Employers in the United States received a significant win on March 8, 2024 when a federal court in Texas struck down the National Labor Relations Board’s (“Board”) expansive new “joint employer” rule, and upheld the existing (and more employer-friendly) 2020 rule. This rule would have expanded the circumstances under which two businesses could be designated as “joint employers,” and that could have significantly altered the legal landscape attendant to various workplace relationships.
The consequences of being characterized as a “joint employer” can be surprisingly significant: the second employer may become liable for all of the first employer’s obligations and liabilities under the National Labor Relations Act with respect to a particular group of the first employer’s employees, such as having to recognize and bargain with the employees’ union representative, answering for the first employer’s unfair labor practice charges, and remedying any violations of the Act, among other potential obligations and repercussions.
Since the early 1980s, the “joint employer” test has generally focused on whether an employer “meaningfully affects matters relating to the employment relationship.” Since then, the Board and Courts have disagreed with respect to the outer limits of that doctrine, specifically regarding to what extent potential or indirect control satisfies the “joint employer” test.
The Trump Board’s 2020 Joint Employer Final Rule solidified the requirement that an entity must have “direct and immediate” control over one or more essential term or condition of employment (defined to include “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction”) to constitute a “joint employer.”
President Biden’s Board sought to rescind the 2020 Rule and replace it with a more expansive Joint Employer Rule (“New Rule”). The New Rule included a two-step test for establishing a “joint employer” status: an entity must satisfy the common-law test for an employment relationship, and then the entity must share or codetermine one or more “essential terms and conditions of employment.”
The New Rule expanded on the eight (8) terms and conditions identified by the 2020 Rule, adding additional criteria such as “[w]ork rules and directions governing the manner, means, and methods of the performance of duties” and “[w]orking conditions related to the safety and health of employees.” However, the District Court found that the New Rule’s list of essential terms and conditions of employment was overbroad and encompassed commonplace contractual termsthat have historically been found insufficient to establish a common law employment relationship, such as in the construction industry where a project owner or general contractor established various safety restrictions and other conditions on subcontractors’ work without becoming an employer of the subcontractors’ workers.
Furthermore, an entity also would be deemed a joint employer under the New Rule merely by:
- “possessing the authority to control one or more essential terms and conditions of employment…regardless of whether control is exercised,” or
- “indirectly” exercising control over one or more essential terms and conditions of employment.
The Court found the New Rule exceeded the permissible bounds of common law agency principles by automatically rendering an entity a “joint employer” simply by, for example, possessing contractual authority, or indirectly exercising any control, over matters regarding safety and health. According to the Court, the New Rule would “treat virtually every entity that contracts for labor as a joint employer,” even without having to meet the threshold test of a common law employment relationship. The Court even hypothesized about an ice cream shop being labeled a “joint employer” of a lawn service company’s employees if the ice cream shop required its lawn to be mowed on a Thursday before its weekend rush, and retained the authority to approve or reject the use of certain fertilizers for health or safety reasons.
The New Rule was set to go into effect March 11, 2024 after the Court postponed its anticipated February 26 effective date. The Court, however, agreed that the Board’s New Rule was “contrary to law,” and that the recission of the 2020 Rule was “arbitrary and capricious.” As a result, the New Rule will not go into effect, and the Board’s existing 2020 Rule continues, undisturbed for now.
While a huge win and relief for countless employers and contractors, we have not likely read the last chapter of the joint employer book – the Board has already issued a statement expressing its disappointment with the ruling, and stating the Board is “actively considering next steps in this case.”
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