The Sheppard Mullin Labor & Employment Law Blog is designed to provide employers breaking news, insights & legal analysis on issues facing employers today. Sheppard Mullin is a full service Global 100 firm with 750 attorneys in 15 offices located in the United States, Europe and Asia.
In yet another case that impacts both union and non-union employers, the Republican-majority National Labor Relations Board (Board) overruled Obama-era precedent and substantially narrowed what is considered “protected concerted activities” by workers under the National Labor Relations Act (NLRA) in Alstate Maintenance, 367 NLRB No. 68 (January 11, 2019). In doing so, the Board expressly overturned WorldMark by Wyndham, 356 NLRB 765 (2011), which previously held that a single employee who gripes in a group setting is per se engaged in protected activities under the NLRA without regard to whether the employee is raising a group complaint or seeking to initiate, induce, or prepare for group action.
By way of background, Section 7 of the NLRA protects employees who engage in union activities. Section 7 also protects the right to engage in “concerted activities for the purpose of…mutual aid or protection”, otherwise known as “protected concerted activity” or “PCA”. PCA applies both to union and union-free settings. It also applies to statements made in the workplace, as well as statements made outside of the workplace, such as on Twitter, Facebook or Instagram.
While the “concerted” prong of PCA normally requires two or more employees to act together in some joint or cooperative fashion, the Board has found that a single employee’s conduct can be “concerted” if it is engaged in “with or on the authority of other employees, and not solely by and on behalf of the employee himself.” Meyers Industries (Meyers I), 268 NLRB 493, 496 (1984). Circumstances under which a single employee’s actions could be “concerted” include cases where individual employees “seek to initiate or to prepare for group action” or bring “truly group complaints to the attention of management.” Meyers Industries (Meyers II), 281 NLRB 882, 887 (1986). Notwithstanding the Meyers cases and even though the Board has never overruled Meyers, over the past decade the Obama-Board – in cases like WorldMark by Wyndham – deviated from Meyers and blurred the distinction between protected group action and unprotected individual action. Some common examples of PCA include:
Discussing terms and conditions of employment with co-workers and outsiders including the media.
Investigating and asking questions about terms and conditions of employment.
Speaking out on behalf of co-workers.
Soliciting others to join in group action, such as a class or collective action.
Distributing materials relating to unionization or terms and conditions of employment.
Complaining – to co-workers and even to outsiders – about the company, its managers/supervision and its working conditions.
Engaging in a work stoppage, a refusal to work overtime or under unsafe working conditions and even engaging in a strike.
Failing/refusing to keep non-business sensitive information confidential.
Speaking out in favor of co-workers who have been treated adversely or unlawfully.
Posting negative or disparaging tweets/messages about the Company’s terms and conditions of employment or its treatment of employees.
Alstate, which contracts to provide ground service at one of JFK International Airport’s terminals, fired a skycap after he declined to help move a traveling soccer team’s equipment until most of the work was done by baggage handlers inside the terminal. When asked by management to assist the team with their luggage, the charging party complained – in front of his co-workers – to his supervisor that the skycaps had performed a similar job the prior year for the soccer team but had received no tip. The supervisor told the charging party he would raise his concern with airline and airport management and subsequently did so. After raising the complaint, the skycap and his co-workers delayed but ultimately assisted the team with its luggage and equipment. Upon review of the incident, Alstate terminated the charging party because he was “indifferent to the customer” and made “verbal comments in front of other skycaps” complaining about the possibility of not getting a tip.
