Last week, the National Labor Relations Board withdrew its appeal of a federal court decision that blocked its 2023 rule that significantly expanded the definition of joint employment under federal labor law. If a party is deemed a joint employer, it can be held legally liable for compliance with labor requirements along with the workers’ actual W-2 employer. Prior to 2023, in order to be considered a joint employer, an entity had to have control over the terms and conditions of employment, and actually seek to exercise such control.

The 2023 rule defined a joint employer as any entity that has at least indirect control over such terms and conditions, even if it never attempts to exercise such control. This change had a significant impact on franchisors because their franchise agreements could be interpreted to allow them to set certain standards for employee performance even if they never try to invoke such provisions.

The federal court vacated the rule as beyond the scope of the underlying statute. In withdrawing its appeal of this decision, the NLRB stated its intention to reconsider the rule based on the legal issues raised during the litigation. This process could result in the reissuance of the 2023 rule, modification of its terms, or even abandonment of the entire exercise. For now at least, franchisors and other affected parties can revert to the narrower definition of joint employment in place prior to the latest regulatory effort.

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