Dept. of LaborBy: Ashley Laken, Esq.

Seyfarth Synopsis: Trump Administration DOL issues notice of proposed rulemaking to rescind Obama Administration DOL’s long-embattled final persuader rule. The proposed rule is open for public comments for 60 days.

Last year, we reported extensively on the Department of Labor’s final persuader rule, which was scheduled to take effect on July 1, 2016 and would have required certain public reporting by employers and their consultants (including attorneys). However, as we reported in late June 2016, a federal district court in Texas issued a nationwide preliminary injunction preventing the rule from taking effect.

The most recent development in this saga took place just over a week ago, with the Trump Administration’s DOL issuing a notice of proposed rulemaking to formally rescind the Obama Administration DOL’s final persuader rule. In the notice of proposed rulemaking, the DOL said that it is seeking to rescind the rule so that it can consider in more detail the interaction between the new categories of “indirect” persuasion that were created by the rule and the role of attorneys in advising their clients. The DOL also said that it is proposing to rescind the rule so that, if it elects to change the scope of reportable activity beyond what has been in place since 1962, it can provide as thorough an explanation of its statutory interpretation as possible. The DOL also said that it is proposing to rescind the rule in light of “limited resources and competing priorities.”

The proposed rule was opened for public comments last Monday, and the comment period will last for 60 days. We plan to submit comments in a letter to the DOL, and we would be more than happy to include our readers’ comments in our letter. If you would like us to incorporate any particular points, please reach out to your favorite Seyfarth labor lawyer.

Cellular Phones By: Andrew R. Cockroft, Esq.

Seyfarth Synopsis: On June 7, 2017, the Board held that in order to comply with the Board’s Election Rules, an employer may need to search the phones of supervisors to identify the phone numbers of eligible voters, even if said supervisors have not been deemed “supervisors” within the meaning of the NLRA.

Under the Board’s Election Rules employers are now required to supply a plethora of information to a union prior to a representation election, including “available home and personal cellular (‘cell’) telephone numbers of all eligible voters.” For some employers, this information may be readily accessible and it can be produced to the union with ease. For others, finding the cellular phone numbers of eligible voters may not be so easy.

The Board’s recent ruling in RHCG Safety Corp., 365 NLRB No. 88 (2017), makes that process even more difficult. The Board held that if the employer does not maintain a database containing the cellular phone numbers of eligible voters, but knows that a workplace supervisor maintains the contact information of eligible voters on his cellular phone, the employer is required to ask and (if that fails) search the supervisor’s phone.

In RHCG Safety Corp., when a representation election resulted in a loss for the union, the union objected to the results of the election on the grounds that the employer failed to provide eligible voters’ cellular phone numbers as part of the voter list.  The employer argued that it had no obligation to include the phone numbers because it did not maintain its employees’ phone numbers in its computer database. Consequently, the phone numbers were not “available” to the employer within the meaning of the Board’s rules.

The Board, without citing to any precedent for support, rejected this argument. According to the Board, the phone numbers were “available” to the employer because it knew that its workplace supervisors maintained those numbers on their own phones.

Chairman Miscimarra dissented and elaborated on several problems with the Board’s newfound interpretation of “available” and the obligations imposed on employers.

First, he explained that such a rule would be nearly impossible to comply with given that employers have two days after entering into a stipulated election agreement to provide the list.

Second, under the new Election Rules, an employer might not know who constitutes a supervisor under the Act, because the Rules require the parties to wait until after the election to resolve most questions of voter eligibility and supervisory status. Accordingly, employers won’t know whether they can ask certain individuals to provide it with the phone numbers of the bargaining unit employees.

