On March 8, 2024, Judge J. Campell Barker, a federal district court judge in Texas, issued a decision striking down the National Labor Relations Board’s controversial joint employer rule, just three days before it was set to go into effect. The United States Chamber of Commerce, a coalition of business groups, filed the lawsuit shortly after the Board released the rule in October 2023. The joint employment concept refers to situations in which two or more legal entities share control or influence over workers to such an extent that each is deemed to be an employer of the workers in question. The Board’s revised joint employer rule, governing joint employment status under the National Labor Relations Act, aimed to ease the requirements for finding joint employer status, with significant implications for collective bargaining and other liability under the Act.

Under the Board’s revised rule, a business would be considered a joint employer not only if it had the right, and exercised the right, to directly control terms and conditions of employment for another business’s employees, but also if there was evidence that the business had reserved, unexercised rights to indirectly control those employees’ employment. Terms and conditions of employment subject to the rule included wages, benefits, and other compensation; hours of work and scheduling; the assignment of duties to be performed; the supervision of the performance of duties; work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; the tenure of employment, including hiring and discharge; and working conditions related to the safety and health of employees.

Judge Barker determined that the Board’s rule is unlawfully broad because an entity would be deemed a joint employer simply by having the right to exercise indirect control over even one essential term and condition of employment, even if the entity did not actually exercise control. The judge also found fault with the Board’s two-step test, which requires first that the entity qualify as a common law employer, and then, only if it is a common law employer, that the entity have control, direct or indirect, exercise or unexercised, over one or more essential terms and conditions of employment.  The judge agreed with the Chamber’s argument that the second test is always met if the first test is met, so that the standard practically has only one step. Judge Barker observed that the Board’s rule would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, one or more essential terms and conditions of employment.

What does the decision mean for the immediate future and beyond? For now, the new rule will not be implemented. The Board’s prior joint employment rule from 2020, requiring “substantial direct and immediate control” that is not “limited or routine” for joint employer status, will remain in effect, but Judge Barker’s decision will not be the last word. The Board may appeal the district court decision to the Fifth Circuit Court of Appeals. There is also another legal action yet to be decided by the D.C. Circuit Court of Appeals arising out of a petition for review filed by the Service Employees International Union, seeking to strengthen the rule. Dueling lawsuits complicate matters and could result in a potential conflict, which could require resolution by a different court of appeals or, eventually, the U.S. Supreme Court. Under any of the various scenarios, it will take time for the litigation to play out. Employers may wish to use this reprieve to review their contracts and business practices, and assess their relationships with outside vendors, independent contractors, or other third-party contractors as the courts determine the ultimate fate of the new rule.