By: Alyson Dieckman, Jennifer Mora, and Glenn Smith

Seyfarth Synopsis: On August 22, 2024, the National Labor Relations Board (“NLRB” or the “Board”) issued a decision in Metro Health, Inc. d/b/a Hospital Metropolitano Rio Piedras ending more than 50 years of the Board’s practice of approving consent orders, whereby an administrative law judge (“ALJ”) resolves unfair labor practice (“ULP”) cases absent the agreement of the charging party and the General Counsel.  Chairman McFerran was joined in the majority opinion by Members Prouty and Wilcox.  Member Kaplan dissented. 

Consent Orders Under the National Labor Relations Act

Historically, once a complaint issued in a ULP, it could be resolved in one of four ways: (1) dismissal by the General Counsel; (2) bilateral settlement (between the respondent and the General Counsel and/or the charging party); (3) litigation through hearing; or (4) consent order.  In the context of ULPs, a consent order is the procedure by which a respondent can propose a resolution for approval by the presiding ALJ, and without agreement from the General Counsel and/or charging party.

The Board approved the first consent order resolving a ULP in 1971.  Local 201, Intl. Union of Electrical Workers, 188 NLRB 855 (1971).  In Electrical Workers, the respondent union proposed a resolution to a pending ULP.  The Board accepted the ALJ’s recommendation that it approve the respondent’s proposed resolution despite objections by the charging party and the General Counsel.  The Board explained that the proposed consent order “provides a full remedy with respect to all aspects of the [. . . ] violations alleged in the complaint,” and further reasoned:

that it will protect the public interest and effectuate the purposes and policies of the Act; and that further hearing herein with respect to Respondent’s defense could not result in any changes in the proposed consent order and notice which would be more favorable to the General Counsel and Charging Party.

Over time, the Board further developed its approach including by applying the “reasonableness” standard adopted in Independent Stave to consent orders.  Copper State Rubber of Arizona, Inc., 301 NLRB 138 (1991) citing Independent Stave Co., Inc., 287 NLRB 740 (1987).  Under the Independent Stave standard, the Board considered whether consent orders “substantially remedied” the alleged violations.

In 2016, the Board issued its decision in United States Postal Service, in which it held that the appropriate standard for reviewing consent orders was a “full remedy” standard.  364 NLRB 1704 (2016).  One year later, the Board overturned United States Postal Service in UPMC, and returned to the Independent Stave standard. 365 NLRB 1418 (2017). UPMC remained the controlling precedent until Hospital Metropolitano.

Factual Background

This case arises from a dispute between Hospital Metropolitano (the “Employer”) in San Juan, Puerto Rico and Unidad Laboral de Enfermeras(os) y Empleados de la Salud (the “Union), which represents four units of the Employer’s employees.  The Board consolidated two charges involving the same Union and employer, but separate bargaining units.  Ultimately, the two Complaints alleged that the Employer violated Sections 8(a)(5) and 8(a)(1) of the Act as follows:

  1. In 12-CA-284984, the Union alleged that the Employer failed to produce certain payroll documents in response to a request for information made on October 14, 2021, for one of the four bargaining units the Union represents at the Employer’s hospital.
  2. In 12-CA-279497, the Union alleged that the Employer unilaterally subcontracted bargaining unit work and laid off bargaining unit employees from a different one of the four bargaining units the Union represents at the Employer’s hospital.

The hearing opened on June 6, 2022.  At the hearing, the General Counsel and the Employer engaged in settlement negotiations in the request for information case (12-CA-284984), but were unable to reach an agreement. 

On June 17, 2022, the Employer filed a motion to sever the request for information case (12-CA-284984) and to approve a proposed consent order.  The General Counsel and the Union objected to the approval of the consent order.  The ALJ approved the consent order, finding that it “‘wholly comport[ed]’ with the informal settlement agreement proposed by the General Counsel in Case 12-CA-284984 except that it contained a non-admission clause and did not include a provision explicitly requiring the Respondent to distribute the notice to employees by text message.”

On August 10, 2022, the General Counsel filed a request for special permission to appeal the ALJ’s approval of the consent order.  Now – more than two years later – the Board issued its decision ending the Board’s practice of approving consent orders and removing significant authority from its ALJs.

The Board Will No Longer Accept Consent Orders

The Board held “[i]n this case, and in all pending and future unfair labor practice cases, the Board will not terminate the case by accepting or approving a consent order.”  In its decision, the Board also specifically overruled its decision in UPMC. 

The majority’s rationale was four-fold:

1. The Board’s Rules and Regulations.  The Board noted that its “Rules and Regulations do not mention the term ‘consent order,’ much less authorize the Board or an administrative law judge to accept one under any circumstances.”  The Board acknowledged that the Rules and Regulations expressly permit mutual settlements, but that the Rules and Regulations’ silence on the issue of consent orders renders them unlawful.  The Board further explained that “the practice of approving consent orders would seem to violate the Board’s Rules and Regulations insofar as they prohibit judges from ‘adjusting cases.’” 

This perspective seems, irrationally, to ignore the more than 50-year history of the Board permitting such consent orders, albeit under differing standards.

2. Administrative Burden and Inefficiencies.  The Board noted that even the “full remedy” standard announced in United States Postal Service “poses administrative challenges and inefficiencies.”  Ultimately, the Board majority held that it “do[es] not believe the administrative benefit of retaining the consent order practice outweigh the costs.” 

This rationale was not supported by any data, but was rather a blunt proclamation.

3. The General Counsel’s Prosecutorial Authority.  Consent orders undermine the General Counsel’s prosecutorial authority by empowering ALJs to resolve cases over the General Counsel’s objections.  The Board held that an ALJ’s approval of a consent order “intrudes into the General Counsel’s statutory role of exercising her prosecutorial authority.” 

This likely gets to the crux of the issue – the General Counsel does not wish to relinquish any authority, even to a fact finder, and the current Board Majority supports her agenda.

4. Public Policy.  The Board’s public policy aims include “early restoration of industrial peace.”  Independent Stave, 287 NLRB at 742-743.  Consent orders are inferior to settlements between the parties because they do not require the parties to meet in the middle to find a mutually acceptable resolution to the dispute.  Because consent orders were often entered over the objections of the charging party and General Counsel, they “risk[ed] further inflaming the very labor dispute that lead to the fling of unfair labor practice charges in the first place.” 

By this logic, an adverse ALJ or Board decision would have the very same effect on the parties.  It is ironic that an NLRB that permits an ALJ to determine what constitutes “good faith” bargaining, will no longer permit ALJs to weigh in on whether the charging party or the General Counsel is simply being an impediment to a logical conclusion achieved in an expedient manner.

In a statement, Board Chairman McFerran said: “Because consent orders do not represent a real agreement between opposing parties to resolve a case, they do not promote labor peace in the same manner as a true settlement, [. . . . ] Our decision in Hospital Metropolitano preserves the benefits of true settlements, while eliminating a practice that has no foundation in the Act or our regulations.”  It bears repeating that this practice has existed for more than 50 years.

Member Kaplan’s Dissent

In his dissent, Member Kaplan admonished the majority:

The Board’s responsibility is for enforcing the Act in the best interests of the public, and especially those employees whose rights have been violated. When the General Counsel acts in a manner that is contrary to protecting the interests of employees seeking to vindicate their rights under the Act, simply to pursue her own agenda, the Board not only has the authority but it has the duty to use its authority to protect the rights of the public over the interests of the General Counsel. Put simply, I do not believe that my colleagues have acted in the best interests of the public by allowing the significant delay in either the case at issue or the other cases that have been “held” pending this decision.

