Friday, March 8, 2024: U.S. Trial Court Judge Struck Down NLRB Joint Employer Rule
Final Rule Had Been Slated to Take Effect on March 11
NLRB Mulling “Next Steps”
Late on Friday, U.S. District Judge J. Campbell Barker of the Eastern District of Texas (in Tyler) struck down the U.S. National Labor Relations Board’s (“NLRB”) finalized joint employer Rule. The Final Rule provided a new, broader standard to determine whether two or more employers are joint employers of particular employees within the meaning of the National Labor Relations Act. We discussed the Final Rule, published in late October 2023, in detail here.
In November 2023, the NLRB extended the original effective date of the Final Rule by two months, from December 26, 2023, to February 26, 2024 (see our story here).
On November 9, 2023, the U.S. Chamber of Commerce and other business groups sued the NLRB in the U.S. District Court in the Eastern District of Texas seeking to permanently block the Final Rule (Chamber of Commerce of the United States of America, et al v. NLRB, No. 6:23–cv–00553). On February 13, 2023, Judge Barker, a Trump appointee, held a hearing on various potentially dispositive motions in the case. On February 22, 2024, Judge Barker issued an order extending the February 26 effective date by another 14 days – to March 11 – to allow him time to consider those pending motions. (See our story here.)
What Did the Judge Say?
In a 31-page Opinion and Order vacating the Final Rule, Judge Barker concluded that the new standard is overly broad because “if an entity exercises or has the power to exercise control (even indirect control) over at least one essential term [of employment], the entity is an employer, jointly with workers’ undisputed employer.” Therefore, “[t]hat 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.”
The NLRB asserted that the “regulatory framework” of the Final Rule involved two steps: (1) an entity must “qualify as a common-law employer of the disputed employees,” and (2) “only if the entity is a common-law employer, then it must also have control over one or more essential terms and conditions of employment.” However, Judge Barker agreed with the Plaintiffs’ argument that “the second test is always met if the first test is met, so the Rule’s joint-employer inquiry has just one step for all practical purposes.”
Judge Barker also issued a separate Final Judgment order. It states in part:
“It is declared that enforcement against plaintiffs or their members of the rule issued by the National Labor Relations Board on October 27, 2023, entitled Standard for Determining Joint Employer Status, 88 Fed. Reg. 73,946, would be contrary to law as to the rule’s addition of a new 29 C.F.R. § 103.40 and arbitrary and capricious as to its removal of the existing 29 C.F.R. § 103.40 (2020). In both respects, the rule is hereby vacated.”
NLRB Chair’s Response
“The District Court’s decision to vacate the Board’s rule is a disappointing setback, but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts,” said NLRB Chair Lauren McFerran (D) in a statement issued on Saturday evening. “The Agency is reviewing the decision and actively considering next steps in this case,” she added.
Chamber of Commerce President Applauded Ruling
Judge Barker’s decision “will prevent businesses from facing new liabilities related to workplaces they don’t control, and workers they don’t actually employ,” said U.S. Chamber of Commerce President and CEO Suzanne P. Clark in a press release issued early on Saturday.