NLRB’s Joint Employer Rule Triggers ‘Mess’ Over Court Review

A pair of dueling challenges to the National Labor Relations Board’s rule on joint employment has teed up a complex debate over jurisdiction that the US Supreme Court may need to resolve.

A coalition of business groups led by the US Chamber of Commerce filed a lawsuit against the NLRB’s new rule in a Texas district court. But the Service Employees International Union, which is broadly supportive of the regulation, filed a petition for review in the US Circuit Court of Appeals for the District of Columbia Circuit.

“It’s likely to be a godawful, complicated mess,” Richard Pierce, an administrative law scholar at George Washington University, said about courts working through the jurisdictional ambiguity. “But it’s a mess that the Supreme Court has an interest in resolving really quickly.”

Debating which level of federal court, district or circuit, has the first crack at reviewing the NLRB’s rule could slow down resolution of the industry coalition’s challenge. The joint employer regulation is set to take effect Dec. 26.

If the D.C. Circuit is deemed to be the lone reviewing court, the NLRB would benefit from favorable circuit precedent, as that court largely upheld a joint employer standard that’s similar to the test in its new rule.

The Democratic majority on the NLRB expanded the criteria that can require a finding that two companies jointly employ the same contract or franchise workers beyond direct control exercised on job terms. The new rule also looks at indirect and reserved, unexercised control.

Although joint employment is rarely litigated at the NLRB, it’s been one of the most bitterly contested issues in labor law over the past decade. Companies don’t want to qualify as a joint employer because that forces them to share liability for unfair labor practices as well as union bargaining obligations for workers directly employed by other firms.

Where to Begin?

The proper venue for direct review of NLRB regulations was in dispute during the Trump administration, when the AFL-CIO challenged a set of employer-friendly amendments to the agency’s union election procedures.

Circuit courts, which hear appeals of board orders in unfair labor practice cases, should review the agency’s rules, the NLRB argued.

The board primarily sets labor law standards through individual case adjudication, but the joint employer standard is one of the few instances when it was done through regulations.

The NLRB’s argument turned on what’s meant by “orders” in the National Labor Relations Act’s judicial review provision, asserting that it includes regulations.

The D.C. Circuit disagreed with the board in a January ruling, finding that the election regulation was rightfully heard by a district court in the first instance.

But that holding was necessary, the court said, because the judicial review provision calls for circuit courts to hear challenges to orders in unfair labor practice cases—not based on whether rules count as orders.

The provision’s explicit focus on unfair labor practice orders means the election rule was excluded from direct circuit court review, as it dealt exclusively with union representation matters, the court said.

The Chamber and a coalition of about a dozen other business advocacy groups chose the Eastern District of Texas for its lawsuit against the joint employer rule. The groups filed the complaint in the district’s Tyler division, which is manned by a pair of Trump-appointed judges.

The Chamber didn’t respond to requests for comment about the proper level of federal court for challenging NLRB rules.

The SEIU, meanwhile, selected the D.C. Circuit for its petition for review. The union supports the rule, but wants the agency to expand the essential job terms that a company could control to be classified as a joint employer, an SEIU official said.

The union said the D.C. Circuit’s opinion in the election rule case stands as “very strong guidance” that rules involving unfair labor practice issues—including the joint employer rule—belong in circuit court on direct review, the SEIU official said.

The NLRB declined to comment.

Parallel Litigation Possible

Both the Texas district court and the D.C. Circuit will likely have to address the jurisdictional conflict that’s emerged in the case, especially if the NLRB tries to dismiss the industry groups’ lawsuit for being filed in the wrong court.

If the Fifth Circuit gets the Texas case on appeal and holds that direct review begins at the circuit level, then the business organizations could be stuck with the D.C. Circuit as the venue for their challenge.

Petitions for review filed in multiple circuits are assigned to one court through a lottery process, which Congress enacted to end lawyers racing to courts to be the first to file. The Sixth Circuit “won” the lottery to review the Biden administration’s Covid vaccine rule for private employers in 2021, although the Supreme Court ended up killing the rule via emergency review.

The window for filing for the lottery is just 10 days from the issuance of the rule. The NLRB announced its joint employer rule on Oct. 26 and published it in the Federal Register a day later.

With the deadline apparently passed, the D.C. Circuit would hear any other petitions filed, said Sean Marotta, an appellate attorney at Hogan Lovells and expert on the multi-circuit lottery.

The SEIU has a reasonable argument about direct review in circuit court, but faces an “uphill battle” to win on that issue, said Jeffrey Lubbers, an administrative law professor at American University.

The D.C. Circuit has equated regulations with orders in the past, but that doesn’t seem like an interpretation that the Supreme Court would endorse for NLRB rules because it’s not based on the text of the law, he said.

But the litigation will probably proceed in both courts without quick, final resolution of the jurisdictional issue, said Anne Marie Lofaso, a former appellate lawyer at the NLRB who teaches labor law at West Virginia University.

One scenario would be the Fifth Circuit ruling that the industry lawsuit properly began in district court even as the separate case moves forward in the D.C. Circuit.

“There’s a good likelihood that the cases will go in parallel, because why should either court obey the other court,” Lofaso said.