The dissent notes that the consent order at issue in this case was reasonable under both Independent Stave and UPMC.  Member Kaplan explained that the Union and General Counsel’s argument that the consent order should have been rejected because it lacked a non-admission clause was not compelling because there was nothing to suggest that a non-admission clause was necessary to remedy the violation at issue in the case.  Member Kaplan explained that, ultimately, the majority’s decision to overturn 50 years of Board law does not promote the purposes of the Act and will require:

resources to be spent on needlessly litigating cases where the [r]espondent offered to provide either an eminently reasonable settlement, or, even, a full remedy.  Worse, the misallocation of resources that is the unavoidable result of [the majority decision here] needlessly reduces the amount of available resources for the Board to use actually protecting American workers.

Impact

The ruling in Hospital Metropolitano should be particularly concerning to employers because it eliminates the last best method for resolving ULPs once a complaint issues.  This decision eliminates the option of holding the General Counsel or the charging party to a reasonable standard.  In a world where the General Counsel refuses to accept any settlement proposal that includes non-admission language or without default language, it is a commonly held belief that employers simply cannot reach reasonable bilateral settlement agreements.  Consent orders were one of the last tools available to employers to resolve ULPs short of litigating through trial.  The goal is capitulation.

Only time will tell how much impact Hospital Metropolitano will have on ULP litigation, but ultimately, employers will be faced with the options of agreeing to less favorable settlement terms or litigating ULPs through trial. The result reveals the Board’s ultimate strategy to vest nearly unchecked power in the hands of the General Counsel – take it or litigate it.  Given the Board’s lack of resources, this approach may create even more backlog in ULP investigations and litigation.

Employers with questions or concerns should reach out to Seyfarth’s team of experienced labor attorneys to help guide them through these issues.

Authors: Michael D. Berkheimer and Jennifer L. Mora

On June 28, 2024, the United States Supreme Court, in Loper Bright Enterprises v. Raimondo ended four decades of deference to federal agency action under Chevron and ushered in a new era of administrative law. What Loper Bright means for National Labor Relations Board (NLRB) decisions, however, is not fully clear because – as discussed below – federal courts of appeal rarely rely upon Chevron in granting deference to the NLRB. Moreover, before the Supreme Court’s Chevron decision in 1984, appellate courts had given some deference, although not to the level of Chevron, to the NLRB based on the view that it was uniquely qualified to develop labor policy. While the Supreme Court’s reasoning in overruling Chevron could apply to precedent granting deference to the NLRB, it remains to be seen the impact that Loper Bright will have on continued deference to NLRB decisions. What is certain, however, is that deference to the NLRB is no longer a given and employers may be in a better position to challenge the agency’s decisions.

The Chevron Doctrine

The Supreme Court announced the Chevron doctrine as a legal standard to determine when courts must defer to a federal agency’s interpretation of a statute enforced by that agency. Traditionally, judges exercised independence when interpreting statutes. The courts could – and did – look to the interpretations of executive agencies for guidance but did not grant those interpretations deference. This is because, as Chief Justice John Marshall wrote in 1803, it is “emphatically the province and duty of the judicial department to say what the law is.”

Chevron departed from judicial tradition by requiring courts to defer to a federal agency’s statutory interpretation if the court determined that the statute is silent or ambiguous on the matter at issue. If such a finding was made, Chevron required the court to defer to a “permissible” construction of the statute, even if the reviewing court would have interpreted the statutory language differently than the agency. The doctrine was largely premised on the belief that federal agencies are subject matter experts and, as part of the Executive Branch, political actors better situated to develop and implement policy.

Deference to NLRB Decisions and Rulemaking Before Loper Bright

Before Chevron, the Supreme Court had granted some deference to the NLRB, although not to the level of Chevron. In 1944, the Supreme Court in NLRB v. Hearst Publications, Inc. deferred to the NLRB’s interpretation of the National Labor Relations Act’s definition of “employee” because the agency’s determination was supported by the factual record and had a reasonable basis in law. That same year, in Skidmore v. Swift and Co., the Supreme Court developed a lesser standard of deference that looked to several factors to determine how much weight an agency’s determination should be granted, but did not grant controlling deference to the agency’s decision. In the late 1970s, the Supreme Court issued a pair of decisions, NLRB v. Iron Workers Local 103 and Ford Motor Co. v. NLRB, that granted the NLRB “considerable deference” because the Court majority believed Congress had given the NLRB primary responsibility for interpreting the Act and effectuating national labor policy.   

Since Chevron, federal courts of appeal have rarely applied it when reviewing NLRB decisions. For example, the United States Court of Appeals for the District of Columbia – the most important circuit court for the development of administrative law – has heard approximately 1,150 post-Chevron cases in which the NLRB has been a party, but has relied upon Chevron only 40 times in granting deference to the NLRB. And the majority of these 40 cases did not conduct a full Chevron analysis, but only cited to the case for the general proposition that courts grant deference to agency decisions.

Further, the courts of appeal have relied upon Iron Workers Local 103 and Ford Motor Co. even less often than Chevron in granting the NLRB deference. The D.C. Circuit has cited to Iron Workers Local 103 in 24 cases and to Ford Motor Co. in 38 cases in which the NLRB was a party. In the thousands of NLRB cases reviewed by the D.C. Circuit since the 1944 Hearst decision, that court has cited to it a total of 71 times and only 6 times since the turn of the century. Likewise, courts of appeal have cited to Skidmore less than 10 times in cases involving the NLRB in the last 80 years.

What precedent do courts of appeal look to when granting deference to NLRB decisions and rulemaking? Typically, their own precedent that formulates the applicable deference in similar but different terms. Recent decisions have described deference as being appropriate “unless . . . the Board acted arbitrarily or otherwise erred in applying established law to the facts” (D.C. Circuit), if the Board’s interpretation of the Act is “rational and consistent” (Third Circuit), or if the Board’s decision is a “reasonably defensible interpretation of the Act” (Ninth Circuit).

Loper Bright Tosses Out Chevron Deference

The Loper Bright majority ended Chevron deference because it was counter to the long-standing prerogative of judges to independently interpret statutes and violated the Administrative Procedure Act’s directive that courts are to determine “all relevant questions of law” when reviewing administrative action. As such, courts should independently review all legal determinations made by federal agencies unless a specific statutory directive instructs otherwise. The Supreme Court noted that courts routinely interpret ambiguous statutes and there is nothing unique about statutory interpretation when reviewing agency determinations.

The government argued that Chevron should survive because (1) administrative agencies are subject matter experts on the statute they administer, (2) deference promotes uniform construction of federal law, and (3) agencies are better policy makers than courts. The Court rejected the government’s first argument on the grounds that it is the courts and not administrative agencies who are experts in statutory interpretation. Next, it rejected the government’s second argument because an examination of Chevron decisions showed that it did not in fact promote uniform construction of federal law. Finally, the Court rejected the third argument because resolution of statutory ambiguities is the proper domain of the judicial branch and courts should exercise this role free from politics.

The Court recognized that courts have and should continue to respect administrative interpretations of the law, especially when issued contemporaneously with the enactment of a statute and consistent over time. In this vein, the Court seemingly left in place Skidmore deference because it instructs courts to consider the persuasiveness of the agency’s rationale rather than to grant deference even if the court would have decided otherwise. The Court also seemed to approve of the deference granted in Hearst, but noted that such deference was consistent with traditional judicial powers because the issue in that case “was sufficiently intertwined with the agency’s factfinding.” Lastly, the Court did not disturb court deference to an agency’s factual findings when supported by sufficient evidence in the record. 

