Arbitration Class Action Waivers - Trouble Brewing?

There are pros and cons associated with mandatory arbitration agreements.  Yes, everybody knows that.  One of the biggest "pros" is that an employer can insist that employees arbitrate only individual claims, not class claims.  Or can it?  That's what may be under re-consideration...

The U.S. Supreme Court supposedly settled this issue some years ago in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 333, 131 S. Ct. 1740, 1742 (2011).  There, the Court, in a nutshell, held:

the overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

The Supreme Court in Concepcion expressly invalidated a line of California precedent, in which the California courts had held that class action waivers in arbitration agreements were unconscionable and void against public policy.

The California Supreme Court recognized Concepcion's rule in its landmark Iskanian ruling:

Concepcion held that the FAA does prevent states from mandating or promoting procedures incompatible with arbitration. The Gentry rule runs afoul of this latter principle. We thus conclude in light of Concepcion that the FAA preempts the Gentry rule.

Iskanian v. CLS Transp. L.A., LLC, 59 Cal. 4th 348, 366, 173 Cal. Rptr. 3d 289, 299, 327 P.3d 129, 137 (2014)

Why are we walking down memory lane?  Hang in there...

Because the National Labor Relations Board waded into this issue and decided in a case called D.R. Horton, 357 N.L.R.B. 2277 (2012), that class action waivers are unlawful under the National Labor Relations Act, even if the Federal Arbitration Act preempts state laws prohibiting them.  The Federal Arbitration Act, a federal law, does not preempt the National Labor Relations Act, a federal law.  The NLRB's rationale is that a class action is a form of "protected concerted activity" and that requiring employees to waive the right to sue as a class is an unlawful waiver.  

The Court of Appeals for the Fifth Circuit disagreed with the Board and did not enforce its opinion in D.R. Horton. That means the decision was not binding and could not be used as precedent.  The California Supreme Court also rejected the Board's rationale in Iskanian: 

We thus conclude, in light of the FAA's “‘liberal federal policy favoring arbitration’” (Concepcion, supra, 563 U.S. at p.___ [131 S. Ct. at p. 1745]), that sections 7 and 8 of the NLRA do not represent “ ‘a contrary congressional command’ ” overriding the FAA's mandate (CompuCredit Corp. v. Greenwood, supra, 565 U.S. at p. ___ [132 S. Ct. at p. 669]). This conclusion is consistent with the judgment of all the federal circuit courts and most of the federal district courts that have considered the issue.

So, the NLRB thing was a big yawn, and no one cares because everybody is non-union, right?  Well, no. The NLRB's rules apply to non-union employers too, but D.R. Horton wasn't getting a lot of play.  Until now.

The Seventh Circuit has just come down in favor of the NLRB's position, in a case involving a non-union employer's motion to compel arbitration in federal court.  In Lewis v. Epic Sys. Corp., No. 15-2997, 2016 U.S. App. LEXIS 9638, at *1 (7th Cir. May 26, 2016), the court of appeals refused to enforce Epic Systems's arbitration agreement because it contained a class action waiver.  

The court held that the waiver violated the National Labor Relations Act:

Epic's clause runs straight into the teeth of Section 7. The provision prohibits any collective, representative, [12] or class legal proceeding. Section 7 rovides that "[e]mployees shall have the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. A collective, representative, or class legal proceeding is just such a "concerted activit[y]." See Eastex, 437 U.S. at 566; Brady, 644 F.3d at 673; D. R. Horton, 357 N.L.R.B. 2277, at 2278. Under Section 8, any employer action that "interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7]" constitutes an "unfair labor practice." 29 U.S.C. § 158(a)(1). Contracts that stipulate away employees' Section 7 rights or otherwise require actions unlawful under the NRLA are unenforceable.

Lewis v. Epic Sys. Corp., No. 15-2997, 2016 U.S. App. LEXIS 9638, at *11-12 (7th Cir. May 26, 2016)

The Seventh Circuit's decision sets up a circuit split and a chance for the U.S. Supreme Court to consider whether class action waivers violate the NLRA or not.  The Seventh Circuit's decision also gives the NLRB the impetus to bring unfair labor practice charges against employers that maintain class action waivers in their arbitration agreements, which could result in invalidation of those agreements down the road. 

So, employers with class action waivers, be aware that challenges to these agreements may come as a result of the NLRB's position in D.R. Horton, especially given the Seventh Circuit's recent endorsement.  We will have to see if the Seventh Circuit's decision is taken up for review by the U.S. Supreme Court.   The court already decided not to hear it en banc.

NLRB's "Joint Employer" Case Matters to Non-Union Employers, Too

As you may have read, the NLRB has changed its definition of what is a "joint employer" relationship.  In the labor law context, this may come up, for example, when the Board decides what is an appropriate unit for bargaining or voting.  Additionally, a joint employer may have to bargain alongside its co-employer about the employment conditions under its "joint" control. Joint employers also can be jointly liable for unfair labor practice decisions and more. 

Before you decide this is "union stuff" and irrelevant, remember that courts may use the "joint employer" doctrine to impose liability on one company for the discrimination, sexual harassment, etc.  perpetrated by employees of another company.  The standards for transferring liability between separate companies (single employer, integrated enterprise, alter ego, joint employer) are influenced by NLRB decisional law.   So, this case could affect other areas of the law unrelated to union stuff.  Plus, the NLRB's reach continues to expand. Sooner or later, it is going to create more private-sector unionization unless the current trend is reversed. So, it pays to pay attention.

"Joint" employer is when there are two separate entities, owned and managed by different enterprises. But they both exercise sufficient control over a group of workers that they are considered "jointly" responsible for issues that arise.  A "single" employer or "integrated enterprise" on the other hand, usually refers to when there are related entities, like parents and subsidiaries, that are deemed one enterprise.  An "alter ego" is when one entity pretends to be unrelated to another, usually to disguise itself and avoid liability.

