Chamber of Commerce v. NLRB and the Reimplementation of the 2020 Joint-Employer Rule

By Giovanni DeGregorio - McMahon Berger P.C.

March 29, 2024

On March 8, 2024, in Chamber of Commerce of the United States of America v. National Labor Relations Board, U.S. District Judge J. Campbell Barker of the Eastern District of Texas struck down the National Labor Relations Board’s (“NLRB”) October 2023 rule determining the standard for joint-employer status and the NLRB’s rescission of the 2020 joint-employer rule. The NLRB had initially postponed the December 26, 2023, effective date of the rule to February 26, 2024, which was further postponed by the district court to March 11, 2024. As a result of the court’s opinion, the rule is postponed indefinitely.

2023 NLRB Joint-Employer Rule

The 2023 Rule changed the standard for determining whether two or more entities may be considered joint employers of a set of workers for purposes of the National Labor Relations Act. Under the prior Trump-era 2020 Rule, employers could only be considered joint employers if they exercised both immediate and direct control over wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

Under the 2023 Rule, employers would be considered joint employers if: (1) they shared “an employment relationship with those employees under common-law agency principles;” and (2) they “share[d] or codetermine[d] those matters governing employees’ essential terms and conditions of employment,” which the rule defined as having “control (whether directly, indirectly, or both)” over “one or more of the employees’ essential terms and conditions” whether or not the entity actually exercised such control.

The 2023 Rule also identified seven “essential terms and conditions of employment” based on “core subjects of collective bargaining.” The seven essential terms and conditions were as follows:

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.

The 2023 Rule made it much easier for the NLRB to find two entities to be joint employers for purposes of collective bargaining.

Chamber of Commerce of the United States of America v. National Labor Relations Board

The United States Chamber of Commerce and other business representatives challenged the 2023 Rule in federal court, alleging it is contrary to the common law and “arbitrary and capricious[1]” in that it ignores the real-world effects the rule would have on employers and labor relations. In seeking summary judgment, the plaintiffs argued the second part of the test is always met when the first part of the test is met.

Judge Barker agreed with the plaintiffs and found that employers “must have the power to control ‘the material details of how the work is to be performed’” and therefore would meet the 2023 Rule’s “test for determining an essential term and condition of employment.” Judge Barker’s decision also notes that the NLRB was not able to provide “any example of an entity satisfying step one but not step two.” As for the plaintiffs’ argument regarding the practical consequences of the 2023 Rule, Judge Barker held the rule would “likely promote labor strife rather than peace by forcing an underdefined category of entities to take a seat at a bargaining table and negotiate over a multitude of influences that may otherwise be presented (and resolved) only through the invisible hand of the marketplace.”

Finally, Judge Barker ruled that the NLRB’s decision to rescind the 2020 Rule was “arbitrary and capricious,” finding the stated rationale for its rescindment was “legally erroneous.”

Impact

The 2023 Rule would have expanded the joint-employer rule and employers could have been deemed joint employers over workers of a separate company, such as a subcontractor, simply if the joint employer exercises or has the right to exercise direct or indirect control over a large range of “terms and conditions of employment.” For now, Judge Barker’s decision has prevented the implementation of the 2023 Rule. The NLRB called the ruling a “disappointing setback” but also stated the decision “is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts,” signaling an appeal could be forthcoming.

For now, the 2020 Rule, which requires that a joint-employer possess and exercise substantial direct and immediate control, with a regular or continuous consequential effect, on wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction, remains the standard. However, employers should still be aware of the risk that they can still be found to be a joint employer of another company’s employees if they do actually exercise substantial direct and immediate control over essential terms and conditions of employment, such as hiring, discipline, firing, wages, and other employment benefits.

[1] The arbitrary-or-capricious test is found in Section 706(2)(A) of the Administrative Procedure Act, which directs courts reviewing agency actions to invalidate such actions when they are found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

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