March 14, 2024

New NLRB Joint Employer Final Rule Struck Down by Federal Court

As discussed here, on October 26, 2023, the National Labor Relations Board (Board) issued a new Final Rule affecting joint employment under the National Labor Relations Act (NLRA). The new rule rescinded the Board’s prior rule enacted in 2020 (“2020 Rule”) and instead set forth a new test expanding the circumstances under which an employer is deemed a ‘joint employer.’

Legal challenges saw the new rule’s effective date pushed back multiple times from December 26, 2023, to February 26, 2024, and then to March 11, 2024.  On March 8, 2024, a U.S. District Judge of the Eastern District of Texas vacated the new Final Rule finding the Board’s attempt at recission unlawful as well as arbitrary and capricious.  This decision restores the 2020 Rule.

What is the 2020 Rule?

In 2020, the Board issued a final rule (“2020 Rule”) under which one entity can be considered a joint employer of another entity’s employees only if it exercises actual “substantial direct and immediate control” over the employees’ essential terms and conditions of employment (i.e., wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction) in a manner that is not sporadic and isolated. In other words, indirect control – or the reserved but unexercised right to control – is not considered sufficient to establish a joint-employer relationship.

It is unknown whether this ruling will be further challenged.

Employers should continue to keep in mind that the NLRA joint-employer rule is not the same rule applied by the U.S. Department of Labor for purposes of the Federal Labor Standards Act.