Laborsphere

Federal Appeals Court Rejects NLRB Union Poster Rule

The U.S. Court of Appeals for the D.C. Circuit recently held that the National Labor Relations Board’s (Board) rule that required employers to post a new notice that promoted the right to unionize (sometimes referred to as the NLRB union poster rule) violated employers’ free speech rights under Section 8 (c) of the National Labor Relations Act.

The Board issued the highly controversial rule in August of 2011 that required employers to post the new notice. Employer groups soon challenged the rule, arguing that the rule exceeded the Board’s authority to enforce the Act.

The Court noted that Section 8(c) of the Act gives employers the right to communicate with employees about union representation as long no threats or promises of benefits are made. The right of free speech, the Court stated, also includes the right to be silent. The Board’s notice posting rule forced employers to communicate with employees about union representation and made it an unfair labor practice if an employer did not comply, which the Board cannot do.

The Court also rejected the Board’s rule because the Act’s six-month statute of limitations on unfair labor practices would not apply to an employer’s failure to post the notice. It remains to be seen what the Board will do in response to the Court’s decision.

NLRB Issues Guidance on Lawful Confidentiality Language

On July 30, 2012, the NLRB (“Board”) issued a decision in Banner Health System dba Estrella Medical Center, 358 NLRB No. 93 holding, among other things, that the employer violated Section 8(a)(1) (which prohibits employers from interfering, restraining or coercing employees in the exercise of their rights), by restricting employees from discussing any complaint that was then the subject of an ongoing internal investigation.

To minimize the impact of such a confidentiality mandate on employees’ Section 7 rights, the Board found that an employer must make an individualized determination in each case that its “legitimate business justification” outweighed the employee’s rights to protected concerted activity in discussing workplace issues. In Banner Health, the employer did not carry its burden to show a legitimate business justification because it failed to make a particularized showing that:

Witnesses were in need of protection;
Evidence was in danger of being destroyed;
Testimony was in danger of being fabricated; or
A cover-up must be prevented.

The Board concluded that the employer’s one-size-fits-all rule, prohibiting employees from engaging in any discussion of ongoing internal investigations, clearly failed to meet these requirements.

More recently, the NLRB’s Office of the General Counsel clarified the limits of how such policies could be drafted without running afoul of Section 7 in an advice memorandum released on April 24, 2013 (dated January 29, 2013). The Region had submitted Verso Paper, Case 30-CA-089350 (January 29, 2013) to the Office of the General Counsel for advice regarding the confidentiality rule at issue and whether it unlawfully interfered with employees’ Section 7 rights. Specifically, the Verso Code of Conduct contained this provision prohibiting employees from discussing ongoing internal investigations:

Verso has a compelling interest in protecting the integrity of its investigations. In every investigation, Verso has a strong desire to protect witnesses from harassment, intimidation and retaliation, to keep evidence from being destroyed, to ensure that testimony is not fabricated, and to prevent a cover-up. To assist Verso in achieving these objectives, we must maintain the investigation and our role in it in strict confidence. If we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.

Reiterating that employees have a Section 7 right to discuss disciplinary investigations of their co-workers, the General Counsel’s Office found that the Verso Paper provision did not allow for a case-by-case analysis of whether or not the employer’s business justification for the restriction outweighed the employees’ Section 7 rights as required by Banner Health. According to the General Counsel’s Office, the employer may establish this by presenting facts specific to a given investigation that give rise to a legitimate and substantial business justification for imposing confidentiality restrictions.

However, in footnote 7 of its advice, the General Counsel’s Office, after noting that the first two sentences of the Verso Paper rule lawfully set forth the employer’s interest in protecting the integrity of its investigations, surprisingly put forward a modified version of the remainder of the Verso Paper provision that it said would pass muster under Banner Health:

Verso may decide in some circumstances that in order to achieve these objectives, we must maintain the investigation and our role in it in strict confidence. If Verso reasonably imposes such a requirement and we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.

Although this guidance is not binding, combining this language above with the first two sentences of the Verso Paper provision could certainly strengthen an employer’s argument that its intent was not to violate an employee’s Section 7 rights, but rather, to lawfully put employees on notice that if the employer “reasonably” imposes a confidentiality requirement, they must abide by it or face discipline. However, employers must remain mindful that using a provision like this suggested does not obviate the need for the employer to engage in the particularized case-by-case determination of its substantial and legitimate business need that would permit it to impose confidentiality restrictions on the investigation.

WARN Act Liability And Private Equity Firms

Last month’s decision out of the Delaware District Court in Woolery, et al. v. Matlin Patterson Global Advisers, LLC, et al. was an eye opener for private equity firms and other entities owning a controlling stake in a faltering business. Breaking from the norm, the Court refused to dismiss private equity firm MatlinPatterson Global Advisers, LLC (“MatlinPatterson”) and affiliated entities from a class action WARN Act suit alleging that the 400-plus employees of Premium Protein Products, LLC (“Premium”), a Nebraska-based meat processer and MatlinPatterson portfolio company, hadn’t received the statutorily-mandated 60 days advance notice of layoffs.