Joint employer relationships often come up in the context of temporary agencies, or when an employer subcontracts some of its work to a separate company, such as cleaning.  

In the case under consideration, Browning-Ferris Industries operated a recycling plant.  They employed their own employees, who operated forklifts, loaders and other equipment.   Inside the facility, there are a series of conveyor belts that sort the recycled materials.  BFI hired another company, Leadpoint, to staff the conveyor belts.  The Leadpoint workers cleaned the facility, sorted the materials and performed other work.  A union sought to represent the Leadpoint workers. The same union already represented the BFI employees mentioned above.   

BFI and Leadpoint had a written agreement, under which Leadpoint was the employer of its workers. Here are some of the provisions:

• Leadpoint had its own supervisors and managers on site.
• Leadpoint management scheduled its workers
• Leadpoint evaluated its own employees' work.
• Leadpoint had its own HR manager on site.
• Leadpoint made all hiring decisions, but BFI provided criteria / job qualifications
• BFI imposed hiring criteria including a drug panel and skills test
• Leadpoint made all discipline and termination decisions, although BFI requested a couple of discharges after catching Leadpoint employees engaged in misconduct at the facility.
• Leadpoint set pay rates with employees, but BFI's agreement provided the maximum it would reimburse Leadpoint.
• BFI set the hours of operation of the plant and the shift times. But Leadpoint scheduled the employees.

The Board undertook an historical analysis of the joint employer test. It found that the Board over the years had narrowed the test to exclude many relationships that were "joint employers" under older Board and case law.   The Board then announced its "new" rule, which it argues is really a "return" to the old rule:

The 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. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of employment or “codetermine” them, as the Board and the courts have done in the past

So, there are two prongs.  First, what is "employer within the meaning of the common law?"   The Board quoted from the Restatement of Agency:

a servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.

The Board emphasized that, going forward, it would merely look to the "right" to control, rather than the exercise of control.  So, BFI owns the equipment, sets the starting and ending times, and has its own quality and management standards in play in its own plant.  Does BFI always have the "right" to control its own property and, therefore, the sub's employees to one degree or another?  Probably yes, right?  I think that's the way the Board wants it.    Am I just trying to scare you?  Nope. From the opinion:

The common law, indeed, recognizes that control may be indirect . For example, the Restatement of Agency (Second) §220, comment l (“Control of the premises”) observes that

[i]f the work is done upon the premises of the employer with his machinery by workmen who agree to obey general rules for the regulation of the conduct of employees, the inference is strong that such workmen are the servants of the owner... and illustrates this principle by citing the example of a coal mine owner employing miners who, in turn, supply their own helpers. Both the miners and their helpers are servants of the mine owner.

So, that is the outer limit of what an employee is, but it's not enough to ensure joint employer status. Hence the second prong: "share or codetermine those matters governing the essential terms and conditions of employment." Here, the Board decided to return to prior case law that expanded the list of criteria it considers relevant to "share or codetermine." 

Essential terms indisputably include wages and hours, as reflected in the Act itself.82 Other examples of control over mandatory terms and conditions of employment found probative by the Board include dictating the number of workers to be supplied;83 controlling scheduling,84 seniority, and overtime; 85 and assigning work and determining the manner and method of work performance

The Board overruled at least four decisions "and others" that conflict with its new standard.  

Then, the Board turned to BFI and found, yes, it is a joint employer with Leadpoint.  

• Re hiring, BFI required drug testing, asked Leadpoint not to hire those BFI previously employed and deemed ineligible, and BFI could reject anyone brought to its premises.  

• Re discipline and termination, BFI could report to Leadpoint employees whom BFI felt should be disciplined or discharged.

• Re working conditions, BFI had the right to control its conveyor belt, including the speed at which it operated.  BFI held meetings with Leadpoint employees to provide feedback and training.  And because BFI set the shift times and decided how many workers were needed to staff the plant, those were indirect indicia of control. 

• Re wages:

Under the parties’ contract,  Leadpoint determines employees’ pay rates, administers all payments, retains payroll records, and is solely responsible for providing and administering benefits. But BFI specifically prevents Leadpoint from paying employees more than BFI employees performing comparable work.111 BFI’s employment of its own sorter at $5 more an hour creates a de facto wage ceiling for Leadpoint workers. In addition, BFI and Leadpoint are parties to a cost-plus contract, under which BFI is required to reimburse Leadpoint for labor costs plus a specified percentage markup.112 Although this arrangement, on its own, is not necessarily sufficient to create a joint-employer relationship,113 it is coupled here with the apparent requirement of BFI approval over employee pay increases.114

The Board's decision is 3-2.  Two Members dissented in an opinion that expressed more than a touch of concern about the affect the majority's decision may have on labor law.  Here are a couple of  excerpts from the beginning of the dissent:

Today, in the most sweeping of recent major decisions, the Board majority rewrites the decades-old test for determining who the “employer” is. More specifically, the majority redefines and expands the test that makes two separate and independent entities a “joint employer” of certain employees. This change will subject 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 have heretofore been unlawful secondary strikes, boycotts, and picketing.

What do you really think, dissenters?

no bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards.

But, the majority said that the Board is merely returning to an existing set of precedents, right?

today’s majority holding does not represent a “return to the traditional test used by the Board,” as our colleagues claim even while admitting that the Board has never before described or articulated the test they announce today. Contrary to their characterization, the new joint-employer test fundamentally alters 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. In addition, because the commerce data applicable to joint employers is combined for jurisdictional purposes,11 the Act’s coverage will extend to small businesses whose separate operations and employees have until now not been subject to Board jurisdiction.

