Labor Board’s Joint Employer Rule Draws First Industry Suit (1)

A coalition of business advocacy groups filed a lawsuit seeking to nix the National Labor Relations Board’s recently finalized regulation that lowers the bar for two companies to qualify as joint employers of the same contract or franchise workers.

The NLRB’s rule is overly broad and establishes a standard for determining joint employer relationships that directly contradicts what the common law would require, the industry coalition led by the US Chamber of Commerce said in its lawsuit filed Thursday in a Texas federal court.

The groups also argued that the regulation is “arbitrary and capricious” in violation of administrative law—saying it “threatens chaos and indeterminacy in national labor relations"—and challenged the NLRB’s justification for issuing a new rule so soon after an all-Republican board released its own joint employer measure in 2020.

Despite the paucity of joint employer disputes litigated at the NLRB, perhaps no other labor law issue has been as bitterly contested over the past decade as the standard for deciding when companies share liability for unfair labor practices and obligations to bargain with unions.

The new rule also sparked the ire of some lawmakers. A group of Republicans and Democratic Sen. Joe Manchin of West Virginia on Thursday introduced a bicameral Congressional Review Act resolution to kill the rule.

The Democratic-majority board’s regulation, set to take effect Dec. 26, expands the legal test for joint employment by looking beyond evidence of a company’s direct control of the job conditions for workers directly employed by another firm. The new standard will allow for a joint employer finding based on indirect or unexercised control alone.

The board’s regulation also rescinds the Trump-era standard, saying its requirement that joint employment turns on the exercise of direct control was an impermissible interpretation of the National Labor Relations Act by going beyond common law principles.

“The board’s view is that somehow everybody has misinterpreted the law for the past 75 years,” said Glenn Spencer, senior vice president of the employment policy division at the US Chamber of Commerce. “Somehow everybody has gotten it wrong, except for this current board. They’re the only ones that have figured out what joint employment really meant was this thing that nobody else ever thought it did.”

An NLRB spokeswoman declined to comment on the lawsuit.

Texas Venue

The Chamber is joined by about a dozen other business advocacy groups, including the International Franchise Association, National Retail Federation, Restaurant Law Center, and National Association of Convenience Stores.

The industry coalition filed its lawsuit in the US District Court for the Eastern District of Texas, where seven of the 10 sitting judges were appointed by Republican presidents.

More specifically, the groups filed the complaint in the district’s Tyler division, which is staffed by two Trump-appointed judges.

The Chamber chose that venue based on its strong relationship with co-plaintiffs Texas Association of Business and Longview Chamber of Commerce, and because the rule will harm businesses across Texas and nationwide, a Chamber spokeswoman said.

SEIU Challenge

In an apparent attempt for a more friendly venue, the Service Employees International Union filed a petition for review challenging the union-friendly rule in the US Court of Appeals for the District of Columbia Circuit.

That court largely upheld an Obama-era joint employer test that closely resembles the NLRB’s new standard.

But the SEIU’s petition for review might be filed in the wrong court. The D.C. Circuit rejected the NLRB’s argument that a challenge to its 2019 election rule should have started in circuit court rather than district court.

Lawyers for the union didn’t immediately respond to requests for comment on its petition.

The case is US Chamber of Commerce v. NLRB, E.D. Tex., No. 6:23-cv-00553, complaint filed 11/9/23.