NLRB Joint Employer Rule Is Struck Down

Author: Robert S. Teachout, XpertHR Legal Editor

March 11, 2024

The standards for determining joint employer status under federal labor law will remain unchanged after a federal district court vacated a final rule from the National Labor Relations Board (NLRB) just three days before it would have taken effect.

The NLRB's final rule on joint employment was originally scheduled to take effect in December, but the date was pushed back to March 11 because of a lawsuit filed by a coalition of business groups led by the US Chamber of Commerce. Under the new rule, an employer's reserved or indirect control of the terms and conditions of a third party's employees would be sufficient to create a joint employment relationship, resulting in a substantial increase in the number of employers who might be deemed joint employers.

On March 8, a federal district court in Texas held that the 2023 rule was unlawfully broad and went beyond the bounds defining common-law employment. The court found that there was no situation in which a common-law employer under the rule's first step for determining common-law status was not also included within the scope of the purported second step as a joint employer. Therefore, the court said, the rule would treat as a joint employer virtually every employer that contracts for labor 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."

The court also held that the NLRB's rescinding of the 2020 rule issued by the Trump-era board was "arbitrary and capricious."

The court issued a judgment ordering that the 2023 rule and the removal of the 2020 rule be vacated. The order may be appealed by the NLRB.

"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 in a statement issued by the NLRB. "The Agency is reviewing the decision and actively considering next steps in this case."