When an employee performs services for more than one entity, there’s often a question about which of those entities constitutes an “employer”. Since 2020, the analysis of this question has been guided by the question of whether both entities “share and codetermine the employees’ essential terms and conditions of employment.”  For a recipient of an employee’s services to meet this standard, they “must possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.”

Since the advent of the 2020 rule, the key phrase has been “direct and immediate control”, with the NLRB considering indirect or merely reserved control as insufficient to make them a joint employer.

In 2023, the NLRB issued a new final rule that introduced a new standard for joint-employer status. The mechanics of the new rule were confusing, but departed from the 2020 rule at least by allowing “reserved control” in a contract, indirect control of the conditions of employment, work rules governing the health and safety of individuals in performance of the job, or control that is only exercised sporadically or in isolated circumstances to all classify that entity as a joint employer.

A March 8, 2024 Order from the District Court for Eastern Texas has put a stop to that, for now, leaving in place the standards that employers have relied upon since 2020. The Court noted that the 2023 Rule would have the practical effect of making anyone who had even the most indirect of control over an individual into that person’s employer, even if that indirect control was never actually asserted.

The Court explained its rationale by using an example of an ice cream shop that negotiated a contract with a lawn care service to mow its lawns on Thursdays, with certain restrictions in the contract regarding fertilizers that could be used. The Court noted that in this example, the ice cream shop indirectly controlled the wages and hours of the lawn care service’s employees work, and further that the fertilizer rules (which may well have been included to conform to local food ordinances) would be an indirect control over the health and safety of the lawn care workers. This would culminate under the 2023 rule in the lawn care workers being joint employees of the lawn care service and the ice cream shop, even if the ice cream shop never exercised its potential controls under the contract.

The Texas Court rejected the 2023 rule if it would abide such an outcome. The Court further found that the NLRB’s new rule was both invalid on its own and was arbitrary and capricious in rescinding the 2020 rule. The Court vacated the new rule in its entirety and reinstated the 2020 rule, meaning that for the time being, the rule to which we’ve all grown accustomed remains in effect.

Questions? Please contact John Simmons by email or at 563-333-9102