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Employers Under the Microscope: Is Change on the Horizon?

When: Tuesday, October 18, 2016 8:00 a.m. – 4:00 p.m.

Where: New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

Epstein Becker Green’s Annual Workforce Management Briefing will focus on the latest developments in labor and employment law, including:

  • Latest Developments from the NLRB
  • Attracting and Retaining a Diverse Workforce
  • ADA Website Compliance
  • Trade Secrets and Non-Competes
  • Managing and Administering Leave Policies
  • New Overtime Rules
  • Workplace Violence and Active-Shooter Situations
  • Recordings in the Workplace
  • Instilling Corporate Ethics

This year, we welcome Marc Freedman and Jim Plunkett from the U.S. Chamber of Commerce. Marc and Jim will speak at the first plenary session on the latest developments in Washington, D.C., that impact employers nationwide.

We are also excited to have Dr. David Weil, Administrator of the U.S. Department of Labor’s Wage and Hour Division, serve as the guest speaker at the second plenary session. David will discuss the areas on which the Wage and Hour Division is focusing, including the new overtime rules.

In addition to workshop sessions led by attorneys at Epstein Becker Green – including some contributors to this blog! – we are also looking forward to hearing from our keynote speaker, Former New York City Police Commissioner William J. Bratton.

View the full briefing agenda here.

Visit the briefing website for more information and to register, and contact Sylwia Faszczewska or Elizabeth Gannon with questions. Seating is limited.

Hoagie Sandwich and ChipsThis past week, Doctor’s Associates Inc., which is the owner and franchisor for the Subway sandwich restaurant chain entered into a Voluntary Agreement (the “Agreement”) with the US Department of Labor’s (DOL) Wage and Hour Division “as part of [Subway’s] broader efforts to make its franchised restaurants and overall business operations socially responsible,” and as part of Subway’s “effort to promote and achieve compliance with labor standards to protect and enhance the welfare” of Subway’s own workforce and that of its franchisees.

While the Agreement appears intended to help reduce the number of wage and hour law claims arising at both Subway’s company owned stores and those operated by its franchisee across the country, the Agreement appears to add further support to efforts by unions, plaintiffs’ lawyers and other federal and state agencies such as the National Labor Relations Board (NLRB or Board), DOL’s own Occupational Safety and Health Administration (OSHA) and the EEOC to treat franchisors as joint employers with their franchisees.

What Is in the Agreement?

While on its face this may sound like a good idea and one that should not be controversial, in reality by entering into this Agreement, which among other things commits Subway to working with both the DOL and Subway’s franchisees, to develop and disseminate wage and hour compliance assistance materials and to work directly with the DOL to “explore ways to use technology to support franchisee compliance, such as building alerts into a payroll and scheduling platform that SUBWAY offers as a service to its franchisees,” and although the Agreement is notable for its silence on the question of whether the DOL considers Subway to be a joint employer with its franchisees, the Agreement is likely to be cited, by unions, plaintiffs’ lawyers and other government agencies such as the NLRB as evidence of the fact that Subway as franchisor possesses the ability, whether exercised or not, to directly or indirectly affect the terms and conditions of employment of its franchisees’ employees, and as such should be found to be a joint employer with them.

Notably, while the Agreement does not specifically address the exercise of any such authority on a day to day basis, it does suggest an ongoing monitoring, investigation and compliance role in franchisee operations and employment practices by Subway and a commitment by Subway as franchisor to take action and provide data to the DOL concerning Fair Labor Standards Act compliance.  In the past, courts have in reliance on similar factors held that a franchisor could be liable with its franchisees for overtime, minimum wage and similar wage and hour violations.

Of particular interest to many will be the final section of the Agreement, titled “Emphasizing consequences for FLSA noncompliance.”  This section not only notes that “SUBWAY requires franchisees to comply with all applicable laws, including the FLSA, as part of its franchise agreement,” but also what action it may take where it finds a franchisee has a “history of FLSA violations”:

SUBWAY may exercise its business judgment to terminate an existing franchise, deny a franchisee the opportunity to purchase additional franchises, or otherwise discipline a franchisee based on a franchisee’s history of FLSA violations.

Will Subway’s “Voluntary Agreement” with the DOL Have Any Impact Beyond Wage and Hour Matters?

As we approach the one year anniversary of the NLRB’s decision in Browning Ferris Industries, it is abundantly clear that not only the Board itself but unions and others seeking to represent and act on behalf of employees are continuing to push the boundaries and expand the application of Browning Ferris.  In fact the Board has been asked to find that policies and standards such as those evidencing a business’s commitment to “socially responsible” employment practices, the very phrase used in the Subway-DOL Agreement, should be evidence of indirect control sufficient to support a finding of a joint employer relationship between a business and its suppliers.

