The National Labor Relations Board’s New Joint-Employer Rule: Don’t Let it Be a Trap for the Hospitality Industry

On February 26, 2024, the National Labor Relations Board’s (the “NLRB”) new rule on joint employment (the “Rule”) is scheduled to take effect. The Rule represents a pendulum-swing back to guidance from previous administrations, and could become a pitfall for unwary businesses in the hospitality sector.

The Rule replaces 2020 NLRB guidance, which created a “direct and immediate control” standard for joint employment status, and reverts back to guidance established under the Obama administration. The new Rule states that joint-employer status may exist even where there is only “indirect, reserved control”, whether or not that control is exercised. 

Specifically, the Rule creates joint employer status when two or more entities share or codetermine critical aspects of the employees’ terms and conditions of employment. The term “share or codetermine” is defined as having the authority to control, whether directly or indirectly, one or more of the employees’ essential terms and conditions of employment. The “essential” terms and conditions of employment that the NLRB will consider when determining joint employer status include the following:

• Wages, benefits, and other compensation;
• Hours of work and scheduling;
• The assignment of duties to be performed;
• The supervision of the performance of duties;
• Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
• The tenure of employment, including hiring and discharge; and
• Working conditions related to the safety and health of employees.

Thus, under the Rule, an entity may be considered a joint employer if it has the indirect authority to control at least one of the above terms of employment. 

The impact of the Rule should not be underestimated – especially in the hospitality industry. Although the NLRB generally focuses on traditional labor issues under federal law (e.g., union/management disputes; union organization campaigns; concerted employee activity, etc.), its reach also extends over certain employment matters in non-unionized contexts. In fact, current actions by the NLRB evidence that it is actively seeking to expand its reach even farther into non-unionized businesses. If the NLRB finds that a parent or holding company is a joint employer with its subsidiaries or affiliated companies, all of the companies and properties in the chain of ownership or operations (union or non-union), might be required to recognize a union, engage in collective bargaining or be bound to the terms of a union contract. This could have far-reaching implications for tiered business structures, franchise business models, and owners that outsource operations to third-party managers – all of which are common in the hospitality sector. 

There are a number of currently pending challenges to the Rule, including, but not limited to, a lawsuit filed by a collection of business advocacy groups led by the U.S. Chamber of Commerce, which may work their way up to the U.S. Supreme Court.  Nonetheless, for now, the Rule currently is slated to become effective on February 26, 2024, and it is wise to start planning now. Hospitality companies (both on the ownership and management side) are well advised to review their agreements for possible verbiage that could appear to provide indirect control over such matters as employee wages, hiring/firing and work rules. In addition, indemnity provisions may need to be renegotiated to properly apportion the risks associated with employment and labor law compliance.

Because of the complex nature of the Rule, companies should proactively discuss these matters with their counsel in advance of the February deadline. Please reach out to a member of Honigman’s Hospitality and Lodging practice for additional information.