Federal Court Invalidates New NLRB Joint Employer Rule Before Effective Date

Key Highlights:

• On Mar. 8, 2024, a federal judge blocked the implementation of the NLRB’s 2023 joint-employer standard, which was set to take effect on March 11, 2024.
• The decision leaves the 2020 joint-employer rule in effect.
• The new Joint Employer Rule was expected to have minimal impact on the IT/engineering staffing industry. TechServe recommends that members review their contracts.
• Employers should rely on the 2020 joint-employer rule for determining where joint employment exists.

On March 8, 2024, a federal court in Texas invalidated the National Labor Relations Board’s Rule on Joint Employer Status. The new regulation was scheduled to go into effect on Monday, March 11. The decision immediately applied nationwide; the NLRB is expected to appeal.

The ruling followed several delays in the effective date—first by the NLRB from December 26, 2023, to February 26, 2024, and then by several court rulings; the NLRB delay was intended to facilitate the resolution of expected litigation. The U.S. Chamber of Commerce represented a variety of business groups suing the NLRB.

On Friday, the Texas federal court ruled in favor of the U.S. Chamber, invalidating the new regulation and explicitly maintaining the existing rule, which requires that an employer have direct and immediate control over another employer’s employees to be deemed a joint employer. The Chamber commented on the court decision,

“Under the NLRB’s regulation, two employers could be considered joint employers if one merely had indirect or unexercised control. According to Judge J. Campbell Barker, the NLRB’s new 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. ‘That 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, at least one of the specified ‘essential terms and conditions of employment,’ Barker said.”

Background on the 2023 New Joint-employer Standard

Joint-employment situations can happen when two or more employers share personnel hiring, supervision and management practices. When a joint-employment status exists, joint employers are equally responsible for compliance with applicable laws and regulations. The 2023 joint-employer standard sought new criteria for determining joint-employer status as applied to labor issues under the National Labor Relations Act. It would have rescinded the existing 2020 joint-employer standard and replaced it with a more inclusive law, making it easier for employers to be classified as joint employers. Notable changes to the joint-employer standard included the following:

• A clarification of the definition of “essential terms and conditions of employment”;
• An identification of the types of control that are necessary to establish joint-employer status and the types that are irrelevant to the joint-employer inquiry; and
• A description of the bargaining obligations of joint employers.

Under the now-vacated 2023 rule, essential terms and conditions of employment were limited to:

1. Wages, benefits and other compensation;
2. Hours of work and scheduling;
3. The assignment of duties to be performed;
4. The supervision of the performance of duties;
5. Work rules and directions governing the manner, means and methods of the performance of duties and the grounds for discipline;
6. The tenure of employment, including hiring and discharge; and
7. Working conditions related to the safety and health of employees.

Impact on Employers

In November 2023, TechServe reported that the new Joint Employer Rule was expected to have minimal impact if any, impact on the IT/engineering staffing industry because the general staffing industry model contemplates shared control of essential terms and conditions of employment. However, we recommended that members review their contracts.

Considering the ruling, employers should ensure they rely on the 2020 joint employer standard to determine where joint employment exists. The 2020 standard considers the “substantial direct and immediate control” employers have over essential terms and conditions of employment for

individuals who are employed by another organization. Specifically, the 2020 joint-employer standard indicates that a business is a joint employer of another employer’s employees only if the degree of joint control is of sufficient magnitude to conclude that the joint employer meaningfully affects matters relating to the employment relationship.

In addition, under the 2020 rule, other evidence may suggest (but not prove) the existence of joint-employer status, particularly when the evidence points to indirect control or the right to exert control through contract or agreement (especially when control is never exercised).

Employers should continue to monitor the status of the 2023 joint-employer rule, as the NLRB could appeal the ruling.

TechServe’s Government Affairs Team will continue to monitor litigation developments. Please contact us with any questions.

For more information:
Fortune, Judge Blocks “arbitrary and capricious” Labor Board Rule on Contract and Franchise Workers, March 10, 2024