The National Labor Relations Board Joint Employer Standard is Vacated by the Eastern District of Texas by Andrew Vicknair

D’Arcy Vicknair founding partner, Andrew Vicknair, recently authored a blog for the American Bar Association and posted on The Dispute Resolver: The National Labor Relations Board Joint Employer Standard is Vacated by the Eastern District of Texas.

Many employment laws use the concept of joint employer to make more than one business entity responsible for complying with employment law obligations towards employees who to varying degrees work for, or under the direction of entities who are not technically the employees primary employer. Nowhere is that issue more prevalent than in contractor subcontractor relationships. Over the years the National Labor Relations Board (NLRB) has developed various tests for determining joint employer status. Unless a business entity is an employer of individuals, the NLRB has no jurisdiction over a dispute between the workers and a business entity for whom they work.

It is important for contractors to understand the importance of being an employer and the obligations that flow from such status.  Likewise, it is also important to understand when a contractor may be classified as a “joint employer” over certain individuals. Depending on the specific laws involved, such a finding of joint-employer status can happen under the “joint employer doctrine” which often exists in subcontractor and temporary employment arrangements. The “joint-employer doctrine” may render a contractor responsible for another company’s employment liabilities.

The joint employer doctrine applies when two entities handle certain aspects of their employee-employer relationship jointly which can result in an entity other than an employee’s formal employer being liable as an employer. Arculeo v. On-Site Sales & Mkg, L.L.C., 425 F.3d 193, 198 (2d Cir. 2005). This occurs when two or more entities share control over a worker’s terms and conditions of employment.

Various rules and jurisprudence over the years have guided contractors to understanding what can make an entity a joint employer. One such authority was the determination of a joint employer under the National Labor Relations Act (NLRA). In general, the NLRA is a federal law that defines rights of employees in non-union and union workplaces to organize and act to improve working conditions among other things.  On October 27, 2023, the NLRB issued a new rule addressing the standard of determining Joint-Employer Status under the NLRA – see: 88 Fed. Reg. 73,946 codified at 29 C.F.R. §103.40, also found at:

Prior to the new rule, the standard was based on a rule adopted by the NLRB in 2020.  Under the 2020 rule, an entity was considered a joint employer of a separate company’s employees only if the business possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another company’s employees.

The 2023 rule rescinded the 2020 rule and established a new standard for determining whether two employers, as defined in the NLRA, are joint employers of particular employees within the meaning of the NLRA to be codified at 29 C.F.R. §103.40.  The new rule expands the standard for finding joint employment under the NLRA and has the potential to expose more employers to the responsibilities of a joint employer.  Prior to this change, common-law standards had primarily governed employment relationships and a finding of joint employment.  The new rule establishes new standards for determining a joint-employer relationship.

Shortly after the new standard was passed, many parties including the Chamber of Commerce of the United States, the American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, and others filed a complaint in the Eastern District of Texas requesting a declaratory judgment and injunctive relief against the NLRB seeking to (1) have the new rule declared unlawful and have it set aside; (2) have the NLRB’s decision to rescind the rule of 2020 declared arbitrary and capricious; and (3) enjoin the NLRB from enforcing the new joint employer rule.  See Complaint, Rec. Doc. 1, Chamber of Commerce of United States v. NLRB, Case No. 23-00553, (E.D., Texas).

The major complaint surrounding the new standard is that it is overly broad and contradicts the established common-law definition of joint employer.  The new standard states that two or more employers of the same employees are joint employers if the employers share or codetermine those matters governing an employees’ essential terms of employment. 29 C.F.R. §103.40(b). Under the new rule, a business, such as a contractor, can be a joint employer if it has the right or authority to exercise control (whether directly, indirectly, or both) over essential terms of employment even if the only way it could exercise such control would be with the use of another party such as an intermediary.  29 C.F.R. §103.40(c). Thus, an entity could be a joint employer if it has indirect control over a single essential term of employment, even if it never exercises such control. The seven (7) essential terms and conditions of employment are identified in the 2023 rule to include: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) assignment of duties to be performed; (4) the supervision of the performance of the duties; (5) work rules and directions governing the manner, means, and methods of performance of duties and grounds for discipline; (6) the tenure of employment including hiring and firing; and (7) working conditions related to safety and health of employees.  29 C.F.R. §103.40(d).

During the construction process, there are almost always multiple different entities working on a project – i.e. general contractor, subcontractors, sub-subcontractors, laborers, etc.  Normally, each of these different entities are the employer of its own employees.  However, a general contractor is normally in control of the entire project and usually exerts some level of control over the various subcontractors and their employees to verify that the project complies with certain requirements, such as safety, quality, and the like.  Under this new rule, a business, such as a contractor, can arguably be a joint employer over every individual employee working on a project if it simply has the right of control even if it does not exercise that right.  This situation would likely exist in every contractor-subcontractor relationship.  In addition, a contractor that routinely exercises control in supervising all safety programs in connection with a project would illustrate a contractor’s indirect control over working conditions concerning health and safety of employees.  This type of control would likely lead to a finding of joint employment under the new rule because the contractor exercised control over an essential term of employment under 29 C.F.R. §103.40(d) of the new rule. The potential downside to such a determination is that a general contractor could then be subject to actions under the NLRA.

Further, by reserving the right to exercise control, a party such as a contractor can be deemed to be a joint employer of another company’s employees even if the right of control is never exercised. The potential for finding joint employer status under the new rule is argued by many to be overly broad and lead to many problems. Under the new standard, employers would have to consider reviewing its contracts with subcontractors, vendors, temp-agencies and consider amending those agreements to remove any element of control to potentially avoid an unintended finding of joint employment.

The New Joint Employer Rule is Vacated

The 2023 rule for a finding of joint employment by the NLRB was recently vacated by U.S. District Court for the Eastern District of Texas in Chamber of Commerce of United States v. NLRB, 2024 U.S. Dist. LEXIS 43016, at *1 (E.D. Tex. Mar. 8, 2024). In Chamber of Commerce of United States v. NLRB, the plaintiffs challenged the new rule on at least two grounds – the new rule is inconsistent with the common law and the new rule is arbitrary and capricious for ignoring various practical problems and failing to articulate a comprehensible standard.  Id. at 25.

The Eastern District of Texas agreed with the plaintiffs finding that the NLRB’s new standard was contrary to law as to the rule’s addition of a new 29 C.F.R. §103.40 and arbitrary and capricious as to its removal of the existing 29 C.F.R. §103.40 (2020). Therefore, the Court issued a final judgment vacating the new rule.  Id. at 45.  While it is unclear what will ultimately happen with the new rule, it is suspected the Court’s ruling will soon be appealed.

For now, the determination of joint-employer status will be decided under the old 2020 rule and unless Chamber of Commerce of United States v. NLRB is reversed, disputes will be governed by the old rule for some time to come as it will likely take some time for this matter to be appealed and for the NLRB to revise the rule to address some of the Court’s concerns.