National Labor Relations Board’s 2023 Joint Employer Final Rule Vacated by U.S. District Court Before It Takes Effect

Before it could even go into effect on March 11, 2024, the National Labor Relations Board’s final rule on the Standard for Determining Joint Employer Status was vacated in federal court. The judge determined that the rule was overly broad in regard to common law and inconsistent with the National Labor Relations Act.

As a result of the decision by the U.S. District Court for the Eastern District of Texas, the NLRB’s current rule from 2020 remains in effect. That rule provides that joint employer status exists only where both employers exercise substantial direct and immediate control over one or more of the essential terms and conditions of employment for an employee.

• Wages
• Benefits
• Hours of work
• Hiring
• Discharge
• Discipline
• Supervision
• Direction

The NLRB can appeal the ruling but has not yet made its intentions known. There also are additional challenges to the Final Rule, including a measure in Congress under the Congressional Review Act to kill the regulation.

What Does This Mean for Businesses?

All businesses are subject to the NLRB’s joint employer rule, but the vacating of the 2023 rule might be seen as a win for the franchise and staffing agency industries, businesses using staffing agencies or contractors, and PEOs and their clients given the narrower definition of joint employment under the NLRA found in the current rule.

How Did NLRB's 2023 Final Rule Define Joint Employer?

Under the vacated new final rule, an employer could be considered a joint employer if the entity has or retains authority to control, directly or indirectly, at least one of seven essential terms and conditions of employment, regardless of whether they exercise that control. The list of essential terms under the vacated final rule had expanded to include, among others, compensation, as well as workplace health and safety conditions.

The U.S District Court judge determined that the “indirect” and “regardless of whether they exercised” control portions of the new final rule were outside the bounds of common law, and that under those conditions nearly every employer could be found to be a joint employer for purposes of collective bargaining and similar labor obligations under the NLRA.

Do Other Agencies Address Joint Employment?

Other agencies might rely on similar criteria when determining joint employer status under specific laws, but the NLRB’s rule on joint employment is specific to joint employer status under the National Labor Relations Act. The NLRB’s rule should not be confused with the U.S. Department of Labor’s (DOL) standard for joint employment under the Fair Labor Standards Act (FLSA).

The DOL issued its own final rule, which determined joint employment status for purposes of wage and hour issues under the FLSA.  However, it has been rescinded following a court decision in New York and no plans have been announced for when a new rule might be considered.

Looking Ahead

Paychex will continue to monitor additional developments. Businesses, meanwhile, should stay up to date and consult with their legal counsel to help prepare their business to address any potential challenges should the 2023 rule come back into play. 

Paychex can help you understand the complexities of the regulations that impact your business and offers HR solutions and services to help make it simpler for you to focus on running your business.