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House Votes to Overturn NLRB’s Joint Employer Rule

Brownstein Client Alert, Jan. 18, 2024

On Jan. 12, 2024, the House voted 206-177 in favor of a resolution providing for congressional disapproval of the National Labor Relations Board’s (NLRB) new joint employer rule. The final rule, published on Oct. 26, 2023, rescinds a Trump administration rule and lowers the standard for an entity to be deemed a joint employer. The new rule states that if two or more legal entities directly or indirectly share or codetermine an employee’s essential terms and conditions of employment, then they will be held to be joint employers. The rule updates the definition of the essential terms and conditions of employment. The rule is currently set to take effect on Feb. 26.

This rule will have a dramatic effect on multilevel organizations including franchises, staffing companies, contractors that use subcontractors and companies with subsidiaries. It may result in an organization being pulled into labor disputes on bargaining, unfair labor allegations or strikes with co-employers. Shareholders who have concerns about these issues should be prepared to start the process of looking over current employee agreements.

Repeal Effort in Congress

Shortly after the NLRB published its final rule, Reps. John James (R-MI) and Virginia Foxx (R-NC) along with Sens. Bill Cassidy (R-LA) and Joe Manchin (D-WV) introduced a Congressional Review Act (CRA) resolution to overturn the joint employer rule.

Under the CRA, Congress can issue a resolution of disapproval to block the implementation of a rulemaking, and when a rule is overturned, agencies are barred from issuing a substantially similar rule. To be filibuster-proof and fast-tracked in the Senate, the resolution must be introduced within 60 days of Congress’ receipt of the rule (typically the date of publication). CRA resolutions that meet certain criteria are also afforded expedited consideration in the Senate, as they cannot be blocked by the majority leader and only require a simple majority for passage. After both chambers pass a joint resolution of disapproval, it is sent to the president for a signature or veto. If the resolution is vetoed, Congress can override it with a two-thirds vote in each chamber. CRA resolutions are more likely to be successful when passed during the beginning of a new administration, particularly if control of the executive branch has shifted parties.

On Jan. 12, the House voted 206-177 to pass H.J.Res. 98, the CRA to block the NLRB’s joint employer rule. This was mostly along party lines with 198 Republicans and eight Democrats voting for repeal. Now that the measure has passed the House, it moves to the Senate where all Republicans and a few Democrats, including Sen. Joe Manchin (D-WV) and potentially other vulnerable Democrats up for reelection in 2024, and Kyrsten Sinema (I-AZ) are expected to vote in favor of passage.

While the resolution will likely have the votes to pass the Senate, a jurisdictional question may delay the Senate’s consideration of the measure. The CRA must be considered by the Senate Health, Education, Labor and Pensions (HELP) Committee, which has original jurisdiction over the measure, where Chair Bernie Sanders (I-VT), who has a history of being pro-union, will likely use procedural steps to delay the vote or kill the measure outright. The committee may choose to report the disapproval resolution to the full Senate, but it may not amend it. However, since the joint employer rule was reported to Congress over 20 calendar days ago, senators may use a discharge petition to discharge the committee from further consideration of the disapproval resolution.

To be effective, a discharge petition must be signed by at least 30 senators and submitted on the Senate floor. Once the disapproval resolution is discharged, any senator may make a non-debatable motion to proceed to consider the joint disapproval resolution. If the measure is called up in this manner, it would be subject to 10 hours of debate and no amendments would be permitted. All votes under the CRA require only a simple majority to prevail. Although it may take some additional time, it is expected that the Senate will approve the CRA resolution soon and send the measure to President Biden.

White House Response and Next Steps

While the repeal effort appears to be on track in the Senate, President Biden has been clear that he will veto the resolution should it reach his desk. Both chambers require a two-thirds majority to override a presidential veto. In a Jan. 8, 2024, Statement of Administration Policy, the White House stated, “Reversing this rulemaking will prevent workers from exercising their right to bargain for higher wages, better benefits, and safer working conditions.” President Biden will likely tout the Joint Employer Rule in his reelection campaign as he works to shore up support among labor groups. If there is a change in administration after the 2024 presidential election, a Republican president would likely work to undo the NLRB’s rule. The chart below outlines various scenarios for the rule’s prospects depending on the makeup of Congress and the White House after the 2024 election.

