“HR Blog” is a blog maintained by the members of Benesch’s Labor & Employment Practice Group. This blog will provide timely updates on the latest happenings in labor, workplace and human resources law.
On April 1, 2019, employers received good news with the Department of Labor’s (“DOL”) proposed regulation limiting joint employer liability. As expected (see prior alert regarding NLRB rulemaking), the proposed rule narrows when companies can be considered a joint employer.
The main takeaway from the proposal is that the joint employer test will again reinstitute the requirement that the alleged joint employer exert actual control over the workers in question. The DOL now proposes focusing on a four-factor balancing test to determine whether someone that works for one company is also employed by a second company. The factors are whether the second company:
1. Hires or fires the employee;
2. Supervises and controls the employee’s work schedules or conditions of employment;
3. Determines the employee’s rate and method of payment; and
4. Maintains the employee’s employment records.
Additional factors may be used if they are indicative of whether the potential joint employer (1) exercises significant control over the terms and conditions of the employee’s work; or (2) otherwise acts directly or indirectly in the interest of the employer in relation to the employee.
The proposed rule also identifies a number of factors that will show the employee’s economic dependence, such as whether the employee (1) is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight; (2) has the opportunity for profit or loss based on managerial skill; and (3) invests in equipment or materials required for work or employment of helpers.
The proposed rule also explains that the potential joint employer’s ability, power, or reserved contractual right to act in relation to the employee is not relevant for determining potential joint employer liability, but also clarifies that indirect action in relation to an employee may nonetheless establish such liability.
Finally, the proposal states that a number of issues will not make joint employer status more or less likely. Operating as a franchisor does not make joint employer status any more likely. Similarly, utilizing certain business practices like providing a sample handbook, participating in or sponsoring an association health or retirement plan, allowing a company to operate a facility on another company’s property, or jointly participating in an apprenticeship program will not make a company a joint employer. Using certain business agreements that may require an employer to institute workplace safety measures, wage floors, sexual harassment policies, morality clauses, or other requirements to comply with the law, also will not leave a company more likely to qualify as a joint employer.
The rule is now open for public comment on its proposed regulations. We will continue to monitor the status of joint employer regulations and decisions as the standard evolves.
Last month, a California Court of Appeal reaffirmed that California’s Private Attorney General Act (“PAGA”) is outside the scope of the Federal Arbitration Act (“FAA”) and the Supreme Court’s 2018 opinion in Epic Systems v. Lewis (click to see our summary of Epic Systems), confirming what many practitioners already believed.
In 2014, the California Supreme Court in Iskanian v. CLS Transportation, while upholding the general enforceability of class waivers in mandatory employment arbitration agreements, exempted PAGA actions from the actions subject to such arbitration agreements. The U.S. Supreme Court’s decision in Epic Systemsstated that class and collective waiver provisions in arbitration agreements that employees must sign as a condition of employment do not violate the National Labor Relations Act.
Despite this seeming contradiction, many anticipated that PAGA actions would remain separate from the application of Epic Systems due to its unique nature as a government, qui tam-like action (click to see our post-Epic Systems guidance). Under PAGA, the individual is merely a deputized agent of the government; the government actually possesses the claims. Thus, the individual cannot waive the state’s procedural rights to a group action under PAGA.
In Correia v. NB Baker Electric, Inc., the California Appellate Court confirmed this analysis by finding that Epic Systems did not address the conclusion of Iskanian that claims for civil penalties brought on behalf of the government under PAGA were not waived by an employee’s arbitration agreement. Relying on the qui tam aspect of PAGA rendering the aggrieved employee a “proxy or agent” of the state, the court cemented PAGA’s status as separate and exempt from arbitration agreement waivers. Because the state did not consent to a waiver, the PAGA claims were not subject to a motion to compel arbitration.
New Jersey Tries Too
On the other coast, New Jersey recently enacted an amendment to its Law Against Discrimination, seeking two significant restrictions on written agreements between employers and employees.
