Labor Management Relations

One of the strongest trends in human resource management is the dramatic increase in the use of mandatory employment arbitration agreements. In late 2017, a study by the Survey Research Institute at Cornell University determined that the number of private sector, non-union employees subject to mandatory arbitration agreements had dramatically increased in recent years. The study was conducted on a national level and secured responses from more than seven hundred employers. Between 1992 and the early 2000’s, the percentage of employees subject to mandatory arbitration agreements had risen from just over two percent to almost one quarter of the U.S. work force. The study concluded that as of the fall of 2017, the percentage of private sector, non-union employees subject to mandatory arbitration had more than doubled and now exceeded fifty-five percent. Thus, over sixty million American employees are now likely subject to mandatory employment arbitration agreements.

This dramatic growth preceded the landmark decision handed down in May, 2018 by the U.S. Supreme Court in Epic Systems Corp. v. Lewis. In this decision, the Supreme Court held that under the Federal Arbitration Act, an arbitration agreement that provides that an employee waives the right to bring a class action in court must be enforced. This decision is widely expected to increase even further the use of mandatory arbitration agreements by private sector employers. The decision put to rest a potential stumbling block to the enforcement of class action waivers in arbitration agreements that had been created by a decision of the National Labor Relations Board during the Obama administration and by the decisions of several federal Courts of Appeals. Thus, the Supreme Court has made the use of such agreements even more desirable by employers who now can generally be assured that their employees cannot bring class action arbitration or court cases against them. In other words, such agreements are now an even more effective means for employers to cope with the rapid increase in recent years in the numbers, costs and risks posed by employment-related lawsuits.

The advantages that the use of mandatory arbitration agreements offer private sector employers are several and are quite substantial:

  • Generally speaking, these agreements can be used to prohibit covered employees from bringing class actions against their employers
  • These agreements can require employees to waive their right to a jury trial; indeed, this has long been the principal advantage of the use of mandatory arbitration agreements
  • Instead, these agreements typically establish a procedure that permits employers and employees to select a decision maker from a panel of experienced former judges and/or licensed attorneys or other respected neutrals to hear and decide their cases, rather than juries
  • Because these procedures remove the risk of runaway jury awards and reduce the cost of litigation, employers are much more likely to be in a position of declining to agree to unreasonable settlement demands in cases that they believe involve meritless claims
  • Indeed, some studies indicate that employers are somewhat more likely to prevail in arbitration than in court proceedings
  • At the very least, and as alluded to above, the use of arbitration agreements will enable employers and employees to resolve their claims in a less costly manner than in courts; typically such agreements involve limited amounts of discovery and fewer procedural disputes
  • Claims are typically more quickly resolved in arbitration than in courts; faster resolutions benefit both employers and employees – they both avoid the years of discovery and delay that often characterize court proceedings
  • Conventional wisdom and some anecdotal evidence indicate that some plaintiffs’ attorneys are deterred from even pursuing employment-related claims once they become aware that doing so will involve arbitration rather than a potential jury trial
  • As opposed to court trials that are matters of public record and sometimes involve considerable publicity, arbitration procedures are private processes and are not as likely to result in the damage to goodwill, reputation and brand as may public trials
  • While arbitration agreements are indeed contracts, these contracts typically provide that the employees who sign them remain employees at will
The very real and apparent advantages to employers of the use of arbitration agreements is confirmed by the opposition to their use, especially since Epic Systems. Recent writings and publicity have often cast these agreements as vehicles designed to “destroy workers’ rights”. Arbitration agreements are strongly opposed by plaintiffs lawyers groups, civil rights organizations, and some politicians. Some plaintiffs law firms now espouse the filing of hundreds of individual arbitration demands on behalf of employees of an employer in order to pressure such employers to settle rather than having to absorb the costs of defending against large numbers of such claims. Opponents of arbitration agreements have recently argued that claims of sexual discrimination and sexual harassment should not be subject to arbitration. Significant political pressure not to utilize arbitration agreements has been applied against law firms, law schools and some private sector employers. The American Bar Association has adopted a resolution urging legal employers not to require mandatory arbitration of claims of sexual harassment. The State of New York has recently passed legislation that would prohibit private sector employers from requiring arbitration of sexual harassment claims. California will soon follow suit, and other states are considering similar legislation. Such state laws may well be found to be preempted by the Federal Arbitration Act and, thus, unenforceable.