What Happens Next?

The Loper Bright decision expressly overruled Chevron, which as discussed above was rarely relied upon by courts of appeal in granting deference to NLRB decisions. But the Supreme Court’s rationale for doing so makes clear that it is the provenance of courts, and not administrative agencies, to interpret statutes and that the APA requires courts (and not agencies) to decide questions of law and perform statutory interpretations.

Going forward, deference to the NLRB is no longer a given. And now that the NLRB has lost one weapon in its arsenal for upholding its action, we can expect more litigation as employers have gained a weapon to challenge NLRB decisions. Courts will likely review NLRB decisions without granting them anything more than Skidmore deference, which grants the NLRB the “power to persuade” but not displace independent court judgment.

The NLRB had previously stated publicly that it should receive deference under Ford Motor Co., even if Chevron were to be overruled. This is not surprising from an agency who just argued (and lost) a case before the Supreme Court on the premise it should be held to a lesser standard than others when seeking a preliminary injunction and whose Solicitor recently published a 64-page law review article describing why the agency should be exempt from recent Supreme Court precedent because its ability to unilaterally direct labor policy will be compromised. Employers can therefore expect the NLRB to continue to argue for “considerable deference” to its decisions and regulations in courts of appeal.

It is possible that the NLRB will continue to receive deference as it did in Hearst, where the interpretation at issue is primarily based upon factual rather than legal considerations. This may be problematic for the NLRB because, as the Court noted, this limited deference is especially warranted when an agency’s determination was issued near the time of its enactment and remained consistent over time. Any post-Loper Bright deference available to the NLRB may therefore be limited because of its notorious flip-flopping and because the Act was enacted nearly nine decades ago. This would particularly apply to the current General Counsel and Democrat-controlled Board who have no qualms about overturning precedent and continuously finding new meaning and authority in the 90-year-old text of the Act. In any case, Loper Bright may provide employers strong ammunition to challenge highly controversial NLRB decisions relating to demands for recognition, workplace policies, and joint employment standards, among others. Whether and to what extent courts of appeal will grant deference to the NLRB remains to be seen.

Employers with questions or concerns should reach out to Seyfarth’s team of experienced labor attorneys to help guide them through these issues.

By: Michael Berkheimer, Cary Burke, and Sage Fishelman

In an opinion drafted by Justice Thomas and joined by seven other Justices, the U.S. Supreme Court on June 13, 2024, vacated the Sixth Circuit Court of Appeals’ affirmation of an injunction issued under Section 10(j) of the National Labor Relations Act (“Act”). In doing so, it held that the traditional four-factor test is the proper standard for courts to use when determining whether injunctive relief under the Act is appropriate. Justice Jackson concurred in the judgment but dissented in part.

Injunctions Under Section 10(j) of the Act

The Act grants the National Labor Relations Board’s (“NLRB”) General Counsel the authority to investigate and prosecute unfair labor practice charges against unions and employers. As labor law practitioners are well aware, this process takes considerable time for a matter to be resolved via litigation (and under the current General Counsel’s initiatives, an even longer period of time). For this reason, Section 10(j) authorizes the General Counsel to seek a preliminary injunction in a federal district court while litigation before the agency is pending. The Act itself does not specify what standard a district court should apply when deciding whether to issue a preliminary injunction. Rather, it merely states that such relief is available when the district court finds it “just and proper” to do so.

The Circuit Courts Split Over the Appropriate Standard  

The absence of a definitive standard in the Act regarding the issuance of a 10(j) injunction has led to a split among the federal circuit courts. Five circuit courts – the Third, Fifth, Sixth, Tenth and Eleventh – applied a two-factor test that considers whether: (1) there is reasonable cause to believe that unfair labor practices have occurred; and (2) injunctive relief is just and proper. Reasonable cause, according to these circuits, is established if the NLRB demonstrates that its legal theory is substantial and not frivolous, and the just and proper standard is met if a return to the status quo is necessary to protect the NLRB’s remedial powers under the Act.

Four circuits – the Fourth, Seventh, Eighth and Ninth – used the traditional four-factor test to determine if a 10(j) injunction is appropriate. These courts consider: (1) the likelihood of success on the merits; (2) irreparable harm if the injunction is not granted; (3) whether a balancing of the relevant equities favors the injunction; and (4) whether the issuance of the injunction is in the public interest. Two circuits – the First and the Second – applied a “hybrid” test that looks to the elements of the four-factor test to determine whether an injunction would be just and proper. The D.C. Circuit has not issued a decision setting forth which test it believed appropriate, but the federal district court in the District of Columbia has most recently applied the four-factor test.

The NLRB’s success in obtaining 10(j) injunctive relief during the past 10 years varies significantly among the circuits and, perhaps against expectations, is higher under the two-factor test than the more demanding four-factor test. The NLRB’s overall success rate is 74.1%. The NLRB’s success rate is 67.7% under the two-factor test, 73.5% under the four-factor test, and 80.6% under the hybrid test. When one digs into these numbers a little deeper, however, it becomes apparent that the composition and nature of each respective circuit court is a critical factor in determining the NLRB’s success rate. For example, as the below chart shows, the agency’s success rate is only 33% in the Fifth Circuit, which is traditionally skeptical of administrative authority. The success rate for the four-factor test also varies, from a high of 84.6% in the Seventh Circuit to a low of 50% in the Fourth Circuit.

Circuit Courts Applying the Two-Factor TestSuccess Rate
Third100%
Fifth33%
Sixth61.1%
Tenth100%
Eleventh50%

Background of the Case

The underlying unfair labor practice charge involved the discharge of seven employees who had invited local media into a retail establishment in which they worked to publicize their union-organizing efforts. Region 15 of the NLRB petitioned the Western District of Tennessee for a preliminary injunction under Section 10(j), seeking the reinstatement of the discharged employees. Applying the Sixth Circuit’s two-factor test, the District Court granted the injunction, which the Sixth Circuit subsequently affirmed.

The Supreme Court Settles the Circuit Split and Adopts the Four-Factor Test  

The Court began its analysis by noting that the four-factor test is the longstanding default standard for the issuance of a preliminary injunction and that courts do not depart from such principles unless Congress has clearly indicated that they should do so. The Court then examined Section 10(j) for such an instruction and found nothing to overcome the presumption in favor of the four-factor test.

Section 10(j) states that a district court is authorized to issue a preliminary injunction “as it deems just and proper.” The Court therefore looked to the meanings of “just” and “proper” near the time Section 10(j) was added to the Act in 1947 and determined that, rather than demonstrating legislative intent to depart from traditional equitable principles, these terms supported a finding that the four-factor test should apply. The Court also observed that the language of Section 10(j) does not resemble the language used by Congress in other statutes and other parts of the Act where it wished courts to depart from normal equity rules. Had Congress intended for a different standard to apply in Section 10(j) cases, it could have articulated one.

The Court also rejected the NLRB’s argument that Section 10(j) should be interpreted in light of the deference granted by courts of appeals to the agency’s final decisions because it placed the bar for an injunction so low that it would essentially require courts to “yield to the Board’s preliminary view of the facts, law, and equities.” This, the Court remarked, is “entirely inappropriate” because such a determination is nothing more than “the preliminary legal and factual views of the Board’s in-house attorneys.”

