On the heels of guidance regarding when the duty to bargain may be suspended or modified during the COVID-19 pandemic, the National Labor Relations Board (“NLRB” or “Board”) finalized rulemaking today that changes three aspects of the Board’s representation election procedures (“Final Rule”).

The Final Rule overhauls the handling of unfair labor practice charges commonly referred to as “blocking charges” when a petition for an election is pending, revamps the Board’s voluntary recognition bar doctrine, and changes the evidentiary requirements for barring elections in the construction industry when an employer has voluntarily recognized or entered into a collective bargaining agreement (“CBA”) with a union.  Originally proposed on August 12, 2019, the Final Rule is scheduled to be published on April 1, 2020, eight days after the Board announced it would be delaying implementation of broader changes to other representation case procedures.

An End to Voting Delay via Blocking Charges

The first, and potentially most impactful, amendment in the Final Rule modifies the Board’s current practices that permit a party to a representation proceeding to block an election, including a decertification, based on pending unfair labor practice (“ULP”) charges.  Such ULP charges, known as blocking charges, are typically filed before an election by a union that is seeking to represent a new bargaining unit of employees, or by an incumbent union facing a decertification vote.  Under the Board’s current procedures, the party filing blocking charges may ask that the election be deferred until after the Board resolves the charges.  Observers of the election process have often viewed blocking charges as a delay tactic by unions seeking to shore up waning support as election day approached, or as a means of avoiding or delaying employee attempts to remove a union through decertification, sometimes for years.

The Final Rule changes the Board’s procedure to allow the election to proceed despite pending ULP charges.  This change effectively ends the ability to block employees from voting in an election through the filing of ULP charges.  In the rule the Board initially proposed, ballots would have been impounded in all cases with pending ULP charges.  Under the Final Rule, election ballots will be either counted or impounded until after the charges are resolved, depending on the nature of the charges.

Ballots will be impounded only where the party filing ULP charges requests to block the election process and the charges filed:

  • Allege violations of Section 8(a)(1) and 8(a)(2) or Section 8(b)(1)(A) of the National Labor Relations Act (“Act”) and challenge the circumstances surrounding the petition or showing of interest; or
  • Allege violation of Section 8(a)(2) through employer domination of a union and that the employer seeks to disestablish the bargaining relationship.

For all other ULP charges, the ballots cast in an election will be opened and counted at the conclusion of the election.

In cases that trigger the impounding of ballots, the Regional Director will impound ballots for up to 60 days from the conclusion of the election if the ULP charge has not been withdrawn or dismissed prior to the conclusion of the election.  If a complaint issues within the 60-day period, the ballots will remain impounded until the charge is resolved.  If the ULP charge is withdrawn or dismissed within the 60-day period, or the 60-day period expires without issuance of a complaint, the ballots will be opened and counted.  Significantly, the serial filing of additional ULP charges will not serve to extend the 60-day period.

Under the Final Rule, regardless of the type of ULP charges involved, the Board will not issue a certification of the results until the charges are resolved.  The overall impact of the Board’s modification of its practices is that a blocking-charge request may only delay the vote count or certification of results, but will not delay the Board conducting a representation election.  The Final Rule is scheduled to be published on April 1, 2020, and will become effective 60 days after publication.

Voluntary Recognition Bar

The second amendment in the Board’s Final Rule reworks how the Board handles representation petitions after an employer has voluntarily recognized a union.  Under current Board practices, when an employer voluntarily recognizes a union under Section 9(a) of the Act, the union is insulated from any challenge to its majority status for “a reasonable period of time” to allow for collective bargaining.  The Board has defined a reasonable period of time as “no less than 6 months after the parties’ first bargaining session and no more than 1 year.” Lamons Gasket Co., 357 NLRB 739, 748 (2011).  When parties reach agreement on a CBA during this insulated period, the Board generally bars elections for up to 3 years of the new contract’s term under the contract bar doctrine, which can effectively serve to bar subsequent petitions for a total of up to 4 years.

Under the Final Rule, for voluntary recognition of a union to serve as a bar to a subsequent representation petition, unit employees must receive notice that voluntary recognition has been granted and be provided with a 45-day open period to file a decertification or for a rival union to file a petition to represent the unit.  The notice must be posted in conspicuous places where notices to employees are customarily posted, and must be distributed to employees electronically if the employer customarily communicates with employees through electronic means.

Correspondingly, agreement to a first contract with a voluntarily recognized union will not serve to bar petitions for up to 3 additional years if the notice and open-period requirements of the Final Rule have not been met.  The Final Rule applies prospectively to the voluntary recognition of a union on or after the effective date of the Final Rule.

