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.

Featured on Employment Law This Week: General Counsel Peter Robb has issued a memo to National Labor Relations Board regional directors that offers guidance in applying the Board’s Boeing decision when considering the legality of rules.

Robb instructs the regional offices to refer cases when there is uncertainty to the Board’s Division of Advice for direction. The General Counsel memo that was issued at the beginning of June provides very specific guidance regarding the placement of work rules into each of the three categories. The memo summarizes each of the three categories of rules. It provides concrete examples of the rules falling into each category and offers a brief analysis of the balancing test applied to each example. What is also significant about the memo is it serves as a reminder as to what has not changed since the Boeing decision.

Watch the segment below.

In Epic Systems Corp. v. Lewis  (a companion case to NLRB v. Murphy Oil USA and Ernst & Young v. Morris), the U.S. Supreme Court finally and decisively put to rest the Obama-era NLRB’s aggressive contention that the National Labor Relations Act (NLRA) prevented class action waiver in employees arbitration agreements, finding such waivers are both protected by the Federal Arbitration Act (FAA) and not prohibited by the NLRA. In its 5-4 decision, the Court explained that the NLRB’s interpretation of the FAA was not entitled to deference because it is not the agency charged by Congress with the interpretation and enforcement of that statute.

The Supreme Court started with two questions:

Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or do employees have a right to always bring their claims in class or collective actions, no matter what they agreed with their employers?

The Court first answered these questions plainly, noting that though as a matter of policy there could be a debate as to what the answer should be, “as a matter of the law the answer is clear” that class action waivers are legal under the NLRA and enforceable under the FAA, going on to systematically dismantle the arguments made by former NLRB General Counsel Richard Griffin, Jr. and related labor union and plaintiffs’ attorneys in amici briefs filed with the Court.

The Court’s majority opinion authored by Justice Gorsuch started with some history, noting that for the first 77 years of the NLRA there had been no argument by the Board that class action waivers violated the NLRA and that the FAA and the NLRA coexisted perfectly without conflict. As recently as 2010 the NLRB’s General Counsel took the position that class action waivers did not violate the NLRA. It was not until the Obama-era NLRB’s decision in the D.R. Horton that the NLRB took the then novel position that the NLRA’s “other concerted activities” protections created a substantive right to class action procedures. The Court then recited decades of precedent rejecting the relatively newly found aggressive NLRB position.

With respect to the FAA the Court reinforced that the courts must rigorously enforce arbitration agreements by their terms. The Court soundly rejected the NLRB’s argument that the FAA’s savings clause supported the NLRB’s position, explaining that the savings clause only applies to defenses applicable to any contract disputes, such as fraud, duress and unconscionably. In what could be helpful to arguments that other attempts to limit arbitration which are found in or being proposed in various state and local laws such as prohibiting arbitration of harassment claims or wage and hour claims under California’s Private Attorney General Act (PAGA) should be found valid notwithstanding the clear language of the FAA, the Court pointed out that the purpose of the FAA was to combat historic opposition to arbitration and, citing AT&T Mobility v. Conception’s validation of class action waivers generally, warned that the courts must guard against attempts to pervert the purposes of the FAA:

Just as judicial antagonism toward arbitration before the Arbitration Act’s enactment “manifested itself in a great variety of devices and formulas declaring arbitration against public policy,” Concepcion teaches that we must be alert to new devices and formulas that would achieve much the same result today.

With respect to the NLRA the Court, in addition to noting the historic context of both enforcement of arbitration agreements and the statute’s coexistence with the FAA, the Court observed that the NLRA’s protection of “other concerted activities” applies to subjects related to the right to organize, be represented by a union and bargain collectively, as well as other similar efforts of employees to freely associate with their coworkers in the workplace. Though not directly addressed by the Court, the language of the Opinion implies a much narrower reading of Section 7 rights under the NLRA than has historically been exposed by the Board and courts.

