Executive Labor Summary - May / June 2016

by Constangy, Brooks, Smith & Prophete, LLP

DOL Persuader Rule will not take effect July 1, after court issues preliminary injunction – In the second decision to be issued in the three lawsuits challenging the U.S. Department of Labor’s new “Persuader Rule,” a federal judge in Lubbock, Texas, granted the request for a nationwide injunction filed by a number of employer groups and state attorneys general who had sued to challenge the rule. The injunction order in National Federation of Independent Business v. Perez at least temporarily blocks the rule from taking effect on Friday, July 1. The new rule was to apply to so-called “persuader activity” that took place pursuant to agreements between employers and their outside consultants or attorneys that are entered into on or after July 1.

The rule was intended to force reporting by employers, as well as by their third party consultants and lawyers, of information about activity conducted by the third party consultants and attorneys to “indirectly” persuade employees about their labor organizing and collective bargaining rights. Although reporting of so-called persuader activity has always been required by the Labor Management Disclosure and Reporting Act, that statute has an “advice exemption” that long has been interpreted by the DOL to exempt “advice” that might have a “persuading” object, as long as the consultant or attorney does not communicate with employees directly and is providing “advice” to the employer that the employer is free to accept or reject.

Under the new Persuader Rule, this “advice exemption” would essentially be eliminated, with the upshot being that that a broader range of consultant and attorney activity on behalf of employers would have to be reported to the DOL and made publicly available.  Employers and their outside labor relations advisors and attorneys would have been required to report any employer-paid third party activity that had “an objective” of persuading employees regarding union organizing and collective bargaining.

National Federation of Independent Business v. Perez

The plaintiffs in the Texas case sought a preliminary injunction to block enforcement of the new rule before its July 1 effective date. A preliminary injunction effectively grants immediate relief before there has been a full hearing on the merits of the case. Thus, a preliminary injunction generally will not be granted unless the party seeking the injunction convinces a court (among other things) that the party is likely to succeed on the merits of a claim and is likely to suffer “irreparable harm” if the injunction is not granted. A court generally will also balance the possible effects of the injunction on the parties and consider whether a preliminary injunction is in the public interest.

After a hearing at which the plaintiffs presented evidence but the government presented none, Senior District Judge Sam R. Cummings found that the plaintiffs were likely to succeed in showing that the Persuader Rule conflicts with the language of the LMRDA and therefore is invalid on its face. Specifically, he criticized the DOL’s interpretation of the LMRDA, as embodied in the new rule, that “persuader” activity and protected “advice” are mutually exclusive categories of activity under the rule, noting that the DOL’s position had been rejected by at least two U.S. courts of appeal. Judge Cummings concluded that the new rule was “defective to its core because it eliminates the LMRDA’s advice exemption.”

In addition to finding that the rule was “defective to its core,” Judge Cummings found that the plaintiffs were likely to succeed on the following claims:

1. That the DOL’s new rule is arbitrary, capricious, and an abuse of discretion, because among other things, generally, the DOL had not shown any genuine need for a new rule, and the new rule intruded on the attorney-client privilege and undermined the confidentiality that is critical to attorney-client relationships.

2. That the new rule violates free speech and association rights guaranteed by the First Amendment to the U.S. Constitution because it imposes content-based burdens on speech with no showing of a compelling federal interest. The judge took the DOL to task for its assertion that the rule was necessary for employees to be well informed in representation elections. Under current election scheduling rules, elections typically occur within 30 days of the filing of a petition, long before the deadline for disclosures to be made on DOL forms under the Persuader Rule.

3. That the new rule is unconstitutionally vague in violation of the due process clause of the Fifth Amendment to the U.S. Constitution, generally because the rule fails to provide any reasonable clarity as to what activity must be reported and what is exempted “advice” under the LMRDA.

4. That the new rule violates the Regulatory Flexibility Act because the DOL had improperly calculated the estimated the costs of the regulation and failed to make an appropriate cost-benefit analysis.

After finding that the plaintiffs had established that they were likely to succeed on their claim that the new rule was invalid, Judge Cummings concluded that they had also established that they would suffer irreparable harm if the rule were permitted to go into effect on July 1. Key factors influencing his conclusion were the new rule’s content-based impairment on free speech and the damage the rule would cause to attorney-client relationships because of the intrusion on the attorney-client privilege. He concluded that the DOL would suffer no harm from delay of an invalid rule and that the public interest would be served by the protection of confidential attorney-client relationships and the protection of constitutional rights.

