By Bryan M. O’Keefe

Seyfarth Synopsis: In a long-awaited decision with significant impact for the private equity industry, in Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, the United States Court of Appeals for the First Circuit held that two Sun Capital private equity investment funds did not create an implied partnership-in-fact in their purchase and management of a portfolio company.   As a result, pension fund withdrawal liability incurred as part of the portfolio company’s bankruptcy was not imposed against the investment funds.

Any labor lawyer worth his or her salt knows of the National Labor Relation Board’s Browning- Ferris decision, which radically changed the definition of a “joint employer” under NLRB case law [Full Disclosure: Seyfarth Shaw represents Browning-Ferris in this proceeding].   Similarly, any private equity lawyer worth his or her salt is aware of several rulings emanating from the United States Court of Appeals for the First Circuit and District Court of Massachusetts involving private equity firm Sun Capital Partners which threatened to hold several Sun affiliated investment funds responsible for withdrawal liability imposed at a bankrupt portfolio company.

As one of the rare lawyers whose practice straddles both of these areas, I have been intently following each case for some time now. While Browning-Ferris is still up in the air while the NLRB determines through rulemaking and a DC Circuit remand what the Board considers the proper joint-employer standard is, the First Circuit delivered the likely final word on Sun Capital this past Friday, finding that the two Sun Capital controlled funds were not a partnership-in-fact under tax law and thus were not jointly responsible for the portfolio company’s withdrawal liability.

The Sun Capital case was a significant one in private equity for the same reasons that Browning-Ferris has reverberated so much in traditional labor law. In both cases, courts and governmental agencies have arguably eviscerated core principles of corporate law and tax law to find “deeper pockets” for alleged labor and employment related liabilities, potentially at the expense of deterring private investment in failing businesses.

In its decision, the First Circuit immediately recognized this tension, noting that imposing withdrawal liability on investment funds “would likely dis-incentivize much-needed private investment in underperforming companies with unfunded pension liabilities.” The Court went on to note that “this chilling effect could, in turn, worsen the financial position of multiemployer pension plans.” On the other hand, if no withdrawal liability was imposed on the investment funds and the pension fund becomes insolvent, then the workers themselves, some with as much as 30 years of service, would receive a greatly reduced pension payout (totaling a maximum of $12,870 annually) through the Pension Benefit Guarantee Corporation.   Suffice to say, cases such as these can present difficult public policy questions.

Whether the two Sun affiliated investment funds constituted a “partnership-in-fact” was critical because a parent-subsidiary control group is jointly and severally liable for pension fund liabilities only when at least eighty percent of the subsidiary is owned by the parent. Neither fund affiliated with Sun ultimately owned 80 percent of the portfolio company, but if the funds were in partnership together then the resulting “partnership-in-fact” would have owned 100% of the portfolio company and thus would have been jointly and severally liable for the portfolio company withdrawal liability— the deep pockets found.

Ultimately, the First Circuit did not draw a bright-line rule that PE investment funds can never be liable for withdrawal liability at a portfolio company.   Rather, the First Circuit borrowed a multi-factor test from a fifty-five year old tax law case (Luna v. Commissioner, 42 T.C. 1067 (1964)) (which, it should be noted, was decided before a single PE firm was ever founded!) and held that Sun Capital’s two investment funds did not create a partnership-in-fact such that there was common control of the portfolio company sufficient to require the imposition of withdrawal liability.

To be sure, the First Circuit found that some of the Luna factors supported finding a de facto partnership. For instance, the funds jointly developed restructuring and operating plans for target companies before acquiring them. In addition, the same two individuals essentially ran both the funds and the management company in charge of the portfolio company. The Court also noted that there was a pooling of resources and expertise that both the funds and the portfolio company utilized.

Yet, the Court held that other facts rebutted partnership-in-fact formation. First, the funds expressly disclaimed any partnership between themselves. Moreover, most of the limited partners in each fund were not the same. Additionally, the funds filed separate tax returns, had separate books, and maintained separate bank accounts. Also, the funds did not operate in parallel, showing some independence in operations and structure. Finally, because an LLC was formed to actually acquire the portfolio company, the Funds were prevented from conducting business in their “joint names” and were limited in how they could “exercise[] mutual control over and assume[] mutual responsibilities for” the portfolio company.

What’s most interesting is that even though many of the “day to day” activities of the funds—developing restructuring plans, two individuals running the funds, pooling resources and expertise, etc.—seemed to weigh in favor of a partnership-in-fact finding, the Court ultimately gave more weight to the Luna factors more closely associated with corporate formalities—an express disclaimer of partnership, separate books, setting up an LLC to acquire the portfolio companies, etc. The Court also seemed uneasy with striking down core tenets of corporate law without at least some input from Congress or the PBGC on the issue, even saying in its closing paragraphs that its decision was partially based on a “reluctance” to impose withdrawal liability without a “firm indication of congressional intent to do so and any further formal guidance from the PBGC.”   The Court further noted that the lack of congressional intent meant that “two of ERISA and the MPPAA’s principle aims—to ensure the viability of existing pension funds and to encourage the private sector to invest in, or assume control of, struggling companies with pension plans—are in considerable tension here.”

The case is a strong reminder that corporate formalities do matter and that PE funds, like Sun Capital, which respect corporate formalities and treat their businesses as separate entities in the way that corporate and tax law intends can find themselves shielded from unwanted liabilities at their investments; other investment funds which are not as careful in the way that they operate may not find themselves in as fortunate a position, even under the First Circuit’s otherwise PE-friendly decision.

