Labor Relations Today

Labor Relations Today

NLRB’s Latest “Perfectly Clear” Successor Decision Creates Pitfalls for Buyers of Unionized Operations

Posted in NLRB Decisions, Unfair Labor Practices

On July 18, 2016, the Board issued a split decision (Member Miscimarra dissenting) in Nexeo Solutions, LLC, 364 NLRB No. 44, in which it found that the buyer, Nexeo, was a “perfectly clear” successor of the seller’s unionized employees thereby precluding it from being able to set initial terms and conditions of employment unilaterally. The Board’s decision in Nexeo is noteworthy because the Board reached its conclusion despite the fact that the buyer’s offer of employment to the seller’s employees stated that the conditions of employment would be different, a fact that normally precludes a “perfectly clear” successor finding. As a result of the Board’s decision in Nexeo, buyers of unionized operations must take extra precautions, especially regarding communications made by the seller, if they wish to retain the right to set initial terms and conditions of employment unilaterally.

Under the Board’s successorship doctrine, a new employer that continues its predecessor’s unionized business in substantially unchanged form and hires employees of the predecessor as a majority of its work force is a successor with an obligation to bargain with the union. However, as the Supreme Court held in NLRB v. Burns Security Service, 406 U.S. 272 (1972), a successor is not bound by the substantive terms of a collective bargaining agreement negotiated by the predecessor and is ordinarily free to set initial terms of employment unilaterally.

The Court explained that the duty to bargain will not normally arise before the successor sets initial terms and conditions because it is not usually evident whether the union will retain majority status in the new work force until after the successor has hired a full complement of employees. … The Court recognized, however, that “there will be instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit.” … In those circumstances, the Court stated that a successor is required to “initially consult with the employees’ bargaining representative before he fixes terms.”

The Board, interpreting Burns, held in Spruce UP, 209 NLRB 194 (1974), that when an employer who has not yet commenced operations announces new terms prior to or simultaneously with his invitation to the previous work force to accept employment under those terms, it cannot be fairly said that the new employer plans to retain all of the employees in the unit because there is the possibility that employees will reject employment under the new terms. In such situations, the employer is not a “perfectly clear” successor and thus has no duty to bargain with the union prior to setting initial terms and conditions.

In Nexeo, the buyer committed in the purchase agreement to “make offers of at-will…employment to the Employees…at least thirty (30) days prior to the Closing Date” and, for a period of 18 months after the closing date, to “provide to each Transferred Employee (i) a base salary or wages no less favorable than those provided immediately prior to the Closing Date and (ii) other employee benefits, variable pay, incentive or bonus opportunities under plans, programs and arrangements that are substantially comparable in the aggregate as those provided by [the seller].” Once the purchase agreement was finalized, the seller, not the buyer (Nexeo), began communicating with the employees about the sale. According to the Board majority, those communications were vetted by both the seller and the buyer before they were disseminated to employees. Those communications included:

  • Nov. 7: “In total, we anticipate approximately 2,000 [seller] employees and dedicated resource group and supply chain partners will transfer to the new business…. I know that I want to go forward, into the future, with all of you. You are a great team, and I look forward to starting this new chapter with you.”
  • Nov. 8: An Employee Q&A stated, in part:
    • “Does the newly independent company anticipate any layoffs as a result of the transaction? Broadly speaking, the newly independent company’s intent is to retain [the seller’s employees. The seller’s] people and various support partners will continue to work from their current locations and perform similar roles and functions.”
    • “Does the newly independent company anticipate any changes to compensation and/or benefits? Under the terms of the agreement, for at least 18 months following closing, the newly independent company is required to provide, to each transferred employee, base salary and wages that are no less favorable than those provided prior to closing; and other employee benefits that are substantially comparable in the aggregate to compensation and benefits as of January 1, 2011.”
    • “[T]he structure of the agreement between [the seller] and the newly independent company includes the transfer of assets, facilities and people.”
  • Dec. 6: Another Q&A stating that “Over 2,000 employees have already been notified that they will transfer to the new company on the day after the sale closes” and that “[the buyer] has agreed to recognize service time.”

In February, the new employer finally sent out its offer letters that included the following language:

[W]e think you should know that Nexeo Solutions has not agreed to assume any of [the seller’s] collective bargaining agreements. We have also chosen not to adopt, as initial terms and conditions of employment, any of the provisions contained in any current or expired collective bargaining agreement to which [the seller] is a party. Among other things, what that means is that if you accept this offer, you will not, when you become a Nexeo Solutions employee, participate in the multiemployer pension plan in which you participate as [a seller employee]. Instead, you will be covered at the outset of your employment by Nexeo Solutions’ 401(k) plan.

