Federal Judge Overturns NLRB’s Expanded Joint Employer Rule: Implications for Employers

Posted by HLL Admin

On March 8, 2024, the legal landscape for employers experienced a significant shift. A federal judge in the Eastern District of Texas, Judge J. Campbell Barker, struck down a National Labor Relations Board (NLRB) rule that would have expanded the definition of “joint employer” under the National Labor Relations Act (NLRA). 

The Court’s ruling is in response to a lawsuit initiated by the US Chamber of Commerce and a coalition of business groups. The lawsuit challenged the rule as arbitrary, capricious, and unlawfully broad. This ruling, just days before the rule was set to take effect, underscores the complexities and ongoing battles over labor law in the United States.

The Rule’s background and Intended Effect

The NLRB’s Final Rule, introduced in October 2023, was intended to broaden the criteria for determining joint employer status. Previously, an entity needed to have direct and immediate control over employees’ essential terms and conditions of employment to be considered a joint employer. The new rule, however, proposed that entities sharing or co-determining such terms could also be deemed joint employers, even if this control was indirect or reserved but not exercised.

This shift was poised to increase the number of businesses required to bargain collectively and potentially liable for unfair labor practices committed by subcontracted employees. However, the U.S. Chamber of Commerce and other business groups challenged the rule, leading to Judge Barker’s recent decision.

Judge Barker’s Decision

Judge Barker vacated the NLRB’s Final Rule, agreeing with the Chamber’s argument that the rule was overly broad and lacked clarity. He highlighted that the two-part test proposed by the NLRB essentially collapsed into a single test. In practical terms, if an entity was found to be a common law employer, it would automatically meet the criteria for joint employer status under the new rule. This interpretation could extend joint employer liability to almost any business contracting for labor services, a scenario Judge Barker found untenable.

The ruling also emphasized that the new rule’s approach to indirect control was too expansive, potentially classifying virtually all contracting entities as joint employers simply because their contracts indirectly influenced essential employment terms.

Consequences for Employers

The decision to vacate the Final Rule means that the previous, narrower joint employer standard remains in effect. For employers, this is a critical development. The broader rule would have significantly impacted how companies engage with subcontractors, staffing agencies, and other third parties.

Regardless of the outcome of this ruling, the National Labor Relations Board will continue to push for regulatory changes that favor collective bargaining. Large employers must remain aware of any potential changes in order, especially as they pertain to employment contracts. This includes scrutinizing any clauses that may imply control over another entity’s employees and reevaluating management practices related to third-party workers on their premises.

Judge Barker’s ruling represents a significant victory for businesses concerned about the expanding scope of joint employer liability under the NLRA. However, the legal and regulatory environment remains fluid, with potential appeals and further legislative actions on the horizon. At Hughes Lawyers, LLC, we specialize in navigating the complexities of labor law and are committed to helping our clients understand and adapt to these changes. Our expertise in employment law ensures that we can provide tailored guidance to help your business thrive amidst evolving regulatory landscapes.

At Hughes Lawyers, LLC, we recognize the importance of staying informed about such regulatory changes. For more information and personalized legal advice, contact Hughes Lawyers, LLC today.

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