Question: I am a general contractor looking to hire subcontractors and their employees to work on my construction site. Can I avoid classifying subcontractor workers as employees for collective bargaining purposes with my company under the National Labor Relations Act?
A: Perhaps, by using a “Cost-Plus” contract and with careful planning, a general contractor can avoid a joint employment relationship with a subcontractor for purposes of avoiding collective bargaining.
This advice is generally applicable to any company that hires employees from another company for work. A “Cost-Plus” contract is one in which Company A contracts with Company B for labor and sets wages for the positions at a fixed rate. Company A pays Company B the amount of money for wages, for example, $20 an hour, but Company B still sets the wages of the workers that Company B sends to work for Company A. This indirectly controls the wages of Company B’s workers by setting a ceiling Company B cannot likely afford to exceed.
Current NLRB Rule
Historically, the joint employment rule has been hotly contested and changed many times. Joint employment under the National Labor Relations Act (NLRA) can have significant consequences for employers as they may be required to (1) bargain with employees over whom the employer exercises only indirect control, (2) obtain with labor fraud or (3) face liability for unfair labor practices.
Recently, the Eastern District of Texas reinstated a 2020 Rule by the National Labor Relations Board (NLRB), after the NLRB attempted to expand the definition of joint employment (1) by allowing employers who exercise only indirect control to be considered employers. joint and (2) allowing employers who exercise control only on a “substantial term and term” to be considered joint employers. The 2023 rule also expands the definition of “essential terms and conditions” to include (1) work rules and instructions governing the manner, means, and methods of performing duties and grounds for discipline, and (2) working conditions related to with the safety and health of employees. 29 CFR § 103.40(d) (2023). Thus, under the 2023 Rule, it is possible for employees of Company B to be considered employees of both Company A and Company B, despite Company A operating solely INDIRECT control over wages. Regardless, the 2023 Rule was vacated and the 2020 Rule, with a more limited scope of joint employment under the NLRA, is the current Rule.
To be a joint employer under Rule 2020, the general contractor or employer “must possess and exercise such substantial direct and immediate control on one or more essential terms or conditions of their employment, as would warrant a finding that the entity significantly affects matters related to the employment relationship with these employees.” 29 CFR § 103.40 (a) (2020) (emphasis added). The 2020 rule provides that indirect control and purely reserved control may be considered; however, they alone are not sufficient to show joint employer status.
“Essential terms and conditions of employment” are defined under Rule 2020 as “wages, benefits, hours of work, hiring, firing, discipline, supervision and direction.” 29 CFR § 103.40(b). The rule specifies, for each term of employment, what counts as direct control and what does not. For example, a cost-plus contract is indirect control, while the determination of wages paid to another employer’s employees is direct control. Using the example above, Company A, or the general contractor, with legal assistance, can carefully draft contractual protocols that will support a finding of lack of joint employment, as factors other than wages must be considered.
The NLRB is currently appealing the decision of the Eastern District of Texas to the Fifth Circuit. As such, joint employment remains a case-by-case analysis because different courts will interpret the Rules differently,
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