On April 29, 2019, the U.S. Department of Labor (“DOL”) issued an opinion letter concluding that workers providing services to customers referred to them through an unidentified virtual marketplace are properly classified as independent contractors under the Fair Labor Standards Act (“FLSA”).

Although the opinion letter is not “binding” authority, the DOL’s guidance should provide support to gig economy businesses defending against claims of independent contractor misclassification under the FLSA. The opinion letter may also be of value to businesses facing other kinds of claims from gig economy workers that are predicated on employee status, such as organizing for collective bargaining purposes.

Overview

An unidentified “virtual marketplace company” – defined by the DOL to include an “online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services” – requested an opinion on whether service providers who utilize the company’s platform to connect with customers are employees or independent contractors under the FLSA.

To answer this question, the DOL analyzed whether, and to what extent, the service providers are “economically dependent” upon the company. Applying what is commonly referred to as the “economic realities test,” the DOL considered the following six factors:

  1. the nature and degree of the putative employer’s control;
  2. the permanency of the relationship;
  3. the level of the worker’s investment in facilities, equipment, or helpers;
  4. the amount of skill, initiative, judgment, or foresight needed;
  5. the worker’s opportunity for profit and loss; and
  6. the extent to which the worker’s services are integrated into the putative employer’s business.

The DOL noted that because status determinations depend upon the “circumstances of the whole activity,” it could not “simply count[] factors” when evaluating the service providers’ independent contractor status. Instead, it needed to weigh the relevant factors to determine whether the service providers are in business for themselves, or economically dependent on the company.

The DOL’s Analysis

The DOL began its analysis by explaining that because the service providers work for customers – and not the virtual marketplace, or the company that maintains it – it was “inherently difficult to conceptualize the service providers’ ‘working relationship’” with the company. The DOL then applied the factors listed above, finding that each weighed in favor of independent contractor status.

  • Control. The DOL determined that the “control” factor weighed heavily in favor of independent contractor status. In reaching this conclusion, the DOL noted that the service providers – who have the right to accept, reject, or ignore any opportunity offered to them through the platform – control “if, when, where, how, and for whom they will work,” and are not required to complete a minimum number of jobs in order to maintain access to the platform. The DOL also pointed to the service providers’ freedom to work for competitors, and to simultaneously use competing platforms when looking for work. Finally, the DOL found that the service providers are subject to minimal, if any, supervision. Although customers have the ability to rate the service providers’ performance, the company does not inspect the service providers’ work or rate their performance, or otherwise monitor, supervise, or control the details of their work.
  • Permanence. The DOL found that the lack of permanence in the parties’ relationship weighed strongly in favor of independent contractor status because: (i) the service providers have a “high degree of freedom to exit” the relationship; (ii) the service providers are not restricted from “interacting with competitors” during the course of the parties’ relationship (or after the relationship ends); and (iii) even if the service providers maintain a “lengthy working relationship” with the company, they do so only on a “project-by-project” basis.
  • Investment. The DOL next concluded that the level of investment favored independent contractor status, reasoning that although the company invests in its platform, it does not invest in facilities, equipment, or helpers on behalf of the service providers, who are responsible for all costs associated with the “necessary resources for their work.”
  • Skill and Initiative. Although the company did not disclose the specific types of services available to customers through the platform, the DOL concluded that the level of skill and initiative needed to perform the work supported independent contractor status. Regardless of the specific types of work they perform, the service providers “choose between different service opportunities and competing virtual platforms,” “exercise managerial discretion in order to maximize their profits,” and do not receive training from the company.
  • Opportunity for Profit and Loss. The DOL found that although the company sets default prices, the service providers control the major determinants of profit and loss because they are able to select among different jobs with different prices, accept as many jobs as they see fit, and negotiate with customers over pricing. The DOL also found that the service providers can “further control their profit or loss” by “toggling back and forth between” competing platforms, and determining whether to cancel an accepted job (and incur a cancellation fee) if they find a more lucrative opportunity.
  • Integration. The DOL concluded that the service providers are not integrated into the company’s business operations because: (i) the service providers do not develop, maintain, or operate the company’s platform; (ii) the company’s business operations effectively terminate at the point of connecting service providers to consumers; and (iii) the company’s “primary purpose” is to provide a referral system to connect service providers with consumers in need of services – not to provide any of those services itself.

The DOL found that these facts “demonstrate economic independence, rather than economic dependence,” and concluded that the service providers are independent contractors under the FLSA.

Takeaways

As noted by the DOL, determining “[w]hether a worker is economically dependent on a potential employer is a fact-specific inquiry that is individualized to each worker.” In addition, the tests for determining independent contractor status vary by statute, and by jurisdiction. Accordingly, agencies in some jurisdictions, including in states that apply the “ABC test” to determine independent contractor status in certain contexts, such as California and New Jersey, may disregard the opinion letter. Indeed, the New Jersey Labor Commissioner recently issued a statement indicating that the opinion letter “has zero effect on how the New Jersey Department of Labor enforces state laws … [because] the statutory three-part test for independent contractor status [in New Jersey] … is distinct from and much more rigorous than the standard referenced in the opinion letter.” Nevertheless, the opinion letter should provide support to gig economy businesses defending against claims of independent contractor misclassification under the FLSA, and in jurisdictions that apply tests that overlap with the FLSA’s economic realities test.

