The NLRB's Joint Employer Rule Faces Legal Challenges and Delays
The National Labor Relations Board's (NLRB) new joint employer rule has drawn the ire of business groups and Republican lawmakers alike and is now facing legal challenges on multiple fronts. Employers should watch these challenges closely and prepare for compliance with the rule in early 2024.
The Rule at a Glance
The rule, which until last week was set to take effect on Dec. 26, 2023, establishes a more expansive standard for determining joint employer status. It specifies that an entity may be a joint employer if it has direct or indirect control over the essential terms and conditions of a worker’s employment, regardless of whether such control is ever exercised.
The rule was released in late October and dismantles a 2020 standard that exempted large companies from joint-employer status with subcontractors or franchisees, placing the onus on workers to show the companies had "direct and immediate control" over them.
Now marred with legal challenges, the NLRB recently voted to delay the rule’s effective date until Feb. 26, 2024.
Challenges to the 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 in a Texas federal district court. The groups argue that the rule would destroy the franchise model and challenge the rule on grounds that it is impermissibly vague, and that the NLRB exceeded its authority in promulgating the rule.
In parallel litigation, the Service Employees International Union (SEIU), which generally supports the rule, filed a petition for review with the D.C. Circuit. In their petition, the union asks the agency to expand the essential job terms that a company could control to be classified as a joint employer.
The dual filings present a unique and complex jurisdictional issue. The SEIU argues that direct review in the circuit courts is required under the law, while the Chamber contends the standard filing process, beginning in the district court, is appropriate. Neither side concedes the jurisdiction of the others’ lawsuit is proper.
And which jurisdiction applies might really matter – the D.C. Circuit largely upheld a previous (and equally controversial) Joint Employer Test in December 2018 that’s similar to the test contained in the new rule. This precedent remains good law in that circuit.
In addition to the lawsuits, Republican lawmakers are also seeking to challenge the rule through an appropriations bill that would halt any federal funds used to "administer, implement, or enforce" the rule, and a proposed joint resolution indicating Congress' disapproval of the rule.
The resolution of these challenges is not likely to proceed quickly and may ultimately require U.S. Supreme Court intervention to resolve.
How Will This Affect Employers?
The joint employer rule is a complex and controversial issue. It is likely to continue to be the subject of legal and legislative debate for some time. With the rule set to take effect in February 2024, employers should review what control over essential job functions they may exert over their employees and contractors.
Please contact Stephanie Poucher or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice and guidance.
