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.

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

The 2016 Final Rule Would Have Eviscerated the Advice Exemption

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

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

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

The DOL Was Enjoined from Enforcing the 2016 Final Rule

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

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

The DOL Has Now Withdrawn the 2016 Final Rule

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

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

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

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

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.

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.

Peter B. Robb, the newly sworn in General Counsel of the National Labor Relations Board has issued a memorandum, Mandatory Submissions to Advice, GC Memo 18-02 (the “Mandatory Submissions Memo”), that offers clear information as to how he is likely to proceed in setting the agenda and priorities for the Office of the General Counsel which is “responsible for the investigation and prosecution of unfair labor practice cases and for the general supervision of the NLRB field offices in the processing of cases.” As we have previously noted, such Mandatory Submission memos offer a roadmap of the General Counsel’s priorities on cases and issues that he wants to get before the Board and often present a window into the General Counsel’s thinking about how he is likely to proceed.

“The Past Eight Years Have Seen Many Changes in Precedent”

In something of an understatement, reflecting on the activist Board of the Obama administration, the General Counsel observes that “the last eight years have seen many changes in precedent” from long standing Board holdings, “often with vigorous dissents.”   The Mandatory Submissions Memo identifies a number of the areas in which the Board moved in a more activist manner and identifies issues that the new General Counsel will seek to bring back before the Board.

All Cases Involving Significant Legal Issues Will Now Be Submitted to Advice

The Division of Advice, which is part of the Office of the General Counsel is charged with providing guidance to the Board’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.”

Under the Memo, the General Counsel has directed that the following cases be submitted for guidance as cases “involving significant legal issues”:

  • “Cases that involve issues over the last eight years that overruled precedent and involved one or more dissents,”
  • “cases involving issues that the Board has not decided,” and
  • “any other cases that the Regional Offices “believe will be of importance to the General Counsel.”

While the Memo allows the Regional Offices to continue to issue complaints “where issuance is appropriate under current Board law,” the Memo directs the Regional Offices to seek guidance from Advice on how to present such issues to the Board in briefs to Administrative Law Judges and the Courts before filing, so that Advice can “provide appropriate guidance on how to present” or argue the issues.  In other words, Advice and the General Counsel may develop and pursue different legal theories and seek different outcomes and interpretations of the Act in such cases.

The General Counsel Will Not Be Re-Briefing Cases Already Before the Courts and the Board

Many of the most significant decisions of the Obama Board are already before the Supreme Court and the Courts of Appeal, either on applications by the Board for enforcement of its orders, or on requests by employers as respondents appealing from the Board’s decisions. These include cases like Browning-Ferris, the 2015 case in which the Board adopted a new and looser test for determining whether companies are joint employers, and Murphy Oil and D.R. Horton, in which the Board found that requiring employees to waive their rights to bring class claims in wage and hour and other lawsuits and to arbitrate rather than litigate in court, which are before the D.C. Circuit and the Supreme Court respectively.

According to the Mandatory Submissions Memo, “in order to avoid delay,” the General Counsel “will not be offering new views on cases pending in the courts, unless directed by the Board or courts.”

The Memo Identifies Specific Issues and Lines of Cases That Must be Submitted to Advice

The Mandatory Submissions Memo identifies a broad swath of recent Board precedents and topics that must be submitted to Advice, where there is a good chance the new General Counsel will ask the Board to return to pre-Obama Board interpretations of the Act and practices.  These include:

  • Joint –Employer – Browning-Ferris Industries’ holding that joint-employer relationships can be found based on “evidence of indirect or potential control over the working conditions of another employer’s employees.
  • Use of Employer’s Email Systems for Union Activity– The Mandatory Submission Memo calls for the submission to Advice of all cases involving claims based on Purple Communications’ holding that “employees have a presumptive right to use their employer’s email systems to engage in Section 7 activities. The Memo also explains that the new General Counsel is effectively overruling prior Advice Memoranda in which his predecessor noted his initiative “to extend Purple Communications to other [employer owned] electronic systems,” such as the internet, phones and instant messaging systems that employees regularly use in the course of their work.
  • Cases In Which Policies in Employee Handbooks Were Found to Interfere With Section 7 Rights – The Mandatory Submissions Memo indicates the General Counsel will likely be asking the Board to reexamine a broad range of holdings in which policies and conduct standards contained in handbooks and work rules were found to interfere with employees Section 7 rights, in many cases in non-union workplaces. These will include cases finding prohibiting “’disrespectful’ conduct,’ rules prohibiting the use of cameras and recording devices in the workplace, and policies concerning confidentiality in investigations.
  • Cases Involving the Standard For Determining Whether Employees Would Find a Work Rule or Policy to Unlawfully Interfere With Section 7 Rights – Which Board Member Miscimarra – One of the areas in which now NLRB Chairman Philip Miscimarra most frequently disagreed with his colleagues on the Obama Board was over the Board’s use of the Lutheran Heritage test, which he repeatedly described as a test that “defies common sense.” Look for the new General Counsel to ask the Board to adopt the standard which Chairman Miscimarra proposed in his now legendary dissent in William Beaumont Hospital.
  • Cases in Which The Obama Board Expanded the Definition of Concerted Activity For Mutual Aid and Protection In cases such as Fresh & Easy Neighborhood Market the Obama Board expanded the circumstances in which it would find an employee’s actions to be protected, holding that an employee’s actions involving a matter in which “only one employee had an immediate stake in the outcome to be protected.” Such cases must now be referred to Advice and it can be anticipated the General Counsel will ask the Board to reexamine.
  • Cases involving “Obscene, Vulgar or Other Highly Inappropriate Conduct”- The new General Counsel will be considering whether the Board went too far in holding in cases such as Pier Sixty, LLC that even where employees engaged in expletive-laden Facebook post – which hurled vulgar attacks at his manager, his manager’s mother and his family, the employee’s actions remained protected by the Act.

The Mandatory Submissions Memo also identifies each of the following as issues that must be submitted to Advice:

  • Work stoppages on employer premises;
  • The circumstances in which employers may restrict access to employer property at times when employees are off duty;
  • The recent expansion of Weingarten rights in the context of employer-mandated drug testing;
  • Employer obligations and rights with respect to wage increases during bargaining, where the increases are provided to unrepresented employees but not the employees whose wages and increases are being bargained;
  • Claims by unions that employers are successors by virtue of their hiring a predecessor’s employees as required by local laws;
  • The circumstances in which a new employer will be found to be a “perfectly clear successor” obligated to follow its predecessor’s terms and conditions rather than being free to set new terms and conditions for those it hires from a predecessor’s workforce;
  • Whether an employer must disclose and produce witness statements prior to arbitrations; and
  • Whether employers will be required to continue to honor contractual dues check off provisions after a collective bargaining agreement expires.

The New General Counsel Will Be Looking at Recent Expansions of Remedies

One of the hallmarks of General Counsel Richard Griffin Jr.’s term was an attempt by the General Counsel to expand the range of remedies that could be granted in cases where unfair labor practices were found to have occurred. This was done both through administrative action and through arguments presented before the Board.  Such expanded or enhanced remedies included requiring employers to pay unions’ bargaining expenses, providing front pay to discriminates, reimbursing employees for job search and other expenses that had never before been reimbursable under the Act.  These matters too will be subject to review by Advice under the Mandatory Submissions Memo.

Deferral To Arbitration

The Mandatory Submissions Memo states that General Counsel Memorandum 12-01, issued on January 20, 2012, which laid out new standards to be followed by the Regional Offices for determining whether the Board would defer to an arbitrator’s award, is to be withdrawn and no longer followed. The Board’s website in fact already confirms that this memo and the standards it contained were withdrawn as of December 1, 2017.  While the Mandatory Submissions Memo does not expressly say so, it appears that the Regional Offices will now once again follow the Board’s longstanding Collyer deferral standards.

Graduate Students as Employees

Also withdrawn is General Counsel Memorandum 17-01, which addressed the prior General Counsel’s position on the question of whether graduate students and certain student athletes on scholarships should be treated as employees under the Act, as well as the question of whether faculty at religious affiliated universities and colleges teaching secular subjects would be able to organize and enjoy other protections of the Act.

There is Much More To Come

The above are only some of the most interesting areas covered in the Mandatory Submissions Memo.  With just over one week remaining before the conclusion of Chairman Miscimarra’s term on December 16th, observers are expecting a large number of cases that have been briefed before and considered by the Board to be decided. No doubt the decisions of the Republican majority Board will offer further indication of the direction the Board and the General Counsel will likely pursue.