NLRB Appeals District Court Decision to Thwart Joint-Employer Rule

The viability of the Biden administration’s joint-employer rule will likely hinge on the outcome of an appeal by the National Labor Relations Board (NLRB) of a recent Texas district court ruling that vacated the rule. The filing with the U.S. Circuit Court of Appeals followed the U.S. House of Representatives’ May 7 failure to override the president’s veto a week earlier of the bill to secure its demise.

Struck down in March by the Texas court, the rule allows for an entity to be considered a joint employer of another employer’s employees if the two share or codetermine the employees’ essential terms and conditions of employment. The rule is viewed as lowering the bar for whether two companies share obligations to bargain with unions and face joint liability for labor law violations.

Historically, classification as a joint employer would be most likely if a contractor and client both exert a high level of control over an employee’s work, including:

• Essential terms. Does the client have a say in setting the employee’s wages, hours, benefits or supervision?
• Right to hire and fire. Can the client influence who the contractor hires or fires for their location, or can they directly terminate the employee assigned to them?
• Work direction and supervision. Who directs the employee’s day-to-day work tasks and provides on-site supervision? Does the client have significant input here?

The Texas court found the rule was “contrary to law” and “arbitrary and capricious” in part because it removed a 2020 Trump-era joint-employer standard. The court invalidated the rule because it would treat some companies as the employers of contract or franchise workers even when those companies lacked any meaningful control over their working conditions.

Business groups led by the U.S. Chamber of Commerce filed the Texas suit. They noted the bill to stop the rule passed on a bipartisan basis in the House in January and the Senate in April. The Chamber characterized the bill as the NLRB abandoning its role as neutral administrator of the law. Chamber Senior VP Glenn Spencer described the NLRB as putting “the thumb on the scale in favor of union bosses poses a significant threat to the survival of small businesses, particularly those operating under the franchise model.”

The NLRB may try to get the case moved to the D.C. Circuit, where a separate challenge by the Service Employees International Union is pending, arguing the rule should be broader.