The opinion letter may also be of value to businesses facing other kinds of claims from gig economy workers that are predicated on employee status, such as organizing for collective bargaining purposes. Earlier this year, the National Labor Relations Board (“NLRB” or “Board”) adopted a new test to be used in distinguishing between “employees,” who have rights under the National Labor Relations Act (“NLRA” or “Act”) and independent contractors who do not. In its January 25, 2019 decision in SuperShuttle DFW, Inc., 367 NLRB No.75 (2019) the Board rejected the test adopted in 2014 in FedEx Home Delivery, 361 NLRB 610 (2014) and returned to the common-law test, finding that the test adopted in FedEx minimized the significance of a worker’s entrepreneurial opportunity.

SuperShuttle involved a union petition for an election among a group of franchisees operating SuperShuttle airport vans at Dallas-Fort Worth Airport. In response to the petition, SuperShuttle, the franchisor, argued that the franchisees who were seeking representation were not employees but rather independent contractors and as such were not entitled to vote in an NLRB election or to exercise the rights granted to employees, but not independent contractors, under the Act. The Board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their nearly unfettered control over their daily work schedules and working conditions provided the franchisees with significant entrepreneurial opportunity for economic gain. These factors, along with the absence of supervision and the parties’ understanding that the franchisees are independent contractors, resulted in the Board’s finding that the franchisees are not employees under the Act. While the tests for determining independent contractor status under the NLRA and FLSA differ, both the Board’s decision in SuperShuttle and the DOL’s opinion letter emphasize similar themes, including the significance of a worker’s economic opportunity and discretion.

Our colleague Steven Swirsky is featured on Employment Law This Week – DOL Proposes New Joint-Employer Rule speaking on the recent Department of Labor (DOL) ruling regarding joint-employers status under the Fair Labor Standards Act while the The National Labor Relations Board’s (NLRB) joint-employment rule proposed in September 2018 is still pending.

Watch the interview below.

My colleagues and I have posted on Epstein Becker & Green, P.C.’s  Hospitality Labor and Employment Law blog concerning the U.S. Department of Labor’s Proposed New Rule to Determine Joint Employer Status under the Fair Labor Standards Act.  In its proposed new rule, the DOL notes that the National Labor Relations Board is also engaged in rulemaking to set new standards for determining joint employer status under the National Labor Relations Act.  Our blog post discusses the similarities and differences between the two proposed rules.

Following is an excerpt:

In the first meaningful revision of its joint employer regulations in over 60 years, on Monday, April 1, 2019 the Department of Labor (“DOL”) proposed a new rule establishing a four-part test to determine whether a person or company will be deemed to be the joint employer of persons employed by another employer. Joint employer status confers joint and several liability with the primary employer and any other joint employers for all wages due to the employee under the Fair Labor Standards Act (“FLSA”), and it’s often a point of dispute when an employee lodges claims for unpaid wages or overtime.

Under current DOL regulations, two or more employers acting entirely independently of each other may be deemed joint employers if they are “not completely disassociated” with respect to the employment of an employee who performs work for more than one employer in a workweek. In its proposal – a sharp departure from earlier Obama-era proposals to broaden the test for determining joint employer status to one based on economic realities – the DOL seeks to abandon the “not completely disassociated” test and has proposed to replace it with a four-part balancing test derived from Bonnette v. California Health & Welfare Agency, a 1983 decision by the Ninth Circuit Court of Appeals. …

Read the full post here.

Since 2015, employers have faced continued uncertainty regarding which standard the National Labor Relations Board (“NLRB” or the “Board”) will apply when determining joint-employer status under the National Labor Relations Act (“NLRA”). Businesses utilizing contractors and staffing firms or operating in partnering arrangements, as well as those engaged in providing temporaries and other contingent workers, have faced a moving target before the Board when it comes to potential responsibility in union recognition, bargaining obligations, and unfair labor practice cases.

We’ve previously reported on the somewhat tortured history of the evolving joint-employer standard, which the Board first significantly revised in 2015 in Browning-Ferris Industries, 362 NLRB No. 186. In that decision, the Board held that an employer which merely possesses the authority to control the terms and conditions of employment, either directly or indirectly, and even when that authority is not exercised, may nonetheless be a joint-employer under the NLRA.

In 2017, following a shift in the composition of the Board to a majority of Republican appointees, the Board discarded the Browning-Ferris standard in its decision in Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co., and returned to its prior test for determining joint-employer status. Under Hy-Brand, the Board reverted to a test based on the common law, which required a putative joint-employer to possess “direct and immediate” control over the essential terms and conditions of employment of employees of another business, and actually exercise joint control, rather than simply reserve the right to exercise such control.

