National Labor Relations Board Ends 2017 with a Flurry of Significant Decisions Reversing Recent Pro-Employee Precedents

Dechert LLP

Dechert LLP

Abandonment of Controversial Standards for Joint Employment and Review of Employer Policies Headline Slew of Changes

Since the election of President Trump, it has been a question of “when,” not “if,” the National Labor Relations Board (the “Board” or the “NLRB”) would revisit many of the noteworthy decisions issued by the Board during the Obama administration. With Chairman Philip A. Miscimarra’s term expiring on December 16, 2017, the Board issued a number of such decisions in mid-December. Among these were:

  1. The rejection of the much-maligned joint employer standard announced by the Board in 2016 in Browning-Ferris Industries of California, Inc.
  2. The adoption of a more employer-friendly standard for reviewing employer policies that are alleged to “chill” protected activity.
  3. A return to the traditional community-of-interest inquiry for determining the appropriateness of proposed bargaining units.
  4. The re-establishment of a rule allowing employers to make unilateral changes to employees’ terms and conditions that are consistent with past practice.

These decisions, which are likely to be only the first in a continued assault on the pro-employee policies adopted by the Board in recent years, are discussed in greater detail below. 

Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (Dec. 14, 2017). Few Board decisions in recent decades have generated the uproar that followed in the wake of Browning-Ferris. In Browning-Ferris, 262 NLRB No. 186 (2015), the Board dramatically expanded the circumstances in which two or more employers could be considered joint employers. Citing the fact that “the diversity of workplace arrangements in today’s economy has significantly expanded,” the majority in Browning-Ferris ruled that an entity need not actually exercise control over an employee’s terms and conditions of employment to be a joint employer; instead, the right to exercise such control is sufficient: “Where a user employer reserves a contractual right to set a specific term or condition of employment for a supplier employer’s workers, it retains the ultimate authority to ensure that the term in question is administered in accordance with its preferences.” Further, the majority concluded, a joint employer that exercises its right to control workers need not exercise that authority “directly and immediately,” nor should it be necessary that the putative joint employer’s control be exercised in something other than a “limited and routine manner.” Relying on this new standard, the Board, during the Obama administration, aggressively imposed liability on companies that previously had not been deemed to be employers, including franchisors and “user” employers that retain the services of workers through third-party staffing agencies.

The decision in Browning-Ferris met with a vigorous dissent that denounced the decision as “subject[ing] countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what would have heretofore been unlawful secondary strikes, boycotts and activities.” Citing these same concerns, the majority in Hy-Brand reversed Browning-Ferris, finding that its standard “is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.” Concluding that Browning-Ferris “fundamentally altered the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships under the Act,” the Hy-Brand majority announced a “return…to a standard that has served labor law and collective bargaining well, a standard that is understandable and rooted in the real world [and that] recognizes joint-employer status in circumstances that make sense and would foster stable bargaining relationships.” Pursuant to this standard, “a finding of joint-employer status shall once again require proof that putative joint employer entities have 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.’”

The Boeing Company, 365 NLRB No. 154 (Dec. 14, 2017). In Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004), the Board held that an employer’s “maintenance” of a work rule will violate the NLRA if it “reasonably tends to chill employees in the exercise of their Section 7 rights.” Under this rule, even if an employer policy does not explicitly prohibit protected conduct and has not been applied to prevent such conduct, the policy will be impermissible if employees would “reasonably construe” it to cover protected conduct. Although the Lutheran Heritage rule was not created during the Obama administration, the Board in recent years increasingly relied on it to invalidate employer policies concerning confidentiality, use of social media, workplace conduct, and other subjects. See, e.g., Triple Play Sports Bar and Grille, 361 NLRB No. 31 (Aug. 22, 2014) (social media policy); Laurus Technical Institute, 360 NLRB No. 133 (June 13, 2014) (employee conduct policy); DirecTV U.S. DirecTV Holdings, LLC, 359 NLRB No. 54 (Jan. 25, 2013) (confidentiality policy). Then-Member Miscimarra was a particularly vocal critic of Lutheran Heritage (not to mention the Obama Board’s “zeal” in enforcing it), advocating for its abandonment in a number of dissents. See, e.g., William Beaumont Hospital, 363 NLRB No. 162 (April 13, 2016).

In The Boeing Company decision, the Board fulfilled the Chairman’s wish, explicitly overruling the “reasonably construe” prong of Lutheran Heritage on the basis that the standard “prevents the Board from giving meaningful consideration to the real world ‘complexities’ associated with many employment policies, work rules and handbook provisions.” The appropriate standard, the majority wrote, should not involve a “single-minded consideration of NLRA-protected rights,” but should instead take into account employers’ legitimate justifications for adopting work rules and policies. Pursuant to the Board’s new standard, “when evaluating a facially neutral policies, rule or handbook provision that, when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, the Board will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule” in order to “strike the proper balance between . . . asserted business justifications and the invasion of employee rights in light of the Act and its policy.” Application of this new test, the majority stated, will result in the creation of three categories of work rules:

  1. Those that are designated by the Board as “lawful to maintain” because they either do not interfere with protected rights or the “potential adverse impact” is outweighed by an employer’s justifications.
  2. Those that “warrant individual scrutiny.”
  3. Those that are unlawful to maintain because they prohibit or limit protected conduct. Notably, among the first category of rules are the “no camera policy” that was at issue in the Boeing Company case and “other rules requiring employees to abide by basic standards of civility.” Among the third category of unlawful rules are rules “that prohibit employees from discussing wages or benefits with one another.”