Some courts will find arbitration agreements to be unenforceable if they are both “procedurally and substantively unconscionable”. But the bottom line is that well drafted and carefully implemented arbitration agreements will be enforced, and will provide employers with a much improved context in which to defend against claims. [1] Thus, the surge in the use of arbitration agreements documented by the 2017 Cornell study is likely to continue and indeed to expand rapidly.


[1] For example, well drafted agreements should place most if not all the costs of arbitration fees on employers; the obligation to settle disputes by arbitration should apply to employers as well as employees; the process for selecting an arbitrator must be fair; the waiver of the right to a jury trial must be clear and unambiguous; and so forth. The implementation of an arbitration agreement must be preceded by adequate notice, the ramifications of such agreements must be clearly summarized for employees in some appropriate fashion; the method utilized to secure employee consent to an agreement must be considered; and analysis must be accomplished as to what form of consideration is necessary to render such consent binding.

In one of the most significant labor decisions in decades, the Supreme Court today held in Janus v. AFSCME that public sector workers cannot be forced, over their first amendment objections, to pay dues or fees to a union as a condition of employment. The implications for organized labor, in both the public sector and private sector, are significant. For example, the HR Policy Association reported that a recent survey by AFSCME of its 1.6 million members found that only 35% of those members would definitely pay dues if not required to do so. There is little question that union treasuries will be negatively impacted by this decision. This, in turn, may impact the ability of unions to continue to organize and represent employees in both the public and private sector.

Public sector union dues and agency fees are currently a major source of political contributions to candidates who favor union positions. If Janus forces unions to spend their funds on representation activities instead of political donations, the power of unions in Washington, state capitals and city halls will be diminished.

Several international unions, including the Service Employees International Union and AFSCME, have been active in both their public and private sector negotiations in trying to plan for a future that would involve the decision rendered by the Supreme Court today. The SEIU, for example, has proposed in numerous negotiations that work previously done on-site by paid union representatives would now be coordinated and centralized out of the International Union’s offices to eliminate the need for SEIU representation to attend meetings on site at each of their organized facilities. Both unions also have preemptively sought “recommitments” from their membership related to their financial support for their union.

The Janus decision could allow for an estimated 5 million government workers in twenty-two states to stop paying agency fees, the portion of union revenue that funds collective bargaining. Twenty-eight states previously passed “right to work” laws, which allow workers to avoid paying even the agency fees. It is certainly possible that the Janus decision will further embolden efforts in the non-right to work states to propose legislation to further limit the ability of unions to require union security provisions that would provide for the payment of dues or agency fees.

While implications of the decision will play out over the next several years, it is certainly a body blow to organized labor that will impact not only the public sector but private sector as well.  Employers should expect immediate complications in all negotiations, as unions seek to deal with a significant loss of revenues.

In a memorandum issued last week, NLRB General Counsel Peter Robb offered important guidance on how his office plans to prosecute claims of unlawful workplace rules in the wake of the Board’s restorative Boeing decision (365 NLRB No. 154 (Dec. 14, 2017)). As we discussed here last December, the Boeing decision created a sensible standard for determining the lawfulness of work rules. This was a welcome change for employers, given the flurry of handbook-related activity under the Obama-era Board. Unfortunately, though, Boeing gave little guidance on how to actually implement the new standard. Mr. Robb’s memo adds some clarity. Recall that Boeing established three different categories for evaluating employer work rules:  (1) rules that are generally lawful (known as “Category 1” rules); 2) rules that merit a case-by-case determination (“Category 2” rules); and (3) rules that are plainly unlawful (“Category 3” rules). Click here to read the full client alert.

The U.S. Third Circuit Court of Appeals issued an opinion on October 13, 2017, that serves to remind employers of the need to pay employees when they take short work breaks during their workday.

In DOL v. Am. Future Sys., Inc. 2017 BL 367399, 3d Cir., No. 16-2685, the employer had a “flex time” policy under which it allowed employees to take breaks “at any time, for any reason, and for any duration.” The company tracked employee breaks by monitoring when they logged off their computers, which they were required to do when on a break, and they were only paid while logged-on to their computers. While on their breaks, employees were allowed to leave their work stations and to use the time for their own personal benefit.

