Houston, Texas – A federal judge in Texas has temporarily blocked the National Labor Relations Board (NLRB) from implementing a new rule that would expand the definition of joint employment. The ruling comes one day before the rule was set to take effect.
The regulation, which aimed to increase franchisors’ responsibility for labor violations committed by their franchisees and require both entities to negotiate with employee unions, was challenged in court by a coalition of business groups including the U.S. Chamber of Commerce, the International Franchise Association, the Restaurant Law Center, and the Texas Restaurant Association.
The new rule, slated to replace a Trump-era regulation that required “direct and immediate” control over workers to establish joint employment, would have broadened the standard to encompass companies with indirect control over at least one condition of employment. This expanded definition included areas such as wages, benefits, working hours, supervision, discipline, and employee safety. The regulation would have allowed unions to engage in collective bargaining with franchisors, which was seen as a significant victory for organized labor.
Supporters of the rule argued that it was necessary to prevent large employers from evading labor negotiations by using contractors and subcontractors. However, opponents contended that the change would disrupt traditional franchisor-franchisee relationships and harm businesses reliant on third-party staffing.
In his ruling, U.S. District Judge J. Campbell Barker deemed the new rule “arbitrary and capricious” and argued that it violated federal labor law by adopting an overly broad definition of joint employment. According to Barker, the rule would assign employer status to companies lacking meaningful control over working conditions, thereby treating them as joint employers.
The judge also agreed with the business groups’ claim that the NLRB had disregarded public input during the rule-making process. Typically, the public has the opportunity to contribute to new regulations by submitting comments when federal agencies propose changes. The lawsuit alleged that this input was disregarded by the NLRB.
As a result of the ruling, the existing joint employment standard implemented during the Trump administration will remain in place for the time being. Nevertheless, it is expected that the NLRB will appeal the decision.
Opponents of the rule are also pursuing avenues to overturn it in Congress. The International Franchise Association has been leading lobbying efforts to use the Congressional Review Act (CRA) to repeal the regulation. The House of Representatives already passed a resolution in January to overturn the rule, but Senate approval is still needed for the effort to succeed.
Despite these challenges, the White House has indicated that President Biden would veto the resolution if it passes both houses. If such a veto were to occur, a two-thirds majority would be required in Congress to block the new rule’s implementation.
The ruling has been celebrated by the International Franchise Association, with CEO Matt Haller stating that it preserves the franchise business model and rejects a flawed regulation driven by organized labor’s political goals. He urged the U.S. Senate to act on promises of support for small businesses by advancing the bipartisan CRA resolution to President Biden’s desk.
While the NLRB’s new joint employment rule remains on hold, its future remains uncertain as legal battles and legislative efforts continue to shape the landscape of labor relations.