Employment Law Update: NLRB Withdraws Appeal of Decision Vacating Its Joint Employer Rule
Date: July 24, 2024
By:
David M. Stevens
This issue most commonly arises in situations where one business has engaged another to provide services that are performed by the second business’s employees. The question of when such “joint employer liability” can be imposed involves an analysis of the relationship between the two companies and the role that each plays in the management of the workers at issue. The particular factors considered in the analysis can vary depending on the court or agency that is deciding the issue in a particular case.
One agency that has been at the forefront of joint employment issues in recent years is the National Labor Relations Board (NLRB). In the context of the NLRB’s role in enforcing the nation’s labor laws, whether a business is a joint employer with a second company can dictate a business’s obligation to engage in collective bargaining concerning groups of employees that it does not directly employ.
For several decades, the NLRB had applied a joint employment test that focused on the extent to which a business actually participated in the control and supervision of the second business’s employees. In a 2015 decision, the NLRB modified that test to focus primarily on whether the second business (the purported joint employer) had the authority to engage in such control and supervision (such as pursuant to a term in a contract between the two businesses) regardless of whether the business had actually exercised that authority.
Following a change in the NLRB’s membership (which often coincides soon after the candidate from a new party becomes President), it published a new joint employment test in early 2020. Unlike the test announced in 2015, the 2020 rule specified that a joint employment relationship would exist where a business both possessed and exercised “substantial direct and immediate control over one or more of the essential terms or conditions” of employment for the workers at issue.
Following a further change in the NLRB, the agency issued yet another new joint employer rule that was scheduled to take effect in February 2024. Under the new version of the rule, a business would be deemed a joint employer of a second business’s employees if it either possessed or actually exercised the power to control one or more of the essential terms of conditions of employment for the workers at issue. Those “essential terms and conditions” were defined to include compensation, hours of work, scheduling, assignment of duties, supervision, directions relating to the performance of work, decisions regarding hiring and firing, and conditions relating to health and safety. The new test thus significantly lowered the bar for concluding that a business was in a joint employment relationship with workers of another company, which would make it easier for the second business to be compelled to negotiate with a labor union regarding workers, not its own direct employees.
Shortly after the NLRB announced the new rule, not surprisingly, the rule was subjected to several legal challenges. On March 8, 2024, a court in the Eastern District of Texas found that enforcement of the rule would be “contrary to law,” and that the NLRB’s action in withdrawing the 2020 rule was “arbitrary and capricious.”
The NLRB filed an appeal to the Fifth Circuit. On July 19th, however, the NLRB withdrew its appeal prior to a decision by the appellate court. Although the NLRB’s filing stated that it “remains of the opinion” that the rule was valid, the NLRB indicated that it was withdrawing its appeal “to allow it to consider options for addressing the outstanding joint employer matters before it.”
With the NLRB’s revised “joint employer” rule now vacated, the 2020 rule remains in place as the governing standard for determining when two businesses can be considered to jointly employ a group of workers for purposes of the National Labor Relations Act. It remains to be seen, however, whether the NLRB will engage in further rulemaking, or if future NLRB decisions in individual cases will modify how the 2020 rule is interpreted. Given the significant consequences that a joint employment finding can have on a business, employers would be wise to monitor further NLRB developments and consult with their legal counsel when entering into contractual relationships under which workers of another entity will perform services on their behalf.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.