Impact

Despite the high-profile nature of this case in the labor community and the fact that, in theory at least, the four-factor test presents a higher standard to meet, its impact on the NLRB’s success in obtaining 10(j) injunctions will likely be limited. As demonstrated by the above statistics, the NLRB had greater success in circuits that used the four-factor test rather than the two-factor test. Accordingly, the uniform adoption of the four-factor standard after the Starbucks decision is unlikely to result in a significant decline in the NLRB’s success rate. This fact also shows how critical the judicial philosophy of the judge (at the district court level) or judges (at the circuit court level) assigned to the proceeding is in determining whether a 10(j) injunction is issued. Further, given the current General Counsel’s scorched earth approach to labor relations, it is unlikely that the agency will be in any way deterred by the Court’s ruling from seeking 10(j) injunctions.

Employers, however, should take heart that the NLRB will be held to the same standards as other litigants in obtaining preliminary injunctive relief. And even though the NLRB wins at a higher rate under the four-factor test, it argued to the Supreme Court that the two-factor test was more appropriate. This demonstrates that the NLRB believed the two-factor test offered it an easier path to a 10(j) injunction. And because the NLRB must now show that it is likely to succeed on the merits, employers will have an opportunity to better assess the NLRB’s evidence and litigation theory prior to the administrative proceeding and will most likely have the ability to engage in discovery under the Federal Rules of Civil Procedure.

By: John Phillips and Ken Dolin

Seyfarth Synopsis: Reversing a Trump Board case, the Biden Board recently found that an employer engaged in bad-faith bargaining based on adhering to its bargaining proposals—despite (1) the employer engaging in no unlawful conduct away from the bargaining table, (2) not even one of the employer’s proposals being unlawful in and of itself, (3) the employer making several concessions from its initial proposals in response to concerns expressed by the union, (4) no evidence that the employer insisted on, or even refused to bargain over, any of its proposals, and (5) the union repeatedly refusing to engage in back-and-forth bargaining with the employer to test the employer’s willingness to compromise, not offering substantive counterproposals beyond regressing on some of its proposals, and repudiating an agreement to which it had initially agreed.

The essence of bad-faith bargaining is a purpose to frustrate the possibility of arriving at any agreement, and the Board examines the totality of an employer’s conduct to determine whether the employer has bargained in bad faith. The National Labor Relations Act does not compel either party “to agree to a proposal or require the making of a concession.” Accordingly, even adamant insistence on a bargaining position is not of itself a refusal to bargain in good faith. Rather, a party is entitled to stand firm on a position if it reasonably believes that the proposal is fair and proper or that it has sufficient bargaining strength to force the other party to agree.

Historically, the Board has not sat in judgment on specific proposals and has not decided whether specific proposals are “acceptable” or “unacceptable.” However, the Board has examined proposals to determine whether they demonstrate that the employer was seeking to frustrate any agreement with the union, as, for example, when accepting proposals would leave the union with no meaningful role as the employees’ statutory bargaining representative.

In George Washington University Hospital, 373 NLRB No. 55 (May 8, 2024), the Biden Board recently deviated from prior applications of that standard by finding an employer engaged in bad-faith bargaining because the employer’s adherence to a combination of proposals, taken as a whole, would have left employees and the union with substantially fewer rights and less protection than provided by law without a contract. The Biden Board found that the employer’s proposals, taken together, evidenced the employer’s effort to frustrate the reaching of a collective-bargaining agreement—despite not finding that any employer proposal was unlawful on its face and despite the existence of give-and-take bargaining conduct by the employer but not the union.

Factual Background

The employer and the union had a collective bargaining relationship for more than 20 years. The parties commenced bargaining in 2016 and continued bargaining for 30 sessions over nearly two years. From the outset, the employer asserted that, in its view, there were many deficiencies in the expiring collective-bargaining agreement, and thus it sought to substantially alter many of the contract provisions.

The employer commenced negotiations by proposing an extremely broad management rights clause, where among other items, it could unilaterally change the employee health insurance, and the employer paired this management rights clause with a zipper clause, a no-strike proposal, and a proposal to eliminate binding arbitration and replace it with nonbinding mediation.

Through nearly two years, the employer maintained the same basic positions, though it solicited counterproposals from the union, made concessions in response to the union’s bargaining positions, never refused to bargain over any mandatory subject, and all the while calmly answered the union’s bellicose conduct by continuing to bargain.

The Board’s Initial Decision

In 2021, the Trump Board, after reviewing the employer’s proposals and the parties’ conduct at the bargaining table, held that the employer did not engage in bad-faith bargaining. The Trump Board found that the employer’s initial proposals did not evince an intent to frustrate reaching an agreement when they were not presented as final offers, and the employer always remained willing to move from its position and engage with the union. Accordingly, in considering the totality of the employer’s conduct—including its bargaining proposals, as well as its willingness to engage with the union and to modify and revise its proposals, and the union largely refusing to engage with the employer and largely declining to provide counterproposals—the Trump Board found that the employer did not engage in surface bargaining.

The Trump Board’s decision was decided over the vigorous dissent of Chairman McFerran, the only Democrat-appointed Board member at that time. McFerran found that the totality of the employer’s conduct, as revealed in the combination of its proposals and adherence to those proposals, was designed to frustrate agreement and was therefore determinative evidence of “egregious” bad-faith bargaining.

The Board Vacates Its Initial Decision

The Trump Board’s decision did not last.[1] In 2023, the newly-comprised Biden Board, including Chairman McFerran, vacated its prior decision on the grounds that one of the Trump Board members who participated in the decision owned shares in a mutual fund that in turn owned shares in the parent company of the employer.

The Board Reverses Itself and Finds Bad-Faith Bargaining

Most recently, the Biden Board issued its new decision, over the dissent of Member Kaplan, reversing the prior decision, and essentially adopting Chairman McFerran’s dissent from the original decision.

The Biden Board majority, which included Chairman McFerran, concluded that the employer engaged in bad faith bargaining. In particular, the Board found the following employer proposals were unlawful, principally when the employer pressed them in combination for 14 months:

  • An expansive management rights proposal that, in combination with the zipper clause proposal, the Board found left the employer with unilateral control over virtually all significant employment terms
  • A no-strike provision
  • A grievance provision that eliminated binding arbitration but instead culminated in non-binding mediation

The Biden Board found that the employer’s adherence to its proposals, taken as a whole, would have left employees and the union with substantially fewer rights and less protection than would be provided without a contract, would have required the union to cede substantially all of its representational function, and would have so damaged the union’s ability to function as the employees’ bargaining representative that the employer could not seriously have expected meaningful collective bargaining.[2] Thus, the Biden Board found that the employer’s adherence to its proposals evidenced its effort to frustrate the reaching of a collective bargaining agreement.

While purporting to apply existing law, the Biden Board’s analysis extended the law because its analysis ignored the union’s conduct. Specifically, the Biden Board glossed over the evidence that the employer did not insist on any of its proposals, but instead offered to bargain with the union, made modifications to its proposals, and even withdrew its no-strike proposal. Furthermore, the union did not engage with the employer, did not offer substantive counterproposals, and did not test the employer’s willingness to compromise.

Thus, the Biden Board majority found that the employer’s adherence to its proposals during negotiations was conclusive evidence of bad faith bargaining and that the union was not required to test the employer’s willingness to compromise by presenting counterproposals, even where the employer, but not the union, had made significant concessions, had not withdrawn from any tentative agreement, and was engaging in give and take bargaining.

Takeaways

Despite purporting merely to apply existing Board law, the Biden Board’s decision actually expands the scope of review of the substance of the employer’s proposals, and the employer’s adherence to those proposals during bargaining, even when those proposals are not unlawful on their face and there is no unlawful conduct away from the bargaining table.

