Audits/Due Diligence - Page 16 of 24

Beware of the Literal and Hypothetical When Considering Work Rules

National Labor Relations Board activity in the area of work rules, among other areas, has become the new normal. Employers have come to expect that the Board will find a work rule unlawful if the rule, taken literally, could hypothetically interfere with an employee’s right to engaged in “concerted activities” – legal speak for two or more employees raising issues about the terms or conditions of their employment. Now, the Board is also finding success on appeal.

Most recently, the District of Columbia Court of Appeals decided Hyundai America Shipping Agency, Inc. v. NLRB, a case in which Hyundai appealed the Board’s finding that certain work rules in its handbook violated the National Labor Relations Act because they had a tendency to interfere with its employees’ right to engaged in concerted activities. Those work rules included: (1) a prohibition on employees discussing matters under investigation by the company, (2) a limit on the disclosure of information from Hyundai’s electronic communication and information systems, (3) a prohibition on performing non-work activities during “working hours,” and (4) a provision urging employees to make complaints to their immediate supervisor or human resources employees rather than to fellow employees. The Court affirmed the Board’s decision as to the first three rules, holding that:

• A rule prohibiting, as a blanket matter, the discussion of matters under investigation is problematic because it limits an employee’s right to discuss his or her own employment;

• A rule prohibiting the disclosure of information on the employer’s electronic systems except to authorized persons is problematic because it could prevent an employee from sharing non-confidential information, including information about the terms or conditions of his or her employment; and

• A rule prohibiting an employee from performing non-company work during “working hours” is unlawful because the term working hours – unlike “working time” – could be read to prohibit employees from communicating during breaks.

Interestingly, the Court reversed the Board as to the fourth rule, finding that a rule “urging” employees with a complaint to speak with supervisors or HR rather than co-workers is permissible because it merely urges employees to so act, rather than acting as a prohibition.

So what does this mean for employers? First, the Board’s assault on employer work rules will continue, given that this is an area of frequent disconnect between the Board’s interpretation of the law and common employer practice. Second, employers need to read their rules literally and consider hypothetical scenarios, even when the rule is proper and sensible in 95 percent or more of such scenarios.

For example, an employer can limit employee communications during an investigation, but not all such discussions on a per se basis. The employer should evaluate the issue on a case-by-case basis and consider whether it has a legitimate business justification requiring confidentiality (such as when there is a basis to believe that a disclosure will put evidence at risk or otherwise compromise the investigation). Likewise, an employer may very well expect (legitimately) that its employees will not disclose internal company information, but the rule memorializing that expectation should be limited to confidential information and exclude information about one’s own terms and conditions of employment, so as not to chill the activities of employees who want to talk about their own employment terms. Lastly, it makes all the sense in the world for employers to expect that their employees will perform only work activities while working. But the proper terminology should be used to ensure that employees are not restricted during breaks.

It is noteworthy that, in finding the rule about disclosing information on the employer’s electronic systems improper, the Hyundai Court acknowledged that a “reasonable reader” might understand the rule to be limited to confidential information, which would make it permissible. Unfortunately, “reasonableness” is not the standard; what is possible is. Accordingly, employers would be wise to review their rules carefully and literally to make sure that they are using the most precise language possible to describe the prohibited conduct and that the prohibitions cannot be interpreted – even in a strained way – to limit protected conduct.

Summary of Key New California Laws for 2016: What Employers Should Know

Governor Brown has signed several laws impacting California employers. A summary of some of the key new laws follows. The effective date of the particular new law is indicated in the heading of the Assembly Bill (AB) and/or Senate Bill (SB). As a reminder, the minimum wage in California is increasing to $10 per hour on January 1, 2016 based on previous legislation signed by Governor Brown in 2013.

AB 622 – E-Verify System (Effective January 1, 2016)

By way of background, under U.S. law, companies are required to employ only individuals who may legally work in the United States – either U.S. citizens, or foreign citizens who have the necessary authorization. E-Verify is an internet-based system that allows employers to determine the eligibility of their employees to work in the United States. The E-Verify system is administered by the United States Citizenship and Immigration Services, the United States Department of Homeland Security (DHS), and the United States Social Security Administration (SSA).

In an effort to prevent discrimination in employment rather than to sanction the potential hiring and employment of persons who are not authorized for employment under federal law, AB 622 prohibits employers from using the E-Verify system to check the employment authorization status of existing employees or applicants who have not received an offer of employment, except as required by federal law or as a condition of receiving federal funds. The new law, which is codified in new Labor Code Section 2814, does not change employers’ rights from utilizing E-Verify, in accordance with federal law, to check the employment authorization status of a person who has been offered employment.

