms 
(93.9% of total) are definitely small businesses according to SBA 
standards. Since the Board cannot determine how many of the 130 
business firms with receipts between $25,000,000 and $29,999,999 fall 
below the $27.5 million annual receipt threshold (nor were any comments 
submitted on this topic), it will assume that these are small 
businesses as defined by the SBA. For purposes of this FRFA, as in the 
NPRM, the Board assumes that 12,532 temporary help service supplier 
firms (94.9% of total) are small businesses.
---------------------------------------------------------------------------

    \405\ 13 CFR 121.201.
    \406\ The Census Bureau only provides data about receipts in 
years ending in 2 or 7. The 2017 data has not been published, so the 
2012 data is the most recent available information regarding 
receipts. See U.S Department of Commerce, Bureau of Census, 2012 
SUSB Annual Data Tables by Establishment Industry, NAICS 
classification #561320, https://www2.census.gov/programs-surveys/susb/tables/2012/us_6digitnaics_r_2012.xlsx.
---------------------------------------------------------------------------

    (3) Entities that use temporary help services in order to staff 
their businesses are widespread throughout many types of industries and 
include both large and small employers. A 2012 survey of business 
owners by the Census Bureau revealed that at least 266,006 firms 
obtained staffing from temporary help services in that calendar 
year.\407\ This survey provides the only gauge of employers that obtain 
staffing from temporary help services, and the Board is without the 
means to estimate what portion of those are small businesses as defined 
by the NAICS. Nor were comments received on this topic. For purposes of 
this FRFA, the Board assumes that all users of temporary services are 
small businesses.
---------------------------------------------------------------------------

    \407\ See U.S. Department of Commerce, Bureau of Census, 2012 
Survey of Business Owners, https://factfinder.census.gov/bkmk/table/1.0/en/SBO/2012/00CSCB46 (last visited Feb. 11, 2020).
---------------------------------------------------------------------------

    (4) Franchising is a method of distributing products or services in 
which a franchisor lends its trademark or trade name and a business 
system to a franchisee, which pays a royalty and often an initial fee 
for the right to conduct business under the franchisor's name and 
system.\408\ The nature and degree of control exercised by franchisors 
over franchisee operations vary widely and may, depending on the 
circumstances of a particular franchising relationship, render the 
relationship subject to application of the Board's joint-employer 
standard. The Board explained in the NPRM that it does not have the 
means to identify precisely how many franchisees operate within the 
United States, or how many are small businesses as defined by the SBA. 
A 2012 survey of business owners by the Census Bureau revealed that at 
least 507,834 firms operated a portion of their business as a 
franchise. But only 197,204 of these firms had paid employees.\409\ In 
the Board's view, only franchisees with paid employees are potentially 
impacted by the joint-employer standard. Of the franchisees with 
employees, 126,858 (64.3%) had sales receipts totaling less than $1 
million. Based on this available data and the SBA's definitions of 
small businesses, which generally define small businesses as having 
receipts well over $1 million, the Board assumes that almost two-thirds 
of franchisees would be defined as small businesses.\410\
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    \408\ See IFA FAQs, found at https://www.franchise.org/faqs-about-franchising (last visited Feb. 10, 2020).
    \409\ See U.S. Department of Commerce, Bureau of Census, 2012 
Survey of Business Owners, https://factfinder.census.gov/bkmk/table/1.0/en/SBO/2012/00CSCB67 (last visited Feb. 11, 2020).
    The Board received comments from the IFA and Chamber of Commerce 
stating that there are 233,000 small business franchisees in the 
United States. However, the Board is unable to verify the 
methodology of the underlying study producing that number. 
Nevertheless, the statistic supplied by these commenters is not far 
off from Census data showing the total number of franchisees with 
paid employees in 2012. In the Board's view, Census data is more 
reliable than a number that is derived from unknown means. 
Therefore, the Board has decided to rely on the Census's data in 
performing this analysis.
    \410\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    (5) Labor unions, as defined by the NLRA, are entities ``in which 
employees participate and which exist for the purpose . . . of dealing 
with employers concerning grievances, labor disputes, wages, rates of 
pay, hours of employment, or conditions of work.'' \411\ By defining 
which employers are joint employers under the NLRA, the final rule 
impacts labor unions generally, and more directly impacts those labor 
unions that organize the specific business sectors discussed above. The 
SBA's ``small business'' standard for ``Labor Unions and Similar Labor 
Organizations'' (NAICS #813930) is $7.5