This decision puts employers on notice that proposing waivers to the union’s statutory right to bargain over wages, discipline, and discharge, and broad managements rights in combination with broad zipper and no-strike and limited arbitration provisions—even when such proposals are simply opening positions—will be strictly scrutinized by this Board. Indeed, the employer’s adherence to those proposals may ultimately be found unlawful by this Board, especially if they remain on the bargaining table throughout the negotiations.

Given this, employers, when formulating initial proposals, should strictly review “waiver” proposals addressing wages, discipline, and discharge and those providing for other broad management rights, broad zipper and no-strike protection, and limited grievance-arbitration, as well as any proposals impacting union security.

Employers should then develop a plan to articulate during bargaining substantial business justifications for proposals, especially those addressing bargaining waivers and union security. When doing so, employers should account for the often opaque and shifting approaches to collective bargaining taken by the Board, depending on which political party is the majority party of the Board.

Specifically, the risks of an employer adhering to a combination of problematic waiver proposals that are not per se unlawful but nevertheless represent a major change from the status quo and could be found to leave the union and employees worse off than if no collective bargaining agreement existed must now be more carefully considered, as well as proposals impacting union security, irrespective of the union’s failure to engage in bargaining over these proposals.

[1] In 2021, the newly appointed General Counsel indicated that she intended to challenge the propriety of this Trump Board decision.

[2] The Board also found that the employer’s opposition to a union security clause, the employer’s wage proposal that granted the employer a large amount of discretion in setting wage increases, and the employer correcting a mistake with regard to its arbitration proposal and arguably committing one instance of regressive bargaining was further evidence of bad-faith bargaining.

By: Jennifer L. Mora and Elliot Fink

On April 8, 2024, National Labor Relations Board (NLRB or Board) General Counsel Jennifer Abruzzo issued GC Memo 24-04, which builds on previous GC memoranda from 2021 and 2022 where General Counsel Abruzzo announced her intention to pursue broad remedies, such as consequential damages, against employers who commit unfair labor practices in violation of the National Labor Relations Act. The new memorandum expands the GC’s capacious reading of the Act’s remedial powers into the thorny area of work rules (and contract terms) currently regulated by the Board’s novel decision in Stericycle, Inc., 372 NLRB No. 113 (August 2, 2023) (our blog post on that decision can be viewed here).

Overview of GC Memo 24-04:

In short, the memo marks a new high water mark in the General Counsel’s “dedicated efforts to obtain full remedial relief for victims of unlawful conduct,” whereby, in addition to the rescission of the offending rule or contract term, the Regions are now directed to also seek “make-whole remedies” in cases where they have found Stericycle violations by employers for maintaining overly-broad work rules or “contract terms.”

Previously, when critiquing work rules or other policies of an employer in the context of an 8(a)(1) unfair labor practice (ULP) charge, the Board has generally not sought any remedy beyond rescission of the unlawful rule or policy unless a specific employee has alleged harm from the enforcement of the offending rule. However, now, in any 8(a)(1) case where the Board finds that an employer has maintained a work rule OR contract term considered “unlawful” under Stericycle, the General Counsel is urging the Regions to seek reinstatement and/or disciplinary expungement stemming from any enforcement of the rule, policy or contract term, even regarding “employees who have yet to be named.” As the memo notes, this treatment of 8(a)(1) charges is intended to resemble the remedies that are sometimes associated with unilateral change 8(a)(5) charges.

This new directive adds a few new wrinkles to consider for employers subject to 8(a)(1) charges:

  • During the compliance stage of any ULP proceedings, the Regions will now assess whether any policy that violates Stericycle “has been enforced against any employees.” (emphasis added). This means that during settlement discussions, employers seeking to resolve potentially-unrelated matters will be asked to identify which employees these policies have been enforced against during the 10(b) statutory time period, which is generally up to 6 months before any charge was filed.
  • Under the General Counsel’s aspirational Continental Group theory that she is pressing, the Regions to urge the Board to adopt here:
    • Not only would unidentified employees be subject to the Board’s remedial powers, but this would also include employees disciplined or discharged under the unlawful rule or contract term even for conduct that is not protected concerted activity, but instead only “touches the concerns animating Section 7.” 357 NLRB 409, 412 (2011).
    • To avoid enforcement of remedies under Continental Group, the employer would have to show that the disciplined conduct actually interfered with the employer’s operations and that it was that interference (not reliance on the unlawful rule or contract term) that precipitated the employer’s disciplinary action.
  • In cases that do not settle, the General Counsel expects the Regions to ensure that disciplinary expungement and backpay for any employees affected by the policy or term would be requested as a remedy in any subsequent ULP complaint.
  • Further, where an employer uses judicial process to enforce an allegedly-unlawful term, the General Counsel has asked the Regions to urge the Board to adopt a new remedial procedure that would allow employees against whom such terms were enforced to “have the legal action withdrawn and recover legal fees and costs.”

What This Means for Employers:

Like her previous memos regarding captive audience meetings and non-compete agreements, this new guidance from General Counsel Abruzzo signals her continued efforts to expand the Board’s reach to regulate affairs in non-union workplaces, and therefore employers of all shapes and sizes should be paying attention. This includes employers who have never previously had any threats of organizing nor ULP charges before the NLRB.

Now, under the General Counsel’s guidance, theoretically, any Board investigation of an employer’s work rule (which simply could concern a seemingly-harmless handbook policy, such as a civility rule) or a contract term (for instance, a pre-employment arbitration agreement) could subject the employer to the aforementioned make-whole remedies (e.g., reinstatement, rescission of discipline, backpay, paying the legal fees of employees against whom an employer attempts to enforce their policies) and require them to go back numerous years. Specifically, if an employer were to appeal a Board decision to a Circuit court (a time consuming process that can take several years), the General Counsel’s theory here could require restoration of the status quo and rescission of discipline for an unlawful work rule or contract term going as far back as half a decade or longer, including monetary and other make-whole relief.

Moreover, employers must remain cognizant that the Regions are seeking handbooks, agreements, and other applicable policies that could be viewed as problematic under Stericycle from employers as a matter of course during ULP investigations, which sets up a collision course with these new expanded remedies that could leave employers on the hook for tremendous liabilities and administrative headaches in complying with the Board’s mandates. Given that they stem from an expansive reading of the Act, it is likely that these theories will be heavily challenged by management interests in the federal courts.

Furthermore, the possibility of overturning discipline is now present for not only work rules, but also contract terms, which is a novel interpretation of the Act. This seems to suggest that there could be some teeth behind enforcement of some of the General Counsel’s priorities in areas not traditionally regulated by the Board or the Act, such as eliminating use of confidential releases of employment claims  and stemming the use of non-competes and other restrictive covenant agreements.

Unfortunately, this new memo builds on earlier efforts by the General Counsel that have somewhat tied the Regions’ hands in terms of settling cases, since the level of cooperation that the Board is seeking during its compliance phase has rendered the prospect of working with the Board less and less attractive (and the notion of litigating against the Board more appealing). All of this could ultimately lead to a decline in the number of cases settled and an increase in the caseload for an already under-staffed agency buckling in the face of its limited resources.  One final note is worth mentioning  – at this point these concepts are merely the General Counsel’s objectives, and they are not yet the law (and perhaps they never will be).