Chairman Miscimarra explained how employers are placed in a Catch-22:

  • If an employer believes that an employee is not a supervisor and therefore refrains from demanding a search of his or her phones for coworkers’ personal phone numbers, and if the union loses the election, the union is likely to object to the election results by contending that the employee is a supervisor and that the voter list erroneously omitted employees’ personal phone numbers stored on the supervisor’s phones.
  • If the employer believes that the employee is a supervisor and requires a search of his phones resulting in the discovery of numerous coworker personal phone numbers, and if the union loses the election, the union is likely to object to the election results by contending that the employee is not a supervisor, and the compelled search of the employee’s phones and forced disclosure of coworkers’ personal phone numbers constituted unlawful surveillance or other unlawful interference under Section 7 of the Act.
  • Employer Takeaway: This decision highlights how difficult it is to comply with the Election Rules, and in particular, with providing a complete list of all phone numbers. An employer faced with an upcoming election and the possibility of asking its supervisors to search their phones (or any other devices) for eligible voters’ contact information, should seek legal advice before doing so.
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NLRB (Logo)By: Joshua M. Henderson, Esq.

Seyfarth SynopsisA recent federal appeals court decision makes it even more difficult for an employer to withdraw recognition from a union that has lost majority support.  Employers need to be aware of the possibility of union “gamesmanship” when deciding how to proceed.

An employer that withdraws recognition from a union as the exclusive bargaining agent of its employees does so, as the Board and Courts say, “at its peril.” It’s a risky move, one that requires objective evidence that a union has actually lost the majority support among the employees it represents.  And the employer must be correct about the actual loss of majority support or it will face an unfair labor practice charge for refusing to bargain with a union.  Consider it a form of strict liability in the labor-relations context.  But what if the employer has objective evidence that a union has lost majority support, and then the union regains the majority support before the employer withdraws recognition?  Also, if an employer is found to have violated the law under those circumstances, what is the remedy when the union deliberately did not disclose to the employer it had regained majority status?

In Scomas of Sausalito v. NLRB (March 7, 2017), the D.C. Circuit considered these two questions.  The Court upheld the unfair labor practice charge against the employer that withdrew recognition without knowing that the union had regained majority status.  The Court observed that the employees had suffered from “an extended period of Union neglect.”  Thus, the union had not sought to bargain with the employer for over a year, and held no meetings and provided no information to its members for more than a year, but continued to collect dues from them all the while.  Perhaps not surprisingly, a majority of employees notified the employer in writing that they no longer wanted the union to represent them.  Two days after being confronted with this news, a union representative notified the employer that the union wanted to negotiate a new collective bargaining agreement, and worked behind the scenes to persuade six employees to revoke their signatures on the decertification notice that had been given to the employer.  Yet the union never told the employer that these signatures had been revoked, or that (in light of the size of the bargaining unit) this meant the union had in fact not lost majority support.  The Court decried the union’s “gamesmanship” in not informing the employer, but held that under the Board’s Levitz Furniture test (which the Court had approved of in an earlier case), the employer assumed the risk that it was wrong in evaluating majority support.  Because the employer was wrong, it could not lawfully withdraw recognition.

In answer to the second question, however, the Court reversed the Board’s decision that a “bargaining order” was the appropriate remedy. Bargaining orders are reserved for flagrant, deliberate unfair labor practices.  In the Court’s view, the employer was not acting in bad faith when it withdrew recognition from the union.  The evidence showed that the employer did not act in haste.  Rather, it took steps to ensure that the signatures on the petition delivered to it matched those on the employees’ payroll records.  Moreover, the signatures that remained on the petition after the revocation comprised 42 percent of the bargaining unit.  That exceeds the 30 percent threshold for directing an election, whether filed by a union, an employer, or an employee.  The disaffected employees also had filed a decertification election petition with the Board, but withdrew it after their employer withdrew recognition from the union.  Under the circumstances, the Court rejected the Board’s argument that an election was not an appropriate alternative remedy.

Takeaway for Employers:  Under the Board’s current test (which may or may not be reconsidered by a new Republican-majority Board), an employer may withdraw recognition from the union only when there is an actual loss of majority support for the union; as a practical matter, the employer must be absolutely certain that more than half of the employees in the bargaining unit no longer want the union to represent them.  Even then, the union may be able to undermine the employer’s basis for withdrawal and place the employer’s decision in jeopardy.  When faced with an apparent loss of majority support for a union, an employer should seriously consider choosing the safer option of filing an RM petition (a management election petition) with the NLRB to allow the employees an opportunity to vote on whether to oust the union in a formal election overseen by the Board.  [Good-faith uncertainty of majority status could, in some circumstances and under the Board’s current standard, support an internal poll of employees as to their support for the union, but polling requires fastidious attention to procedural safeguards and is fraught with legal risk as well.]