Further to the extent, the employer receives any notification issued by the SSA or the DHS containing information specific to the employee’s E-Verify case or any tentative nonconfirmation notice, which indicates the information entered in E-Verify did not match federal records, the employer will be required to provide the notification to the affected person, as soon as practicable.

Finally, in addition to other remedies available, an employer who violates this new law may be liable for a civil penalty not to exceed $10,000 for each violation, and each unlawful use of the E-Verify system on an employee or applicant constitutes a separate violation.

AB 970 – Enforcement of Employee Claims by Labor Commissioner (Effective January 1, 2016)

AB 970 expands the enforcement powers of the Labor Commissioner to enforce local laws regarding overtime hours or minimum wage provisions and to issue citations and penalties for violations, except when the local entity has already issued a citation for the same violation. This bill amends Labor Code Section 558 (pertaining to overtime) and Sections 1197 and 1197.1 (pertaining to minimum wage).

This bill also amends Labor Code Section 2802 pertaining to indemnification of employees by employers for expenses or losses incurred by the employee in direct consequence of the discharge of the employee’s duties or as a result of obeying the employer’s directions. In addition to a private right of action by the employee under Section 2802 to recover for these expenditures, this bill now authorizes the Labor Commissioner to issue citations and penalties against employers who fail to properly indemnify employees.

AB 987 – Employment Discrimination (Effective January 1, 2016)

AB 987 is in response to findings by the California Court of Appeal, such as Rope v. Auto-Clor System of Washington, Inc., 220 Cal.App.4th 635 (2013), where the Court found that a request for accommodation by an employee for a disability or religious belief or observance, without more, is not a “protected legal activity” and does not support a claim for retaliation under the Fair Employment and Housing Act (codified in Government Code Section 12940 et. seq.). This bill makes it an unlawful employment practice for an employer to retaliate or otherwise discriminate against an employee for “requesting” an accommodation for a disability or religious belief or observance, regardless of whether the request was granted.

AB 1506 – Labor Code Private Attorneys General Act of 2004 (Effective October 2, 2015)

AB 1506 amends Labor Code Sections 2699, 2699.3, and 2699.5 which codify California’s Private Attorneys General Act of 2004 (PAGA) and took effect as of October 2, 2015.

By way of background, PAGA authorizes an allegedly aggrieved employee to bring a civil action to recover specified civil penalties, that would otherwise be assessed and collected by the Labor and Workforce Development Agency, on behalf of the employee and other current or former employees for certain Labor Code violations. Under PAGA, an employer has the opportunity to cure certain alleged violations before a lawsuit is filed. However, there are also Labor Code violations that PAGA does not provide the employer with an opportunity to cure the alleged violation before a lawsuit is filed, such as violations under Labor Code Section 226, where an employer is required to provide an itemized wage statement (or paystub) containing very specific information, including but not limited to, wages, the inclusive dates of the pay period and the name and address of the legal employer.

Due to various lawsuits (including class action lawsuits) filed against employers on technical violations of Section 226 that did not in any way cause any injury to employees, this bill provides an employer with the right to cure a violation of the requirement that an employer provide its employees with the inclusive dates of the pay period and the name and address of the legal employer before an employee may bring a civil action under PAGA. The employer may cure the alleged violation within 33 calendar days of the postmark date of the notice it receives. This bill also provides that the alleged violation is deemed cured only upon a showing that the employer has provided a fully compliant paystub to each aggrieved employee and limits the employer’s right to cure with respect to alleged violations of these provisions to once in a 12-month period.

AB 1509 – Protections for Family Members (Effective January 1, 2016)

AB 1509 amends Labor Code Sections 98.6, 1102.5, 2810.3 and 6310, which generally prohibit an employer from discharging or taking any adverse action against any employee or applicant for employment because the employee or applicant has engaged in conduct protected by these code sections. Section 98.6 pertains to complaints of discrimination, retaliation or any adverse action made to the Labor Commissioner. Section 1102.5 pertains to complaints by whistleblowers. Section 6310 pertains to complaints about unsafe working conditions. And Section 2810.3 pertains to retaliation in alternative staffing context, such as temporary workers from staffing agencies or in the construction/contractor context.

This bill extends the protections of the foregoing provisions to an employee who is a family member of another person (i.e., where multiple family members work for the same employer) who engaged in, or was perceived to engage in, the protected conduct or made a complaint protected by these provisions. That is, an employer, or a person acting on behalf of the employer, shall not retaliate against an employee because the employee is a family member of a person who has, or is perceived to have, engaged in any acts protected by these provisions. The term “employer” or “person acting on their behalf” includes “client employers” (i.e., a business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor) or a “controlling employer” (i.e., an employer listed in Labor Code Section 6400(b) regarding multi-employer worksites).

