NLRB Withdraws Appeal of Joint Employer Rule Decision

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Authors: Matthew A. Fontana , Ryan J. Funk , Sarah C. Blackadar , Jillian S.B. Lukacik

At a Glance

Prior to 2020, the NLRB shaped the law on joint employer status through adjudications. In 1982, the NLRB held that when two or more employers exert significant control over the same employees, both employers can have joint liability for unfair labor practice claims.
In 2020, the NLRB changed the joint employer rule through rulemaking and required that an employer exercise “substantial direct and immediate control” over one or more essential terms or conditions of employment, before the NLRB would find joint employer status.
Then in 2022, the NLRB proposed a new rule, which stated that the NLRB could find joint employer status even where an employer had only indirect or reserved control even if that control was never exercised. The NLRB published a final rule in 2023, which was the subject of the recent litigation.
The standard now reverts to the 2020 rule.

Last week, the National Labor Relations Board (NLRB) withdrew its bid to save its new joint employer rule, which would have treated some entities as joint employers with their contractors or franchises, even when those entities lacked meaningful control over the contractor or franchises’ employees’ working conditions. In March 2023, a federal district court in Texas blocked the NLRB’s new joint employer rule, and the NLRB initially appealed that ruling to the Fifth Circuit Court of Appeals.

This is neither the first nor the last chapter in the evolution of the NLRB’s joint employer rule; and the NLRB has stated that, while it considers its rule lawful, it will now “consider options for addressing the outstanding joint employer matters before it.” For employers concerned about joint-employer liability, this most likely means the NLRB will be addressing this issue in a new rulemaking or in Board decisions in the near future.

Joint Employer Status Prior to 2020

Prior to 2020, the NLRB shaped the law on joint employer status through adjudications. In 1982, the NLRB held that when two or more employers exert significant control over the same employees, both employers can have joint liability for unfair labor practice claims, in its Browning-Ferris Industries decision.

In the many cases that came after that decision, the NLRB established that an employer must actually exercise control, not just possess the hypothetical right to do so, over terms and conditions of employment to be found to be a joint employer.

In 2015, the NLRB, with a majority of Board members appointed by President Obama, removed the requirement that an employer actually exercise its reserved authority over terms and conditions of employment, but left the remainder of the Browning-Ferris requirements in place.

First Rule Making

Then, in 2020, the NLRB, with a majority of appointees from President Trump, decided to change the joint employer rule through rule making. The rule making articulated a new test, which required that an employer exercise “substantial direct and immediate control” over one or more essential terms or conditions of employment, before the NLRB would find joint employer status.

Second Rule Making

Then, once the composition of the NLRB shifted again under President Biden, the Board sought to undo some of the 2020 rule by publishing a new rule. The new rule — the subject of the recent litigation — would allow the NLRB to find joint employer status even where an employer had only indirect or reserved control even if that control was never exercised. Under this rule, the NLRB could deem an entity a joint employer if the entity had the authority to control even one of the seven categories of essential terms and conditions of employment, regardless of whether that entity actually exercised that authority.

Though the NLRB received numerous comments describing how this rule would result in joint employer status under nearly every contractual relationship between two employers, the NLRB published this final rule last year. As described above, a federal district court in Texas blocked the NLRB’s new joint employer rule earlier this year, and the NLRB initially appealed that decision.

Likely Next Steps

Now that the NLRB has withdrawn its bid to keep the 2023 rule alive, what does this mean for employers? Likely, the NLRB is already looking at alternative methods to implement a similar standard either through new rule making or adjudications.

In the interim, the standard now reverts to the 2020 rule, which requires an entity to actually exercise direct and immediate control over the terms and conditions of employment for a group of employees in order to be considered a joint employer.

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