According to the plaintiffs, Premium’s performance began to decline in 2008 and, upon the downturn, the defendants became more and more involved in Premium’s day-to-day operations, including by making business strategy decisions (e.g., to enter the kosher food market), terminating Premium’s existing President, and installing a new company President. Things got bad enough that, in June 2009, the defendants decided to “furlough” all of Premium’s employees with virtually no notice and close the plant. The defendants then, in November 2009, converted the furlough to layoffs, and Premium filed for bankruptcy. According to the plaintiffs, Premium’s head of HR raised WARN Act concerns back in June, when the decision to close the plant and furlough the employees was made, and the defendants ignored the issue.

With Premium in bankruptcy, the plaintiffs, unsurprisingly, turned to MatlinPatterson and the other defendants as the targets of their WARN Act claim, asserting that they and Premium were a “single employer.” The Court then applied the Department of Labor’s five-factor balancing test, namely (1) whether the entities share common ownership, (2) whether the entities share common directors or officers, (3) the existence of de facto exercise of control by the parent over the subsidiary, (4) the existence of a unity of personnel policies emanating from a common source, and (5) the dependency of operations between the two entities. This test often favors private equity firms, and on balance it did so in Woolery too, with the Court finding that the plaintiffs had made no showing as to three of the five factors. The Court nevertheless refused to grant the defendants’ motion to dismiss, holding that the complaint alleged that the defendants had exercised de facto control over Premium and then essentially giving that factor determinative weight.

No one should be surprised by the decision given the plaintiffs’ allegations, which had to be accepted as true at the motion to dismiss stage. They presented an ugly picture of a private equity firm dictating the most critical decisions (to close plant, layoff employees) and then attempting to duck the WARN Act’s dictates. The decision is nevertheless a cautionary tale for private equity firms and at first blush it presents a catch 22: (a) do nothing and watch your investment sink or (b) get involved and risk WARN Act liability.

So what is a private equity firm, lender or majority investor to do? Obviously, the best scenario is to build in the required 60-day notice period or, if applicable, utilize WARN Act exceptions, including the “faltering company” and “unforeseen business circumstances” exceptions. Even where that’s not possible, private equity firms and other controlling investors need not take a completely hands off approach. They would, however, be best-served (at least for WARN Act purposes) to do the following:

Provide only customary board-level oversight and allow the employer’s officers and management team to run the employer’s day-to-day operations
Although Board oversight and input can occur, continue to work through the management team on major decisions, including layoffs and potential facility closures
Avoid placing private equity firm or lender employees or representatives on the employer’s management team
Have the employer’s management team execute employment contracts with the employer, not the private equity firm or lender, and have the contracts, for the most part, create obligations only to the employer
Allow the employer to maintain its own personnel policies and practices, as well as HR oversight and function

What the courts are primarily concerned with in these cases are (a) a high degree of integration between the private equity firm or lender and the actual employer, particularly as to day-to-day operations, and (b) who the decision-maker was with regard to the employment practice giving rise to the litigation (typically the layoff or plant closure decision). Private equity firms and lenders that have refrained from this level of integration have had, and should continue to have, success in avoiding WARN Act liability and returning the focus of the WARN Act discussion to the actual employer.

Beware of ICE!

The Department of Homeland Security has issued new and revised I-9 Forms that employers must begin using on May 7 for all new hires. Failure to properly complete and retain the new forms can result in substantial fines and penalties. With immigration being a hot issue in Washington, we should expect that Immigration and Customs Enforcement (“ICE”) will be vigilant in conducting audits to enforce the I-9 requirements. Beware of ICE!

ICE will continue to focus its resources on the criminal prosecution of employers that knowingly hire illegal workers. Audits of employers for compliance with I-9 requirements is the principal tool for ICE to identify and prosecute violators. Unfortunately, those audits often result not in prosecution for hiring illegals, but in the imposition of substantial fines for paperwork and retention mistakes even where such mistakes have nothing to do with the employment of illegal aliens. Under the matrix used for calculating fines, ICE punishes employers based on the percentage of Forms handled improperly, which means that an employer could be fined more than $1,000 per Form if it makes the same mistake in completing or maintaining the Forms for each new hire, even if there are no illegal employees and the mistakes are merely inadvertent or negligent errors.

Employers need to become familiar with the new two-page Form and its accompanying Instructions. As a general rule, each new hire must fill out and sign Page 1, Section 1 of the Form no later than the first day of employment, but in no event prior to the employee’s acceptance of a job offer. Section 1 includes a new request for the employee’s telephone number and email address, but employers should know, if asked, that the Instructions indicate that providing such information is optional (although it does not say so on the Form). After completing Section 1, the employee will have three days to provide the employer with the required documents (Passport, Driver’s License, Social Security Card, Alien Registration, etc.) to prove identity and authorization to work in the U.S. Employers may not demand or request that the employee produce a specific form of documentation from the List of Acceptable Documents included with the I-9 Form. Once the proper documents have been produced, the employer must review them to determine that they are current, original and reasonably authentic, and carefully fill out, sign and certify Section 2 of the Form confirming that it has in fact reviewed the documents provided. The Certification in Section 2 is critical, as it is not sufficient for the employer to simply attach copies of the documents to the Form.