This decision will mean more collective bargaining, and that can't be bad!  Can it?

The Act encourages collective bargaining, but only by  an “employer” in direct relation to its employees. Our colleagues take this purpose way beyond what Congress intended, and the result unavoidably will be too much of a good thing. We believe the majority’s test will actually foster substantial bargaining instability by requiring the nonconsensual presence of too many entities with diverse and conflicting interests on the “employer” side. Indeed, even the commencement of good-faith bargaining may be delayed by disputes over whether the correct “employer” parties are present. This predictable outcome is irreconcilable with the Act’s overriding policy to “eliminate
the causes of certain substantial obstructions to the free flow of commerce.”

The dissent then goes into great detail to explain its reasons for why the new Board decision is so problematic, contrary to the Board's authority, and how it will have unintended consequences.  But I have a day job so I cannot summarize it all here. 

This case likely will be appealed to the court of appeals. So we will see it it is enforced.  The courts are very deferential to board decisions, however. So, the odds are that this is another major shift in labor law.  Or "fundamental transformation" as someone might say.

This case is Browning-Ferris Indus. of Calif. and the opinion is here.

NLRB Overrules Itself and Appropriates Companies' Email Systems for Employees' Protected Communications

In 2007 the National Labor Relations Board held, in The Guard Publishing Company, dba Register Guard, 351 NLRB 1110 (2007), that employers do not have to permit union organizing activity over their own email system.  Here's the essence of that decision:

An employer has a “basic property right” to “regulate and restrict employee use of company property.” Union Carbide Corp. v. NLRB, 714 F.2d 657, 663–664 (6th Cir. 1983). The Respondent’s communications system, including its e-mail system, is the Respondent’s property and was purchased by the Respondent for use in operating its business. The General Counsel concedes that the Respondent has a legitimate business interest in maintaining the efficient operation of its e-mail system, and that employers who have invested in an e-mail system have valid concerns about such issues as preserving server space, protecting against computer viruses and dissemination of confidential information, and avoiding company liability for employees’ inappropriate e-mails. * * * *In numerous cases, however, where the Board has addressed whether employees have the right to use other types of employer-owned property—such as bulletin boards, telephones, and televisions—for Section 7 communications, the Board has consistently held that there is “no statutory right . . . to use an employer’s equipment or media,” as long as the restrictions are nondiscriminatory. * * * *Accordingly, we hold that the Respondent may lawfully bar employees’ nonwork-related use of its e-mail system, unless the Respondent acts in a manner that discriminates against Section 7 activity.

Good times.  But, to paraphrase a talking head's recent statement in another context, "dude, that was like 7 years ago!"  Relying in part on "scholars," second only to referencing "studies" when justifying a peremptory exercise of raw power, the Board has overruled itself.  As a result, employers may not prohibit employees' personal use of email, during non-work time, about a host of subjects covered under section 7 of the National Labor Relations Act, including union activity.

The new decision, following a long tradition of colorful NLRB precedent names, is Purple Communications, Inc., 361 NLRB No. 126 (2014). There, the Company had an email policy that will remind you of your company's policy:

INTERNET, INTRANET, VOICEMAIL AND ELECTRONIC COMMUNICATION POLICY
Computers, laptops, internet access, voicemail, electronic mail (email), Blackberry, cellular telephones and/or other Company equipment is provided and maintained by the [sic] Purple to facilitate Company business. All information and messages stored, sent, and received on these systems are the sole and exclusive property of the Company, regardless of the author or recipient. All such equipment and access should be used for business purposes only.

Prohibited activities
Employees are strictly prohibited from using the computer,  internet, voicemail and email systems, and other Company equipment in connection with any of the following activities
2. Engaging in activities on behalf of organizations or persons with no professional or business affiliation with the Company.
. . . .
5. Sending uninvited email of a personal nature.

All agreed that the policy was lawful under Register Guard, by the way.  Rather, the union and NLRB's general counsel specifically asked the NLRB to overrule the prior decision.

Challenge accepted.  Here's the Board's ruling:

we will presume that employees who have rightful access to their employer’s email system in the course of their work have a right to use the email system to engage in Section 7-protected communications on nonworking time. An employer may rebut the presumption by demonstrating that special circumstances necessary to maintain production or discipline justify restricting its employees’ rights.66 Because limitations on employee communication should be no more restrictive than necessary to protect the employer’s interests,67 we anticipate that it will be the rare case where special circumstances justify a total ban on nonwork email use by employees. In more typical cases, where special circumstances do not justify a total ban, employers may nonetheless apply uniform and consistently enforced controls over their email systems to the extent that such controls are necessary to maintain production and discipline.

(emphasis mine)

I will spare you the detailed rationale. The opinion is above. But the gist of it is that email is a ubiquitous form of communication; employees have special rights to communicate at work about section 7 issues; and the special nature of email warrants treating it different from other company property like bulletin boards. And the employer's property rights must yield to section 7 rights.

Finally, the NLRB decided to apply its decision "retroactively" to pending cases.  So, employers must take action.

So, what does this change mean?

1.  Email policies must allow employees to communicate about activities protected by Section 7 of the National Labor Relations Act.  The catch is that Section 7 is very broad, and permits communications about "wages, hours, and other terms and conditions of employment."  That means, for example, that it's unlawful to prohibit employees' criticism of a boss related to working conditions, or to share salary information over email, and more.

2. The Board's decision applies only to employees.  It does not grant outsiders' access to the Company's email.  It may be, although this is unclear, it means that the employer can ban non-work-related communications over its email system with outsiders.

3.  The decision allows employers to prohibit use of its email system during working time, as long as the policy remains non-discriminatory.

4.  Employers must re-draft their electronic communications policies now, as this decision applies to the unionized and non-unionized workforce, at least those within the jurisdiction of the NLRB.