The Department of Labor (“DOL”) argued that the employees should have been paid for their short breaks taken during the course of the day, and the trial court granted it summary judgment. Although the employer argued that employees were free to do what they wanted while on breaks, the DOL relied on the language in the regulations for the Fair Labor Standards Act (“FLSA”), which provide that rest periods up to 20 minutes should be compensable. The 3rd Circuit Court of Appeals gave “substantial deference” to the DOL since it is responsible for administering the FLSA, and it affirmed the granting of summary judgment for the DOL. The Court noted, however, that should employees abuse the “flex time” policy, such as by taking multiple breaks of 19 minutes in length, the employer could discipline the employees, but it nevertheless had to pay them for the break time.

This decision serves as a reminder to employers to pay employees for any breaks that are 20 minutes or less, regardless of whether the employees are free to use the time as they choose or to leave the employer’s facility. This is also a good time for employers to remember that any unpaid breaks, such as meal times, must not be interrupted by the employer or the entire meal period could become compensable.

In a win for organized labor, the National Labor Relations Board (“NLRB”) reinstated a union-friendly standard under which both temporary and permanent employees may collectively bargain as a single unit without employer consent. On July 11, 2016, the NLRB’s 3-1 decision in Miller & Anderson, Inc., 364 NLRB No. 39 (2016), made it easier to combine workers who are temporarily employed by a staffing agency’s client company with workers permanently employed by that client company to form a union.

Under the new standard, if a staffing agency and its client company are deemed to be joint employers of the temporary workers, the temporary workers may join forces with the client company’s permanent workers, provided that they satisfy the “community of interest” factors demonstrating that it is appropriate to treat them as a single unit. Some of the factors used to determine whether a proposed unit of workers share a community of interest are whether the employees are subject to the same working conditions, are subject to common supervision, and have similar wages and benefit packages.

Click here to read the full client alert.

 

The Department of Labor (“DOL”) issued its Persuader Activity Advice Exemption Rule (“persuader rule”), which requires attorneys and consultants who communicate with employers regarding certain labor relation activities to file a report disclosing the terms of their arrangement, including payments. Since the persuader rule was issued in final form, multiple lawsuits have been filed by employers, attorney organizations, and states. On June 27, 2016, Judge Sam Cummings of the Northern District of Texas issued a preliminary injunction enjoining, on a national basis, the enforcement of the persuader rule. National Fed’n of Indep. Bus. v. Perez, Case No. 5:16-cv-00066-C (N.D. Tex. June 27, 2016).

The court made this decision based on five specific grounds: (1) the DOL lacks the statutory authority to enforce this version of the persuader rule; (2) the persuader rule is arbitrary, capricious, and an abuse of discretion; (3) the persuader rule violates the due process clause of the fifth amendment; (4) the persuader rule violates the Regulatory Flexibility Act (“RFA”); and (5) the persuader rule creates a substantial threat of irreparable harm. First, the DOL does not have the authority to enforce the terms of this persuader rule and, in fact, the rule conflicts with the plain language of the relevant statute, the Labor-Management Reporting and Disclosure Act of 1959. Second, the persuader rule does not explain the need to change the previous interpretation, it conflicts with state rules governing the practice of law, and it violates the first amendment by infringing on free speech, expression, and association rights. Third, the persuader rule is unconstitutionally vague and does not clearly define its prohibitions; instead it replaces a long-standing and bright-line rule with a rule that is ambiguous and impossible to apply. Fourth, the persuader rule violates the RFA. Although the DOL certified that the persuader rule would not have a significant economic impact on a substantial number of small entities so as to exempt it from the RFA, the DOL failed to provide a factual basis for the cost estimates. Finally, the persuader rule will conflict with attorney duties, reduce access to legal advice, reduce access to training sessions, and burden and chill the first amendment, all of which creates serious harm.

This decision came just in time to avoid the persuader rule from becoming effective, as it was issued just days before the persuader rule was set to go in force on July 1, 2016. In light of this ruling, attorneys and advisors who provide unionization related advice to employers will not be required to report to the DOL, at least for now. This injunction prevents the DOL from enforcing the persuader rule unless the injunction is vacated in some way. If the injunction is vacated, employers and their advisors may eventually have to file reports, but the effective date of that requirement may be altered.