Seyfarth Synopsis.  The National Labor Relations Board has been making a lot of noise since the current administration took control. From reversing draconian restrictions on workplace civility rules to restoring employer control over nonemployee union activity on private property, the noise should be music to employers’ ears. As 2020 quickly approaches, below we revisit some of the greatest hits. 

By Nick Geannacopulos and Timothy M. Hoppe

It started like a small California wave, and now, after three years has turned into a Tsunami. Since taking control of the NLRB, the current administration has systematically altered, revised and overturned many of the key rulings of the Obama-era Board, and in some instances, has reversed even longer-standing precedent. These changes resonate with many unionized employers, but have unions singing the blues.

Here are some decisions that have (or are destined to) climbed the charts:

Common Sense Employee Conduct Rules. The Boeing Company, 365 NLRB No. 154 (Dec. 14, 2017). In an early harbinger of things to come, in 2017, the Board overruled a 2004 decision, Lutheran Heritage Village-Livonia, that the Obama-era Board used to invalidate a number of common sense workplace civility policies. For instance, the old Board used Lutheran Heritage to hold unlawful policies prohibiting “abusive or threatening language to anyone on the company premises” and policies restricting conduct that impedes harmonious interactions or relationships. According to the prior Board, employees could construe these types of civility rules as prohibiting protected concerted actions under the NLRA. In Boeing, the new Board sought to apply a more common sense analysis to rules clearly aimed at actually balancing an employer’s legitimate interests in maintaining a civil workplace and employees’ rights under the NLRA. Of course, not all work rules fly under Boeing, but the decision and its progeny are a welcome sign that common sense is back in vogue at the Board.

A Return to Tradition in Deciding the Composition of Potential Bargaining Units. PCC Structurals, Inc., 365 NLRB No. 160 (Dec. 15, 2017). PCC Structurals reversed the Obama-era decision, Specialty Healthcare, 357 NLRB No. 83 (2011), which allowed unions to organize so-called “micro units” for determining the appropriateness of a bargaining unit election. The Obama-era “overwhelming community of interest” standard allowed unions to organize very small sub-sections of an employer. For instance, in one decision, the Board approved a 41 person micro-unit limited to only non-supervisory employees in the fragrance department of a department store. In PCC, the Board restored the traditional “community of interest” standard. Now, the Board will apply a multi-factored test to determine if organizing employees’ interests are sufficiently distinct from those left out of the group. As the Board noted, this common sense approach makes it harder for organizers to gerrymander bargaining units to exclude unsupportive coworkers.

Return to the Historical Independent Contract Analysis. Supershuttle Dfw, Inc., 367 NLRB No. 75 (Jan. 25, 2019). SuperShuttle expressly overruled the Obama-era Board’s ruling in FedEx Home Delivery, 361 NLRB 610 (2014), which significantly limited the importance of “entrepreneurial opportunity” in analyzing whether individuals were employees or independent contractors under the NLRA. Instead, the Board returned to the long-standing common law agency test the predated the FedEx decision.

When is a Successor “Perfectly Clear.” Ridgewood Health Care Ctr., Inc., 367 NLRB No. 110 (Apr. 2, 2019). The Board used Ridgewood Health Care to narrow the scope of when an employer acquiring a unionized company is required to bargain prior to setting the initial terms of employment. In doing so, the Board overruled precedent established in 1996 in Galloway School Lines, 321 NLRB 1422 (1996). Generally, employers acquiring unionized companies cannot set initial employment terms for a workforce if the companies indicate they will hire “substantially all” of the prior employer’s employees. Galloway effectively lessened this standard in situations where a successor employer engaged in discriminatory hiring practices. If an employer, for instance, violated the NLRA in its hiring practices, the Board prohibited the employer from setting the initial terms of employment if it failed to hire “some” employees, as opposed to “substantially all” employees. Ridgewood Health Care rejected this lower standard. Now, even if successors engage in unfair hiring practices, they only lose the right to set the initial terms of employment if, absent the successor’s unlawful conduct, it would not have hired all or substantially all of the predecessor employees.

Discipline Before Execution of a CBA. Oberthur Techs. of Am. Corp., 368 NLRB No. 5 (June 17, 2019). Here, the current Board overruled Total Security Management, 364 NLRB No 106 (2016), which complicated employers’ ability to discipline employees during CBA negotiations, or before a new CBA took effect. In Oberthur, the Board held that a newly organized employer without an executed collective bargaining agreement has a duty to bargain before it changes any disciplinary standards, but not before it makes a decision to discipline consistent with its established rules. The upshot is that employers now have much less risk in disciplining employees after being organized but before they enter into a contract with the union.

Equity to Withdrawing Recognition of a Union.  Johnson Controls, Inc., 368 NLRB No. 20 (July 3, 2019). In this case, the current Board overruled Levitz Furniture, 333 NLRB 717 (2001), which made it more difficult to withdraw recognition of a union. Generally, unionized employees can ask employers to withdraw recognition of a union by submitting evidence that at least 50% of the bargaining unit members no longer wish the union to represent them. Under Levitz, if the union challenged the withdrawal of recognition, the employer ultimately had the burden of proving the union lacked majority status, and would be subject to unfair labor practice claims if it failed to carry its burden. Johnson Controls takes a more equitable approach. If a union contests the withdrawal petition, it will have 45 days to seek a Board-supervised secret ballot election to verify whether 50% of the bargaining unit supports withdrawal.

