Calfee, Halter & Griswold LLPLabor Board Slugs Grand Slam, Smashing Obama-Era Rulings

December 19, 2017

In a remarkable two days, the National Labor Relations Board – firmly in Republican control – slugged a grand slam, issuing four decisions which overrule Obama-era precedents which had favored unions and troubled employers. On December 14 and 15, 2017, in a series of 3-2 decisions divided along party lines, the Board reversed rulings made by the Obama Board in four key areas:

1. Joint Employer Status: In Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (December 14, 2017), the Board overruled the controversial 2015 decision in Browning-Ferris Industries of California, Inc., which loosened the standard for finding joint-employer status. Under the Browning-Ferris test, two entities will be joint employers based on the mere existence of “reserved” powers of joint control, or based on indirect control, or control that is limited and routine, even when the two entities have never exercised joint control over essential terms and conditions of employment, and even when any joint control is limited and routine.

The majority in Hy-Brand began its analysis by observing that on many issues of labor law – the duty to bargain, strikes, picketing, and even the most basic question of ‘who is bound by this collective bargaining agreement’ – “there is no more important issue than correctly identifying who is the employer,” and that with Browning-Ferris, the Board rewrote the decades-old test for determining who is the employer. The Hy-Brand decision lays out five major problems with Browning-Ferris, including that it exceeded the Board’s statutory authority, that it misread and departed from prior NLRB case law, and that it subverted traditional common law principles. Moreover, Browning-Ferris abandoned a longstanding test that provided certainty and predictability, replacing it with a vague and ill-defined standard that sought to impose NLRA obligations on multiple entities in a wide variety of business relationships, including user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer.

In a 3-2 decision, the Board in Hy-Brand overruled Browning-Ferris, and voted to restore the joint-employer standard to what existed before 2015: “Thus, a finding of joint employer status requires proof that the alleged joint-employer entities have actually exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and the joint-employer status will not result from control that is ‘limited and routine.’” Hy-Brand, 365 NLRB No. 156, at 35.

That decision, however, did nothing to help the employers in the case, Hy-Brand Industrial Contractors and Brandt Construction. Those two related companies were owned and managed by the same person, and the Board found that even under the pre-2015 standard, the two companies were a joint employer, and were therefore jointly liable for the underlying unfair labor practice of firing seven employees who went on strike to protest unsafe working conditions.

2. Employee Handbook Rules: Section 7 of the National Labor Relations Act grants employees the right to engage in concerted activities such as discussing and trying to improve wages, hours, and other terms and conditions of employment, and engaging in union-related activity. In The Boeing Company, 365 NLRB No. 154 (December 14, 2017), the Board overruled its 2004 Lutheran Heritage decision under which an employer’s facially neutral policies, work rules, and employee handbook provisions could be found to violate Section 8(a)(1) of the NLRA if employees would “reasonably construe the language to prohibit Section 7 activity,” even though the rules did not expressly restrict Section 7 activity, were not adopted in response to Section 7 activity, and had not been applied to punish Section 7 activity.

Criticizing the zeal with which the “reasonably construed” test had been applied by the Board over the past decade, and the extensive confusion and litigation that standard has caused, the Board adopted a new two-factor test for evaluating a facially neutral policy, rule, or handbook provision: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule. The Board envisions three categories of rules under this new balancing test. Category 1 rules are lawful because they cannot reasonably be interpreted to interfere with or prohibit the exercise of NLRA rights, or because the employer’s justifications outweigh any adverse impact on protected rights (examples: the no camera rule in this case, and other rules requiring employees to abide by basic standards of workplace civility). Category 2 includes rules that warrant individual scrutiny to determine if they prohibit or interfere with NLRA rights, and if so, whether any adverse impact on those rights is outweighed by the employer’s legitimate justifications. Category 3 rules will be deemed presumptively unlawful because they prohibit or restrict NLRA-protected conduct, and are not outweighed by any legitimate employer justification (example – rules which prohibit employees from discussing their wages and benefits with each other).

Applying that new standard, the Board found that while Boeing’s no camera rule might potentially affect the exercise of NLRA rights, the adverse impact was comparatively slight and was outweighed by Boeing’s important justifications for the rule (national security and protecting trade secret and proprietary information).

3. Micro-units: In PCC Structurals, Inc., 365 NLRB No. 160 (December 15, 2017), the Board overruled the 2011 Specialty Healthcare decision which had opened the door to so-called “micro-units.” At play here was the concept of the “appropriate bargaining unit,” a fundamental concept in union representation elections which determines which grouping of employees gets to vote and form a union.