The return to the traditional joint-employer test, however, was short-lived. In 2018, the Board vacated its decision in Hy-Brand due to a finding by the Board’s Designated Agency Ethics Official that Member William Emanuel should have been disqualified from participating in the Hy-Brand decision because of potential conflict-of-interest concerns. As a result of the decision to vacate Hy-Brand, the Board once again returned to the Browning-Ferris standard for determining joint-employer status, which remains the applicable legal standard at this time.

However, the joint-employer roller coaster continued to roll when the Board published a notice of proposed rulemaking regarding the standard for determining joint-employer status on September 14, 2018. The proposed rule would again reverse the Browning-Ferris decision and provide that employers will only be considered joint-employers where the putative employer possesses and exercises “substantial direct and immediate control over the essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine.” The Board received a large number of submissions in the public comment period, resulting in three extensions of the time for the submission of comments regarding the proposed rule to accommodate the overwhelming response.

After the conclusion of the public comment period, Representatives Bobby Scott and Frederica Wilson issued a letter to Board Chairman John Ring regarding what the Representatives perceived was an inappropriate method for internally reviewing the nearly 29,000 public comments the Board received in response to the proposed rule. In particular, Representatives Scott and Wilson raised concerns that the Board was freezing out agency professional staff in the review process by outsourcing the substantive review of public comments to private contractors, and that such outsourcing raised potential conflict-of-interest concerns.

On March 22, 2019, Chairman Ring submitted a response back to Representatives Scott and Wilson regarding the Board’s process for reviewing the public comments received in response to the proposed joint-employer rule. In the response, Chairman Ring agreed that outsourcing substantive review of public comments could create the appearance of conflicts of interest, but stated that the Representatives were “misinformed” about the Board’s review process.

Ring clarified that the Board was utilizing a temporary employment agency contracted through the General Service Administration’s bid process, and that the temporary employees’ work would be limited to sorting and coding the public comments for later substantive review by the Board’s staff. Countering the lawmakers’ suggestion of Board impropriety, Chairman Ring stated that the Board took due consideration of all conflict-of-interest issues in the bid process for contracting out the work. The response further emphasized the routine nature of federal agencies contracting out such coding and sorting work, and the inefficient use of resources that utilizing the Board’s attorneys to perform ministerial document-processing work would entail. Lastly, Ring noted that the Board previously shared the decision to contract out the initial sorting work to its staff and received no negative reaction to the announcement.

As has been the case each step of the way, the joint-employer saga has evoked impassioned responses from both management and labor alike. There is little doubt the Board’s final joint-employer rule will elicit anything less. Stay tuned for the next chapter when the Board publishes its final rule in the coming weeks.

In a three to one decision issued on January 25, 2019, the National Labor Relations Board (“NLRB” or the “Board”) in SuperShuttle DFW, Inc., 367 NLRB No.75 (2019), the Board announced it was rejecting the test adopted in 2014 in FedEx Home Delivery, 361 NLRB 610 (2014) for determining whether a worker was an employee or an independent contractor and returning to the test it used prior to the FedEx Home decision.

As the decision in SuperShuttle makes clear, the determination of whether a worker is an employee entitled to the protections of the National Labor Relations Act (the “Act”), or an independent contractor will continue to be based on a case by case examination of the specific facts. Under Section 2(3) of Act, only employees and not independent contractors are entitled to the Act’s protections.

SuperShuttle involved a union petition for an election among a group of franchisees operating SuperShuttle airport vans at Dallas-Fort Worth Airport. In response to the petition, SuperShuttle, the franchisor, argued that the franchisees who were seeking representation were not employees but rather independent contractors and as such were not entitled to vote in an NLRB election or to exercise the rights granted to employees, but not independent contractors, under the Act.

The Board’s Acting Regional Director (“ARD”) based on the facts of the case, found that the franchisees were independent contractors and not employees, and dismissed the petition. The petitioner, Amalgamated Transit Union Local 338, appealed the ARD’s decision, arguing that based on the degree of control exercised by the franchisor’s operations and terms and conditions, they were employees and not independent contractors.

As the Board explained in its Press Release, the decision to affirm the ARD’s conclusion that the drivers in the case were not employees turned on the facts of their franchise agreements with SuperShuttle:

The Board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their nearly unfettered control over their daily work schedules and working conditions provided the franchisees with significant entrepreneurial opportunity for economic gain. These factors, along with the absence of supervision and the parties’ understanding that the franchisees are independent contractors, resulted in the Board’s finding that the franchisees are not employees under the Act. The decision affirms the Acting Regional Director’s finding that the franchisees are independent contractors.

The Board Returns to its pre-2014 Standards for Distinguishing between Employees and Independent Contractors

 As the majority in SuperShuttle DFW explained, under the standard adopted in 2014 in FedEx Home Delivery, the Board had essentially created a new requirement for finding workers to be independent contractors and not employees.