The majority emphasized that the new “categories are not part of the test itself,” and that “the Board will determine, in future cases, what types of additional rules fall into which category.” Further, “when deciding cases in this area, the Board may differentiate among different types of NLRA-protected activities (some of which might be deemed central to the Act and others more peripheral), and the Board must recognize those instances where the risk of intruding on NLRA rights is ‘comparatively slight.’ Similarly, the Board may distinguish between substantial justifications--those that have direct, immediate relevance to employees or the business--and others that might be regarded as having more peripheral importance.” The new standard, the majority asserted, “will provide far greater clarity and certainty to employees, employers and unions,” and “the Board’s cumulative experience with certain types of rules may prompt the Board to re-designate particular types of rules from one category to another.”

PCC Structurals, Inc., 365 NLRB No. 160 (Dec. 15, 2017). In this case, the employer PCC Structurals challenged the determination that a bargaining unit comprised of 100 rework welders and rework specialists, rather than a “wall-to-wall” unit of 2,565 production and maintenance employees, was appropriate. In finding the proposed smaller unit to be proper, the Regional Director relied on the Board’s decision in Specialty Healthcare & Rehabilitation Center of Mobile, 357 NLRB 934 (2011), in which the Board held that any bargaining unit consisting of a “readily identifiable” group whose members share a community of interest will be found appropriate unless an employer shows that employees excluded from the unit share an “overwhelming community of interest” with the proposed unit..

In PCC Structurals, a 3-2 majority of the Board overruled Specialty Healthcare. According to the Board, the Specialty Healthcare standard “discounts—or eliminates altogether—any assessment of whether shared interests among employees within the petitioned-for unit are sufficiently distinct from the interests of excluded employees to warrant a finding that a smaller unit is appropriate.” This deficiency, the majority concluded, “undermines fulfillment of the Board’s responsibility to ‘assure’ to employees ‘in each case’ their ‘fullest freedom’ in the exercise of Section 7 rights.” The proper standard, the Board held, was the “traditional” community-of-interest test, pursuant to which “the Board will determine whether the petitioned-for employees share a community of interest sufficiently distinct from employees excluded from the proposed unit to warrant a separate appropriate unit.” In conducting this inquiry, “the Board may find that the exclusion of certain employees renders the petitioned-for unit inappropriate even when the excluded employees do not share an ‘overwhelming’ community of interest with employees in the petitioned-for unit.”

Raytheon Network Centric Systems, 365 NLRB No. 161 (Dec. 15, 2017). It has long been the rule under the NLRA that an employer may not make a unilateral change to the terms and conditions of employment of union-represented employees without first providing their union with notice and an opportunity to bargain. See NLRB v. Katz, 369 U.S. 736 (1962). In Raytheon, the Board considered the question of whether the parties’ past practice is relevant to the determination of whether an employer’s action constitutes a “change” about which bargaining is required.

At issue was Raytheon’s unilateral modification of employee medical benefits following the expiration of its collective bargaining agreement with the United Steelworkers. Such modifications, the record demonstrated, were consistent with the parties’ past practice, pursuant to which Raytheon “had made similar modifications to healthcare costs and benefits at the same time every year from 2001 through 2012.” The Steelworkers argued that Raytheon’s actions following the contract’s expiration were inconsistent with the Board’s decision in E.I. du Pont de Nemours, 364 NLRB No. 113 (2016), in which it held that “unilateral, post-expiration discretionary changes are unlawful, notwithstanding an expired management-rights clause or an ostensible past practice of discretionary change developed under that clause .” According to the Board in DuPont, although “the status quo that must be maintained after a contract’s expiration includes extra-contractual terms and conditions of employment that have become established by past practice,” the definition of what constitutes a past practice that justifies an employer’s unilateral change is “narrow,” and does not encompass changes that involve exercise of “discretion” on the part of an employer.

The Raytheon Board overruled DuPont, finding that its rule is “fundamentally flawed” and “distorts the long-understood, commonsense understanding of what constitutes a ‘change.’” “Henceforth,” the Board wrote, “regardless of the circumstances under which a past practice developed—i.e., whether or not the past practice developed under a collective-bargaining agreement containing a management-rights clause authorizing unilateral employer action—an employer’s past practice constitutes a term and condition of employment that permits the employer to take actions unilaterally that do not materially vary in kind or degree from what has been customary in the past.” This rule, the Board stated, is not only consistent with Katz, but will provide “certainty beforehand” to employers and allow the parties to better understand their “respective rights and obligations” upon expiration of an agreement. The Board also cautioned that its holding “has no effect on the duty of employers…to bargain upon request over any and all mandatory subjects of bargaining, unless an exception to that duty applies.”

In conclusion, the Board’s series of recent decisions reflects a clear, if not unexpected, change in direction. The decisions reflect an explicit acknowledgement and consideration of the interests of employers in formulating and applying the rules governing management-union relations. While the pace of change may slow temporarily while the vacancy created by Chairman Miscimarra’s retirement is filled, it seems clear that the Board will show no reluctance in implementing the changes its Republican members had forcefully, but futilely, advocated during the Obama years.

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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