 

NLRB 2By: Marjorie C. Soto, Esq., Jeffrey A. Berman, Esq., and Mary Kay Klimesh, Esq.

Seyfarth Synopsis: Congressional Committee Head Virginia Foxx (R-NC) and Subcommittee Chair Tim Walberg (R-MI) ask NLRB General Counsel Griffin to either immediately rescind his January 31 report regarding the purported rights of faculty, students and scholarship athletes, or “step aside as general counsel.”

Yesterday, we reported that Richard F. Griffith, Jr., the General Counsel of the National Labor Relations Board, issued a report titled “General Counsel’s Report on the Statutory Rights of University Faculty and Students in the Unfair Labor Practice Context.” A copy of  yesterday’s Management Alert can be found here.

It did not take long for Griffin’s Report to catch the attention of Congress. Yesterday, Representative Virginia Foxx (R-NC), Chairwoman of the House Committee on Education and the Workforce, and Representative Tim Walberg (R-MI), Chairman of the House Subcommittee on Health, Employment, Labor, and Pensions, jointly issued a response to the Report, calling for Griffin to “rescind his memorandum immediately” or  “step aside as general counsel.”   In support of their request, the Representatives jointly stated that the “memorandum puts the interests of union leaders over America’s students, and it has the potential to create significant confusion at college campuses across the nation.”

Even if Griffin refuses to withdraw the Report, it reasonably can be anticipated that the General Counsel appointed by President Trump at the conclusion of Griffin’s appointment in November, or the soon-to-be Trump appointed Board majority, will revisit not only the Report but also the underlying decisions in Pacific Lutheran, Columbia and Northwestern.

NLRB By: Marjorie C. Soto, Esq., Jeffrey A. Berman, Esq., and Mary Kay Klimesh, Esq. 

Seyfarth Synopsis:  In a last minute attempt to leave his mark on the NLRB, the Board’s outgoing General Counsel issued a report attempting to expand the rights of university faculty and students, including scholarship athletes under the National Labor Relations Act.

Just months before the conclusion of his four-year term, Richard F. Griffin, Jr., the General Counsel (“GC”) of the National Labor Relations Board (“Board”), issued a report titled “General Counsel’s Report on the Statutory Rights of University Faculty and Students in the Unfair Labor Practice Context.”

The January 31, 2017 Report was issued with the stated intent to serve as a “guide for employers, labor unions, and employees that summarizes Board law regarding NLRA employee status in the university setting and explains how the Office of the General Counsel will apply these representational decisions in the unfair labor practice arena.” The decisions covered by the Report – – Pacific Lutheran University, Columbia University, and Northwestern University–all involved efforts of individuals to obtain representation by a union.

University Faculty

In Pacific Lutheran, the Board established a new test for determining when it would take jurisdiction over religious colleges and universities.  According to the GC, the Board “will…seek redress for unfair labor practices committed by religious schools against individual faculty member discriminatees who the university does not hold out as performing a specific role in creating and maintaining the university’s religious and educational environment.”

As a practical matter, this means that the GC believes that the faculty who are able to seek union representation because they were “not hired to advance the school’s religious purposes,” also are protected by the Act’s prohibition against discrimination for engaging in protected concerted activities. By implication, this may mean that faculty who are hired to advance a school’s religious purposes are not protected.

The GC also provided his analysis of the standard articulated in Pacific Lutheran regarding the managerial status of faculty members.  Specifically, the GC distinguished between managerial faculty (those who “formulate and effectuate management policies by expressing and making operative the decisions of their employer”) and non-managerial faculty (those whose decision-making is limited to “routine discharge of professional duties in projects to which they have been assigned…”).

