On Friday evening, a Texas federal judge blocked a proposed National Labor Relations Board rule that would have made it much easier for employees to unionize when he determined that enforcing the Board's proposed joint employer rule "would be contrary to the law" and "arbitrary and capricious."
I'll give you a little refresher on the Board's proposal. Then, we'll examine where it fell apart.
What does the final rule say?
Back in October, the Board published a final rule which established that it would consider two or more entities to be joint employers of a group of employees if each entity has an employment relationship with the employees and if the entities share or codetermine one or more of the employees' essential terms and conditions of employment. The mere authority to control essential terms and conditions of employment, even if never exercised or just indirectly, would be enough to establish a joint-employer relationship.
This would tend to come up in franchise and temporary staffing settings.
Why is the final rule contrary to the law?
The Board intended a two-step process: first, an entity must "qualify as a common-law employer of the disputed employees," and second, "only if the entity is a common-law employer, then it must also have control over one or more essential terms and conditions of employment."
The problem with that analysis, the court reasoned, is that "the second test is always met if the first test is met, so the Rule's joint-employer inquiry has just one step for all practical purposes."
At oral argument, the Board could not provide the court with an example of when the two-step test needed the second step.
Additionally, the court concluded that the rule was poorly drafted because the mere authority to control terms and conditions of employment (even if never exercised) or exercising the power to control indirectly would establish a joint-employer relationship "without any need to additionally demonstrate an employment relationship under the common law of agency."
Allowing the Board proposal to stand 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."
Why is the final rule "arbitrary and capricious"?
The court reasoned that it "fail[ed] to achieve the purpose that justified the rulemaking—establishing 'a definite, readily available standard' that will 'assist employers and labor organizations in complying with the Act' and 'reduce uncertainty and litigation over the basic parameters of joint-employer status.'"
In other words, the Board's proposed rule was clear as mud.
The Board has yet to decide whether it will appeal.
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