Recognition of Unions in the Construction Industry

The last amendment in the Board’s final rule pertains to recognition of unions in the construction industry.  Under Section 8(f) of the Act, employers and unions in the construction industry may enter into pre-hire agreements without any vote by employees.  Such pre-hire agreements, however, do not serve as a bar to subsequent petitions for a Board election.

Nonetheless, under the Board’s current standards, employers and unions that have entered into such agreements may convert the 8(f) pre-hire relationship into a traditional collective bargaining relationship under Section 9(a) of the Act, and may do so absent a Board-conducted election or a demonstration of majority support.  Under a 2001 decision, Staunton Fuel & Material, 335 NLRB 717, the Board held that construction unions could establish Section 9(a) collective bargaining relationships by entering into a contract with language stating that: (1) the union requested recognition as a majority or Section 9(a) bargaining representative of employees; (2) the employer recognized the union as the majority or Section 9(a) representative; and (3) the recognition was based on the union showing, or offering to show, evidence of majority support.

The Final Rule provides that contract language alone cannot create a Section 9(a) bargaining relationship in the construction industry.  Instead, the Board will require positive evidence that proves a union demanded recognition from an employer and the employer granted recognition based on a demonstration of majority support.  The Final Rule’s amendment concerning the recognition of construction unions applies to voluntary recognition extended on or after the effective date of the Final Rule, and to any CBA entered into on or after the date of voluntary recognition extended on or after the effective date of the Final Rule.

The Board’s Continuation of its Rulemaking Agenda

Despite the indefinite postponement of all representation elections and the limitations imposed on the operations of NLRB Regional Offices due to the impact of COVID-19, the Board issued the Final Rule within the general timeframe expected for the rule, given the extension of deadlines for comments to the initial proposal for the rule.  Notably, in the Final Rule, the Board specifically references its broader changes to other representation case procedures that were scheduled to become final on April 16, 2020, but which are currently postponed until at least May 31, 2020 due to legal challenges filed by organized labor earlier this month.  In this Final Rule, the Board notes that those broader changes to representation election rules are still “scheduled to take effect in Spring 2020.”  For now at least, the Board appears positioned to continue its planned rulemaking changes despite the uncertain times.

On March 27, 2020, NLRB General Counsel John Ring issued General Counsel Memorandum 20-04, entitled “Case Summaries Pertaining to the Duty to Bargain in Emergency Situations” providing employers with guidance “regarding the rights and obligations of both employers and labor organizations, particularly in light of responsive measures taken to contain the virus,” including both “measures taken out of prudence” as well as and other actions that “have been required by state, local or federal authorities.” Our Act Now Advisory reports on the General Counsel’s review of summarized in the Memorandum are those touching on the duty to bargain during public emergency situations and those touching on the duty to bargain during emergency situations particular to an individual employer. Stay tuned to this blog and Epstein Becker Green’s Coronavirus Resource Center for updates.

In the chaos of a global health pandemic and what some economists are calling the Great Suppression, Americans have shown amazing solidarity in the battle against the coronavirus (“COVID-19”).  Nationwide, citizens are social distancing and staying home while businesses are closing their doors and redeploying their resources to meet emergent demands.  However, this collective American commitment has come at a steep economic cost.  Millions of Americans suddenly find themselves unemployed or unable to work while previously thriving businesses have been thrown into financial despair.  Unfortunately, rather than join in the collective effort, labor unions seized on the desperation to gain unprecedented advantages, suppress employer rights and deprive employees of their full freedom of choice – namely unions were able to obtain a single sentence in the CARES Act which mandates employers remain silent and commit to not oppose unionization of their employees in order to obtain the loans needs to maintain those jobs and save their businesses.

After Almost a Week of Wrangling, Congress Passed the CARES ACT Stimulus

Reeling from shelter-in-place, isolation orders and mandated closures, American businesses and citizens will soon receive some much needed relief.  After stalling in Congress for nearly a week, on Friday, March 27, President Trump signed into law the Coronavirus Aid Relief Economic Security Act (“CARES Act”), a historical stimulus package that will provide a broad range of critical financial assistance to American workers, families and businesses confronting the extraordinary challenges of the COVID-19 crisis.  (For a broader analysis of the CARES Act see here).

This bill is unprecedented in both its momentous scale and its overwhelming bipartisan support.  In a time when most acts of Congress seem to split directly down party lines, the CARES. Act passed unanimously in the Senate and nearly unanimously in the House of Representatives, and President Trump signed it into law the very same day.  This begs an important question, though.  Why, if the bill had such widespread support among Democrats and Republicans alike, did it take nearly a week to reach the President’s desk when every day delayed was another day where uncertainty wreaked havoc on economic markets and Americans went without critical relief?