The GC concluded that, in the unfair labor practice context, a “complaint will not issue against a university if [the Board] determine[s] that an asserted discriminatee is a managerial employee under the Board’s Pacific Lutheran test.”  He added, however, that even when the Board refuses to process a certification petition, it will still conduct an individualized analysis of the discriminatee’s employment position to determine whether that individual exercised sufficient managerial authority to exempt him from the NLRA.

University Students

Student Assistants. Here, the GC briefly summarized the Columbia University decision, stating that the Board “applied the statutory language of the [NLRA] and longstanding common-law principles to settle the issue of statutory coverage for graduate student employees, determining that student assistants are employees under the NLRA.” The GC relied on the 2000 NYU decision to conclude that graduate students met the common-law test of agency because they “‘perform their duties for, and under the control of’ their university, which in turn pays them for those services…” Similarly, the GC applied this precedent to the unfair labor practices context, concluding that, in his opinion, student assistants are well within the ambit of the NLRA and can therefore organize and receive its protections.

Non-Academic University Workers. The GC stated that, as to university students who are performing non-academic university work (e.g. maintenance or cafeteria workers, lifeguards, campus tour guides, etc.), they are “clearly covered by the NLRA and, as with student assistants, [the Board] will analyze unfair labor practice charges involving non-academic student employees accordingly.” In reaching this conclusion, the GC reasoned that the non-academic university worker category presented an easier question than the student assistants in Columbia as, in his opinion, under the common law agency test, there is no issue of whether or not the work performed by the student employee is “primarily educational work.”

Hospital House Staff. With respect to “hospital house staff” (medical interns, residents, and fellows), the GC concluded that they would “continue to be protected as employees under the NLRA, and [the Board] will continue to process unfair labor practice charges involving those employees.”  In reaching this conclusion, the GC reasoned that, just because certain hospital house staff members also happened to be students did not mean that they were exempt from the coverage of the NLRA. He cited the Boston Medical decision, which held that “nothing in the [NLRA] suggests that persons who are students but also employees should be exempted from the coverage and protection of the [NLRA].”

University Football Players. Here, the GC admittedly limits his analysis to the application of the statutory definition of employee and the common-law agency test to find that Division I FBS scholarship football players are employees under the NLRA, and therefore have the rights and protections of that Act. Referring to the Board’s decision in Northwestern, the GC expressly stated that it would be inappropriate for the Report to attempt resolve the sometimes “divisive” questions relating to whether student athletes may organize under the Act.

Conclusion

With Mr. Griffin’s four-year term ending later this year, it is likely that the new GC will want to revisit some or all of the Report. The soon to be Trump-appointed  majority of the Board likely will revisit not only the Report, but also the decisions in Pacific Lutheran, Columbia and Northwestern.

DisciplineBy: Ronald J. Kramer, Esq. & Kaitlyn F. Whiteside, Esq.

Seyfarth Synopsis: The Board reaffirmed, prospectively, the Alan Ritchey doctrine requiring employers to bargain over discretionary discipline issued to newly organized employees pre-first contract and mandated prospective make-whole relief including reinstatement and back pay for future violations.

The Board in Total Security Management Illinois 1, LLC, 364 NLRB No. 106 (Aug. 26, 2016) reaffirmed its prior decision in Alan Ritchey Inc., 359 NLRB No. 40 (Dec. 14, 2012), requiring employers to bargain over discretionary discipline issued to newly organized employees prior to the execution of a first contract or a separate side letter addressing discipline. Alan Ritchey was previously invalidated by the Supreme Court’s decision in NLRB v. Noel Canning.

Considering the issue de novo, the three-member majority led by Chairman Pearce, who also served as Chairman when Alan Ritchey was issued, reiterated that employers must provide notice and an opportunity to bargain to the union before imposing discipline (with limited exceptions for minor discipline and exigent circumstances).  We previously covered the obligations under Alan Ritchey here.

The majority emphasized the importance of protecting employees’ rights during the pre-first contract phase of the bargaining relationship. Allowing the employer to exercise discretion in imposing discipline during this time would, according to the majority, “demonstrate to employees that the Act and the Board’s processes implementing it are ineffectual, and would render the union…impotent.” Total Security, 364 NLRB No. 106, slip op. at 10.

