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.

In its long awaited decision in Mark Janus v. American Federation of State, County and Municipal Employees, the United States Supreme Court clearly and unequivocally held that it is a violation of public employees’ First Amendment rights to require that they pay an “agency fee” to the union that is their collective bargaining representative, to cover their “fair share” of their union representative’s bargaining and contract enforcement expenses. The Janus decision overturns the Court’s own 1977 decision in Abood v. Detroit Board of Education, which had found state and local laws requiring public sector employees to pay such fees to be lawful and constitutional. Commentators expect the decision to have serious economic consequences for unions in the heavily organized public sector.

While the Court in Abood had previously found that such laws requiring employees to pay representation or agency fees if they elected not to become dues paying members were permissible justified and to be upheld on the grounds that (1) they “promoted labor peace” and (2) that the effect of “free riders,” that is workers who benefitted from a union’s efforts but did not contribute to its efforts on their behalf justified mandating employees contribute, the Janus majority rejected both of these legal underpinnings in finding Abood had been improperly decided.

In Janus, Justice Samuel Alito concluded that the fears of interference with labor peace were unfounded based on the experience since 1977, and in any case, that these concerns, even if supported by evidence, could not satisfy the Court’s “exacting scrutiny” test that the majority held should be applied to circumstances such as these, where a state or local government entity sought to compel employees to subsidize the speech of others, i.e. their union representative and union member co-workers, who may endorse or support a union’s goals and objectives in collective bargaining and in its dealings with the employer. Notably, the analysis made clear that the speech in question was not political speech or campaign activity by unions, but rather speech in connection with positions taken in collective bargaining and labor relations. The Court also found that even if the agency fee statutes were evaluated under the less rigorous “strict scrutiny” test, it would have concluded that they were unconstitutional under that test as well.

What Does Janus Mean for Public Sector Employers and Workers?

At this time there are some 22 states in which agency fees are permitted by state or local law and an additional 28 states where they are not authorized. Under federal sector labor laws, the unions that represent employees of federal agencies and entities are not permitted to require employees to pay agency fees or become union members as a condition of continued employment.

With the Janus decision, simply put, provisions in collective bargaining agreements that require public employees to become union members, pay union dues or pay agency or representation fees as a condition of continued employment have been found to be unconstitutional and to impermissibly interfere with public employees’ freedoms of speech and assembly.

What is not yet clear is precisely how and when public sector employers and unions will be applying the decision. However, it is likely that as public employees who object to paying representation fees or paying union dues learn of this decision and the fact that they can no longer be compelled to pay agency fees or dues, employees will tell their employers to discontinue withholding fees and dues and paying them over to unions.

What is also already apparent is that there is likely to be resistance. Already, within hours of the release of the Janus decision, New York’s Governor Andrew Cuomo issued his own statement signaling his views and opposition to the decision. He also announced his intention to issue an executive order shielding the addresses and phone numbers of public employees to make it more difficult for advocates to reach out to state employees and notify them of their options.

What Does Janus Mean for Public Sector Unions?

Simply put, if public employees exercise their right to stop paying agency fees to the unions that represent them, the unions will feel an immediate and substantial hit in their revenue and all that comes with that. The amounts at stake are substantial. According to a report by the Empire Center for New York State Policy, approximately 200,000 public workers in New York State alone are presently paying agency fees of more than $110 million dollars annually.

The Court was not unmindful of the financial and other impacts that the decision will have on unions that represent public employees. As Justice Alito wrote

We recognize that the loss of payments from nonmembers may cause unions to experience unpleasant transition costs in the short term, and may require unions to make adjustments in order to attract and retain members. . . “But we must weigh these disadvantages against the considerable windfall that unions have received” until now.

The impact in other states like California, Illinois (where the plaintiff in Janus is employed) and other states will clearly be substantial.

What Does Janus Mean in the Private Sector?

