On Oct. 26, the National Labor Relations Board (NLRB) issued its much-anticipated final rule addressing the Standard for Determining Joint-Employer Status under the National Labor Relations Act (NLRA). The 229-page rule not only restores the deeply flawed standard first announced during the Obama administration in its 2015 Browning-Ferris decision, but also expands potential liability for employers.

During the Trump administration, the NLRB reversed the Browning-Ferris standard via a final rule, and it required a putative joint employer to “possess and exercise . . . substantial direct and immediate control” over essential terms and conditions of employment to determine that status. The new October 26, 2023 rule rescinds the Trump-era board’s standard and “makes extreme and troubling changes to Board law,” as Member Marvin Kaplan states in his dissent to the new rule.

Joint employment is where two or more employers control the essential terms and conditions of employment for the same employees. The rule makes it easier for the NLRB to declare joint employment status exists in business relationships where it traditionally doesn’t, like franchising, contracting, and supply chains.

The U.S. Chamber of Commerce and a coalition of business groups filed a lawsuit against the National Labor Relations Board (NLRB) in the U.S. District Court for the Eastern District of Texas over its new joint employer rule.

The rule makes it easier for the agency to declare joint employment status exists in business relationships where it traditionally doesn’t, like franchising, contracting, and supply chains. It upends a longstanding precedent by broadening liability for employers and enabling unions to organize across companies rather than store by store. Many companies could find themselves facing liability for workers they don’t employ and workplaces they don’t actually control.

The Chamber is joined by co-plaintiffs: the American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, Coalition for a Democratic Workplace, International Franchise Association, Longview Chamber of Commerce, National Retail Federation, National Association of Convenience Stores, Restaurant Law Center, Texas Association of Business, and Texas Restaurant Association.

According to the Chamber of Commerce “If the rule is allowed to go into effect, it will have far-reaching consequences for businesses of all sizes. A previously expanded joint employer rule was in place from 2015 to 2017 and cost franchise businesses, a majority of which are small businesses, $33 billion per year. That resulted in 376,000 lost job opportunities and led to 93% more lawsuits.”

The new rule was set to take effect March 11, 2024 after two delays. Prior to the effective date, the Chamber of Commerce had a major victory as the court granted their motion for summary judgment in the case, finding that the Board’s reach “exceeds the bounds of the common law and is thus contrary to law.” The judge also held the Board’s rescission of the 2020 rule arbitrary and capricious and reinstated the 2020 rule that requires “direct and immediate control” over the essential terms and conditions of employment of another entity to establish joint-employer status.

The final Judgment of the Court in U.S. Chamber of Commerce et al. v. NLRB et al., No. 6:23-cv-0055 was entered on March 8, 2024. “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.”

The decision in the lawsuit filed by the Chamber of Commerce sets the stage for an appeal to the US Court of Appeals for the Fifth Circuit, which is known for politically conservative rulings.

In another pending case on this new rule, the Service Employees International Union filed a petition for review of the new rule in the D.C. Circuit, Case No. 23-1309 last November. SEIU is asserting that the new rule on the ground that the Rule was not broad enough..

The U.S. Chamber of Commerce and a number of other employer groups have filed documents as intervenor in the SEIU action. it has asked “the Court to hold these proceedings in abeyance pending the resolution of any appeal of the final judgment entered in Chamber of Commerce of the United States of America v. NLRB,” which vacated the rule challenged in the SEUI petition. The D.C. Circuit has not ruled on this motion, and briefing of the issue remains in progress by the parties.

In addition to these two pending cases, Congress is advancing a Congressional Review Act resolution to block the rule, even though the lawmakers’ effort faces a veto by President Joe Biden. Last January, the House the House passed H.J. Res. 98, a Congressional Review Act resolution by a bipartisan vote of 206 to 177,that will nullify the National Labor Relation Board’s (NLRB) joint employer rule,

The legislative process has now moved to the US Senate where a vote is expected later this year.

Federal Judge Vacates New NLRB Joint Employer Rule