The Board found that the discharges in Total Security met the standard established in Alan Ritchey for pre-imposition bargaining and that no such bargaining took place.  The Board declined, however, to order retroactive enforcement of its decision, holding that such enforcement would constitute manifest injustice. Id. at 12.

The majority in Total Security also set forth, for the first time, the remedies available for future Alan Ritchey violations.  In addition to standard remedial relief, i.e. cease-and-desist orders, a requirement to bargain, and notice-posting, the Board opined that make-whole remedial relief, including reinstatement and back pay, would also be appropriate. Id.  Where post-violation the parties did bargain and later reached agreement on discipline, the majority indicated the back pay remedy generally would run from the date of unilateral discipline until the date of the agreement to the extent the agreement did not provide for such back pay.  An agreement providing less than full lost back pay and purporting to settle the pre-discipline bargaining violation would be subject to review under the Board’s standards for non-Board settlement agreements if challenged.  In the event the parties, post-violation, bargained in good faith to impasse over the discipline, back pay would run until the date of impasse. Id. at 13.

Such make-whole relief would, however, be subject to an employer’s affirmative defense that the discipline was “for cause” under the Act. The majority’s new “for cause” defense places the burden on the employer, during the compliance phase of the case, to show “(1) the employee engaged in misconduct, and (2) the misconduct was the reason for the suspension or discharge.” Id. at 15.

The burden of proof then shifts to the General Counsel and the charging party to challenge the employer’s showing by demonstrating, for example, disparate discipline for the same behavior or other reasons for leniency. The employer may rebut such evidence by proving that the employee would have received the same discipline regardless.  The ultimate burden of persuasion remains, at all times, with the employer.

In a 25 page dissent longer than the decision itself, Member Miscimarra asserted the majority took a “wrecking ball to eight decades of NLRA case law.” He not only addressed how the majority erred in reaffirming Alan Ritchey, but he also criticized the majority’s creation of the affirmative defense.  Member Miscimarra argued that Section 10(c) of the Act requires the General Counsel to demonstrate the absence of cause in order to find a violation rather than placing the burden on the employer to show cause in order to avoid liability.  Moreover, Member Miscimarra asserted that that cause issue must be addressed as part of the liability phase of the proceedings as opposed to the remedial phase.

The reaffirmation of Alan Ritchey is no surprise, although the provision of a back pay remedy and the new employer burden during the compliance phase to prove a “for cause” defense is.  Given the complaint against the employer here was dismissed as the ruling was prospective in nature, it likely will be some time before this new rule is actually appealed to the courts.

Moving forward, employers negotiating first contracts risk an unfair labor practice finding if they do not comply fully with Alan Ritchey’s bargaining requirements for any discipline that could even arguably be seen as discretionary.

By:  Christopher W. Kelleher, Esq., Mary Kay Klimesh, Esq. & Jeffrey A. Berman, Esq.

Seyfarth Synopsis:  The National Labor Relations Board issued three important decisions this week that will significantly impact private colleges and universities.

Student Assistants Eligible to Unionize

By a vote of 3 to 1, the Board held that college and university student assistants — including undergraduates — who perform services in connection with their studies, are “employees” under Section 2(3) of the NLRA, and therefore have the right to bargain collectively. Columbia University, 364 NLRB No. 90. In doing so, the Board overruled Brown University, 342 NLRB 483 (2004), which held that student assistants are not statutory employees. The ruling directly contradicts the Board’s nearly 80-year treatment of students under the Act.

Because Section 2(3) does not adequately define the term “employee,” the Board looked to common law agency principles to determine whether student assistants are covered. The Board thus found that even when the economic relationship “may seem comparatively slight” relative to the academic relationship, “the payment of compensation, in conjunction with the employer’s control, suffices to establish an employment relationship[.]” The Board found no compelling statutory or policy considerations to hold otherwise.

Member Miscimarra, the Board’s lone dissenter, argued that the relationship between the students and the university is “primarily educational,” and thus does not fit “the complexities of industrial life.” The dissent warned that the Majority disregarded “what hangs in the balance when a student’s efforts to attain [a] … degree are governed by the risks and uncertainties of collective bargaining and the potential resort to economic weapons” such as strikes, slowdowns, lockouts, and litigation.