In Alstate, the Board’s majority held that the individual employee’s complaint to his manager about the possibility of not getting a tip was not PCA under the NLRA even though the complaint was made in front of other employees. Rather, the individual complaint was a “mere gripe,” not a “concerted” complaint made on behalf of, or to induce action by, his co-workers. The Board expressly overruled its 2011 decision in WorldMark by Wyndham, whereby a two-member Democrat-majority Board found that an individual employee’s comments made during a meeting about a new dress code policy were PCA because “an employee who protests publicly in a group setting is engaged in initiating group action.” The Board’s majority in Alstate rejected this per se rule that complaints in group settings are PCA, reasoning that it “conflate[s] the concepts of group setting and group complaints.” The Board reiterated that simply making a complaint in the presence of others does not, standing alone, define the character of the activity, and that determining whether an employee has engaged in PCA requires consideration of all of the surrounding facts. The Board identified the following factors that tend to support an inference that an employee’s complaint is intended to induce group action and therefore “concerted”, including (1) the statement is made in an employee meeting called by the employer to announce a decision affecting a term or condition of employment; (2) the decision affects multiple employees attending the meeting; (3) the employee who speaks up in response to the announcement does so to protest or complain about the decision, not merely to ask questions about how the decision has been or will be implemented; (4) the speaker protests or complains about the decision’s effect on the work force generally or some portion of the work force, not solely him or herself; and (5) the meeting was the first opportunity to address the decision (i.e., there was no opportunity to discuss with co-workers beforehand). The Board’s majority explained that not all of these factors are required to support an inference that an employee is seeking to initiate or induce group action, and that the question remains “a factual one based on the totality of the circumstances.”
The Board additionally found that the employee’s complaint did not meet the second prong of the PCA analysis – i.e., it was not for “purpose of mutual aid or protection.” In doing so, the Board relied on the fact that his complaint was not about his employer’s tipping policy or practices, but rather the amount of a single tip received the year prior, which the Board noted, the employer had no control over. Accordingly, the Board found that the employee’s complaint was neither “concerted” nor had “mutual aid or protection” as its purpose.
What’s Next on the Chopping Block?
In its New Year’s ruling, the Board’s majority stated that its holding “begins the process of restoring the Meyers standard by overruling conflicting precedent that erroneously shields individual action and thereby undermines congressional intent to limit the protection afforded under the Act to concerted activity for the purpose of mutual aid or protection.” While not reaching the issue, the Board’s majority suggested in a footnote that a number of other cases arguably conflict with Meyers in which the Board has deemed certain subjects are “inherently” concerted and that they would be “interested in reconsidering this line of precedent in a future appropriate case.” See Trayco of S.C. Inc., 297 NLRB 630 (1990) (discussions about wages inherently concerted); Aroostook County Regional Ophthalmology Center, 317 NLRB 218 (1995) (discussion about work schedules inherently concerted); Hoodview Vending Co., 362 NLRB 690 (2015) (discussion about job security inherently concerted).
Alstate provides a detailed analysis of what individual activities constitute PCA under the current Republican-majority Board. Employers would be wise to consider these factors when determining whether an employee’s activities constitute PCA. The line between what constitutes PCA versus unprotected individual griping is not always clear. Accordingly, all employers should consider training supervisors and HR representatives to be able to distinguish between PCA and other unprotected conduct and not to discipline/retaliate against an employee for engaging in PCA. Moreover, it is essential that employers thoroughly investigate whether conduct that appears to be individual activity actually is objectively “concerted” and for the “purpose of mutual aid or protection” before taking action. In doing so, employers should exercise caution when investigating wrongdoing that may involve PCA as the Board takes the position that certain questions concerning PCA may constitute an unlawful interrogation under the NLRA if appropriate safeguards are no put in place to minimize the coercive impact of the investigatory interview. Employers should consult with experienced labor counsel before conducting said investigatory interviews.
On January 15, 2019, the Supreme Court issued its decision in New Prime Inc. v. Oliveira, where it decided independent contractor truck drivers cannot be forced into arbitration. The Court’s decision is based on Federal Arbitration Act § 1, which excepts from coverage disputes involving “contracts of employment” with “workers engaged in foreign or interstate commerce.”
Dominic Oliveira was an independent contractor (owner-operator) of New Prime Inc., an interstate trucking company. Oliveira’s operating agreement contained a mandatory arbitration provision, which included a delegation clause allowing the arbitrator to decide whether a dispute is subject to arbitration.
Oliveira brought a FLSA class action, alleging he and other drivers were owed wages. New Prime sought to compel arbitration. Oliveira argued the court lacked authority to compel arbitration because of the FAA’s § 1 exception for “contracts of employment” with certain transportation workers.
New Prime argued, first, that the question of § 1’s applicability was for the arbitrator to decide due to the arbitration agreement’s delegation clause. Second, New Prime argued the language in § 1, “contracts of employment,” only refers to contracts involving an employer-employee relationship. Thus, New Prime argued, § 1’s exception does not apply to independent contractor agreements, and these can still be subject to arbitration.
