Federal court vacates controversial NLRB joint-employer rule

On March 8, 2024, Judge J. Campbell Barker of the US District Court for the Eastern District of Texas entered a ruling that vacated the National Labor Relations Board (NLRB)’s controversial new “joint employer” regulation, which was slated to take effect on March 11, 2024.

Judge Barker, who had previously stayed the rule, found the regulation to be unlawfully overbroad. Such ruling was in response to a challenge brought by business groups, including the US Chamber of Commerce.

Our alert looks at the key details and implications for employers.

The NLRB’s proposed rule

Under the NLRB’s proposed rule, which was initially released in September 2022, an entity would be considered a joint employer if it shared or codetermined control over certain specified terms and conditions of employment. Significantly, under the new regulation, an employer could be identified as a joint employer if it not only exercised direct and actual control over the employees’ terms and conditions employment, but also if it had indirect control or possessed reserved, but unexercised, control.

This expansion would sweep many entities into joint-employer status, making them liable for unfair labor practices committed by their putative joint employer and imposing collective bargaining responsibility for the direct employer’s employees.

The holding

Judge Barker held that the NLRB’s proposed rule was unlawfully overbroad, noting that it “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 further held that the rule’s two-step test was redundant.

The court’s analysis noted that “step one” considered employer status based on common-law agency principles, and that “step two” considered joint-employer status if “the employers share or codetermine those matters governing employees’ essential terms and conditions of employment.” The court reasoned, “step two is met whenever step one is met.”

Judge Barker’s ruling not only vacates the new rule, but also invalidates the NLRB’s recission of the Trump-era joint employer rule which focused on direct and exercised control over putative employees.

Going forward

The NLRB indicated that it plans to appeal the ruling, which continues to be the subject of various legal actions both in support and in opposition to the rule. These include a Congressional Review Act action and a petition to review the rule in the US Circuit Court of Appeals for the DC Circuit brought by the SEIU Labor Union. The ruling has been a source of anxiety for employers who rely heavily on third-party service providers and outsourced labor.

While those employers are unaffected for now, the ultimate fate of the proposed regulation is still yet to be determined. Employers are encouraged to exercise caution and continue to remain vigilant with respect to the manner in which they negotiate, contract for, and “manage” outsourced labor functions.

DLA Piper’s Labor and Employment team is monitoring these developments and has extensive experience advising on joint employment issues, including in the franchise context.
If you would like to discuss any of these matters, please reach out to the authors or your DLA Piper relationship partner.