The Board majority’s decision in FedEx did far more than merely “refine” the common-law independent contractor test – it “fundamentally shifted the independent contractor analysis, for implicit policy-based reasons to one of economic realities, i.e., a test that greatly diminishes the significance of entrepreneurial opportunity and selectively overemphasizes the significance of “right to control” factors relevant to perceived economic dependency. (citations omitted). Today, we overrule this purported “refinement.”
(emphasis added)

The majority opinion in SuperShuttle DFW, joined by Chairman Ring, Member Kaplan and Member Emanuel returned to the Board’s longstanding prior practice of considering “all of the common-law factors as described in the Restatement (Second) of Agency:”

a) The extent of control which, by the agreement, the master may exercise over the details of the work.
b) Whether or not the one employed is engaged in a distinct occupation or business.
c) The kind of occupation, with reference to whether in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.
d) The skills required in the particular occupation.
e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.
f) The length of time for which the person is employed.
g) The method of payment, whether by the time or by the job.
h) Whether or not the work is part of the regular business of the employer.
i) Whether or not the parties believe they are creating the relation of master and servant.
j) Whether the principal is or is not in business.

As the majority in SuperShuttle explained, citing to the US Supreme Court’s 1968 decision in NLRB v. United Insurance Co. of America, 390 U.S. 254 “there is no shorthand formula” and “all the incidents of the relationship must be assessed and weighed with no one factor being decisive,” and that what is important is that the total factual context is assessed in light of the pertinent common law principles.” Id. at 258.

In FedEx Home Delivery the Board had adopted a test that made it more difficult to prove an independent contractor relationship

In FedEx Home Delivery, a Board majority composed of appointees of President Obama had adopted a test that moved beyond the traditional common law standards for determining whether a worker was an employee or an independent contractor “by creating a new factor (‘rendering services as part of an independent business’) and then making entrepreneurial opportunity merely ‘one aspect’ of that factor.” 367 NLRB No. 75 at page 1.

As the majority in SuperShuttle explained, the Board majority in FedEx was no “mere refinement,” but rather a shift of the independent-contractor test to “one of ‘economic dependency,’ a test that was specifically rejected by Congress.” 367 NLRB N0. 75, at p. 8-9.

What Happens Now?

It is notable that although the Board announced its return to the former test for determining whether workers are independent contractors or employees, the ARD had reached the conclusion that the SuperShuttle drivers were independent contractors under the test adopted in FedEx Home.

The modification of the test for making this determination by discarding “the undue significance of a worker’s entrepreneurial opportunity for economic gain” is likely to mean that workers who traditionally would have been found to be independent contractors and outside the Act’s protections, will be found independent contractors in the future once again.

It is clear that detailed factual analysis will be required in all cases. It would be appropriate, given the reliance on the terms of the franchise agreements in SuperShuttle and the fact that those agreements did demonstrate that the drivers retained significant discretion to run their businesses and knew they would be independent contractors and not employees when they entered into those agreements, for businesses that rely on independent contractor and other such arrangements to review and where appropriate update their agreements and other operating documents.

Last week, the National Labor Relations Board (the “Board”) issued a decision that “begins the process of restoring” a decades-old definition of “concerted activity” under Section 7 of the National Labor Relations Act (“NLRA” or the “Act”) – a definition that, in the Board’s view, had become muddled and unduly expanded as recent decisions “blurred the distinction between protected group action and unprotected individual action.”

In a 3-1 decision, with Member McFerran dissenting, the Board in Alstate Maintenance, LLC upheld an administrative law judge’s dismissal of a complaint issued by the Board’s previous General Counsel, which alleged that Alstate Maintenance, LLC committed unfair labor practices when it discharged Trevor Greenidge, a skycap who worked at JFK airport. As a skycap, Greenidge’s primary job responsibility was to assist arriving airline passengers with their luggage outside of the airport terminal. Greenidge’s supervisor instructed him (and three other skycaps) to assist with moving a soccer team’s equipment. In response, Greenidge commented: “We did a similar job a year prior and we didn’t receive a tip for it.” When the equipment arrived, all four skycaps walked away. The managers sought assistance from baggage handlers inside the terminal; after those baggage handlers completed a significant share of the work, Greenidge and the other three skycaps returned to help complete the assignment. The skycaps were subsequently discharged. The only issue before the Board was whether Greenidge’s comment and actions constituted protected concerted activity and was therefore protected by the Act.

In the Complaint issued on behalf of the Board’s General Counsel following an investigation of Greenidge’s charge, the General Counsel alleged that the actions and comments were protected by the Act because Greenidge was acting with respect to his terms and conditions of employment, and those of his co-workers, the other skycaps who he spoke to about his experience with the soccer team not tipping in the past.