[[Page 11234]]

million in annual receipts.\412\ In 2012, there were 13,740 labor union 
firms in the U.S.\413\ Of these firms, 11,245 had receipts of less than 
$1,000,000, 2022 labor unions had receipts between $1,000,000 and 
$4,999,999, and 141 had receipts between $5,000,000 and $7,499,999. In 
aggregate, 13,408 labor union firms (97.6% of total) are small 
businesses according to SBA standards.
---------------------------------------------------------------------------

    \411\ 29 U.S.C. 152(5).
    \412\ 13 CFR 121.201
    \413\ See U.S Department of Commerce, Bureau of Census, 2012 
SUSB Annual Data Tables by Establishment Industry, NAICS 
classification #722513, https://www2.census.gov/programs-surveys/susb/tables/2012/us_6digitnaics_r_2012.xlsx.
---------------------------------------------------------------------------

    Based on the foregoing, the Board assumes there are 12,532 
temporary help supplier firms, 197,204 franchise firms, and 13,408 
union firms that are small businesses; and it further assumes that all 
266,006 temporary help user firms are small businesses. Therefore, 
among these four categories of employers that are most interested in 
the final rule, 489,150 business firms are assumed to be small 
businesses as defined by the SBA. The Board believes that all of these 
small businesses, and also those businesses regularly engaged in 
contracting/subcontracting, have a general interest in the rule and 
would be impacted by the compliance costs, discussed below, related to 
reviewing and understanding the rule. But, as previously noted, 
employers will only be most directly impacted when they are alleged to 
be a joint employer in a Board proceeding. Given the Board's historic 
filing data, this number is very small relative to the number of small 
employers in these five categories.
    Throughout the IRFA, the Board requested comments or data that 
might improve its analysis, 83 FR at 46693, 46695-46696, but no 
additional data was received regarding the number of small entities to 
which the rule will apply, other than the comments referenced in n. 
409, above.
5. Description of the Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Rule, Including an Estimate of the 
Classes of Small Entities That Will Be Subject to the Requirement and 
the Type of Professional Skills Necessary for Preparation of the Report 
or Record
    The RFA requires an agency to consider the direct burden that 
compliance with a new regulation will likely impose on small 
entities.\414\ Thus, the RFA requires the Agency to determine the 
amount of ``reporting, recordkeeping and other compliance 
requirements'' imposed on small entities.\415\ In providing its FRFA, 
an agency may provide either a quantifiable or numerical description of 
the effects of a rule or alternatives to the rule, or ``more general 
descriptive statements if quantification is not practicable or 
reliable.''\416\
---------------------------------------------------------------------------

    \414\ See Mid-Tex Elec. Co-op v. FERC, 773 F.2d at 342 (``[I]t 
is clear that Congress envisioned that the relevant `economic 
impact' was the impact of compliance with the proposed rule on 
regulated small entities.'').
    \415\ See 5 U.S.C. 604(a)(4).
    \416\ 5 U.S.C. 607.
---------------------------------------------------------------------------

    The Board concludes that the final rule imposes no capital costs 
for equipment needed to meet the regulatory requirements; no costs of 
modifying existing processes and procedures to comply with the final 
rule; no lost sales and profits resulting from the final rule; no 
changes in market competition as a result of the final rule and its 
impact on small entities or specific submarkets of small entities; and 
no costs of hiring employees dedicated to compliance with regulatory 
requirements.\417\ The final rule also does not impose any new 
information collection or reporting requirements on small entities.
---------------------------------------------------------------------------

    \417\ See SBA Guide at 37.
---------------------------------------------------------------------------

    Small entities may incur some costs from reviewing the rule in 
order to understand the substantive changes to the joint-employer 
standard. The Board estimates that a labor compliance employee at a 
small employer who undertook to become generally familiar with the 
proposed changes may take at most one hour to read the summary of the 
rule in the introductory section of the preamble. It is also possible 
that a small employer may wish to consult with an attorney, which we 
estimated to require one hour as well.\418\ Using the Bureau of Labor 
Statistics (BLS)' most recent estimated wage and benefit costs, the 
Board has assessed these labor costs to be $144.69.\419\
---------------------------------------------------------------------------

