Key takeaways

• The NLRB’s new joint employment rule will not take effect today as scheduled.
• The 2020 joint employer rule remains in effect for NLRA disputes.
• This decision does not affect joint employment tests and claims under other statutes, such as the Fair Labor Standards Act.

On Friday night, March 8, a federal district court in Texas vacated the new National Labor Relations Board (NLRB) rule on joint employment. The rule was scheduled to take effect today, March 11.

The rule would have implemented a new test for joint employment that cast a wider net, creating joint employment relationships in situations where none existed previously. The court’s decision has a nationwide effect.

This decision will surely be appealed, but for now, the new NLRB rule will not take effect and the 2020 joint employer test remains the applicable test for joint employment under the National Labor Relations Act (NLRA).

Why did the court vacate the rule?

The Supreme Court has long held that the test for determining employer status under the NLRA is the common law agency test. The common law test is a multifactor balancing test.

The court vacated the new rule because the new rule would create joint employment in situations where the common law would not.

For example, in section (e) of the new rule, joint employment would exist when an entity reserves the right to exercise control, directly or indirectly, over just one of seven factors. Moreover, the seven factors would include subjects like health and safety rules, which courts have long recognized do not create a joint employment relationship.

The court also vacated the portion of the new rule that rescinded the 2020 rule. The court ruled that the NLRB’s rationale for rescinding the 2020 rule was arbitrary and capricious, thereby violating the Administrative Procedure Act. Since the court vacated the rescission of the 2020 rule, the 2020 rule remains in effect.

From 1982 through 2015, courts and the NLRB had recognized that, to be a joint employer, (1) an entity had to actually exercise control, not merely reserve the right to do so, and (2) the control had to be exercised in a direct and immediate way.

In 2015, in the Browning-Ferris case, the NLRB reversed course and held that joint employment would exist if the right to control was merely reserved, even if not exercised, and that joint employment could exist even where that right could be exercised indirectly, such as through an intermediary.

The D.C. Circuit reviewed the Browning-Ferris decision and issued a mixed ruling. The court ruled that reserved and indirect control could be considered when applying the common law test, but did not find that either was sufficient to establish a joint employment relationship. The court reinforced the notion that the common law test prevailed.

In February 2020, the NLRB issued a new rule on joint employment. The 2020 rule provided that indirect and reserved control could be considered but were not sufficient to establish joint employment. The 2020 rule focused the inquiry on whether the potential joint employer actually exercised direct and immediate control over essential terms and conditions of employment.

In 2023, after a change in administration led to a change in the Board’s composition, the NLRB tried to reverse course and re-adopt the Browning-Ferris standard in a new joint employer rule. The 2023 rule was slated to take effect March 11, after twice being delayed. With this ruling, the 2023 rule is now vacated — at least until the 5th Circuit addresses the matter on appeal.

What should businesses do?

For now, businesses should assume that the common law test still applies when determining joint employer status under the NLRA. Different laws apply different tests, but the drastic expansion of joint employment that was about to take effect has been stalled, if not stopped.

Employers that use staffing labor or outsourced vendor labor should still take steps to reduce their exposure to joint employment, including adjusting the facts of their relationships and updating their contracts.

The joint employer issue continues to be a major source of litigation, and being a joint employer under other laws (such as the Fair Labor Standards Act) still means being 100 percent responsible for legal violations by other entities. This ruling does not change the risks of joint employment under federal wage and hour law, state laws, or any other law. The risks remain high, and businesses should take proactive steps to limit their exposure, regardless of whether the new NLRB rule ever takes effect.

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