Key Points
- The 2020 joint employer rule is now formally back in effect. The NLRB has officially withdrawn the Biden-era 2023 joint employer rule.
- A pending D.C. Circuit challenge could reshape the joint employer landscape. A labor union is challenging the 2020 rule's "actual exercise" requirement, arguing that an employer's reserved right to control workers should be enough to establish joint employer status.
- Legislative efforts could take the question out of the NLRB's hands entirely. Congress also is considering the Save Local Business Act and the American Franchise Act, both of which could codify a business-friendly joint employer standard into federal law.
The National Labor Relations Board (the Board or NLRB) recently withdrew the Biden-era 2023 joint employer rule and formally confirmed that its 2020 standard remains on the books.
The Feb. 26, 2026 announcement made some headlines, but needs some context.
Background
A federal district court in Texas vacated the 2023 rule nearly two years ago, and the NLRB did not appeal that ruling. Therefore, as a practical matter, the 2020 rule has been the governing standard for several years. The Board’s action last month simply formalized what was already the regulatory reality.
The development that businesses (particularly franchise businesses) and in-house counsel should actually be focused on is happening at the U.S. Court of Appeals for the District of Columbia Circuit, where a labor union is challenging the 2020 rule. The union and NLRB have filed briefs, and, depending on how the court rules, it could fundamentally reshape the joint employer landscape — for the franchise world and beyond.
What Does the 2020 Rule Say?
The NLRB’s 2020 rule established that a company can be considered a joint employer of another entity’s workers only if it “possesses and exercises substantial direct and immediate control” over one or more “essential terms and conditions of employment.” Those essential terms are defined as an exclusive, closed list of eight factors: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
Control must be “substantial,” meaning it has a “regular or continuous consequential effect” on employment terms. Sporadic, isolated or de minimis involvement is not enough.
The DC Circuit Challenge: Where Things Stand
The union argues that the 2020 rule violates the National Labor Relations Act (NLRA) and is arbitrary and capricious under the Administrative Procedure Act. The union filed its opening merits brief in September 2025, another large union submitted an amicus brief in support in October 2025, and the NLRB filed its responsive brief on March 2, 2026.
What the Parties Are Fighting About
A key question in the D.C. Circuit litigation is whether the 2020 rule's “actual exercise” requirement — a feature that makes the rule favorable to franchisors and other businesses — is consistent with common-law agency principles governing the definition of “employer” under the NLRA.
The union says no. Its core argument is that under the common law, an employer's reserved right to control workers — even if never exercised — is sufficient to establish an employment relationship. The union contends that the 2020 rule improperly relegates reserved control to a “meaningless plus-factor,” effectively barring the NLRB from considering evidence of contractually reserved authority unless exercised control has already been demonstrated. The practical implication, the union argues, is that companies can take bargainable issues off the table entirely: an entity that reserves sweeping authority over employment terms but never exercises it faces no obligation to bargain — even though it is effectively co-determining the contours of the employment relationship.
The NLRB, which regained a quorum of Board Members and a new General Counsel earlier this year, is defending the 2020 rule. In its brief, the Board argues that the actual-exercise requirement is consistent with the common law, and that requiring exercised control promotes meaningful collective bargaining by seating only entities with genuine involvement in employment decisions at the table. Notably, the Board’s brief includes a fallback argument: even if the court identifies a deficiency, it should remand without striking down the rule — pointing out that the 2020 rule has “stabilized this area of the law for the past six years,” and that businesses have structured contractual relationships in reliance on it.
What Does This Mean for Franchise Businesses and Other Companies?
The 2020 rule provides a measure of protection for certain contract provisions that insulate typical franchise relationships from joint employer findings. For example, the rule states that “a franchisor’s maintenance of brand-recognition standards (e.g., a requirement that the employees of its franchisees wear a particular uniform) will not evidence direct control over employees’ ‘essential’ working conditions,” while noting that the Board will examine the circumstances of a franchisor’s relationship with a franchisee on a case-by-case basis.
A decision vacating or substantially narrowing the rule could reintroduce the kind of uncertainty that plagued the industry when prior iterations of the rule were in force, when even indirect or contractually reserved control over a franchisee’s workers were more likely to cause shared bargaining obligations and unfair labor practice liability.
For now, the 2020 standard remains in full effect, and franchise businesses should continue to operate under its framework. That means continuing to ensure that franchisees — not franchisors — maintain direct control over hiring, scheduling, wages and discipline, and that franchise agreements and operational manuals are drafted to reflect that division of responsibility.
But the D.C. Circuit litigation is worth watching closely. A decision adverse to the 2020 rule could come down later this year, and businesses that have built their compliance frameworks around the current standard may need to recalibrate quickly.
Legislation
The D.C. Circuit is not the only venue where this debate is playing out. Congress is considering the Save Local Business Act, which would codify a standard similar to the 2020 rule into federal law — taking the question out of the NLRB’s hands altogether. We have previously covered that legislation and its implications in detail in an earlier alert: What Federal Save Local Business Legislation Could Mean for the Joint Employer Standard.
Congress is also considering a similar bill called the American Franchise Act, which we analyzed on our Franchise Law Update Blog .
Bills like these, if passed, could void contrary state law given that NLRA-related preemption tends to be broad.
Bottom Line
Despite the Board recently formalizing the 2020 rule, the joint employer standard is anything but settled. The pending appellate litigation and the legislative push are worth watching.
For franchise businesses, the key takeaway continues to be that control matters. The more direct control a franchisor exercises over employment decisions of its franchisees, the greater the risk of joint employer liability.
For franchise attorneys and business leaders, now is the time to review your practices and ensure your operations align with the current standard. It also is a good time to stay engaged as the D.C. Circuit and Congress consider the issue.
[View source.]