Based on these conclusions, Judge Cummings granted the plaintiffs’ motion for a preliminary injunction and thus enjoined the DOL from implementing “any and all aspects” of the new rule, pending a final resolution of the merits in the case or until further order of the court, the U.S. Court of Appeals for the Fifth Circuit, or the U.S. Supreme Court.

It is important to note that a preliminary injunction is just that – preliminary. The judge indicated that he would issue a scheduling order for trial in the near future, which will allow a final ruling on the merits of the case. We expect the current DOL leadership, which is among the most aggressively anti-employer in recent history, to appeal Judge Cummings’ decision and try to give renewed life to the new rule, which has been a goal of organized labor and its political allies both inside and outside the DOL for more than five years.

Where employers and their advisers stand now

For now, employers and their outside labor advisers (whether consultants or attorneys) can rely on the injunction to block the new rule from taking effect. As mentioned above, two other challenges to the Persuader Rule are pending in other federal courts. In one of the cases, Labnet, Inc., d/b/a Worklaw Network v. U.S. Department of Labor, a federal district judge in Minnesota last week refused to issue a preliminary injunction. However, the judge indicated that he also believed the rule was invalid (although on more limited grounds than those that applied to the NFIB decision from Texas) and denied the injunction, apparently because he preferred that the validity of the rule be determined in a final proceeding on the merits. The third court challenge to the new rule is pending in federal court in Arkansas. There has been no decision in that case.

For now, the good news is that two federal judges have indicated that the new rule probably conflicts with the express language of the LMRDA and is invalid at least for this reason alone. The NFIB decision, with its injunctive relief from a burdensome, costly regulation that intrudes on the time-honored and nearly sacred attorney-client privilege, is a very positive development for employers and their attorney advisers. In a global economy, it is also good for the public, including employees who are now in competition with automation and workers from other countries.

Recent decisions create split over whether class action waivers in arbitration agreements violate the NLRA - On May 26, the U.S. Court of Appeals for the Seventh Circuit decided in Lewis v. Epic Systems Corp. that an arbitration agreement that prohibited employees from participating in any class, collective, or representative proceeding violated the employees’ right to engage in protected concerted activity under Section 7 of the National Labor Relations Act. The NLRB has taken the same position since its 2012 decision in D.R. Horton, Inc. The Lewis decision appears to be the first time that a U.S. appeals court has agreed with the NLRB.The Second, Fifth, and Eighth circuits have rejected the Board’s position, and a case involving the issue is pending before the Ninth Circuit. Most recently, in the June 2 decision in Cellular Sales of Missouri, LLC v. NLRB, the Eighth Circuit held that a provision in an employment agreement that required individual arbitration of disputes did not violate the NLRA. The court thus refused to enforce an NLRB order to rescind the agreement. The split among the circuits on this issue of importance to employers, employees, and the current NLRB majority arguably makes the issue ripe for review by the U.S. Supreme Court.

NLRB “quickie elections” rule gets court approval . . . again. - On June 11, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court decision upholding the NLRB’s “quickie elections” rule, which took effect on April 14, 2015. Employer groups in the case, Associated Builders and Contractors of Texas, Inc. v. NLRB, had challenged the rule on various grounds. The Fifth Circuit panel found that the NLRB had identified an evidentiary basis for its rule and “acted rationally and in furtherance of its congressional mandate in adopting the rule.” A federal district court in the District of Columbia reached the same result in July 2015.

Thus, it appears that the quickie elections rule is alive and well. The rule is credited with bringing the average time between representation petition and election down from approximately 38 days to 24 days, giving most employers less time to respond to union petitions. This shortened time period in combination with the NLRB’s Specialty Healthcare decision, which allows unions to pick “most-attractive” groupings for successful organizing, tilts the playing field in the direction of organized labor, which continues to grasp for membership gains by using the political process to affect policy at the NLRB. Employers and employees who desire an informed electorate, rather than one voting based strictly on emotions or unattainable promises, will want to stay out in front of union petitions with accurate information and lawful communication.

NLRB recognizes new “mixed-motive” claim when employers hire permanent replacements for economic strikers - On May 31, an NLRB panel ruled 2-1 to change its longstanding precedent with respect to the hiring of permanent replacements for economic strikers. The old rule, based in part on the U.S. Supreme Court's 1938 holding in NLRB v. Mackay Radio, was that an employer subject to a strike by employees over economic issues and other terms and conditions of employment could permanently replace (not fire or terminate) the strikers. Until now, the NLRB has interpreted Mackay Radio as meaning that the employer’s right to permanently replace strikers is virtually absolute, unless there was an “independent unlawful reason” for replacing the strikers.