Religious Universities Covered by NLRA

The issue in Seattle University, 364 NLRB No. 84 and Saint Xavier University, 364 NLRB No. 85 was whether these religiously affiliated institutions should be exempted from the Board’s jurisdiction based on First Amendment guarantees against entanglement between church and state. The universities argued that as religious institutions, their faculty members are not covered by the National Labor Relations Act. At the very least, they argued, teachers in religious studies departments should be excluded from the proposed bargaining units, which comprised part-time and contingent faculty.

In both cases, the Regional Director determined that the university’s faculty members generally were covered by the NLRA and that the unit appropriately included religious studies faculty. On review, the Board applied its test set forth in Pacific Lutheran, 361 NLRB No. 157 (2014), which permits Board jurisdiction unless: (1) the university or college holds itself out as providing a religious educational environment; and (2) it holds out the petitioned-for faculty members as performing a specific role in creating or maintaining the school’s religious educational environment. (For more about the Board’s decision in Pacific Lutheran University, 361 NLRB 157 (2014), see here ).  The Board found that both universities met this test when it came to faculty in the religious studies departments, thereby excluding them from the bargaining units.

While this might sound like good news, the Board denied review of the Regional Director’s determination that faculty in other departments were covered. The Board thus continues to ignore the Supreme Court’s mandate in NLRB v. Catholic Bishop of Chicago, 440 U.S. 490 (1979) that the NLRA must be construed to exclude teachers in church-operated schools. The Board is not entitled to base jurisdiction on the conclusion that certain teachers perform a role in creating or maintaining the school’s religious educational environment. However, that is exactly what happened in these two cases. According to the Supreme Court, this type of inquiry by itself may impermissibly impinge on rights guaranteed by the Religion Clauses of the Constitution.

Conclusion

The Board continues to broadly exercise its authority in order to maximize the number of employers and employees covered by the Act, this time in cases involving three universities. We can expect challenges to all three decisions.

 

 

 

By:  Christopher W. Kelleher, Esq.

Seyfarth Synopsis: The NLRB ruled that students who work as teaching assistants at colleges and universities are “employees” under the NLRA and are thus permitted to engage in collective bargaining.

On August 23, 2016, the National Labor Relations Board issued a 3-1 decision in Columbia University, Case 02-RC-143012, holding that private college and university student assistants — including undergraduates — who perform services in connection with their studies, are “employees” under Section 2(3) of the National Labor Relations Act, and therefore have the right to bargain collectively.

In doing so, the Board overruled Brown University, 342 NLRB 483 (2004), which held that student assistants are not statutory employees. The ruling directly contradicts the Board’s treatment of students under the Act for nearly all of its 80-year history.

Because Section 2(3) does not adequately define the term “employee,” the Board looked to common law agency principles to determine whether student assistants are covered. The Board thus found that even when the economic relationship “may seem comparatively slight” relative to the academic relationship, “the payment of compensation, in conjunction with the employer’s control, suffices to establish an employment relationship[.]” The Board found no compelling statutory or policy considerations to hold otherwise. The decision applies only to private schools and universities.

Member Miscimarra, the Board’s lone dissenter, argued that the relationship between the students and the university is “primarily educational,” and thus does not fit “the complexities of industrial life.” The dissent warned that the Majority disregarded “what hangs in the balance when a student’s efforts to attain [a] … degree are governed by the risks and uncertainties of collective bargaining and the potential resort to economic weapons” such as strikes, slowdowns, lockouts, and litigation.

Red Light   By: Alison Loomis, Esq.

Seyfarth Synopsis: A challenge to Seattle’s first-of-its-kind ordinance, which established the right for on-demand drivers to collectively bargain, was dismissed by a Washington federal court on the basis that the suing entity lacked standing. 

