On March 8, a federal district court in Texas struck down the NLRB’s new 2023 “joint employer rule,” which was slated to go into effect on March 11, 2024. (Chamber of Commerce of the United States of America et al., Plaintiffs, v. National Labor Relations Board et al., Defendants, No. 6:23-CV-00553)
(Note to readers – the 2023 rule was covered in our previous Resources article, “The NLRB publishes new “joint-employer” rule. Read that artricle here:
Under the now-vacated 2023 rule, almost any employees of a contractor providing services to another company could be adjudged to be employees of both entities for purposes of such things as collective bargaining and unfair labor practice charges.
In its decision to vacate the 2023 rule, the Texas court relied on common-law definitions of the employment relationship, which require actual exercise of direct, substantial control over working conditions such as wages, hours and other terms and conditions of employment.
A differently constituted 2020 NLRB created a version of the joint employer rule that closely mirrors the Texas court’s requirements for the exercise of direct, substantial control.
The 2023 rule, instead, created an employer-employee relationship if an entity merely reserved the right, directly or indirectly, to affect seven enumerated “essential terms and conditions of employment,” including “working conditions related to the safety and health of employees.”
The illogical potential results of the 2023 rule were demonstrated by the court in the following excerpt from the decision:
“Consider an example. IceCo is an ice cream shop and contracts with MowCo, a lawn service, to tend to the lawn of the shop on Thursday afternoons….MowCo assigns A, an employee, to provide the lawn service. MowCo trains A, sets A’s compensation, supplies A with a mower and fertilizer, and ensures that IceCo is satisfied with A’s work. IceCo’s contract with MowCo gives IceCo the right to refuse the use of certain fertilizers for health or safety reasons, but IceCo has never attended to what fertilizer is used. IceCo agrees to pay MowCo the cost of wages up to $18 per hour per MowCo employee plus a 15% markup….The New Rule’s list of ‘essential terms and conditions of employment’ include ‘wages,’ ‘hours of work,’ and working conditions related to health and safety of employees.’…IceCo indirectly controls A’s wages in IceCo at $18 per hour…..(T)he economic realities of the situation mean that IceCo has some degree of factual control, even if indirectly and diffuse, over A’s wage. Moreover, IceCo indirectly controls A’s hours of work because the contract specifies that MowCo must mow the lawn on Thursday afternoons. And IceCo has reserved control over working conditions related to health and safety because, although it has never exercised this right, it has contractual authority to control what fertilizers are used on its lawn…. (U)nder subsections (e)(1) and (2) of the new rule, each of those aspects of the relationship would suffice to establish IceCo’s status as a joint employer of A, regardless of whether such indirect or reserved control tipped the scales under the common-law test (for an employer) and regardless of whether the type of fertilizer used would even be an essential term and condition of employment under the common law. That reach exceeds the bounds of the common law and is contrary to law….”
Legal wrangling over joint employer definitions has a long and oscillating history, the Texas court reaching back to NLRB v. Hearst Publications, Inc., 322 U.S. 111 (1944) for the earliest Supreme Court precedent, and citing the famous (or perhaps infamous) Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015) as the backdrop for much of what was wrong with the Board’s 2023 rule.
If there is anything certain in joint employer law, it is that the discussions, litigation and perhaps rule-making are far from over. The Texas case will likely be appealed. The NLRB will consider repeal the 2020 rule to revert to Browning-Ferris II, or take further rule-making action. The very definition of “employee” is at the heart of the differing philosophies of labor and management as they navigate the NLRA together.
But at least for a moment, the nation’s franchisors and franchisees, ride share owners and drivers, manufacturing companies and their contractors, can all have a collective sigh of relief. Without the significant and direct exercise over wages, hours and other conditions of employment, there is no employer-employee relationship.
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