Home Health & Hospice Week

Federal court strikes down reg that’s been causing anxiety for employers using contracted labor.

The question of whether more employers will qualify as joint employers — and thus have stepped-up labor-related duties — continues to be up in the air following a Texas federal court decision.

U.S. District Judge J. Campbell Barker of the Eastern District of Texas vacated the National Labor Relations Board’s rule on determining the standard for joint-employer status, the NLRB reports in a release. The rule was supposed to take effect on March 11, and would have rescinded the 2020 joint-employer rule.

Reminder: The rule originally set to take effect in February would have liberalized the requirements for determining who is a joint employer (see HHHW by AAPC, Vol. XXXIII, No. 4). It would have swept “many entities into joint- employer status, making them liable for unfair labor practices committed by their putative joint employer and imposing collective bargaining responsibility for the direct employer’s employees,” explain attorneys Joseph Piesco, Jonathan Batten, and Jessica Daneshvar with law firm DLA Piper.

Last November, a group of industry associations, including the U.S. Chamber of Commerce, represented by Akins Gump attorneys filed suit against the regulation, the law firm says. Last month, the judge postponed the start date to March 11. Then in a March 8 ruling, he struck down the rule.

The court sided with the industry groups, “holding that the rule ‘would treat virtually every entity that contracts for labor as a joint employer because every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified ‘essential terms and conditions of employment,’” Akins Gump says in a summary of the decision. “Given that reality, the court concluded, the rule ‘exceeds the bounds of the common law and is thus contrary to law,’” the firm reports.

“The court’s decision is welcome news,” cheers LeadingAge.

It was a “much-anticipated decision,” notes attorney Carmen Decot with law firm Foley & Lardner. “In vacating the Final Rule, the court also restored the NLRB’s prior 2020 rule on joint employment, which required that two entities exercise ‘substantial direct and immediate control’ over essential terms and conditions of employment in order to be deemed joint employers,” Decot explains in online analysis.

“The 2020 rule’s joint employer test is different from the 2023 rule in a few important ways that make it less likely that the 2020 rule will result in a determination that a joint employment relationship exists,” say attorneys Jason Schwartz, Eugene Scalia, Andrew Kilberg, Svetlana Gans, Michael Holecek, and Blake Lanning with law firm Gibson Dunn. “Under the 2020 rule, it is unlikely that an entity will be deemed a joint employer simply because it contracts with another business for services. By contrast, Judge Barker determined that the 2023 rule ‘would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified ‘essential terms and conditions of employment,’” the Gibson Dunn lawyers note.

The “decision is the latest in a long-running saga concerning the NLRB’s position on the joint-employment standard,” observes law firm Sullivan & Cromwell in a blog post on its website.

The issue is far from resolved, however. The decision “is a disappointing setback, but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts,” NLRB Chairman Lauren McFerran says in the Board’s release. “The Agency is reviewing the decision and actively considering next steps in this case.”

The ruling “continues to be the subject of various legal actions both in support and in opposition to the rule,” the DLA Piper attorneys say. “These include a Congressional Review Act action and a petition to review the rule in the U.S. Circuit Court of Appeals for the D.C. Circuit brought by the SEIU Labor Union,” they note.

“The ruling has been a source of anxiety for employers who rely heavily on third-party service providers and outsourced labor,” Piesco, Batten, and Daneshvar continue. “While those employers are unaffected for now, the ultimate fate of the proposed regulation is still yet to be determined,” they caution.

Take care: “Employers are encouraged to exercise caution and continue to remain vigilant with respect to the manner in which they negotiate, contract for, and ‘manage’ outsourced labor functions,” Piesco, Batten, and Daneshvar advise.