Moreover, the NLRB and unions such as UNITE HERE and the Service Employees International Union continue to aggressively pursue their argument that the terms of a franchise agreement and a franchisor’s efforts to ensure that its franchisees, who conduct business under its brand, can also be sufficient to support a finding of joint employer status.  No doubt they will also point to the Subway Agreement with the DOL as also being evidence of such direct or indirect control affecting franchisees’ employees’ terms and conditions.

What Should Employers Do Now?

Employers are well advised to review the full range of their operations and personnel decisions, including their use of contingent and temporaries and personnel supplied by temporary and other staffing agencies to assess their vulnerability to such action and to determine what steps they make take to better position themselves for the challenges that are surely coming.

Equally critical employers should carefully evaluate their relationships with suppliers, licensees, and others they do business with to ensure that their relationships, and the agreements, both written and verbal, governing those relationships do not create additional and avoidable risks.

Stop Sign CrosswalkToday, 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, previously discussed here and here.  The Rule and Interpretation marked a dramatic change by requiring public financial disclosure reports concerning payments that employers make in connection with “indirect persuader activities” that were not reportable under the long standing rules, but that would, if the new rule were to take effect, for the first time, be considered reportable as persuader activity.

Injunction Issues Just In Time

The injunction was issued in advance of the July 1, 2016, enforcement date, which the DOL had stated employers, and labor relations consultants, including attorneys, would need to start reporting engagements covered by the new Rule and Interpretation.  Employers and attorneys have raised concerns about the impact on the attorney-client privilege, including the chilling effect and interference with their ability to obtain/provide advice traditionally exempt from disclosure.

In granting the injunction, the Court concluded:

[The DOL is] hereby enjoined on a national basis  from implementing any and all aspects of the United States Department of Labor’s Persuader Advice Exemption Rule (“Advice Exemption Interpretation”), as published in 81 Fed. Reg. 15,924, et seq., 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 scope of this injunction is nationwide.

District Court Order Provides Employers Comprehensive Victory

The Northern District of Texas went one step further than the United States District Court for the District of Minnesota, which last week ruled that the DOL’s Persuader Rule exceeded the agencies authority under the LMRDA, but stopped short of issuing an injunction.  The Court’s Order here gives employers a comprehensive victory, finding not only a substantial threat of irreparable harm but also that the Texas plaintiffs will likely succeed in establishing:

  • The DOL exceeded its authority in promulgating its new Advice Exemption Interpretation in the new Persuader Rule;
  • The new Advice Exemption Interpretation is arbitrary, capricious and an abuse of discretion;
  • The new Advice Exemption Interpretation violates free speech and association rights under the First Amendment;
  • The new Advice Exemption Interpretation is unconstitutionally vague; and
  • The new Advice Exemption Interpretation violates the Regulatory Flexibility Act.

Preliminary Injunction May Only Be Temporary Reprieve for Employers

Obviously a preliminary Injunction is just that, preliminary and temporary in nature.  It is anticipated that the DOL will file an appeal and, depending on the results of the Presidential Election later this year, this could be a looming threat for employers for some time.

Accordingly, employers should first do all they can, including signing long-term agreements with law firms and/or labor relations consultants before July 1, to be prepared in the event the Rule ultimately becomes effective, so as to potentially shield themselves from the obligation to report and disclose so-called indirect persuader activity that has been exempt from reporting under the former rules.

Steven M. Swirsky
Steven M. Swirsky

U.S. District Court Judge Patrick J. Schiltz “has found that aspects” of the Department of Labor’s Amended Persuader Rule “are likely invalid because they require reporting of advice that is exempt from disclosure under Section 203(c)” of the Labor Management Reporting and Disclosure Act (LMRDA).

The Amended Persuader Rule Makes Distinctions Between Materially Indistinguishable Activities

In his 34 page opinion denying the plaintiffs’ application for a temporary restraining order and/or a preliminary injunction that would keep new reporting obligations for employers and labor relations consultants, including attorneys from taking effect on July 1, “The Court has also questioned the manner in which the DOL has construed the term “advice,” pointing out that the DOL makes distinctions  between activities that are materially indistinguishable and struggles to place certain common activities on one side or the other of the untenable divide that it has created between persuader activities and advice.”

The Court Denied an Injunction Because It Did Not Find Irreparable Harm

Although the Court found that “the plaintiffs have shown a likelihood of success on one of their claims—specifically their claim that the new rule requires the reporting of some activities that are exempt from disclosure under Section 203(c), a critical element of any application for an injunction, the Court denied their request for an injunction because it found that they had not established that they are likely to suffer irreparable harm if the new rules are to take effect.