The answer is disappointingly simple.  It was politics as usual as legislators vied for advantages for their top political contributors.  One of the political demands that held the bill up, and ultimately made its way into the signed law, was a Democratic-backed union neutrality mandate.  Tucked away in a single line in the middle of the multi-hundred page Act, this provision dramatically alters core rights of employers and employees under the National Labor Relations Act (“NLRA”) and could have seismic repercussions for businesses who have no choice but to submit to this condition in order to secure an economic lifeline during the coronavirus pandemic.

What is “Neutrality”?

Simply put, “neutrality” is a waiver of an employer’s statutorily protected free speech rights.  Under the NLRA both unions and employers enjoy federally protected free speech rights.  For employers, these rights, which are known as 8(c) rights, allow an employer to share facts, opinions and experiences about unions with its employees.  These rights are essential tools during union organizing drives, necessary to allow employers to combat misinformation and educate employees on the realities of unionization, particularly those unions often downplay or ignore such as the cost to employees on investment of union dues, the impact of strikes on employees and the workplace, the loss of a direct relationship with their employer and the reality that employees can, and often do, lose wages and benefits in union negotiations.

Hearing both perspectives allows employees to make informed and free choices on whether  or not they want to be represented by a union.  “Neutrality,” however, destroys this crucial balance of perspectives by requiring employers to remain impartial and silent on unions while unions remain free to give their one-sided point of view to employees.  It is of course not surprising, then, that the ultimate consequence of “neutrality” is that it is much easier for unions to organize employees.

The CARES Act Neutrality (Hush Money) Mandate 

Although the CARES Act provides multiple different kinds of loans and other financial assistance – including Paycheck Protection Program loans (for small businesses with up to 500 employees and nonprofit organizations), expanded Economic Injury Disaster Loans (for small businesses with up to 500 employees, sole proprietors, independent contractors,  and nonprofit organizations), Emergency Relief Loans (for air carriers, businesses critical to maintaining national security, and credit facilities established by the Federal Reserve) and various tax credits – probably the most fundamental part of the assistance package is the Act’s Mid-Sized Business loan program.  Under the CARES Act Mid-Sized Business loans, mid-size businesses (those with 500 to 10,000 employees) can obtain a loan with no greater than a two-percent annualized interest rate, and no interest or principal payments for six months, to enable them to retain at least 90 percent of the business’s workforce, at full compensation and benefits, until September 30, 2020.

One of the “compromise” amendments Democratic legislators were able to exact was labor unions’ demands that as a condition of any Mid-Sized Business loan, the borrowing employer must make a “good-faith certification” that they “will remain neutral in any union organizing effort for the term of the loan.”

In other words, if a mid-size business needs a loan in order to weather their temporary closure, shelter-in-place orders, new mandated paid leaves, or loss of revenue from other economic impacts of COVID-19, it must agree to waive its free speech rights and acquiesce to a targeted union misinformation campaign to unionize its employees.  Notably, while hopefully COVID-19 will be a short term crisis, this unprecedented disruption of the Labor-Management balance will silence employers for the duration of their loan term and, if the employees are misled into unionizing, the impact is usually permanent given the restrictions and difficulties the NLRA places on decertifications.

Moreover, it remains unclear who will determine when a violation occurs and what the consequences for violation will be.  Some may argue that a violation is an unfair labor practice that should be adjudicated by the National Labor Relations Board with all the attendant Board remedies.  However, given that Section 8(c) of the NLRA specifically protects employers’ right to not remain neutral, the Board would presumably be without jurisdiction to hear such claims absent further legislation.  That said, the other potential consequences outside Board processes could be even more impactful and range from mid-term calling of the remaining balance of the loan, detrimental modification of loan terms, financial penalties, and/or the loss of tax advantages.  Questions still remain as to who would decide an actual violation occurred and when such penalties are warranted and whether labor unions would have third party rights to enforce them.

While the CARES Act is silent on such matters, regulations illuminating the answers to these questions may be forthcoming.  The CARES Act gives the Secretary of the  Treasury the authority to promulgate regulations to enforce the provisions of the CARES Act, and these regulations could shed more light on the actual consequences for violating the neutrality mandate and who will adjudicate violations.  Notably, this authority is not limited in time and theoretically a different Secretary of the Treasury in a different Presidential Administration could amend or create new regulations which have significant consequences.

