Revisiting the Joint Employer Rule…Again

On July 19, 2024, the National Labor Relations Board (“NLRB”) dropped its appeal of a decision rendered by the United States District Court for the Eastern District of Texas, which invalidated the NLRB’s proffered definition of “joint employer.” At least for now, employers maintain some sense of clarity as to whether or not they will be considered a “joint employer” over an employee.

In 2020, the NLRB set forth what is today’s operative “joint employer” standard (the “2020 Rule”). According to the 2020 Rule, codified in 29 C.F.R. § 103.40(a) (2020), an entity would be considered a joint employer of a separate employer’s employees “only if the two employers share or codetermine the employees’ essential terms and conditions of employment.” Essential terms and conditions of employment included wages, benefits, hours, hiring, firing, discipline, supervision, and direction.

In 2023, the NLRB issued a final rule to replace the 2020 Rule with a new test, which, among other things, lessened the amount and/or type of control the putative joint employer was required to exert (the “2023 Rule”). Essentially, the 2023 Rule was a two prong test: an entity would be found a joint employer if it both (a) was considered an employer over the employee at common law, and also (b) exercised control over one or more essential terms and condition of employment. The 2023 Rule went into effect on March 11, 2024, and was immediately challenged in the courts.

Ultimately, the Eastern District of Texas invalidated the 2023 Rule, finding the 2023 Rule to be unlawful and internally inconsistent, because there could not be a case where the first prong would be met, but the second prong would not. The NRLB failed to articulate a good reason for the 2023 Rule, which did not establish a definite standard to reduce uncertainty and litigation, one of the main purposes of the rulemaking. The district court then found that the NLRB’s rescission of the 2020 Rule was arbitrary and capricious, and rejected the NLRB’s policy reasons for rescinding the 2020 Rule, which included that the 2020 Rule undermined protections for employees who work in settings where multiple people exercise control over their essential terms and conditions of employment. Accordingly, the district court vacated the 2023 Rule and reinstated the 2020 Rule.

The NLRB appealed the March 18, 2024 ruling to the Fifth Circuit Court of Appeals, but on July 19, 2024, withdrew its appeal in order to “further consider the issues identified in the district court’s opinion in the first instance.”

Employers and employees should remain aware of their rights and obligations based on the standard set forth in the 2020 Rule. Employees may have recourse against more than one “employer” for violations of the law. Even if an entity does not directly “employ” an individual, such as in the context of personnel of a subsidiary, contractor, or subcontractor, the entity could face liability for violations as a joint employer if it controls or directs certain aspects of the employment relationship deemed by the rule to be an essential term and condition of employment. Employers should have thorough policies and procedures in place to avoid any such undesired outcome.