Texas Court Invalidates New NLRB Joint-Employer Rule

Updated August 1, 2024: On July 19, 2024, the NLRB filed a notice with the Fifth Circuit Court of Appeals that it was withdrawing from the litigation seeking to uphold the rule. As a result, the rule will remain invalidated indefinitely.

In 2023, the National Labor Relations Board (NLRB) issued a final rule updating its joint-employer test, greatly expanding who may be considered a joint employer of a worker under the National Labor Relations Act standards. As previously reported, the rule centered over whether an entity has the ability to control the terms and conditions of a worker’s employment, even if the entity doesn’t actually exercise that control. A coalition of business groups filed a lawsuit to prevent the enforcement of the rule as arbitrary and capricious. On March 8, 2024, a federal judge in Texas agreed with the business groups and issued an order vacating the rule altogether.

The NLRB’s new rule, which was supposed to take effect on December 26, 2023, examined whether an entity has the ability to indirectly exercise control over several terms and conditions of the worker’s employment, such as:

• Wages, benefits and other compensation;
• Hours of work and scheduling;
• The assignment of duties to be performed;
• Supervision of the performance of duties;
• Work rules and directions governing the manner, means and methods of performance of duties and the grounds for discipline;
• The tenure of employment, including hiring and discharge; and
• Working conditions related to employees’ safety and health.

Under the NLRB’s 2023 rule, an employer does not need to exercise direct control over any of these terms to be found a joint employer of a worker — they need only have the authority to control these terms.

This lack of actual control combined with a list of essential working conditions led the court to find that the new rule would treat virtually all entities contracting for labor as a joint employer because the contracts between the labor contractor and the client entity would always have terms that would indirectly control one or more of the listed terms above. For this reason, the court found the new rule well outside the bounds of common law and, thus, unlawful.

For now, the NLRB has not committed to a course of action following this ruling other than to state that it is reviewing the ruling and considering next steps. The next steps would be an appeal to the Fifth Circuit; however, a parallel federal lawsuit filed in Washington, D.C., argues the rule didn’t go far enough. Ultimately, this rule appears headed for a long course of litigation before any possible enforcement. Employers that contract for labor should continue to follow developments on this or any subsequent NLRB-issued joint-employer rules.

Matthew J. Roberts, Associate General Counsel, Labor and Employment

CalChamber members can read more about Joint-Employer Liability in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.