On July 19, 2024, the National Labor Relations Board (NLRB) voluntarily dismissed a pending appeal before the United States Court of Appeals for the Fifth Circuit, effectively capitulating enforcement of its 2023 ‘joint-employer rule’.

The joint employer rule is used to determine whether an employee has multiple employers. The National Labor Relations Act governs labor relations between employers and employees. It assists in determining and evaluating the employer-employee relationship and depending on the circumstances who governs the actions as an employee. This determination also allows the NLRB to set protocols to prevent confusion, prohibit discrimination and unfair employment practices.  In situations where two or more employers share or co-determine the essential terms and conditions of a particular employee, the NLRB’s ‘joint employer rule’ comes into play.

The NLRB has used a few different formulations in the past on the joint employer rule. Under the pre-2023 definition developed through case-law, joint employment exists when two or more employers actively share or co-determine terms and conditions of employment. In 2023, the NLRB expanded that definition to include an employer’s reserved control or indirect unexercised control.  Under this 2023 version, a company could be deemed a joint employer by merely possessing reserved or indirect authority to control one or more of the employee’s essential terms and conditions of employment (for example as a franchisor or even general contractor on a project site over subcontractor’s employees).

The U.S. Chamber of Commerce challenged this rule, arguing it is unlawfully overbroad and would negatively affect relationships of franchisor franchisees, contractors, subcontractors, and staffing agencies and user employers. The Eastern District of Texas agreed and blocked the rule from taking effect.  On February 26, 2024, the district court issued a stay, and later ruled against implementation of the final rule. On May 7, 2024, the NLRB filed a notice of appeal of the district court’s decision. The 2023 final rule has not gone into effect.

At the same time, there were two other cases pending on the joint-employer doctrine in the D.C. Circuit, filed by the Service Employees International Union. On April 30, 2024, one of the cases was stayed by the D.C. District Court and since then, the second case was placed in abeyance by the D.C. Circuit.  In its Notice of Voluntary Dismissal, the NLRB stated that it still believes the 2023 rule meets the procedural and substantive requirements of the Administrative Procedure Act and the National Labor Relations Act—the district court held that the 2023 rule did not comply with these provisions.

However, the NLRB submitted to the court that it preferred to “further consider the issues in the district court’s opinion in the first instance,” and noted that there were several rulemaking petitions on its docket regarding the joint employer issue raising similar issues.

In terms of where the joint-employer rule will go from here, the NLRB’s unopposed motion for voluntary dismissal makes the district court’s ruling final for purposes of the parties, and the 2023 final rule will not take effect.

Based on the NLRB’s comments to the Fifth Circuit, it may (1) proceed with additional rulemaking on this issue (incorporating the rationale of the district court in its opinion vacating the rule), and/or (2) address the joint-employer doctrine through a case decision, which had been the Board’s prior approach before the 2020 rule was implemented.

Given the NLRB’s retreat from enforcing the 2023 rule, the test for joint-employer status under the NLRB will remains as follows.

An employer…may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment. To establish that an entity share or codetermines the essential terms and conditions of another employer’s employees, the entity must possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.

This test could also still include “essential terms and conditions of employment” to include “wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.”

For employers of workers on a project site, awareness of contractual and statutory obligations to employees (i.e., safety, training, details of scope of work, and methods) is critical. However, employers also need to be cognizant of when other companies on the project site control or “borrow” workers and direct those worker’ actions and conduct. The difference between these two sets of circumstances can determine which company (or whether potentially both companies) is vicariously liable for the actions of the workers.

The attorneys in our Austin and Dallas offices have extensive experience with the borrowed servant doctrine and vicarious liability of employers for the acts, errors or omission of their employees. Please contact us with any questions or comments at info@gstexlaw.com.

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