NLRB Abandons Joint Employer Rule Challenge

The National Labor Relations Board has withdrawn its legal challenge to a court ruling that overturned its controversial new joint employer rule.

NLRB attorneys filed a motion with the U.S. Court of Appeals for the Fifth Court July 19 seeking dismissal of its challenge to a March 8 ruling by a federal court in Texas.

The March ruling, handed down three days before the rule was scheduled to take effect, called the rule “contrary to law” and “arbitrary and capricious.”

Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas said that by establishing an array of new conditions to determine whether a company meets the standard of a joint employer, the rule exceeded “the bounds of the common law.”

The joint employer rule would also “likely promote labor strife, rather than peace, by forcing an underdefined category of entities to take a seat at a bargaining table.”

“[It] 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,” he noted.

‘Consider Options’

In dropping its appeal of the Fifth Circuit decision, the NLRB said it believes the rule is lawful but wants “to consider options for addressing the outstanding joint employer matters before it.”

The board has several rulemaking petitions on its docket regarding the issue and likely will attempt to return to case adjudication to set the test for joint employment rather than through rulemaking.

The joint employer standard has been one of the most contested topics addressed by the NLRB, with its interpretation shifting every few years based on the board’s political composition.

“This is a major legal victory and an important acknowledgment by the NLRB.”

U.S. Chamber of Commerce

The NLRB managed the joint employment test through case adjudication until 2020, when the board issued a rule that one company can be considered the employer of another firm’s workers only if it exercises direct and immediate control over the essential terms and conditions of employment.

A new board rescinded that standard in 2023, drawing a legal challenge from the U.S. Chamber of Commerce and a coalition of business organizations.

“This is a major legal victory and an important acknowledgment by the NLRB,” the chamber said in a July 19 statement.

“The agency’s joint employer rule overstepped its constitutional and statutory authority with this unlawful rule.”