Employment Law Report

NLRB’s Joint Employer Rule Vacated by Texas Court

Written by: Sharon Gold

Late Friday, U.S. District Court Judge J. Campbell Barker of the Eastern District of Texas vacated the National Labor Relations Board’s (“NLRB”) controversial 2023 Joint Employer Final Rule.  The 2023 Final Rule revised the standard under the National Labor Relations Act (“NLRA”) to determine whether two entities are joint employers and, thus, subject to bargaining and joint and several liability under the Act. 

The prior standard from 2020 provides that an entity must have substantial direct and immediate control over another company’s employees in order to be considered a joint employer, whereas the 2023 standard finds joint employer status when an entity has mere authority to control the other company’s employees’ essential terms and conditions of employment, even if the control is not exercised, and even if the control is indirect.  The 2023 Final Rule only applies to the definition of Joint Employer under the NLRA, which concerns employees’ right to form or join unions; engage in protected, concerted activities to address or improve working conditions; or refrain from engaging in these activities.

The U.S. Chamber appealed the 2023 Final Rule noting the harsh consequences of the 2023 Final Rule to many businesses. “The ultimate effect of the rule will be to make it far easier for the NLRB to declare that joint employment status exists in commonplace business relationships like franchising, contracting, and supply chains. Many companies could find themselves facing liability for workers they don’t employ and workplaces they don’t actually control.” 

Just shy of the new effective date, Judge Barker held that the proposed rule was contrary to law as it exceeded common law principles of joint employer status and further held that the NLRB’s decision to vacate its February 2020 rule was arbitrary and capricious. 

The NRLB Chairman Lauren McFerran said the following in a press release following the vacation of the rule:  “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… The Agency is reviewing the decision and actively considering next steps in this case.” 

There is another case pending that concerns the same rule so it may be possible that both cases eventually wind up before the U.S. Supreme Court.  As of right now, the applicable joint employer rule for purposes of the NLRA is the 2020 standard, which requires there be substantial direct and immediate control over the essential terms and conditions of another company’s employees for joint employment to arise. Stay tuned for further updates on this important matter. Employers with questions should consult their Wyatt, Tarrant & Combs labor and employment counsel.

Sharon L. Gold
Sharon Gold is a member of the Firm’s Litigation & Dispute Resolution Service Team. She concentrates her practice in the area of labor and employment and commercial litigation. Ms. Gold has experience defending employers in a variety of lawsuits, both at the administrative and civil complaint level, including defense of claims brought pursuant to the: FLSA, FMLA, Title VII, 42 U.S.C. § 1981, ERISA litigation, ADA, ADEA, Kentucky Civil Rights Act, Kentucky Wage and Hour Act,... Read More