The first is a provision rendering unenforceable any “provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment” and further prohibits any prospective waiver of any “right or remedy” under the law. While the terms are vague and undefined, this provision is clearly aimed at restricting the application of mandatory arbitration to claims of discrimination, retaliation, or harassment. The provision is expected to be challenged as preempted by the FAA, likely under the Supreme Court’s precedent in Epic Systems.
The other provision is unrelated to arbitration, but is further evidence of the impact of the “Me Too” movement and is worth discussing here. This portion of the amendment renders unenforceable against an employee any nondisclosure provision in an employment contract or settlement agreement that has the “purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment.” Essentially, the amendment renders any agreement to maintain the confidentiality (through a confidentiality or non-disparagement restriction) of the underlying details of a claim unenforceable by an employer in New Jersey.
If the parties nonetheless agree to confidentiality, the employee has discretion to decide whether or not to abide by the restriction. The employee may also decide whether to enforce the provision against an employer so long as the employee has not already revealed details of the claim rendering the employer reasonably identifiable.
The impact of this amendment could be widespread. Plaintiffs’ attorneys have expressed concern that the amendment will reduce the likelihood of early settlements to avoid publicity of a claim and expose alleged victims to reliving claimed misconduct through litigation. Similarly, employers are discouraged from settling defensible cases for the purpose of maintaining confidentiality and avoiding either disruption or negative publicity that accompanies litigation.
The National Labor Relations Board released a series of advice memoranda this week, two of which applied the new Boeing test to determine if a company rule or policy unlawfully restricts employees’ Section 7 right to engage in protected concerted conduct. The Boeing test overturned the NLRB’s 2004 decision in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004). For a discussion of the Boeing decision, see our December 15, 2017 bulletin.
The Boeing standard states: “when evaluating a facially neutral policy, rule or handbook provision that, when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, two factors will be considered: (i) the nature and extent of the potential impact on NLRA rights and (ii) legitimate justifications associated with the rule.” Applying this analysis, the NLRB divided company rules into three categories:
Category 1: a rule is lawful because it does not interfere with Section 7 rights or is lawful because any interference is outweighed by justifications associated with the rule;
Category 2: the Board determines that maintenance of a rule is unlawful by conducting individualized scrutiny into adverse impact upon Section 7 rights that outweighs any justifications; and
Category 3: a rule is unlawful because it predictably has an adverse impact on Section 7 rights that outweighs any justifications.
In two Advice Memoranda, the NLRB applied this standard. The first, dated July 31, 2018, but released this week, examined four workplace rules at ADT, LLC and found three to be lawful. First, an employer rule preventing workers from wearing items of apparel “with inappropriate commercial advertising or insignia” did not violate workers’ Section 7 right because workers would not interpret it to prohibit wearing items with a union logo, which generally violates the NLRA. The rule focused on appropriate and professional attire, which could include clothing with a union insignia; it would only restrict inappropriate or unprofessional attire.
Two more work rules were upheld as lawful restrictions on sharing information. One instructed workers to “exercise a high degree of caution” when handling sensitive information. The categories of information included proprietary information, personally identifiable customer or employee information, and HIPAA-related information. The rule was directed at employees who may have access to this sensitive information. The Memorandum opined that workers would not read the rule to limit organizing rights. The other rule directed that only designated spokespeople of ADT should speak to the media, financial analysts, or investors about the company to avoid sharing information that could be misinterpreted as a company position. The Memorandum stated that the rule is clearly applicable to when workers are (or are not) authorized to speak on the company’s behalf. Workers would not read this rule to block discussion of workplace grievances with the media.
The ADT Advice Memorandum did strike one rule regarding a restriction on the use of personal cellphones during non-work time because the NLRB has long protected workers right to communicate through non-employer methods during lunch or break periods.
The second Memorandum, dated November 14, 2018, examined four work rules of Nuance Transcription Services, Inc. The Memorandum found one rule lawful – a rule requiring workers to cooperate with investigations. The Memorandum determined that workers would read the rule to mandate cooperation with investigations of workplace misconduct, which is lawful, as opposed to probes into claims of NLRA violations, which NLRB precedent blocks.