The Court’s decision in Janus is limited in its direct and immediate impact to public sector and does not apply to private sector employees who are covered by collective bargaining agreements containing union security clauses. Those clauses, which are only found in contracts in states that are not right to work states, require employees to become union members or pay agency or representation fees as a condition of continued employments.

That said, it is highly likely that the Janus decision will have spill-over effects in the private sector. As we reported last year, unions have a duty to make clear to employees who they represent under contracts containing union security clauses, that employees have rights and are not required to pay the same amount as agency fees as those who are members.

Additionally, the past few years have seen a resurgence in states passing laws to become right to work states and outlaw mandatory membership and/or agency fees. It can be anticipated that the Janus decision will likely result in more states and advocacy groups considering such legislation.

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 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.

Last Friday – the day the Star Wars movie Episode VIII hit theaters and the last working day of National Labor Relations Board Chairman Philip A. Miscimarra’s term – the Board continued its efforts to undo some of the most controversial and problematic decisions rendered by the Obama Board before the Republicans temporarily lose their majority.  As we previously reported, recent days have seen a stream of significant decisions and other actions from the National Labor Relations Board.  Most notably, the Board discarded the much criticized indirect control test for determining joint-employer status adopted in Browning Ferris joint employer test and returned to its traditional joint employer standard; it established a new, more reasonable standard under which the legality of employer policies and handbooks will be assessed which, unlike the former test, actually gives weight to an employer’s legitimate interests in promulgating the rule; and it opened public comment on the expedited election rules and procedures, the first critical step to amending those rules.

Notably, these and the other decisions discussed in this article involve issues which the Board’s new General Counsel identified as being among those subject to mandatory submission to the Division of Advice, i.e, “Cases that involve issues over the last eight years that overruled precedent and involved one or more dissents.”

The Board continued its own reconsideration of cases in which the Obama Board had overruled precedent, often over the dissent of Chairman Miscimarra, on Friday with two more significant decisions:  PCC Structurals, which overturned the “overwhelming community of interest” test that the Board has adopted in Specialty Healthcare, which has been seen as leading to the proliferation of “micro bargaining units,” and Raytheon Network, which reinstated employers’ right to unilaterally implement changes when there is not a collective bargaining agreement in effect, where such changes are consistent with established past practice.  As discussed below, collectively these decisions are beginning to restore balance to labor relations after nearly a decade of pro-union decisions that discarded long standing Board precedents.

PCC Structurals Restores the Traditional Community-of-Interest Standard – Overturns Specialty Healthcare’s “Overwhelming Community of Interest” Test

In 2011, the Board in Specialty Healthcare materially changed the test that it would use to assess how it will address the scope of a unit for a representation election and collective bargaining when a union petitioned for an election in a bargaining unit that the employer argued was too narrowly drawn because it  improperly excluded similarly situated employees who shared a community of interest with the petitioned-for workers.  Rather than evaluating whether it was a “sufficiently distinct” community of interest between the petitioned-for unit and excluded employees, as long-standing precedent required, in Specialty Healthcare, the Board held that a petitioned-for unit would be deemed appropriate unless, as the PCC Structurals decision points out, the employer proved “the next-to impossible burden . . . that ‘employees inside and outside [the] proposed unit share an overwhelming community of interest’ . . . .”  Under the Specialty Healthcare standard, employers contesting a union’s petitioned-for unit had the herculean burden of showing that other employees’ interests “overlap almost completely” with the union’s desired group.

As the majority in PCC Structurals pointed out, Specialty Healthcare afforded “extraordinary deference” to the union’s petitioned-for unit and led to the rise of fractured “micro-bargaining” units that defy well-established industry rules.  For example, under Specialty Healthcare, the Board has approved units limited to individual sales departments within a department  store, “notwithstanding the Board’s longstanding rule that favors storewide units within the retail industry,”  and units of prepress employees that exclude press employees in contravention of “the Board’s ‘traditional’ rule that press and prepress employees should ordinarily be included in the same ‘lithographic unit.’”  In PCC Structurals, the Board observed these results ignored the substantial interests of excluded employees and interfered with their rights under the Act.