The standards for determining whether an employee has engaged in “concerted activity” was first articulated in two Board decisions from the mid-1980’s, known as Meyers Industries. In Alstate Maintenance, LLC, the Board reiterated that under the Meyers standards, an individual employee engages in concerted activity when he or she does either one of the following:

  1. Seeks to initiate, induce, or prepare for group action. An employee’s “mere talk” must “be talk looking toward group action” – otherwise, it will simply constitute “mere griping.”
  2. Brings “truly group complaints” (as opposed to personal grievances) to management’s attention and can point to record evidence that demonstrates “group activities” (such as prior or contemporaneous discussion of the concern among members of the workforce).

As part of its analysis, the Board overruled its 2011 decision in WorldMark by Wyndham because that decision could not be reconciled with the Meyers standard, and the Board majority found that it erroneously shielded certain unprotected individual action. The Board found that WorldMark improperly deviated from Meyers by holding that any employee who protests publicly in a group meeting automatically engages in protected activity per se – and that such a rule obviated any fact-based analysis as to whether the employee had protested on the authority of other employees (which would be concerted activity) or solely on the employee’s own behalf (which would not be concerted activity).

Applying the Meyers standard in the Alstate case, the Board “easily” concluded that Greenidge’s comment did not constitute concerted activity. First, the comment did not seek to initiate, induce, or prepare for group action. The majority concluded that Greenidge’s comment itself (i.e., “[w]e did a similar job a year prior and we didn’t receive a tip from it”) did not demonstrate that he was seeking to initiate or induce group action, and Greenidge had credibly testified during the hearing that his remark was “just a comment” that was not aimed at changing his employer’s policies or practices. Second, the General Counsel did not contend that Greenidge was bringing a “truly group complaint” to management’s attention. In any event, there was no record evidence of “group activities” – such as evidence that tipping habits had been discussed amongst the skycaps prior to Greenidge’s comment – and the Board concluded that Greenidge’s mere use of the word “we” in his comment did not supply the required evidence of “group activities.”

The Board articulated several factors that might support a reasonable inference that, in making a statement or comment, an individual employee engaged in concerted activity – either by bringing a “truly group concern” to management’s attention or by initiating, inciting, or preparing for group action:

  • The statement was made during an employee meeting called by the employer to announce a decision affecting wages, hours, or some other term or condition of employment,
  • The decision affects multiple employees attending the meeting,
  • The employee who makes a comment in response to such an announcement does so to protest or complain about the decision – not merely to ask questions about how the decision will be implemented,
  • The employee protests or complains about the decision’s effect on the work force generally (or some portion of the work force), not solely about the decision’s effect on the employee himself,
  • The meeting presented the first opportunity for employees to address the decision, so the speaker had no opportunity to discuss the issue with other employee’s beforehand, and
  • Other evidence that a statement made in the presence of coworkers was made to initiate, induce, or prepare for group action – such as an express call for employees to act collectively.

As part of its observation that more recent decisions by the Board had improperly deviated from the Meyers standard, the Board pointed to several cases that concluded that an employee’s statements about certain subjects (such as wages, work schedules, and job security) were “inherently” concerted. As part of its effort to “restor[e]” the Meyers standard, the Board expressed its “interest[ ] in reconsidering this line of precedent in a future appropriate case.”

What Does this Mean for Employers?

 It is important not to over read the application of the Alstate decision. While the Board’s decision concluded that in the context of this statement by an employee to co-workers that he was not calling for group action or expressing a position on behalf of employees collectively, a careful fact based analysis remains critical in all cases.

The National Labor Relations Board has announced publication of a proposed rule that will establish a new and far narrower standard for determining whether an employer can be held to be the joint-employer of another employer’s employees. The rule described in the Notice of Proposed Rulemaking published in the Federal Register on September 14, 2018, will, once effective essentially discard the Board’s test adopted in Browning-Ferris Industries (“Browning-Ferris”) during the Obama Administration, which substantially reduced the burden to establish that separate employers were joint-employers and as such could be obligated to bargain together and be responsible for one another’s unfair labor practices.

The Proposed New Standard

Under the proposed new rule, the Board will essentially return to the standard that it had followed from 1984 until 2015. As the Board explained when it announced the proposed new rule

Under the proposed rule, an employer may be found to be a joint-employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship.

Under Browning-Ferris, the Board held that indirect influence and the ability to influence terms and conditions, regardless of whether exercised, could result in an employer being held to be the joint-employer of a second employer’s employees.

As a practical matter, the new standard should make it much more difficult to establish that a company is a joint-employer of a supplier or other company’s employees. The new standard 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 but that it has actually exercised that right in a substantial, direct and immediate manner.

This new standard 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.

The New Standard Marks a Return to that Announced in Hy-Brand Industrial Contractors, Ltd.

As readers may recall, in December 2017, in Hy-Brand Industrial Contractors, Ltd. (“Hy-Brand”), in a 3-2 decision joined in by the Board Chairman Miscimarra and Members Emanuel and Kaplan, the Board overruled Browning-Ferris and adopted a standard that required proof that putative joint employer entities have actually exercised joint control over essential employment terms (rather than merely having “reserved” the right to exercise control), the control must be “direct and immediate” (rather than indirect), and joint-employer status will not result from control that is “limited and routine.”