Unions Have Already Begun Efforts to Profit from Hush Money Neutrality – What Employers Should Expect

For businesses to whom these loans are a vital lifeline through the coronavirus pandemic, the union neutrality mandate in the CARES Act amounts to a compelled waiver of employers’ federally-protected free speech rights that will give unions a significant advantage in organizing drives.  Legislatively-mandated union neutrality inevitably leads to an uptick in union organizing drives, and since these loans will be a matter of public record, unions will have a literal roadmap on which employers to target.  Thus, employers who obtain these loans should be fully prepared to contend with union organizing campaigns.  In fact, the loans are not even available yet, some employers are reporting that unions are not waiting to exploit this political advantage and have already started inquiring about the employer’s intent to obtain  a CARES Act loan and raising the union neutrality mandate.

Clearly in these troubling times employers need to take necessary steps, including seeking CARES Act loans, to maintain their financial solvency and ensure their ability to maintain jobs and payroll for their employees, they should do so understanding that their silence is part of the cost.

The impact of the novel coronavirus has slammed employers across the globe, and federal agencies such as the National Labor Relations Board (“Board”) are no exception.  The Board announced Thursday the unprecedented step that it was suspending all representation elections, including mail ballot elections, for at least two (2) weeks until at least April 3rd.

Just days earlier, the Agency implemented a nationwide telework policy in both its headquarters and regional offices, encouraging employees of the agency to work from home.  While implementing the election freeze, the Agency highlighted that operations would be limited and open regional offices will maintain “minimal staff.”   In a press release, the Agency stated “given the closure of several regional offices and limited operations and significant telework at others, the Board does not believe that it is possible to effectively conduct elections at this time.”

Likewise, due to the potential  exposure of several agency personnel  to the COVID-19 virus, the NLRB has announced temporary closures of various regional offices including those in Cleveland, Chicago, Denver, Detroit, Manhattan, New Orleans and San Francisco as the agency managed potential Board Agent exposure to COVID-19.  The Agency noted the closures are evolving and stated that it would continue to update the public on its website.

What This Means for Employers and Advocates

While the NLRB and its regional offices continue to function, processing newly filed petitions and unfair labor practice charges, the agency is functioning at a reduced level.  Representation elections that had been scheduled to take place between now and April 3rd have been postponed, as have representation petitions and most other proceedings.  NLRB personnel do continue to investigate ULP charges and attempt to secure agreements for elections in pending representation cases, asking parties to agree that any agreed elections will take place in the future on dates to be determined by the agency’s Regional Directors once operations return to something closer to normal. It is inevitable however that pending cases will be delayed and that backlogs in case processing and resolution will continue to grow.  While the agency will continue to handle incoming cases, and Board employees will continue to work remotely, there will most certainly be a lag in case processing and hearing procedure as the Board navigates remote case-processing and strained adjudication and case-processing capabilities.

We will continue to provide updates as the Board’s guidance evolves.

As we have discussed in prior Advisories, the 2019 Novel Coronavirus (“Coronavirus” or “COVID-19”) public health emergency is raising important issues for employers addressing rapidly developing disruptions to the workplace and the lives of employees with mass school closures, workplace closings, the need to reduce staff and expenses, etc. Employers with  unionized workforces must take certain additional considerations into account when developing and implementing response plans to the current crisis.

Under the National Labor Relations Act (“NLRA” or “Act”), employers have a legal duty to bargain with labor unions representing their employees regarding the employees’ wages, hours and other conditions of employment.  In addition, many employers are party to collective bargaining agreements (“CBA”) with the unions that represent their employees that contain provisions directly relevant to the types of adjustments that may be necessary for businesses to respond to the unprecedented challenges this pandemic and its broad effect on society and commerce presents. Absent language in a CBA recognizing an employer’s right to act, either by adjusting schedules, reducing the numbers of employees working, modifying pay and/or benefits, employers generally may not make unilateral changes to these terms without first providing their employees’ union representatives with reasonable notice and an opportunity to bargain over the same.  The current public health emergency does not eliminate these legal obligations of employers, although it certainly affects what may be deemed reasonable notice and an opportunity to bargain given the ongoing emergency.