Restoring Reason to Employer’s Rights to Control Activities on Their Property. Kroger Ltd. P’ship I Mid-Atl. & United Food & Commercial Workers Union Local 400, 368 NLRB No. 64 (Sept. 6, 2019). In this case, the current Board overruled 20 years of precedent that restricted when employers can bar nonemployee union agents from employer property. Under the prior precedent, set in Sandusky Mall Co., 329 NLRB 618 (1999), allowing Girl Scouts and the Salvation Army to fundraise at a store would take away employers’ rights to bar nonemployee union agents from soliciting signatures or engaging in other union activities on the employer’s property. The Board’s decision in Kroger overturned Sandusky. Now the Board will look at whether the employer allowed activities on its property “similar in nature” to the nonemployee union agent activities. If so, then the employer must allow the union activity; if not, the employer is well within its right to remove the nonemployee union agent from its property. Kroger does not apply to employee activities on the property, nor does it change state-specific laws in places like those in California that place additional restrictions on employer property rights. Nevertheless, it represents another common sense change to Board law that was long overdue.

Alignment with Long-Standing Circuit Court Rulings Regarding Unilateral Changes to Working Conditions. MV Transportation, Inc., 368 NLRB No. 66 (Sept. 10, 2019). Generally, employers and unions can agree in a CBA to give employers the unilaterally power to change certain terms and conditions of employment. Since 1993, the D.C. Circuit has applied the “contract coverage” standard to evaluate the scope of such CBA provisions. A waiver is valid if it is “within the compass or scope” of the CBA. The Board rejected the Circuit Court’s approach for years. Instead, it applied a higher standard, requiring employers to prove unions “clearly and unmistakably waived [their] right[s] to bargain over” a unilateral change. In MV Transportation, the Board finally agreed to follow long-standing circuit court precedent. The practical effect of the old “clear and unmistakable waiver” standard was that the Board rarely found employer changes permissible, even when the subject of the change was discussed at the bargaining table with the union, and common sense suggested the parties contemplated the change or waived the issue. Now, the Board will apply a much more reasonable standard, and one that has been applied by circuit courts for years.

As detailed above, the times they are a changing for unionized employers. Stay tuned to this blog for all of those changes and how they might impact your workplaces going forward.

By Ashley K. Laken and Kyllan B. Kershaw

Seyfarth Synopsis: As the future of work continues to take shape, labor unions are taking notice and adjusting their strategies and their focus in response.  To the extent they haven’t already, companies both large and small should take heed and consider adjusting their employee and labor relations approaches accordingly.   

Just over two years ago, the AFL-CIO formed its own Commission on the Future of Work and Unions.  In announcing the Commission’s formation, the AFL-CIO stated that “[t]he rich and the powerful are driving large-scale changes in the nature of work, including digitization, automation, deindustrialization, deprofessionalization, autonomous operations, globalization, offshoring and the impact of trade agreements—all of which threaten to leave working families with even less clout and economic security,” and that this makes “the mission and values of the labor movement more important than ever.”  The Commission has various subcommittees corresponding to particular sectors of the economy, including health care, energy, service and retail, transportation, and professionals.

Recently, the Commission published its first written report, which is available on the AFL-CIO’s website.  The report makes a number of sweeping assertions, including the following:

  • “[A]nti-worker interests are trying to wipe unions out of existence…The labor movement is the last line of defense standing in the way of total corporate control.”
  • “Emerging business models have encouraged management to wash its hands of any responsibility for workers.”
  • “America’s workers, particularly young people, are tired of being silenced, working harder and harder and still falling behind. We are hungry for connection to each other, so we can influence the decisions that will shape the future of our workplaces, our communities, our nation and our world.”
  • “[T]hriving unions are good for America, and at this moment of massive inequality, technological revolution and historic collective action, our role has never been more important.”
  • “Whether our future is one of shared prosperity or rising inequality, and social and economic dysfunction, depends on the strength of working people’s bargaining power.”

The report states that key aims for the labor movement should be to strengthen worker bargaining power and to make sure the benefits of technological change are shared broadly.  On this latter point, the report says that predictions that artificial intelligence and other new technologies will make workers more productive have generated interest in the prospect of a “leisure dividend” that allows for the reduction of overall work hour without any reduction in pay.  The Commission’s service and retail subcommittee therefore recommends mobilizing around issues such as bargaining or legislating four-day workweeks, paid time off, and the “right to disconnect” from digital services and work.

The report also notes that a key action plan for the labor movement is to dramatically expand union membership, and that new and diverse forms of cooperation and multi-union focus on coordinated, sectoral strategies are needed to organize more workers.  Sectoral bargaining, which is aimed at collective bargaining covering entire industries rather than individual companies, is aggressively being pushed by the SEIU, which is behind the Fight for $15 movement.  As it happens, the President of the SEIU was recently named by California’s Governor as co-chair of the California Future of Work Commission, which was established just a few months ago with the goal of developing “a new social compact for California workers, based on an expansive vision for economic equity that takes work and jobs as the starting point.”

The AFL-CIO Commission report also recommends that unions collectively form an advisory task force aimed at deploying the most sophisticated data collection, analysis, and experimental techniques “to understand what working people want and to suggest how we retool to meet those needs and desires.”  The report also notes that new forms of social media and digital communications have made identifying, communicating with, and assisting potential union supporters easier, and that unions have made major investments in digital staff and resources to keep up with new technologies and new ways to engage working people.  The report also recommends that unions develop a coordinated public narrative about union members and union representation, including in new and expanding sectors.