Hy-Brand however, was short-lived. On February 26, 2018, in a unanimous decision by Chairman Marvin Kaplan and Members Mark Pearce and Lauren McFerren, the Board reversed and vacated Hy-Brand, following its finding that a potential conflict-of-interest had tainted the Board’s 3-2 vote in Hy-Brand.

The standard announced this week however marks an attempt by the Board to breathe life back into Hy-Brand.

What Happens Now?

Under the Administrative Procedures Act, the public and interested parties will now have sixty days to submit comments “on all aspects of the proposed rules” for the Board’s consideration.

Democratic Senators Elizabeth Warren, Kirsten Gillibrand, and Bernard Sanders previously announced in a May 2018 letter, when the Board indicated it was looking into rulemaking concerning the test for determining joint-employer, that it was their view that the same conflicts of interest that resulted in the Board’s decision to vacate Hy-Brand at least raised ethical concerns.

While there is nothing inherently suspect about an agency proceeding by rulemaking, it is impossible to ignore the timing of this announcement, which comes just a few months after the Board tried and failed to overturn Browning-Ferris, and appears designed to evade the ethical constraints that federal law imposes on Members in adjudications. The Board’s sudden announcement of rulemaking on the exact same topic suggests that it is driven to obtain the same outcome sought by Member Emanuel’s former employer and its clients, which the Board failed to secure by adjudication.

According to Politico, Senator Warren has now renewed her concerns about the proposed rule and the conflict issues that resulted in the Board vacating Hy-Brand. “After getting caught violating ethics rules the first time, Republicans on the Board are now ignoring these rules and barreling towards reaching the same anti-worker outcome another way.”

Given these considerations, it is quite foreseeable that opponents of the proposed rule may seek to at least delay, if not defeat the proposed rule’s taking effect by litigation.

Since earlier this year, reports have circulated that National Labor Relations Board (“NLRB” or “Board”) General Counsel Peter Robb planned to introduce changes in its case handling processes and organizational structure that would move certain authority away from the Regional Directors and transfer substantive decision making authority to Washington. While the General Counsel denied the specifics, he acknowledged that as the Board was faced with a reduced case load and budgetary pressures, some changes would be necessary and appropriate. It now appears safe to say that change is indeed coming to the NLRB and that more is likely.

Changes to NLRB Case Processing – Part 1

On July 30, 2018, the Division of Operations-Management in the General Counsel’s Office issued Memorandum ICG 018-06, addressed to the agency’s Regional Directors, Officers-In-Charge and Resident Officers, entitled Changes to Case Processing Part 1, outlining a series of steps intended to “streamline” certain aspects of the processing of representation petitions and the investigation and determination of unfair labor practice charges.

As the memo points out

Please note that this is not intended to be a final report with respect to the initial memo. Rather it focuses on a limited number of the 59 items, with the expectation that some of the other items in the January 29 memo will be addressed in one or more memos soon to follow.

The changes announced in the memo were effective immediately and fall in four main areas.

Representation Case Decision Making

While the number of representation cases in which hearings take place to resolve issues such as which employees share a community of interest, whether employees are supervisors and/or managers thus should or should not be included in a bargaining unit, and therefore eligible to vote in a representation election continues to be limited, the memorandum adopts changes in how decisions are written in those cases, with the goal of making the process “more efficient,” and addressing what the memorandum refers to as “wide disparities” in the length of time that passes between the close of a hearing and the issuance of a Decision and Direction of Election or a Decision dismissing a petition without ordering an election.

A new centralized approach will be followed in the drafting of post representation case hearing decisions, with the task delegated to regional and district teams.  The new system provides for the designation of a limited number of attorneys and/or field examiners in each of four Districts who will be assigned to serve as the primary decision writers in each District for an initial term of one year, working under a manager of decision writing in that District.

The Memorandum notes that not all representation case decision writing will necessarily be assigned to the new teams, and that “Regions may decide to keep particular matters in-house.” No guidance is offered as to when and in what circumstances Regions may keep matters in-house.

Streamlining Advice Branch Submissions

The Memorandum also adopts a new and streamlined process for submission of cases to the Division of Advice in Washington for guidance.  As noted on the Board’s website,

The Division of Advice provides guidance to the Agency’s Regional Offices regarding difficult and novel issues arising in the processing of unfair labor practice charges, and coordinates the initiation and litigation of injunction proceedings in federal court under Section 10(j) and (l) of the National Labor Relations Act.

The Memorandum points out that “Delays in processing cases submitted to Advice has been a cause of criticism” both within the NLRB and outside the agency.  Often, until now, when a Region and/or the General Counsel’s Office in Washington have determined that an issue or matter warranted review and consideration by Advice, the Region would have to prepare and send to Washington a detailed legal and factual memorandum, preparation of which could be time consuming.