Seattle recently enacted an ordinance granting “on-demand” drivers the right to bargain collectively. The ordinance, which took effect on January 22, 2016, established a mechanism through which a union could request recognition as a qualified driver representative (“QDR”) for on-demand drivers, and ultimately, negotiate pay and conditions of employment on their behalf with their driver coordinator company (such as, for example, Uber).  If recognition was granted, the QDR would contact the company whose drivers it seeks to represent to obtain the drivers’ contact information.  Once the QDR had the contact information, it could then solicit those drivers regarding their interest in union representation.  If and when a majority of the drivers expressed interest in representation, the city of Seattle would certify the QDR as the exclusive driver representative for all drivers associated with that driver coordinator and the driver coordinator would be required to negotiate with the QDR regarding topics including payment, hours and conditions of work, and equipment standards.

On March 3, 2016, the U.S. Chamber of Commerce, a trade group that has two driver coordinator companies as members, filed a complaint against the city of Seattle, alleging, among other things, that the ordinance was preempted by the NLRA and the Sherman Antitrust Act. Chambers claimed that the ordinance would “restrict the market freedom relied upon for all for-hire drivers who are part of independent-contractor arrangements” and would “insert a third-party labor union into the relationship between independent contractors and companies.”  In seeking an injunction to stop the enforcement of the ordinance, Chambers alleged that two of its member companies suffered present harm and would likely face a “substantial risk of injury” in the future as a result of the ordinance.

The city of Seattle filed a motion to dismiss the lawsuit on the grounds that Chambers did not have the requisite standing. In granting the city’s motion, the District Court for the Western District of Washington at Seattle noted that the Chambers’ two member driver coordinator companies had not yet suffered harm, even if they faced the eventual prospect of a union organizing drive.  The court dismissed the lawsuit “without prejudice,” meaning that Chambers can effectively revive the action at a later date, assuming it gains standing.

In the interim, we’ll wait until the light turns green, and a challenge to this legislation ripens.

NLRBBy: John L. Telford, Jr. and Kaitlyn Whiteside

Seyfarth Synopsis: In yet another pro-union, results-driven decision, the NLRB announces a new approach to evaluating whether an asset purchaser has forfeited its right to set initial terms and conditions when offering employment to a seller’s employees.

In Nexeo Solutions, LLC, 364 NLRB No. 44 (July 18, 2016), a split panel of the NLRB found that Nexeo Solutions lost its right to set initial terms and conditions of employment for the employees of Ashland Distribution’s Fairfield, California facility, which Nexeo acquired in an asset purchase.  The employees were drivers, material handlers, and warehouse employees who had been represented by the Teamsters for approximately 18 years.

Under well-settled law, a purchaser is not typically bound by the collective bargaining agreement governing the seller’s employees, and instead the purchaser may set its own initial terms and conditions of employment. See NLRB v. Burns Security Services, 406 U.S. 272 (1972).  The Supreme Court did, however, carve out an exception to the general rule when “it is perfectly clear that the new employer plans to retain all of the employees in the unit…” Id. at 294-95.  These purchasers are known as “perfectly clear successors.”  The NLRB then interpreted and expanded on the obligations of perfectly clear successors in Spruce Up Corp., 209 NLRB 194 (1974), enf’d. per curiam 529 F.2d 516 (4th Cir. 1975).

Under Spruce Up, a purchaser loses the right to set initial terms when “the new employer has either actively or, by tacit inference, misled employees into believing they would all be retained without change in their wages, hours, or conditions of employment…” or “where the new employer…has failed to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment.” Id. at 195.

The Union and amici, including the SEIU and the AFL-CIO, asked that the Board overturn Spruce Up as inconsistent with the Supreme Court’s decision in Burns.  Rather than overrule Spruce Up, however, the Board instead stretched the perfectly clear successor analysis so that the facts of the case at hand would fit within the expanded meaning of the term.