In another 3-2 decision, the majority in PCC Structurals found that Specialty Healthcare changed the Board’s traditional “community-of-interest” standard by discounting, if not eliminating, any assessment of whether shared interests of the employees in the petitioned-for unit are sufficiently distinct from the interests of employees excluded from that unit. By ignoring the interests of employees outside the petitioned-for unit, the Specialty Healthcare standard created a regime under which the petitioned-for unit (i.e., the voting group the union prefers) is controlling in all but narrow and highly unusual circumstances. That standard led to the creation of micro-units -- as in a Macy’s store in Massachusetts, where the Board found appropriate a unit consisting of employees in the store’s cosmetic fragrance and cosmetics department, one of 11 sales departments in the store, and notwithstanding a longstanding Board rule which favored storewide units in the retail industry.

The majority in PCC Structurals found the Specialty Healthcare standard to be fundamentally flawed, overruled it, and declared its intent to return to traditional community-of-interest standards which trace their roots to 1935. “Henceforth, the Board’s determinations of unit appropriateness will consider the Section 7 rights of employees excluded from the proposed unit and those included in the unit, regardless of whether there are ‘overwhelming’ interests between the two groups.” 365 NLRB No. 160, at 8.

In PCC Structurals, the NLRB Regional Director in Portland, Oregon, applying the flawed Specialty Healthcare standard, had approved a bargaining unit of 100 employees in two job classifications out of a facility consisting of 2,565 production employees in 120 job classifications. The union won the vote in this “micro-unit” by a count of 54-38. On appeal by the employer, the Board overruled the Regional Director, nullified the election result, and sent the case back to Portland for the Regional Director to determine the appropriate unit in light of the newly-reinstated traditional standard.

4. Unilateral Changes to Conditions of Employment: In Raytheon Network Centric Systems, 365 NLRB No. 161 (December 15, 2017), the Board revisited the concept of what constitutes a “change” in terms and conditions of employment in a unionized workforce over which an employer is required to bargain. Since the 1962 Supreme Court ruling in NLRB v. Katz, 369 U.S. 736, unionized employers have been prohibited from making unilateral change to wages, hours, and other terms and conditions of employment without first giving the union notice and the opportunity to bargain over the change. The fundamental principle is that the employer may not alter the status quo. In the wake of Katz, however, courts and the Board have recognized that the status quo may be “dynamic;” that is, the employer may have a regular and consistent past practice of making changes in the terms and conditions of employment.

Such was the case in Raytheon, where the employer, pursuant to language in the contract’s management rights clause, had made annual changes to its health insurance plan in every year from 2001 through 2012, without bargaining with the union. The contract expired in mid-2012, however, and when the employer followed its past practice of changing health insurance benefits on January 1, 2013 without bargaining, the union filed an unfair labor practice charge. The Administrative Law Judge, applying a 2010 Board decision (DuPont I), found that the employer violated the NLRA because the 2013 modifications to the health benefit constituted a change, and not the continuation of a preexisting practice.

In DuPont, the case relied upon by the Administrative Law Judge, the Obama-era Board ruled that when an employer follows a past practice permitted by a collective bargaining agreement, but the agreement has expired, the employer’s observance of that past practice constitutes a change which must be preceded by notice and bargaining with the union. The DuPont decision reversed a series of prior Board decisions rooted in Shell Oil, a 1964 case where the Board held that the determination of whether an employer’s actions constitute a “change” does not depend on whether a past practice is permitted by language in a collective bargaining agreement which has expired.

In Raytheon, another 3-2 decision, the Board found that DuPont was contrary to a commonsense understanding of what “change” means: “when an employer acts consistently with what it had done before, this is not ‘change.’ It does not matter whether or what type of collective bargaining agreement may exist, or may have existed, when evaluating whether a particular action constitutes a “change.’” Raytheon, 365 NLRB No. 161, at 12. The Raytheon Board therefore overruled DuPont and reinstated Shell Oil and the cases which followed, and concluded: “Henceforth, regardless of the circumstances under which a past practice developed – i.e., whether or not the past practice developed under a collective bargaining agreement containing a management rights clause authorizing unilateral employer action – an employer’s past practice constitutes a term and condition of employment what permits the employer to take actions unilaterally that do not materially vary in kind or degree from what has been customary in the past.” Raytheon, 365 NLRB No. 161, at 16. The Board emphasized, however, that its ruling has no effect on the duty of employers to bargain if requested by the union over any and all mandatory subjects of bargaining, unless some other exception to that duty applies.

Conclusion
While the Republican-controlled NLRB has many other Obama-era decisions and rules in its sights, the Board’s prolific output of December 14-15 is likely not sustainable. The term of Chairman Miscimarra, the Board’s lone Republican through much of the Obama Administration, expired on December 16, 2017, and the Trump Administration’s nomination of a replacement will likely be delayed in the Senate, leaving the Board at a 2-2 deadlock for at least several months. Thus, this grand slam may properly be viewed as something of a “walk-off” for Chairman Miscimarra. Nevertheless, each of these four decisions comes as welcome news for employers, and signals a return to standards in place for decades prior to the overreaching rejection of established precedent by the Obama Board.

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