5. Employers are not required to grant email access to employees for the purpose of making such communications.

6. The decision does not apply to other types of communication (e.g., instant message, text). However, my prediction is that the Board will address those modes in another case.

7.  There will be litigation over what will qualify as allowed "uniform and consistently enforced controls over their email systems to the extent that such controls are necessary to maintain production and discipline."  So, prepare for more handbook updates.

8. The decision may be appealed to the U.S. Court of Appeals, which could decline to enforce it. But this case is Board precedent, which will guide future decisions by Administrative Law Judges.  Also, Courts of Appeals usually (almost always) enforce the Board's interpretation of the NLRA.

What of employer monitoring?

You may ask, rightly, whether an employer who monitors email will be accused of "spying" in violation of the NLRA.  Of course it will!  But, to its credit, the Board addressed this issue, and allows employers to continue email monitoring as a general practice, so long as it is not targeted at section 7-related communications, including of course union organizing activity:

Our decision does not prevent employers from continuing, as many already do, to monitor their computers and email systems for legitimate management reasons, such as ensuring productivity and preventing email use for purposes of harassment or other activities that could give rise to employer liability.73 The Respondent and some amici assert that such monitoring may make them vulnerable to allegations of unlawful surveillance of employees’ Section 7 activity. We are confident, however, that we can assess any surveillance allegations by the same standards that we apply to alleged surveillance in the bricks-and-mortar world. Board law establishes that “those who choose openly to engage in union activities at or near the employer’s premises cannot be heard to complain when management observes them. The Board has long held that management officials may observe public union activity without violating the Act so long as those officials do not ‘do something out of the ordinary.’”74 An employer’s monitoring of electronic communications on its email system will similarly be lawful so long as the employer does nothing out of the ordinary, such as increasing its monitoring during an organizational campaign or focusing its monitoring efforts on protected conduct or union activists. Nor is an employer ordinarily prevented from notifying its employees, as many employers also do already, that it monitors (or reserves the right to monitor) computer and email use for legitimate management reasons and that employees may have no expectation of privacy in their use of the employer’s email system.

So, it's not illegal to monitor for harassment, trade secret misappropriation, etc. 

Happy holidays!

Greg

NLRB Doubles Down: Again Holds Waivers of Class Actions in Arbitration Agreements Illegal

It's election time. So here's a short political rant:  The National Labor Relations Board is one of the administrative agencies that prove the cliche: elections have consequences.  (The President nominates the Board's members, each of whom is confirmed by the Senate to a five-year term.)  The President packed the Board with "recess appointments" after the Senate would not confirm his nominees. The Supreme Court voided those recess appointments. And then the Senate confirmed a slate of 5 nominees in a political compromise over filibusters and such.  Because advice and consent on the merits. End rant.

Whether you agree or disagree with the administration's politics, it's no secret that the NLRB has set about expanding the reach of the National Labor Relations Act, into non-union settings (like social media policies; handbook policies against insubordination, disloyalty, etc.; confidentiality agreements; and more).  It is not an exaggeration to say that non-union employers face more scrutiny by the National Labor Relations Board than they ever have in the past.

The Board also has weighed in on private agreements to arbitrate. The Board made news a couple of years ago when it held that an employer's requiring employees to waive the right to pursue class relief in mandatory arbitration agreements violated the National Labor Relations Act.  That was the "DR Horton" decision here.  The essence of DR Horton is that class action waivers violate the National Labor Relations Act by requiring employees to give up the right to act in a group (class) concerning wages, hours, or other terms and conditions of employment.

But the Fifth Circuit Court of Appeals refused to enforce DR Horton, meaning it could not be enforced against DR Horton in court, or against other employers as precedent.  Other courts also declined to follow DR Horton in part because it has nothing to do with the National Labor Relations Act, and in part because the U.S. Supreme Court has found class waivers to be fine under the Federal Arbitration Act.  Even the California courts of appeal have refused to hold class waivers unenforceable under DR Horton.

So, given that courts, which interpret the law that Congress enacts, universally rejected DR Horton, the NLRB's decision is probably relegated to the dust-bin of blips in the employment law radar, never to be heard from again, right?

Political rant redux: Nah, this is the 2014 National Labor Relations Board. They are not constrained by silly federal and state judges and stuff!  Ok, I'm done.

The Board's new decision, Murphy Oil (opinion here) gives new life to DR Horton.  Based primarily on encouraging law review articles written by law school professors, 3 of 5 members decided to re-affirm DR Horton and declare once again that class action waivers in arbitration agreements violate the NLRA, and will maintain this position until the U.S. Supreme Court says otherwise.  Given it will take the federal courts and Supreme Court a few years to take up the issue, this will be the Board's position for a while.

So, in this new case,  Sheila Hobson worked for a Murphy Oil facility and signed an arbitration agreement containing this language:

INDIVIDUAL AND COMPANY UNDERSTAND THAT, ABSENT THIS AGREEMENT, THEY WOULD HAVE THE RIGHT TO SUE EACH OTHER IN COURT, TO INITIATE OR BE A PARTY TO A GROUP OR CLASS ACTION CLAIM, AND THE RIGHT TO A JURY TRIAL, BUT, BY EXECUTING THIS AGREEMENT, BOTH PARTIES GIVE UP THOSE RIGHTS AND AGREE TO HAVE ALL EMPLOYMENT DISPUTES BETWEEN THEM RESOLVED BY MANDATORY,
FINAL AND BINDING ARBITRATION. ANY EMPLOYMENT RELATIONSHIP BETWEEN INDIVIDUAL AND COMPANY IS TERMINABLE AT-WILL, AND NO OTHER INFERENCE IS TO BE DRAWN FROM THIS AGREEMENT.