The bill further amends Labor Code Section 2810.3 to exclude liability on certain client employers, such as client employers that use Public Utilities Commission-permitted third-party household goods carriers.

AB 1513 – Piece-Rate Compensation (Effective January 1, 2016) (see footnote 1)

AB 1513, which adds new Labor Code Section 226.2 and repeals others, applies to employees who are compensated on a piece-rate basis for any work performed during a pay period. This new law requires that employees be compensated for rest and recovery periods and “other nonproductive time” (see footnote 2) separate from any piece-rate compensation as follows:

AB 1513, which adds new Labor Code Section 226.2 and repeals others, applies to employees who are compensated on a piece-rate basis for any work performed during a pay period. This new law requires that employees be compensated for rest and recovery periods and “other nonproductive time” separate from any piece-rate compensation as follows:

Rest and Recovery Periods. Employers are to compensate their employees for rest and recovery periods at a regular hourly rate that is no less than the higher of:

(i) An “average hourly rate” determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods;

(ii) The “applicable minimum wage,” which is defined as “the highest of the federal, state or local minimum wage
applicable to the employment.”

For those employers who pay on a semimonthly basis, employees shall be compensated at least at the applicable minimum wage rate for the rest and recovery periods together with other wages for the payroll period during which the rest and recovery periods occurred. Any additional compensation required for those employees pursuant to the average hourly rate requirement is payable no later than the payday for the next regular payroll period.

Certain employers (see footnote 3) – who comply with the applicable minimum wage requirement – will have until April 30, 2016 to program their payroll systems to perform and record the calculation required under the average hourly rate requirement and comply with the itemized statement (or paystub) requirements (see below), so long as such employers pay piece-rate employees retroactively for all rest and recovery periods at or above the applicable minimum wage from January 1, 2016, to April 30, 2016, inclusive, and pay the difference between the amounts paid and the amounts that would be owed under the average hourly rate requirement, together with interest by no later than April 30, 2016.

Other Nonproductive Time. Employers are to compensate their employees for other nonproductive time at an hourly rate that is no less than the applicable minimum wage. The amount of other nonproductive time may be determined either through actual records or the employer’s reasonable estimates, whether for a group of employees or for a particular employee, of other nonproductive time worked during the pay period.

Further, Section 226.2 requires that additional information be added to wage statements, making compliance with wage statements more difficult. In addition to the list of items that are required by Labor Code Section 226 for itemized statements, Section 226.2 requires that the itemized statements include (a) the total hours of compensable rest and recovery periods, (b) the rate of compensation, and (c) the gross wages paid for those periods during the pay
period.

Further, those employers that do not pay an hourly rate for all hours worked in addition to piece-rate wages, then such employers must also list on the itemized statements (a) the total hours of other nonproductive time, (b) the rate of compensation for that time, and (c) the gross wages paid for that time during the pay period.

In addition, this new law provides that, until January 1, 2021, an employer has an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employer’s failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to, and including, December 31, 2015, if the employer complies with certain specified requirements by no later than December 15, 2016, which include: (a) making payments to each of its employees, for previously uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012, to December 31, 2015; (b) paying accrued interest; and (c) providing written notice to the Department of Industrial Relations of the employer’s election to make payments to its current and former employees by no later than July 1, 2016.

Finally, it appears that Section 226.2 applies to companies with a unionized workforce as Section 226.2 does not have a collective bargaining exemption.

SB 327 – Wage Orders: Meal Periods (Effective October 5, 2015)

By way of background, Labor Code Section 512 requires two meal periods for work periods of more than 10 hours. However, employees are allowed to waive their second meal period if the total hours worked in their shift is no more than 12 hours. Under Section 11(D) of Wage Order 5, however, health care industry employees who work shifts in excess of 8 total hours in a workday are permitted to waive their second meal period.

A recent appellate court decision, Gerard v. Orange Coast Memorial Medical Center, 234 Cal.App.4th 285 (2015), held that Section 11(D) of Wage Order No. 5 is invalid to the extent that it conflicts with Labor Code Section 512 and that the California Industrial Welfare Commission exceeded its authority by creating an exception to Section 512’s meal period requirements.

Concerned that, without immediate clarification, hospitals will alter their scheduling practices as a result of uncertainties created by the Gerard decision, Governor Brown signed SB 327 on October 5, 2015 to amend Labor Code Section 516 effective immediately. Accordingly, this bill provides that the health care employee meal period waiver provisions in Wage Order 5 were valid and enforceable, and continue to be valid and enforceable.

