Court Ices Hotly Contested Labor Rule

Anyone who uses contract labor or services can breathe a little easier…for now.  In Chamber of Commerce of the United States v. National Labor Relations Board, 6:23-cv-00553, a judge in the Eastern District of Texas granted summary judgment vacating the NLRB’s 2023 rule on joint employment.    The October 2023 rule established a new standard for determining whether two or more entities may be considered joint employer of a particular group of employees. See Shimabukuro, CRS R47943 (March 4, 2024).

NLRB described the rule as trending toward common-law agency principles.  The Rule deems entities joint employers if they share or codetermine the essential terms and conditions of employment. Direct or indirect authority to control the terms and conditions was sufficient, even if an entity never exercised that authority.  This replaced a Rule adopted in 2020 which followed a 2015 rule change and related litigation.

The Court’s opinion tracks the federal judicial and legislative history of the meaning of “employer” and emphasized that amendments to the original act constrained a more expansive definition of “employer” and expressly excluded “independent contractors.”  It noted “joint employer” is not contained in the act and arises from case law. 

It stated that while differences among federal circuits exist, two limitations on the existence of joint employment had “solidified.”  These limits were “potential” control and “indirect” control.  Potential control related to authority that existed in contract terms but was not exercised.  Indirect control did not lead to joint employer status as “direct and immediate” control was required.

Both litigants agreed that common law employment was the benchmark for joint employer status.  The Chamber argued the Rule was overly inclusive because its two-part test was always met if the first part of the test was met.  The NLRB was unable to state any example in which an entity might satisfy step one but not step two.  The Court stated step two was either coextensive with or a superset of (more inclusive than) step one. 

A later subsection of the rule was also deemed to establish joint employer status without additionally demonstrating employment under the common law.  The Court stated this subsection would treat “virtually any entity that contracts for labor as a joint employer….”  It discussed an ice cream shop being the joint employer of its lawn company’s employees, cost-plus contracts for labor, as well as general contractor’s responsibility for site safety as noted in a dissenting opinion from the NLRB.  Ultimately, the court vacated the 2023 removal and replacement of the 2020 rule.  The NLRB can appeal, so stay tuned for more developments.