On March 8, 2024, the U.S. District Court for the Eastern District of Texas struck down the new joint employer rule created by the National Labor Relations Board (the “NLRB” or “Board”).
As we covered earlier this year, the now-struck-down 2023 Rule severely loosened the Board’s existing regulations by allowing a joint employer finding irrespective of whether the “control” over the employees is directly or indirectly exercised. In fact, even if the authority only “exists,” but is not used, joint employer status could be found. Because this rule was so groundbreaking, challenges to the rule’s legality arose immediately.
The Eastern District of Texas found that the rule failed to establish a clear standard for employers and ignored real-world implications for such employers as contractors and subcontractors. The judge went so far as to say that the 2023 Rule would “likely promote labor strife rather than peace by forcing an underdefined category of entities to take a seat at a bargaining table and negotiate over a multitude of influences that may otherwise be presented (and resolved) only through the invisible hand of the marketplace.”
For now, joint employer status will continue to be determined under the regulations adopted by the Board in 2020. The 2020 Rule provides that an employer will be considered a joint employer under the NLRA only when it exercises “substantial direct and immediate control” over the essential terms and conditions of another company’s employees. This is a much narrower standard than the 2023 Rule.
While the Eastern District of Texas staved off the Boards expanded joint employer definition for now, the NLRB is likely considering appealing or proposing a new rule. In the interim, employers should make sure all agreements with possible joint employers clearly explain there is no joint employer status by clarifying how only one entity controls the terms of work for the employees. Some may call this “window dressing” but bad facts make bad law, and everyone wants to avoid that. Also, employers should continue to evaluate whether they exercise “substantial direct and immediate control” over workers. If you do, change your facts now or you may be a joint employer.
Brody and Associates regularly advises its clients on all labor management issues, including union-related matters, and provides union-free training. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
