The National Labor Relations Board has formally reinstated its 2020 rule governing when a company is deemed a joint employer under labor law, representing a shift from the prior standard.
This change is expected to make it more difficult for workers to hold parent companies, franchisors, or hiring entities liable for labor violations committed by contractors, subcontractors, or franchisees.
Because a federal court had vacated a 2024 Biden-era rule, a public comment period was unnecessary, and the rule took effect Feb. 27, 2026.
A finding of joint employment can have significant consequences for companies under the National Labor Relations Act. Under established case law, each company found to be a joint employer by the NLRA may be held liable for the unfair labor practices of its co-employers.
Under the reinstated standard, merely holding a contractual right to control another entity’s workers or exercising indirect control such as setting safety standards is not enough to create a joint-employer relationship.
Types of cases affected:
- Franchise disputes: Cases where employees of a franchisee (e.g., a fast-food restaurant) seek to hold the franchisor responsible for unfair labor practices, wage disputes or bargaining.
- Staffing agency arrangements: Situations where workers hired through a staffing agency claim that the company they are assigned to is also their employer, particularly in disputes regarding discrimination or union organizing.
- Subcontractor relationships: Cases involving construction or logistics firms where a general contractor or larger client is accused of interfering with the labor rights of a subcontractor’s employees.
- Unfair labor practices: Cases where unions charge a parent company or hiring entity with violating rights will now be harder to prove unless the parent company or hiring entity directly controls hiring, firing or wages.
- Collective bargaining: Cases determining whether a large corporation must sit at the bargaining table with workers employed by a vendor or contractor.
The reinstated rule explained
Under the reinstated rule, a business must possess and exercise “substantial direct and immediate control” over at least one essential term and condition of employment of another employer’s staff to be a joint employer.
The rule defines substantial direct control as actions that have “a regular or continuous consequential effect” on several core aspects of a worker’s job. This includes the employer’s ability to:
- Hire or fire a worker,
- Supervise and control an employee’s work schedule or conditions of employment to a significant degree,
- Determine a worker’s rate and method of payment, and
- Maintain the employee’s employment records.
An employer does not have to meet all four factors to be considered a joint employer. Also, even when an employer exercises direct control over another employer’s workers, it will not be considered a joint employer if the control is exercised on a sporadic, isolated or de minimis basis.
The takeaway
This new rule will provide employers with clarity and certainty in instances where they may be considered joint employers, either when working with contractors or as franchisees.
However, employers still face some risk and should ensure that managers stay within the confines of the rules when establishing project goals and directing the work of third-party providers such as subcontractors and staffing agencies through direct supervision or task assignment. When dealing with these workers, managers should focus on what needs to be done rather than how the vendor’s employees perform it.
For franchisees, it will now be more difficult to pull franchisors into labor disputes and collective bargaining, which may prompt unions to focus on site-specific organizing.
