Texas federal district court strikes down NLRB’s new joint employer rule

On March 8, 2024, Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas issued a decision striking down the National Labor Relations Board’s (NLRB) new joint employer rule because it would treat some companies as the employers of contract or franchise workers even when they lacked any meaningful control over their working conditions. (The case is U.S. Chamber of Commerce et al. v. NLRB et al., No. 6:23-cv-00553 (Mar. 8, 2024).)

The plaintiffs challenged the NLRB’s 2023 new rule on two grounds:

1. They argued that it is inconsistent with the common law. 
2. They argued that the 2023 new rule is arbitrary and capricious for ignoring serious practical problems and failing to articulate a comprehensible standard, with meaningful guidance to the regulated parties.

Background on the NLRB’s new joint employer rule

On October 26, 2023, the NLRB issued its final rule for addressing the standard for determining joint employer status under the National Labor Relations Act. The ultimate effect of the NLRB’s proposed new rule was to make it far easier for the NLRB to declare that joint employment status exists in commonplace business relationships like franchising, contracting, and supply chains. The effective date of the new rule was scheduled to be on February 26, 2024; however, Judge Barker issued an order pushing back the rule’s effective date to March 11, 2024. 

Rolling back previous policy and updating a standard that hadn’t changed in over 60 years, under the proposed new NLRB rule, an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employee's essential terms and conditions of employment, which are defined exclusively as:

1. Wages, benefits, and other compensation
2. Hours of work and scheduling
3. The assignment of duties to be performed
4. The supervision of the performance of duties
5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline
6. The tenure of employment, including hiring and discharge
7. Working conditions related to the safety and health of employees.

In ruling that the NLRB’s rationale for rescinding the 2020 joint employer rule is arbitrary and capricious, Judge Barker held “So if an entity exercises or has the power to exercise control (even indirect control) over at least one essential term, the entity is an employer, jointly with workers’ undisputed employer. That would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified “essential terms and conditions of employment.” 

Judge Barker stated that he will issue a final judgment vacating the NLRB’s 2023 new rule, both insofar as it rescinds the current 2020 version of 29 C.F.R. § 103.40 (the joint employer rule) and insofar as it promulgates a new version of that regulation. The decision will likely be appealed to the U.S. Court of Appeals for the Fifth Circuit.