In light of the increased focus by unions on the future of work and their stated goal of dramatically expanding union membership, including in new and expanding sectors, companies of all sizes and in all industries should take heed and consider adjusting their employee relations strategies accordingly.  To the extent that workers at non-unionized companies don’t have much of a voice in issues that affect their day-to-day working lives, companies should consider establishing initiatives aimed at giving them more of a voice.  This will potentially avoid the prospect of workers seeking assistance on such matters from unions, or of falling prey to promises by union organizers to fix such issues.  Many workers also don’t understand all of the negative aspects that can come along with bringing in a union.  Non-union companies should therefore consider implementing strategies to educate their workers on these subjects.  Managers and supervisors should also be trained to recognize the signs of union organizing activity, and on what to do if they see such signs.  And finally, companies should consider providing positive employee relations training for their managers and supervisors, which can head off union organizing activity before it starts.

Seyfarth Synopsis: A new decision reinforces that the National Labor Relations Board will invalidate arbitration agreements that explicitly, or when reasonably interpreted, prohibit filing administrative charges.

By Samuel Rubinstein[1] and Howard M. Wexler

In June 2018, the Supreme Court held in Epic Systems that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain waivers of the ability to participate in a class or collective action under various employment statutes.

In June 2019, the National Labor Relations Board held in Prime Healthcare Paradise Valley, LLC that even after Epic Systems, it is unlawful to enforce arbitration agreements that interfere with the employees’ right to file charges with the Board.  The Board in Prime Healthcare analyzed whether the arbitration agreement explicitly, or if reasonably interpreted, prohibits charge filing with the Board.  If so, the agreement violates the National Labor Relations Act.

The Board recently had another opportunity to revisit the issue of mandatory arbitration agreements in Beena Beauty, 31-CA-144492.

In Beena, the relevant language of the mandatory arbitration agreement stated: “THE COMPANY AND [EMPLOYEES] AGREE…TO SUBMIT ANY CLAIMS THAT EITHER HAS AGAINST THE OTHER TO FINAL AND BINDING ARBITRATION.”  The Agreement only excluded “[c]laims for workers compensation or unemployment compensation benefits.”

The Decision

The Board began its analysis by noting that the agreement does not explicitly prohibit filing administrative charges.  However, the Board still scrutinized the agreement as a whole.  In doing so, the Board noted that the agreement contained no exceptions for charge filing with the Board or other administrative agencies.  Furthermore, the Agreement specifically excluded workers compensation and unemployment compensation benefit claims.

Applying those principles, the Board found that the only reasonable interpretation of the agreement is that except for workers compensation and unemployment benefits, arbitration was “the exclusive forum for the resolution of all claims.”  Therefore, the agreement prohibits the filing of charges and it therefore violated the National Labor Relations Act.

The Remedy

After finding that the current agreement was unlawful, the Board ordered the employer to rescind the agreement or “revise it in all its forms to make clear to employees that the Agreement does not bar or restrict employees’ right to file charges with the National Labor Relations Board.”  In addition, the employer was ordered to notify current and former employees that the agreement has been rescinded and provide revised copies if applicable.

What Does Beena Beauty Mean for Employers?

The decision is an important reminder that the Board will still scrutinize arbitration agreements.  In this light, it reminds employers to review their current agreements to make sure that they contain exceptions for charge filing with administrative agencies generally.

[1] Mr. Rubinstein is a Senior Fellow.

By: Molly Clayton Mooney, Esq.

Seyfarth Synopsis: On September 10, in a 3-1 decision, the NLRB in MV Transportation, Inc., 368 NLRB No. 66 (Sept. 10, 2019), adopted the “contract coverage” standard in replacement for its previous “clear and unmistakable waiver” standard for determining when a collective bargaining agreement allows an employer to take unilateral action. This decision makes it easier for employers to show that their collective bargaining agreements allows them to make unilateral changes and is consistent with the position the D.C. Circuit has taken for years.

In MV Transportation, Inc., the Board considered whether MV Transportation violated the NLRA by making unilateral changes to various employment policies impacting workers at its Las Vegas, Nevada facility.

Previously, in determining whether an employer’s unilateral changes violated the NLRA, the Board applied a “clear and unmistakable waiver” standard. Under this standard, a unilateral change to working conditions was a violation of the NLRA unless the contract specifically allowed the employer to take the action in question. Broad management rights clauses, for example, were not sufficient to allow employers to take unilateral action, as these were found to not specifically address the unilateral action.

Yesterday, in MV Transportation, Inc., the Board rejected the “clear and unmistakable waiver” standard and adopted the “contract coverage” standard established by the D.C. Circuit in NLRB v. Postal Service, 8 F.3d 832, 838 (D.C. Cir. 1993). Under this standard, the Board will examine the plain language of the contract to determine if the employer’s actions fall within the employer’s authority under the contract. If the actions are “within the compass or scope” of the contract, the change will be found to not violate the NLRA. If the employer’s actions, however, are not covered by the contract, the employer will have violated the NLRA, unless it can prove that the union “clearly and unmistakably waived its right to bargain over the change” or that its unilateral action was privileged for some other reason. Notably, the Board gave the example of a contract that broadly grants an employer the right to “implement new rules and policies and to revise existing ones.” Under the newly adopted “contract coverage” standard, an employer with this broad language will not violate the NLRA by making changes to its various rules including attendance rules, safety rules, or disciplinary rules—even though these rules are not specifically listed in the contract.