To rectify these problematic results and better effectuate the Act’s goal of assuring “employees their fullest freedom in exercising their rights under the Act,” the Board in PCC Structurals overturned Specialty Healthcare and returned to the standard that governed the assessment of petitioned-for units for nearly all of the Act’s history prior to Specialty Healthcare.  Under the reinstated standard, the Board will evaluate whether the excluded employees also share a community of interest with the petitioned-for unit and, if so, will include them in the unit.

Specifically, as it had for decades prior to Specialty Healthcare, the Board will return to the traditional community-of-interest multi-factor test which examines:

whether the employees are organized into separate department; have district skills and training; have distinct job functions and perform distinct work, including inquiry into the amount and type of job overlap between job classifications; are functionally integrated with the Employer’s other employees; have frequent contact with other employees; interchange with other employees; have distinct terms and conditions of employment and are separately supervised.

As the majority observed, in ensuring the Board examines the interests of all employees (both included and excluded), it “corrects the imbalance created by Specialty Healthcare…”

Raytheon Network Reinstates Employers’ Right To Implement Unilateral Changes Pursuant to Past Practice After the Collective Bargaining Agreement Expires

In 2016, the Board majority in E.I. Du Pont De Nemours held that, after a collective bargaining agreement expires, unilateral changes implemented by an employer pursuant to established past practice were unlawful if the change involved managerial discretion.    Then-member Miscimarra vigorously dissented, arguing that the majority’s decision created an untenable definition of “change” that defies common sense and encompasses any action that involves the slightest managerial discretion, despite being materially indistinguishable in kind or degree from the employer’s customary past actions.

In Raytheon Network, the Board reversed E.I. Du Pont and adopted Chairman Miscimarra’s reasoning in his Du Pont dissent.  The Board majority noted that, under Du Pont, an employer would be found to have made an unlawful unilateral change in violation of Section 8(a)(5) of the Act, even though the employer merely “continues to do precisely what it had done many times previously – for years or even decades…”  The majority held this “fundamentally flawed” position “is inconsistent with Section 8(a)(5), it distorts the long-understood, commonsense understanding of what constitutes a change, and it contradicts well-established Board and court precedent.”  The Board also pointed out that the Du Pont extreme view of “change” was contrary to the guidance of the Supreme Court in NLRB v. Katz, on which the Board’s pre-Du Pont decisions were based. The Board concluded that continuing adherence to the Du Pont change standard could not be reconciled with the Board’s responsibility to foster stable bargaining relationships.  Accordingly, the majority overruled Du Pont and reinstated the rule that an employer may lawfully take unilateral actions “that do not materially vary in kind or degree from what has been customary in the past,” even though such actions may involve some managerial discretion.

With Miscimarra’s Exit, Dismantling The Obama Board’s Legacy Will Likely Stall

The Obama Board frequently broke with longstanding precedent and ushered in new rules that arguably favored labor unions while disregarding the legitimate business concerns of employers.  These decisions were often met with vigorous dissents warning that such decisions would cause unpredictable, unfair, and unsustainable results in labor-management relations.  The most prominent and vocal of these dissenters was Chairman Miscimarra.  Since attaining a Republican majority, the Board has implemented many of the rules and principles articulated in Miscimarra’s dissents, overturning some of the most controversial decisions rendered by the Obama Board and this past week’s decisions have certainly helped cement Chairman Miscimarra’s legacy of pragmatic adherence to the traditional principles of the Act.  However, with the expiration of Chairman Miscimarra’s term on December 16, 2017, the Board returns to 2 Republicans and 2 Obama-era holdover Democrats.  While various names have circulated as possible candidates for the now vacant seat, as of yet the President has not yet sent a name to Congress, nor has he indicated who he plans to nominate.  Thus, at least for now, the recent progress in reexamining and moving away from the Obama Board’s legacy remains on hold, at least at the Board level.  However, given the General Counsel’s recent announcement of issues targeted for submission to the Division of Advice, including all “Cases that involve issues over the last eight years that overruled precedent and involved one or more dissents,” there is every reason to believe that once a new majority is in place, the Board will, as the Jedi say, seek to bring balance to the Act.