The letter also notified employees that they would be covered under a new health insurance plan. Nexeo took over operations on April 1.

The ALJ found that the new employer was not a “perfectly clear” successor because the “totality of the messages that were conveyed” to the unit employees indicated that more information about initial terms would be forthcoming and that the employer ultimately did timely provide specific information in the offer letters. In rejecting the ALJ’s decision, the Board found that the purchase agreement, together with the communications to the employees in November, established that the employer was a “perfectly clear” successor with an obligation to bargain with the union before establishing or altering initial terms and conditions of employment:

it was abundantly clear from the outset that the Respondent planned to retain the unit employees. Under the terms of the November 5 Purchase Agreement, the Respondent committed itself to offer employment to all of [the seller’s] employees. Then, on November 7, 2010, the unit employees were informed that “[the seller’s] employees…will transfer to the new business.” There was no mention at that time that the Respondent intended to establish a new set of conditions. To the contrary, the November 7 email was silent regarding terms and conditions of employment, and nothing in the email portended employment under different terms. Under the Board’s interpretation of the Burns caveat, therefore, the Respondent became a “perfectly clear” successor, with an obligation to bargain over initial terms, as of November 7, 2010.

Miscimarra disagreed with the Board’s decision because “the majority neglects to recognize that Nexeo cannot reasonably be found to have waived its right to set initial terms based on statements made by a different party…about [the seller’s] employees’ potential employment prospects. [The seller] did not speak for Nexeo and did not purport to speak for Nexeo, and none of [the seller’s] statements constituted an invitation by Nexeo to [the seller’s] employees to accept employment.” In conclusion, Miscimarra warns:

The new affirmative duty created by my colleagues is especially unfortunate because it will predictably have consequences–however unintended they may be–that will generate greater uncertainty for, and impose greater hardship on, employees and unions involved in a sale, transfer or other conveyance of operations. Nothing in the NLRA requires successor employers to monitor and renounce, amend, or ratify their predecessors’ communications to guard against any favorable comment by the predecessor regarding the potential continued employment prospects of the predecessor’s employees, where the predecessor fails to simultaneously mention the successor’s intention to alter various employment terms and conditions. …

It is also likely, as a result of my colleagues’ decision, that many potential successor employers will negotiate strict limitations on a predecessor’s ability to convey any information to its employees regarding their potential employment with the successor. Nothing in the NLRA requires purchasers to disclose their employment plans to the seller, and–in view of my colleagues’ decision–purchasers would be well advised to prohibit sellers from communicating anything to their employees and unions regarding the purchaser’s employment-related plans.

Regional Director Had Authority to Certify Election Despite NLRB’s Lack of Quorum

Posted in NLRB, NLRB Decisions, Representation Elections

On July 15, 2016, the Board issued its decision in Hospital of Barstow, Inc., 364 NLRB No. 52, on remand from the D.C. Circuit (Hospital of Bartow, Inc. v. NLRB, 820 F.3d 440), addressing the issue of whether the Regional Director retained authority, despite the Board’s lack of a quorum in 2012 and 2013, to certify the union after an election held pursuant to a consent election agreement.

The Board affirmed the Regional Director’s certification on the basis that, pursuant to the Board’s 1962 delegation to regional directors of decisional authority in representation cases, the Regional Director still retained authority to process representation petitions. Moreover, because the election was held pursuant to a consent election agreement, the parties agreed to waive their right to a pre-hearing haearing, agreed to an election among a defined unit of employees, and agreed that the regional director’s determination of post-election disputes will be final. In other words, “it is the parties’ agreement, not the Board’s delection, that gives the Regional Director’s decision finality.” On that basis, the Board found no basis for finding that the Regional Director lacked authority to certify the union as the exclusive collective bargaining representative:


[G]iven the parties’ unequivocal choice to proceed promptly to an election and allow the Regional Director to resolve post-election issues without direct Board review, we would find it particularly anomalous to nullify the parties’ choice solely because, due to a lack of quorum, there was no Board empowered to consider a request for review that the parties had consciously and expressly chosen to forgo.

