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Gale Force Winds of Change: National Labor Relations Board Reverses Course on Workplace Rules and Joint Employer Standards

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December 15, 2017

By Chris Johlie and Amy Moor Gaylord

Just two days ago, we noted that the winds of change are blowing at the NLRB. Yesterday, those winds picked up considerable force as the newly-constituted NLRB dismantled two earlier cases that were the subject of extensive employer criticism.

Workplace Rules

In The Boeing Company, the Board overruled Lutheran Heritage Village-Livonia, a 2004 decision which established the test for evaluating workplace rules and policies under the National Labor Relations Act. Under Lutheran Heritage, the Board routinely invalidated facially neutral employer rules and policies that employees “would” reasonably construe as interfering with their right to engage in protected, concerted activity under federal labor law.

Boeing involved the company’s “no camera rule” which restricted the use of “camera-enabled devises” at work. An NLRB administrative law judge found Boeing’s rule unlawful under Lutheran Heritage because employees would reasonably construe it to interfere with their rights under the NLRA.

On appeal, the Board, in a 3-2 decision along party lines, jettisoned Lutheran Heritage and laid out a new test:

when evaluating a facially neutral policy, 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.

The Board further explained that in the future, in order to promote clarity and consistency, it would categorize the results of its application of its new test as follows:

Category 1 – rules that are 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. For example, a rule requiring employees to abide by basic standards of civility would be a lawful Category 1 rule.

Category 2 – 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 – 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. A rule that prohibits employees from discussing wages or benefits with one another would be an unlawful Category 3 rule.

Under its new test, the Board found Boeing’s “no-camera” rule was lawful and slotted it in Category 1. The Board acknowledged that the rule potentially interfered with employee rights, but the negative impact was “comparatively slight” when judged against Boeing’s interest in: security protocols necessary to perform classified government work; its duty to prevent the disclosure of export-controlled information and material; preventing the disclosure of proprietary information; protecting employees’ personally identifiable information; and limiting the risk of a terrorist attack.

The take-away for employers is that their interests will carry more weight under the new test. Lutheran Heritage had been criticized for, among other reasons, its failure to properly accommodate legitimate employer justifications for a particular rule. Not every employer will have the same interests as Boeing, e.g., national security or risk of terror attacks, but the new test should provide a better, more meaningful opportunity for employers to successfully defend their rules and, hopefully, discourage litigation over employer rules in the first place.

Joint Employer

The Board then turned its attention to another subject that generated a firestorm of criticism from the management community: the test for determining joint employer status under the NLRA.

In Hy-Brand Industrial Contractors, Ltd. And Brandt Construction Co., the Board overturned its 2015 decision in Browning-Ferris Industries, which had greatly expanded the test the Board applies for determining joint employer status. In Browning-Ferris, the majority held that a company and its contractors or franchisees can be deemed a single joint employer “even when two entities have never exercised joint control over essential terms and conditions of employment, and even when any joint control is not ‘direct and immediate,’ the two entities will still be joint employers based on the mere existence of ‘reserved’ joint control, or based on indirect control or control that is ‘limited and routine’.”

In Browning-Ferris, which we wrote about here, the majority found that Browning Ferris was a joint employer of recycling workers provided by a staffing firm because Browning-Ferris exercised "indirect control" or had the ability to exert such control over the workers’ terms and conditions of employment.

The Board in Hy-Brand and Brandt – in another 3-2 decision not surprisingly also along party lines – overturned Browning-Ferris and returned to its “direct and immediate” control standard, saying the Browning-Ferris test confused the definition of a joint employer and threatened to produce “wide-ranging instability” in bargaining relationships.

“A finding of joint-employer status requires proof that the alleged 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.”

The Board criticized Browning-Ferris as 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.”

Nonetheless, the Board found that even under the “direct and immediate control” test, Hy-Brand and Brandt were joint employers Act because they jointly controlled essential terms and conditions of employment. They shared payroll, tax, overtime, timesheets, and direct deposit duties for the employees; jointly administered day-to-day safety issues; had identical workplace policies and rules; shared in the administration of identical employee benefits; emphasized their joint governance at meetings; and the same individual, who held the same role and ownership interest in both entities, made all key personnel decisions at both companies. Thus, both entities exercised “direct and immediate” control over each other’s employees’ terms and conditions of employment.

Yesterday’s decision will have a direct impact on businesses ranging from fast food restaurants to construction companies to any company that uses a staffing or temp agency to obtain employees. By returning to the pre-Browning-Ferris standard, employers have clearer guidance as to when they will be found to be joint employers and better able to avoid costly liability for unfair labor practices.

Since last November, we have been predicting that Lutheran Heritage and Browning Ferris would be among the first cases to fall once the Republicans held a majority on the Board. Other Obama-era Board decisions likely will fall, but the timeline is uncertain. Chairman Phil Miscimarra’s term expires and he will leave the Board on December 16. That will leave the Board with two Republicans and two Democrats and, until Chairman Miscimarra is replaced, we expect nothing dramatic from the Board.

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