Ultimately, the Board’s decision in MV Transportation, Inc. is an overdue acquiescence to the standard that has long been applied by the D.C. Circuit and to a standard that will lead to results that are more aligned with what the parties agreed to be bound to at the bargaining table. Previously, unions were able to take advantage of the Board’s “clear and unmistakable waiver” standard by filing unfair labor practice charges based on an employer’s unilateral action because even though the contract might have broadly granted the employer the rights to take the unilateral action, under the old standard, unions knew that this broad language would likely be insufficient for the employer to prevail through the Board’s processes. To have a shot at prevailing with broad contractual language, the employer under the old standard needed to litigate the case through the Board’s processes, before appealing the case to the D.C. Circuit Court or other Circuit Court. Now, Regional offices will likely review the contract based on its plain language and determine whether the unilateral action falls within the rights granted to the employer. The result is that employers will be able to more easily take the unilateral actions that they bargained for at the bargaining table, without as much fear that the NLRB will find their actions to violate the Act.

Authors: Howard M. Wexler and Samuel Sverdlov

Seyfarth Synopsis: The NLRB recently published a Notice of Proposed Rule Making regarding three proposed amendments to its current rules and regulations for union elections.  These amendments consist of: (1) a change from the current election blocking charge policy to a vote-and-impound procedure; (2) a reversion to the rule of Dana Corp. with respect to voluntary recognition agreements; and (3) a modification of the evidentiary requirements for § 9(a) recognition in the construction industry.  Comments on the proposed amendments are due on October 11, 2019.

On August 12, 2019 the National Labor Relations Board (“NLRB” or “Board”) published the first of potentially several Notices of Proposed Rule Making (“NPRM”) regarding amendments to the Board’s union representation procedures.  Specifically, in the NPRM, the Board proposes the codification of rules impacting the Board’s current block charge policy, procedure for challenging representation via a voluntary recognition agreement, and procedure for gaining Section 9(a) recognition in the construction industry.  As per the NLRB’s press release dated August 9, 2019, the proposed amendments, which received majority support from Board Chairman John F. Ring, and Board members Marvin E. Kaplan and William J. Emanuel, are meant to “better protect employees’ statutory right of free choice on questions concerning representation.”  We describe each proposed amendment in greater detail below.

Blocking Charge

Under the Board’s current practice, a party (which the Board states “is almost invariably a union”) is permitted to block a representation election simply by filing unfair labor practice (“ULP”) charges with allegations of impropriety in the election process.  The Board seeks to eliminate this practice of blocking elections for pending ULP charges because it unnecessary delays petitioned-for elections.  Indeed, the Board expressed myriad concerns regarding the current policy, including that “incumbent unions seeking to avoid a challenge to their representative status” engage in “abuse and manipulation” to delay elections, and that the policy is currently inconsistently applied by the NLRB’s regional directors.

Instead, the Board proposes that it adopt a vote-and-impound policy, whereby regional directors would continue processing representation elections (despite pending ULPs), however, if the ULPS have not been resolved prior to the election, then the ballots would remain impounded until the ULP can be resolved.  The Board contends that this process would preserve employee free choice because balloting can proceed before a probable cause finding has been issued, and if a ULP is without merit, the ballot counting can occur immediately, rather than after further delay as the election is unblocked, renegotiated, and redirected.

Voluntary Recognition Procedures

The Board also proposes to modify the process by which employees can file a petition for an election following an employer’s voluntary recognition of a union.  By way of background, in 2007, the Board issued the Dana Corp. decision, which held that once employees receive notice that they are represented by a union pursuant to a lawful voluntary recognition agreement, they have 45 days to challenge the representation through a secret ballot election.  The Obama-era Board abandoned this rule in 2011 when it issued the Lamons Gasket Co. decision holding that employees must wait a “reasonable period” of time to pass before an election can be challenged.  Now, the Board seeks to revert back to the practice set forth in Dana Corp.  In support of the Board’s position that this proposed amendment would increase employee free choice, the Board avers that elections are a superior method for employees to express their will than voluntary recognition agreements, which are supported by authorization cards.

Construction-Industry Agreements

Section 8(f) of the National Labor Relations Act (“NLRA”) provides a procedure unique to the construction industry, by which employers could establish a collective bargaining relationship with a union without majority support from the employees.  While this provision allows collective bargaining within the atypical parameters of the construction industry, a collective bargaining relationship under Section 8(f) does not enjoy all of the benefits of a traditional collective bargaining relationship under Section 9(a) of the NLRA, including a contract bar period during which no representation elections can be held for up to three years before the collective bargaining agreement expires.  In the Board’s 2001 ruling in Stanton Fuel, the Board held that a construction industry union can convert an 8(f) relationship to a 9(a) relationship simply by relying on contract language alone without a contemporaneous showing of “positive evidence” of majority support amongst employee.  In the NPRM, the Board seeks to overturn Stanton Fuel, and require a contemporaneous showing of positive evidence of majority support to convert an 8(f) relationship to a 9(a) relationship.

Public Comments

Public comments on the NPRM are due on October 11, 2019, and they must be submitted either electronically or by mail to Roxanne Rothschild, Executive Secretary, National Labor Relations Board, 1015 Half Street S.E., Washington, D.C. 20570-0001.  Once the public comment period closes, the NLRB will review the comments and decide whether to issue a new or modified proposal, withdraw the proposal, or proceed to a final rule.

Additional Rule-Making On The Horizon

The NPRM is consistent with the regulatory agenda announced by the NLRB on May 22, 2019.  The other topics considered by the NLRB are the classification or students performing work at private colleges and universities, and standards for access to an employer’s private property.

If you have any questions regarding the NPRM and how it might impact your business or industry, please contact your local Seyfarth Shaw attorney.

