D.C. Circuit Upholds Obama-Era Joint Employer Test, Invites Showdown Over Future NLRB Rulemaking

One of the longest running sagas in labor law opened yet another chapter on December 28, 2018, when a panel of D.C. Circuit judges issued a decision that creates additional uncertainty regarding the National Labor Relations Board’s (NLRB) “joint employer” test. The panel largely upheld the NLRB’s 2015 test for determining when a company is considered a joint employer with a contractor. Under that test, the company may be a joint employer even if it has only indirect control over the terms and conditions of employment or has the reserved authority to do so. 

Typically, when reviewing agency decision, an appeals court will show great deference to the NLRB. This panel did not. Because it saw the question before it as one about the content and meaning of common law, rather than a simple review of an agency’s “reasonable interpretation” of the statute it enforces, it refused to show any deference to the NLRB’s 2015 decision. 

Still, the court largely upheld the NLRB’s 2015 joint employer test. In a severe blow to the employers involved, it agreed that the NLRB can consider a company’s indirect control and reserved authority in determining whether it is a joint employer. While the court found that the NLRB erred in a couple ways (for example, the NLRB conflated a company’s efforts to simply hire a third-party contractor with indirect control that bears on workers’ essential terms and conditions), it agreed for the most part with the Obama-era NLRB’s joint employer test.

Most employers do not need to worry about how circuit courts review NLRB decisions, because the NLRB employs a policy of non-acquiescence: it simply does not follow circuit court decisions. Multiple circuits often disagree about labor law issues, so the NLRB will continue to judge employers by its own standards until it decides to change course (or the Supreme Court tells it to). But employers should take note of this decision from the D.C. Circuit, because it has the potential to alter the current trajectory of the joint employer rule at the NLRB. For more than a year, the current NLRB has sought to restore its more business-friendly pre-2015 standard, which would not consider entities to be joint employers unless they actually exercise joint control over essential terms and conditions of employment, and that control is direct and immediate. The NLRB is in the process of proposing rulemaking that would implement this standard. Here, the D.C. Circuit took the unusual step of addressing these rulemaking efforts, warning the NLRB to “color within the common-law lines identified by the judiciary.”

This shot across the bow might not cause the NLRB to change its efforts to restore the business-friendly joint employer standard through rulemaking. But it certainly adds another layer of uncertainty for employers weary of having to do business without a firm understanding of what joint employer standard would apply to them. Just as the NLRB issued its 2015 decision by a slim margin (3-2), the D.C. Circuit Court panel issued this decision by a 2-1 vote, with a forceful dissent from Senior Judge A. Raymond Randolph. Every time NLRB members and judges disagree about what the standard should be, and whether the NLRB applied that standard correctly, employers find themselves on less stable footing and more in need of a predictable and workable rule.