As we have previously reported, Unions currently face a serious existential threat as the unionized workforce in America continuously declines and the looming threat of a National Right to Work law steadily grows.  Recognizing that when employees have a choice, they are losing the battle for the hearts and minds, Unions have not taken these deleterious developments lying down and have deployed numerous countermeasures designed to increase their dues paying membership, including unprecedented forays into previously untouched industries and membership pools.  These efforts extend beyond “employees” as unions now are also targeting independent contractors, with one of the most notable being the robust ridesharing industry made popular by apps like Uber and Lyft.

Uber and Lyft have become synonymous with affordable, on-demand transportation throughout the world.  Their innovative business model has reinvigorated the for-hire transportation market –historically dominated by powerful unions and restrictive legislation – with some much needed competition.  These apps have created an inexpensive and efficient alternative in on-demand transportation while giving entrepreneurial drivers an opportunity to earn extra income on their own schedule and their own terms.  This could all change, though, if unions successfully infiltrate the rideshare market:  drivers could lose the flexibility they enjoy, consumers could see a sharp rise in costs and the rideshare market could lose its competitive ability to dynamically adjust to consumer demands.

A Federal District Court Rejects The U.S. Chamber of Commerce’s Motion For Injunction Relief Pending Appeal Of the Court’s Finding That Seattle’s Ordinance Is Not Preempted By The National Labor Relations Act. 

Rideshare drivers utilizing apps like Uber and Lyft are independent contractors and, therefore, are expressly excluded from the collective bargaining rights granted by the National Labor Relations Act (“Act”).  In December 2015, Seattle passed Ordinance 124968, which conferred collective bargaining rights on rideshare drivers.  The U.S. Chamber of Commerce subsequently filed an action in the U.S. District Court of Washington, Western District, claiming, among other things, that the Ordinance was preempted by the Act.  On April 7, 2017, the District Court temporarily enjoyed enforcement of the Ordinance pending the outcome of the litigation.

However, on August 1, 2017, the District Court lifted the injunction after it granted Seattle’s motion to dismiss, finding that the Act’s independent contractor exclusion did not preempt state law. The Court likened the independent contractor exclusion to other exclusions in the Act, such as the agricultural laborer and domestic service worker exclusions, which have long been held not to preempt state law.

In doing so, the District Court rejected the Chamber’s attempt to analogize the independent contractor exclusion to the Act’s supervisor exclusion, which decidedly preempts state law.  Citing to the legislative history of the supervisor exclusion, the District Court reasoned that Congress deemed the unionization of supervisors “a threat to the very purposes of the Act as well as the interests of both labor and management,” and these destructive consequences “would arise regardless of whether supervisors unionized under NLRA or under state law.”  By contrast, the District Court concluded, Congress did not identify unionization of independent contractors “as a threat to the free flow of goods, nor is there any indication that allowing them to participate in the collective action would threaten the independence of labor organizations or the rights of management.”

As further support for its holding, the District Court cited Section 14(a) of the Act, which allows supervisors to organize, but precludes the Board from compelling employers to recognize such unions.  No similar provision exists for independent contractors, agricultural laborers, or domestic workers, so the Court concluded the Act treated these groups alike.

Interestingly, the District Court did not engage in a deep analysis of Congress’ purpose for excluding independent contractors or whether, like the supervisor exclusion, those reasons justified preemption of state law, let alone did it examine whether the Act’s purpose in regulating the free flow of commerce constituted preemption.  It merely concluded that the justifications behind the independent contractor exclusion were different than those driving the supervisor exclusion and, because there was no express exemption specifically applicable to independent contractors like there was for supervisors, independent contractors were intended to be treated “more like the other excluded groups who have long been the subject of state regulation.”

