On March 8, 2024, the U.S. District Court for the Eastern District of Texas vacated the National Labor Relations Board’s (NLRB) 2023 joint employer rule just before it was slated to take effect on March 11, 2024. See Chamber of Commerce of the United States of America, et al. v. National Labor Relations Board, et al., Case No. 6:23-CV-00553, 2024 WL 1045231 (E.D. Tex. Mar. 8, 2024). As a result of this decision, the Board’s 2020 Trump-era, employer-friendly joint employer rule remains in effect.
As we discussed in a previous First Alert, “joint employers” are different entities that are deemed to exercise enough control over a worker that each has formed an employment relationship with a worker. A joint employer finding could put an entity at risk for potential labor violations and impose on them collective bargaining obligations.
On October 26, 2023, the NLRB issued a Final Rule rescinding and replacing the 2020 Trump-era, employer-friendly joint employer standard. Under the 2020 rule, an entity was considered a joint employer under the National Labor Relations Act (NLRA) if it exercised “substantial direct and immediate control” over the essential terms and conditions of another entity’s employees. In contrast, the 2023 Biden-era, employee-friendly joint employer standard would have made it substantially easier for an entity to be considered a joint employer under the NLRA. Pursuant to the 2023 rule, an entity could be considered a joint employer if it shared or codetermined an employee’s essential terms and conditions of employment. A showing of reserve or indirect control, as opposed to direct control, was
sufficient to establish joint employer status under the 2023 rule.
In Chamber of Com. of United States v. Nat'l Lab. Rels. Bd., the U.S. Chamber of Commerce and several industry associations sued the NLRB, seeking relief from the Board’s final agency action rescinding the 2020 joint employer rule and replacing it with the 2023 joint employer rule. Judge J. Campbell Barker vacated the 2023 joint employer rule and preserved the 2020 joint employer rule.
In reaching its decision, the Court first assessed the legal validity of the 2023 rule, specifically whether it had a meaningful two-step filter for qualifying as a joint employer. The Court rejected the Board’s argument that the “regulatory framework involve[d] two steps: first, an entity must qualify as a common-law employer of the disputed employees, and second, only if the entity is a common-law employer, then it must also have control over one or more essential terms and conditions of employment.” (quotations omitted). The Court agreed with the plaintiffs that the 2023 joint employer rule’s two-step test was effectively a one-step test because the second step was always met if the
first step was met.
Additionally, the Court analyzed Subsection (e) of the 2023 rule and determined that the rule exceeded the bounds of common law because, once reserved or indirect control over an essential term or condition of employment was shown, joint-employer status attached without any demonstration of an employment relationship under the common law of agency. The Court stressed “[t]hat [the 2023 rule] would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified ‘essential terms and conditions of employment.’”
The Court ultimately struck down the 2023 joint employer rule, finding that the 2023 rule:
- failed to reasonably address the disruptive impact of the new rule on various industries;
- failed to resolve ambiguities in a way that makes the rule more predictable than common-law adjudication; and
- failed to explain how the rule does anything other than mandate piecemeal bargaining that will likely promote labor strife rather than peace by forcing an underdefined category of entities to take a seat at a bargaining table and negotiate over a multitude of influences that may otherwise be present (and resolved) only through the invisible hand of the marketplace.
Moreover, the Court determined that the NLRB’s rescission of the 2020 rule was arbitrary and capricious.
As it currently stands, the Trump-era 2020 rule remains in effect. Nevertheless, it is likely that the Board will appeal the district court decision to the Fifth Circuit Court of Appeals. In fact, in response to the Court’s ruling, the Board’s Chairman Lauren McFerren stated, “[t]he District Court’s decision to vacate the Board’s rule is a disappointing setback but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts. The Agency is reviewing the decision and actively considering next steps in this case.” For the time being, however, employers should rely on the Board’s 2020 joint employer
standard.
Calfee’s Labor and Employment attorneys are available to answer any questions as they continue to monitor developments relating to the NLRB’s fluctuating joint-employer standard.
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