The Supreme Court unanimously held in favor of Oliveira. (8-0, with Justice Kavanaugh recused.)
First, the Court held a court, not an arbitrator, should determine whether a § 1 exclusion applies before it can compel arbitration. This is because §§ 1 and 2 of the FAA limit the scope of the Court’s powers under §§ 3 and 4 to stay litigation and compel arbitration. Section 2 provides the FAA applies only when the parties’ agreement to arbitrate is set forth in a “written provision in…a contract evidencing a transaction involving commerce.” Section 1 defines § 2’s terms, and states “nothing” in the FAA “shall apply” to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In short, if a contract falls within § 1, the FAA does not apply.
The Court also held the delegation clause in Oliveira’s agreement did not change anything, because a delegation clause is “merely a specialized type of arbitration agreement,” and the FAA applies to it the same as any other arbitration agreement. Therefore, the Court held, a court may use §§ 3 and 4 to enforce a delegation clause only if the contract does not first trigger § 1’s exception.
Second, the Court held the term “contract of employment” in § 1 refers broadly to any agreement to perform work, and is not limited to employee-employer relationships. The Court relied on the meaning of the phrase “contract of employment” at the time Congress passed the FAA. At the time, “contract of employment” was not a term of art, but only referred to work generally. Additionally, there was no dispute that Oliveira, as an owner-operator, qualified as a “worker engaged in…interstate commerce.” Therefore, Oliveira’s agreement was excepted from the FAA under § 1.
Impact of New Prime
Going forward, the New Prime decision calls into question whether arbitration agreements in owner-operator agreements can be enforced by a court, and whether independent contractor drivers can be required to arbitrate claims.
On January 1, 2019, California’s Senate Bill No. 1431 went into effect, making a slight, but potentially significant amendment to Civil Code Section 1542. The prior version of the statute read: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” SB 1431 amended Section 1542 to now read: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” The amended version of the Code adds “releasing party” and “released party” alongside creditor and debtor, respectively, and also changes “must have materially affected” to “would have materially affected” the releasing party’s decision to settle.
Although the legislative history indicates that the legislature intended a non-substantive change declarative of existing law, it is possible that a court could conclude that “would have materially affected” is a lesser standard than “must have materially affected.” Thus, settlement and release agreements lacking an express waiver to Section 1542 may now be more vulnerable to attack as applied to unknown claims. Whether this amendment is ultimately a distinction without a difference remains to be seen. Regardless, employers should take caution to ensure that their settlement and release agreements always include an express waiver to Section 1542, and that any internal template agreements are updated to reflect the recent revisions.
On January 8, 2019, the United States Supreme Court issued a unanimous opinion in Henry Schein, Inc. v. Archer & White Sales, Inc. strengthening the enforceability of arbitration “delegation clauses.” These clauses have been previously upheld by the U.S. Supreme Court and allow parties to agree that an arbitrator, rather than a court, will decide the threshold issue of whether a dispute must be arbitrated, as well as the merits of the dispute. The Supreme Court in Henry Schein rejected a doctrine adopted by several federal Circuit Courts of Appeals and the California Court of Appeal, which permitted courts to decline to enforce delegation clauses if the underlying assertion of arbitrability was “wholly groundless.” Under Henry Schein, courts must refer questions of arbitrability to the arbitrator when the parties have agreed to a clear and unmistakable delegation, even if the court believes the claim of arbitrability is frivolous.
Lower Court Proceedings
In Henry Schein, the parties entered into an arbitration agreement that incorporated the rules of the American Arbitration Association. These rules give the arbitrator the power to decide his or her own jurisdiction, so Henry Schein contended that the incorporation of the rules constituted a delegation clause. The district court and Fifth Circuit Court of Appeals refused to delegate the question of whether the parties’ substantive dispute was arbitrable to an arbitrator based on a finding that Henry Schein’s argument for arbitration was “wholly groundless.”