On August 24, 2017, the Chamber filed a motion for injunction relief pending appeal of the District Court’s Order.  The same federal judge that granted Seattle’s motion to dismiss denied the Chamber’s motion for preliminary injunction, thereby permitting the Union to commence its organizing drive of Uber and Lyft drivers.

Ninth Circuit Temporarily Grants The Chambers’ Emergency Motion For Injunction Relief While It Considers The Merits Of The Motion

On August 29, 2017, the Chamber filed an emergency motion for injunctive relief with the Ninth Circuit Court of Appeal.  The Ninth Circuit temporarily granted the motion while the Court considered the merits of the motion.  Seattle filed its opposition to the Motion on September 5, 2017, and the Chamber’s filed its reply September 7, 2017.  Importantly, this truly could only be a temporary reprieve for rideshare companies as the Ninth Circuit Provided no indication one way or the other as to its leaning on the merits.

The Fate Of Unionization of Rideshare Drivers

Ninth Circuit’s ruling effectively stayed the Union’s right to begin its efforts to unionize Uber and Lyft drivers, but this reprieve may only be temporary.  If the Ninth Circuit denies the emergency motion, it will clear the way for Teamsters, Local 117 to begin its organizing drive while the Chamber appeals the dismissal of its lawsuit to block the Ordinance.  However, even if the Court denies injunctive relief and Teamsters successfully organizes the drivers, the Ninth Circuit could still decide the Act preempts Seattle’s unprecedented ordinance and reverse the Union’s gain.  If Ninth Circuit sides with Seattle, though, and permits the Ordinance to stand, this scenario will likely be repeated in other cities across the nation as Unions, with the aid of the members of city councils and legislatures they funded and elected, desperately seek to reverse the long running trend of declining membership by targeting new industries.  And if this occurs, the rideshare industry will likely be dramatically transformed in fundamental ways – ways that may destroy the flexibility and affordability that made this industry so popular in the first place.

In what may be a harbinger of good things to come, the NLRB recently reversed an Administrative Law Judge’s (“ALJ”) finding that Macy’s, Inc.’s confidentiality policies unlawfully interfered with employees’ Section 7 rights.  Unlike many employer policy decisions issued by the Board in recent years, this case does not break new ground or saddle employers with new, unrealistic onuses.  It merely reinforces well-established rules regarding the use of sensitive customer information obtained from an employer’s records and actually reaffirms the right of employers to protect “information their employer lawfully may conceal.”

What is refreshing about this case, though, is what the Board, in a two-to-one decision by Chairman Miscimarra and Member McFerran, with Member Pearce dissenting, did not do.  Namely, it did not attach an excessively broad interpretation to rules that, while theoretically susceptible to such a construction, were clearly not intended to have such an overreaching effect.  In an era of Board decisions that have ostensibly transformed the Lutheran Heritage “reasonably construe” standard into a micromanagement weapon wielded against employers to invalidate commonplace personnel policies based on uber speculative constructions untethered to industrial realities, this case may mark the apex of this aggressive push and the beginning of a more rational Board jurisprudence.  The decision returned focus on the original intent of Lutheran Heritage.  That is, rules will only be held to per se violate employees’ rights under the Act if they explicitly restrict Section 7 rights and just because a rule could be interpreted that way does not mean it’s reasonable.

The Board reaffirmed that where a rule does not explicitly restrict Section 7 rights, it will only be found to violate the Act if it can be shown that “(1) employees would reasonably construe the language [of the rule] to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity, or (3) the rule has been applied to restrict the exercise of Section 7 rights.”

