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Judge blocks ‘arbitrary and capricious’ labor board rule on contract and franchise workers

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A federal judge in Texas has blocked a new rule by the National Labor Relations Board that would have made it easier for millions of workers to form unions at big companies.

The rule, which was due to go into effect Monday, would have set new standards for determining when two companies should be considered “joint employers” in labor negotiations.

Under the current NLRB rule, which was passed by a Republican-dominated board in 2020, a company like McDonald’s isn’t considered a joint employer of most of its workers since they are directly employed by franchisees.

The new rule would have expanded that definition to say companies may be considered joint employers if they have the ability to control — directly or indirectly — at least one condition of employment. Conditions include wages and benefits, hours and scheduling, the assignment of duties, work rules and hiring.

The NLRB argued a change is necessary because the current rule makes it too easy for companies to avoid their legal responsibility to bargain with workers.

The U.S. Chamber of Commerce and other business groups — including the American Hotel and Lodging Association, the International Franchise Association and the National Retail Federation — sued the NLRB in federal court in the Eastern District of Texas in November to block the rule. They argued that the new rule would upend years of precedent and could make companies liable for workers they don’t employ at workplaces they don’t own.

In his decision Friday granting the plaintiffs’ motion for a summary judgement, U.S. District Court Judge J. Campbell Barker concluded that the NLRB’s new rule would be “contrary to law” and that it was “arbitrary and capricious” in regard to how it would change the existing rule.

Barker found that by establishing an array of new conditions to be used to determine whether a company meets the standard of a joint employer, the NRLB’s new rule exceeds “the bounds of the common law.”

The NRLB is reviewing the court’s decision and considering its next steps in the case, the agency said in a statement Saturday.

“The District Court’s decision to vacate the Board’s rule is a disappointing setback, but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts,” said Lauren McFerran, the NLRB’s chairman.

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