Hobson later sued Murphy under the Fair Labor Standards Act, asserting a collective action along with three other employees.  The federal district court ordered Hobson to individual arbitration.   But Hobson filed a complaint (charge) with the NLRB and the NLRB's General Counsel charged Murphy with an unfair labor practice (forcing Hobson to give up the right to collectively pursue her wage claims).

The NLRB decided 3-2 that Murphy violated the NLRA, that DR Horton was correctly decided and valid, that the circuit courts that rejected it were wrong, and that the 2 dissenting Board members were also wrong.

What is the upshot?

1. Class action waivers in arbitration agreements remain enforceable in court.

2. Employers maintaining class arbitration waivers may expect unfair labor practice charges before the NLRB, including non-union employers.

3.  NLRB orders are not enforceable by themselves, in that the NLRB has to go to a federal court of appeals to obtain a judgment. So, unless a circuit court of appeals enforces the Board's order, the legal effect of an unfair labor practice finding is limited to whatever sanctions the Administration can levy on employers who are federal contractors found to violate the NLRA, and to whatever retribution the NLRB may bring against the employer for refusing to comply with its unenforceable order.

4. If a circuit court does choose to enforce the order, it could create a circuit split, providing some incentive for the U.S. Supreme Court to take up the case.

Be careful out there.

U.S. Supreme Court: President's "Recess Appointments" to NLRB Were Invalid

The U.S. Supreme Court unanimously held that the President made invalid "recess appointments" to the National Labor Relations Board in January 2012. The Senate declared itself in recess for three-day periods during that month. The President then appointed three out of five members to the NLRB.

The Court's judgment - that the recess appointments were invalid - is unanimous. But only 5 out of 9 justices joined the majority opinion, written by Justice Breyer (joined by Justices Kennedy, Kagan, Sotomayor, and Ginsburg), Four justices, led by Justice Scalia (with Justices Thomas, CJ Roberts, and Alito), issued a separate opinion, disagreeing with the majority's conclusions regarding when recess appointments are valid.

This opinion is over 50 pages long, and it is mostly devoted to the history of the Constitution's recess appointments clause, and the way it has been used historically.  The upshot, however, is that the President has a lot of power to make recess appointments, but there has to be a sufficiently long recess. Moreover, the house of Congress that is controlled by the political party not in power may re-call the Congress from recess and thwart recess appointments. Checks and balances.

Because the appointments were invalid, the NLRB operated without a quorum for several months.  As a result, hundreds of decisions are invalid. It remains to be seen precisely what the NLRB will do with those decisions. The Board currently has a full compliment of members.  Therefore, recent decisions issued since the Senate confirmed the 5 members will be valid and enforceable.  We will update what happens next when we find out.

This case is National Labor Relations Board v. Noel Canning and the opinion is here. 

Federal Appeals Court Put Brakes on NLRB

The National Labor Relations Board was busy in 2012. The Board overturned a number of precedents and began to forge new law applicable to non-union employers.

But three of the five board members were appointed by President Obama on January 4, 2012, when the Senate was supposed to be in "recess."  (The federal Constitution empowers the president to make recess appointments.)

The only thing is, the Senate was not in recess, according to the D.C. Circuit.  A "recess," the court reasoned, requires a lengthy period, not just a day or two, which was the case in early 2012.

If this decision stands, the NLRB's decisions issued in 2012 likely are invalid.  All of 'em.

If you want to read the opinion in Noel Canning v. NLRB, it is here.  Otherwise, just take my word for it, k?

NLRB: Lawful "At Will" Policies

Here's a long post on employment at will and the NLRB.  But it's worth it!

The NLRB announced on October 31, 2012, that the Office of General Counsel issued advice memoranda regarding "at will" employment policies.  Both employed the same analysis. The General Counsel in both cases determined that the employers' at will language did not violate the NLRA.

The first memo (here) addressed the at-will policy in a Mimi's Cafe's handbook, taken from a restaurant in Arizona.  The policy language was:

AT-WILL EMPLOYMENT

The relationship between you and Mimi's Cafe is referred to as  "employment at will." This means that your employment can be  terminated at any time for any reason, with or without cause, with or without notice, by you or the Company. No representative of the Company has authority to enter into any agreement contrary to the foregoing "employment at will" relationship. Nothing contained in this handbook creates an express or implied contract of employment.

The second memo (here) addressed the at will disclaimer in the handbook of Rocha Transportation, a Modesto, California employer.   The policy at issue read:

Employment with Rocha Transportation is employment at-will. Employment at-will may be terminated with or without cause and with or without notice at any time by the employee or the Company. Nothing in this Handbook or in any document or statement shall limit the right to terminate employment at-will. No manager, supervisor, or employee of Rocha Transportation has any authority to enter into an agreement for employment for any specified period of time or to make an agreement for employment other than at-will. Only the president of the Company has the authority to make any such agreement and then only in writing.

The General Counsel analyzed whether the above "bolded" language in the respective handbooks was unlawful under the NLRA.  Why?  Because the NLRA protects employees rights to organize or engage in concerted activities for their mutual aid and protection.  These are called "Section 7 rights." Even neutral policies that infringe on those rights can be held illegal.

The General Counsel analyzed the policies in a similar way.  This language is quoted from the Rocha memorandum:

An employer violates Section 8(a)(1) of the Act through the maintenance of a work rule or policy if the rule would "reasonably tend to chill employees in the exercise of their Section 7 rights." The Board has developed a two-step inquiry to determine if a work rule would have such an effect. First, a rule is unlawful if it explicitly restricts Section 7 activities. Second, if the rule does not explicitly restrict protected activities, it will nonetheless be found to violate the Act upon a showing that: (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights . . .
(footnotes omitted).

The General Counsel decided the policies did not explicitly restrict Section 7 rights. Neither business issued the policies in response to union activity, and there was no evidence that the policy was applied to restrict Section 7 rights.  

