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builders and contractors

In October, the Biden administration rolled out a highly controversial and costly regulation that will cost construction and many other industries millions of dollars and threaten the way they do business. The new joint employer final rule from the National Labor Relations Board, issued on Oct. 27, will drastically alter the existing contractor and subcontractor relationship in the construction industry, implementing a harsh new standard that will complicate these longstanding business arrangements and hit many smaller contractors with crippling legal and compliance costs.

In February 2020, the NLRB issued a joint employer final rule to provide clarity and certainty for businesses, making the joint employer test both narrower and more focused. This 2020 rule provided clear criteria for companies to apply when determining status. In construction, owners, developers, design firms, construction managers, general contractors, subcontractors and staffing agencies—to name only the most common specialties—each play unique roles on individual jobsites. Their functions routinely overlap, but they typically remain separate entities with their own workforces. This allows contractors to better work and coordinate with multiple employers without fear of being unexpectedly and unfairly held liable for actions of employees over whom they do not exercise substantial, direct and immediate control.

A CERTAIN AMOUNT OF CONTROL

As Associated Builders and Contractors has stated in comments to the NLRB on multiple occasions, a general contractor must exercise a certain amount of control over its subcontractors and their employees simply to ensure the safe and efficient performance of work. The most common construction jobsites are multiemployer worksites, and the general contractor or construction manager schedules and coordinates the work of many subcontractors, often in multiple tiers, who perform their services simultaneously or in sequence. The general contractor directs the work onsite and controls the schedule, which may be affected by weather, availability of materials, local building inspection regimes and many other factors.

Unfortunately, the October 2023 rule issued under President Joe Biden reverts to an unworkable standard based on “exercised control” and a non-exhaustive list of factors, some of which have yet to be determined. Under the new final rule, a general contractor in most cases would be considered a joint employer of its subcontractors. This will undoubtedly cause chaos, muddying the waters and making many of these previously successful and effective business relationships unsustainable.

SIGNIFICANT OPPOSITION

However, significant opposition has arisen in Congress in the form of a Congressional Review Act resolution to overturn the new rule. The resolution was introduced in the Senate by Sens. Joe Manchin, D-W.Va., ranking member of the Senate Health, Education, Labor and Pensions Committee; Bill Cassidy, R-La.; and Minority Leader Mitch McConnell, R-Ky. They were joined by U.S. Reps. John James, R-Mich., Chairwoman of the House Education and the Workforce Committee Virginia Foxx, R-N.C., and Speaker Mike Johnson, R-La.

In addition, legal challenges to the new rule are expected, and the U.S. Court of Appeals for the District of Columbia previously found that the NLRB had overstepped its authority when issuing a similar, Obama-era rule in 2015. With the final rule set to go into effect on Dec. 26, 2023, it is imperative that these efforts succeed, so construction can continue its important work unimpeded.