In October 2023, the National Labor Relations Board issued a final rule that lowered the standard for companies to qualify as joint employers. You can read more about the rule here.

On March 8, 2024, a federal judge in Texas struck down the final rule. U.S. District Judge J. Campbell Barker granted summary judgment in favor of the business coalition that challenged the 2023 rule. In short, the 2023 rule established a two-step test which requires: (1) the entity qualify as a common-law employer of the workers in question, and if so (2) the entity have control over one or more essential terms and conditions of employment. The court agreed with the business coalition’s contention that “the second test is always met if the first test is met, so the rule’s joint employer inquiry has just one step for all practical purposes.” The court found that “if an entity exercises or has the power to exercise control (even indirect control) over at least one essential term, the entity is an employer, jointly with workers’ undisputed employer.” And because such a result “would treat virtually every entity that contracts for labor as a joint employer,” the Board’s 2023 final rule “exceeds the bounds of the common law and is thus contrary to law.”

The decision restores the 2020 joint employer rule, which makes it easier for entities to show they are not joint employers. The 2020 rule requires proof that a company has “substantial direct and immediate control” over “the essential terms or conditions” of a worker’s employment to be considered a joint employer.

In light of the court’s decision, NLRB Chairman Lauren McFerran said, “[t]he 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.” She went on to say that the NLRB “is reviewing the decision and actively considering next steps in this case.”

Employers can breathe a little easier with the 2023 rule vacated but should ensure they are complying with the 2020 joint employer rule while staying abreast of further developments, including what will likely include an appeal to the Fifth Circuit.