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A federal court has struck down the “joint employers” rule that would have expanded the scope of employers required to bargain with contract and franchise workers.
The decision was made by a federal judge in Texas on Friday, with the expanded rule announced by the National Labor Relations Board (NLRB) in October 2023 set to come into effect on Monday, March 11.
Under the expansion, dubbed the “2023 rule”, companies using contract or franchise workers would have been deemed "joint employers" even if they did not have direct control over working conditions such as wages, benefits, hours of work, discharge, and discipline.
Companies such as Google which use contractors provided by third-party staffing agencies, or franchisors such as McDonald’s or Taco Bell, would likely have been liable for the conditions of workers they did not directly hire, including negotiating with unions representing the workers.
U.S. District Judge Barker’s decision echoes criticism over the rule expansion from challenges including the U.S. Chamber of Commerce, franchisors, and other businesses who argued it would disrupt business activity and create confusion in cases where employers had no meaningful control over the workers.
The ruling "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,’” writes Barker.
For now, the “2020 rule” is restored, which says joint employment only exists when there is “substantial direct and immediate control” over the employees’ essential terms and conditions of employment.
In theory, this means that when employers do not directly hire workers, such as a construction company using labor provided by a third-party contractor, they are not responsible for working conditions. As such, they also wouldn’t be held liable for labor law violations for these workers.
NLRB Chair Lauren McFerran describes the decision to vacate the Board’s rule as a “disappointing setback.” However, she adds that it “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 NLRB and other labor groups have pushed for the expansion, arguing it would help hold companies liable for poor workplace conditions. Google and Cognizant, for example, have been in a long-running stand-off with the NLRB about who is responsible for bargaining with workers on the YouTube Music content operations team, with a team of contractors discovering they had lost their jobs live on camera while lobbying Austin City Council.
In January, The NLRB rejected Google's claim that it isn’t a joint employer of contractors on the team and pushed both companies to enter negotiations with the workers. Google has said it believes it’s “only appropriate for Cognizant, as their employer, to engage in collective bargaining.”
HR can ‘breathe a sigh of relief’ but must stay wary
Writing in The National Law Review, Jess A. Dance, Shareholder at Polsinelli Law Firm, argues whilst franchisors and other companies such companies can “breathe a sigh of relief,” the ruling does not eliminate the issue of joint employment altogether.
Dance provides several ongoing recommendations to franchisors, including clear documentation disclaiming authority to control franchisee’s employees, avoiding actual control over franchisee’s employees, limiting contact with franchisee’s non-management employees, avoiding administrative functions for franchisee’s employees, and announcing independent relationship.
For example, in the case of L&D, to avoid inadvertently indirectly controlling workplace conditions and triggering, Dance argues training programs “should be limited to a franchisee’s managerial and supervisory employees, who may then independently train the franchisee’s staff.”
Moreover, the NLRB is set to appeal the decision and according to McFerran is “actively considering next steps.”
HR teams at companies that use franchise or contracted labor should be mindful of their actions as the joint employer tug-of-war continues.