NLRB Reverses Long-Standing Rule To Allow Inclusion of Regular Employees and Third Party Employees in Single Bargaining Unit

Posted in Bush Board Reversal, Joint Employer, NLRA, NLRB, NLRB Decisions, Unions

In a much anticipated decision, the NLRB reversed existing precedent on temporary employees, holding that permanent employees and temporary staffing employees could be combined in the same bargaining unit without either the employer or the staffing agency’s consent. In its July 11, 2016 decision in Miller & Anderson, Inc., the NLRB overturned longstanding precedent, marking yet another example of the NLRB’s continued efforts to increase union participation and facilitate union organizing.

Since the 1970s, the NLRB had consistently found that bargaining units containing both an employer’s regular employees and the employer’s temporary employees supplied by a staffing agency were inappropriate without the consent of both the employer and the staffing agency. Greenhoot, Inc., 205 NLRB 250 (1973).

The NLRB changed its position in 2000 with the M.B. Sturgis decision, holding that temporary employees supplied by a staffing agency could be included in a single bargaining unit with an employer’s regular employees without the consent of both employers. Under M.B. Sturgis, temporary employees could be included in a single bargaining unit with regular employees if: (1) the staffing agency and the employer were determined to be joint employers, and (2) the temporary employees shared a community of interest with the regular employees. The M.B. Sturgis decision was short-lived, however. In 2004, a Bush-appointed NLRB overturned M.B. Sturgis, returning to the joint-consent standard established in Greenhoot. Oakwood Care Center, 343 NLRB 659 (2004).

The Board changed course yet again on July 11, 2016. In Miller & Anderson, Inc., the Board held that Oakwood Care Center was wrongly decided and reinstated the rule from M.B. Sturgis, holding that a bargaining unit could be comprised of both permanent and temporary employees without employer consent as long as the employees in the unit shared a community of interest and that both the staffing agency and the host employer met the test for “joint employer” under the Act.

Citing its “statutory command” to ensure that “employees [have] the fullest freedom in exercising the rights guaranteed by th[e] Act,” the NLRB reasoned that the broad language of the term “employer unit” necessarily included both sets of employees who, according to the NLRB, are “working side by side, are part of a common enterprise.” Beyond the statutory language, the NLRB reasoned that the M.B. Sturgis rule effectuated the fundamental policies of Act by affording employees the “fullest freedom” “to choose the unit they wish to organize.”

The NLRB’s latest decision marks yet another effort to expand the reach of the Act and to facilitate union organizing — all while the fullest expansive reach of the Board’s Browning-Ferris “joint employer” decision and the success of its attack on the franchise business model are still unknown. And, once again, the NLRB has shown its willingness to upend well-established precedent in pursuit of its policy goals.  Where unions are successful at organizing, this new rule will complicate the collective bargaining process by requiring multiple “employers” to bargain with the union and by likely requiring all such “employers” to pursue a single collective bargaining agreement.  Although the long term effects of this rule are still unknown, this rule will likely have an immediate impact in assisting unions to organize sites where employers use both permanent and temporary employees, for example by focusing on the weaker organizations. Employers should continue to monitor developments from the NLRB closely and seek appropriate legal guidance to assess risks in their current business relationships.

Ninth Circuit Holds NLRB Interim Order Not Subject to Immediate Judicial Review

Posted in Federal Court Litigation, NLRA, NLRB

On July 8, 2016, the Ninth Circuit Court of Appeals (the “Ninth Circuit”) held that a National Labor Relations Board (the “Board”) § 10(k) interim order resolving a dispute between rival unions over which union’s members should perform certain work is not a final agency order subject to federal court review.  Pac. Maritime Assoc. v. NLRB, No. 13-35818 (9th Cir. July 8, 2016).  In doing so, the Ninth Circuit reasoned that a multi-employer association (the “Association”) had alternative means of challenging the Board’s § 10(k) decision, such that the Leedom v. Kyne, 358 U.S. 184 (1958) exception to the finality requirement for federal court jurisdiction did not apply.  The Ninth Circuit also rejected the Association’s argument that the Board’s decision was invalid for lack of a quorum under NLRB v. Noel Canning, 134 S. Ct. 2550 (2014).

The case arose out of a longstanding jurisdictional dispute between two unions over which union’s members should perform “reefer work” at a Port of Portland (the “Port”) terminal. Since 1974, the Port, which is a public entity, employed members of one union (“Union A”) to perform work known as “reefer work.”  During the mid-2000s, a different union (“Union B”), which represented other workers at the terminal, began to assert that its members should perform the “reefer work.”  In 2011, a company (the “Company”) entered into a lease with the Port to take over cargo handling operations at the terminal with the understanding that Union A’s members would continue performing the “reefer work.”  After entering into the lease, however, the Company joined the Association and became bound by the Association’s multi-employer collective bargaining agreement, which required Union B’s members to perform the “reefer work.”  In response to Union A threatening to picket the Company if it assigned the “reefer work” to Union B’s members, the Company filed an unfair labor practice charge against Union A with the Board.

