U.S. Judge Blocks Rule Extending Reach of Labor Law to Franchisers

The U.S. Chamber of Commerce, which led a group of business groups challenging the rule, applauded the ruling. “It will prevent businesses from facing new liabilities related to workplaces they don’t control, and workers they don’t actually employ,” Suzanne P. Clark, chief executive of the chamber, said in a statement.

The labor board’s chair, Lauren McFerran, who was named by President Biden, said in a statement that the ruling was “a disappointing setback,” but “not the last word” on the joint-employer standard. If the board appeals the ruling, the case would move to the conservative U.S. Court of Appeals for the Fifth Circuit. The labor agency pushed for the case to be moved to Washington, but Judge Barker denied that request.

The rule in dispute, issued in October by the labor board’s Democratic majority, would classify a parent company as a joint employer if it has control — direct or indirect — over even one condition of employment. The current standard, adopted in 2020 when the board was led by Republicans, classifies a company as a joint employer only if it exerts direct control over workers.

Nurses hired by a staffing agency, for example, may work at a hospital that determines their schedules but does not directly establish their pay. If those nurses seek to unionize, they may argue that the hospital indirectly determines their pay based on how much it pays to contract their work. Under the rule issued in October, the hospital would probably be considered a joint employer, but under the current standard, it would have an easier time arguing that the onus falls only on the staffing agency that signs the nurses’ paychecks.

The new 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,’” Judge Barker wrote in his decision.