UPDATE: The National Labor Relations Board has extended the effective date of the new joint-employer rule to February 26, 2024.

On November 9, 2023, the United States Chamber of Commerce (“Chamber”) and a coalition of business groups filed suit in the Eastern District Court of Texas against the National Labor Relations Board (“NLRB”), alleging the Board’s newly-issued joint-employer rule is unlawful, and should be struck by the courts because it is arbitrary and capricious.  Chamber shortly thereafter filed for summary judgment on November 13, 2023.

As we previously reported, the NLRB recently established a new standard for determining whether two employers are joint employers of particular employees within the meaning of the National Labor Relations Act (“Act”).  The most significant aspect of the new rule is that an entity may be found to be a joint employer controlling the essential terms and conditions of employment whether or not such control is ever exercised (“reserve control”) and without regard to whether any such exercise of control is direct or indirect (“indirect control”). The new rule is set to go into effect on December 26, 2023 and will be applied prospectively to cases filed after that effective date.

The complaint seeks relief under the Administrative Procedure Act by requesting that the Court find the rule unlawful and set it aside.

The Chamber’s Main Arguments Against the Joint-Employer Rule 

In support of its position, the Chamber makes the following arguments:

  • The rule’s requirement that an employer be classified as a joint employer whenever it has the authority to control a single “essential” term of employment, regardless of whether the entity exercises such authority, is not permissible under existing common-law precedent from which the NLRB claims the rule is derived. 
  • The rule obscures the distinction between employees and independent contractors, noting that by enforcing employer status when indirect control exists, the rule requires the NLRB to take into consideration terms and conditions that would traditionally be indicia of an independent contractor relationship—not joint-employer status. 
  • The rule ignores the structure and purpose of the Act by finding an entity is a joint employer when it exercises control—direct or indirect—over a single term of employment.  By sharp contrast, Chamber argues, the NLRA requires an employer to possess control over several essential terms and conditions in order for meaningful bargaining to be possible between an employer and a prospective union.

The Chamber Cites A Number Of Negative Implications Of The Rule

The Chamber also provided a list of negative effects it anticipates the rule will have on myriad industries, such as restaurants, construction, retail, hospitality, healthcare, among others.  The Chamber specifically noted the negative impact the rule will have on the franchise business model, noting that under the new rule, many franchisors may be considered joint-employers despite the fact a franchisor may not exercise day-to-day management over the business operations of their franchisees.  Finally, the Chamber asserts that the new rule will create obstacles to meaningful bargaining, as companies unfamiliar with the bargaining parties will be forced to bargain.  The Chamber argues the anticipated disruptive impact of the rule further demonstrates the arbitrary and capricious nature of the rule.

This is not the Chamber’s first legal challenge to overreaching administrative rules.  The Chamber has successfully mounted legal challenges to the exercise of authority by a number of administrative agencies, including the Securities and Exchange Commission and the Federal Trade Commission.  If the District Court rules in favor of the Chamber, it is anticipated that the Board will likely appeal the ruling to the Fifth Circuit. 

Further complicating this filing is a November 6, 2023, petition, filed by the Service Employees International Union, requesting the District of Columbia Court of Appeals to review the Board’s joint-employer rule.  The two actions may be consolidated into a single proceeding within one of the two Circuits, chosen randomly by the United States Judicial Panel on Multidistrict Litigation.

Stay tuned as we continue monitor legal challenges made against the Board’s recent rules and precedent.

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Photo of Joshua Fox Joshua Fox

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several…

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several Major League Baseball Clubs in all aspects of the salary arbitration process, including the Miami Marlins, Boston Red Sox, Los Angeles Dodgers, Kansas City Royals, San Francisco Giants, Tampa Bay Rays and Toronto Blue Jays. In particular, Josh successfully represented the Miami Marlins in their case against All-Star Catcher J.T. Realmuto, which was a significant club victory in salary arbitration. Josh also represents Major League Baseball and its clubs in ongoing litigation brought by current and former minor league players who allege minimum wage and overtime violations. Josh participated on the team that successfully defended Major League Baseball in a wage-and-hour lawsuit brought by a former volunteer for the 2013 All-Star FanFest, who alleged minimum wage violations under federal and state law. The lawsuit was dismissed by the federal district court, and was affirmed by the U.S. Court of Appeals for the Second Circuit.

Josh also has extensive experience representing professional sports leagues and teams in grievance arbitration proceedings, including playing a vital role in all aspects of the grievance challenging the suspension for use of performance-enhancing drugs of then-New York Yankees third baseman Alex Rodriguez. Josh also has counseled NHL Clubs and served on the trial teams for grievances alleging violations of the collective bargaining agreement, including cases involving use of performance-enhancing substances, domestic violence issues, and supplementary discipline for on-ice conduct. He has played a key role in representing professional sports leagues in all aspects of their collective bargaining negotiations with players and officials, including the Major League Baseball, National Hockey League, the National Football League, Major League Soccer, the Professional Referee Organization, and the National Basketball Association,.

In addition, Josh has extensive experience representing clients in the performing arts industry, including the New York City Ballet, New York City Opera, Big Apple Circus, among many others, in collective bargaining negotiations with performers and musicians, the administration of their collective bargaining agreements, and in grievance arbitrations.

Josh also represents a diverse range of clients, including real estate developers and contractors, pipe line contractors, hospitals, hotels, manufacturers and public employers, in collective bargaining, counseling on general employment matters and proceedings before the National Labor Relations Board, New York State Public Employment Relations Board and arbitrators.

Josh has also recently served as an adjunct professor at Cornell University’s School of Industrial Labor Relations for the past two years, teaching a course regarding Major League Baseball salary arbitration.

Prior to joining Proskauer, Josh worked for a year and a half at the National Hockey League, where he was involved in all labor and employment matters, including preparations for collective bargaining, grievance arbitration, contract drafting and reviewing and employment counseling. Josh also interned in the labor relations department of Major League Baseball and at Region 2 of the National Labor Relations Board. He was a member of the Brooklyn Law Review and the Appellate Moot Court Honor Society and served as president of the Brooklyn Entertainment and Sports Law Society.

Photo of Raymond Arroyo Raymond Arroyo

Raymond Arroyo is an associate in the Labor Department and a member of the Employment Litigation & Arbitration Group.

During his time at Proskauer, Raymond has focused on a wide range of employment matters, including employment discrimination litigation, labor/management relations, and policies, handbooks…

Raymond Arroyo is an associate in the Labor Department and a member of the Employment Litigation & Arbitration Group.

During his time at Proskauer, Raymond has focused on a wide range of employment matters, including employment discrimination litigation, labor/management relations, and policies, handbooks and training, among others. Raymond has gained experience across a wide variety of industries including financial services, educational institutions, and sports.

Raymond earned his J.D. from Columbia Law School. While at Columbia, Raymond worked at the Center for Public Research and Leadership as a graduate assistant, providing consulting and strategic advice to educational institutions and organizations.  Raymond was also a staff editor for the Columbia Journal of Race and Law.

Prior to his legal career, Raymond was a Teach for America corps member and taught middle school in New York City.