The Board scheduled a hearing under § 10(k) and, on the first day of the hearing, the Association moved to intervene and to quash the notice of hearing.  The Board denied both motions.  The Board subsequently issued an interim decision under § 10(k) awarding the “reefer work” to Union A.  The Association filed an action in federal district court seeking immediate judicial review of the Board’s § 10(k) order and argued that the district court had jurisdiction over the Board’s interim § 10(k) order under the narrow Leedom exception to the rule precluding jurisdiction over non-final orders.  The district court agreed, granted the Association’s motion for summary judgment, and vacated the Board’s § 10(k) order.

On appeal, the sole issue was whether the district court had subject matter jurisdiction under Leedom to issue its order vacating the Board’s § 10(k) interim decision.  The exercise of jurisdiction under Leedom requires a plaintiff to make a two-part showing: (1) the challenged Board action exceeds the Board’s statutory authority and (2) absent district court jurisdiction, the party seeking review would be deprived of a “meaningful and adequate” means of asserting its statutory rights.  Reversing the district court, the Ninth Circuit concluded that the Association did not meet both parts of the Leedom exception and, therefore, the district court lacked subject matter jurisdiction.

Although the Ninth Circuit agreed that the Board likely exceeded its statutory authority because Union A’s members were public employees not covered by the NLRA, the court also concluded that the Association had alternative means to challenge the Board’s determination. Specifically, the Association could seek to intervene in the ongoing unfair labor practice proceedings, in which the “Board has stated that its General Counsel would not oppose an intervention request by [the Association].”  As the Ninth Circuit explained, the Board’s denial of the Association’s motion to intervene in the § 10(k) proceedings did not render futile a subsequent attempt to intervene in the ongoing unfair labor practice proceedings, which are governed by different standards.  Alternatively, according to the court, the Association could wait until the Board issued a final order and then seek judicial review under § 10(f), which allows not only the parties to the underlying proceedings but also any “person aggrieved” to seek review.  Thus, because the Association had viable, alternative paths to seek review of the Board’s interim § 10(k) order, the Leedom exception was inapplicable.

The Ninth Circuit also rejected the Association’s Noel Canning argument that the Board’s § 10(k) decision was invalid because it was made during the period when the Board lacked a quorum.  As the Ninth Circuit held, although district courts have jurisdiction to hear constitutional challenges to agency action, such jurisdiction exists only in situations where meaningful judicial review is otherwise unavailable.  Consequently, the Association’s alternative argument failed for the same reason as its Leedom argument: the Association had other means to raise its Noel Canning argument either as an intervenor in the unfair labor practice proceedings or as an “aggrieved person” under § 10(f).

The Ninth Circuit’s decision highlights that judicial review of the Board’s interlocutory orders is available only in exceptional circumstances, where a party has no other means to seek relief.

Federal Contractors Beware: NLRB Begins Reporting Under Fair Pay and Safe Workplaces Executive Order

Posted in Executive Orders, Government Contracting, Government Contracts, NLRB, NLRB Administration, White House

On July 1, 2016, the Office of the General Counsel for the National Labor Relations Board issued a memorandum (OM 16-23) stating that beginning with NLRB complaints issued on or after July 1, 2016, the NLRB will collect data to be reported to a federal database to comply with the Fair Pay and Safe Workplaces Executive Order issued by President Obama on July 31, 2014. The Order requires contractors and subcontractors to disclose their own labor law violations and creates in each federal agency a new position–a Labor Compliance Advisor, who will assist contracting officers in making their responsibility determinations of contractors by assessing whether the contractors’ violations of labor law are “serious,” “repeated,” “willful,” or “pervasive.”  A federal contractor’s failure to fulfill its obligations and exhibit compliance with all applicable federal and state labor laws can expose the contractor to the prospects of disqualification, suspension, or debarment.

On May 28, 2015, the Administration published proposed amendments to the Federal Acquisition Regulation, and related Department of Labor guidance to implement the Order.  Under the May 28th proposed rule, offerors on contracts or subcontracts estimated to exceed $500,000 must disclose “any administrative merits determination, arbitral award or decision, or civil judgment”against the contractor under fourteen enumerated federal statutes and Executive Orders (labor law violations) for the three years preceding the contract bid. On May 2, 2016, the proposed final regulations were received by the Office of Management and Budget for approval.