The NLRB cannot overrule the Supreme Court, so Mackay Radio remains in place, but the Board is now more narrowly circumscribing employers’ right to replace economic strikers.  Under the Board panel’s recent decision in American Baptist Homes of the West, permanent replacement of an economic striker will be deemed unlawful by the Board if the decision to replace is driven by any motive unlawful under the NLRA (for example, a desire to retaliate against an employee for exercise of Section 7 rights). The Board found that American Baptist Homes permanently replaced economic strikers not solely to be able to continue to operate during the strike, but also to “teach them a lesson” and deter future strikes.

For more than 50 years, the NLRB rule had been that the motives for a decision to the hire permanent replacements for economic strikers were irrelevant except when there was evidence that the employer acted for “an independent unlawful reason” that was unrelated to the strike or the collective bargaining situation causing the strike. Under the new Board rule, an employer hiring permanent replacements apparently will be found to violate the NLRA if it acts for the intent or purpose of (1) discriminating against an employee because of protected concerted activity or (2) discouraging future protected concerted activity, even if the intent or purpose is related to the strike or bargaining situation. Based on the Board’s new rule, employers who are thinking about permanently replacing economic strikers should be prepared to demonstrate that continued operation of the business during an economic strike is the only reason for the permanent replacements. This may be very difficult to establish, especially to the satisfaction of the current NLRB General Counsel, Board region staff, or the current Board majority, which can be expected to scrutinize why the employer could not have used temporary replacements to continue operating during the strike. As Board Member Philip Miscimarra aptly pointed out in his dissent, “... under the [Board majority rule] ... if the employer hires permanent replacements, it appears that any evidence of anti-strike animus will render unlawful the employer’s actions, resulting in potentially debilitating back pay liability.”

Supreme Court denies rehearing to California teachers challenging public sector union fee requirement - As we reported earlier this year, public school teachers in California challenged a compulsory union fee requirement under a collective bargaining agreement between the state and a union. The teachers contended that the fee violated the First Amendment of the U.S. Constitution by forcing them to support political activity of the union with which they did not agree. The case was argued before the nine-member U.S. Supreme Court, but Justice Antonin Scalia died before the decision was rendered. The eight-member Court split 4-4, leaving in place a Ninth Circuit ruling, which held that the teachers could be forced to pay fees that are used for collective bargaining and related union activity that is not directly political or ideological.

The teachers filed a request for reconsideration, asking the Court to defer a ruling until the Court was back to its full complement of nine justices. On June 28, the Court said no. More cases like this are in the pipeline and may again get to the Supreme Court. Many see union activities as inherently political, especially when the union is dealing with an arm of the government, be it a school district or otherwise.

No-strike/no-lockout clause locks women’s soccer team out of strike - The U.S. Women’s National Soccer Team Players Association has complained about the women’s compensation in comparison with that of the men’s national team, which arguably has had less tangible success based on win-loss records. The Players Association has filed a charge of discrimination against the U.S. Soccer Federation with the Equal Employment Opportunity Commission, and apparently was also ready to go on strike in advance of the 2016 Olympic Games in Rio de Janeiro. But the Players Association and the Federation were parties to a collective bargaining agreement that was in effect from 2005 through 2012, and it included a no-strike/no-lockout clause. The parties extended the agreement in 2013 through 2016. It apparently was made clear in emails and other communications between the parties’ representatives that the extension agreement included the no-strike/no-lockout clause. Nonetheless, the Players Association contended that the no-strike/no-lockout clause was not extended because it was not specifically included in the extension memorandum. The parties ended up in court, and on June 3, Judge Sharon Johnson Coleman of the U.S. District Court for the Northern District of Illinois ruled that the no-strike/no-lockout clause did indeed bar the players from striking. Hopefully, the Players Association and Federation will pull together to put the would-be strikers on the field to strike for some goals in the Rio Olympics this summer.

Employer gets ICE-y reception from NLRB judge - An Administrative Law Judge of the NLRB recently issued a recommended decision and order in Ruprecht Company, finding that an employer’s decision to enroll itself in the federal government’s E-Verify program was a mandatory subject for bargaining with a union representing employees who might have been affected by the results. The employer enrolled in E-Verify after an audit by the U.S. Immigration and Customs Enforcement caused the employer to lose approximately two thirds of its workforce, which was represented by Unite Here Local 1. After the employer enrolled in E-Verify and began using it, employees told the union, the union filed a charge, and the NLRB issued a complaint. On stipulated facts, ALJ Joel Biblowitz found a violation of the NLRA, concluding that the enrollment in E-Verify was a term and condition of employment requiring notice and opportunity for the union to bargain on request. We’ll see whether this decision is “verified” by the full Board or a panel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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