SB 358 – Equal Pay Act (Effective January 1, 2016)

Under SB 358, known as the California Fair Pay Act, employers will be subject to one of the strictest and most aggressive equal pay laws in the country. The California Fair Pay Act is intended to increase requirements for wage equality and transparency and amends Labor Code Section 1197.5 relating to private employment. For a more thorough discussion of this new law, please click here.

SB 501 – Wage Garnishment Restrictions (Effective July 1, 2016)

SB 501 amends, repeals, and adds Section 706.050 of the Code of Civil Procedure, relating to wage garnishment. The new law reduces the prohibited amount of an individual judgment debtor’s weekly disposable earnings subject to levy under an earnings withholding order from exceeding the lesser of 25% of the individual’s weekly disposable earnings or 50% of the amount by which the individual’s disposable earnings for the week exceed 40 times the state minimum hourly wage, or applicable local minimum hourly wage, if higher, in effect at the time the earnings are payable.

SB 579 – Employee Time Off (Effective January 1, 2016)

SB 579 amends Labor Code Section 230.8, which applies to employers with 25 or more employees. Under Section 230.8, employers are prohibited from discharging or discriminating against an employee who is a parent, guardian, or grandparent having custody of a child in a licensed “child day care facility” or in kindergarten or grades 1 to 12, inclusive, for taking off up to 40 hours of unpaid time off each year for the purpose of participating in school activities, subject to specified conditions. The new law revises references to a “child day care facility” to instead refer to a “child care provider” and defines “parent” for these purposes as a parent, guardian, stepparent, foster parent, or grandparent of, or a person who stands in loco parentis to, a child, thereby extending these protections to an employee who is a stepparent or foster parent or who stands in loco parentis to a child. This new law also allows employees to take unpaid time off to enroll or reenroll their children in a school or with a licensed child care provider.

SB 579 also amends Labor Code Section 233, which applies to all employers. Under Section 233 (aka “California’s Kin Care Law”), employers are required to allow employees to use one-half of their accrued sick leave to care for a “family member” (as defined). In light of the Healthy Workplaces, Healthy Families Act of 2014 (Labor Code Section 245 et. seq.), which went into effect on July 1, 2015, this bill requires an employer to permit an employee to use sick leave for the purposes specified in the Healthy Workplaces, Healthy Families Act of 2014, redefines “sick leave” as leave provided for use by the employee during an absence from employment for these purposes, and prohibits an employer from denying an employee the right to use sick leave or taking specific discriminatory action against an employee for using, or attempting to exercise the right to use, sick leave for these purposes. In other words, employees may use paid sick leave for their own health condition or preventative care; a family member’s health condition or preventative care; if the employee is a victim of domestic assault, sexual violence, and/or stalking and needs to take time off. Further, “family member” now includes: a child regardless of age or dependency (including adopted, foster, step, or legal ward); parent (biological, adoptive, foster, step, in-law, or registered domestic partner’s parent); spouse; registered domestic partner; grandparent; grandchild; or siblings.

SB 588 – Judgment Enforcement by Labor Commissioner (Effective January 1, 2016)

Among the key provisions of this new bill, SB 588 provides the California Labor Commissioner with additional means to enforce judgments against employers arising from the employers’ nonpayment of wages. The new law authorizes the Labor Commissioner to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment pursuant to a writ of execution. The new law also authorizes the Labor Commissioner to issue a notice of levy if the levy is for a deposit, credits, money, or property in the possession or under the control of a bank or savings and loan association or for an account receivable or other general intangible owed to the judgment debtor by an account debtor.

For instance, if a final judgment against the employer remains unsatisfied after a period of 30 days after the time to appeal the judgment has expired and no appeal of the judgment is pending, the employer cannot continue to conduct business unless the employer has obtained a bond up to $150,000 (depending on the unsatisfied portion of the judgment) and has filed a copy of that bond with the Labor Commissioner. The bond shall be effective and maintained until satisfaction of all judgments for nonpayment of wages.

As a result of the foregoing new laws and amendments, employers should consult with legal counsel to ensure their policies are compliant and their employee handbooks are up to date.

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^1. AB 1513 also makes amendments to provisions of workers’ compensation for injuries sustained in the course of employment.

^2. “Other nonproductive time” is defined as time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.

^3. These employers are defined as: those acquired by another legal entity on or after July 1, 2015, and before October 1, 2015; those who employed at least 4,700 employees in California at the time of the acquisition; those who employed at least 17,700 employees nationwide at the time of the acquisition; and those that were a publicly traded company on a national securities exchange at the time of the acquisition.

