Last week, the U.S. District Court for the Eastern Division of Texas struck down the National Labor Relations Board’s 2023 rule changing the standard for establishing whether two affiliated entities are joint employers. 

As we previously discussed in a blog post last year, the NLRB issued a rule greatly expanding the scope of employers that may be considered a joint employer. This expansion could have significant consequences as joint entities would be required to collectively bargain, and may have joint liability for unfair labor practices of the other entity. Under the rule, any entity that had the right to exercise control over an employee would be considered a joint employer, even if the entity never exercised any control over the employee. 

The new rule was set to go into effect on Dec. 26, 2023, but was delayed after business groups led by the U.S. Chamber of Commerce brought a lawsuit in Texas against the NLRB alleging the rule exceeds the NLRB’s authority. The business coalition argued the new rule conflicts with the NLRB’s power under the NLRA and makes the test less clear, which is a violation of federal rulemaking requirements. In overturning the 2023 rule, the Court found the rule violated federal rulemaking requirements, was unlawfully broad, and was contrary to the common law definition of employment.

Thus, the Court’s decision restores the NLRB’s 2020 rule, which required substantial direct and immediate control over employees in order for an entity to be considered a joint employer. A business will be considered a joint employer only if the business exercises substantial direct control over the essential conditions of another company’s employees. 

Updates for joint employer rule going forward

As the 2023 rule never went into effect, employers may continue operating under the understanding that if they do not assert substantial direct control over another entity’s employees, the employers will not be considered joint employers. 

We will continue to monitor if the NLRB appeals this decision. Ultimately, the definition of a joint employer may be determined by the Supreme Court. We will continue to provide relevant updates as litigation proceeds.