That left the issue of whether employees "would reasonably construe" the at will policies to prohibit Section 7 activity.  The General Counsel decided this policy language would not: 

The provision does not require employees to refrain from seeking to change their at-will status or to agree that their at-will status cannot be changed in any way. Instead, the provision simply prohibits the Employer's own representatives from entering into employment agreements that provide for other than at-will employment.10 Indeed, the provision explicitly permits the Employer's president to enter into written employment agreements that modify the employment at-will relationship, and thus encompasses
the possibility of a potential modification of the at-will relationship through a collective -bargaining agreement that is ratified by the Company president. Accordingly, we conclude that employees would not reasonably construe this provision to restrict their Section 7 right to select a collective -bargaining representative and bargain collectively for a contract.

Here is the General Counsel's analysis of the Mimi's Cafe policy:

We conclude that the contested handbook provision would not reasonably be interpreted to restrict an employee's Section 7 right to engage in concerted attempts to change his or her employment at-will status. First, the provision does not require employees to refrain from seeking to change their at-will status or to agree that their at-will status cannot be changed in any way. Instead, the provision  simply highlights the Employer's policy that its own representatives are not authorized to modify an employee's at-will status. Moreover, the clear meaning of the provision at issue is to reinforce the Employer's unambiguously- stated purpose of its at-will policy: it explicitly states 'Jnjothing contained in this handbook creates an express or implied contract of employment." It is commonplace for employers to rely on policy provisions such as those at issue here as a defense against potential tolegal actions by employees asserting that the employee handbook creates an enforceable employment contract.10 Accordingly, we conclude that employees would not reasonably construe this provision to restrict their Section 7 right to select a collective -bargaining representative and bargain collectively for a contract when considered in context.11 The Region should therefore dismiss, absent withdrawal, the Charging Party's allegation that the Employer's employment at-will policy violates Section 8(a)(1).

(footnotes and citations omitted). 

You may have read that the NLRB was waging war against at will employment policies.  In fact, an administrative law judge previously held that an acknowledgment of employment at will --- "I further agree that the at-will employment relationship cannot be amended, modified or altered in any way." -- was unlawful.  However, the General Counsel noted that the parties settled before the Board could review the ALJ's decision.  The General Counsel stated the law in this area is "unsettled" and that the NLRB offices should submit all cases for review before proceeding.

So, "at will" gets a bit of a reprieve.  It may be wise to have your policy language reviewed for compliance with the NLRA, at least once this area of the law is settled.

DGV

Court of Appeal Upholds Arbitration Agreement

Nelsen v. Legacy Partners (opinion here) is the latest decision from the court of appeal to address the validity of arbitration agreements in California, after recent federal developments (Concepcion, DR Horton, etc.). 

The issues, as usual, are whether the arbitration agreement is "unconscionable," or violates public policy, and therefore is unenforceable as a contract.

The arbitration agreement was located at the end of a long handbook. Not surprisingly, the court first found that the agreement was "procedurally unconscionable,"  because

It was part of a preprinted form agreement drafted by LPI that all of LPI‘s California property managers were required to sign on a take-it-or-leave-it basis. The arbitration clause was located on the last two pages of a 43-page handbook. While the top of page 42 contains a highlighted prominent title ―TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT,‖ the title makes no reference to arbitration and the arbitration language itself appears in a small font not set off in any way to stand out from the rest of the agreement or handbook. Moreover, unless Nelsen happened to be conversant with the rules of pleading in the Code of Civil Procedure, the law and procedure applicable to appellate review, and the rules for the disqualification of superior court judges, the terms and rules of the arbitration referenced in the clause would have been beyond her comprehension.

So, now the courts say that failing to attach the Code of Civil Procedure makes an agreement procedurally unconscionable.  What happened to "everyone is bound to know the law?" or "ignorance is no excuse?"  Also, by saying that the agreement is not in a different font, the court is imposing a requirement that does not apply to other contracts.  That's not supposed to be allowed, demonstrating once again that the unconscionability doctrine is just an end run around Federal Arbitration Act preemption.

However, the court then turned to "substantive" unconscionability, which must also exist for an arbitration agreement to be invalidated.  In this case, though, the arbitration agreement was pretty much lifted verbatim from a California Supreme Court decision. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064.)  So, the Court did not find substantive unconscionability.

But Nelsen then argued that, regardless of unconcsionability, the arbitration agreement violated "public policy" under the California Supreme Court's decision in  Gentry v. Superior Court (2007) 42 Cal.4th 443.  In particular, Nelsen argued that the arbitration agreement barred her from bringing a class claim in arbitration because the agreement was silent as to class claims.

The court of appeal held that, indeed, the silent agreement did not encompass class-based claims.
However, the court then decided that Gentry did not invalidate the arbitration agreement because Nelsen did not adequately support the argument to the trial court.  That is, Gentry does not invalidate "all" class action waivers, so you have to establish the Gentry "factors," which Nelsen did not do.  In ruling this way, the court sidestepped whether Gentry remains good law.

Finally, the court decided that the National Labor Relations Board's decision in DR Horton was not binding and that the court would not follow it. The court noted that the decision was issued by just 2 Board members and that the issue of whether class action waivers are enforceable are beyond the Board's normal expertise.

So, another arbitration agreement survives. 

NLRB - More on Protected Activity and Social Media

Tired of hearing about the National Labor Relations Board?  Unless your business is outside of the NLRB's jurisdiction (because it's too small for NLRB jurisdiction, or your business is a public sector employer, for example), I think it's important to watch what the Board is doing. That's because they are on FIRE.  They are not giving up, despite receiving some unfriendly receptions their new initiatives have received in court.