We recommend that employers use this guidance as an opportunity to take a moment to review their policies and applicable employment agreements to assess for potential issues. If you have questions about this guidance, are faced with a Board investigation or need assistance revising your policies or employment agreements in light of Stericycle, please contact a Seyfarth specialist so our experienced team of attorneys can help advise you on these or any other labor law issues.

By: Danielle Shapiro

Seyfarth Synopsis: Last Friday, March 8, 2024, the United States District Court for the Eastern District of Texas struck down the National Labor Relations Board’s (“NLRB”) 2023 Joint Employer rule (“2023 Rule”) finding that it was both unlawfully broad and arbitrary and capricious.

Background

The 2023 Rule contains the following relevant provisions:

  • Subsection (a) provides that an “employer” is one who has an employment relationship with their employees under common-law agency principles.
  • Subsection (b) states that two things are required to be a “joint employer”: (1) being an employer under the common-law test (along with one other employer) and (2) “sharing or codetermining matters governing [the employees’] essential terms and conditions of employment.”
  • Subsection (c) clarifies that “sharing or codetermining” includes both actual control and possession or unexercised control over the employment terms.
  • Subsection (d) then lists seven broad categories that constitute “essential terms and conditions of employment”— wages, scheduling, assignment of duties, supervision, work rules and discipline, hiring/firing, and working conditions related to the safety and health of employees.
  • Finally, Subsection (e) details that “[p]ossessing the authority to control one or more essential terms and conditions” and “[e]xercising the power to control indirectly one or more essential terms and conditions” is sufficient to establish joint employer status.

The Court’s Analysis

The parties first disagreed over how the 2023 Rule operates in practice— while the Board argued that the regulatory framework implies the joint-employer inquiry has two steps (see Subsection (b)), the plaintiffs maintained that the inquiry is singular because the second test is always met when the first test is satisfied. When pressed by the court, the Board could not provide an example of any entity that would satisfy the first step, but not the second. For this reason, the court sided with plaintiffs on the first interpretive issued posed.

The parties then debated the proper interpretation of Subsection (e). The Board maintained that this Subsection was intended only to apply to the second step of the joint-employer inquiry, such that it “merely confirms that reserved or indirect control over an essential term is sufficient to satisfy this step.” The Court, in agreement with the plaintiffs, quickly dismissed the Board’s interpretation, holding that Subsections (e)(1) and (2) can be satisfied independently and thus joint-employer status can attach without the need to demonstrate an employment relationship under the common law of agency.

Newsworthy Findings

Notably, the court also held that the 2023 Rule is unlawfully broad. Specifically, Subsections (d) and (e) are drafted so broadly that every entity that contracts for labor would be deemed a joint employer. This is because the rule, as written, finds the existence of a joint employment relationship so long as the entity exercised or even has the power to exercise control over at least one essential term. The court astutely points out that this would render every single contract for third-party labor a joint employment relationship because every labor contract has terms that impact at least one of the “essential terms and conditions of employment” addressed in Subsections (d) and (e).

Finally, the court, finding that the Board did not address the “disruptive impact” of the 2023 Rule, deemed the Board’s actions arbitrary and capricious. The court chastised the Board for failing to serve the intention behind policymaking in the first place: to provide a definite, readily available standard to assist employers and reduce litigation. On this basis, the Court vacated the 2023 Rule.

Now What?

After invalidating the 2023 Rule, the court was left to determine whether the Board’s rescission of the 2020 Rule, in advance of the 2023 Rule, should still stand. The court ultimately determined that the Board’s initial justification for rescinding the 2020 Rule was also arbitrary and capricious. For this reason, the rescission was unjustified and the 2020 Rule remains.

So, today, the law stands as it has for the last couple of years: only exercise of substantial direct and immediate control over one or more essential terms or conditions of employment warrants finding the existence of a joint-employment relationship.

Note: This opinion also contains an interesting discussion about jurisdictional issues related to challenging the Board’s rulemaking under the National Labor Relations Act for all of the administrative law fans out there.

By: Jennifer L. Mora and Elliot R. Fink

Earlier this week, by denying the employer’s motion to reconsider in Cemex Construction Materials Pacific LLC, 372 NLRB No. 157 (2023), the National Labor Relations Board not only validated the applicability of its new Cemex standard, but also foreshadowed an intense appellate review process expected in the federal Circuit Courts of Appeal. This follows after the NLRB General Counsel issued guidance regarding Cemex in a memorandum earlier this month explaining key issues, such as how unions can demand recognition and bargaining, how unfair labor practices might trigger a Cemex bargaining order, and procedural considerations for labor and management handling cases under this new standard.

As noted in our previous alert, the new Cemex standard ushered in sweeping changes to union organizing at large. Under Cemex, if a union demands recognition from an employer because it claims that it has obtained majority support within a bargaining unit, the employer must pursue one of two options: (1) recognize and bargain with the union or (2) file an RM petition seeking an NLRB election. If the employer and union proceed to an NLRB election and the employer commits even one unfair labor practice (“ULP”) prior to the election, the Board may issue an order requiring the employer to recognize and bargain with the union rather than require a new election. The Board might also issue a bargaining order to an employer who neither recognizes the union nor files a petition for an election, unless the employer can demonstrate that the union did not have majority support at the time of the demand for recognition. This new standard has applied retroactively since the original decision issued on August 25, 2023.

Cemex filed a motion for reconsideration, which the NLRB denied on November 13, 2023. Eschewing the opportunity to rehash any arguments previously raised in the original proceeding in a single footnote at its outset, the opinion previews the legal defense that the Board plans to undertake on behalf of its new standard, which is certain to be challenged in the Circuit Courts of Appeal. Of note, the Board rejected arguments that the new standard violated administrative procedure under the “major questions doctrine” or by using adjudication rather than rulemaking to announce the standard, as well as the notion that retroactive application of the new standard was manifestly unjust. Additionally, as Member Kaplan noted saliently in dissent, though the Board explained why its new Cemex bargaining order standard was consistent with precedent, Cemex has potentially shaky legal underpinnings since the Board “adopted a standard that squarely conflicts with not one, but two Supreme Court Decisions: NLRB v. Gissel Packing Co., 395 U.S. 575 (1969), and Linden Lumber Division, Summer & Co. v. NLRB, 419 U.S. 301 (1974).”

Relatedly, General Counsel Jennifer Abruzzo issued recent guidance instructing the Regions on how to interpret and apply Cemex. See G.C. Memo 24-01 (Nov. 2, 2023). Mostly nestled in the footnotes of this memo, the critical takeaways encompass three main areas:

Bargaining Demands:

  • The union’s demand can be in any form—verbal or written.
  • A demand is deemed received by the employer if given to any “representative or agent,” which the GC has defined as broadly as possible: anyone acting on behalf of the employer. Therefore, for all practical purposes, any low-level supervisor who receives a valid demand will qualify.
  • Though not conveyed directly to the employer, a union’s filing of an RC petition would count as a bargaining demand if the union checks a certain box on the NLRB form and notes in the comments that the petition serves as its demand.

ULPs Setting Aside an Election:

  • Critically, the GC makes clear that even a minor 8(a)(1) or 8(a)(3) ULP during the “critical period” can trigger a bargaining order.
  • The critical period begins on the date of the demand and lasts through the date of the election. In a footnote, the GC clarified that ULPs which occur after a valid demand is made, but before any petition is filed, could result in a Region setting aside an election and issuing a bargaining order.
  • For non-hallmark charges (i.e., ULP allegations not involving discrimination against protected activity), the GC notes that the Region will examine a host of factors in deciding whether to potentially set aside the election, including the number and severity of violations, the degree to which the violation was disseminated throughout the unit, the unit’s size, the temporal proximity between the violation and an election, and the scope and number of unit employees impacted.
  • As a reminder, having certain handbook or other workplace policies could qualify as a predicate 8(a)(1) charge under Stericycle, Inc., 372 NLRB No. 113 (August 2, 2023) (related blog post can be viewed here), which could now be grounds for the NLRB setting aside the election and issuing a Cemex bargaining order.