Board Finds That Employees Have No Right to Use Customer Data Acquired from Employer’s Records

At issue in this case were three rules confidentiality rules. One restricted the use of “Confidential Information,” which was defined to include “social security numbers or credit card numbers – in short, any information, which if known outside the Company could harm the Company or its business partners, customers or employees or allow someone to benefit from having this information before it is publicly known.”  The other two prohibited the disclosure of “personal data,” including customers’ “names, home and office contact information, social security numbers, drivers’ license number, account numbers and other similar data.”

The ALJ found that these rules unlawfully restricted employees’ Section 7 right to communicate with customers about their work-related concerns. The Board reversed the ALJ on the grounds that the rules only prohibited employees’ use or disclosure of sensitive data (i.e., customers’ social security and/or credit card numbers) or information obtained from the employer’s own confidential records. While the Board reaffirmed the proposition that “employees indisputably have a Section 7 right to concertedly appeal to their employer’s customers for their support in a labor dispute,” the Board held that this right did not usurp their employer’s right to protect and prevent the disclosure of “information their employer lawfully may conceal.” Neither of the Board’s justifications is particularly controversial – the Board has long recognized that employees have no right to use sensitive data or information drawn from the employer’s confidential records.

What is also notable, though, is that the majority rejected the much broader construction advocated by Member Pearce in his dissent, which would have expanded the scope of these rules beyond their apparent lawful parameters, because such a construction, while possible, was not reasonable.

Board Rejects Unreasonable Construction That Parses Out Certain Language from Entire Policy

First, the dissent argued that, as defined, “Confidential Information” would encompass customer contact information because such data could certainly benefit outside entities and/or its disclosure could harm the Company.  The Board majority rejected this contention on contextual grounds because the language attacked by the dissent was preceded by an exemplary list of sensitive personal and proprietary data.  These contextual elucidations, the majority reasoned, effectively precluded employees from reasonably interpreting the prohibition as embracing benign customer data such as names and addresses.  The majority emphasized that just because a rule may be susceptible to a particular construction does not make that construction reasonable.

Board Rejects Speculative Scenario Not Grounded In Evidence

Second, Member Pearce’s dissent argued that an employer cannot restrict the use of customer information maintained in files the employer designates as “confidential” because this information is likely available to all employees in the normal course of their employment duties.  The majority rejected this on two grounds.  First, they pointed out that the Act does not protect employees’ use of information drawn from an employer’s records merely because employees have access to it as part of their duties.  Second, “there is…no evidence in this case that the Respondent’s customer contact information was available to ‘all employees’ as the dissent contends, much less that it was used by them in the course of their normal employment duties…Our colleague’s unsupported speculation as to the Respondent’s ‘likely’ practices cannot substitute for evidence not in the record.”

In recent years, employers have reeled from the Board’s frequent unwillingness to acknowledge the reasonable and obvious intent of ordinary workplace rules and to instead concoct speculative scenarios out of whole cloth to justify finding such policies violative of the Act.  Chairman Miscimarra has long argued that this increasingly frequent approach contradicts the true intent of the Lutheran Heritage “reasonably construe” standard and has imposed impossible burdens on employers trying to craft lawful policies that protect their legitimate business interests.  Chairman Miscimarra has continuously advocated for the Board to repeal and replace the Lutheran Heritage standard because this standard is inherently susceptible to widely varying application and does little to promote the certainty and predictability employers need when promulgating workplace policies.  While the majority in Macy’s did not adopt Chairman Miscimarra’s proposed replacement, Member McFerran did agree to reject the ALJ’s interpretation of the rules and policies in question based on the constrained parsing and overreach that dominated the Obama Board’s application of the “reasonably construe”  standard.

With newly sworn in Member Marvin Kaplan and likely soon to be confirmed William Emanual, in September Chairman Miscimarra will have the first Republican majority of the Decade. However, with Chairman Miscimarra’s announced intention not to seek a second term, he will only have a couple of months in which to lead a newly construed Board in its move to the new standards and tests he has been advocating.

