Last Wednesday, the National Labor Relations Board issued final regulations substantially curtailing circumstances under which two employers can be deemed co- or joint employers under federal labor law. The final rule follows years of employer protests over the prior definition, which considered franchisors and some other entities to potentially jointly employ workers with whom they have an indirect relationship.

In its 2015 Browning-Ferris decision, the NLRB overturned long-standing precedent, concluding that evidence of indirect control over another employer’s workers was sufficient to demonstrate joint employer status. For example, a franchise agreement that gave the franchisor the right to direct control over how employees engaged in some tasks was considered joint employment, even if that right was never exercised. Franchisors strongly objected to this characterization, and on appeal, the D.C. Circuit appellate court remanded the case to the NLRB for clarification as to when indirect control would rise to the level of joint employment.

Following the 2016 election, the new NLRB majority decided to issue regulations on joint employment instead of reviewing its prior decision. The proposed rules reverted to something similar to the pre-Browning-Ferris rule, only finding joint employment where a company exercises substantial direct and immediate control over essential terms and conditions of another entity’s employees. Essential terms mean things like salaries, benefits, working time, and discipline and discharge decisions. The rule makes clear that these rights cannot be conferred merely through a contract such as a franchise agreement.

If the final regulations survive congressional and judicial review, they would essentially prohibit unions and union organizers from using litigation or the threat of litigation against franchisors. Franchisors should be able to establish franchisee performance standards and guidelines for employees that do not by themselves open the franchisor to labor law claims.