Obama Board Reaffirms Successor’s Right to Set Initial Terms of Employment when Taking Over Unionized Operation

Last week, the National Labor Relations Board issued a refreshingly employer-friendly decision which allowed a successor company to implement new pay terms without having to first bargain with the labor union. In Paragon Systems, Inc., 362 NLRB No. 182 (2015), a divided three-member Board panel held that the new guard service, Paragon Systems, Inc. (Paragon), had given sufficient notice to employees of a change in pay and therefore could assert its right to unilaterally set the initial terms and conditions of employment when it assumed a federal contract from the predecessor employer, MVM, whose work force was represented by The Federal Contract Guards of America International Union.

A Successor Can Make Unilateral Changes

In 2011, the Board reinstated the “successor bar” doctrine, where a union is presumed to retain its majority status when the employees it represents are hired to work for a successor employer. UGL UNICCO Service Co., 357 NLRB 76 (2011). This decision overturned MV Transportation, 337 NLRB 770 (2002) in which the Bush Board had refused to impose a successor bar in favor of the employees’ right to free choice of a union representative.

Paragon was deemed a successor because the majority of its work force was made up of former MVM guards. Paragon conceded that it was a successor and in fact, agreed to recognize and bargain with the union. However, without first consulting with the union, Paragon implemented employee pay terms that were different from what its predecessor had in place. Specifically, Paragon reduced the amount of paid “guard mount” time – time spent getting and returning weapons and ammunition – from 30 minutes to 10 minutes per day and discontinued paying for “guard mount” time on weekends.

The union filed an unfair labor practice charge against Paragon which was dismissed by the Administrative Law Judge.

On appeal, the union and the NLRB’s general counsel argued that Paragon as a successor violated Section 8(a)(5) and (1) when it unilaterally made changes to the pay terms. In analyzing the case, the Board stated that “a ‘successor’ employer under NLRB v. Burns International Security Services, 406 U.S. 272 (1972), and Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27 (1987), is free to set initial employment terms without first bargaining with an incumbent union, unless ‘it is perfectly clear that the new employer plans to retain all of the employees in the unit,’ in which case ‘it will be appropriate to have him initially consult with the employees’ bargaining representative before he fixes terms.’” Paragon Systems, Inc., 362 NLRB. No. 182, slip op. at p. 2 (quoting Burns at 294-295). The Board went on to state that “[o]nce a Burns successor has set initial terms and conditions of employment, however, a bargaining obligation attaches with respect to any subsequent changes to terms and conditions of employment.” Id. In other words, once the successor has established the initial terms, it cannot make any unilateral changes to employment terms without first bargaining with the union.

The Board held that it was undisputed that Paragon was a Burns successor and had properly implemented the initial terms and conditions of employment when it started operations. Accordingly, the Board held that Paragon did not violate the Act when it made unilateral changes to the pay terms that had been in place under the prior employer’s agreement.

Effective Notice to Employees Is Critical

The key issue in this decision was not whether the successor had the right to implement its initial terms and conditions upon becoming the new employer, but the sufficiency of the notice given to employees regarding the change in pay terms. The majority found that Paragon provided adequate notice to employees that there may be a change in such terms. Specifically, prior to taking over the contract, Paragon announced that it had the right to establish compensation, benefits and working conditions; its job applications specifically advised applicants that employees would have to conform to all Paragon policies and reiterated Paragon’s right to set compensation, benefits and other terms and conditions of employment; and Paragon specifically informed applicants that shift schedules would be set in accordance with the operational needs of the contract being serviced by Paragon.

Taken together, these statements were found by the Board to have made clear to employees that Paragon was not adopting MVM’s practice regarding paid guard mount time. Additionally, the implementation of these pay changes occurred on the first day that Paragon assumed operations. The Board majority concluded that the change in pay was within Paragon’s right to set initial terms and conditions of employment.

The sole dissenting Board member argued not that the successor was prohibited from setting the initial terms and conditions of employment, but that the implementation of this change was unlawful because Paragon had not provided specific notice of the specific change. The dissent noted that none of Paragon’s prior statements and communications to employees specifically addressed paid guard mount time.

Moreover, noted the dissent, even if Paragon’s general statements regarding its right to establish compensation, benefits and other working conditions were broad enough to cover the guard mount pay, the fact that Paragon provided detailed information in the contingent offer letter regarding many of the changes in wages and benefits, but was silent regarding guard mount time, reasonably conveyed to employees that no change would be made to such pay.