In Midwest Division-MMC, LLC, d/b/a/ Menorah Medical Center v. NLRB, the D.C. Circuit rejected the Board’s unprecedented application of Weingarten rights to voluntary meetings, by reversing the Board’s Decision that would have extended the right of employees to have union representation at meetings at which the employees’ attendance is not compelled.

Kansas state law requires hospitals to establish an internal mechanism to monitor the standard of care provided by nursing professionals.  Pursuant to this law, Menorah Medical Center (“Menorah” or “Hospital”) established a Nursing Peer Review Committee (“Committee”) to investigate alleged violations of the prevailing standard of care.  If substantiated, the Committee reports the violation to the state licensing agency, but the Committee itself does not impose discipline.  If a violation is reported, the state, not the employer, may suspend or revoke a nurse’s license.

In May 2012, two nurses received letters alleging that they had engaged in unprofessional conduct. The letters advised that the nurses could address the Committee at a hearing “if you choose,” but also gave the nurses the option to submit a written statement in lieu of a personal appearance.  Both nurses requested union representation at the Committee hearing, but the Hospital denied their requests.  Their union subsequently filed an unfair labor practice charge alleging that the Hospital violated the National Labor Relations Act (“Act”) by denying the nurses’ requests for union representation at the hearing.

The D.C. Circuit Court Finds There Is No Right to Union Representation at Voluntary Meetings

The Board found that the Hospital’s denial violated the Act because employees have a right to union representation under Weingarten in “interviews where there is a reasonable belief that the employee will be disciplined,” regardless of whether the employees’ attendance is compulsory or voluntary.  This was an overt expansion of employees’ Weingarten rights which only apply to a unionized employee’s right to representation at a mandatory meeting an employer requires them to answer potentially incriminating questions which may result in disciplinary action by the employer.

The D.C. Circuit Court, however, unanimously reversed the Board’s decision. The Circuit Court, quoting the Supreme Court’s Weingarten decision, held that an employee’s Weingarten rights are infringed only when an employer compels an employee’s attendance at an interview that might reasonably be expected to lead to discipline and denies his or her request for union representation.  Specifically, the Supreme Court in Weingarten delineated the limited representation right as:

…the employee’s individual right to engage in concerted activity by seeking the assistance of his statutory representative if the employer denies the employee’s request and compels the employee to appear unassisted at an interview which may put his job security in jeopardy.

Here, the Hospital’s letters to the nurses clearly conveyed their attendance at the hearing was voluntary and even allowed them to submit a written statement as an alternative to attending.  Accordingly, the right to union representation under Weingarten was not triggered.

The Court also rejected the Board’s finding that, after denying a request for union representation in these circumstances, the employer must discontinue the interview unless the employee voluntarily agrees to continue after the employer explains to the employee that he or she has a choice to continue the interview without a representative present or not have the interview at all.  The Court explained that the letters sent to the nurses made it clear that their attendance was voluntary, and Weingarten “contains no suggestion that the NLRA requires an employer to renew advice to an employee that her attendance at a hearing is optional.”  The Court distinguished the precedent relied upon by the Board on the ground that all the cases involved compulsory attendance at interviews.

The Concurrence Suggests Weingarten Rights Do Not Apply Outside Interviews Conducted by Employers

Notably, in a concurring opinion, Circuit Judge Kavanaugh emphasized that the majority’s opinion assumes arguendo that Weingarten rights could apply to peer review committees without deciding this threshold question.  Judge Kavanaugh explained that, were the Court to decide this threshold question, he would hold Weingarten rights do not apply in peer review committee interviews.  Rather, Weingarten rights exist “to redress the perceived imbalance of economic power between labor and management,” and therefore apply primarily in the context of disciplinary investigations conducted by the employer.  When the interview is conducted by a state-mandated peer review committee that is not part of the employer’s disciplinary process, Weingarten rights do not apply.