By Jason Silver and Glenn Smith

Seyfarth Synopsis: In a 3-1 decision, the National Labor Relations Board (“Board”) in Johnson Controls, Inc., 368 NLRB No. 20 (July 3, 2019), established a new standard for determining whether a union has reacquired majority status after an employer announces its anticipatory withdrawal of recognition based on evidence indicating that the union has lost majority support. The Board’s new framework requires a secret ballot election be conducted when both the employer and the union have evidence supporting their positions of majority status.

Johnson Controls addresses what happens under the following scenario – employees (free from improper influence or assistance from management) provide their employer with evidence that at least 50 percent of the bargaining unit no longer wishes to be represented by their union, the employer tells the union that it will withdraw recognition when the parties’ collective bargaining agreement (‘CBA”) expires based on this evidence, and the union subsequently claims that it has reacquired majority status before the employer actually withdraws recognition.

Prior to Johnson Controls, under this factual scenario, the Board would determine the union’s representative status and the legality of the employer’s action by applying a “last in time” rule, under which the union’s evidence would ultimately control the outcome because it postdates the employer’s evidence.   Johnson Controls changes this.

In Johnson Controls, the employer and the union were parties to a CBA from May 7, 2012 through May 7, 2015. On April 21, the employer received a “Union Decertification Petition” signed by 83 of the 160 bargaining unit employees.  That same day, the employer notified the union of the petition and informed the union that it would no longer recognize it as the employees’ bargaining representative when the CBA expired on May 7, 2015. The union objected to the employer’s position, demanded the employer bargain a successor CBA, and collected new signed authorization cards from the employees.  Between April 27 and May 7, the union collected 69 signed authorization cards, 6 of which were signed by employees who had also signed the disaffection petition. On May 8, the employer withdrew recognition from the union and shortly thereafter instituted unilateral changes related to employees terms and condition of employment.  The union filed an unfair labor practice charge.

Under Board precedent, an employer that receives evidence, within a reasonable period of time before its existing CBA expires, that the union representing its employees no longer enjoys majority support may give notice that it will withdraw recognition from the union when the CBA expires, and the employer may also suspend bargaining or refuse to bargain for a successor CBA. This is called an “anticipatory” withdrawal of recognition.  Under Levitz Furniture Co., of the Pacific, 333 NLRB 717 (2001), however, once the CBA expires, an employer that has made a lawful anticipatory withdrawal of recognition still does so at its peril. If the union challenges the withdrawal of recognition in an unfair labor practice case, the employer will have violated Section 8(a)(5) if it fails to establish that the union lacked majority status at the time recognition was actually withdrawn.

Prior to Johnson Controls, the Board, in making this determination, used to rely on evidence that the union reacquired majority status in the interim between anticipatory and actual withdrawal, regardless of whether the employer knew that the union had reacquired majority status.

In an attempt to address this concern, the Board in Johnson Controls, discarded the “last in time” rule and instead formed a new legal framework in the anticipatory withdrawal context if an employer is presented with evidence that a majority of employees no longer which to be represented by the union upon CBA expiration and the union thereafter provides evidence of its reacquired majority status.

Under this factual scenario, the Board will now order a Board conducted secret ballot election. The Board concluded that this new framework is “fairer, promotes greater labor relations stability, and better protects Section 7 rights by creating a new opportunity to determine employees’ wishes concerning representation through the preferred means of a secret ballot election.”

In modifying the anticipatory of withdraw of recognition legal doctrine, the Board provided a two-step standard. First, the Board concluded that the “reasonable time” before CBA expiration within which anticipatory withdrawal may be effected is defined as no more than 90 days before the CBA expires. Second, the Board provided that if an incumbent union wishes to attempt to re-establish its majority status following an anticipatory withdrawal of recognition, it must file an election petition within 45 days from the date the employer announces its anticipatory withdrawal. The union has 45 days to file this petition regardless of whether the employer gives notice of anticipatory withdrawal more than or fewer than 45 days before the CBA expires. Any rival union may intervene in the incumbent’s representation case on a sufficient showing of interest.

Thereafter, the Board held that “If no post–anticipatory withdrawal election petition is timely filed, the employer, at contract expiration, may rely on the disaffection evidence upon which it relied to effect anticipatory withdrawal; that evidence—assuming it does, in fact, establish loss of majority status at the time of anticipatory withdrawal—will be dispositive of the union’s loss of majority status at the time of actual withdrawal at contract expiration; and the withdrawal of recognition will be lawful if no other grounds exist to render it unlawful.”

The new standard will apply retroactively. The new framework in Johnson Controls provides clarity and guidance for employers regarding how to respond to an employee decertification petition near the expiration of a CBA. Although the holding in Johnson Controls is narrow and limited to only anticipatory withdrawal of recognition cases, the holding advances employee free choice by mandating a Board conducted secret-ballot election. The ruling fits with the Board’s ongoing efforts to make it easier for dissatisfied employees to get rid out their union.

By Ashley K. Laken and Howard Wexler

Seyfarth Synopsis: Just before the end of the legislative session, lawmakers in New York introduced the “Dependent Worker Act,” which proposes to provide workers in the gig economy with certain rights, including the right to unionize.

On June 14 and 15, lawmakers in the New York State Assembly and the New York State Senate introduced the “Dependent Worker Act,” which would classify workers in the gig economy as “dependent workers” under New York law and extend to them the right to unionize and collectively bargain with their employers, and also provide them with the right to bring wage theft claims.

The proposed legislation defines “dependent worker” as an individual who provides personal services to a consumer of such personal services through a private sector third-party that establishes the gross amounts earned by the individual, establishes the amounts charged to the consumer, collects payment from the consumer, and/or pays the individual.  Although the NLRB’s Division of Advice has said that rideshare drivers are independent contractors who cannot unionize under federal labor law, the Dependent Worker Act would give such gig economy workers in New York the right to unionize under New York state law.