Accordingly, unionized employers planning their responses to Coronavirus should consider the following factors:

  • Have a Plan
    • Regardless of whether an employer’s employees are represented by a union, leading healthcare experts all agree that employers should have a preparedness and response plan (guidance on preparedness for employers is available from the CDC and WHO).
    • To assist, please feel free to review Epstein Becker & Green’s Coronavirus resource center and/or attend our free webinar on Friday.
  • Review CBA and Work Rules
    • Assess whether the current CBA includes language permitting, or prohibiting, the employer from take certain of the actions called for by response plan to protect the health and safety its workforce. For example:
      • Is there a “force majeure” or other public emergency clause that may apply;
      • What do the existing CBA and applicable employer policies provide regarding the prevention of ill or contagious employees coming to the workplace, or being sent home from the workplace;
      • What do the CBA or existing policies provide regarding the permissible or mandatory usage of, or restrictions on using, paid sick leave, paid time off, vacation, short term disability, and Family and Medical Leave in instances where employees are infected, caring for an infected family member or quarantined due to possible exposure to COVID-19;What restrictions are in place regarding the potential use of salaried supervisors and managers, outside contractors, and/or temporary workers for potentially filling temporary workforce vacancies created by the current public health emergency.
      • What restrictions, if any, does the CBA provide concerning reducing hours and/or days of employment, modifying pay and benefits, reducing staffing levels and other contingencies.
    • Identify elements of your proposed/draft Coronavirus Response Plan that may conflict with the terms of your CBA, and those that conflict with existing policies and/or practices that are in effect outside of the CBA.
    • Proposed changes in the CBA will require notice to the union and/or the union’s written consent to avoid a contract breach, even if for a temporary change, while changes in policies and practices outside of the CBA require notice and a reasonable opportunity (under the circumstances) to bargain over changes – either to agreement or impasse before implementation.
    • Contact union leadership regarding the immediate need implement a COVID-19 response plan, and management’s need and availability to meet as soon as possible to discuss and resolve the same. While there is no fixed period for what is reasonable notice, given the current public health emergency it may be reasonable to require the union to meet potentially the same day or at least by the following day, but the point is it need not be notice where the union is provided one or two weeks or more to respond or bargain.
  • Meeting with Union Leadership
    • Union leaders are under pressure from their members for answers regarding development of a Coronavirus Response Plan, and may welcome the opportunity to learn of the Company’s proposed plan, and to have input into the same. In this regard, one a Coronavirus Response Plan is finalized, the union leadership may prove to be a valuable additional resource in communicating the same to employees, and to identifying for management question and issues that employees raise that neither management nor the union anticipated.
    • Examples of appropriate topics to discuss with union leadership include:
      • Usage of paid sick leave, paid time off, and other forms of paid and unpaid leave in instances where workers are infected or quarantined;
      • Obligations for an employee to disclose if he or she has been infected with or exposed to COVID-19, or has recently traveled to a “high risk” country as designated by the CDC;
      • Criteria for an employee’s return to work; and
      • Possibility of shutdown by government, public health officials or management, which may involve the need to make a temporary layoff, possibly including a voluntary layoff or relaxing strict compliance with existing layoff procedures, or include invoking total and/or partial plant closure language in a CBA, etc.
    • As the Coronavirus crisis continues to develop, it will be important to keep union leadership informed of any needed changes to the Coronavirus Response Plan. This ongoing dialogue will serve to help provide the union leadership with timely notice of any particular issues affecting the workplace as they arise, and rapid completion of the employer’s obligation to bargain with the union over the same prior to implementing further changes in employees’ terms and conditions.
  • Monitor Legal and Regulatory Developments
    • Stay up to date on actions being taken by your federal, state and local governments, as well as regulatory updates from the CDC and OSHA, and timely share such notices that potentially affect your workforce with the union leadership.

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Employers in New York, the second-most unionized state in the country, have lost another key point of leverage in collective bargaining.  Effective February 6, 2020, Senate Bill 7310 reduces the amount of time striking workers in the private sector must wait before they are eligible to receive unemployment benefits.  While New York is one of only a handful of states to allow strikers to receive unemployment benefits,[1] the seven week waiting period that has applied until now, has served as a deterrent to strikes. The new, shorter waiting time has the potential to profoundly affect the calculus and reduce employers’ economic leverage in collective bargaining because earlier access to unemployment benefits will soften the blow that a strike has on an employee’s financial well-being and potentially increase the willingness of unions and employees to strike.

Access to Unemployment Benefits While Striking in New York

The Supreme Court has long held that the National Labor Relations Act does not preempt a state’s ability to determine whether unemployment benefits are available for employees engaged in a labor dispute.  As unemployment benefits are generally available only to those workers who are ready willing and able to work, employers might reasonably expect that workers who voluntarily withhold their labor in a strike would not be eligible for such benefits.  While most states appear to agree and do not permit employees who are on strike to collect unemployment insurance benefits, New York remains an outlier.

