On March 8, a federal judge in Texas ruled that the National Labor Relations Board’s new joint employer regulations, which were to take effect yesterday, are invalid as inconsistent with the National Labor Relations Act.

Under the regulations, which were issued last October, an employer could be deemed a “joint employer” if it merely had the right to exercise indirect control over an essential term or condition of employment, even if it never actually exercised that control. According to Judge J. Campbell Barker, that went beyond the bounds of common law and therefore the NLRA.

Judge Barker is expected to issue a final judgment vacating the regulation. The NLRB may or may not appeal.

Chamber of Commerce v. NLRB

The regulations adopted a new standard for determining whether two or more employers were joint employers with respect to one or more employees. Under that new standard, an employer would be found to be a joint employer, whether or not control was exercised, and whether or not the exercise of control was direct or indirect, if the employer had the right to control any “essential” term or condition of employment. The regulations contained a list of items that would be considered “essential” terms or conditions of employment.

In considering cross-motions for summary judgment in a challenge brought by business and employer groups, Judge Barker ruled that the standard was unlawful because it exceeded the bounds of the common law, which is the “legal boundary within which the Board must color.” Quoting the U.S. Supreme Court decision in NLRB v. Town & Country Electric, Inc., he noted that under the common law, “an employer of a worker under the common law of agency must have the power to control ‘the material details of how the work is to be performed.’” The judge said that the Board’s new standard “would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified ‘essential terms and conditions of employment.’”

Judge Barker granted the plaintiffs’ motion for summary judgment and denied the NLRB’s cross-motion, and said that he would follow up with a final judgment vacating the regulations.

The jurisdictional challenge

Judge Barker also rejected an argument from the NLRB that his court did not have subject matter jurisdiction to rule on the challenge to the regulations. In unfair labor practice cases, the parties appeal NLRB decisions directly to the federal circuit courts of appeal, bypassing the federal district courts. Thus, the NLRB had tried to get the lawsuit transferred to the U.S. Court of Appeals for the District of Columbia Circuit and argued on summary judgment that only the federal courts of appeal had jurisdiction. (The Service Employees International Union is currently challenging the joint employer regulations in the D.C. Circuit.)

Although Judge Barker agreed that only federal appellate courts have direct subject matter jurisdiction over cases to enforce or dispute unfair labor practice allegations, he said, “[n]either the text, structure, nor purpose of the Act supports [the NLRB’s] extension of that procedure to cover judicial review of prospective Board rulemaking.”

The NLRB reaction

In a response to Judge Barker’s decision, the NLRB issued a statement in which Board Chairman Lauren McFerran was quoted as saying in part, “The District Court’s decision to vacate the Board’s rule is a disappointing setback, but 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. The Agency is reviewing the decision and actively considering next steps in this case.”

Looking back and going forward

The NLRB standard on joint employment is, and for years has been, a contentious issue before the Board, in the courts, and in Congress. Employer and business groups have argued that broadening the joint employment standard would jeopardize many business models, including franchising. Organized labor has argued for a broader standard, claiming it is necessary to deal with the realities of the modern workplace, in which employees and their labor issues are separated from the entities that have the real power to make a difference. The outcome is uncertain, as the Board may appeal Judge Barker’s decision and politics — current and future — may come to bear. For now, the NLRB may be backpedaling from its apparent overreach.

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