The proposed Act does not provide for minimum wage or overtime requirements for dependent workers, does not extend the anti-discrimination protections of the New York Human Rights Law to dependent workers, does not extend paid family leave to dependent workers, and does not treat dependent workers as employees for purposes of unemployment insurance, workers’ compensation, and disability insurance.  That being said, the proposed legislation directs the New York Commissioner of Labor to consider giving dependent workers those rights.

Some workers’ advocates have pushed back against the proposal, saying that the proposal does not go far enough in protecting gig workers.  But the New York State AFL-CIO is backing the bill and has asked its Twitter followers to ask their representatives to support it.

It is expected that the New York legislature will use the time between now and the next legislative session to hold hearings and receive feedback from workers and businesses on how the bill could be improved.

Takeaway for Employers

Employers of gig workers should keep an eye on this proposed law, and should also take heed of the possibility that other jurisdictions may use New York’s actions as inspiration and a potential model in passing their own gig worker protection laws.  Employers of gig workers in New York may also want to consider reaching out to their State Senators and/or Assemblypersons to express their views on the proposed legislation.

 By: Ashley Laken

Seyfarth Synopsis: The NLRB’s Division of Advice recently released an Advice Memorandum finding that a security company’s work rules were unlawfully overbroad, but that the company did not violate the National Labor Relations Act by discharging one of its employees for posting an insidious Facebook video or by filing a defamation lawsuit against two former employees.

Earlier this month, the NLRB’s Division of Advice publicly released an Advice Memorandum that it had issued to Region 27 of the NLRB in August 2018 (the NLRB’s policy is to release Advice Memos at its discretion only after the disputes they concern end), in which the Division of Advice opined on the legality of a security company’s workplace policies, the discharge of an employee for posting a Facebook video, and the company’s filing of a defamation lawsuit against that employee and another former employee. In Colorado Professional Security Services, LLC (Case 27-CA-203915, et al.), the NLRB’s Division of Advice found the policies at issue were unlawful, but did not find the employee’s firing or the defamation lawsuit were unlawful.

The Facts

The company maintained the following policy: “Employees must refrain from engaging in conduct that could adversely affect the Company’s business or reputation. Such conduct includes, but is not limited to…publicly criticizing the Company, its management or its employees.”

In 2016, Charging Party 1, a former employee, filed federal and state court wage-and-hour lawsuits against the company; the lawsuits were joined by other former and current employees, including Charging Party 2, who was then a current employee. In May 2017, Charging Party 1 caused to be posted on Facebook two photos that appeared to show a company security guard sleeping on the job, including the captions, “Wow look at Colorado Professional security services hard at work.”

On several occasions in 2017, the company disciplined Charging Party 2 for being unkempt and not wearing the proper uniform. The disciplinary letters issued to Charging Party 2 included language prohibiting discussion of the discipline with coworkers or clients. After one such instance of discipline, Charging Party 2 posted a 23-minute live video on Facebook during work hours and while in uniform talking about the discipline for wearing improper shoes and the confidentiality provision in the disciplinary notice, referencing the wage-and-hour lawsuits, making crude and disparaging jokes and comments about a supervisor, and stating that by asking Charging Party 2 to sign something interfering with free speech, the conduct of the company’s officials was “against the United States Constitution and you need to be shot on sight.”

Soon after, the company discharged Charging Party 2, stating that Charging Party 2 was being discharged for insubordination, regularly being unkempt and not in the proper uniform, conflict of interest, and insidious remarks regarding the company name, business, and security officers while on duty and in uniform. The company also filed a state court lawsuit against Charging Party 1 and Charging Party 2, alleging that their Facebook posts constituted defamation and interference with business relations. Thereafter, Charging Party 1 and Charging Party 2 filed unfair labor practice charges with the NLRB.

The Division of Advice’s Findings

The Division of Advice concluded that the policy prohibiting employees from criticizing the company and the standard disciplinary letter language prohibiting employees from discussing their discipline with coworkers or clients violated the National Labor Relations Act. The Division of Advice found that under the NLRB’s Boeing decision, these were Category 2 rules that violated the Act because the impact on employees’ right under the NLRA to engage in protected concerted activity outweighed the company’s business justification. The Division of Advice found that by prohibiting any public criticism of the company or its management, the company was expressly interfering with any appeals by employees to the public in labor disputes, and the company did not have a legitimate business justification for that kind of total ban. Regarding the disciplinary letter language, the Division of Advice concluded that by prohibiting employees from discussing their discipline with coworkers and clients, the company was expressly interfering with the right of employees to communicate with each other or third parties on a central term of employment, without any legitimate business justification for doing so.

However, the Division of Advice found that the discharge of Charging Party 2 did not violate the Act. The Division of Advice found that although Charging Party 2 was discharged, at least in part, for violating the unlawfully overbroad rules, the discharge was not unlawful because the Facebook video did not constitute protected concerted activity and it was so egregious that other employees would not connect Charging Party 2’s discharge to the overbroad aspect of the rules. The Division of Advice found that although Charging Party 2 referred to subjects in the video that could have been relevant to employees’ mutual aid or protection, the comments were entirely individual complaints and there was no indication that Charging Party 2 was speaking for other employees or seeking to act in concert with others. The Division of Advice also noted that Charging Party 2’s crude and disparaging jokes and comments about the supervisor were so egregious that Charging Party 2’s coworkers would not connect the discharge to the overbroad aspect of the rules, thus mitigating any chilling effect on potential NLRA-protected activity by employees.

