Judge blocks US labor board rule on contract and franchise workers

By Daniel Wiessner

(Reuters) -A federal judge in Texas on Friday struck down a U.S. National Labor Relations Board (NLRB) rule that would treat many companies as employers of certain contract and franchise workers and require them to bargain with unions representing them.

U.S. District Judge J. Campbell Barker in Tyler agreed with the challengers to the “joint employers” rule, including the U.S. Chamber of Commerce, that it is too broad and violates federal labor law. The rule, issued in October, had been set to take effect on Monday.

Barker said the rule is invalid because it would treat some companies as the employers of contract or franchise workers even when they lacked any meaningful control over their working conditions.

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 … essential terms and conditions of employment,” the judge wrote.

“The District Court’s decision to vacate the Board’s rule 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 Chair Lauren McFerran said in a statement.

McFerran added the NLRB was “actively considering next steps” in the case.

The Chamber of Commerce did not respond to a request for comment.

The NLRB is expected to appeal Barker’s decision to the New Orleans-based 5th U.S. Circuit Court of Appeals.

Industries such as manufacturing and construction rely heavily on staffing agencies and contractors to provide workers, and franchisers such as McDonald’s (NYSE:), Burger King, and Dunkin’ Donuts that are not typically involved in franchisees’ day-to-day workplace issues.

The rule would treat companies as “joint employers” of contract and franchise workers when they have control over key working conditions such as pay, scheduling, discipline and supervision, even if that control is indirect or not exercised.

The NLRB and many unions have said the rule is needed to ensure that companies come to the bargaining table and can be held liable for labor law violations when they have control over the working conditions of these contract or franchise workers.

But business groups and many Republicans have said it would create confusion over when businesses are considered workers’ employers, disrupting franchising and routine contracting arrangements.

Joint employment has been one of the most contentious labor issues for many U.S. businesses since 2015, when the NLRB during Barack Obama’s presidency adopted a standard similar to the new one that trade groups said was unworkable and would upend the franchising industry.

The rule issued by President Joe Biden’s administration would repeal one put in place during Donald Trump’s presidency.

The U.S. Court of Appeals for the District of Columbia Circuit in 2018 sided with a sanitation company challenging the Obama-era standard, finding that the NLRB had not adequately explained what kind of indirect control could lead to a finding of joint employment. In 2020, the board adopted a rule favored by business groups requiring companies to have “direct and immediate” control over workers in order to be considered joint employers.