An Early Holiday Gift to Employers: Newly Constituted NLRB Overturns Two Pro-Employee Decisions

by Pepper Hamilton LLP
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On December 14, the Republican-majority National Labor Relations Board (NLRB) issued two employer-friendly decisions that reversed pro-employee rulings. In each 3-2 decision, the two Democratic members of the NLRB — Mark Gaston Pearce and Lauren McFerran — dissented.

In the first decision, Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017), the NLRB overruled the controversial joint-employer standard set forth by the Obama-era NLRB in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (2015), and ruled that the joint-employer standard would return to that which existed before the Browning-Ferris decision. In The Boeing Company, 365 NLRB No. 154 (2017), the NLRB overruled the “reasonably construe” standard from Lutheran Heritage Village–Livonia, 343 NLRB No. 646 (2004), which held that an employer’s maintenance of a facially neutral rule would be unlawful under Section 7 of the National Labor Relations Act (NLRA) if employees would reasonably construe the rule to prohibit Section 7 activity.

The subjects at issue in Hy-Brand (joint-employer standard) and The Boeing Company (facially neutral handbook/policy provisions) were among those cited in the memorandum issued by new NLRB general counsel Peter Robb on December 1, 2017 as examples of high-priority issues that now must be submitted to the Office of General Counsel’s Division of Advice for review. The decisions in Hy-Brand and The Boeing Company are sure to be followed by other decisions reversing rulings made by the NLRB when it had a Democratic majority, particularly those that involve other issues identified in the general counsel’s memorandum, such as employee use of an employer's email system for Section 7 activity and off-duty employee access to property.

Hy-Brand Decision

In August 2015, the Obama-era NLRB issued a landmark decision in Browning-Ferris, significantly lowering the burden of proving that two entities are joint employers. Among other effects, the Browning-Ferris standard made it easier for unions to organize contingent workers. The joint-employer standard set forth in Browning-Ferris required only a finding that (1) the two separate employers were both employers within the meaning of the common law and (2) they shared or co-determined matters governing the essential terms and conditions of employment, which encompasses a broad variety of factors, including hiring, firing, discipline, supervision, direction of work, wages, hours of work, scheduling the number of workers, seniority, overtime and work assignments. Notably, the exercise of such control did not have to be direct and immediate, and the mere right to control, even if unexercised, was probative of a joint-employer relationship.

With Hy-Brand, the NLRB took the opportunity to revisit the joint-employer standard and decided to return to the pre-Browning-Ferris standard. In the case, employees of two companies, Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co., were discharged from their respective employers after they engaged in work stoppages due to concerns about wages, benefits and workplace safety. An administrative law judge (ALJ) found that the entities were in fact joint employers. The NLRB agreed with the ALJ’s conclusion, but it held that the ALJ applied the wrong standard in reaching that conclusion. The NLRB stated in strong terms that “the Browning-Ferris standard is a distortion of common law as interpreted by the NLRB and the courts, it is contrary to the Act, it is ill advised as a matter of policy, and its application would prevent the NLRB from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.” The NLRB’s fundamental disagreement with the Browning-Ferris decision was that it makes indicia of indirect and potential control dispositive of a joint-employer relationship without any evidence of direct control in a single area.

Under the new standard announced in Hy-Brand, to be considered a joint employer for purposes of the NLRA, there must be proof that “putative joint employer entities have exercised 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 the joint-employer status will not result from control that is ‘limited and routine.’” Under this resurrected joint-employer test, it will be more difficult for employees and unions to prove the existence of a joint-employer relationship.