The Division of Advice also found that the employer’s defamation lawsuit against the Charging Parties did not violate the NLRA. The Division of Advice noted that the Supreme Court has held that the NLRB can enjoin as an unfair labor practice the filing and prosecution of a lawsuit only when the lawsuit lacks a reasonable basis in law or fact and was commenced with a retaliatory motive. Advice found that although the company’s lawsuit was baseless (Advice noted that the company had failed to plead in the lawsuit that the allegedly defamatory statements were made with malice or to plead any specific damages suffered by the company), the lawsuit was not unlawful because it was not directed at any protected concerted activity and had not been otherwise shown to retaliate against the Charging Parties’ protected conduct. In reaching this conclusion, Advice noted that the lawsuit came soon after the Charging Parties’ Facebook posts and almost one year after the wage-and-hour lawsuits were filed.

Takeaways for Employers

The Advice Memo drives home that point that employers would be well-advised to review their policies, handbooks, and standard disciplinary notice language to ensure that they do not contain any language that runs afoul of the National Labor Relations Act. The Advice Memo is also a reminder for employers that whether an employee’s actions constitute protected concerted activity is a highly fact-specific inquiry and is often a close question. The Memo also provides guidance on the circumstances under which a lawsuit filed against a current or former employee might be found to be an unfair labor practice charge. Employers with questions about any of these issues should contact labor counsel.

By Monica Rodriguez

Seyfarth Synopsis: The Board narrowed the circumstances of when a successor employer will be a “perfectly clear” successor.  An employer will no longer be forced to bargain prior to setting the initial terms of employment if the employer engaged in discriminatory hiring practices as to some, but not all, of the predecessor’s former employees.

In Ridgewood Health Care Center, Inc., 367 NLRB 110 (2019), the Board narrowed the scope of when an employer acquiring a unionized company is a perfectly clear successor, such that the successor employer is required to bargain prior to setting the initial terms of employment.  In doing so, the Board overruled precedent established in 1996 in Galloway School Lines, 321 NLRB 1422 (1996).

“Perfectly Clear” Successor Doctrine

The employer acquiring the unionized company is a successor employer that is obligated to recognize and bargain with the union if the operations continue without substantial change and a majority of the new employer’s employees are the predecessor’s employees.

A successor has the right to set initial employment terms before bargaining with the union, unless it is a “perfectly clear” successor.  A “perfectly clear” successor is required to bargain with the union prior to setting initial terms of employment and honor the terms of the CBA negotiated by the predecessor.

A new employer is a “perfectly clear” successor only when the new employer indicates that it will hire all (or substantially all) of the predecessor’s employees.  However, an employer will also be required to bargain with the union prior to setting the initial terms if the employer actively or, by tacit inference, misled employees into believing that they would all be retained without changes to their wages, hours, or conditions of employment.

In Love’s Barbeque, 245 NLRB 62 (1979), the Board held that a new employer is not permitted to set the initial employment terms and conditions without first consulting the union if the new employer engaged in unlawful hiring practices against “all” or “substantially all” of the predecessor’s unit employees.

The Board in Galloway, expanded Love’s Barbeque’s holding so that an employer would be a perfectly clear successor if an employer discriminatorily failed to hire “some” (as opposed to “all” or “substantially all”) predecessor employees in order to avoid bargaining.

Overruling of Galloway

The Board found that Galloway and its progeny “went far beyond the limits of the narrow ‘perfectly clear successor’ exception contemplated by the Court.”  The Board rejected the notion that all employers who discriminate in any degree in the hiring process are “perfectly clear successors.”  The Board noted that this finding “goes too far” and undercuts the fundamental economic rationale for permitting successor employers to set initial employment terms.

The Board noted that many successors take over a distressed business that must undergo fundamental and immediate changes in employment to survive.  So, retroactive imposition of the predecessor’s employment terms on an employer who engages in discriminatory hiring practices runs counter to the principle that initial terms must generally be set by “economic power realities.”

Application To Ridgewood                             

In Ridgewood, the President and Owner of the successor employer announced to the predecessor’s employees that she expected to hire “99.9%” of them and to adhere to the predecessor’s CBA.  This message was contradicted by the successor employer’s counsel.  Even after announcing to the predecessor’s employees that they would be laid off, the President continued to assure the predecessor’s employees that 99.9% of them would be hired.  She later changed her position.

During the hiring process, the successor employer questioned the predecessor’s employee applicants whether they were Union members.  Only 49 former employees were hired out of a total of 101 employees hired.  The successor employer did not hire four of the former bargaining unit member employees who had applied for the position, which the Board found unlawful in light of the antiunion animus.  The predecessor’s employees would have constituted a small majority of the new employer’s workforce had the four former bargaining unit member employees been hired.

Because neither the complaint or the underlying charges alleged a violation based on the President’s comments as a theory, the Board did not analyze the comments and did not reach a finding that the new employer was a perfectly clear successor.  The Board focused solely on the number of former employees who applied to work for the successor, the four employees who the successor denied employment, and the absence of claims that others were discriminatorily denied the opportunity to apply for employment.  Based on this information, the Board found that there was no uncertainty whether the successor would have hired all or substantially all of the predecessor’s employees.  Thus, the successor maintained its rights to set the initial employment terms before bargaining with the union.

Employer Take Away

This case will make it easier for employers acquiring unionized workforces who are successors that they  have the right to set the initial employment terms without first having to bargain with the union.  While the Board did not analyze the employer’s statements to employees, successor employers should be careful in their communications to the predecessor’s employees.