To comply with the Order, the NLRB will now collect and input four additional data points into its NxGen case management system, which will link to the federal database used by the Labor Compliance Advisors. The four data points that the NLRB will collect are:

  1. Is the charged party employer a federal contractor now or in the past? If so, its Commercial and Government Entity (“CAGE”) number;
  2. The charged party employer’s Data Universal Numbers System (“DUNS”) number, if it has one;
  3. The charged party employer’s four-character DUNS number suffix (DUNS+4), if it has one; and
  4. The charged party employer’s Employer Identification Number (EIN) or Taxpayer Identification Number (TIN).

The NLRB has developed a form requesting this information from the employer to be sent once the Regioanl Director determines to issue a complaint based on an unfair labor practice charge. The form will be transmitted with a standard email containing the following language:

The Region has made a determination to issue a complaint in the above-referenced case, absent prompt settlement. …

Please be advised that if you reach a resolution of this matter before the Region issues a complaint, such as by entering a pre-complaint informal settlement agreement with the Regional Director, no information on this case will be forwarded to this database.

You are requested to complete the Form 5554 and submit it to the Agency…. This Form provides certain information to assist with administration of the Fair Pay Safe Workplaces Executive Order.

The information you provide will be forwarded to the database accessed by Labor Compliance Advisors in making their decisions regarding contracting, only if the Regional Director issues a complaint in this matter. If a complaint issues in this matter and you have not provided the requested information, the NLRB will transmit the information it does have about the case, along with notification that the NLRB requested you to provide additional information and you failed to do so. This information may be considered by the Labor Compliance Advisors in assessing whether the charged party employer will be eligible to contract with the federal government.

The NLRB’s current implementation of the Order is troubling. As set forth above, the final rule implementing the Order has not yet been approved by the OMB. Because the rule cannot be implemented before it is approved, the NLRB is putting the cart before the horse. In addition, as we previously noted, the standards set by the proposed regulations are grossly unfair to contractors as they are designed to base contract awards, disqualification, and suspension entirely on administrative allegations – before those allegations are fairly and fully adjudicated.  NLRB complaints are not final determinations on the merits. Rather, they are merely preliminary findings of probable cause that a violation has occurred, against which employers have the right to defend themselves, including the right to challenge evidence at a hearing and confront witnesses under oath. Indeed, in some instances, the employer has complied with the law but the regional director issues a complaint nonetheless in an effort to ask the Board to change the law.

Moreover, there are unanswered questions regarding how the Order will factor into the NLRB’s decision making process of whether or not to issue a complaint. For example, where the decision to issue a complaint is a close call, will regional directors be more inclined to issue complaints  where the employer is a government contractor knowing that the Order will exert additional pressure on them to settle? Additionally, will the regional offices use the federal database and contact relevant Labor Compliance Advisors to research government contractors’ ‘history’ to pressure them to settle?

As we have discussed, the Order and proposed rule has a slew of other serious concerns and problems, thus litigation challenging the final rules is a certainty. Please continue to follow the blog for further developments.

Related coverage:

Will NLRB’s New ‘Joint Employer’ Standard Discourage Corporate Social Responsibility Initiatives?

Posted in Amici Briefs, Joint Employer, NLRB, Unions

All observers recognized that the National Labor Relations Board’s Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015) decision, overhauling decades of settled precedent, was going to have significant and far-reaching effects, as it greatly expanded the scope of relationships in which the Board would find entities to be “joint employers.” Most commentary has focused on a variety of business relationships swept up into the decision’s reach: franchise arrangements, subcontracting arrangements, subsidiary arrangements, etc. Late last month, however, an amicus filing by Microsoft and the HR Policy Association highlighted yet another possible consequence: the extent to which the new BFI standard might disincentivize corporate adoption of Corporate Social Responsibility (CSR) policies.

CSR refers broadly to efforts by a corporation to promote social values and provide resulting benefits to a variety of stakeholders and the society at large.  One prominent approach adopted by participant companies is a code of obligations and commitments they require of potential suppliers or vendors before contracting to do business with one another.  Microsoft has been recognized repeatedly as the top “corporate citizen” by Corporate Responsibility Magazine. In March of 2015, Microsoft announced, as part of its CSR initiatives, that it would only contract with suppliers that “provide their employees who handle [Microsoft] work with at least 15 days of paid leave each year.