Under the Memorandum, the Regions are encouraged to adhere to following process instead:

  • “Regions may submit short form memos to Advice.
  • The form of that a short form memo may take will vary depending on the particular matter.
  • In some cases, e.g. questions about work rules, the submission may be as simple as an e-mail, as explained in GC 18-04, the General Counsel’s June 6, 2018 Memorandum “Guidance on Handbook Rules Post-Boeing.
  • In other cases, where all the necessary evidence can be found in the FIR (Final Investigative Report) or Agenda Minute, a memo incorporating those document, and emphasizing any factual or legal issues that the Region believes are important.

Streamlining Ethics Issues

The Memorandum describes certain steps that the General Counsel’s Office will be taking to make what it refers to as “ethics guidance memos that could be useful in other cases” part of an internal data base organized by subject matter for access by NLRB personnel.

Changes to Post Investigation Decision Making at the Regional Level

Perhaps the most significant change adopted in the Memorandum is the establishment of what it refers to as the delegation of “appropriate case-handling decision-making authority to supervisors” in the Regional Offices, a responsibility that has traditionally been vested almost exclusively with the Board’s Regional Directors.  According to the Memorandum,

such decision-making authority may include approving dismissals, withdrawals, or settlements in appropriate situations.

The Memorandum explains that in those cases where the investigator and her or his supervisor “agree on the merit or lack thereof in a case, this is the final decision.”  The Memorandum suggests that this will allow Regional Directors “to focus on higher priority, more complex case-handling matters.” All merit decisions, that is, cases in which there is a decision to issue an unfair labor practice complaint, “should be made by the Regional Director or his/her designee.

While the Memorandum states that “the extent of this delegation will be left to a Director’s discretion,” it makes clear that Regional Directors will be expected to regularly exercise their discretion to delegate such decision making authority, pointing out that doing so will be considered in the Regional Directors’ annual performance appraisals.

Early Retirement Buyout Program

The following week, on August 7, 2018, the Board announced it was creating a Voluntary Early Retirement Authority (“VERA”) program and a Voluntary Separation Incentive Payment (“VSIP”) program.  The Board has described these programs as intended to “to better manage its caseload and workforce needs,” address what the Board has described as a “current staffing imbalance by allowing it to “realign Agency staffing with office caseload” and “reallocate its limited resources and to, among other things, provide employees with the tools they need, including training and improvements in technology.”

What Comes Next?

The Memorandum makes clear that this is but a first and indeed an interim step as the General Counsel continues to attempt to better utilize the agency’s limited resources while fulfilling the agency’s responsibilities to the public.

As is explained in footnote 1, the Memorandum “is not intended to be a final report” and that additional memoranda addressing some or all of the ideas identified in the January 29 memo January 29 memo are “soon to follow.”

This was a featured story on Employment Law This Week – watch it here.

The New York City Temporary Schedule Change Law (“Law”), which became effective on July 18, 2018, raises new issues that employers with union represented employees will need to address as their existing collective bargaining agreements (“CBA”) come up for renewal.

The Law allows most New York City employees up to two temporary schedule changes (or permission to take unpaid time off) per calendar year when such changes are needed due to a “personal event.” The Law also prohibits retaliation against workers who request temporary schedule changes. Additional detailed information concerning the Law and employers’ obligations can be found in our August 2, 2018 Client Advisory.

What Does the Law Mean for Employers with Union-Represented Employees?

The Law Applies to Employees Covered by a CBA

The Law, as written, applies to employees represented by a union and covered by a CBA. However, the Law contains a qualified exemption for employees covered by a CBA, which specifies that the Law does not apply to any employee who:

[i]s covered by a valid collective bargaining agreement if such agreement waives the provisions of this subchapter and addresses temporary changes to work schedules[.]

The text of the Law also addresses, in very general terms, the question of whether the Law is preempted by the National Labor Relations Act when it comes to interpreting a CBA for purposes of determining whether it contains a “waiver” of the applicable provisions of the Law or addresses changes to work schedules. That provision states that the Law does not:

[p]reempt, limit or otherwise affect the applicability of any provisions of any other law, regulation, requirement, policy or standard, other than a collective bargaining agreement, that provides comparable or superior benefits for employees to those required herein.

What Does This Mean to Employers Whose Employees Are Represented by a Union?

Employers will want to negotiate for express waiver language as well as language stating that the employer and the union agree that their CBA provides employees with scheduling change rights (as well as sick and safety time rights) that are comparable or superior to those mandated by the Law and the City’s Earned Safe and Sick Time Act (“ESSTA”).