The Nuance Memorandum stated that the remaining rules violated Section 7. A foreword in the handbook requiring confidentiality over the contents of the handbook and a separate handbook policy restricting communication of payroll information to the public both run afoul of the NLRB’s long-standing precedent permitting discussion of terms and conditions of employment, including compensation. Thus, those rules violate the test in Boeing. The Memorandum stated that the rules likely fell into Category 3 of the Boeing test, but even if they were in Category 2, the company failed to present justifications outweighing any restriction on Section 7 rights.
The final rule in the Nuance Memorandum banned non-business use of its email system. The rule banned personal email, even on non-work time, and also permitted some incidental personal use. First, the rule cannot ban such use on personal time under Purple Communications. Second, the permitted incidental use is too vague to cure the violation because it requires employees to decide at their own peril which of the conflicting policies to follow.
Social Media Memorandum
In addition to the analysis of workplace rules, another Advice Memorandum addressed protection of an employee’s posts on Facebook. An employee – a lineman – responded to a message on an online community for linemen on Facebook called “Linejunk” addressing questions of workplace safety and how to fix them. The post was made within a section of the forum directed at linemen safety and included other posts related to safety awareness, standards, and accidents. The employee was terminated for airing his “harsh feelings” about the company on Facebook. The company acknowledged that the employee had raised the concerns in the post with management previously and that a number of coworkers followed the Linejunk page. The Memorandum determined that the posts were protected by Section 7 because they were aimed at mutual aid or protection in that they addressed the lineman’s and his coworkers’ concerns about workplace safety, and the posts were concerted as he was engaged in a group discussion with other statutory employees, addressed at least in part, to his coworkers. Also, discussions of health and safety are considered “inherently concerted” and protected by Section 7.
On Friday, January 25, 2019, the National Labor Relations Board (“NLRB”) overruled an Obama-era decision focused on determining whether workers were independent contractors or employees and restored entrepreneurship as a key element in the NLRB’s analysis of the ten factors that comprise the test to determine independent contractor or employee status. SuperShuttle DFW, Inc., No. 16-RC-010963 (Jan. 25, 2019).
As explained in the 1968 Supreme Court decision, NLRB v. United Insurance Co. of America, 390 U.S. 254, 256 (1968), the NLRB applies the common law agency test, which includes analysis of the following ten factors:
1. The extent of control which the master may exercise over the details of the work;
2. Whether or not the worker is engaged in a distinct occupation or business;
3. The kind of occupation, including whether the work is usually done under the direction of the employer or by a specialist without supervision;
4. The skill required in the particular occupation;
5. Whether the employer or worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
6. The length of time for which the worker is employed or engaged;
7. The method of payment, whether by time or by job;
8. Whether or not the work is part of the regular business of the employer;
9. Whether or not the parties believe they are creating a master-servant relationship;
10. Whether the principal is or is not in business.
The NLRB found that, over time, its analysis retained all these factors, but shifted the emphasis from control to whether workers had significant entrepreneurial opportunity for gain or loss. While entrepreneurial opportunity is not a factor in the test, it is – like employer control – a principle that assists the evaluation of the factors. Where the factors reflect more employer control, they support an employer-employee relationship; where they reflect more entrepreneurial independence, they support independent contractor status.
In 2014, the NLRB refined this test in FedEx Home Delivery, 361 NLRB 610 (2014), enforcement denied 849 F.3d 1123 (D.C. Cir. 2017) (FedEx II). FedEx declined to follow a D.C. Circuit opinion that treated “entrepreneurial opportunity … as an ‘animating principle’ of the overall inquiry.” Instead, the FedEx Board reduced entrepreneurial opportunity to “one aspect of the relevant factor that asks whether the evidence tends to show that the putative contractor is, in fact, rendering services as part of an independent business.” Instead of continuing to weigh a worker’s ability to exert entrepreneurial control, the FedEx Board focused on actual entrepreneurial activity. Thus, the FedEx Board limited entrepreneurial independence in the analysis to a subset of a new factor – whether the worker was actually providing services as part of an independent business – instead of part of the overall analysis, as it had been for over 45 years. Therefore, the SuperShuttledecision overruled the Board’s 2014 FedEx decision and restored the traditional common law test described under United Insurance and its progeny.