At the time, a small independent union, the Temporary Workers of America, was engaged in a labor dispute with a Microsoft supplier, Lionbridge Technologies over the terms of an initial collective-bargaining agreement for Lionbridge employees it represented. Frustrated by the employer’s offer on the table, the union invited a Microsoft executive to join the bargaining.  When Microsoft declined, citing the BFI decision and the PTO requirement in Microsoft’s CSR policy, the union filed an unfair labor practice charge against Microsoft for failure to bargain in good faith. That case, NLRB Case No. 19-CA-162985, remains pending in the Seattle Regional Office of the Board.

The Browning-Ferris case, on the other hand, is up on appeal before the United States Court of Appeals for the District of Columbia Circuit.  On June 14, 2016, Microsoft and HRPA filed an amicus brief arguing not only that the Board’s BFI decision was deeply flawed, but that it would also:

cause companies to question whether CSR initiatives will contribute to findings of joint employment relationships, and ultimately deter adoption of such initiatives.

If so, the law of unintended consequences could well result in companies declining to institute CSR policies like the Microsoft example at issue here, denying improved terms and conditions of employment to employees throughout the economy.  We will follow both cases and publish updates as developments warrant.

More related resources and coverage:

Federal District Court in Texas Issues Nationwide Injunction Against DOL’s New Persuader Rule

Posted in Department of Labor, Federal Court Litigation, Persuader Rules

Calling the Department of Labor’s new interpretation of its LMRDA Persuader Rule “defective to its core,” the District Court for the Northern District of Texas issued a nationwide injunction on June 27, 2016, against the Final Rule published on March 24, 2016. This ruling in National Federation of Independent Business et al. v. Perez, 16-cv-00066 (N.D. Tex, June 27, 2016), comes just days before the July 1, 2016 date on which the New Rule’s most problematic reporting requirements would have become fully effective. It comes also on the heels of last week’s decision by the District Court for Minnesota in Labnet Inc. et al. v. U.S. Department of Labor et al., 16-cv-00844 (D. Minn. June 22, 2016), wherein the court held far more narrowly that the rule might be invalid, but rejected most of the employer’s arguments and declined to enjoin the rule.

Previous Labor Relations Today posts have explained the reporting requirements of the Labor Management Reporting and Disclosure Act of 1959 (LMRDA), and the DOL’s current efforts to expand significantly their scope to cover labor and employment attorneys. Briefly summarized, the law requires financial reporting and disclosure by employers and their consultants of any agreement or arrangement by which the consultant will undertake activities, directly or indirectly, to persuade employees whether or not to exercise their right to organize and bargain collectively.  There has always been a statutory “Advice Exemption” in Section 203(c) of the Act, which exempts from reporting “the services of such [consultant] by reason of his giving or agreeing to give advice to such employer….” Section 204 also exempts certain attorney-client communications from reporting, which is defined as, “information which was lawfully communicated to [an]…attorney by any of his clients in the course of a legitimate attorney-client relationship.”

The DOL’s New Rule would narrow the interpretation of “advice” so as to ensnare, for the first time, any consultants or advisers who provide any sort of advice that might have some persuasive impact on the employees – regardless of whether that consultant or adviser ever has any direct contact with the employees at all, and regardless of whether the employer is ultimately free to make its own decisions to accept or reject the advice. Despite some reference suggesting that the New Rule required no information from attorneys that would violate attorney-client privilege, it would require attorneys to report on the nature of their engagement and fees paid if they did any work for the employer in connection with the persuasion of employees – such as training managers and supervisors how to respond lawfully to organizing efforts, providing lawful draft communications, or development of personnel policies, among others.

In a sweeping decision, the District Court for the Northern District of Texas determined that the Plaintiffs challenging the New Rule have shown a “substantial likelihood of success on the merits” on numerous claims:

  • The New Rule “exceeds DOL’s authority under the LMRDA by effectively eliminating the statute’s Advice Exemption contrary to the plain text of Section 203(c),” a finding consistent with last week’s decision of the District Court for Minnesota;
  • The New Rule is “arbitrary, capricious, and an abuse of discretion,” because the in hundreds of pages of rulemaking documentation the DOL never explains why it chose to abandon its longstanding interpretation of the “Advice Exemption” now;
  • The New Rule’s reporting requirements unreasonably conflict with state rules governing the practice of law, and violate the attorney-client privilege;
  • The New Rule “violates free speech and association rights protected by the First Amendment”;
  • The New Rule is unconstitutionally vague in violation of the due process clause of the Fifth Amendment”;
  • The New Rule violates the Regulatory Flexibility Act as DOL likely understates its annual economic impact by billions of dollars according to former DOL Chief Economist, Diana Furchtgott-Roth.