Practical Takeaways

This decision is good news for potential buyers of businesses, and other employers who are deemed to be successor employers of unionized operations having union contracts, because it reaffirms a successor’s right to make unilateral changes to the initial terms and conditions of employment upon commencement of operations (so long it is not “perfectly clear” that the successor intends to follow the existing agreement – a doctrine beyond the scope of this alert, as the “perfectly clear” doctrine is anything but perfectly clear).

In order to make such changes lawfully, however, the successor must make certain to provide adequate notice about the changes to employees. Notice will be deemed adequate if the successor communicates that it has the right to establish wages, benefits, and working conditions and provides enough general detail about the terms that may be subject to change. A cautious employer should be as specific as it can be when setting initial terms and conditions.

The NLRB Expands the Definition of “Joint Employer”

Yesterday, the National Labor Relations Board (the “NLRB” or “Board”) issued a decision greatly expanding the standard for determining whether a company may be deemed a “joint employer.” The Board’s decision, in Browning-Ferris Industries of California, Inc., overturned the narrower standard that the Board had been applying for 30 years. The impact on companies that rely on staffing agencies and contractors is likely to be significant and the effects may ripple into the world of franchised business.

The Previous Joint Employer Standard

The National Labor Relations Act (“NLRA”) imposes numerous obligations on employers, including the duty to bargain with a union that workers select as their designated representative. These obligations can extend to a company that does not directly employ the workers in a traditional sense, if the company is deemed to be a joint employer.

For decades, to determine whether a company constituted a joint employer, the Board relied on a test set forth in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 691 F.2d 1117 (3d Cir. 1982), and refined in two subsequent Board decisions – TLI, Inc., 271 NLRB 798 (1994), and Laerco Transportation, 269 NLRB 324 (1984). Under the Third Circuit’s test in Browning-Ferris Industries of Pennsylvania, two or more companies could be considered joint employers of the same group of employees if they “share[d] or codetermine[d] those matters governing the essential terms and conditions of employment.” In TLI and Laerco, the Board imposed additional limitations on the test, requiring that, to be considered a joint employer, a company must actually exercise control – not merely possess the authority to exercise control. Moreover, the control had to be direct and immediate, not limited and routine.

The Facts

Browning-Ferris Industries of California, Inc. (“BFI”) owned and operated the Newby Island Recyclery (“Newby Island”), where workers sorted mixed waste and recyclable materials into separate commodities that were sold to other business. BFI employed 60 employees at Newby Island, who were represented by the International Brotherhood of Teamsters (the “Union”). BFI entered into a temporary labor services agreement (the “Agreement”) with Leadpoint Business Services (“Leadpoint”) under which Leadpoint provided employees to sort the recyclables on Newby Island’s conveyor belts, clean the screens on the sorting equipment and provide housekeeping services.

BFI and Leadpoint maintained separate management teams and human resources functions. Although BFI managers were not directly involved in hiring Leadpoint’s employees, under the Agreement, BFI required Leadpoint to ensure that any personnel assigned to Newby Island met certain BFI-set qualifications, including drug testing and certification and training requirements. The Agreement provided that Leadpoint retained sole authority to counsel, discipline, and terminate its employees. However, the Agreement also granted BFI the authority to reject any personnel provided by Leadpoint and to “discontinue the use of any personnel for any or no reason.” As to wages, Leadpoint was responsible for paying the employees who worked at Newby Island. Yet, under the Agreement, Leadpoint could not, without BFI’s approval, pay a higher rate than BFI to Leadpoint employees who performed similar tasks to BFI’s own employees. As to hours and scheduling, while Leadpoint decided what employees to schedule for which shifts, BFI retained sole control over the shifts and operating hours of the facility. Moreover, BFI – not Leadpoint – decided how many employees to assign to specific conveyor lines. BFI also set productivity standards and retained the sole authority to set the pace of the material streams. As to training and safety, although Leadpoint conducted its own training, BFI occasionally supplemented the training, and Leadpoint employees were required to comply with BFI’s safety policies and procedures. The Agreement expressly provided that Leadpoint was the sole employer of its personnel and that nothing in the Agreement should be construed as creating a joint employer relationship.

The Union petitioned to represent Leadpoint’s sorters, screen cleaners, and housekeepers. The Union wanted to bargain with BFI on behalf of these workers, arguing that BFI was the joint employer. Applying TLI/Laerco, the Board’s Regional Director disagreed, finding that BFI was not a joint employer and, therefore, BFI had no duty to bargain. In arriving at this decision, the Regional Director focused on the fact that, under the Agreement and in practice, Leadpoint retained primary and direct control over its employees supplied to Newby Island.

