Court Strikes Down NLRB Joint Employer Rule and Restores Employer-Friendly 2020 Rule
Just days before it was slated to go into effect, a Texas federal judge issued an opinion that enforcement of the National Labor Relations Board’s (NLRB) new joint employer rule would “be contrary to law” and in vacating the proposed rule, put back in place the more employer-friendly Trump-era 2020 rule. A coalition of business groups led by the U.S. Chamber of Commerce filed a lawsuit against the NLRB over the rule in November 2023, arguing that the rule would destroy the franchise model, and challenged the rule on grounds that it was impermissibly vague, and that the NLRB exceeded its authority in promulgating the rule.
The struck down rule, that was slated to go into effect March 11 after earlier delays, would have found joint employment status if a business entity had direct or indirect control over the essential terms and conditions of a worker’s employment with another entity, regardless of whether such control was ever actually exercised. Joint employer status in such an instance could require a company to collectively bargain with employees or expose it to potential liability for an unfair labor practice by another business. Under the now rejected two-step rule, joint employment status would be found if: (1) an entity qualified as a common-law employer, and (2) had control over at least one job term of the workers in question.
In his March 8 opinion granting summary judgment to the business groups, U.S. District Judge J. Campbell Barker held that the purported “two-step test” of the NLRB’s proposed rule was arbitrary and capricious because in practice it was a one-step process, as “an entity satisfying step one, along with some other entity doing so, will always satisfy step two” and a finding of joint employment status would be a foregone conclusion. The District Court’s opinion noted that “[i]ndeed, the Board has not been able to come up with any example of an entity satisfying step one but not step two.” The opinion also held that the NLRB’s prior recission of the 2020 rule was improper.
The NLRB has not yet announced whether it will appeal the District Court’s decision, but as of now, the previously rescinded 2020 rule is back in effect, which makes it much more difficult to find joint employment status in a franchise or sub-contractor scenario. Under the 2020 rule, a company can only be considered a joint employer of another company’s workers if it exercises substantial direct and immediate control over the terms and conditions of those workers’ employment.
Please contact Mark Fijman or any member of Phelps’ Labor and Employment team if you have questions or need advice or guidance.
