Judicial Setback for Joint Employer Rule Means Legal Win for Business Groups

On March 8 business groups opposed to the new National Labor Relations Board’s (NLRB) joint-employer standard won in court as Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas struck down the new standard, delaying its implementation further. After previous setbacks, the new rule was to take effect March 11. 

Judge Barker held that the NLRB’s joint-employer test is unlawfully broad because an entity could be deemed a joint employer simply by having the right to exercise indirect control over one essential term and condition of employment, even if the entity does not actually exercise that control. The Court stated that it would issue a final judgment shortly that will have the effect of vacating the pending rule.

As discussed at the ICSC Fly-In in Washington last week, in 2023 the NLRB proposed a new standard for determining whether two or more employers are joint employers of particular employees within the meaning of the National Labor Relations Act. This new standard significantly relaxed the joint-employer requirements, permitting an entity to be found as a joint employer whether or not control is exercised and without regard to whether such exercise of control is direct or indirect.  ICSC has consistently opposed the NLRB’s change to the joint employer standard due to concerns over increased risk of litigation for property owners and franchise businesses across the country.

The U.S. Chamber, International Franchise Association, National Retail Federation, Restaurant Law Center and others brought the Texas suit against the Board late last year, alleging the NLRB’s newly-issued joint-employer rule is unlawful and should be struck down because it is arbitrary and capricious.

Around the same time, the Service Employees International Union (SEIU) filed a petition with the District Court of Columbia Court of Appeals to review the Board’s new rule; this case remains pending.

Judge Barker held that the joint-employer rule is invalid because it would treat some companies as the employers of contract or franchise workers even when they lacked any meaningful control over their working conditions:

The rule “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 . . . essential terms and conditions of employment.”

Judge Barker reasoned such “reach exceeds the bounds of the common law and is thus contrary to law.” As a result, the Court vacated the new standard, and indicated that it will issue a final judgment declaring that the rule is unlawful. The Court stated that it expected the NLRB to follow the declaratory judgment, rendering an injunction unnecessary, but Judge Barker reserved his right to subsequently issue injunctive relief.

On March 9, the NLRB responded to the Court’s ruling:

“The District Court’s decision to vacate the Board’s rule is a disappointing setback, but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts,” said Chairman Lauren McFerran. “The Agency is reviewing the decision and actively considering next steps in this case.”

The legality of the NLRB’s broad new joint-employer standard has been highly controversial with opponents seeking relief through the courts or a Congressional measure that President Biden very likely to veto. There will be more to come as the NLRB may appeal the ruling to the Fifth Circuit Court of Appeals, and as mentioned above, a petition remains pending before the D.C. Circuit.

For more information contact gpp@icsc.com.