NLRB Abandons Court Fight Over New Joint Employer Regulation

July 25, 2024

The National Labor Relations Board recently filed a motion to dismiss its challenge to a federal court’s order vacating its regulation that would expand joint labor law liability. This change of heart comes amidst a pivotal time for the Democratic Board as its makeup could change drastically due to the upcoming presidential election. The departure of the Board’s lawsuit over this regulation also signals a shift in the Board’s strategy back to forming labor laws via real cases as opposed to formal rulemaking.

History of Joint Labor Law Liability

Joint employment is one of the most hotly contested areas of labor law as it can thrust federal labor obligations and liability on entities outside of the direct employer-employee relationship based on an analysis of a variety of factors. The National Labor Relations Board’s general practice has been to shape labor law through widespread rulings in individual cases.

In 2015, the Board established the previous standard and held that a company’s indirect or reserved control over another entity’s workers’ terms and conditions of employment is probative of a joint employer relationship, but not conclusive.

In 2020, the Board departed from this general practice and issued a rule that raised the bar for entities to be deemed joint employers. This regulation stated that one company can be considered the employer of another’s workers only if it exercises direct and immediate control over the most important aspects of the workers’ job. This is the current standard for determining a joint employer relationship for federal labor law purposes.

In 2023, the Board issued a rule to replace the previous Board’s regulation and drastically lower the standard for establishing a joint-employer relationship. It expanded the factors that can trigger a joint-employer finding by defining seven categories of essential terms and conditions that must be analyzed to determine a joint-employer relationship. These include wages, benefits, and other compensation, hours of work and scheduling, assignment of job duties, and supervision of the performance of those job duties.

Most notably, the 2023 rule held that even indirect and unexercised control can establish a joint employer finding. This means that even if a company has contractual authority over some of the terms and conditions of another entity’s workers but never exercises it, the Board can still use that unexerted power to find that the company is a joint employer with an obligation to bargain. Under this rule, franchisors and companies that utilize workers through staffing agencies were at risk of liability simply because they retain some level of unexercised control over another’s workforce.

Where Things Stand Now

In March, a federal Judge vacated the NLRB’s rule and, up to now, the Board has been challenging that decision with the U.S. Court of Appeals for the Fifth Circuit. The NLRB’s departure from this challenge can be seen as a win for employers as it means the Board must seek to change the current employer friendly standard in another way. Time is ticking for the current Board as the results of the Presidential election will very likely determine the makeup of the Board for years to come.

If you have any questions regarding joint employer liability or your obligations under federal labor law, please contact Gaetano Urgo at gurgo@dcamplaw.com or by telephone at (312) 995-7128.