On March 8, 2024, the U.S. District Court for the Eastern District of Texas struck down the National Labor Relation Board’s newest joint-employer standard just three days before it was supposed to become effective. Had it become effective, the NLRB could classify a broader range of entities as “joint-employers” and require those entities to bargain with each other’s employees and impose liability for each other’s unfair labor practices. But now, the federal court’s decision makes the future of this rule uncertain.
Under the standard that was just struck down, two separate entities would be subject to NLRB jurisdiction if the entities: (1) have an employment relationship with some of the same employees; and (2) control some of those employees’ essentials terms and conditions of employment. Importantly, this new rule broadened the scope of “control” required to establish entities as joint-employers. The older 2020 standard required an entity to have “direct and immediate” control over the employees to be a joint-employer. But the new rule merely required “indirect control” (control exercised through an intermediary or third-party) or “reserved control” (control that may be exercised by an entity even though it has not asserted it) to establish joint-employer status, even if one of the entities never exercised actual control over the employees. According to the NLRB, this broader standard was more faithful to common-law agency principles and prevented employers from avoiding bargaining obligations by using an intermediary to implement decisions about terms and conditions of employment.
However, Judge Barker of the Eastern District of Texas disagreed. In striking down the NLRB’s broad standard, Judge Barker stated that 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 . . . essential terms and conditions of employment.” This expansive reach, he continued, “exceeds the bounds of the common law and is thus contrary to law.” Consequently, Judge Barker vacated the NLRB’s new joint-employer standard and reinstated the NLRB’s prior “direct and immediate” standard.
So, what does this mean going forward for employers? The NLRB can still appeal the court’s decision to the United States Court of Appeal for the Fifth Circuit, and related litigation is brewing in the D.C. Circuit. But, resolution of this issue may be a long way off. For now, employers should stick to the prior standard adopted in 2020—entities are joint-employers only if they “possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of employment.”
For more information on the future of the NLRB’s joint-employer standard, please reach out to Logan Hibbs or any member of the Labor & Employment Practice Group.