NLRB Joint Employer Rule Vacated

On March 8, 2024, a federal trial court in Texas vacated the National Labor Relations Board’s (NLRB or Board) new joint employer rule. Issued in October 2023, this rule changed the standard for determining when two or more separate companies are a joint employer of employees under the National Labor Relations Act. It replaced the business-friendly standard adopted by the Board during the Trump administration in 2020. 

The court’s decision was the result of a lawsuit filed by the U.S. Chamber of Commerce and other business groups. In vacating the new rule, the court called out the Board’s position that an entity will be considered a joint employer if it indirectly controlled or had the ability to exercise control over one essential term of a worker’s employment. This aspect of the new rule “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.’” The court also determined that the Board’s rescission of the 2020 rule was arbitrary and capricious under the Administrative Procedure Act. 

The court reinstated the 2020 rule which provides that to be a joint employer “a business must possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees.” Evidence of indirect and/or contractually reserved control over essential employment terms may be a consideration for finding joint-employer status, but it cannot give rise to such status without substantial direct and immediate control. Control exercised on a sporadic, isolated, or de minimis basis is not “substantial.”

While this is good news for employers, we expect the NLRB to appeal the court’s decision, work toward rescinding the 2020 rule, or do both. As always, we will keep you posted on developments. 

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.