EMPLOYER ALERT: National Labor Relations Board “Joint Employer” Rule Blocked


A federal judge in Texas has halted a proposed National Labor Relations Board (NLRB) rule that aimed to simplify the process for employees to unionize.

In October, the NLRB issued a final rule stating that two or more entities would be considered “joint employers” of a group of employees if each entity has an employment relationship with the employees and shares or helps determine their essential terms and conditions of employment.

The NLRB outlined a two-step process: first, an entity must establish itself as a “common-law employer” of the disputed employees, and second, only if it qualifies as a common-law employer, it must also “demonstrate control over one or more essential terms and conditions of employment.”

However, the Texas Federal Judge pointed out a flaw in this analysis, stating that "the second test is always met if the first test is met," essentially reducing the joint-employer inquiry to, in practice, just one step.

During oral arguments, the NLRB’s attorney failed to provide the court with an example where the second step of the two-step test was necessary.

The judge deemed the rule “invalid” due to its classification of certain companies as employers of contract or franchise workers, despite lacking significant control over their working conditions. Therefore, as it stands, the Joint Employer status of an employee will continue to be determined under the 2020 Rule which provides that an employer will be considered a joint employer only when the employer exercises “substantial direct and immediate control” over the essential terms and conditions of another company’s employees.

The decision, poised to have a substantial effect on the franchising sector and business-to-business contracts concerning contract labor, since it likely would have treated every company that contracts for labor as a joint employer. Almost every contract for third-party labor has terms within it that would impact, in some way, an “essential term and condition of employment.”

It is anticipated that this ruling will be appealed to the US Court of Appeals for the Fifth Circuit. We will provide updates as the matter evolves through the legal system. In the meantime, if you have any questions on this or any other employment matter, please reach out to Michael A. Airdo at mairdo@airdowerwas.com or James C. Jansen at jjansen@airdowerwas.com.

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