	Democratic White House	Republican White House
Democratic Congress	Rule Stands	Rule Stands
Republican Congress	Rule Stands (assuming no veto-proof majority – President will veto any repeal effort)	Rule Repealed
Divided Congress	Rule Stands (President will veto any repeal effort)	Rule Repealed (assuming similar margins in each chamber and a few Democrats in both chambers remain willing to cross party lines)

While the president’s veto will stop the congressional repeal effort for now, industry lawsuits challenging the validity of the rulemaking will continue to move forward. The U.S. Chamber of Commerce along with the International Franchise Association, National Retail Federation, Restaurant Law Center and National Association of Convenience Stores have joined together to file a lawsuit in the U.S. District Court for the Eastern District of Texas, a venue that legal experts generally agree leans conservative. The challengers have filed for summary judgment, alleging the rule ignores longstanding precedent by broadening liability for employers and enabling unions to organize across companies. However, barring a court order, the rule will go into effect on Feb. 26, 2024.

Background—Joint Employer Rule Summary and Industry Reaction

On Oct. 26, 2023, the NLRB published a new rule updating the standard for when multiple employers may be considered joint employers under the National Labor Relations Act. The rule reinstates and builds on the Obama administration NLRB’s ruling in Browning-Ferris Industries of California, Inc., which held that joint employment included employers who either indirectly affect employees’ terms and conditions of employment, or who reserve the right to control such employees.

The final rule provides that an employer will be considered a joint employer of a group of employees if the entities in question have an employment relationship with the employees, and they share or codetermine one or more of the employee’s essential terms and conditions of employment. In response to comments on the proposed rule, the board developed an exhaustive list of seven categories that will be considered “essential” elements for terms of employment for purposes of the joint employer inquiry. Those essential terms are exclusively defined as:

(1) wages, benefits and other compensation;

(2) hours of work and scheduling;

(3) the assignment of duties to be performed;

(4) the supervision of the performance of duties;

(5) work rules and directions governing the manner, means and methods of the performance of duties and the grounds for discipline;

(6) the tenure of employment, including hiring and discharge; and

(7) working conditions related to the safety and health of employees.

Originally slated to take effect on Dec. 26, 2023, the NLRB later delayed the rule’s effective date to Feb. 26, 2024, to “facilitate resolution of legal challenges with respect to the rule.” The NLRB’s summary of the final rule indicates the joint-employer inquiry will be a case-by-case factual inquiry. The board states, “small differences in how control has been indirectly exercised, when, and over what will predictably determine whether the exercise of such control in individual cases counts, under the common law, as an ordinary incident of a company-to-company or true independent-contractor relationship.”

Business groups were quick to criticize the final rule, calling the NLRB’s move a regulatory overreach. Many viewed the rule as a regulatory workaround for the Biden administration to implement the Protecting the Right to Organize (PRO) Act (H.R. 20 and S. 567), proposed legislation that would expand various labor protections related to employees’ rights to organize and collectively bargain in the workplace. Additionally, the U.S. Chamber of Commerce and a coalition of business groups filed a complaint in a Texas federal court, seeking relief under the Administrative Procedure Act (APA) by requesting that the court find the rule unlawful and set it aside. The group claims the regulation “threatens chaos and indeterminacy in national labor relations.” Specifically, the complaint alleges the rule’s requirement that an employer be classified as a joint employer whenever it has authority to control a single “essential” term of employment is not supported by law, that the rule fails to distinguish between employees and independent contractors, and that the rule ignores the National Labor Relations Act’s (NLRA) requirement that an employer possess control over several essential terms and conditions for meaningful bargaining to be possible between an employer and a union. Meanwhile, the Service Employees International Union (SEIU) filed suit in the D.C. Circuit Court to strengthen the final rule. The SEIU is targeting a portion of the rule that limits the powers the board considers when deciding whether an entity wields enough control to be considered a joint employer.

Brownstein will continue to track the administration of the joint-employer rule, as well as its challenges both in the courts and on Capitol Hill. For the most recent updates or to make sure your organization is properly prepared for these changes, please contact the authors of this alert.