In SuperShuttle, the Board determined that FedEx did not “refine” the independent contractor test as it claimed, but instead “fundamentally shifted” the analysis for policy-based reasons, which greatly diminished the significance of entrepreneurial opportunity. The Board determined it appropriate to overrule that “refinement” and restore the long-standing independent contractor test. Rather than restrict entrepreneurial opportunity to just one part of one of the ten factors of the test, the SuperShuttle Board instead found that entrepreneurial opportunity, like employer control, is an “animating principle by which to evaluate” all ten of the factors. In sum, SuperShuttle reinstitutes the Board’s analysis that all ten factors be weighed equally to determine whether the scale tips more towards employer control and an employer-employee relationship or towards entrepreneurial opportunity and independent contractor status.
FedEx Home Delivery v. NLRB, 563 F.3d 492, 497 (D.C. Cir. 2009) (FedEx I). Given the D.C. Circuit’s decisions in FedEx I and FedEx II and the Board’s decision Friday in SuperShuttle, the Board’s now-overturned FedExdecision is an outlier in the recent independent contractor analysis, having been rejected twice by the D.C. Circuit and now by the current Board.
 Ironically, this is the exact opposite approach taken by the Obama Board’s decision in Browning-Ferris, which rewrote the NLRB’s joint-employer test. In Browning-Ferris, the Board stated that a reserved, yet untapped, ability to control workers provided by a supplier or staffing company rendered the user employer a joint employer. To the contrary, the FedEx Board found that workers were only independent if they actively engaged in their entrepreneurial opportunity – ignoring any reserved ability to control their own work.
Employers may recall the “no match” rule most recently from the George W. Bush administration’s efforts to strengthen the enforcement of U.S. immigration laws. The Social Security Administration (SSA) sends “no match” letters to employers who submit W-2 forms with names and social security numbers for employees that do not match the SSA’s database information. A “no match” can result when an employee provides a fake social security number to an employer. The practice of sending “no match” letters became inactive during the Obama administration as the E-Verify system expanded and became the preferred method for confirming worker eligibility.
But, in an era where the number of workplace raids, detentions, and deportations continue to increase, it should come as no surprise that employers will once again start receiving “no match” letters in 2019. In fact, during a workplace raid, the Department of Homeland Security can ask an employer for “no match” information.
Nevertheless, employers should take care not to immediately terminate employees with “no match” letters. Doing so puts an employer at risk of being sued, including for claims of national origin, race, or citizenship discrimination. Accordingly, do not ask employees to re-verify their I-9s based only on “no match” letters. And, do not automatically assume that your employee is not authorized to work in the U.S.
“No match” letters also can result from legitimate clerical errors, failures to report a name change due to marriage or divorce, or even identity theft. Employers should, therefore, compare the “no match” information with their own personnel records to identify any errors and report them. If no errors exist, employers should advise their employees to contact the SSA directly to update their records. Employers also will need to comply with the requirements outlined in the “no match” letter for updating and resolving discrepancies.
In prior guidance, thirty-days was considered a reasonable period of time for employers or employees to take steps to correct discrepancies, and 90 days was the maximum amount of time permitted for resolution. The Trump administration may move towards shortening the period to resolve discrepancies from 90 to 60 days. Employers should always document their efforts to resolve any “no match” issues and apply procedures for handling these letters uniformly to all affected employees.
For more information on this topic, please contact:
The National Labor Relations Board (“NLRB”) released today a draft rule that would reverse the Obama Board’s 2015 Browning-Ferris Industries joint-employer decision, which greatly expanded the NLRB’s test for determining whether business constitute joint-employer.
The proposed rule, set for publication in the Federal Register tomorrow, would only find a business qualifies as a joint-employer of another business’s workers if it “possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority” will no longer establish a joint-employer relationship.
This rule represents a complete reversal of the Browning-Ferris Industries standard that stated companies were joint-employers if they had only “indirect” control over workers, whether or not that control was ever exercised.
