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

The Proposed New Standard

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

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

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

As a practical matter, the new standard should make it much more difficult to establish that a company is a joint-employer of a supplier or other company’s employees. The new standard will mean that a party claiming joint-employer status to exist will need to demonstrate with evidence that the putative joint-employer doesn’t just have a theoretical right to influence the other employer’s employees’ terms and conditions but that it has actually exercised that right in a substantial, direct and immediate manner.

This new standard is likely to make it much more difficult for unions to successfully claim that franchisors are joint-employers with their franchisees, and that companies are joint-employers of personnel employed by their contractors and contract suppliers of labor such as leasing and temporary agencies.

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

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

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

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

What Happens Now?

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

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

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

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

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

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

Changes to NLRB Case Processing – Part 1

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

As the memo points out

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

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

Representation Case Decision Making

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

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

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

Streamlining Advice Branch Submissions

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

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

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

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

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

Streamlining Ethics Issues

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

Changes to Post Investigation Decision Making at the Regional Level

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

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

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

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

Early Retirement Buyout Program

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

What Comes Next?

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

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

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

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

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

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

The Law Applies to Employees Covered by a CBA

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

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

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

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

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

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

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

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

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

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

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

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

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

_________________

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

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

The 2016 Final Rule Would Have Eviscerated the Advice Exemption

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

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

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

The DOL Was Enjoined from Enforcing the 2016 Final Rule

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

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

The DOL Has Now Withdrawn the 2016 Final Rule

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

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

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

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

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 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.

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.

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.

Over the past several weeks there have been conflicting reports concerning what The New York Times described as “a proposal” by Peter Robb, who was sworn in as the National Labor Relations Board’s  (“NLRB” or the “Board”) General Counsel on November 17, 2017, to “demote” the Board’s Regional Directors and career “senior civil servants who resolve most labor cases,” and transfer their decision making authority to “a small cadre of officials installed above them in the National Labor Relations Board’s hierarchy,” apparently answerable to the General Counsel.

Under the Board’s long standing organizational structure, the Regional Directors, who oversee the NLRB’s 26 Regional Offices, oversee the investigation of unfair labor practice charges, including making the determination, after investigation by attorneys and field examiners assigned to the Regional Offices, whether charges are supported by probable cause and should be prosecuted before an Administrative Law Judge or be dismissed.  They also oversee the processing of representation petitions and the conduct of elections in which employees vote on union representation.

The Regional Directors’ Letter

According to a letter on behalf of the 24 current Regional Directors, in a conference call on January 11, 2018, Mr. Robb outlined a series of steps he was considering to restructure the Board’s field offices and the Regional Directors’ role.  Highlights of the proposal described in the letter included:

  • Eliminating the Board’s Regional Offices and replacing them with “large Districts;”
  • Downgrading or demoting the current Regional Directors from SES positions to lower graded GS-15 status; and
  • Transferring the Regional Directors’ substantive decision making responsibilities to a new layer of managers under the General Counsel’s direction.

Currently Regional Directors generally have broad authority to review unfair labor practices cases and determine whether those cases move forward. The General Counsel’s reported proposal would have the effect of removing much of the NLRB’s prosecutorial powers and discretion from these career employees and instead placing these responsibilities with persons appointed by the General Counsel.

In the letter the Regional Directors expressed their concerns to Robb, saying that his proposal would have a “severe and negative impact on our agency and our stakeholders” and “will cause senior Directors and managers, whose institutional knowledge is a valuable asset to the Agency, to retire sooner than they otherwise intended.”

The Regional Directors’ letter states that while the Regional Directors had initially understood that any consideration of restructuring the Regional Offices and the existing structure would be “in response to budgetary concerns,” Mr. Robb told them during the call that “the restructuring would take place regardless of budgetary considerations.”

The General Counsel Has Denied The Reports

At this point, the General Counsel has not made public a plan to reorganize or restructure the Board’s offices and structure. Speaking before a January 19, 2018 meeting of the American Bar Association’s Committee on Practice and Procedure Before the National Labor Relations Board, Mr. Robb denied having told the Regional Directors that he had formulated such a plan, and reportedly stated that such a plan would require the approval of the Board itself, the five Presidential appointees who are subject to Senate confirmation.  Board Chairman Marvin Kaplan has also reportedly stated that under the structure whereby the Board delegates certain authority to the General Counsel, such a restructuring would require Board approval.

The reported proposal follows a series of aggressive changes in posture at the NLRB since last fall, when Republicans gained a majority on the five-member Board. Mr. Robb’s proposal likely needs the Board’s approval to go into effect.  Since Member Phillip Miscimarra’s departure on December 16, 2017, however, the Board has been split between 2 Democrats and 2 Republicans.  Republicans will regain control of the Board if the Senate confirms John Ring for the currently open seat.

However, there can be no question that given recent budgets and those likely in the future, the NLRB will be required to get by with fewer resources, which probably means fewer employees since the vast majority of its budget is devoted to salary and benefits costs. Notably, the NLRB has also been faced with declining budgets and appropriations over the past several years. Last year, the Board’s budget was slashed by $16 Million, from $274 Million to $258 Million, the lowest level since 2009.

In fact, data published on the Board’s website reflects a steady decline in the number of charges filed over the past decade, from 22,497 charges in fiscal 2008 to 19,280 in fiscal 2017. Similarly, the number of election petitions filed by unions over that period declined from 2,418 to 1,854.

The Board and General Counsel’s Office Are Looking at Changes

Notably, on January 31, 2018, an email concerning “Case Processing Suggestions,”  along with a 4 page memo described as a “draft summary of suggestions” for improving Board processes and procedures, and presumably helping to address the pressures resulting from the Board’s reduced budget, was made public. The email, dated January 29, 2018, describes various suggestions developed from “all levels of the organization” in both the field and headquarters.  Feedback is sought from within the Board’s Regional Offices by February 9, 2018. We will continue to follow and report on developments.