A federal court has handed down a decision overturning the joint employer rule created by the National Labor Relations Board (NLRB). If upheld on appeals, the move will have halted the board’s attempt to expand the jurisdiction of federal labor law to franchisees of large chains like McDonald’s and personnel staffing firms.
The rule was adopted late last year by the pro-union majority board, but Democratic allies of organized labor have been trying to achieve the same result since the Obama Administration. The district court’s conclusion that the most recent rule was impermissibly broad represents a serious blow to these efforts. The court challenges had been mounted by the U.S. Chamber of Commerce and a coalition of other employer groups.
The district court judge concluded the rule was overly broad because it determined that an organization was a joint employer even if it did not exercise any meaningful control of the employees at issue. Under the old standard, an entity could only be defined as a joint employer if it was established that it controlled the work of the franchise employees and temp staffers in a substantial manner.
Under the new rules, the board had decided that a franchiser like McDonald’s or any company that used workers employed by a staffing firm would be considered joint employers even if they exercised no direct control over the workers—just as long as there was a general possibility that they could do so at some point in the future.
However, in the end the federal district court agreed with the Chamber attorneys’ argument and took apart the board’s reasoning in particular and at length, laying out in detail where it said the NLRB went wrong.
The final rule says that employers could be held to be joint employers in all situations where they “possess the authority to control (whether directly, indirectly, or both), or exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.”
The rule also sought to establish that a joint employer must bargain collectively with employees’ union representatives with respect to any term or condition of employment that it possesses the authority to control or exercises the power to control—even for non-essential terms or conditions of employment, which not surprisingly turned out to be something that employers found to be an unwelcome expansion of the collective bargaining obligation under federal labor law.
The board also declared that a state of joint employment would exist in situations where two employers “share or co-determine” essential terms and conditions of employment, even if one of the employers possesses only “indirect” or “contractually reserved” control. Under the new rule, this also specifically included any authority that would be exercised through an intermediary.
The court in Texas criticized the reasoning contained in the rulemaking, pointing out that the NLRB made it impossible for any company to avoid the joint employer determination because it was inevitable that any kind of potential power of control could be perceived under this test, even if there was no evidence that it was being exercised or that the franchiser or a staffing service customer had even expressed any interest in doing so.
“This ruling is a major win for employers and workers who don’t want their business decisions micromanaged by the NLRB,” commented Chamber President Suzanne P. Clark. “It will prevent businesses from facing new liabilities related to workplaces they don’t control, and workers they don’t actually employ. The U.S. Chamber will continue to fight back against the NLRB and its campaign to promote unionization at all costs.”
Current evidence suggests that the NLRB may continue to attempt to enforce the new joint employer rule while appeals make their way through the courts. Congress earlier attempted to eliminate the rule, with majorities in the House and Senate voting to do so. However, the House was unable to summon the two-thirds majority of votes needed to overcome President Biden’s veto of the legislation.
Implementation Threat
Attorneys Kayla Malone, Bianca Rodriguez and Wolfram Ott of the law firm of Sheppard Mullin Richter & Hampton believe the board still intends to implement the final rule as written, and is expected to appeal the decision to the U.S. Court of Appeals for the Fifth Circuit.
They note that the rule also faces a still-pending challenge in the Court of Appeals for the District of Columbia Circuit by the Service Employees International Union (SEIU), which argues that the final rule does not go far enough. The union seeks to expand the rule’s scope to cover not just those businesses the board says enjoy the right to control the seven enumerated “essential terms and conditions of employment” the NLRB laid out, but also those that have the ability to control any “mandatory subject of bargaining.”
Because of the continuing threat of enforcement attempts being mounted by the board while legal challenges make their way through the court system, many labor attorney are advising employers to continue preparing their businesses to deal with the rule’s strictures just as if it ends up surviving these challenges. One seemingly insurmountable challenge is that the board did not offer any specific guidance on actions that may end up creating an employment relationship. Instead, the NLRB said it will deal with what such terms might consist of on a “case-by-case” basis.
“The case-by-case analysis may be particularly troubling for retail or franchise employers who seek clarity when incorporating contract provisions relating to staffing requirements, logo or branding standards, or general policy compliance relating to health and safety,” note attorneys Laura A. Pierson-Scheinberg and Lorien E. Schoenstedt of the Jackson Lewis law firm.
They point out that the rule provides an exhaustive list of the essential terms and conditions that can be cited alone or in combination that can be shown as evidence of being held in reserve and thus supplying evidence of joint employer status. These include:
• 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;
• Working conditions related to the safety and health of employees.
They stress that employers will need to closely review their commercial agreements with other companies that contain terms or rights (regardless of whether they are ever exercised) that end up requiring these companies ensure their employees maintain levels of quality, safety, or performance.
“The final rule creates a risk that even relatively routine commercial terms, if touching indirectly or remotely employment terms and conditions, can be interpreted to create the potential of direct or even indirect control over employment terms and conditions,” Pierson-Scheinberg and Schoenstedt said.