Remember the poster?  A couple of months ago, courts invalidated the NLRB's mandate that employers post a list of rights protected under the NLRA. No poster?  No problem!  The Board is back with a website for employees seeking to understand their rights to engage in protected concerted activity.  The web page defines protected activity and contains links to cases addressing the subject that the Board has handled. Here is the website.

Another Board development - they are still issuing white papers on "social media" and protected activity.  The NLRB counsel's third essay on the subject is here.   If your organization has policies or a handbook listing prohibited employee conduct that could lead to discipline, you should read this memorandum.  You may be surprised to learn that some policies you consider to be routine are illegal under the current Board's view of the NLRA.   The NLRB's Assistant General Counsel picked through policy after policy, opining on portions that are illegal because they might have something to do with unions or working condition (even though the text of the policies have nothing to do with those subjects).  Then, the AGC attaches a policy that the Board found completely, 100% legal.

Here it is:

Social Media Policy

At [Employer], we understand that social media can be a fun and rewarding way to share your life and opinions with family, friends and co-workers around the world. However, use of social media also presents certain risks and carries with it certain responsibilities. To assist you in

making responsible decisions about your use of social media, we have established these guidelines for appropriate use of social media.

This policy applies to all associates who work for [Employer], or one of its subsidiary companies in the United States ([Employer]).

Managers and supervisors should use the supplemental Social Media Management Guidelines for additional guidance in administering the policy.

GUIDELINES

In the rapidly expanding world of electronic communication, social media can mean many things. Social media includes all means of communicating or posting information or content of any sort on the Internet, including to your own or someone else’s web log or blog, journal or diary, personal web site, social networking or affinity web site, web bulletin board or a chat room, whether or not associated or affiliated with [Employer], as well as any other form of electronic communication.

The same principles and guidelines found in [Employer] policies and three basic beliefs apply to your activities online. Ultimately, you are solely responsible for what you post online. Before creating online content, consider some of the risks and rewards that are involved. Keep in mind that any of your conduct that adversely affects your job performance, the performance of fellow associates or otherwise adversely affects members, customers, suppliers, people who work on behalf of [Employer] or [Employer’s] legitimate business interests may result in disciplinary action up to and including termination.

Know and follow the rules

Carefully read these guidelines, the [Employer] Statement of Ethics Policy, the [Employer] Information Policy and the Discrimination & Harassment Prevention Policy, and ensure your postings are consistent with these policies. Inappropriate postings that may include

discriminatory remarks, harassment, and threats of violence or similar inappropriate or unlawful conduct will not be tolerated and may subject you to disciplinary action up to and including termination.

Be respectful

Always be fair and courteous to fellow associates, customers, members, suppliers or people who work on behalf of [Employer]. Also, keep in mind that you are more likely to resolved work related complaints by speaking directly with your co-workers or by utilizing our Open Door Policy than by posting complaints to a social media outlet. Nevertheless, if you decide to post complaints or criticism, avoid using statements, photographs, video or audio that reasonably could be viewed as malicious, obscene, threatening or intimidating, that disparage customers, members, associates or suppliers, or that might constitute harassment or bullying. Examples of such conduct might include offensive posts meant to intentionally harm someone’s reputation or posts that could contribute to a hostile work environment on the basis of race, sex, disability, religion or any other status protected by law or company policy.

Be honest and accurate

Make sure you are always honest and accurate when posting information or news, and if you make a mistake, correct it quickly. Be open about any previous posts you have altered. Remember that the Internet archives almost everything; therefore, even deleted postings can be

searched. Never post any information or rumors that you know to be false about [Employer], fellow associates, members, customers, suppliers, people working on behalf of [Employer] or competitors.

Post only appropriate and respectful content

 Maintain the confidentiality of [Employer] trade secrets and private or confidential information. Trades secrets may include information regarding the development of systems, processes, products, know-how and technology. Do not post internal reports, policies, procedures or other internal business-related confidential communications.

 Respect financial disclosure laws. It is illegal to communicate or give a “tip” on inside information to others so that they may buy or sell stocks or securities. Such online conduct may also violate the Insider Trading Policy.

 Do not create a link from your blog, website or other social networking site to a [Employer] website without identifying yourself as a [Employer] associate.

 Express only your personal opinions. Never represent yourself as a spokesperson for [Employer]. If [Employer] is a subject of the content you are creating, be clear and open about the fact that you are an associate and make it clear that your views do not represent those of [Employer], fellow associates, members, customers, suppliers or people working on behalf of [Employer]. If you do publish a blog or post online related to the work you do or subjects associated with [Employer], make it clear that you are not speaking on behalf of [Employer]. It is best to include a disclaimer such as “The postings on this site are my own and do not necessarily reflect the views of [Employer].”

Using social media at work

Refrain from using social media while on work time or on equipment we provide, unless it is work-related as authorized by your manager or consistent with the Company Equipment Policy. Do not use [Employer] email addresses to register on social networks, blogs or other online tools utilized for personal use.

Retaliation is prohibited

[Employer] prohibits taking negative action against any associate for reporting a possible deviation from this policy or for cooperating in an investigation. Any associate who retaliates against another associate for reporting a possible deviation from this policy or for cooperating in

an investigation will be subject to disciplinary action, up to and including termination.

Media contacts

Associates should not speak to the media on [Employer’s] behalf without contacting the Corporate Affairs Department. All media inquiries should be directed to them.

For more information

If you have questions or need further guidance, please contact your HR representative.

NLRB's General Counsel Issues New Guidance for "R" Cases

The NLRB revised its procedures for handling "representation" cases - the NLRB proceedings that relate to elections.  We recently wrote an article about the main revisions here. The NLRB's acting General Counsel issued a memorandum explaining how to implement the new procedures here. You can find some FAQs from the Board here.