Earlier this spring, the Department of Labor issued final rules drastically changing more than fifty years of interpretation of the Labor Management Reporting and Disclosure Act of 1959, as amended. These new rules will require detailed disclosure of arrangements that employers have with attorneys and consultants for such things as advice on the content of communications with employees about unions; training of supervisors on how to talk to their employees about unions without violating the law; and even drafting handbooks and personnel manuals that contain statements that might cause employees to think they don’t need unions. The rules became effective officially at the end of April, but the date provided in the rules for enforcement is July 1.

Predictably, these rules have generated legal challenges, alleging that they violate fundamental First Amendment rights to communicate; impair the right to counsel; and exceed the authority of the DOL. In the meantime, the DOL has taken the position that the new rules will not apply to agreements entered into before July 1, or to activities after July 1 that result from agreements entered into before July 1. The following is from a filing by the DOL in one of the many pending cases:

On March 24, 2016, the Department of Labor’s (“the Department”) Office of Labor-Management Standards published a rule entitled “Interpretation of the ‘Advice’ Exemption in Section 203(c) of the Labor-Management Reporting and Disclosure Act,” 81 Fed. Reg. 15924 (“the Rule”). While the effective date of the Rule is April 25, 2016, the rule is only applicable to arrangements and agreements made on or after July 1, 2016, and to payments made pursuant to arrangements and agreements entered into on or after July 1, 2016. 81 Fed Reg. 15924. The Rule revises the reporting requirements, and related record keeping requirements, for certain agreements and arrangements entered into between employers and labor relations consultants or other independent contractors, and payments made pursuant to those agreements and arrangements. The Department will not apply the Rule to arrangements or agreements entered into prior to July 1, 2016, or payments made pursuant to such arrangements or agreements. Consequently, under the Rule no employer, labor relations consultant, or other independent contractor will have to report or keep records on any activities engaged in prior to July 1 that are not presently subject to reporting, or file the new Forms LM-10 or LM-20 (revised pursuant to the Rule) for any purpose prior to July 1.

Accordingly, employers have a Limited Time Window of Opportunity to enter into agreements with their employment law advisors. If they enter into agreements on or before June 30, 2016, they will be spared the cost and trouble of these oppressive filing obligations, even if the services are performed far into the future. Most labor firms, including Frantz Ward, are prepared with drafts ready to turn around on short notice to protect clients in this way. Regardless of how the pending challenges to the new rules turn out, this opportunity to use the DOL’s own interpretation to avoid the worst effects of the rules should not be missed.

The Department of Labor’s Office of Labor Management Standards (“OLMS”) has released its long-anticipated revisions to its interpretation of the rules for the reporting of employer engagements with third parties to provide services designed to influence employees’ choices of collective bargaining representation. This is known as “persuader activity.” Employers who enter an agreement with an outside organization for persuader services must report the agreement on an official form, the LM-10 within 90 days of the end of the year. The outside organization must also file a report, the LM-20. These forms must be filed within 30 days of the making of the agreement. Then, after the end of each calendar year, the persuader must file an LM-21 form, which reports all of its labor-related activities (even non-persuader activity) for all employers.

Click here to read this Client Alert.

 

Does your company provide email access to its employees? Are there restrictions on how and when email may be used? These issues are addressed in the National Labor Relations Board’s (NLRB) December 11, 2014 decision in Purple Communications, Inc., which affects both non-union and union employers. In Purple Communications, the NLRB reversed its position and held that “employee use of email for statutorily protected communications on nonworking time must presumptively be permitted by employers who have chosen to give employees access to their email systems.” The employer can rebut this presumption by demonstrating that special circumstances necessitate a specific restriction to maintain production or discipline. Although this special circumstances justification could encompass a total ban on nonwork email use by employees, this would be a “rare case.”

The handbook provisions at issue in Purple Communications prohibited employees from using company email to engage “in activities on behalf of organizations or persons with no professional or business affiliation with the company” or to send “uninvited email of a personal nature.” In reaching their decision, the NLRB reasoned that the ability of employees to communicate in the workplace is central to exercising their rights under the National Labor Relations Act, especially during an initial organizing campaign. Due to significant changes in technology, email is a critical means of communication which now serves as “the natural gathering place pervasively used for employee-to-employee conversations.”