The court further ruled that the New Rule will cause irreparable harm to the Plaintiffs by “[r]educe[ing] access to full, complete, un-conflicted legal advice and representation,” and “burden[ing] and chill[ing] First Amendment rights…..”  On balance, the court held the DOL will suffer no harm from the “delay[ed] implementation of an invalid rule.”  Accordingly, the court granted the injunction:

The United States of America, its departments, agencies, officers, agents and employees, including Thomas E. Perez, Secretary of the United States Department of Labor, and Michael J. Hayes, Director of the Office of Labor-Management Standards, are hereby enjoined on a national basis from implementing any and all aspects of the United States Department of Labor’s Persuader Advice Exemption Rule (“Advice Exemption Interpretation”), as published in 81 Fed. Reg. 15,924, et seq….. The scope of this injunction is nationwide.

Insofar as the Minnesota court decision was far narrower, and rejected many of the arguments adopted by the Texas court here, and with further litigation and appeals likely, it would be prudent for employers to continue to prepare for the possibility of enforcement at some future date. Because the New Rule would apply only to agreements or arrangements entered into after July 1, 2016, employers should consider entering into agreements for arguably covered services prior to that time. If you have questions about such an agreement or for further information, please contact any member of the McGuireWoods Labor team.

First Court Decision Casts Doubt on DOL Persuader Rule, But Declines to Enjoin

Posted in Department of Labor, Federal Court Litigation, Special Interests

The first decision in the three pending lawsuits against the DOL’s overhaul to the LMRDA’s “Persuader” reporting requirements came down yesterday.  The District Court for the District of Minnesota’s decision in Labnet Inc. d/b/a Worklaw Network et al v. U.S. Department of Labor et al.,  Case No. 16-cv-00844 (D. Minn., June 22, 2016), holds that:

plaintiffs are likely to succeed in their claim that portions of the new rule conflict with the LMRDA. But the Court nevertheless declines to enjoin or stay the new rule after weighing the factors identified by the Eighth Circuit….

The Court found that the plaintiffs were likely to prevail on the first count of their suit — that the new interpretation conflicts with Section 203 of the LMRDA.  Specifically, the Court found flawed DOL’s effort to properly define the categories of behavior that are and are not reportable under the new standard:

By starting with the premise that, if something is persuader activity, it cannot possibly be advice, DOL ends up struggling mightily to define as non‐advice activity that any reasonable person would define as advice. And in the course of that struggle, DOL ends up drawing lines that are simply incoherent.

The Court noted the inability of the DOL’s counsel at oral argument to properly characterize hypothetical examples posed by the Court.

Notwithstanding the Court’s critical findings on this count, the Court nevertheless decided that there was no risk of irreparable harm in allowing the attempted enforcement of the rule during the pendency of the litigation.  Therefore, the Court declined to enjoin the new rule.

More troubling for employers and their counsel may be that the Court also rejected the remaining arguments made by the plaintiffs: that the new rule violates attorney-client privilege and the First Amendment; is vague, overbroad, arbitrary and capricious; and that it violates the Regulatory Flexibility Act.  The two other suits, and motions for injunctive relief, remain pending in Texas and Arkansas.

NLRB Finds An Ally: Seventh Circuit Invalidates an Arbitration Agreement’s Class and Collective Action Waiver

Posted in Federal Court Litigation, NLRA, NLRB

On May 26, 2016, the Seventh Circuit issued its decision in Lewis v. Epic Systems Corporation, Case No. 15-2997, holding that an arbitration agreement providing “that covered claims will be arbitrated only on an individual basis” and that employees “waive the right to participate in or receive money or any other relief from any class, collective, or representative proceeding” impinges on employees’ Section 7 rights. The Seventh Circuit’s decision creates a split with the Fifth Circuit, which has repeatedly held that class and collective action waivers in arbitration agreements do not violate the National Labor Relations Act.

Since its decision in D.R. Horton in 2012, the Board has held that class and collective action waivers violate Section 8(a)(1) because the Act protects the right of employees to improve their working conditions through administrative and judicial forums. According to the Board, an “individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7 … central to the [NLRA’s] purposes.” As such, in the Board’s opinion, by requiring employees to refrain from collective or class claims, waivers of those claims infringe the substantive rights protected by Section 7.

