The GigReporter

The regulatory tug-of-war between presidential administrations over federal joint employment rules at the National Labor Relations Board (“NLRB”) has come to an end for the moment. However, there is both pending litigation before the D.C. Circuit Court of Appeals and a pair of proposed bills before Congress that could upend the situation.

At issue is a 2020 NLRB rule instituting new rules for defining joint employment, which notably required that only control actually exercised by a business could be used to determine if it was a joint employer, excluding consideration of any right to control which may exist but is reserved or otherwise not exercised.[1] This rule was purportedly reversed in 2023, but now has been reinstated to its 2020 form, after the reversal was subject to litigation.

However, the 2020 rule itself is also being challenged in court, with the D.C. Circuit Court of Appeals hearing Service Employees International Union v. National Labor Relations Board, Case No. 25-1119. The petitioner is alleging that the 2020 rule’s actual-exercise requirement is inconsistent with the text of the National Labor Relations Act (statutory language will control in any conflict with a regulation) and also that the NLRB’s implementation of the rule was arbitrary and capricious because it ignored comments about the actual-exercise requirement and the exclusion of health and safety matters from consideration in the joint employment determination test.

Meanwhile, Congress is also considering legislation that could render these regulatory and judicial struggles irrelevant. Bill H.R. 4366, the “Save Local Business Act”, would amend the National Labor Relations Act and Fair Labor Standards Act to have an actual-exercise standard for the purposes of federal union and wage-and-hour laws, and has been passed by the Education and Workforce Committee and referred to the full House of Representatives.[2]  Also, Bill H.R. 5267, the “American Franchise Act”, which would add an actual-exercise requirement to the NLRA specifically applicable to franchisors, has been introduced.[3]

Regardless of how these debates over actual-exercise standards conclude, SCI would recommend to its clients that they don’t get comfortable with having substantial reserved or otherwise unexercised control over any individuals they do not wish to create an employment relationship with. Many state common law and statutory worker classification tests will still take such reserved control into account, so it should still be avoided if possible.

[1] A reserved right of control indicates an employment relationship in the traditional common law test and many state statutory schemes.

[2] See https://www.congress.gov/bill/119th-congress/house-bill/4366/.

[3] See https://www.congress.gov/bill/119th-congress/house-bill/5267.