On March 8, just three days before the National Labor Relations Board’s (the “Board”) new joint-employer standard was set to take effect, Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas struck down the new standard, delaying its implementation further. 

In his opinion, Judge Barker held that the Board’s joint-employer test is unlawfully broad because an entity could be deemed a joint employer simply by having the right to exercise indirect control over one essential term and condition of employment, even if the entity does not actually exercise that control.  The Court stated that it would issue a final judgment shortly that will have the effect of vacating the pending rule. 

Background

As we previously reported, on October 26, 2023, the Board issued a much-anticipated new standard for determining whether two or more employers are joint employers of particular employees within the meaning of the National Labor Relations Act (the “Act”).  This new standard significantly relaxed the joint-employer requirements, permitting an entity to be found as a joint employer whether or not control is exercised and without regard to whether such exercise of control is direct or indirect. 

Within weeks, and as previously reported, the United States Chamber of Commerce (the “Chamber”) and a coalition of business groups filed the instant lawsuit against the Board, alleging the Board’s newly-issued joint-employer rule is unlawful and should be struck down because it is arbitrary and capricious.  

Around the same time, the Service Employees International Union (“SEIU”) filed a petition with the District Court of Columbia Court of Appeals (“D.C. Circuit”) to review the Board’s new rule; the case before the D.C. Circuit remains pending.

Summary Judgment Decision Striking Down The Rule

Prior to analyzing the merits of the new joint-employer standard, Judge Barker began his decision by rejecting the NLRB’s argument that the Eastern District of Texas lacked jurisdiction because any legal challenge to the joint-employer rule should have commenced in federal appeals court. The Court acknowledged that federal appeals courts provide the proper jurisdiction to enforce or dispute unfair-labor-practice allegations, “[b]ut neither the text, structure, nor purpose of the Act supports defendants’ extension of that procedure to cover judicial review of prospective Board rulemaking.”  

Judge Barker then criticized the two-step test the Board set forth in the proposed joint-employer standard, which requires first, that the entity qualify as a common-law employer of the disputed employees, and second, only if it is a common law-employer, the entity must also have control over one or more essential terms and conditions of employment.  Judge Barker agreed with the Chamber that the second test is always met if the first test is met, so the standard has just one step for practical purposes.

Judge Barker held that the joint-employer rule is invalid because it would treat some companies as the employers of contract or franchise workers even when they lacked any meaningful control over their working conditions:

The rule “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 . . . essential terms and conditions of employment.”  

Judge Barker reasoned such “reach exceeds the bounds of the common law and is thus contrary to law.”  As a result, the Court vacated the new standard, and indicated that it will issue a final judgment declaring that the rule is unlawful.  The Court stated that it expected the NLRB to follow the declaratory judgment, rendering an injunction unnecessary, but Judge Barker reserved his right to subsequently issue injunctive relief.

On March 9, the NLRB responded to the Court’s ruling:

“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,” said Chairman Lauren McFerran. “The Agency is reviewing the decision and actively considering next steps in this case.”

Key Takeaways

The legality of the Board’s broad new joint-employer standard has been a hotly-litigated issue over the last several months, and is set to stay in the limelight.  While for now, it appears the new rule will not be implemented on March 11, Judge Barker’s decision will not be the last word on the issue. The NLRB may appeal the ruling to the Fifth Circuit Court of Appeals, and a petition remains pending before the D.C. Circuit.

We will continue to monitor this important issue.    

Photo of Joshua Fox Joshua Fox

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several…

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several Major League Baseball Clubs in all aspects of the salary arbitration process, including the Miami Marlins, Boston Red Sox, Los Angeles Dodgers, Kansas City Royals, San Francisco Giants, Tampa Bay Rays and Toronto Blue Jays. In particular, Josh successfully represented the Miami Marlins in their case against All-Star Catcher J.T. Realmuto, which was a significant club victory in salary arbitration. Josh also represents Major League Baseball and its clubs in ongoing litigation brought by current and former minor league players who allege minimum wage and overtime violations. Josh participated on the team that successfully defended Major League Baseball in a wage-and-hour lawsuit brought by a former volunteer for the 2013 All-Star FanFest, who alleged minimum wage violations under federal and state law. The lawsuit was dismissed by the federal district court, and was affirmed by the U.S. Court of Appeals for the Second Circuit.

Josh also has extensive experience representing professional sports leagues and teams in grievance arbitration proceedings, including playing a vital role in all aspects of the grievance challenging the suspension for use of performance-enhancing drugs of then-New York Yankees third baseman Alex Rodriguez. Josh also has counseled NHL Clubs and served on the trial teams for grievances alleging violations of the collective bargaining agreement, including cases involving use of performance-enhancing substances, domestic violence issues, and supplementary discipline for on-ice conduct. He has played a key role in representing professional sports leagues in all aspects of their collective bargaining negotiations with players and officials, including the Major League Baseball, National Hockey League, the National Football League, Major League Soccer, the Professional Referee Organization, and the National Basketball Association,.

In addition, Josh has extensive experience representing clients in the performing arts industry, including the New York City Ballet, New York City Opera, Big Apple Circus, among many others, in collective bargaining negotiations with performers and musicians, the administration of their collective bargaining agreements, and in grievance arbitrations.

Josh also represents a diverse range of clients, including real estate developers and contractors, pipe line contractors, hospitals, hotels, manufacturers and public employers, in collective bargaining, counseling on general employment matters and proceedings before the National Labor Relations Board, New York State Public Employment Relations Board and arbitrators.

Josh has also recently served as an adjunct professor at Cornell University’s School of Industrial Labor Relations for the past two years, teaching a course regarding Major League Baseball salary arbitration.

Prior to joining Proskauer, Josh worked for a year and a half at the National Hockey League, where he was involved in all labor and employment matters, including preparations for collective bargaining, grievance arbitration, contract drafting and reviewing and employment counseling. Josh also interned in the labor relations department of Major League Baseball and at Region 2 of the National Labor Relations Board. He was a member of the Brooklyn Law Review and the Appellate Moot Court Honor Society and served as president of the Brooklyn Entertainment and Sports Law Society.

Photo of Rachel Kessler Rachel Kessler

Rachel Kessler is an associate in the Labor & Employment Department.  In leveraging her education background in industrial and labor relations, Rachel represents clients in a wide range of both employment and labor-management relations matters. Her recent work has involved the representation of…

Rachel Kessler is an associate in the Labor & Employment Department.  In leveraging her education background in industrial and labor relations, Rachel represents clients in a wide range of both employment and labor-management relations matters. Her recent work has involved the representation of clients in a diverse range of industries, including financial services, health services, performing arts, media, luxury retail and professional sports leagues.

As part of her employment practice, Rachel focuses on employment-related litigations in state and federal courts, before state and federal administrative agencies, and in arbitrations. Rachel regularly assists in defending employers from claims involving discrimination, retaliation, harassment, breach of contract, whistleblowing, wrongful termination and other employment-related torts.  Rachel also counsels on a variety of employment matters, including workplace investigations. In her labor-management relation practice, Rachel counsels and represented clients in NLRB proceedings.

Rachel also maintains a strong pro bono practice and has twice been awarded Proskauer’s Golden Gavel Award for excellence in pro bono work. She has represented incarcerated clients in parole proceedings and is an active member of the Firm’s Reproductive Rights Task Force.

Prior to joining Proskauer, Rachel interned with Judge Denis R. Hurley in the Eastern District of New York and worked for a semester as a legal intern at Legal Momentum, the nation’s first and oldest legal defense and education fund for women. During law school, Rachel was a notes editor of the International Law Journal and a member of the Gender Justice Clinic.