The Union requested that the Board review the decision. Among its arguments, the Union contended that the Board should revisit its joint employer standard.

The Board’s Decision

After reviewing the history of its joint employer jurisprudence, the Board concluded that the test originally set forth by the Third Circuit in Browning-Ferris Industries of Pennsylvania had been severely distorted in subsequent NLRB decisions, including TLI and Laerco. The Board noted the increasing prevalence of employers procuring workers through staffing and subcontracting arrangements. In its view, the existing, narrow, joint employer test was out-of-date in light of the changing realities of industrial life.

A “New” Joint Employer Test

After criticizing the long line of Board decisions that had narrowed the joint employer designation, the Board declared that it was returning to the original test announced by the Third Circuit. The Board articulated this “new” test as follows:

The Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms or conditions of employment.

Relevant facts to consider under this test include the roles that companies play with regard to: hiring, firing, discipline, supervision and direction; wages and hours; scheduling, seniority and overtime; assigning work; and determining the manner and method of work performance. The Board explicitly overruled TCI, Laerco, and their progeny, stressing that a company may be a joint employer by virtue of its authority to exercise control, irrespective of whether the company actually exercises that control. The Board rejected the requirement that a joint employer’s control is necessarily exercised directly and immediately. Now, control exercised indirectly may establish joint employer status.

The Board stressed that a putative joint employer’s “bare rights to dictate the results of contracted services or to control or protect its own property” would not be determinative. However, it made clear that:

[w]here … [a] user firm owns and controls the premises, dictates the essential nature of the job, and imposes the broad, operational contours of the work, and the supplier firm, pursuant to the user’s guidance, makes specific personnel decisions and administers job performance on a day-to-day basis, employees’ working conditions are a byproduct of two layers of control.

In such situations, the Board suggested that both the supplier and user of the contingent or temporary workforce would constitute joint employers.

The Board Reverses The Regional Director’s Determination

Applying its revived joint employer standard, the Board found that BFI constituted a joint employer. Even though BFI was not directly responsible, it exercised “significant control” over hiring, firing and discipline by virtue of the parties’ Agreement. Moreover, the Board noted that, by virtue of its unilateral control over the operation of its facilities, it also had control over the supervision, direction and hours of work of Leadpoint’s employees. Likewise, by virtue of the agreed-upon wage ceiling, the Board found that BFI exercised control over Leadpoint’s employees’ wages.

Take Aways From And Potential Impact Of Browning-Ferris

It is unknown whether the Browning-Ferris decision will be appealed. However, unless and until it is potentially narrowed or overturned by the Supreme Court, the case may have significant consequences for companies that rely on staffing agencies or contractors. When a company reserves significant authority with regard to the workers of a staffing agency or contractor, the company risks being deemed a joint employer of those workers. The company would then have a duty to bargain with a union representing those workers and could be subject to unfair labor practice charges for alleged NLRA violations. The Browning-Ferris decision could also have implications for franchisors if they retain significant control over their franchisees (and franchisee employees).

For now, the Browning-Ferris decision only has implications for an employer’s obligations and exposures under the NLRA. It does not have the force of law in other contexts, such as wage and hour disputes and claims of discrimination under other state and federal laws. However, it is conceivable that some courts may find the decision persuasive and appropriate for application in other legal contexts. In that event, every company that has labor supplied through subcontractors could now face vastly expanded liability under those other laws.

In light of the Browning-Ferris decision, companies that rely on supplemental workforces and franchise agreements should examine their current arrangements carefully.

New Guidance Regarding Employee Handbooks Part Six: Ensuring Conflict of Interest Rules Don’t Inhibit Protected Concerted Activity

This post is the sixth in a series providing guidance on federal rules regarding permissible and impermissible employer handbook policies and rules. See Guidance Regarding Confidentiality Rules Here, Employee Conduct Rules, Rules Related to Company Logos, Copyright, and Trademark, Rules Restricting Photography and Recording and Rules Restricting Employees From Leaving Work. While the recent guidance was issued by the National Labor Relations Board (NLRB), (found here) this guidance is applicable to both unionized and non-unionized employers. The National Labor Relations Act (NLRA) restricts all employers from issuing policies or rules – even if well-intentioned – that inhibit employees from engaging in activities protected by the act, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.

Conflict of Interest Rules: A Balancing Act

Naturally, all employers would like to prevent their employees from engaging in activities that are in conflict with the employers’ interest. However, there is a great deal of potentially conflicting employee activity that is protected by Section 7 of the NLRA, such as protesting in front of the company, organizing a boycott, or soliciting support for a union during non-work time. Accordingly, if an employer’s conflict-of-interest rules can reasonably be read to prohibit protected concerted activity, the NLRB will view them with great suspicion.

