American judge blocks rule that expands the scope of labor law to franchisors

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

Labor Council Chair Lauren McFerran, named by President Biden, said in a statement that the ruling was “a disappointing setback” but “not the final word” on the joint employer standard. If the board appeals the ruling, the case would be transferred to the conservative U.S. Court of Appeals for the Fifth Circuit. The Labor Department pushed for the case to be moved to Washington, but Judge Barker denied that request.

The controversial rule, which was issued in October by the Labor Board’s Democratic majority, would classify a parent company as a joint employer if it has control — directly or indirectly — over even one benefit. The current standard, adopted in 2020 when the board was led by Republicans, classifies a company as a joint employer only if it exercises direct control over employees.

For example, nurses hired by a staffing agency may work at a hospital that sets their schedules but does not directly set their salaries. If these nurses try to unionize, they can argue that the hospital is indirectly setting their wages based on how much it pays to contract their work. Under the October rule, the hospital would likely be considered a joint employer, but under the current standard it would be easier to argue that responsibility lies solely with the staffing agency that signs the nurses’ paychecks.

The new rule “would treat virtually any entity that enters into employment contracts as a joint employer because virtually every third-party employment contract contains terms that, at least indirectly, affect at least one of the specified ‘essential terms and conditions of employment.’ Judge Barker wrote in his decision.