Procedural Clarity:

  • When faced with a valid demand, an employer has two weeks to either recognize the union or file an RM petition. Once those two weeks lapse after a demand, an employer is vulnerable to the union’s filing of an 8(a)(5) ULP seeking a bargaining order.
  • In clarifying footnotes, the GC directed the Regions to consider employer’s claims of unforeseen circumstances to meet that two-week deadline on a case-by-case basis and noted that while employers may ask to view evidence of majority status (such as a card check procedure by a neutral third party), doing so would not toll the two-week deadline to file an RM petition.
  • Although an employer that files an RM petition in order to test the sufficiency of the union’s claim of majority status can object to the union’s proposed unit definition using the NLRB’s form, the Region will continue to presume that the union’s requested unit is appropriate, and the employer has its normal burden to show the inappropriateness of the union’s proposed unit.
  • In a footnote, the GC seems to suggest that an employer need not file an RM petition if a union files an RC petition. However, according to the memo, if the union withdraws its RC petition before an election but is still claiming majority status, the employer may “promptly” file an RM petition to challenge that claim.

Despite these updates, open questions linger about this controversial new Cemex standard, and perhaps the most notable of these is how the Circuit Courts of Appeal (and potentially the United States Supreme Court) will address it.

In the meantime, while we wait for some of those answers, employers should emphasize training of all supervisors, including low-level ones, about the implications of this new standard, since they may well be the ones receiving a bargaining demand. Furthermore, because any ULP can result in a bargaining order and function to set aside an election, employers must review their policies and practices to ensure compliance. Finally, given that the Board has already streamlined the procedures for elections, it may be too late to build your playbook once a demand is received, which means that appropriate, advance preparation is key.

Employers with questions or concerns navigating this new standard should reach out to Seyfarth’s team of experienced labor attorneys to help guide them through these issues.

By: John T. Ayers-Mann and Jennifer Mora

Seyfarth Synopsis: On October 30, 2023, the Biden Administration issued a sweeping order on artificial intelligence. Among its numerous provisions, the Order touches on several issues of interest to employers. For employers with labor-related concerns in particular, the most significant provision could be the impact of the provisions relating to surveillance of workers. The Executive Order comes nearly one year after the National Labor Relation Board’s General Counsel issued guidance on the use of artificial intelligence in the context of managing employees, and employers should be aware of increased focus from federal agencies on worker surveillance.

On October 30, 2023, President Joseph Biden authored a new executive order, titled “Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.” The Order addressed a variety of artificial intelligence (“AI”) related issues, from developing guidelines for protecting national infrastructure from cyber-attacks to the use of AI in the implementation of public benefits and services. Among its various provisions, the Executive Order touches on several issues of interest to employers, including AI enforcement from civil rights agencies, the intersection of AI monitoring and worker protections, and the use of AI by federal contractors.

For employers with labor concerns in particular, one of the most salient issues is the increased regulation of employer monitoring that may arise from the Executive Order. In Section 6, the Executive Order instructs the Secretary of Labor to “develop and publish principles and best practices for employers” that shall include specific steps for employers to take with regard to “labor standards and job quality, including issues related to the equity, protected-activity, compensation, health, and safety implications of AI in the work place” and “AI-related collection and use of data about [employees], including transparency, engagement, and activity protected under worker-protection laws.” In that same section, the Executive Order instructs the Secretary of Labor to “issue guidance to make clear that employers that deploy AI to monitor or augment employees’ work must continue to comply with protections that ensure that workers are fairly compensated for their hours worked…and other legal requirements.”

The Executive Order  purports to give the Department of Labor wide latitude to regulate employer use of AI in monitoring and tracking employee activity. Increased regulation by the Department of Labor and the National Labor Relations Board (“NLRB”) could pose liability risks for both unionized and non-unionized employers. In particular, the Executive Order contains a vague, blanket grant of authority to regulate AI as it relates to “activity protected under worker-protection law[s],” which could portend further regulation of the intersection of AI and protected concerted activity under the National Labor Relations Act (“NLRA”). Indeed, the General Counsel has already shown interest in cracking down on employers who use AI or algorithm-based software to monitor employees. Nearly a year ago to the day from the Executive Order, NLRB General Counsel (“GC”) Jennifer Abruzzo issued Memorandum GC-23-02, which set forth a broad and amorphous framework for regulating algorithm-driven management practices that might interfere with employees’ protected activities under the NLRA. President Biden’s newly issued Executive Order is likely to ensure that the Department of Labor, and the NLRB GC in particular, continue to focus upon the intersection of the NLRA and AI-driven innovation in the workplace, including by developing frameworks for legal liability similar to those set forth in the GC’s recent guidance memorandum.

Given the wide range of activities the Executive Order purports to regulate, employers can expect a significant uptick in AI-related regulation by federal agencies in the coming years. Employers with questions should reach out to their labor counsel for assistance.

By: Joshua Ditelberg and Cary Burke

On October 26, 2023, the National Labor Relations Board published its newest Standard for Determining Joint Employer Status in the Federal Register, which becomes effective 60 days from publication.  In many ways, the Rule draws its essence from the Board’s previous joint-employer doctrine, in which the Board  held that an entity could be considered a joint employer under the National Labor Relations Act if it exercises sufficient “direct,” “indirect” (e.g., by directing an intermediary service provider’s relationship with the provider’s employees) and/or “reserved” (e.g., potentially controlling employment terms of a service provider’s employees through a reservation of contractual rights) control over one or more essential employment terms of an another entity’s employees. 

This expansive view of joint employment will threaten the viability of a range of relationships that are not intended to create joint employment, such as those between a business and its service providers, or a franchisor and a franchisee.  Employers who contract with third parties for services must carefully consider whether and how to do so, as the risk of a joint employment finding has increased significantly.

By way of background, on February 26, 2020, the Trump NLRB issued a joint employer rule, which explicitly provided that the touchstone of joint employer status was direct and immediate control over another employer’s employment terms.  Indirect or reserved control could be relevant to the joint employer analysis, but was insufficient to establish joint employment.  The Trump-era Rule was a welcome return to many of the aspects of the Board’s pre-Browning Ferris analysis, which had been in effect for 30 years and afforded businesses contracting for services greater predictability that they could avoid joint employer status. Along those lines, reserved rights in service contracts that, for example, established minimum provider qualifications, required drug testing, or gave a service client the right to remove a contractor’s employee from the premises, would not give rise to a joint employer finding. 

The new joint employer Rule makes clear that either indirect and/or reserved control over another enterprise’s employees’ essential terms and conditions of employment can create a joint employer relationship – even in the absence of any direct control.  But control over what, exactly?  Under the new Rule, the Board has set out what it characterizes as an “exhaustive” list of essential employment terms and conditions:

(1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees. 

Unlike under the Trump-era Rule, health or safety-related working conditions are now explicitly recognized as an “essential” employment term by the Board.  This is unsurprising given the Board’s recent information sharing agreement with the Occupational Safety and Health Administration (and OSHA’s new proposed walk-around rule, which would allow a union organizer to accompany an employee and an OSHA representative on a site visit).  As a practical matter, adding safety as an essential term and condition of employment – and explicitly including it in the joint employer calculus – will almost certainly create a joint-employer relationship where, for example, a Master Services Agreement between a prime contractor and a subcontractor contains certain minimum safety requirements.  The same goes for an agreement between a franchisor and franchisee that includes the franchisor’s expectations regarding worker safety.

