Federal Court Strikes Down NLRB Joint Employer Rule

On March 8, 2024, just days before it was set to take effect, U.S. District Judge J. Campbell Barker of the Eastern District of Texas vacated the National Labor Relations Board’s (“NLRB’s”) recent rule on determining the standard for joint-employer status.

The NLRB issued the rule on October 26, 2023. It established a seven-factor analysis, under a two-step test, for determining joint employer status. Under the new standard, an entity may be considered a joint employer if each entity has an employment relationship with the same group of employees and the entities share or codetermine one or more of the employees’ essential terms and conditions of employment which are defined exclusively as:

• Wages, benefits and other compensation;
• Hours of working and scheduling;
• The assignment of duties to be performed;
• The supervision of the performance of duties;
• Work rules and directions governing the manner, means and methods of the performance of duties and grounds for discipline;
• The tenure of employment, including hiring and discharge; and
• Working conditions related to the safety and health of employees.

Set to take effect on March 11, 2024, the NLRB’s decision would have rescinded the 2020 final rule which considered just the direct and immediate control one company exerts over the essential terms and conditions of employment of workers directly employed by another firm. The new rule would have expanded the types of control over job terms and conditions that can trigger a joint employer finding.

In the lawsuit, filed by the United States Chamber of Commerce and a coalition of business groups, the Chamber and coalition claimed that the NLRB’s rule is unlawful and should be struck down because it is arbitrary and capricious. Judge Barker agreed as he held that the NLRB’s new test is unlawfully broad because an entity could be deemed a joint employer simply by having the right to exercise indirect control over one essential term. Judge Barker faulted the design of the two-step test which says an entity must qualify as a common-law employer and must have control over at least one job term of the workers at issue to be considered a joint employer, finding that the test’s second part is always met whenever the first step is satisfied. The Court vacated the new standard and indicated it will issue a final judgment declaring the rule is unlawful.

The NLRB quickly responded to the Court’s ruling. In a statement on March 9, 2024 NLRB Chairman Lauren McFerran said the “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.” According to the NLRB, the “Agency is reviewing the decision and actively considering next steps in this case.”

What Employers Need to Know

The legality of the NLRB’s joint-employer standard has been a contested issue since the October 2023 announcement. The rule will not go into effect as scheduled, but Judge Barker’s decision is unlikely to be the final word on the matter. 

If you are an employer with questions about the joint-employer rule, or any other labor and employment law issues, please reach out to your local Dinsmore attorney for answers.