NLRB Decide Class Action Waivers Violate the National Labor Relations Act

If you need more convincing that the National Labor Relations Board's work will affect the private-sector workplace (even after all the Facebook hoopla), here it is.

DR Horton, a home builder, imposed a mandatory arbitration agreement. The agreement required the employee to assert all claims related to his employment in arbitration.  The agreement further states:

that the arbitrator “may hear only Employee’s individual claims,” “will not have the author- ity to consolidate the claims of other employ- ees,” and “does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding”

The NLRB first held, in agreement with its administrative law judge, that the arbitration agreement unlawfully precluded an employee from filing a charge with the NLRB.  So, arbitration agreements must carve-out the right to do so.

The groundbreaking part of the decision is that requiring an employee to arbitrate all claims and only on an individual basis violates the National Labor Relations Act's guarantee of the right to engage in "concerted activity":

[The arbitration agreement] requires employees, as a condition of their employment, to refrain from bringing collective or class claims in any forum: in court, because the [agreement] waives their right to a judicial forum; in arbitration, because the [agreement] provides that the arbitrator cannot consolidate claims or award collective relief. The [agreement] thus clearly and expressly bars employees from exercising substantive rights that have long been held protected by Section 7 of the NLRA.

The Board decided this case with just two members, because the lone Republican (Member Hayes) recused himself.  It is unfathomable why the Board did not wait until it had a full complement for such an important decision, but that's the way things go.  We'll see if the courts decide that the decision is invalid under the Supreme Court's decision in New Process Steel v. NLRB (discussed here) (Board must have three member quorum).  I did not research whether 2 + 1 recused member is sufficient or whether New Process Steel will apply.

The Board was careful to note that an arbitration agreement that permits class actions to be filed in court, while mandating arbitration of individual claims would be lawful:

We need not and do not mandate class arbitration in order to protect employees’ rights under the NLRA. Rather, we hold only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of classwide arbitration. Employers re- main free to insist that arbitral proceedings be conducted on an individual basis.

This decision likely will be challenged in appeals court and then to the Supreme Court.  So, the arbitration see-saw is not going to stop swaying yet.  For now, though, arbitration agreements containing class action waivers are subject to attack before the National Labor Relations Board.  Plaintiff lawyers thinking of challenging arbitration agreements on this basis in court may run into something called "Garmon" preemption. :)

So, to sum up:
- class waivers in arbitration agreements are lawful, if the arbitration agreement applies only to claims brought on an individual basis;
- an arbitration agreement cannot prevent an employee from filing a charge
- this decision applies only to employers covered by the National Labor Relations Act (so it does not cover certain small employers, agriculture, government employees, etc.) Most private sector employers, union and non-union, are covered.
- this decision is subject to further review, and there will be lots of it.

The case is DR Horton and the decision is here.

DGV

President Appoints Three to NLRB

The "recess" appointments fill up the Board to 5 members.  Guess what?  The full Board is not stacked with pro-management Board members.  Read the announcement and bios here.

NLRB Giving and Taking Away

Two items from your friends at the National Labor Relations Board.

As predicted, the new NLRB rights poster (discussed here) is postponed again - this time until April 2012.  Announcement here.  H/T Ross Runkel.

For the bad news, the Board just finalized revisions to election rules.  (Announcement is here).  Here is a redline of the changes to the election procedures.  The new rules severely curtail pre-election hearings on such matters as whether the voting unit is appropriate and who is eligible to vote.  Little things like that.  As a result, elections will occur much more quickly after a petition is filed, and there will be shorter "campaign" periods.

Look for the Union label!  There probably will be a few more of them starting next year!

NLRB Soon to Require Poster!

Effective this November, Non-union employers will have to post a new poster explaining to employees their rights under the National Labor Relations Act.  For a simple posting regulation, there sure are a lot of rules.

- Multiple languages if more than 20% of employers speak a language other than English
- posting on intranets
- size of the poster, placement, etc.

The poster's content basically is a short seminar on the National Labor Relations Act, the right to unionize, what unfair labor practices are, how to file a charge, etc.  Handy!

The good news is that the NLRB will let you download the poster free from its website, or you can order paper copies gratis from the Agency. So, printing costs will be minimal.

The regulations are at the bottom of this long long website page, which includes the "comments" to the final proposed rules and the NLRB's response to them.
DGV

U.S. Supreme Court: NLRB Must Have 3 Members to Rule

So, what are we going to do about the over-500 - count 'em - NLRB decisions issued by the 2-member panels??

The NLRB normally has 5 members. At the end of 2007, the Board had 4 members, and anticipated the terms of 2 recess appointments would expire shortly. So, the 4 members "delegated" its powers to a three-member panel.

Then, one of the panel members left because his term expired. That left just two - a quorum of the panel of three...right?

Well no. Several litigants challenged the Board's power to function as a two member panel. The Courts of Appeals split on the issue. The Supreme Court ruled today that the two-member decisions were improper:

we find that the Board quorum requirement and the three-member delegation clause should not be read as easily surmounted technical obstacles of little to no import. Our reading of the statute gives effect to those pro-visions without rendering any other provision of the statute superfluous: The delegation clause still operates to allow the Board to act in panels of three, and the group quorum provision still operates to allow any panel to issue a decision by only two members if one member is disqualified. Our construction is also consistent with the Board’s longstanding practice with respect to delegee groups. We thus hold that the delegation clause requires that a delegee group maintain a membership of three in order to exercise the delegated authority of the Board.

So, what happens to the 500+ decisions issued by the 2-member panel? We'll see how many of the litigants attempt to challenge them. Or, perhaps the Board, which has been staffed by 4 members since March 2010, will find some way to re-affirm the decisions. We shall see.

The case is New Process Steel LP v. NLRB and the opinion is here.

DGV