While employers are not required to retain a copy of the documents, keeping a copy with the completed Form is recommended for all new hires, not just for foreign born employees, because it is illegal to discriminate based on an individual’s place of birth. The I-9 Forms must be retained for the longer of three years from the date of hire or one year following termination, and should be kept in a folder separate from the employee’s personal file, which can easily be produced in the event of an audit. Employers are subject to substantial fines if the Forms are not properly completed, signed and retained in conformance with the rules.

We recommend that employers audit their I-9 procedures to verify they are currently in compliance with Immigration requirements and to ensure that their HR staff is familiar with the new Form. We also suggest that employers review their existing policies, or create an I-9 Compliance Policy, to ensure that the proper procedure is followed for each new hire. Beware of ICE!

Supreme Court Ducks Mootness Question In Genesis

Does an unaccepted offer of judgment for full relief made prior to a motion to certify moot the plaintiff’s claim in an FLSA collective action? That was the question we hoped the Supreme Court would answer in Genesis Healthcare Corp. v. Symczyk. Unfortunately, the majority in the 5-4 opinion issued April 16 refused to decide that question, finding that the issue was not properly before the Court because the plaintiff had conceded her claim was moot in the district court and Third Circuit, and had not contested the issue in her opposition to the petition for certiorari. While we now know from the dissent that Justices Kagan, Breyer, Sotomayor and Ginsburg would find that an unaccepted offer of judgment has no impact on the validity of the underlying claim, the majority opinion leaves unresolved a split among the Circuits. The Seventh Circuit accepts the argument that a claim must be dismissed as moot when an offer of judgment for full relief is made prior to a motion to certify, while the Third, Fifth and Ninth Circuits allow plaintiffs to circumvent mootness by immediately filing a motion to certify (the Second and Sixth Circuits accept mootness but reject the argument that the case should be dismissed, finding instead that judgment should be entered for the plaintiff in the amount offered by the defendant). Because the issue remains in doubt, Defendants in FLSA collective actions may prefer to pursue settlement with the individual plaintiff before a motion to certify has been filed to end the claim, rather than make an offer of judgment, in order to avoid endless litigation over the impact of the offer.

To read our client alert for this case click here.

Employee’s Deactivation Of Facebook Account Leads To Sanctions

The latest Facebook case highlights how courts now intend to hold parties accountable when it comes to preserving their personal social media accounts during litigation. Recently, a federal court ruled that a plaintiff’s deletion of his Facebook account during discovery constituted spoliation of evidence and warranted an “adverse inference” instruction against him at trial. Gatto v. United Airlines and Allied Aviation Servs., et al. , No. 10-CV-1090 (D.N.J. March 25, 2013).

The plaintiff, a ground operations supervisor at JFK Airport, allegedly suffered permanent disabling injuries from an accident at work which he claimed limited his physical and social activities. Defendants sought discovery related to Plaintiff’s damages, including documents related to his social media accounts.

Although Plaintiff provided Defendants with the signed authorization for release of information from certain social networking sites and other online services such as eBay, he failed to provide an authorization for his Facebook account. The magistrate judge ultimately ordered Plaintiff to execute the Facebook authorization, and Plaintiff agreed to change his Facebook password and to disclose the password to defense counsel for the purpose of accessing documents and information from Facebook. Defense counsel briefly accessed the account and printed some portion of the Facebook home page. Facebook then notified Plaintiff that an unfamiliar IP address had accessed his account. Shortly thereafter, Plaintiff “deactivated” his account, causing Facebook to permanently delete the account 14 days later in accordance with its policy.

Defendants moved for spoliation of evidence sanctions, claiming that the lost Facebook postings contradicted Plaintiff’s claims about his restricted social activities. In response, Plaintiff argued that he had acted reasonably in deactivating his account because he did know it was defense counsel accessing his page. Moreover, the permanent deletion was the result of Facebook’s “automatically” deleting it. The court, however, found that the Facebook account was within Plaintiff’s control, and that “[e]ven if Plaintiff did not intend to deprive the defendants of the information associated with his Facebook account, there is no dispute that plaintiff intentionally deactivated the account,” which resulted in the permanent loss of relevant evidence. Thus, the court granted Defendants’ request for an “adverse inference” instruction (but declined to award legal fees as a further sanction).

The Gatto decision not only affirms that social media is discoverable by employers, but also teaches that plaintiffs who fail to preserve relevant social media data will face harsh penalties. Employers are reminded to specifically seek relevant social media (Facebook, Twitter, blogs, LinkedIn accounts) in their discovery requests since such sources may provide employers with sufficient evidence to rebut an employee’s claims. This case also serves as a reminder and a warning to employers that the principles of evidence preservation apply to social media, and employers should take steps very early in the litigation to preserve its own social media content as it pertains to the matter.