    \418\ The Board does not believe that more than one hour of time 
by each would be necessary to read and understand the rule. This is 
because the new standard constitutes a return to the pre-Browning-
Ferris standard, with which most employers are already familiar if 
relevant to their businesses, and with which most labor-management 
attorneys are also familiar.
    \419\ For wage figures, see May 2018 National Occupancy 
Employment and Wage Estimates, found at https://www.bls.gov/oes/current/oes_nat.htm. The Board has been administratively informed 
that BLS estimates that fringe benefits are approximately equal to 
40 percent of hourly wages. Thus, to calculate total average hourly 
earnings, BLS multiplies average hourly wages by 1.4. In May 2018, 
average hourly wages for labor relations specialists (BLS #13-1075) 
were $34.01. The same figure for a lawyer (BLS # 23-1011) is $69.34. 
Accordingly, the Board multiplied each of those wage figures by 1.4 
and added them to arrive at its estimate.
---------------------------------------------------------------------------

    As to the impact on unions, the Board anticipates they may also 
incur costs from reviewing the rule. The Board believes a union would 
consult with an attorney, which is estimated to require no more than 
one hour of attorney time costing $97.08 (see fns. 418 and 419)) 
because union counsel should already be familiar with the pre-Browning-
Ferris standard. Additionally, the Board expects that the additional 
clarity of the final rule will serve to reduce litigation expenses for 
unions and other small entities.
    The Board does not find the estimated $144.69 cost to small 
employers and the estimated $97.08 cost to unions in order to review 
and understand the rule to be significant within the meaning of the 
RFA. In making this finding, one important indicator is the cost of 
compliance in relation to the revenue of the entity or the percentage 
of profits affected.\420\ Other criteria to be considered are the 
following:
---------------------------------------------------------------------------

    \420\ See SBA Guide at 18.

--Whether the rule will cause long-term insolvency, i.e., regulatory 
costs that may reduce the ability of the firm to make future capital 
investment, thereby severely harming its competitive ability, 
particularly against larger firms;
--Whether the cost of the proposed regulation will (a) eliminate more 
than 10 percent of the businesses' profits; (b) exceed one percent of 
the gross revenues of the entities in a particular sector, or (c) 
exceed five percent of the labor costs of the entities in the 
sector.\421\
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    \421\ Id. at 19.

    The minimal cost to read and understand the rule, $144.69 for small 
employers and $97.08 for small unions, will not generate any such 
significant economic impacts.
    In the NPRM, the Board requested comments from the public that 
would shed light on any potential compliance costs, 83 FR 46693, and 
considered those responses in the comments section above.
6. Description of the Steps the Agency Has Taken To Minimize the 
Significant Economic Impact on Small Entities Consistent With the 
Stated Objectives of Applicable Statutes, Including a Statement of the 
Factual, Policy, and Legal Reasons for Selecting the Alternative 
Adopted in the Final Rule and Why Each One of the Other Significant 
Alternatives to the Rule Considered by the Agency Which Affect the 
Impact on Small Entities Was Rejected
    Pursuant to 5 U.S.C. Sec. 604(a)(6), agencies are directed to 
examine ``why each one of the other significant

[[Page 11235]]

alternatives to the rule considered by the agency which affect the 
impact on small entities was rejected.'' In the NPRM, the Board 
requested comments identifying any other issues and alternatives that 
it had not considered. See 83 FR 46696.
    Several comments suggest that the Board withdraw the proposed rule 
and leave in place the Browning-Ferris joint-employer standard.\422\ We 
considered and rejected this alternative for the reasons stated in 
Sections V.N and VI, supra. The Board finds it desirable to revise the 
Browning-Ferris standard and to do so through the rulemaking process. 
Consequently, the Board rejects maintaining the status quo.
---------------------------------------------------------------------------

    \422\ See comments of Law and Economics Professors; AFL-CIO; 
CWA.
---------------------------------------------------------------------------

    One comment proposes two additional alternatives.\423\ It suggests 
that if the Board is to depart from the Browning-Ferris standard, the 
final rule should expand the definition of ``joint employer'' to 
explicitly include indirect employers ``with sufficient market power in 
the direct employer's product market or the relevant labor market to 
determine workers' wages and/or terms and conditions of work.'' The 
comment further suggests that the Board should, at a minimum, include 
franchisors that include no-poaching, non-compete, and similar clauses 
in their franchise agreements, since those provisions restrict labor 
market competition. The Board discussed these alternatives in Section 
V.M and V.N and rejected those alternatives for the reasons explained 
above.
---------------------------------------------------------------------------