In finding that the plaintiffs’ “minimal showing of threat of irreparable harm is not sufficient to warrant the extraordinary relief of a preliminary injunction,” the Court noted that the Amended Rule “has multiple valid applications” and that the DOL had “identified thirteen types of conduct to which the rule applies, only some of which seem to require the reporting of advice that is exempt under ¶ 203.”

The Court’s Other Findings

The plaintiffs in the Labnet case also challenged the Amended Rule on the grounds that it interfered with their First Amendment Rights, it is void for vagueness, arbitrary and capricious, overbroad and violated the Regulatory Flexibility Act.  The Court concluded that the plaintiffs were not likely to prevail on these claims.

What Happens Next?

As we have reported, there are two other challenges to the Amended Rule pending in the U.S. District Courts for the Northern District of Texas and the District of Arkansas.  Hearings have taken place in both those actions, in which plaintiffs are also seeking to enjoin the enforcement of the Amended Rule’s new advice reporting requirements.  Rulings are anticipated in both prior to the July 1 effective date.

Employer Options and Alternatives

As we reported, earlier this month the DOL described what may be a meaningful way for employers (and law firms) to avoid the potential obligation to file public disclosure reports concerning identifying payments that employers made in connection with “indirect persuader activities” that were not reportable under the long standing rules, but that will, for the first time, be considered reportable as persuader activity.

At a recent compliance assistance seminar, representatives of the DOL stated that no persuader payment reporting will be required as a result of payments made after July 1 so long as those payments are tied to an agreement made prior to that date.  This interpretation by OLMS is considerably different from how many envisioned enforcement of the rule when the amendment was issued and it remains to be seen whether the DOL will stand by these statements and how it will interpret and apply them going forward. Until now, most employers and law firms understood that post-July 1, any agreements or arrangements—as well as any payments related to indirect persuader activity—would trigger reporting, regardless of whether the agreements or arrangements were entered into before July 1.

Given this new information, some employers may wish to sign long-term agreements with law firms or consultants now. At this point, it appears that so long as those agreements are made prior to July 1, any payments made under those agreements—even payments made later in 2016 and beyond—will not trigger reporting, according to the DOL.  If the DOL stands by these statements, it appears that entering into agreements with labor counsel prior to July 1 should protect advice and assistance provided by counsel from reporting and disclosure to the DOL and would apparently give employers and labor consultants, including attorneys, a strong defense against any claims that they willfully failed to file reports under the Amended Rule.

Steven M. Swirsky
Steven M. Swirsky

National Labor Relations Board (NLRB) General Counsel Richard F. Griffin, Jr., has announced in a newly issued Memorandum Regional Directors in the agency’s offices across the country that he is seeking a change in law that would make it much more difficult for employees who no longer wish to be represented by a union to do so.  Under long standing case law, an employer has had the right to unilaterally withdraw recognition from a union when there is objective evidence that a majority of the employees in a bargaining unit no longer want the union to represent them.

The General Counsel Wants the Board to Change the Law

If the General Counsel’s position is agreed to by a majority of the members of the Board, it would be an unfair labor practice for an employer to withdraw recognition from a union, no matter how strong the evidence is that employees do not want to be represented unless and until the employees or the employer petition for a decertification election, a majority of the employees vote against continued representation and the results of the vote are certified.  This would mean that the employer would be required to continue to recognize the union and bargain with it for a new contract even where it knows that a majority of the employees do not want the union to continue to represent them.

Levitz Furniture Allows Employers to Withdraw Recognition Based on Objective Evidence That a Majority Of Employees No Longer Want the Union to Represent Them

Fifteen years ago, in Levitz Furniture Co. of the Pacific, the Board’s then General Counsel made a similar argument to the Board, which it rejected.  While the Board in Levitz held that an employer needed more than an objective good faith belief that a union was no longer supported by the majority, and in essence set a rule that an employer would act at its peril when withdrawing recognition, it rejected the notion that employees who no longer wanted to be represented by a union could only make such a decision in an NLRB election.

The General Counsel Directs Regions to Ignore Existing Law Under Levitz Furniture

In GC Memo 16-03, the General Counsel has directed the Regional Offices to issue an unfair labor practice (ULP) complaint any time a union files a charge in response to an employer’s decision to act in accordance with existing law and withdraw recognition of a union that is no longer supported by the majority of the employees in a unit.  As the Memo states, the Regional Directors are instructed to unilaterally withdraw recognition “under extant law.”  In other words, complaints will be issued in those cases where employers are taking action that the existing law allows, in the hope that the Board will change the law and find the employer guilty of a ULP for taking action that the law allows it to, and respecting the wishes of its employees.