The NLRB provides a couple examples of conflict-of-interest rules that were found to be impermissibly overbroad. These include:

• Policy banning employees from engaging in “any action” that is “not in the best interest of” the employer.

• Policy providing that, “[b]ecause you are now working in one of [employer’s] restaurants, it is important to realize that you have an up close and personal look at our business every day. With this in mind, you should recognize your responsibility to avoid any conflict between your personal interests and those of the Company. A conflict of interest occurs when our personal interests interfere – or appear to interfere – with our ability to make sound business decisions on behalf of [the employer].”

Examples of Permissible Conflict of Interest Rules

The NLRB advises that employers ensure their conflict-of-interest rules do not impinge upon protected Section 7 activity by including specific examples of prohibited behavior. The NLRB explains that when a rule clarifies that it is limited to the employer’s legitimate business interests, employees will understand that it is not banning Section 7 activity.

Some examples of lawful conflict-of-interest rules include:

• A policy that provided two pages of examples of what was considered a conflict of interest, instructing employees to do such things as “avoid outside employment with a[n employer] customer, supplier, or competitor, or having a significant financial interest with one of these entities.”

• Rules prohibiting employees from giving, offering, or promising, “directly or indirectly, anything of value to any representative” of “any person, firm, corporation, or government agency that sells or provides a service to, purchases from, or competes with” the employer.

• Rules in a section of a handbook dealing entirely with business ethics banning employees from “activities, investments or associations that compete with the Company, interferes with one’s judgment concerning the Company’s best interests, or exploits one’s position with the Company for personal gains.”

In sum, employers should take great care to ensure their conflict-of-interest rules provide sufficient clarifying examples and context to indicate that such rules are intended only to protect the employer’s legitimate business interests, and not to inhibit activities protected by Section 7.

New Guidance Regarding Employee Handbooks Part Five: Rules Restricting Employees From Leaving Work: What Are The Boundaries?

This post is the fifth in a series providing guidance on federal rules regarding permissible and impermissible employer handbook policies and rules. See Guidance Regarding Confidentiality Rules Here, Employee Conduct Rules, Rules Related to Company Logos, Copyright, and Trademark and Rules Restricting Photography and Recording. While the recent guidance was issued by the National Labor Relations Board (NLRB), (found here) this guidance is applicable to both unionized and non-unionized employers. The National Labor Relations Act (NLRA) restricts all employers from issuing policies or rules – even if well-intentioned – that inhibit employees from engaging in activities protected by the act, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.

Restrictions on Leaving Work: Language to Avoid

Although the NLRB acknowledges that employers have a legitimate interest in keeping employees from leaving their posts without warning, they are also adamant that one of employees’ most fundamental rights under Section 7 of the NLRA is the right to go on strike. Accordingly, it is important to make sure that any employer policies restricting employees’ ability to leave work cannot be reasonably read to prohibit walkouts or protected strike activity. While context always matters, the NLRB provides a few clear guidelines to keep in mind when reviewing or drafting policies restricting employees’ ability to leave work.

• DO NOT use words such as “strike” or “walkout” when describing prohibited activity.

• DO NOT prohibit “work stoppages” or “disruptions.”

• DO NOT impose a broad ban on employees entering the employer’s property without permission. This could be interpreted as denying off-duty employees access to outside non-working areas, which is often interpreted as a violation of Section 7.

Permissible Policies Placing Restrictions on Leaving Work

Obviously, employers do have the ability to keep their employees from abandoning their posts for reasons unrelated to protected concerted activity. It appears that it is acceptable to have a relatively broad policy, as long as it avoids the specific language mentioned above. The NLRB has provided two examples of policies that restrict employees’ ability to leave work without infringing on their Section 7 rights:

• “Leaving Company property without permission may result in discharge.”

• Policy prohibiting employees from “[l]eaving Company premises during working shift without the permission of management.”

As always, it is important to remember that policies that do not strictly adhere to these rules can be found to be permissible under the right circumstances. For example, the NLRB found that a broad “no walkout without permission” rule was reasonably read to ensure that patients at a dementia facility were not left without adequate care (rather than as a complete ban on strikes) when taken in context. See Wilshire at Lakewood, 343 NRLB 141, 144 (2004), vacated in part, 345 NLRB 1050 (2005), enforcement denied on other grounds, Jochims v. NLRB, 480 F.3d 1161 (D.C. Cir. 2007). Accordingly, always be mindful of the particular circumstances of the employer in question when crafting policies of this nature.