On Wednesday, the U.S. Senate confirmed Marvin Kaplan, a former Occupational Safety and Health Review Commission lawyer, to fill one of the two open seats on the National Labor Relations Board, moving the agency a step closer to a Republican majority. Kaplan was confirmed on a 50-48 party-line vote by the GOP-controlled Senate.

The Senate has yet to schedule a vote for President Trump’s second nominee for the Board, William Emanuel, a long time management-side labor and employment lawyer. The Senate is expected to vote for cloture on Emanuel’s nomination after the August recess. The cloture vote kicks off a 30-hour period of debate. A final confirmation vote will then be scheduled.

The delay in moving forward on Emanuel’s nomination is the result of several Democrats stalling by raising partisan concerns that Emanuel’s history as a management-side lawyer somehow creates a conflict of interest, notwithstanding their prior support of Board nominees who have had lifelong careers as attorneys for unions, and indeed in numerous other instances, attorneys who represented employers. For example, current Member Mark Gaston Peace was longtime union lawyer and the current NLRB General Counsel Richard Griffin, Jr. was the General Counsel of the International Union of the Operating Engineers and a member of the board of directors of the AFL-CIO Lawyers Coordinating Committee.

Emanuel is expected to be confirmed in September despite the delays.

As discussed in our earlier advisory, if the nomination of Emanuel is confirmed by the Senate, which seems likely as of now, the NLRB will not only have its first Republican majority in nine years, it will return to full strength at five members. As cases come before the Board for its consideration, the NLRB will likely reconsider many of the decisions of the Democratic majority Obama Board. However, as we have noted, NLRB General Counsel is expected to serve out his four year term and remain in that critical post, in which he decides in many respects, which issues are litigated and presented to the Board, through November 3, 2017.

As we noted in our earlier blog, the Board is likely to consider a number of significant legal issues once the final vacancy is filled, including the NLRB’s standards for determining whether joint employer relationships exist, the standards for evaluating whether handbooks and work rules unlawfully interfere with employees’ rights under the National Labor Relations Act (“NLRA”), the Board’s standards for determining what are appropriate units for collective bargaining including a review of the so-called “mircro-units” approved by the Obama Board, the status graduate students and research assistants as employees under the NLRA with the right to collective bargaining, and a host of other decisions from the past eight years that more expansively interpreted the NLRA.

According to news reports, the Trump administration has submitted Marvin Kaplan and William Emanuel for FBI background checks, and it plans to nominate them by June to fill a pair of vacancies at the National Labor Relations Board (“NLRB”).

The administration hopes to have the new members confirmed by the Senate before the August recess.

Kaplan is currently counsel to the commissioner of the independent Occupational Safety and Health Review Commission. He previously served as the Republican workforce policy counsel for the House Education and the Workforce Committee.

Emanuel is a shareholder at the management firm Littler Mendelson PC in Los Angeles. He has represented business groups seeking to invalidate state laws that his clients say allow unions to trespass on their property.

The five-seat board currently only has three members: Chairman Philip A. Miscimarra (R) and Members Mark Gaston Pearce (D) and Lauren McFerran (D). The vacant seats are reserved for Republicans. The Board is generally composed of three Members of the President’s party and two from the other party.

If President Trump’s nominees are confirmed by the Senate, the NLRB will have its first Republican majority in nine years.

As discussed in our earlier advisory, the board is likely to consider a number of significant legal issues once the vacancies are filled, including the NLRB’s test for determining whether joint employer relationships exist, the standards for evaluating whether handbooks and work rules interfere with employees’ rights under the National Labor Relations Act “(NLRA”), appropriate units for collective bargaining, the question of whether graduate students and research assistants are employees under the NLRA with the right to collective bargaining and a host of other decisions from the past eight years that more expansively interpreted the NLRA.

While this will ultimately be a welcome change to employers, for those with cases pending the current union leaning majority may still have several months to issue Obama-era type decisions.