Court Vacates NLRB’s October 2023 Joint Employer Rule

Joint Employment: Why is the Concept Important?

Many National Labor Relations Act (NLRA) rights and obligations flow from status as an “employer” or “employee.” Thus, determining who is and is not an “employer” is crucially important to businesses, workers, and labor unions alike.

Joint employment exists when two or more businesses qualify as an employee’s, or group of employees, “employer.” When that occurs:

• The NLRB may hold each employer liable for labor law violations that either commits.
• Each employer may be responsible for any bargaining obligation that exist.
• And, each may be subject to economic pressure, such as picketing, that would otherwise be unlawful secondary activity.

The Board’s Evolving Standard

At first blush, identifying joint-employment relationships may seem straightforward. But, the Board has struggled for years to define its standard.

In Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015), the Democratic majority set a low bar. Under Browning-Ferris, even if two entities have never exercised joint control over essential terms and conditions of employment, and even if any joint control is neither direct nor immediate,” they are joint employers if they have “reserved” joint control, indirect control, or control that is “limited and routine.”

By 2020, with Republicans in control, the Board decided that Browning-Ferris went too far. So, it issued a business-friendly “final rule” that focused on whether two or more entities actually exercise “substantial direct and immediate control over one or more essential terms or conditions of … employment,” such as wages, benefits, work hours, discharge, discipline, supervision, and direction. The Board also declared that control over workers “exercised on a sporadic, isolated, or de minimis basis” does not establish joint employment.

In 2023, with Democrats again in charge, the Board rescinded the 2020 “final rule” and issued a new, and much more employee- and union-friendly, “final rule.” Under it, joint employment could be found if two or more entities merely “possess the authority to control (whether directly, indirectly, or both)” an employee’s “essential terms and conditions of employment.” Not only that, but the Board also eliminated the 2020 “final rule’s” provision that control over workers “exercised on a sporadic, isolated, or de minimis basis” is insufficient to establish joint employment.

The Board issued the 2023 “final rule” in October, with an effective date of December 26, 2023. Due to legal challenges, the Board extended the effective date to February 26, 2024. The US District Court for the Eastern District of Texas further postponed the effective date to March 11, 2024. And, on March 8, that court vacated the rule as overbroad, inconsistent with common law, and arbitrary. The court’s decision in US Chamber of Commerce v. NLRB, No. 6:23-cv-00553, Opinion and Order (E.D. Tex. March 8, 2024), is available here.

With that, the Board’s 2020 “final rule” remains in effect.

Recommendations

Presumably, most employers have evaluated their business’s contracts and practices under the Board’s 2020 standard to determine whether they inadvertently create joint-employment relationships. We recommend that those businesses review them again with a fresh perspective. For any businesses that have not conducted such a review, we recommend that they do so promptly.

Also, keep in mind that the Eastern District of Texas’s decision likely won’t be the last word on the Board’s joint employer standard. Almost certainly, there will be more litigation, with the outcome hard to predict.

The ArentFox Schiff Labor, Employment & OSHA practice will continue to monitor developments in this area. If you have any questions, please contact the author or the ArentFox Schiff professional who regularly handles your matters.