ABSTRACT: Major labor union challenges new NLRB joint employer rule as being too weak.

In November 2023, our blog addressed the NLRB’s proposed final rule that would expand the definition of “joint employer” within the meaning of the Act. Under the new rule, any party with the right to exercise indirect control over an essential term and condition of employment would be a joint employer, creating both an obligation to bargain and potential liability for unfair labor practices concerning the term. Predictably, employer groups considered this onerous and over-reaching and acted quickly to challenge the Rule, with the leading case filed by the United States Chamber of Commerce in the Eastern District of Texas.

In November, a surprising challenger entered the fray: the Service Employees International Union filed suit challenging the final rule in the District of Columbia Circuit Court of Appeals. SEIU argues that the new rule violates common law agency principles in evaluating a joint employer relationship by being too narrow in scope as to the factors the Board may consider. SEIU has argued in the Court of Appeals that by including a “closed list” of essential terms and conditions of employment, the new Rule impermissibly fails to cover all “mandatory subjects of collective bargaining.”

The lawsuit is relatively threadbare, but the SEIU, in a joint letter with the AFL-CIO and Teamsters International Union, addressed the alleged flaws in the new Rule. First, SEIU argued that the D.C. Circuit has acknowledged that reserve or indirect control must be factors in considering joint employer status. Second, the Trump-era rule requiring substantial direct and immediate control, SEIU argued, allows employers with authority over working conditions to avoid bargaining obligations, and this is inconsistent with the Act’s purposes. Third, SEIU rejected any assertion that the Rule would not create a per se joint employment relationship with franchisees and franchisors, temp agencies, staffing agencies, or subcontractors. In addition to the lawsuit, the signatories to the letter expressed an intent to urge Congress to oppose efforts to invalidate the rule under the Congressional Review Act.

The promise of an individualized inquiry into joint employer status will be cold comfort to franchisees, employers that use staffing or temp agencies, and construction firms.

Recognizing the threat that employers’ bargaining obligations and potential liability may be greatly expanded, the Chamber of Commerce led a cohort of around a dozen intervenors in the lawsuit, which includes groups such as the American Hotel & Lodging Association, Associated General Contractors, International Franchise Association, and National Retail Federation. In December, the Chamber of Commerce, along with the same cohort of employer groups, filed suit in the Eastern District of Texas as well, challenging the new Rule as an unwarranted extension beyond the common law of agency.

In the Texas lawsuit, the Chamber of Commerce argued that the new Rule “discards the former limiting principle that [….] ‘the putative joint employer possesses sufficient control over the employees’ essential terms and conditions of employment to permit meaningful collective bargaining.” Indeed, under the new Rule it seems that there will be many employers with new bargaining obligations but little actual control to do anything about terms and conditions of employment.

This argument makes sense. Take the example of an owner who is searching for a general contractor on a construction project and requires a guaranteed maximum price. The general contractor may then line up subs for concrete, electrical, carpentry, and other trades. The subcontractors hire employees, perhaps under a multi-employer contract or other arrangement. Under the new Rule, the general contractor will likely be a joint employer of the trades’ employees regarding wages, as the general contractor “indirectly” affects the wages the subcontractor can pay, based on the amount of the contract for that trade. In turn, the owner is likely also a joint employer, as the guaranteed maximum price affects the amount the subcontractor can pay its workers. Two new parties will be at the bargaining table, but it is unclear whether their involvement will benefit workers or simply make it more likely that negotiations fail.

In the D.C. Circuit case, the employer group filed a motion to dismiss for lack of subject matter jurisdiction, arguing that Administrative Procedures Act requires challenges to be filed in a district court first. SEIU filed its suit under Section 10(f) of the Act, which provides for review of an order of the Board where an unfair labor practice occurred. Challenges to rulemaking, as opposed to an order, should be filed in the district court.

The group also argued that SEIU lacked standing because of a lack of concrete and particularized harm, particularly with regard to items included in prior challenges by SEIU. In a challenge to the Trump-era rule in 2021, SEIU objected that the mandatory subjects of bargaining did not include “safety and health conditions” in its list of essential terms of employment. Because the new Rule includes health and safety, as well as all of the other terms and conditions of employment one would expect to find in a collective bargaining agreement, any harm to SEIU has been resolved.

The Court of Appeals is expected to rule on the Motion to Dismiss and, should the lawsuit survive, expected cross-motions for summary judgment, early in 2024. Baker Sterchi attorneys will continue to monitor these cases and other challenges to the NLRB final rule and update this blog accordingly.