Although the Hy-Brand joint-employer standard governs NLRB cases for now, the issue is not settled. The Browning-Ferris decision was appealed and is pending before the U.S. Court of Appeals for the D.C. Circuit, which may dismiss the appeal as moot or issue a ruling. And the House of Representatives passed the Save Local Business Act in November, which would amend the NLRA and the Fair Labor Standards Act to provide that, to be a joint employer, an entity must exercise “actual, direct, and immediate” significant control over employees’ essential terms and conditions of employment. Rep. Bradley Byrne (R-Ala.), who sponsored the bill, stated that, despite the Hy-Brand ruling, he would “continue working for a permanent legislative solution to prevent any future NLRB from redefining what it means to be an employer.”

The Boeing Company Decision

Under The Boeing Company decision, for the first time in more than a decade, employers will have more flexibility in drafting and adopting employee handbooks and employment-related policies.

Section 7 of the NLRA provides employees with the right to (1) form, join or assist unions; (2) engage in collective bargaining; and (3) engage in other concerted activities for the purpose of mutual aid or protection. Section 8(a)(1) of the NLRA makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of rights guaranteed in Section 7” of the NLRA.

Since 2004, the NLRB has relied on its decision in Lutheran Heritage to determine if an employer policy or handbook provision violated federal labor law. Under Lutheran Heritage, an employer’s work rule was considered unlawful if it explicitly restricted protected conduct under the NLRA. If the rule was facially neutral, the rule could still be unlawful if (1) the rule was created in response to union activity; (2) the rule had been applied to restrict employees’ Section 7 rights; or (3) an employee would reasonably construe the policy to prohibit protected Section 7 activity.

During much of the Obama administration, the Democrat-controlled NLRB applied Lutheran Heritage and issued rulings finding that seemingly innocuous employee handbook policies ran afoul of the NLRA. In recent years, the NLRB concluded that relatively standard employer policies “chilled” employees from exercising their rights under the NLRA because an employee could “reasonably construe” a policy to prohibit protected activity. Policies found to be unlawful included rules governing courtesy and respect in the workplace, confidentiality, interactions with the news media, and use of social media.

The NLRB reversed course in The Boeing Company and overturned Lutheran Heritage, articulating a new standard for determining whether an employer policy violates the NLRA. In reversing Lutheran Heritage, the NLRB wrote that it “will no longer find unlawful the mere maintenance of facially neutral employment policies, work rules and handbook provisions . . . which made legality turn on whether an employee ‘would reasonably construe’ a rule to prohibit some type of potential Section 7 activity that might (or might not) occur in the future.” The NLRB wrote further that Lutheran Heritage “prevents the NLRB from giving meaningful consideration to the real-world ‘complexities’ associated with many employment policies, work rules and handbook provisions.”

Under the new standard announced in The Boeing Company, when evaluating a facially neutral policy, rule or handbook provision that could potentially interfere with the exercise of NLRA rights, the NLRB will evaluate “(i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule.” In applying this balancing test, the NLRB expects to classify employer rules and policies into one of three categories:

  • “Category 1 will include rules that the Board designates as lawful to maintain, either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule.”

  • “Category 2 will include rules that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.”

  • “Category 3 will include rules that the Board will designate as unlawful to maintain because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.”

Although the NLRB noted that the legality of any employer rule will turn on the particular facts, the NLRB believes that its new standard will provide greater clarity and certainty to employees, employers and unions and allow the NLRB to “strike the proper balance between . . . asserted business justifications and the invasion of employee rights in light of the Act and its policy.”

While only time will tell, the standard set forth in The Boeing Company should provide employers with clearer guidance regarding the legality of their employment policies. But it does not provide employers with carte blanche — employers still need to review their policies to determine whether they may be held to violate the NLRA. The beginning of 2018 represents the perfect opportunity for companies to review and revise their employee handbooks to ensure compliance with the NLRA and all applicable federal, state and local laws.

Conclusion

The change in the majority composition of the NLRB from Democratic to Republican will likely continue to result in rulings that reverse or significantly change standards set over the last eight years. The good news for employers is that those new standards will likely favor employers. As with any set of changes, however, employers must keep abreast of these developments and adjust their own policies and practices accordingly.

 

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