NLRB Withdraws Appeal to the Fifth Circuit Regarding its Joint Employment Rules
Rob Thomas, Of Counsel
The Rocky Mountain Employer previously discussed a final rule issued by the National Labor Relations Board (the “Board”), which was previously set to go into effect in early 2024 and which would have significantly lessened the burden of employees and the Board to establish joint employment between two entities for purposes of bargaining obligations and liability for unfair labor practices under the National Labor Relations Act (“NLRA” or the “Act”).[1] However, the Board has now abandoned its appeal of a recent U.S. District Court decision which declared the final rule to be invalid, further setting back the NLRB’s efforts to redefine joint employment under the Act.[2]
U.S. Chamber of Commerce et al. v. N.L.R.B. – The Eastern District of Texas Vacates the Final Rule
The Board, in its final rule, sought to codify a joint employment test which could lead to joint and several liability for unfair labor practices and shared bargaining obligations between two entities (such as an employer and a professional employer organization, a contractor and subcontractor, or a franchisor and franchisee) under circumstances where the entities share or codetermine matters governing the essential terms and conditions of employment (hiring, firing, compensation, discipline, supervision, etc.), and such control could be direct, indirect, or simply a reserved right to control that is not exercised.[3] The previous joint employment rule, effective April 27, 2020, only permitted a finding of joint employment if an entity actually exercised substantial direct and immediate control over the other employer’s employees, such that the entity had a regular or continuous consequential effect over an essential term or condition of employment of the other’s employees.[4]
Unsurprisingly, the Board’s final rule drew multiple legal challenges. Of relevance here, the U.S. Chamber of Commerce sued to enjoin and invalidate the final rule in the U.S. District Court for the Eastern District of Texas, arguing that the Board’s action in both rescinding the 2020 rule and promulgating the final rule was arbitrary and capricious.[5] After staying the final rule’s effective date by fourteen days to March 11, 2024, in order to issue a ruling, the court held in favor of the Chamber of Commerce on March 8, 2024, finding that the final rule stepped beyond the common law principles of agency which the Board relied upon in issuing the rule, and was therefore overbroad. The court likewise determined that the Board’s rescission of the 2020 rule was arbitrary and capricious, since the Board had no reasonable explanation as to why a return to having the joint employer standard governed by court and Board adjudications (as opposed to codified regulations) would be preferable to having the 2020 rule remain in place. Last, the court exercised its power to vacate and invalidate the final rule itself, rather than enjoin the application and enforcement of the rule to the named plaintiffs.
The Board’s Abandoned Appeal
In response to the Eastern District’s ruling, the Board appealed to the Court of Appeals for the Fifth Circuit on May 7, 2024. However, on July 19, 2024, the Board moved to voluntarily dismiss the appeal. In so doing, the Board stated in its motion that it still believed that the final rule meets the procedural and substantive requirements of the Administrative Procedures Act and the NLRA, but that it would “like the opportunity to further consider the issues identified in the district court’s opinion in the first instance.”
Employer Considerations
The Eastern District of Texas’s ruling and the Board’s subsequent dismissal of its own appeal represent a significant victory for the Chamber of Commerce and numerous other employer groups who opposed the Board’s final rule as needlessly blurring the lines between employers and their contractors, franchisees, or staffing agencies. As of now, the 2020 version of the Board’s joint employer rule remains in effect, but it is certainly reasonable to assume that the Board will revisit the joint employer standard with subsequent rulemaking in the future.
Campbell Litigation remains available to assist employers with these and other labor-related concerns in light of the Board’s ever-changing rules and precedent over critical labor matters.
[1] See https://www.rockymountainemployersblog.com/blog/2023/11/2/nlrb-relaxes-requirements-to-establish-joint-employment-relationship.
[2] As previously noted, the joint employer analysis under the NLRA is separate from and otherwise does not affect the joint employer analysis under federal anti-discrimination laws, such as Title VII of the Civil Rights Act of 1964.
[3] 29 C.F.R. § 103.40 (2024).
[4] 29 C.F.R. § 103.40 (2020).
[5] Chamber of Commerce of the United States v. N.L.R.B., --- F. Supp. 3d ----, 2024 WL 1203056 (E.D. Tex. Mar. 18, 2024) (correcting and superseding the court’s prior March 8, 2024 order).