U.S. District Judge J. Campbell Barker vacated the National Labor Relations Board’s new rule on determining joint-employer status.[1] The March 8 decision comes as the conclusion to a legal challenge brought against the rule in November by the U.S. Chamber of Commerce and associated business groups.[2]

The rule, titled “Standard for Determining Joint Employer Status,” issued by the National Labor Relations Board on October 27, 2023, seeks to make it far easier to determine that two distinct entities are acting “jointly” with respect to employee oversight.[3]

In his order, Judge Barker declared that enforcement of the rule would be “contrary to law” as to its addition of the new 29 C.F.R. § 103.40, and “arbitrary and capricious” as to its removal of the existing 29 C.F.R. § 103.40.

The decision has significant reach and is applicable nationally, rather than just to the parties involved in the litigation. According to John Harrison’s article in the Yale Journal on Regulation:

“Vacatur operates on the legal status of a rule, causing the rule to lose binding force. Injunctions, including universal injunctions against enforcement, operate on the defendant by imposing a new duty. Thus, unlike injunctive relief, vacatur is inherently universal. An injunction can be limited to the defendant’s actions concerning the plaintiff, and its preclusive effect can be limited to the relations between the parties. Vacatur, by contrast, eliminates a rule’s binding force altogether.”[4]

Thus, the decision, pending appeal, effectively eliminates the rule issued by the NLRB, and maintains the existing 2020 test for joint-employer status, which restricts the circumstances in which an employer is considered a “joint employer” of another employer’s employees.

Under the 2020 version of the standard, an employer is only considered a “joint employer” of another company’s employees if those two businesses “share or co-determine the employee’s essential terms and conditions of employment, including wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”[5]

The NLRB’s new rule, should it survive, aims to significantly expand the circumstances in which an employer is considered a “joint employer.” Under the proposed rule, two or more entities are considered joint employers if “if each entity has an employment relationship with the employees, and if the entities share or codetermine one or more of the employees’ essential terms and conditions of employment.”[6]

Significantly, the rule focuses on the authority to control essential terms and conditions of employment, regardless of whether such authority is exercised, and emphasizes indirect control over such terms, rather than only direct control.[7]

Numerous observers believe the NLRB rule would have likely increased union activity, as more non-unionized employers would have likely found themselves compelled to the collective bargaining table with unions if they were found to be joint employers with a unionized business.

The rule is designed specifically to undermine franchise arrangements and most temporary employment agencies. Moreover, third party services such as security would be drastically impacted. While the decision is a win for many business owners who are likely fearful of the uncertainty the new rule would have wrought, it is far from the end of this story in a decades-long process of ebb and flow.

An appeal is almost certainly forthcoming.

In the meantime, it is important that employers review all agreements – service, staffing, franchisor-franchisee, and contractor-subcontractor, among others. We will continue to monitor the situation and provide further updates as more news unfolds.

About Our Authors

Hogan Crosby is a member of the Adams and Reese Labor and Employment practice team with the Litigation Practice Group. He also represents corporate clients in general insurance defense. Crosby received his J.D. from Tulane University School of Law, and he is a graduate of Rhodes College, with a B.A. in Commerce and Business, a concentration in Finance, and a minor in History. Crosby formerly worked in the financial services industry, obtaining a FINRA Series 7 license and Colorado life accident and health insurance licenses.

Michael MacHarg is a member of the Adams and Reese Labor and Employment practice team with the Litigation Practice Group. He assists clients in labor relations and litigation, and with union avoidance, collective bargaining, contract administration, unfair labor practices, grievance and arbitration, wage and hour issues, and discrimination. Additionally, he has extensive experience related to workplace safety and health issues including compliance, audits, and citation defense.

Notes

[1] NLRB’s Joint-Employer Rule Vacated by U.S. District Judge | National Labor Relations Board; see also 6f742ffc-611e-4cfa-ab53-78d8f41302b3 - DocumentCloud

[2] Texas judge vacates joint employer rule | HR Dive

[3] 88 Fed. Reg. 73946; Federal Register :: Standard for Determining Joint Employer Status

[4] Vacatur of Rules Under the Administrative Procedure Act - Yale Journal on Regulation

[5] Controversial Joint Employer Rule Struck Down Just Before Taking Effect: Your Blueprint For Navigating Months Ahead | Fisher Phillips

[6] and [7] joint-employer-fact-sheet-2023.pdf (nlrb.gov)