While the quoted language from the Law may seem confusing, it appears that the City Council and the New York City Department of Consumer Affairs, Office of Labor & Policy Standards (“DCA”), are taking an approach similar to that followed under ESSTA. ESSTA provided for an exemption from compliance with that statute in cases where (a) employees are covered by a CBA, (b) the CBA contains an “express waiver” of ESSTA’s paid safe and sick time requirements, and (c) the paid safe and sick time benefits under the CBA are substantially comparable to those mandated by ESSTA.[1]

Significantly, in the case of ESSTA, the text of the statute only calls for a waiver and comparable benefits—the requirement that the waiver be an “express waiver” is one that was created by the DCA in its administration of ESSTA. It is foreseeable that the DCA will follow the same approach in its administration and enforcement of the Law. To date, in its enforcement of ESSTA, the DCA has demonstrated an unwillingness to defer to the agreement of an employer and its employees’ bargaining representative or acknowledge that the sick leave or paid time off under a CBA is comparable or superior to such leave or time off under ESSTA.

Accordingly, employers that employ union-represented employees will need to ensure that, as they renegotiate their CBAs and/or negotiate first contracts, the CBAs contain clear and unequivocal language confirming that the employer and the union have agreed to “expressly waive” the provisions of the Law and the provisions of the CBA concerning taking and scheduling time off and temporary schedule changes provide employees with benefits that are “comparable or superior” to those mandated by the Law.

What Happens with CBAs That Were Negotiated Before the Law Took Effect?

While the Law is, in most instances, effective as of July 18, 2018, the 180th day after its enactment, this is not the case for employees covered by a CBA that was in effect on that date. The Law provides that:

in the case of employees covered by a valid collective bargaining agreement … this local law takes effect on the date of termination of such agreement . . .

Accordingly, employees covered by an existing CBA are not covered by the Law until the expiration of the CBA. Upon the expiration of an existing CBA, employers will need to ensure that they propose and secure the necessary express waivers and agreements for comparable benefits in all new or renewal CBAs from this point forward.

_________________

[1] ESSTA also waived the requirement of substantially comparable benefits in the case of employers in the grocery and construction industries whose employees are covered by a CBA containing an express waiver of ESSTA’s requirements.

One of the more controversial actions of the United States Department of Labor during the Obama Administration was its 2016 issuance of a Final Rule that was intended to radically rewrite the rules concerning the “Advice Exemption” to Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”).  The 2016 Final Rule was hotly contested because it would have required employers and their labor law counsel to report concerning advice the lawyers provided even when the lawyers did not directly communicate with their client’s employees. For almost 50 years such attorney-client communications and dealings were exempt from reporting so long as the attorneys did not speak or otherwise communicate directly with their clients’ employees.

The 2016 Final Rule Would Have Eviscerated the Advice Exemption

That Final Rule would have, for the first time, require employers and their outside law firms to file frequent reports concerning their relationships more frequently than under current law. Until then, as long an employer’s lawyer or consultant did not communicate directly with employees and as long as the employer remained free to accept or reject any draft materials prepared by them (speeches, letters, written communications, etc.), they were covered by the Advice Exemption and not subject to disclosure or reporting by the employer or the counselor.

The 2016 Final Rule was widely recognized as being designed to assist unions by requiring employers and third-party lawyers and other labor consultants to disclose their relationships more frequently than under current law. The Final Rule would have required employers and their consultants to file reports even if the consultants are giving certain guidance to the employer without communicating with employees directly.

At the time, then-Secretary of Labor Thomas Perez commented that “The final rule.  . .  is designed to ensure workers have the information they need to make informed decisions about exercising critical workplace rights such as whether to form a union or join a union.”

The DOL Was Enjoined from Enforcing the 2016 Final Rule

Numerous legal challenges were brought before the 2016 Final Rule was to take effect on July 1, 2016.  On June 27, 2016, the United States District Court for the Northern District of Texas issued a nationwide preliminary injunction halting the Department of Labor’s (“DOL”) controversial new Persuader Rule and its new Advice Exemption Interpretation.

On November 16, 2016, one week after the presidential election, the Court made permanent its earlier injunction, “pending a final resolution of the merits of this case or until a further order of this Court, the United States Court of Appeals for the Firth Circuit or the United States Supreme Court.”

The DOL Has Now Withdrawn the 2016 Final Rule

Since that time, while there has been wide speculation that the Trump DOL would not defend the 2016 Final Rule and that it would ultimately abandon it and return to the prior rules and interpretations of the LMRDA that recognized that communications with and advice from counsel that did not involve direct communications with clients’ employees would be recognized as communications and advice protected by the privilege for attorney-client communications, it was not until this week that the DOL formally acted.

On July 17, 2018, the DOL issued a formal notice rescinding the 2016 Final Rule. As a result the cloud that has existed over attorney client communications and the privilege that they have enjoyed has cleared. As the DOL noted in its News Release:

The Persuader Rule impinged on attorney-client privilege by requiring confidential information to be part of disclosures and was strongly condemned by many stakeholders, including the American Bar Association. A federal court has ruled that the Persuader Rule was incompatible with the law and client confidentiality.

For decades, the Department enforced an easy-to-understand regulation: Personal interactions with employees done by employers’ consultants triggered reporting obligations, but advice between a client and attorney did not. By rescinding this Rule, the Department stands up for the rights of Americans to ask a question of their attorney without mandated disclosure to the government.