    \423\ See comment of Law and Economics Professors.
---------------------------------------------------------------------------

    In the NPRM, the Board considered exempting certain small entities. 
See 83 FR 46696. The Board received no comments on this potential 
alternative and again rejects this exemption as impractical because 
such a large percentage of employers and unions would be exempt under 
the SBA definitions, thereby substantially undermining the purpose of 
the final rule. Moreover, as this rule often applies to relationships 
involving a small entity (such as a franchisee) and a large enterprise 
(such as a franchisor), exemptions for small businesses would decrease 
the application of the rule to larger businesses as well, potentially 
undermining the policy behind this rule. Additionally, given the very 
small quantifiable cost of compliance, it is possible that the burden 
on a small business of determining whether it fell within a particular 
exempt category might exceed the burden of compliance. Congress gave 
the Board very broad jurisdiction, with no suggestion that it wanted to 
limit coverage of any part of the Act to only larger employers.\424\ As 
the Supreme Court has noted, ``[t]he [NLRA] is federal legislation, 
administered by a national agency, intended to solve a national problem 
on a national scale.'' \425\ As such, this alternative is contrary to 
the objectives of this rulemaking and of the NLRA.
---------------------------------------------------------------------------

    \424\ However, there are standards that prevent the Board from 
asserting authority over entities that fall below certain 
jurisdictional thresholds. This means that extremely small entities 
outside of the Board's jurisdiction will not be affected by the 
final rule. See 29 CFR 104.204.
    \425\ NLRB v. Nat. Gas Util. Dist. of Hawkins Cty., Tenn., 402 
U.S. 600, 603-604 (1971) (quotation omitted).
---------------------------------------------------------------------------

    None of the alternatives considered accomplished the objectives of 
issuing this rule while minimizing costs on small businesses. 
Accordingly, the Board believes that promulgating this final rule is 
the best regulatory course of action.

B. Paperwork Reduction Act

    In the NPRM, the Board explained that the proposed rule would not 
impose any information collection requirements and accordingly, the 
proposed rule is not subject to the Paperwork Reduction Act (PRA), 44 
U.S.C. 3501-3521. See 83 FR 46696. No substantive comments were 
received relevant to the Board's analysis of its obligations under the 
PRA.

C. Congressional Review Act

    In the NPRM, the Board explained that the provisions of the 
proposed rule were substantive and that the Board would submit this 
rule and required accompanying information to the Senate, the House of 
Representatives, and the Comptroller General as required by the Small 
Business Regulatory Enforcement Fairness Act (Congressional Review Act 
or CRA), 5 U.S.C. 801-808. Pursuant to the Congressional Review Act, 
the Office of Information and Regulatory Affairs designated this rule 
as a major rule. Accordingly, the rule will become effective April 27, 
2020.

Final Rule

    This rule is published as a final rule.

List of Subjects in 29 CFR Part 103

    Jurisdictional standards, Election procedures, Appropriate 
bargaining units, Joint Employers, Remedial Orders.

    For the reasons stated in the preamble, the National Labor 
Relations Board amends 29 CFR part 103 as follows:

PART 103--OTHER RULES

0
1. The authority citation for part 103 continues to read as follows:

    Authority: 29 U.S.C. 156, in accordance with the procedure set 
forth in 5 U.S.C. 553.


0
2. Add subpart D, consisting of Sec.  103.40, to read as follows:

Subpart D--Joint Employers


Sec.  103.40  Joint Employers.