Historically, striking employees in New York had to wait seven weeks before they could file for unemployment benefits, unless there was a lockout or the employer hired replacement workers.  This waiting period meant that striking workers could not receive their first benefit check until the ninth week of the work stoppage.  The purpose of the delay in benefits was to prevent the state from inserting itself prematurely into a private-sector labor dispute and to “avoid the imputation that a strike may be financed through unemployment insurance benefits.”  Matter of Burger, 277 App. Div. 234 (1950).  This thoughtful counter-balance reduced the risk of frivolous strikes and work stoppages, while providing an eventual safety net for those rare instances where a labor dispute suffered a long impasse.

Reducing the Waiting Period

Under New York’s amended law, the amount of time that striking workers must wait before receiving unemployment benefits is reduced from seven weeks to two weeks.  This law modifies a previously adopted bill that would have required workers to wait just one week after the start of the strike to be eligible to receive unemployment benefits.   Had the legislature not amended the 2019 bill, for the purposes of unemployment benefits in New York, striking workers would have been treated similarly to those employees who became jobless involuntarily.

A New Calculus for New York Employers

A reduction in the waiting period for unemployment benefits potentially changes the dynamics in collective bargaining by reducing the incentive for unions and workers to avoid strikes and the economic hardship on those who strike and increasing the pressure on employers to concede to union demands to avoid strikes.  Over the last two years there has been a recent upsurge in major strike activity. With unemployment benefits now available sooner, unions may be more willing to initiate or prolong a strike to improve their bargaining position.  New York employers should be wary of how this shift in the costs of striking could affect future labor negotiations and update their existing strategies accordingly.

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[1] The list of states permitting striking workers to receive unemployment benefits is short.  In 2018, New Jersey passed a bill permitting striking workers to begin collecting unemployment benefits 30 days after the start of a strike.  Other states, such as GeorgiaNew Hampshire, Rhode Island, West Virginia, provide benefits if unemployment continues after the labor dispute ends, so long as the worker did not participate in the strike and are not a member of the union involved in the labor dispute.

The National Labor Relations Board has announced the issuance of its final rule governing joint-employer status. The new rule, which was first proposed in September 2018 and has been the subject of extensive public comment, will become effective April 27, 2020.

The critical elements for finding a joint-employer relationship under the new rule is the possession and the exercise of substantial direct and immediate control over the terms and conditions of employment of those employed by another employer.  The essence of the new rule is described in the Board’s February 25, 2020 press release:

To be a joint employer under the final rule, a business must possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees. The final rule defines key terms, including what are considered “essential terms and conditions of employment,” and what does, and what does not, constitute “direct and immediate control” as to each of these essential employment terms. The final rule also defines what constitutes “substantial” direct and immediate control and makes clear that control exercised on a sporadic, isolated, or de minimis basis is not “substantial.”

Evidence of indirect and/or contractually reserved control over essential employment terms may be a consideration for finding joint-employer status under the final rule, but it cannot give rise to such status without substantial direct and immediate control. Importantly, the final rule also makes clear that the routine elements of an arm’s-length contract cannot turn a contractor into a joint employer.

The new rule marks a return to a standard similar to that which the Board followed from 1984 until 2015.  In 2015, in Browning-Ferris Industries, the Board adopted a much more liberal test under which a finding that the putative joint employer possessed indirect influence and the ability (including through a reserved contractual right) to influence terms and conditions, regardless of whether the putative joint employer actually exercised such influence or control, could result in it being held to be a joint-employer of a second employer’s employee.

As a practical matter, the standard under the Board’s new rule should make it much more difficult to establish that a company is a joint-employer of a supplier, contractor, franchisee, or other company’s employees. The new rule will mean that a party claiming joint-employer status to exist will need to demonstrate with evidence that the putative joint-employer doesn’t just have a theoretical right to influence the other employer’s employees’ terms and conditions of employment, but that it has actually exercised that right in a substantial, direct and immediate manner.

This new rule is likely to make it much more difficult for unions to successfully claim that franchisors are joint-employers with their franchisees, and that companies are joint-employers of personnel employed by their contractors and contract suppliers of labor, such as leasing and temporary agencies.

As private sector unionization rates have continued to fall over recent decades, organized labor has increasingly turned to the state and local politicians it supports for assistance in the form of state legislation and local ordinances imposing burdens on employers and aid to unions, while depriving employees of the process and balance intended by the National Labor Relations Act (“NLRA”).  These often come in the form of “Labor Peace” requirements which mandate employers enter into agreements with unions that do not represent their employees as a condition of doing business with government entities or as a condition of entry into government controlled or regulated sectors.  The emerging legalization of marijuana and cannabis in California is one of the latest examples of this trend.