The FAA Does Not Include A “Wholly Groundless” Exception For Delegation Clauses
The U.S. Supreme Court unanimously reversed the Fifth Circuit, finding that a “wholly groundless” exception to the enforceability of delegation clauses is “inconsistent with the text of the [Federal Arbitration Act] and with our precedent.” The high court held that it must interpret the Federal Arbitration Act as written, which in turn requires courts to interpret arbitration agreements as written. If the contract delegates arbitrability questions to an arbitrator, a court may not override the contract simply because it believes the questions are obvious. The Supreme Court previously held in AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 649–650 (1986) that a court may not “rule on the potential merits of the underlying” claim that is assigned by contract to an arbitrator, “even if it appears to the court to be frivolous.” The Court in Henry Schein held that this same principle applies when the issue assigned by contract to an arbitrator is the arbitrability of a party’s underlying substantive claims.
Public Policy Considerations
Archer & White, the party opposing arbitration, argued that it would be a waste of time and money to send the arbitrability question to an arbitrator if the argument for arbitration is wholly groundless. But the Supreme Court refused to create an exception to the Federal Arbitration Act that was not included in the statutory text. Further, the Court held that recognizing such an exception would spur “a time-consuming sideshow” of collateral litigation regarding when an argument is wholly groundless, as opposed to merely groundless. The Court also noted that while a court may find the answer to arbitrability questions obvious, an arbitrator might hold a different view and that the parties’ choice to have the arbitrator decide must be respected. The Court held that if a demand for arbitration is truly frivolous, the arbitrator can quickly dispose of the matter and may be able to impose fee and cost-shifting sanctions in proper circumstances.
Court Limits Its Holding To The “Wholly Groundless” Exception
The Supreme Court expressly did not decide whether incorporation of the American Arbitration Association rules is by itself an effective clear and unmistakable delegation clause. This issue has divided some courts, particularly where one of the parties is an unsophisticated individual. The Court in Henry Schein made clear that its holding was limited to the validity of the “wholly groundless” exception.
Ultimately, Henry Schein provides further support for the enforceability of delegation clauses in arbitration agreements. It solidifies employers’ and employees’ right to contract to have arbitrators decide not only the merits of their disputes, but also the question of whether such disputes are arbitrable. Because Henry Schein is an interpretation of section 2 of the FAA, which governs arbitration agreements affecting interstate commerce—including those used in most employment agreements, it should be binding in both state and federal court. The opinion is therefore relevant to most employers and will affect litigation involving arbitration agreements, and delegation clauses specifically, at both the federal and state level. While Henry Schein answered the particularly narrow question regarding the validity of the “wholly groundless” exception previously recognized by some circuits and California courts, the U.S. Supreme Court’s opinions in two other arbitration cases, Lamps Plus v. Varela and New Prime Inc. v. Oliveira, should shed some further light on the current Court’s views on arbitration.
On December 10, 2018, a California Appellate Court published its decision in Donohue v. AMN Services, LLC, affirming class-wide summary judgment for the employer. The court’s decision in this wage and hour case presents some interesting take-aways for California employers in that it endorses the lawfulness of widespread timekeeping practices that class action attorneys often seek to challenge as unlawful.
First, a California court has again found the practice of implementing a “fair and neutral” rounding policy for employee timeclock entries to be lawful. The court affirmed that a rounding policy is “fair and neutral” where “on average, it favors neither overpayment nor underpayment,” irrespective of whether it involves an underpayment for certain individuals or certain periods of time. The employer submitted an expert opinion that their practice of rounding employee punch times to the nearest ten-minute increment did not result in any failure to compensate the class as a whole for all time actually worked over the course of the class period, which demonstrated that the system complied with the spirit of the regulations requiring a system not be skewed against the employee. The court even approved rounding of employees’ clock in and clock out times for meal periods, even where the result of such a system was that an employee’s meal period was deemed to last 30 minutes solely as a result of rounding the time entries (e.g., if he clocked out at 12:02 and clocked back in at 12:27, the rounding system would treat that as a 30 minute period). While the plaintiff contended that rounding rules cannot apply to clock times for meal periods, the court held that there is no special exception for meal periods when it comes to the California rule permitting fair and neutral rounding of time entries to the nearest set increment. Although the court did not endorse a per se rule that a rounding system will necessarily be deemed lawful if it rounds to the nearest set increment, it cited to a growing line of cases that have all found such “evenhanded” systems to be lawful even where there were individuals in a proposed class whose total work time was reduced as a result of rounding time entries. It appears that plaintiffs will need to identify some systematic practice that causes a seemingly evenhanded system to instead be biased against the employees.
