On October 26, 2023, the National Labor Relations Board issued a final rule that dramatically lowered the standard for companies to qualify as joint employers. You can read more about the rule here. In short, the new rule provides that even reserved, unexercised, or indirect control, such as through an intermediary, over one or more of the rule’s seven enumerated terms or conditions of employment is sufficient to establish joint employment. There is no doubt that implementation of the new rule will drastically expand when companies will be considered joint employers and create additional costs and obstacles for employers.
The rule was originally set to take effect on December 26, 2023, but the Board recently extended the effective date to February 26, 2024 in response to legal challenges. Employers should prepare to comply with the new rule in anticipation of February 26. However, the pending legal challenges could alter the rule’s application. The two current legal challenges have been brought by:
I. Service Employees International Union
The first challenge stems from an unlikely source, the Service Employees International Union (SEIU). On November 8, 2023, the SEIU filed a petition for review in the U.S. Circuit Court of Appeals for the District of Columbia Circuit. The SEIU’s petition aims to strengthen the new rule.
II. U.S. Chamber of Commerce and Coalition of Business Groups
The second challenge is more predictable. On November 9, 2023, a coalition of business groups led by the U.S. Chamber of Commerce filed a lawsuit in the U.S. District Court for the Eastern District of Texas. The complaint alleges that the new rule is unlawful and should be struck down by the courts for being arbitrary and capricious. Specifically, the coalition argues that implementing the new rule will negatively affect businesses and, thus, the economy. The new rule will work to the detriment of the franchise business model and contractor relationships because it will “disrupt long-established operational methods” and “many [employers] will need to change or eliminated their quality-control practices—risking the diminishment of their image and brand reputation.” In other words, the rule change could cost employers “billions of dollars in liability and costs” as they must “reevaluate virtually every contractual relationship” to determine whether a joint employer relationship exists. The business groups forming the coalition have over 300,000 members.
The outcome of the challenges is unknown and uncertain, but it could impact the actions companies need to consider taking in response to the rule. Therefore, employers should prepare to comply with the new rule in February while also keeping an eye on the status of both pending challenges.