Finally, the Court addressed the fundamental underlying reality of the issue that the Board and the plaintiff employees’ position is an attempt to squeeze an elephant through a mouse hole by trying to use a novel interpretation of the NLRA to enforce FLSA rights in a manner which circumvents decades of established precedence. Ultimately, the Court ruled that in an employee can agree to arbitrate their FLSA rights under the FLSA, certainly nothing in the NLRA operates to prohibit such agreements.

On Wednesday, the Senate narrowly confirmed John Ring, a management-side labor attorney from Morgan Lewis & Bockius LLP, to the National Labor Relations Board (“NLRB” or the “Board”).  With this vote, Ring fills the last remaining open seat on the Board, which was previously held by former Chairman Philip Miscimarra.  Ring’s term will expire on December 16, 2022.  The confirmation vote of 50-48 was largely down party lines, with only two Democrats voting in favor of Ring’s confirmation.  The strong opposition from the Democrats is likely due to the perceived efforts of the Trump administration to install pro-business members to the Board.  Several prominent Democratic senators, including Patty Murray (D-Wash.) and Elizabeth Warren (D-Mass.), made very critical statements about Ring ahead of the vote.

On Thursday April 12th, the President announced that he was naming Ring to serve as Chairman of the Board. That action does not require Senate confirmation.  Marvin Kaplan who was previously named Acting Chairman will continue as a Board member. The addition of Ring to the NLRB once again gives Republican-appointees a 3-2 majority, which likely means several Obama-era pro-labor rulings will be overturned in the coming months and years.  When the Republican appointees briefly had a 3-2 majority at the end of 2017, several Obama-era decisions were overturned, including setting forth a new standard to evaluate handbook rules and overturning the Obama Board’s decision in Specialty Health Care eliminating micro-units.  Notably, with Ring’s appointment, it is likely that the Board will again revisit the standards for determining joint-employer status. In its  December 2017 decision in Hy-Brand  the Board overturned the Browning Ferris Industries decision, which had adopted a more lenient standard for determining joint employer status, and returned to a requirement of “direct and immediate control.”  While Hy-Brand was recently rescinded, it is expected that the newly constituted Board will  likely consider the issue again in the near future.

We will continue to monitor and provide developments on the Hy-Brand and other notable NLRB decisions.

Featured on Employment Law This Week: NLRB Vacates Hy-Brand Joint-Employer Decision

The NLRB’s Browning-Ferris test is once again the law of the land — A 3-member panel has reversed the Board’s December Hy-Brand decision, which had nixed the Browning-Ferris joint-employer test, and returned to a “direct control” standard. The reversal comes after an inspector general report that found that Member William Emanuel should have recused himself. The Browing-Ferris test considers a company a “joint-employer” if it has the right to exercise either direct or “indirect control” over employees. Once the Senate acts on the nomination of republican John Ring to fill the Board’s vacant fifth seat, the Board is expected to once again roll back Browning-Ferris with a test like the one in Hy-Brand.

Watch the segment below and read our recent post.

On February 26, 2018, in a unanimous decision by Chairman Marvin Kaplan and Members Mark Pearce and Lauren McFerren, the National Labor Relations Board (“NLRB” or the “Board”) reversed and vacated its December 2017 decision in Hy-Brand Industrial Contractors, Ltd. (“Hy-Brand”), which had overruled the joint-employer standard set forth in the 2015 Browning-Ferris Industries (“Browning-Ferris”) decision. The decision followed the release of a finding that a potential conflict-of-interest had tainted the Board’s 3-2 vote. What this means, at least for the moment, is that the lower standard for determining joint-employer status in Browning-Ferris is the law once again.

What Is The Browning-Ferris Standard?

As we previously reported, under the Browning-Ferris standard, “[t]he Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.”  Under Browning-Ferris, the primary inquiry is whether the purported joint-employer possesses the actual or potential authority to exercise control over the primary employer’s employees, regardless of whether the company has in fact exercised such authority.  This standard is viewed as employee and union-friendly, and led to the issuance of complaints alleging joint-employer status in an increased number of circumstances.

What Did Hy-Brand Set As the Test for Joint-Employer Status?