This decision means that employees who have access to company email may use that email system during nonworking time in order to actively campaign on behalf of a union that is attempting to organize the company, even if such a position is contrary to the position of the company. The decision, however, does not require employers to provide email access to employees where employers have otherwise chosen not to grant any email access at all. Similarly, the decision does not require the company to provide access to the email system to third parties like a union. The decision also does not prevent employers from continuing to monitor employee use of company computer and email systems for legitimate management reasons. The NLRB specifically limited this decision to email without addressing other forms of electronic communications.

Employers who are concerned about running afoul of the Purple Communications decision should review their handbooks and any policies addressing employee use of company email systems. Employers should also review those classifications of employees to which they provide email access.

This post was coauthored by Inna Shelley.

The National Labor Relations Board decision in the Specialty Healthcare case has continued paving the way for the certification of increasingly fragmented micro bargaining units. On May 4th, the director of NLRB Region 2 approved a collective bargaining unit of full-time and part-time salespersons in the women’s shoe departments on the 2nd (Designer Shoes) and 5th (Contemporary Shoes) floors of a Bergdorf Goodman department store. The approved unit would likely consist of less than 12% of the store’s sales associates and an even lesser percentage of the store’s non-supervisory workers. The full text of this Neiman Marcus Group decision is available here.

Neiman Marcus Group continues the recent Board trend of allowing fragmented micro-units. Such units allow unions to gain a foothold by organizing only an increasingly small subset of employees. Unions no longer have to expend resources to organize the bulk of an employer’s workforce as long as they can identify any group of employees who share an alleged “community of interest” under the traditional criteria. This analysis is often quite subjective and considers whether employees (1) are organized into separate departments (2) have distinct skills and training (3) have distinct job functions or whether there is job overlap (4) are functionally integrated with other employees (5) have frequent contact with other employees (6) interchange with other employees, and (7) have distinct terms and conditions of employment.

Under Specialty Healthcare, if a unit is found appropriate under the above standard, it will be recognized even though a larger unit would be even more appropriate. To successfully challenge a smaller unit, the employer must demonstrate that employees in a petitioned-for, smaller unit share an “overwhelming community of interest” with other employees in a larger unit.

In approving a unit of women’s shoe sales associates on two store floors, Neiman Marcus Group emphasized that salespersons in the shoe departments were paid on a different wage scale than salespersons in other departments. It also distinguished the sale of shoes from that of other merchandise, claiming that shoe salespersons needed different skills and training and that many of them had significant prior experience selling shoes before their hire. Shoe salespersons also made minimal sales of other merchandise and transfers of salespersons from other departments to shoes were uncommon.

It did not matter that sales employees across all departments were subject to the same personnel policies, including health benefits, vacation and holiday policies, evaluations, probation, or use of a common cafeteria. Interestingly, the regional director concluded that salespersons of men’s shoes should not be in the unit because men’s shoes were sold in the men’s section of the department store located across the street and there was allegedly little association between the men’s and women’s shoe salespersons despite access to a common cafeteria.

The decision also analyzed Specialty Healthcare’s Footnote 29, which stated that Specialty Healthcare was not meant to disturb special industry presumptions and occupational rules. There is, of course, a longstanding presumption in the retail industry that the appropriate unit is store-wide. While recognizing that industry presumptions must still be followed after Specialty Healthcare, the regional director rejected the retail industry presumption. Instead, the director relied upon isolated retail cases, including those with stipulated units and those finding that appropriate units consisted of all salespersons, as opposed to only those who sell particular merchandise. Thus, as long as an exception allowing a smaller unit can be identified in a particular industry, even via voluntary approval, employers may not be able to successfully rely on long-established industry practice to challenge a proposed fragmented unit.

Neiman Marcus Group also affirms that in the post Specialty Healthcare world, it is now increasingly difficult for employers to challenge a proposed micro-unit by claiming that there is an “overwhelming community of interest” with a larger employee group. Such an “overwhelming community of interest” exists only where almost every community of interest factor overlaps almost completely. Any perceived difference in job functions or other terms or conditions of employment may justify a bargaining unit of a small employee group.

As a result, employers may find themselves under the obligation to engage in collective bargaining with a multitude of splintered employee groups, in spite of vastly overlapping interests that do not quite rise to “overwhelming” by the Board’s assessment. Cases like Neiman Marcus Group demonstrate that when the Board said in Specialty Healthcare that its decision did not presage any major changes, it wasn’t quite telling the truth, the whole truth and nothing but the truth.