Updated
July 19, 2024
Published
October 31, 2023
The U.S. Chamber of Commerce obtained a major legal victory in March for American businesses of all sizes, including franchises and contractors, employers, and workers after the U.S. District Court for the Eastern District of Texas vacated the National Labor Relations Board (NLRB) joint employer rule.
On July 19, 2024, the NLRB filed a motion to dismiss its appeal of the joint employer rule in the Fifth Circuit Court of Appeals. This is a significant legal victory for American businesses of all sizes, including franchises and contractors, and the workers they employ. U.S. Chamber of Commerce Litigation Center Executive Vice President and Chief Counsel Daryl Joseffer issued the following statement:
“This is a major legal victory and an important acknowledgment by the NLRB. The agency’s joint employer rule overstepped its constitutional and statutory authority with this unlawful rule.”
“While the victory means our lawsuit is over, the U.S. Chamber will remain vigilant in watching whether the NLRB continues to overstep its authority at the expense of American workers and businesses, and we will be ready to take appropriate action if needed."
Details of the Lawsuit
On Nov. 9, 2023, the U.S. Chamber and a coalition of business groups filed a lawsuit challenging the lawsuit challenging the NLRB's joint employer rule as statutorily unauthorized and arbitrary and capricious.
“The NLRB’s new joint employer rule is the latest in a string of actions to promote unionization at all costs, even when harmful to workers, employers, and our economy,” said Glenn Spencer, senior vice president of the U.S. Chamber of Commerce’s Employment Policy Division. “It defies common sense to say that businesses can be held liable for workers they don’t employ at workplaces they don’t own or control. The NLRB has been overturning numerous precedents at the behest of labor unions, so the Chamber is suing to rein in this out-of-control agency.”
Background on Joint Employer Rule
On Oct. 26, 2023, the National Labor Relations Board (NLRB) issued its much-anticipated final rule addressing the Standard for Determining Joint-Employer (JE) Status under the National Labor Relations Act (NLRA). The 229-page rule not only restores the deeply flawed standard first announced during the Obama administration in its 2015 Browning-Ferris (BFI) decision, but also expands potential liability for employers.
The BFI ruling upended longstanding precedent in a bid to expand potential union organizing. Until that decision, the NLRB had held that a putative joint employer must exercise direct and immediate control over the terms and conditions of employment. Under BFI, indirect or reserved control, even if not exercised, between two or more businesses could be considered in determining the existence of a joint employment relationship.
During the Trump administration, the NLRB reversed the BFI standard via a final rule, and it required a putative joint employer to “possess and exercise . . . substantial direct and immediate control” over essential terms and conditions of employment to determine that status. The rule rescinds the Trump-era board’s standard and “makes extreme and troubling changes to Board law,” as Member Marvin Kaplan states in his dissent.
Under the JE standard, an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees, and they share or codetermine one or more of the employees’ essential terms and conditions of employment, which are defined exclusively as: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.
In contrast to the 2020 final rule, the 2023 rule considers the alleged joint employers’ authority to control essential terms and conditions of employment, whether or not such control is exercised (i.e., potential control), and without regard to whether any such exercise of control is direct or indirect. Importantly, the rule makes either unexercised control or indirect control independently sufficient to determine joint employer status, which goes beyond the BFI standard.
More on The Chamber's Legal Work
The JE rule further eliminates the second step of BFI’s joint-employer standard, which required proof that a putative joint employer “possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.” In other words, a business may exercise an inconsequential or almost non-existent amount of control over another company’s workers, but the Board can say that’s enough. They’ve effectively given themselves license to declare joint employment relationships almost at will.
Impact of NLRB's Rule
The ultimate effect of the rule will be to make it far easier for the NLRB to declare that joint employment status exists in commonplace business relationships like franchising, contracting, and supply chains. Many companies could find themselves facing liability for workers they don’t employ and workplaces they don’t actually control. Worse yet, if a non-union employer is found to be a joint employer with a unionized company, the non-union company now has to sit at the bargaining table. Even more concerning, it’s possible that non-union employers will suddenly find themselves dragged into participation in multi-employer pension plans covering their new unionized “employees.”
All of this flows from the fact that unions have had a hard time organizing fast food franchises on a store-by-store basis. Their hope is that a joint employer rule tying a corporate entity directly to all of a brand's independently owned restaurants will make that easier. And since the unions wanted it, the NLRB delivered it. Whatever collateral damage results, that’s the bottom line.
About the authors
Sean P. Redmond
Sean P. Redmond is Vice President, Labor Policy at the U.S. Chamber of Commerce.
