Last week, a federal district court judge in Texas struck down the National Labor Relations Board’s joint employer rule. That rule significantly expands the definition of joint employers, making a company subject to NLRB jurisdiction if it has indirect control over such workers, even where such control is never exercised. The rule would have a significant impact on franchisors that often set guidelines for franchisees that influence the ways they structure their human resource policies.

The court concluded that the rule was arbitrary because it ignores the common law definition of employer, designating an entity as a joint employer even where it fails to demonstrate control over terms and conditions of employment. If upheld, this ruling would reimpose the joint employer definition put in place during the Trump administration, which created a much higher bar for a third-party entity to be considered subject to NLRB jurisdiction.

The NLRB will undoubtedly appeal this decision to the Fifth Circuit Court of Appeals, and that decision in turn could be appealed to the U.S. Supreme Court for a final determination. For the time being, franchisors and other entities potentially considered joint employers under the new rule will have a reprieve pending the appellate process.

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