In justifying its decision, the Board relied on the parties’ November 10, 2010 Purchase and Sale Agreement stating that the employees would be offered “(i) a base salary or wages no less favorable than those provided immediately prior to the Closing Date and (ii) other employee benefits, variable pay, incentive or bonus opportunities…substantially comparable in the aggregate” to those provided by the seller. Nexeo, 364 NLRB at 2  The Board also focused on the seller’s communications, rather than the buyer’s, with the employees.  For example:

  • On November 7, 2010 an email from seller’s president was delivered via hard copy to the employees stating, “[W]e anticipate approximately 2,000 Ashland Distribution employees and dedicated resource group and supply chain partners will transfer to the new business.” Id.
  • On November 8, 2010 an employee Q&A was posted on the intranet and the bulletin board at the Ashland facility stating, “Under the terms of the agreement, for at least 18 months following closing, the newly independent company is required to provide, to each transferred employee, base salary and wages that are no less favorable than those provided prior to closing; and other employee benefits that are substantially comparable in the aggregate to compensation and benefits as of January 1, 2011.” Id. at 3.

The Board’s reliance on these communications completely disregarded the buyer’s later statements, which made it clear that any continued employment would be under new and different terms and conditions. The purchaser’s statements included the following:

  • On February 16, 2011, the purchaser met with the union business agent and provided a draft copy of an offer letter to be distributed to the employees. The letter stated, “[W]e think you should know that Nexeo Solutions has not agreed to assume any of Ashland’s collective bargaining agreements.  We have chosen not to adopt, as initial terms and conditions of employment, any of the provisions contained in any current or expired collective bargaining agreement…” Id. at 4.
  • On February 17, 2011, the purchaser mailed the offer letters to the employees along with a document called “Your New Benefits at a Glance,” which detailed the changes to the employee’s health insurance, life insurance, and retirement benefits should they accept the offer. Id.

In relying so heavily only on the seller’s statements, the majority blurred the identity of the speaker and the time at which the buyer’s responsibility for communication kicks in. It held that the seller’s statements to the employees may be imputed to the purchaser for purposes of the perfectly clear successor analysis, a stark departure from the Board’s previous requirement that a perfectly clear successor have engaged in a misrepresentation to the employees in order to lose its right to set initial terms.  Now, the purchaser’s obligation to notify the union of a change in terms and conditions may be triggered simultaneously with the seller’s effects bargaining obligation.

Member Miscimarra, dissenting, noted that “The new affirmative duty created by my colleagues is especially unfortunate because it will predictably have consequences–however unintended they may be–that will generate greater uncertainty for, and impose greater hardship on, employees and unions involved in a sale, transfer or other conveyance of operations.” Id. at 23.

As a result, Miscimarra noted that “[M]any potential successor employers will negotiate strict limitations on a predecessor’s ability to convey any information to its employees regarding their potential employment with the successor.  Nothing in the NLRA requires purchasers to disclose their employment plans to the seller, and–in view of my colleagues’ decision–purchaser would be well advised to prohibit sellers from communicating anything to their employees and unions regarding the purchaser’s employment-related plans.” Id.

The Union has petitioned for the case to be reviewed by the Ninth Circuit. The employer has requested reconsideration by the Board.  It is unclear whether the Ninth Circuit Court of Appeals will push back against the Board’s extraordinary encroachment on the buyer’s ability to set initial terms.

In the meantime, potential successors contemplating asset purchases from unionized sellers should:

  • Carefully review purchase agreements for any language that could trigger a perfectly clear successor obligation under the Board’s new standard including obligations to provide similar or comparable wages and benefits to the seller’s employees.
  • Negotiate strict limitations on the seller’s ability to communicate the terms of the deal to its employees or the ramifications of the deal on their continued employment.
  • Recognize that although the seller has an effects bargaining obligation, the purchaser may want to consider insisting that any communications by the seller to the employees be coupled with affirmations that any continued employment with the buyer will be under different terms and conditions of employment.
  • Potentially require that a decision on the initial terms and conditions of employment be made prior to execution of a purchase agreement including the terms of any communications regarding those initial terms.

Ultimately, employers will continue to face the difficult balancing required in order to achieve a smooth sale while assuaging employee anxiety against the potential inability to set initial terms of employment. For many purchasers, the inability to set initial terms and conditions of employment could destroy the viability of the deal itself, a result much worse for the employees created by the NLRB’s overreach.