April 30, 2024
With Joint Employer Rule Blocked, Look for Trouble Ahead on New Contractor Rule

by Tammy Binford

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Employers worried about the effect of a new joint employer rule are breathing a sigh of relief after a court blocked its implementation, and now employers using independent contractors may also be feeling better.

A new rule from the National Labor Relations Board (NLRB) would have made it harder for employers to avoid joint employment situations had the rule been allowed to go into effect as scheduled on March 11. But a district court in Texas invalidated the rule, restoring the Board’s 2020 rule. That rule, developed by the NLRB when it had a Republican majority, is favored by employers worried about the risks of joint employment.

Under the Board’s new rule, issued in 2023 by a Democratic-majority Board, an employer that has the ability to control—even indirectly—at least one condition of employment could be deemed a joint employer of another employer’s workers.

The 2020 rule requires an employer to have direct and exercised control to be considered a joint employer. Reverting to the 2020 rule means fewer worries for employers concerned about possibly being required to bargain with a union representing jointly employed workers, as well as being vulnerable to unfair labor practices committed by another employer.

Wider Effect

Even though U.S. District Judge J. Campbell Barker of the Eastern District of Texas was ruling on the NLRB’s joint employer regulation, attorney Burton J. Fishman with FortneyScott in Washington, D.C., says his decision is likely to have a wider effect.

According to Fishman, the judge’s decision was based on “the lack of legal underpinning for employment based on indirect and unexercised indicia of control,” and that is the same issue being litigated with respect to the U.S. Department of Labor’s (DOL) new independent contractor (IC) regulation that became effective March 11.

“If this judge’s rationale is accepted, the IC rule is on very thin ice,” Fishman says.

The new independent contractor rule makes it harder to justify independent contractor status, meaning most workers must be classified as employees under the Fair Labor Standards Act (FLSA). Employers bear more responsibilities for employees than they do for contractors.

Impact on Employers

The judge’s action on the joint employer rule “is a really important decision,” Fishman says. Had it been allowed to take effect, it could have had a crippling impact on the franchise business model.

Fishman says the joint employer issue has been brewing since the NLRB’s 2015 Browning-Ferris ruling, which set a standard that puts an employer in a joint employment relationship even if it has only indirect control over another employer’s workers.

The issue isn’t going away, Fishman says. “It is very close to being issue No. 1 for unions, the NLRB, and the Biden administration.”

NLRB Chair Lauren McFerran has said the Board is considering next steps, which may include an appeal of the district court’s decision to the U.S. 5th Circuit Court of Appeals.

Attorney Gary Fealk with Bodman PLC in Troy, Michigan, says the Board is likely to appeal. Alternatively, it could decide to “scrap the 2023 rule and begin the rulemaking process over to formulate a rule that might pass muster with a court, but I think that is unlikely,” he says.

“It is also possible that while an appeal is pending, the NLRB could apply its ‘non-acquiescence’ doctrine, meaning that it would apply the 2023 joint employer rule in jurisdictions other than the Eastern District of Texas,” Fealk says, adding that the judge hasn’t issued an injunction because he anticipates the NLRB will respect his ruling and not risk an injunction by departing from his judgment.

Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.

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