Why AB 1291 Will Make It Easier for Unions to Organize Cannabis Employees and How Cannabis Employers Can Prepare and Protect Themselves

California’s AB 1291, which goes into effect on January 1, 2020, mandates that all cannabis license applicants employing more than 20 employees must enter into a “labor peace agreement,” as defined by Business and Professions Code Section 26001(x), that prohibits a union from engaging in strikes, work stoppages and other economic interferences.  Employers without a qualifying labor peace agreement will not qualify for a cannabis license.  While on its face this ordinance purports to protect the cannabis industry from the disruption of labor disputes, in reality, it effectuates a compelled waiver of fundamental rights guaranteed under the NLRA and makes it much easier for unions to organize cannabis employees.

How AB 1291 Impacts NLRA-Protected Rights and Makes It Easier to Organize Employees

Waiver of Employer’s Property Rights.  Under the NLRA, unions generally enjoy no greater access to an employer’s property than any other member of the public, which allows cannabis employers to exclude union organizers from their property.  AB 1291, however, compels cannabis employers to waive their property rights by mandating that any cannabis employer that is party to a labor peace agreement, which typically will be with a union that is seeking to represent that employer’s workers, provide the union “access at reasonable times to areas in which the applicant’s employees work for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment.”  This means that union organizers must be permitted to enter the working areas of a cannabis employer’s private property and speak to employees about joining and being represented by the union.

“Neutrality.”  The NLRA, a federal law, protects employers’ free speech rights – their Section 8(c) rights – and allows employers to share their opinions, experiences and facts about unions with employees.  These are essential tools for employers facing union organizing drives as they allow employers to educate employees about the reality of union representation and respond to misinformation disseminated by the union.  More important, hearing both perspectives allows employees to make informed and free choices on whether they or not they want to be represented by a union.  Neutrality provisions in labor peace agreements contractually waive employers’ ability to deploy these dynamic tools and typically require employers to remain impartial on all union matters.  While AB 1291 does not explicitly waive cannabis employers’ free speech rights, neutrality is one of the most common union demands in labor peace agreement negotiations, and employers can expect that unions will insist on neutrality as consideration for entering into a labor peace agreement.  Because a labor peace agreement with a union is required to do business, AB 1291 provides unions the necessary leverage to impose these type of provisions.

Card Check Not Required Notably, AB 1291 stops short of many other state and local “labor peace” mandates by expressly not permitting “card check” provisions which deprive employees of NLRB supervised secret-ballot elections.  Such card checks are typically imposed as a result of other “labor peace” statutes, but are expressly not permitted under the definition of labor peace agreement under Section 26001.  This is likely an attempt to avoid a finding that the statute is preempted by the NLRA as card checks have long been argued to be unlawful – a position the NLRB General Counsel seemingly recently adopted.

Why AB 1291 Is Likely Preempted by Federal Law

AB 1291’s impact on fundamental NLRA-guaranteed rights is precisely why a strong case for preemption exists.  Preemption renders a state or local law unconstitutional when it either (1) regulates activity protected or prohibited by the NLRA (known as Garmon preemption) or (2) regulates conduct that effectively disrupts the balance of power between employers and unions (known as Machinists preemption).  AB 1291 is likely unconstitutional under both preemption doctrines, even without requiring card check.

First, AB 1291 explicitly regulates economic weapons and property rights protected by the NLRA.  Second, AB 1291 implicitly regulates free speech rights guaranteed by Congress to employers in the NLRA, since unions invariably insist on a waiver of employer free speech rights as consideration for entering into a labor peace agreement.    Because the state conditions a cannabis license on a labor peace agreement, a cannabis employer is forced into a position of choosing between either losing their business or giving up its and its employees’ federal rights.  In this regard, the state indirectly regulates employer speech by essentially forcing employers to submit to neutrality in order to receive a cannabis license, and it indirectly regulates employees’ rights to choose by encouraging employers not to share opposing views with employees.

An exception to preemption is recognized where the state is acting as a market participant and its actions further a proprietary interest.  This exception does not apply here, though, because the state is not acting as a market participate seeking to procure goods and services for itself in enacting AB 1291.  Rather, AB 1291 targets private businesses seeking to deliver cannabis products to private citizens through a licensing scheme that regulates conduct exclusively regulated to the purview of the NLRA.  Similar licensing schemes have been declared preempted by the United States Supreme Court and federal district courts.  Building and Const. Trades Council of Metropolitan Dist. v. Associated Builders and Contractors of Massachusetts, 507 U.S. 218, 227 (1993); Aeroground, Inc. v. City and county of San Francisco, 170 F. Supp.2d. 950, 958 (2001).

