In a move welcomed by employers nationwide, a Texas federal court judge has vacated the National Labor Relations Board’s proposed joint employer rule.
The decision, handed down late on March 8, 2024 by Judge J. Campbell Barker of the Eastern District of Texas, means that the more employer-friendly standard the Board implemented in the waning days of the Trump administration, which requires a showing of “immediate and direct control,” will continue to apply for the foreseeable future.
Judge Barker’s decision, which called the proposed joint employer standard “a sweep beyond common law limits,” is a major setback for the National Labor Relations Board’s agenda to expand its jurisdictional footprint.
As we previously reported, in September 2022, the Board proposed a new joint employer rule that would have dramatically changed the labor law landscape. The proposed rule provided that the Board would find a joint employer when the employer “possess[es] the authority to control (whether directly, indirectly, or both) or exercises the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.” The rule was initially scheduled to take effect on December 26, 2023. However, due to various legal challenges, the effective date of the proposed rule was delayed until March 11, 2024.
In his decision, Judge Barker rejected the Board’s claim that the proposed rule was consistent with the common law. At oral argument, the Board argued that its proposed joint employer analysis would involve a two-step process. First, the employer must be a “common law” employer — enjoying the power to control the material details of how the work is to be performed. If that element is satisfied, the employer must also exercise “control” cover an essential term or condition of employment. However, the judge concluded that the Board’s “second step” was a misnomer, because no business that was considered an employer under the first step of the proposed joint employer analysis would ever be excluded by the second step. Judge Barker also rejected the Board’s claim that indirect and reserved control was sufficient to establish joint employment. That, the court said, all but ignored common law agency principles and “would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified ‘essential terms and conditions of employment.’”
Judge Barker’s ruling highlighted that “[t]he common law sets the outer limits of a permissible standard for bargaining duties as a joint employer… [and the Board may] draw on its expertise to erect prudential requirements within those bounds.” As employers and management-side attorneys have been calling from the rooftops for nearly two years, the Board’s proposed rule was an overreach beyond those boundaries. Accordingly, the court vacated the Board’s proposed joint employer rule and reinstated the Board’s 2020 joint employer rule, which better represented common law principles and better reflected modern day employment realities. Under this approach, only those entities which possess and exercise substantial direct and immediate control over one or more of workers’ essential terms and conditions of employment will be considered their employer.
Following on the heels of the 5th Circuit’s repudiation of the Board’s decision in Tesla, this ruling marks the second high-profile setback for the Board’s aggressive pro-labor agenda in the federal courts in recent months. Board Chair Lauren McFerran called the judge’s ruling a “disappointing setback,” before adding that it was “not the last word on our efforts to return our joint-employer standard to the common law principles.” There are also other pending lawsuits that challenged other aspects of the proposed joint employer rule. Suffice it to say that prudent employers should continue to monitor the situation and consult with labor counsel.
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