What Happens Next?

An employer faced with evidence that a majority of its employees no longer want to be represented at the end of a contract, has until now had several options.  It could file an RM petition, asking the Board to hold a secret ballot vote to allow the employees to vote on continued representation or it could, if it concluded the evidence that the union had lost majority support was clear, it could inform the union of that fact and therefore that it was withdrawing recognition and would not bargain for a new contract.  Often, such employer action was met with ULP charges by the union and a union effort to convince the employees to stick with it.  If the employer, or for that matter an employee, filed a petition for a decertification election, a common union response has been to fight on and do whatever it could to delay the election and if possible deny the employees of their right to make the decision.  Unions can easily accomplish this desired delay by filing any garden variety unfair labor practice charge which, under NLRB procedures, act to “block” the election until they are fully investigate, litigated and resolved.  Union’s often file multiple and successive blocking charges” to continually delay employees’ ability to exercise their right to become union free.

If the General Counsel is able to convince the Board to overturn Levitz Furniture the result will likely be a serious impairment of the right of employees to decide whether or not they want to continue to be represented.  The General Counsel’s decision to seek to overturn Levitz Furniture should not come as a surprise to those who have read his last GC Memo, 16-01, in which he notified the agency’s Regional Offices of the issues that they must submit to the Division of Advice in the General Counsel’s Office for guidance.  In that memo, issued last month, the General Counsel laid out the road map of his “initiatives and/or priority areas of the law and/or labor policy” and where in his view “there is no governing precedent or the law is in flux.”

Reading the model language included in GC Memo 16-03, it is clear that the General Counsel sees the question of what must happen before an employer may lawfully withdraw recognition to be such an area in “flux” as he references statements in the Levitz Furniture decision in 2001 that if “experience proved” to a future Board that employers were unilaterally withdrawing recognition in the absence of “evidence” clearly indicating that a union had lost majority support, the Board would revisit this question.  While the General Counsel implies that this is why he now wants the Board to revisit the question, GC Memo 16-03 and the model brief language does not point to such evidence.

What Does This Mean for Employers and Employees?

An employer faced with evidence that a majority of its employees no longer wish to be represented by their union has always faced a difficult choice – whether to petition for an election or to respect its employees’ request and take the risk of charges and litigation by immediately withdrawing recognition. Clear understanding of the law and facts, as well as the potential consequences of each course of action has always been critical.  By issuing this Memo and announcing his goal, the stakes have clearly been raised, and the right of employees to decide—perhaps the ultimate purpose of the National Labor Relations Act—has been placed at serious risk.

One of the featured stories in Employment Law This Week is the DOL’s publication of its controversial final rule around labor relations consultants.

The so-called “Persuader Rule” requires employers to disclose when they hire a consultant to help fight attempts at unionization. But the rule, as written, is potentially much broader and could require employers to disclose information about a wide range of consultants and others who they rely on for training and communication.

View the episode below or read more about the new rule in an earlier blog post.

While we have been reminding readers of the fact that  the National Labor Relations Act (the “Act”) protects employees regardless of whether they are represented by a union and the Act applies to non-unionized workforces, too, recently  a National Labor Relations Board (the “NLRB”) Administrative Law Judge issued a decision following an unfair labor practice (“ULP”)  hearing based on a charge filed by a teacher at New York City’s prestigious Dalton School that should serve as an object lesson for employers in all non-union businesses.

The case, Dalton School, Inc., involved a series of emails concerning a school musical. The case arises out of a doomed production of a middle school rendition of Thoroughly Modern Millie. The Charging Party, David Brune, was one of five teachers in the theater department at the Manhattan private school. In late 2013, the theater department starting putting together the Millie production, including assigning roles, rehearsing lines and songs and preparing sets and costumes. In early January 2014, just weeks before opening night, complaints regarding Asian ethnic stereotypes in the play by parents and faculty were received by the school’s administration.  . The school ordered Brune to discontinue all work on the production two weeks prior to the opening; and eventually, certain offending parts of the play were re-written. Brune only learned that the revamped production would open on schedule three days prior to the opening. Despite the short notice, and with a lot of work in that short period, the production was successful.

Afterwards, Brune shared his views with how the school’s administration handled the concerns and the changes in the play with the other faculty members in the school’s theater department. Through a series of drafted letters to school management, and e-mails within the department, Brune and the others spoke of the redress they felt they should receive for the mishaps with Millie and their views as to how to avoid a repeat in the future. In one of these emails, Brune accused school management of lying to the theater department.