What Cannabis Employers Can Do In Response to AB 1291

Not surprisingly, although there is a strong case against AB 1291, challenging the new law will likely be economically infeasible for most cannabis employers.  However, there are important steps employers can take both before and after the law takes effect to protect its interests.

Strategic Labor Relations Plan.  The best offense is a good defense, and for cannabis employers, a tactical labor relations strategy is the best defense to AB 1291.  Unions win elections because they promise to change the way employees are treated, not because they promise more money.  Often, a few small changes in an employer’s internal processes can make a dramatic difference in employee morale and contentment, and a strategic labor relations plan ensures employers have optimized their internal processes so that a union cannot promise employees a dramatic improvement in working conditions.

Educate Employees Now.  AB 1291 does not directly impose neutrality upon employers starting January 1, 2020; rather, neutrality will be the likely result of any mandated labor peace agreement ultimately agreed upon.  Accordingly, until cannabis employers finalize a labor peace agreement with a union, they should consider taking advantage of their 8(c) rights and appropriately educate their employees about unions and their impact on employees and the workplace.

Review of Workplace Policies.  Workplace policies are the key to retaining control over the workplace and minimizing disruption once a union organizing drive begins.   Cannabis employers should have their workplace policies reviewed by a labor relations specialist to ensure (1) they are lawfully compliant and (2) they afford the employer maximum control over the workplace and workforce.  It will become more difficult to change workplace policies once a labor peace agreement is in place and a union organizing drive beings, so prudent cannabis employers should aim to have their policy review completed before finalizing a labor peace agreement with a union.

Minimize Concessions in Negotiations for a Labor Peace Agreement.  Cannabis employers should use the labor peace agreement negotiations to minimize concessions to the union and obtain gains of their own.  For example, while AB 1291 requires that unions be granted reasonable access at reasonable times, a cannabis employer can negotiate provisions that specifically delineate when and where union organizers can access its property, which can significantly curtail the disruption such access can cause.  Additionally, employers can negotiate affirmative provisions into their agreement which are designed to actually enhance, advantage or protect their business in exchange for the neutrality or related provisions a union may demand.

The National Labor Relations Board, in its December 17th decision in Apogee Retail LLC d/b/a Unique Thrift Store, has reversed its prior rule and held that employer requirements that employees treat workplace investigations as confidential are “presumptively lawful.”  The Apogee decision overturns the Board’s 2015 Banner Estrella decision, which had required that an employer seeking to impose confidentiality in connection with a workplace investigation was required to prove, on a case by case basis, that the integrity of an investigation would be compromised without confidentiality.

The Board concluded that the framework set forth in Banner Estrella improperly placed the burden of proving that confidentiality was necessary on the employer and was inconsistent with the Board’s test developed in The Boeing Company for determining whether a facially neutral rule unlawfully interfered with employees’ rights under Section 7 of the National Labor Relations Act.  In its press release, the Board explained:

The Board concluded that the framework set forth in Banner Estrella improperly placed the burden on the employer to determine whether its interests in preserving the integrity of an investigation outweighed employee Section 7 rights, contrary to both Supreme Court and Board precedent. The Board also noted that the new standard better aligned with other federal guidance, including EEOC enforcement guidance.

In today’s decision, the Board applied the test for facially neutral workplace rules established in The Boeing Company, 365 NLRB No. 154 (2017), and determined that investigative confidentiality rules limited to the duration of the investigation are generally lawful. Because the rules at issue in this case did not limit confidentiality to the duration of the investigation, the majority remanded this case for further consideration.

What Employers Should Do Now

The Apogee decision makes clear that the Board will find a rule requiring employees to respect the confidentiality of ongoing investigations of harassment, discrimination and other workplace issues while such investigations are underway.

However the Board noted that another question that arose under Apogee that requires further consideration is what level of confidentiality is presumptively appropriate once the investigation in question is concluded.

Many employers and other organizations have, since Banner Estrella was decided more than four years ago, to reconcile their obligations under Title VII and other laws against harassment and other forms of discrimination, to treat investigations with an appropriate degree of confidentiality to help protect the rights of employees and witnesses who report misconduct and participate in investigations while not unlawfully interfering with employees’ rights under the National Labor Relations Act.

With the Apogee decision employers should consider reviewing and as appropriate revising their investigation procedures, including those with respect to confidentiality, to reflect the Board’s new guidance.