Also unlike the Trump-era Rule, the Board for the first time in its rulemaking addressed the bargaining obligations of joint employers. The Rule makes clear that a joint employer need only bargain over those mandatory subjects over which it possesses direct, indirect or reserved control.  Such a bargaining obligation is not limited to the essential employment term or terms giving rise to joint employer status.  While the comments to the Rule indicate that joint employers need not bargain over their decision to end or modify the contours of their relationship (e.g., who controls what), joint employers likely still would need to negotiate over the effects of such changes.  And – if they have been found to be joint employers – they could be at unfair labor practice risk if they undertake such changes for discriminatory reasons or to restrain employee rights to engage in collective activity.

Many critical questions remain unanswered by the new Rule – most notably, what quantum of relevant control is sufficient to establish joint employment?  If one is deemed a joint employer and has a potential bargaining obligation, what does it mean to “control” a mandatory subject?  For example, if a service client only is deemed to co-control the service provider’s employee bonuses, can they be found to control the entire subject of “wages?”  Or just “bonuses?”  Such scope issues could become significant, because it is questionable under the common law whether a putative joint employer can have legal responsibilities over matters it does not in fact control.

The new Rule does confirm that certain “routine components of a company-to-company contract” will typically not be material to the joint employer analysis.  These routine components include 1) “a very generalized cap on contract costs”; and 2) “an advance description of the tasks to be performed under the contract.”  In addition, franchisors have been given at least a modicum of relief: some enumerated forms of control that franchisors normally reserve to protect their brands (like logos, store design, and product uniformity) “will not typically create a joint employment relationship.”  The commentary to the Rule also catalogs a number of other factors that historically at least some courts have held to not be relevant to a joint employer finding.  Businesses seeking to improve their odds of maintaining a contractor relationship should consider grounding their dealings in as many of those factors as possible.

Without belaboring the point, the new joint employer rule will almost certainly transform a slew of relationships understood and assumed to be arms’ length ones into joint employer relationships.  The consequences could be significant. A joint employment finding could saddle an unsuspecting employer with liability for an unfair labor practice or with brand new (and expensive) bargaining obligations.  Employers with questions should consult with their Seyfarth labor counsel.

By Alex Meier & Cary Reid Burke 

The National Labor Relations Board moved from theory to practice in this administration’s battle against restrictive covenants. Recently, the Regional Director of Region 9 of the National Labor Relations Board filed a consolidated complaint alleging that certain restrictive covenants contained in offer letters and policies in an employee handbook violated the National Labor Relations Act. This complaint is a logical outgrowth of GC Memo 23-08, in which NLRB General Counsel Jennifer Abruzzo set out her view that “the proffer, maintenance, and enforcement” of restrictive covenants violates Section 8(a)(1) of the NLRA. Undoubtedly, this matter will serve only as the first test case, but not the last. For that reason, and because the broader non-compete landscape has shifted, employers might consider revisiting their restrictive covenants practices to mitigate risk. The complaint also serves as a reminder that employers should review their employment policies and handbooks regarding employee communications—particularly if those policies restrict communications about compensation or other terms and conditions of employment.

This complaint involves charges brought by three individuals at an aesthetics clinic that offered non-surgical cosmetic procedures. According to the complaint, the clinic maintained a number of policies that run afoul of the NLRA, including:

  • A confidentiality provision that expressly listed “salaries, bonuses, and compensation package information” in its scope;
  • An insubordination policy that prohibited disparaging statements about management or other employees;
  • A company communication policy that prohibited employees from making communications that could harm the “goodwill, brand, or business reputation” of the clinic;
  • A non-compete provision that imposed a two-year limitation on the employee’s ability to provide similar services within a 20-mile radius of the clinic, as well as a two-year limitation on customer and employee solicitation; and
  • An “Exit Agreement” that included an acknowledgment that damages for any violation of the non-compete, client non-solicit, and employee non-solicit amounted to, respectively tens of thousands of dollars in costs spent training the breaching employee (prorated under certain circumstances), $25,000 per solicited client, and $150,000 per solicited employee.

According to the complaint, several employees became dissatisfied with their work and left the company. Upon their resignations, the employer demanded that the departing employees all repay certain training costs, and the employees filed a slew of unfair labor practice charges, alleging, among other things, the maintenance of unlawful work rules. The allegations in the complaint regarding the restrictive covenants are limited to identifying the covenants and alleging that the clinic terminated one employee for refusing to sign the Exit Agreement “and to discourage employees” from engaging in concerted activity.

The Region investigated the charges, and has now issued a consolidated complaint, alleging that these restrictive covenants violate Section 8(a)(1) of the NLRA under the theory that such covenants tend to chill employees in the exercise of their Section 7 rights. The complaint also included references to several internal messages where supervisors allegedly demanded that employees refrain from discussing their compensation or their communications with management.

The Region appears to be building their argument that post-employment restrictive covenants somehow implicate Section 7 rights. To do so, Region 9 has set out an interesting first test case: as alleged in the complaint, certain of the employer’s policies seem to restrict discussions among employees relating to pay or employment conditions, which is unlawful. It’s possible that the General Counsel might leverage these allegedly unlawful policies (or other favorable facts) to extract concessions related to the clinic’s restrictive covenant program, or to argue that these policies collectively represent an unlawful limitation on employees’ Section 7 rights.

But it is unclear at this point whether the Act can be stretched to cover restrictive covenants for statutory “employees” under the National Labor Relations Act.[1] Indeed, the General Counsel only recently began to target the enforceability of restrictive covenants by way of a memorandum to the Regions. That memorandum, in turn, provides little detail regarding what legal theories (if any) grant the Board the authority to interfere with covenants that become effective only when the employment relationship between an employer and employee end. Even if the NLRB does have such authority, it bears recalling that the states have developed 50 separate bodies of law regarding their enforceability of restrictive covenants. To the extent the Board follows the General Counsel’s lead and finds the covenants at issue unlawful, the NLRB would wipe a large portion of that case law off the map (at least with respect to statutory employees).

Moreover, it’s also unclear whether the NLRB has the bandwidth and resources to litigate restrictive covenant cases. Setting aside whether the creation of two distinct bodies of law – one for supervisors excluded from the Act and one for statutory employees – makes sense, the Board has limited resources. As GC Abruzzo explained in her report to Congress last year, the Regions are already stretched thin with their current case load. Adding a whole new tranche of cases to their dockets, particularly ones that move very fast and are heavily litigated, would seem to be a bridge too far.

While we do not recommend that employers modify their restrictive covenant programs based on theoretical risk from the NLRB, this complaint is a good reminder that employers should examine whether they have legitimate business interests sufficient to support restrictive covenants under state law, especially for employees not working in a management or supervisor role. Risks are increasing for companies that universally impose broad restrictive covenants on employees, both under the NLRA and under state law.

And the decision also serves as a reminder that overbroad employee handbooks and policies regarding the confidentiality of compensation or employment conditions present significant risk where the NLRB is on much stronger statutory grounds. 

We will continue to monitor NLRB activity involving restrictive covenants, and employers with questions should reach out to their Seyfarth attorney.

[1] Most relevant to this post, the NLRA exempts supervisors from the definition of “employee.”