The NLRB’s decision to pursue administrative rulemaking in this area is designed to “foster predictability, consistency, and stability” regarding joint-employer status after three years of uncertainty. The decision to begin the administrative rulemaking process and seek public comment on the draft reconfirms the Board’s commitment to address joint-employer liability through such rulemaking, as Chairman Ring previously stated in May. (see reference to joint-employer developments in July 18, 2018 bulletin). Ring was joined by Members Marvin Kaplan and William Emanuel in the proposal, while Member Lauren McFerran dissented.
With the publication to the Federal Register, the public can now comment and provide feedback on the proposed rule. The comment period will be open for 60 days from publication in the Federal Register. The NLRB then will have the opportunity to review and respond to those comments when promulgating a final rule.
For more information on this topic, contact a member of Benesch Labor & Employment Practice Group.
A California bill prompted by the #MeToo movement to prohibit employers from requiring workers to sign arbitration or nondisclosure agreements as a condition of employment is headed to the desk of Gov. Jerry Brown for final approval.
The bill, known as AB 3080, does not prohibit arbitration and nondisclosure agreements across the board. Rather, it provides that employees, independent contractors, and applicants must enter into arbitration agreements voluntarily and that those who choose not to cannot be subject to retaliation or termination.
AB 3080 also would prevent employers from limiting the ability of workers to disclose instances of workplace sexual harassment or from participating in any harassment or discrimination investigation or proceeding. In other words, employers would no longer be able to impose confidentiality obligations on their employees or independent contractors with respect to claims of sexual harassment.
Although AB 3080 was intended to respond to sexual harassment claims, it would apply to all forms of discrimination, harassment, retaliation as well as wage and hour claims and any other claims brought under California Fair Employment and Housing Act (“FEHA”) or the California Labor Code.
Any violation of the law would be a misdemeanor.
Gov. Brown has until September 30 to sign or veto the bill. In 2015, he vetoed a bill that would have outright banned the use of mandatory arbitration agreements as a condition of employment.
Even if Gov. Brown does sign AB 3080, it is likely to be challenged in court by employers as unenforceable under the Federal Arbitration Act, which the U.S. Supreme Court has repeatedly enforced.
We will continue to monitor the progress of AB 3080. Employers with California operations may want to begin reviewing their arbitration agreements and practices in light of these potential changes and be prepared to implement any new practices by January 1, when AB 3080 would go into effect if signed.
After a busy eight months since December of 2017 that saw the National Labor Relations Board (“NLRB”) issue a number of important decisions addressing topics such as joint-employers (rescinded), company policies, micro-units, and others, while also exploring rule-making regarding joint-employers, quickie elections, and blocking charges, the use of employer email systems is next in line for attention.
On August 1, 2018, the NLRB issued a Notice and Invitation to File Briefs regarding whether it should overturn the 2014 Purple Communications (361 NLRB No. 126) decision that allowed workers to use company email for union organizing purposes. The case at issue is Caesars Entertainment Corporation d/b/a Rio All-Suites Hotel and Casino, 28-CA-060841. In April of 2018, the Ninth Circuit remanded the case back to the NLRB for consideration in light of Boeing Co., 365 NLRB No. 154 (Dec. 14, 2017), which revised the NLRB’s evaluation of company policies (see prior alert here). At issue in Caesars is whether the company’s computer usage policy prohibits employees from using the company’s email system to engage in Section 7 communications during nonworking time.
In Purple Communications, the NLRB determined that employees were permitted to use the employer’s email system to engage in concerted protected activities, even if the employer maintained a published policy prohibiting the use of company email for a non-business purpose. The NLRB defined email as the new “natural gathering place” for employees to congregate and the “predominant means of employee-to-employee communication”, i.e., the new “water cooler.” Although the NLRB acknowledged that special circumstances would “make [a] ban [on email] necessary to maintain production and discipline,” it would be rare for circumstances to justify such a ban.