Later, in Hy-Brand, as we noted, the Board rejected the Browning-Ferris standard and returned to a more employer-friendly standard, based on the common law test for determining whether an employer-employee relationship exists as a predicate to finding a joint-employer relationship and adding more than just the right to exercise control.  Under Hy-Brand, a finding of joint-employer status would require 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.”  This decision had stopped at least some cases relying on Browning-Ferris in their tracks.

What Happens Next?

While Hy-Brand has been reversed for the time being, we expect the Board, once the Senate acts on President Trump’s nomination of John Ring to fill the seat vacated this past December by then Chairman Philip Miscimarra, to reinstate the joint-employment standard articulated in Hy-Brand or a similar standard.

As noted above, the reversal of Hy-Brand follows the ethics memo published by NLRB Inspector General David Berry finding that Member William Emanuel should have abstained from the decision in Hy-Brand because of the fact that the law firm of which he was a member was involved in the case.  There are a number of other cases in which similar conflict issues have arisen, also arguing that Member Emanuel should recuse himself.

Congress May Act

Separate and part from a future Board decision, as we noted in November, the House of Representatives passed the Save Local Business Act (H.R. 3441) which, if enacted, would amend the National Labor Relations Act and the Fair Labor Standards Act to establish a Hy-Brand-like direct control standard for joint employer liability.  The reversal of Hy-Brand may now put increased pressure on the Senate to pass the bill.

What Should Employers Do Now?

Employers and other parties with matters before the Board involving joint-employer issues now, whether in the context of unfair labor practice cases or representation cases, now will need to focus on both the Browning-Ferris standard and the Hy-Brand test to ensure that they preserve all arguments and issues recognizing the likelihood that sooner rather than later the Board will adopt a test that requires more than is required under Browning-Ferris to establish the existence of a joint-employer relationship, with all of the attendant responsibilities.  We will continue to follow this issue and report on developments.

Featured on Employment Law This Week: Should the misclassification of an employee as an independent contractor be found to violate the NLRA?

The National Labor Relations Board is seeking amicus briefs on whether the misclassification of an employee as an independent contractor should be found to violate the National Labor Relations Act. Former NLRB general counsel Richard Griffin argued that misclassification violates the NLRA because it impacts the rights that employees have under the Act, including the right to engage in concerted activities with co-workers, join a union and engage in bargaining. To date, the Board has not ruled on the question. Amicus briefs must be filed by April 16th.

Watch the segment below and read our recent post.

Featured on Employment Law This Week:  General Counsel Peter Robb could be signaling a shift at the NLRB.

Robb has reportedly suggested structural changes that could establish a new layer of management between the General Counsel and the field. These reports come as the NLRB seeks to adjust to cuts to its budget and a decline in case filings. If implemented, the changes could remove authority from the Regional Directors and shift more decision-making to the GC. Sources report that some changes are likely before the new budget year next October.

Watch the segment below and read our recent post.

 

In the months following Donald Trump’s inauguration, those interested in the National Labor Relations Board (“NLRB” or “Board”) waited anxiously for the new President to fill key positions that would allow the Board to reconsider many of the actions of the past eight years. Over the last six months, the Board has begun to revisit, and overrule, several union-friendly and pro-employee Obama-era Board decisions. The Board’s new General Counsel has also given clear guidance as to where else employers can expect to see his office pursue further changes in how the National Labor Relations Act (“NLRA” or “Act”) will be interpreted and enforced.

In this Take 5, we offer an overview of key aspects of what the new Board has done to date, and what can be expected going forward:

  1. What to Look Out for This Year at the NLRB
  2. Hy-Brand Industrial Overrules Browning-Ferris and Sets New NLRB Standard for Determining Joint-Employer Status
  3. NLRB Ruling in The Boeing Co. Establishes New Standards Governing Employee Handbook Rules and Policies
  4. The Trump Board Signals a Return to Traditional Standards in Representation Cases
  5. As the NLRB Steps Back, Cities Step Forward

Read the full Take 5 online or download the PDF.