AGC of America and its co-plaintiffs challenging the National Labor Relations Board’s (“NLRB” or “Board”) joint-employer rule in U.S. District Court in the Eastern District of Texas were handed a big win on March 8. The judge in Chamber of Commerce v. NLRB vacated the rule – which was finalized in 2023 and scheduled to take effect March 11 – in its entirety. The judge also vacated the Board’s recission of a rule issued by the previous Board in 2020.
The vacated rule would have made it easier for one company to be deemed the joint-employer of another company’s employees under the National Labor Relations Act. It would have allowed a finding of joint-employer status when the putative joint employer exercised control over the other “essential terms and conditions of employment” over the other company’s employees even if it did so only indirectly or if merely reserved the right to control but never exercised any control.
Such a finding is significant and has considerable implications in construction contracting. If a general contractor is deemed to be the joint employer of a subcontractor’s employees, it could be: forced to respond to the union-organizing campaigns of the subcontractor’s employees; pulled into disputes between the subcontractor and a union without protections from secondary boycotts (like reserved gates) normally accorded to neutral third parties; and held jointly responsible for unfair labor practices conducted by the subcontractor. Joint-employer status can also arise in the context of other business relationships, such as when construction companies use staffing firms to supply workers.
The court agreed with AGC and co-plaintiffs’ claim that the 2023 rule was arbitrary and capricious. The judge assessed the nuances and impact of the rule, finding that the 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.’” This led the court to concluded that the rule’s reach “exceeds the bounds of the common law and is thus contrary to law.”
In illustrating the point, the judge specifically referenced construction contractor-subcontractor relationships and a 1951 Supreme Court decision relied upon by AGC in the case and regulatory comments in which the Court held that “the fact that the contractor and subcontractor were engaged on the same construction project, and that the contractor had some supervision over the subcontractor’s work, did not eliminate the status of each as an independent contractor or make the employees of one the employees of the other.”
A copy of the judge’s opinion and order is here, and a copy of the final order is here.
AGC expects the NLRB to appeal the decision. Meanwhile, the more reasonable 2020 rule remains in effect. Under that rule, a company may be deemed a joint employer only if it actually exercises substantial direct and immediate control over essential terms and conditions of employment of the other company’s employees.
AGC’s involvement in the case was made possible through funding from the Construction Advocacy Fund.
For more info, contact Denise Gold, Corporate & Labor Senior Counsel, at denise.gold@agc.org or (703) 837-5326.