Purple Communications may face a second challenge, as well. An Administrative Law Judge decision issued on May 10, 2017 in Newmark Grubb Knight Frank, No. 28-CA-178893 (2016), is ripe for a decision. In Newmark, an ALJ ruled that the company’s policy that limited employees’ use of the company’s telecommunication and electronic communication resources to “business purposes only” violated the NLRA under Purple Communications. Newmark appealed to the NLRB, asking it “to reverse its decision in Purple Communications and instead to reaffirm, consistent with decades of prior precedent … that employees do not have a statutory right to use their employer’s email systems” for NLRA-protected reasons. Briefing in Newmark was completed in July 2017, so the case is ready for a decision from the NLRB.
On July 17, 2018, the Department of Labor (“DOL”) formally announced what has appeared inevitable since President Trump’s election – the Obama-era “Persuader Rule” is officially dead.
The Persuader Rule was initially announced in 2016 when the DOL under President Obama revised its interpretation of Section 203 of the Labor-Management Reporting and Disclosure Act of 1959 (“LMRDA”). Historically, the LMRDA required employers to report relationships with labor relations consultants hired to persuade employees on organizing and bargaining issues, including money spent on activities. Under Section 203(c) of the LMRDA, indirect advice given to an employer is exempt from the reporting requirement. Thus, advice and materials provided to employers by outside counsel or consultants are not subject to such disclosures.
The new Persuader Rule expanded the disclosure requirement and required employers to report such advice that “indirectly persuades” employees under 203(c), as well. The revised rule aimed to prevent attorneys from providing advice during union election campaigns. However, before becoming effective, the new Persuader Rule was blocked by a temporary injunction in June of 2016 and a permanent injunction in November of 2016.
Following the election of President Trump, the likelihood of the administration defending the Persuader Rule in court appeared slim. In June of 2017, the DOL published a notice of proposed rulemaking to determine whether the Persuader Rule should be rescinded. In its announcement on July 17, 2018, the DOL concluded that the “reporting requirements in effect are the requirements as they existed before the Persuader Rule.” Although the DOL had previously left open the possibility of issuing a new interpretation of Section 203, it determined that “finality” was appropriate instead. Thus, the DOL confirmed that indirect advice provided to employers regarding organizing and bargaining issues are not subject to disclosure.
McDonald’s Settlement with NLRB Rejected
In other labor developments on July 17, a National Labor Relations Board (“NLRB”) judge rejected a proposed settlement that would have resolved consolidated unfair labor practice complaints against McDonald’s franchisees and McDonald’s USA as an alleged joint-employer. The rejected settlement is just the next chapter of the on-going joint-employer saga before the NLRB stemming from the controversial Browning-Ferris Industries decision reached in 2015 that rewrote the joint-employer standard.
The McDonald’s case dates back to December of 2014 when the NLRB issued complaints against a number of franchisees and McDonald’s USA as joint-employer. In March of 2018, after the NLRB vacated its December decision in Hy-Brand, which reversed Browning-Ferris (see Hy-Brand bulletin from Dec. 15, 2017 and Feb. 27, 2018 bulletin reinstating Browning-Ferris), McDonald’s announced that it settled the charges with the NLRB pending approval from the judge.
On July 17, that approval was denied as the judge found the arguments in favor of settlement “inadequate.” The settlement did not include an admission from McDonald’s USA that it was liable as a joint-employer, which was targeted as a reason for the rejection. Judge Lauren Esposito stated that the settlement did “not begin to approximate” the effects of a joint-employer liability finding if the case had been argued to final judgement. Judge Esposito continued that McDonald’s obligations under the settlement were not comparable to potential joint and several liability.
While the broad Browning-Ferris standard remains the current authority on joint-employer liability after the decision to vacate Hy-Brand, numerous efforts are underway to vacate the test. The Save Local Business Act was passed by the House of Representatives and is pending in the U.S. Senate (see bulletin from Nov. 15, 2017). Current NLRB Chairman John Ring announced in early May that the NLRB plans to address the joint-employer test through administrative rulemaking. Browning-Ferris is actually pending on appeal before the D.C. Circuit, as well. And at least two joint-employer cases are currently in the administrative system and moving towards the NLRB.
While the failed settlement for McDonald’s is another piece of the joint-employer story, the book on the Browning-Ferris test is far from over.