11 March 2024

Federal Court Vacates NLRB’s Joint Employer Rule

On Friday, March 8, 2024, a Texas federal district court vacated the National Labor Relations Board’s 2023 joint employer rule.  The vacated rule would have significantly expanded when two businesses would be considered joint employers responsible for bargaining with unionized employee groups and held jointly liable for unfair labor practices under the National Labor Relations Act. The district court’s order results in a return to the Board’s 2020 Rule – where employers are less likely to be deemed joint employers.

Joint Employers Under the NLRA

Historically, an entity is considered a “joint employer” under the Act if it meaningfully affects the employment relationship with the same workers as another employer, and does so in certain categories – hiring, firing, discipline, supervision, and direction.   But there are limits.  First, an entity is not a joint employer if it only has potential control over workers in the above categories but did not exert that control.  And, second, indirect control over the above categories does not create a joint employer relationship (e.g., an entity is not a joint employer simply because it contracts with another business for labor and may indirectly control how much that second business pays the employees it provides).  Traditionally, an entity is not a joint employer under the Act unless it is first a “common law” employer, meaning that the entity meaningfully affects the employment relationship in the above manner and neither of the two above limits exist.

In 2015, the Obama-era Board proposed a rule that altered this analysis and made it more likely that entities could be deemed joint employers.  That rule never took effect, and after years of litigation, the Trump-era Board issued the 2020 Rule to clarify the issue.  The 2020 Rule provides that an entity is a joint employer of another employer’s employees only if two entities share or determine the employees’ essential terms and conditions of employment.  That means they must exercise “substantial direct and immediate control” over at least one essential term or condition of employment in a way that meaningfully impacts employment.   The 2020 Rule defines essential terms and conditions more narrowly to include substantial terms such as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

In 2023, the Biden-era Board withdrew the 2020 Rule and proposed a new, more expansive one.  Although the 2023 Rule made many changes, there are five primary differences.  First, the 2023 Rule provided that entities are joint employers if they have potential control over the employment categories above (i.e., the control need not be actually exerted).  Second, it provided that entities are joint employers if they have indirect control over those employment categories.  Third, it expanded the categories and types of terms that qualify as essential terms and conditions of employment. Fourth, the 2023 Rule nixed 2020 Rule language that stated that isolated or minimal control over workers is insufficient to create joint-employer status (i.e., the 2023 Rule allowed for joint employer status to be created by routine and often necessary oversight activities).  Fifth, the 2023 Rule would have imposed bargaining obligations on non-union joint employers for any terms they controlled or potentially controlled with unionized employers.  Put simply, the 2023 Rule significantly expanded when businesses contracting or working with each other would be deemed joint employers.

The court rejected the attempted expansion, holding that the 2023 Rule violated the well-established common law agency test because it allowed joint employer status to be established based on the existence of potential or indirect control alone.  As the court explained: “virtually every entity that contracts for labor” would be a “joint employer because virtually every contract for third-party labor has terms that impact . . . at least one of the” essential terms and conditions of employment.

Status of the Rule Going Forward

The Texas district court’s decision will likely be appealed.  But for the immediate future, the 2020 Rule remains in effect, providing significant relief for employers who contract for third-party labor or otherwise have an indirect impact on essential terms and conditions of the employees of other entities.  Further developments are likely, either in this case directly or through further Board rulemaking and Miller Johnson will keep you updated.