Second, in regards to the evidence the court would consider, the court rejected the plaintiff’s declaration as inadmissible where she claimed she did not receive all of her rest and meal periods in contradiction of electronic certifications she made on her timesheets. In fact, with each submitted timesheet, the plaintiff had certified that she was “provided the opportunity to take all meal breaks to which I was entitled, or, if not, I have reported on this timesheet that I was not provided the opportunity to take all such meal breaks.” The court viewed the plaintiff’s later contradictory declaration as testimony inconsistent with a prior statement, which indicates the potential usefulness of such timesheet certifications.
Third, the court approved a timekeeping system that flagged late meal periods and asked the employee to confirm whether they had the opportunity to take a timely meal period or not, and no penalty pay would issue where the employee confirmed that they had the opportunity to take a timely meal period. This has become a common practice among companies that want to build in a mechanism to pay for genuinely missed, short or delayed meal periods, but do not want to pay in cases where the missed, late or short period that resulted from the employee’s own choice not to take a compliant meal period. The court found that this practice was compliant with California law as set forth in the controlling case, Brinker Restaurant Corp. v. Superior Court.
Although it may not be the most conservative approach to implement every timekeeping element described in this system, this case provides powerful support in litigation if you have employed a similar system that is challenged as violating the Labor Code. If you have any questions about your system’s lawfulness, you can always contact your Sheppard Mullin attorney for guidance.
Directly in line with the U.S. Department of Labor’s Office of Federal Contract Compliance Program’s (OFCCP) new policy emphasis on agency transparency, accountability, efficiency and collaborative resolution, the OFCCP released three new helpful directives on November 30, 2018 concerning the agency’s investigative procedures and avenues for increased communication with federal contractors. The three directives, titled DIR 2019-01 (regarding “Compliance Review Procedures”), DIR 2019-02 (regarding “Early Resolution Procedures”), and DIR 2019-03 (regarding “Opinion Letters and Help Desk”) were issued to “provide guidance to OFCCP staff or federal contractors on enforcement and compliance policy [and] procedures.” While each directive serves its own unique regulatory function, together these directives represent OFCCP’s commitment to consistency in enforcement and cooperation with the federal contractor community. As a whole, they should be viewed as beneficial to contractors aiming to comply with the law, but minimize the “gotcha” approach recently favored by the agency.
DIR 2019-01, “Compliance Review Procedures”
The first of the newly issued OFCCP directives, DIR 2019-01, concerns the manner in which the OFCCP conducts compliance reviews. The purpose of DIR 2019-01 was to rescind DIR 2011-01, an Obama-era policy issued in December of 2010. The previous policy, DIR 2011-01, issued by former Director Patricia Shiu, outlined the Active Case Enforcement (ACE) for Supply and Service (S&S) compliance evaluations. Under the ACE procedures, full OFCCP desk audits were required, and there was an increased frequency of mandatory onsite reviews. However, as a result, investigations were more thorough and the “overall processing time increased.” These were trends that the current Acting Director, Craig Leen, aimed to address.
With the focus on increasing transparency and efficiency, starting in 2017, the OFCCP began posting its S&S scheduling list methodology and established procedures to shorten the time to complete a full desk audit. Citing these procedural changes, along with the facts that the OFCCP has embedded the “valuable components of ACE” into its standard operating policies, and that the Federal Contract Compliance Manual (FCCM) was updated in August 2014 to incorporate key aspects of ACE, the OFCCP concluded that “there is no longer the need for the ACE directive as a freestanding guidance document.” 
In addition to rescinding DIR 2011-01 as an independent guidance document, DIR 2019-01 also lays out specific procedural policies that aim to clarify the scope of investigations. Specifically, DIR 2019-01 notes that those federal contractors that have previously undergone a compliance evaluation “will be exempt from another neutrally scheduled compliance evaluation, for 24 months from the date of closure of the compliance evaluation or the date OFCCP accepts a final progress report,” unless a separate OFCCP policy mandates such an evaluation, or unless a different exemption period is agreed upon by OFCCP and the contractor. Moreover, DIR 2019-01 limits the scope of onsite investigation to “the nature or scope of the indicators or concerns that triggered the onsite review.”