The Fifth Circuit reversed the Board’s decision in D.R. Horton, holding that an employer commits no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing arbitration agreements. Just this past fall, the Fifth Circuit again reversed a Board decision finding that an employer committed an unfair labor practice by requiring employees to waive collective and class claims in Murphy Oil USA, Inc. v. NLRB.

The Seventh Circuit, however, held that the employer’s agreement “runs straight into the teeth of Section 7,” and “[c]ontracts that stipulate away employees’ Section 7 rights or otherwise require actions unlawful under the NLRA are unenforceable.” In rejecting the employer’s argument that the Federal Arbitration Act trumps the NLRA (and thus disagreeing with the Fifth Circuit), the Seventh Circuit found that:

there is no conflict between the NLRA and the FAA, let alone an irreconcilable one. As a general matter, there is “no doubt that illegal promises will not be enforced in cases controlled by the federal law.”… The FAA incorporates that principle through its savings clause; it confirms that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” … Illegality is one of those grounds. … The NLRA prohibits the enforcement of contract provisions like Epic’s, which strip away employees’ rights to engage in “concerted activities.” Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement. Here, the NLRA and FAA work hand in glove.

Recognizing that the decision would create a conflict in the circuits, the Seventh Circuit panel circulated its opinion to all active judges, but “[n]o judge wished to hear the case en banc.”

Petition for certiorari to the Supreme Court is all but certain. Given the current makeup of the Court, resolution of the circuit split will likely hang in the balance of the individual ultimately sworn in as the ninth justice. Please continue to follow our blog, Labor Relations Today, our Twitter feed (@LRToday), and our Flipboard magazine for additional developments and analysis.

Three Lawsuits Take First Shots at New DOL ‘Persuader Rule’

Posted in Department of Labor, Federal Court Litigation, Persuader Rules

The Department of Labor’s final rule regarding the advice exemption to the “persuader rule” in the Labor-Management Reporting Disclosure Act of 1959 (LMRDA) is currently facing three lawsuits filed by various law firms, business groups, and associations. The DOL’s new Rule modifies the “advice exemption” by revising the instructions to forms filed by employers (Form LM-10) and labor relations consultants (Form LM-20) to report persuader agreements and arrangements. According to those new instructions, the advice exemption is significantly narrowed in an attempt to increase the number of disclosures required to be filed by employers and their labor relations consultants and law firms. The three lawsuits assert similar claims in three different jurisdictions.

The first lawsuit was filed on March 30, 2015, one week after the Rule was issued, in the Eastern District of Arkansas by the National Association of Manufacturers, other industry groups, and a law firm.  The lawsuit asserts that the Rule:

  • “infringes on the right of those who seek to give labor relations advice to employers, including the Plaintiff associations, attorneys, and other third party consultants…to render such advice without fear of criminal penalties for failing to file the reports newly required by the Rule”;
  • violates the plaintiffs’ First Amendment rights of Freedom of Speech and Freedom of Association; and
  • infringes on the confidentiality of the plaintiffs’ attorney-client communications and impermissibly invades the attorney-client relationship.

The second lawsuit, filed by a group of labor and employment law firms and an association of management-side labor and employment law firms, was filed on March 31, 2015, in the District of Minnesota. The Minnesota lawsuit, raising similar claims, asserts that the Rule “is an impermissible viewpoint-based regulation of speech” as it “singles out for regulation communications that are ‘anti-union.'”

The National Association of Home Builders and the National Federation of Independent Business (NFIB) filed the third challenge in the Northern District of Texas. In the Texas lawsuit the plaintiffs assert:

[The new rule] is without statutory authority, is in direct conflcit with specific existing statutory provisions, is contrary to Constitutional provisions, and usurps, without legal authority, the right of States to regulate the attorney-client relationship. It will require practicing attorneys to either violate DOL’s new federal “interpretation” of federal law or state ethics rules on disclosure of attorney-client information. DOL’s new rule illegally interferes with the right of Plaintiff’s employer-members to obtain confidential legal advice and impedes their right to communicate with employees about unions and workplace issues.

All lawsuits seek to enjoin the Rule pending a final decision on the merits and an order vacating the challenged rule.

Please continue to follow our blog, Labor Relations Today, our Twitter feed (@LRToday), and our Flipboard magazine for additional developments and analysis.