Overview
The National Labor Relations Board (NLRB) officially reinstated the 2020 joint-employer standard in a new final rule effective February 27, 2026, limiting the risk of a finding of joint-employer status under the National Labor Relations Act (NLRA) for many businesses. The prior 2023 rule exposed many businesses to joint-employer liability under the NLRA if they exerted indirect control over the employees of another business. Under the NLRA, a business incurs obligations to recognize and bargain with unions representing another entity’s employees if they are considered a joint employer. The narrower standard requires entities to exercise substantial direct and immediate control over another company’s employees for the rule to apply, significantly decreasing the likelihood that the NLRB will find joint-employer status for franchises and businesses using contract workers. The reinstated standard provides greater latitude for employers using franchise, subcontracting, or staffing models, as they face less risk of liability due to these business arrangements.
In Depth
More stringent standard
Under the NLRB’s final joint-employer rule, an “entity must possess and exercise substantial direct and immediate control over one or more essential terms or conditions” (i.e., wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction) of another business’s employees for joint-employer status to apply. Substantial direct and immediate control is “direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment” and does not include control solely exercised on a “sporadic, isolated, or de minimis basis.” An entity that has control or influence over setting the objectives, basic ground rules, or expectations for another entity’s contractual performance has indirect control, which alone will not suffice to establish joint-employer status under the rule. In addition, control that was contractually reserved but never exercised can no longer support the finding of joint-employer status.
Impact and next steps
If a business relationship between two companies results in the finding of joint-employer status, the businesses share obligations under the NLRA, including bargaining obligations with a union representing the employees of one of the businesses. Under the recently implemented rule, the NLRB will not find a joint-employer relationship because of indirect control of another business’s employees. The implementation of this rule provides protection for various business relationships that would likely have been considered joint-employer relationships under the prior 2023 rule.
Franchises and businesses using contract workers
The risk of being deemed a joint employer often arises when an employer uses contractors, temporary staffing agencies, or professional employer organizations. The implemented rule establishes a higher threshold of substantial direct and immediate control, and businesses using contract workers without exerting substantial direct control over them will not be considered joint employers due to the structures of their business relationships alone. Companies can more freely use contract workers who are unionized without the threat of the NLRB finding joint-employer status under the NLRA. In addition, franchisors will not likely be considered joint employers with all their franchisees without substantial direct and immediate control over the franchisee’s employees. Accordingly, the franchise model and use of contract workers will not automatically create obligations under the NLRA to recognize and bargain with unions representing the contracting entity or franchisee’s employees. Under the implemented rule, the business’s daily interaction with another entity’s employees will determine whether joint-employer status applies.
In some cases, however, using contract workers may require the business engaging the contract workers to exercise direct control over many of the essential terms and conditions of the contract workers’ engagement. For this reason, employers using contract workers may be considered joint employers under the NLRA. Under the final rule, businesses using contract workers should carefully analyze and structure their relationships to ensure they will not be subject to joint-employer status.
If you have any questions regarding this alert, please contact your McDermott Will & Schulte lawyer or one of the authors.