A month after he sent the emails, Brune was called into a meeting with the school management, where they debriefed on the Millie situation. The head of the school asked Brune if he ever said anything negative about the school administration, such as accusing it of lying. He denied saying anything negative. On April 17, 2014, Brune was again summoned to a meeting with School management, but this time, he was presented with a copy of an email he had sent to other teachers during February, in which he wrote that  that management had lied to the theater department and the students. At this meeting, Brune was told his contract would not be renewed for the next year and that he could leave immediately or finish out the school year.

Rather than going quietly into the good night, Brune filed a ULP charge with the New York regional office of the NLRB claiming that he had been terminated for engaging in protected concerted activity, that is his communications with his fellow teachers. Following an investigation, the Board’s Regional Director issued a complaint and the matter was tried before ALJ Arthur J. Amchan.

In defending against the claims, Dalton denied that the decision not to renew Brune’s contract for the following year was not related to any concerted, protected activity.  Rather, the school asserted that the decision not to renew Brune’s contract was based on the fact that he had been dishonest in the March meeting when asked whether he ever stated that School management lied about the Millie production.

The ALJ found otherwise, and concluded that Dalton rescinded his employment contract because he had engaged in protected, concerted activity when he communicated with his fellow teachers about how the school’s administration had handled the matters. Specifically, the ALJ concluded that the e-mails between the theater department members discussing how to address concerns about the Millie production with school management were concerted protected activity. The Judge reasoned that since the e-mails clearly identified each employee who was involved in the e-mail chain, Dalton was aware that there was more than one employee involved in the communications, putting it on notice that the activities were concerted. The ALJ further found that the school’s actions in the March meeting violated the Act because they were designed to “trap” or catch Brune in a lie about the February e-mail.

This case is a vivid illustration of how employee actions about a wide range of work related matters, including in non-unionized workplaces, can rise to the level of protected activity, even if the actions are as simple as the exchange of emails among co-workers.

As we noted in “First Kill All The Lawyers“, last November the DOL announced its intention to move forward this month with the Administration’s Proposed Rule change which would eviscerate the Advice Exemption to the Persuader Rule .  Yesterday, the DOL again delayed its timeline for finalizing the Rule.

In November the DOL’s announcement asserted that it intended to publish a Final Rule in March.  On March 6, according to Bloomberg BNA, a DOL spokesman asserted that the Proposed Rule would NOT be made final this month.  The DOL did not give a new target date for finalizing the Rule, rather it stated it would provide a new date in its Spring Regulatory Agenda which is not scheduled to be released for some months.

The Proposed Rule Would Eviscerate the Advice Exemption and Attorney-Client Privilege

The Proposed Rule radically alters the regulations implementing the “Advice Exemption” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA.”). For over 50 years this Advice Exemption has been properly, effectively and simply administered by distinguishing direct communications with employees from an attorney’s counsel to an employer-client.  The existing regulations have provided a clear line of demarcation; 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 Proposed Rule intentionally eviscerates any meaningful use of the Advice Exemption which would be swallowed up by the new expansive definition of  persuader activity which could include discussion regarding strategy, reviews of employer drafts and myriad other ways labor attorneys currently aid their clients including essentially any meaningful advice or counsel provided by labor counsel.

Postponement Possibly Prompted By Opposition/Election Concern

The Proposed Rule was originally proposed in June 2011 but drew immediate criticism of everyone from Senators, to both employer and employee rights groups, to the American Bar Association raising serious ethical, economic and practical concerns.  Until November the Proposed Rule was seemingly put on the back burner as the President focused reelection and other issues.

As the stated March deadline approached, the opposition intensified with a slew of major employer groups expressing opposition  to the Proposed Rule and urging the DOL to withdraw it or in the least postpone it to be considered in conjunction with the potential changes to DOL Form LM-21 (one of the required disclosure forms related to persuader activity).  As the DOL has stated it does not plan on making changes to the Form LM-21 until  October 2014, the employer groups argued that changes to the Persuader Rule should at least be postponed so it could be considered together with the closely related LM-21.

Though the DOL has yet to confirm, it is possible this opposition has led to the postponement.  It is also possible that Congressional and Senate Democrats, under pressure from these employer groups and others, have sought help from the Administration to postpone the controversy until after the 2014 elections.  Either way, what seems clear is that while Employers and the traditional Advice Exemption may have a temporary stay, at least for the time being, the DOL still seems intent on “Killing All the Lawyers.”

Management Memo will keep readers updated with further developments on the Proposed Rule and will provide Management Missives on how to cope should the Final Rule resemble the Proposed Rule.