    (a) An employer, as defined by Section 2(2) of the National Labor 
Relations Act (the Act), may be considered a joint employer of a 
separate employer's employees only if the two employers share or 
codetermine the employees' essential terms and conditions of 
employment. To establish that an entity shares or codetermines the 
essential terms and conditions of another employer's employees, the 
entity must possess and exercise 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. Evidence of the entity's indirect control over essential 
terms and conditions of employment of another employer's employees, the 
entity's contractually reserved but never exercised authority over the 
essential terms and conditions of employment of another employer's 
employees, or the entity's control over mandatory subjects of 
bargaining other than the essential terms and conditions of employment 
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. Joint-employer status must be 
determined on the totality of the relevant facts in each particular 
employment setting. The party asserting that an entity is a joint 
employer has the burden of proof.
    (b) ``Essential terms and conditions of employment'' means wages, 
benefits, hours of work, hiring, discharge, discipline, supervision, 
and direction.
    (c) ``Direct and Immediate Control'' means the following with 
respect to each respective essential employment term or condition:
    (1) Wages. An entity exercises direct and immediate control over 
wages if it actually determines the wage rates, salary or other rate of 
pay that is paid to another employer's individual employees or job 
classifications. An entity does not exercise direct and immediate 
control over wages by

[[Page 11236]]

entering into a cost-plus contract (with or without a maximum 
reimbursable wage rate).
    (2) Benefits. An entity exercises direct and immediate control over 
benefits if it actually determines the fringe benefits to be provided 
or offered to another employer's employees. This would include 
selecting the benefit plans (such as health insurance plans and pension 
plans) and/or level of benefits provided to another employer's 
employees. An entity does not exercise direct and immediate control 
over benefits by permitting another employer, under an arm's-length 
contract, to participate in its benefit plans.
    (3) Hours of work. An entity exercises direct and immediate control 
over hours of work if it actually determines work schedules or the work 
hours, including overtime, of another employer's employees. An entity 
does not exercise direct and immediate control over hours of work by 
establishing an enterprise's operating hours or when it needs the 
services provided by another employer.
    (4) Hiring. An entity exercises direct and immediate control over 
hiring if it actually determines which particular employees will be 
hired and which employees will not. An entity does not exercise direct 
and immediate control over hiring by requesting changes in staffing 
levels to accomplish tasks or by setting minimal hiring standards such 
as those required by government regulation.
    (5) Discharge. An entity exercises direct and immediate control 
over discharge if it actually decides to terminate the employment of 
another employer's employee. An entity does not exercise direct and 
immediate control over discharge by bringing misconduct or poor 
performance to the attention of another employer that makes the actual 
discharge decision, by expressing a negative opinion of another 
employer's employee, by refusing to allow another employer's employee 
to continue performing work under a contract, or by setting minimal 
standards of performance or conduct, such as those required by 
government regulation.
    (6) Discipline. An entity exercises direct and immediate control 
over discipline if it actually decides to suspend or otherwise 
discipline another employer's employee. An entity does not exercise 
direct and immediate control over discipline by bringing misconduct or 
poor performance to the attention of another employer that makes the 
actual disciplinary decision, by expressing a negative opinion of 
another employer's employee, or by refusing to allow another employer's 
employee to access its premises or perform work under a contract.
    (7) Supervision. An entity exercises direct and immediate control 
over supervision by actually instructing another employer's employees 
how to perform their work or by actually issuing employee performance 
appraisals. An entity does not exercise direct and immediate control 
over supervision when its instructions are limited and routine and 
consist primarily of telling another employer's employees what work to 
perform, or where and when to perform the work, but not how to perform 
it.
    (8) Direction. An entity exercises direct and immediate control 
over direction by assigning particular employees their individual work 
schedules, positions, and tasks. An entity does not exercise direct and 
immediate control over direction by setting schedules for completion of 
a project or by describing the work to be accomplished on a project.
    (d) ``Substantial direct and immediate control'' means direct and 
immediate control that has a regular or continuous consequential effect 
on an essential term or condition of employment of another employer's 
employees. Such control is not ``substantial'' if only exercised on a 
sporadic, isolated, or de minimis basis.
    (e) ``Indirect control'' means indirect control over essential 
terms and conditions of employment of another employer's employees but 
not control or influence over setting the objectives, basic ground 
rules, or expectations for another entity's performance under a 
contract.
    (f) ``Contractually reserved authority over essential terms and 
conditions of employment'' means the authority that an entity reserves 
to itself, under the terms of a contract with another employer, over 
the essential terms and conditions of employment of that other 
employer's employees, but that has never been exercised.

    Dated: February 14, 2020.
Roxanne L. Rothschild,
Executive Secretary.
[FR Doc. 2020-03373 Filed 2-25-20; 8:45 am]
BILLING CODE 7545-01-P