On March 8, 2024, a Texas federal district court vacated the National Labor Relations Board (“NLRB” or “the Board”) 2023 joint employer rule (“2023 Rule), and restored the 2020 joint employer rule (“2020 Rule”).
As we previously reported, the NLRB proposed the 2023 Rule for determining joint employer status under the National Labor Relations Act (“NLRA”). Under this new standard, an entity could be deemed a joint employer, whether or not control is exercised over the alleged employees and without regard to whether such exercise of control is direct or indirect. In response, the US Chamber of Commerce, on behalf of business advocacy groups, filed a lawsuit in the US District Court for the Eastern District of Texas challenging the 2023 Rule.
In vacating the 2023 Rule, Judge J. Campbell Barker initially criticized the two-step test of the 2023 Rule. The first step required that an entity qualify as a common law employer, and, second, only if it is a common law employer, the entity must also have control over one or more essential terms and conditions of employment. Judge Barker agreed with the Chamber that the second test is always met if the first test is met, because under the common law, an employer of a worker must have the power to control the material details of how the work is done. Thus, the 2023 Rule has “just one step for all practical purposes.”
Further, Judge Barker held that the 2023 Rule was unlawfully broad, arbitrary and capricious because it classified many aspects of work as essential terms and conditions of employment, such as, “wages,” “hours of work,” and “working conditions related to the health and safety of employees.” Thus, if an entity exercises — or has the power to exercise — control (even indirect control) over at least one essential term, the entity is an employer, jointly with the undisputed employer. This essentially treats 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, an “essential term and condition of employment.” Therefore, Judge Barker reasoned, the 2023 Rule’s “reach exceeds the bounds of the common law and is thus contrary to law.” As a result, the Court vacated the 2023 Rule and indicated that it will issue a final judgment declaring that the Rule is unlawful.
The 2023 Rule had an original effective date of December 26, 2023. However, due to the legal challenges, the Board postponed the effective date to February 26, 2024, and then the district court postponed the effective date further to March 11, 2024. The Court’s March 8, 2024 decision means that the 2023 Rule will not go into effect, and, instead, any joint-employer issue will continue to be governed by the 2020 Rule adopted during the Trump Administration.
Although, for now, the 2023 Rule will not be implemented, it is unlikely that this is the last we will hear of this issue from the Board, as, in recent years, the issue of joint employment has repeatedly drawn the attention of the Board and other government regulators. The NLRB has several options to address the issue in the aftermath of this ruling. The Board may appeal the ruling, or it may “go back to the drawing board” and promulgate a new rule, or it may choose to address the issue through its own case by case decisions.
[View source.]
