California Assembly Seeks to Limit Employers’ Ability to Require Arbitration of Employment Claims
Legislation: On August 27, 2015, the California Assembly passed a bill that would prohibit most employers from conditioning employment on a employee’s agreement to arbitrate any labor disputes instead of filing claims with state agencies or in court. The bill must be signed into law by Governor Jerry Brown in order to come into effect.
The measure (AB 465) would add a new provision to the California Labor Code and prohibit any person from:
[R]equir[ing] another person to waive any legal right, penalty, remedy, forum, or procedure for a violation of any provision of [the California Labor Code], as a condition of employment, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Labor Commissioner, state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity.
Among other things, the measure would make class action waivers that affect rights under the California Labor Code unconscionable and unenforceable if they are required as a condition of employment. The measure would also make it unlawful for an employer to threaten, retaliate, or discriminate against any prospective employee who refuses to sign such a waiver.
Impact: It is unknown whether Governor Brown will sign or veto AB 465. The California Chamber of Commerce has referred to the measure as a “job killer” and emphasized that it would increase litigation costs for California employers and put even more pressure on the state’s overburdened judiciary by sparking more lawsuits, including class actions, relating to wage and hour issues. Given the strong precedent from the US Supreme Court regarding the validity of arbitration agreements, if enacted, AB 465 will almost certainly be challenged as preempted by the Federal Arbitration Act. Nonetheless, until such a legal challenge is upheld, if AB 465 becomes the law in California, employers that seek to have California Labor Code claims arbitrated will need must be careful to ensure that any agreement to submit claims to arbitration is voluntary on its face and not a condition of employment.
Confidentiality Policies that Apply Broadly to Any Internal Investigation Violate the National Labor Relations Act
Decision: In The Boeing Company and Joanna Gamble, Case 19-CA-089374, August 27, 2015,the National Labor Relations Board upheld an administrative law judge’s 2013 ruling that Boeing’s confidentiality policies violate federal labor law. The Board invalidated Boeing’s original policy, which “directed” employees involved in internal human resources investigations not to discuss those investigations with other employees, as well as Boeing’s revised policy, which only “recommended” that employees refrain from discussing internal investigations with other employees. A split Board concluded that both policies violated employees’ rights to discuss the terms of their employment and to engage in protected concerted activity under Section 7 of the National Labor Relations Act.
Recognizing that an employer’s need for confidentiality might outweigh the impact on the employee’s right to engage in protected activity under “appropriate circumstances”—such as when “witnesses need protection, evidence is in danger of being destroyed, testimony is in danger of being fabricated, and there is a need to prevent a cover up”—the Board determined that the employer must weigh its interests against the employee’s interests in the specific circumstances of each investigation. The employer can direct its employees to maintain the confidentiality of an investigation only if the employer determines that the particular investigation will likely be corrupted without confidentiality. Dissenting Board member Harry I. Johnson III argued that Boeing’s revised policy recommending that employees refrain from discussing internal investigations, without mandating confidentiality or suggesting that discipline could result from doing otherwise, would not interfere with employees’ Section 7 rights.
Impact: The NLRB’s decision is similar in approach to the SEC’s recent sanctioning of KBR for requiring blanket confidentiality in an internal investigation. Employers must be careful in crafting confidentiality policies to target them to protect information recognized as legitimately confidential. While employers can require that employees keep trade secrets or other legally protected information confidential, blanket confidentiality policies are more likely to be found to invade employees’ rights under the Act. And, by invalidating Boeing’s revised policy that only “recommends” confidentiality, this decision demonstrates that even the suggestion that an employee would be prohibited from exercising his Section 7 rights may be enough to invalidate a confidentiality policy. A policy that accounts for the varying circumstances under which an employee might need to maintain the confidentiality of an internal investigation is much more likely to pass muster.
National Labor Relations Board Establishes New Joint Employer Test
Decision: In Browning-Ferris, 362 NLRB No. 186, August 27, 2015, the National Labor Relations Board adopted a new joint employer standard for determining whether an employer may be subject to collective bargaining and other unfair labor practice charges under the National Labor Relations Act. Departing from prior Board precedent and its Airborne Express decision, the Board held that it was no longer necessary for a company to have “direct and immediate” control over the terms and conditions of employment to be a joint employer. Instead, the Board concluded that a joint-employer relationship exists where “two or more entities … are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.” That is, an employer is a joint employer as long as it has the ability to control the terms and conditions of employment (or has any input into those decisions), regardless of actual control.
Impact: Not surprisingly, Browning-Ferris has been described by commentators as a significant setback to the franchisor/franchisee business model. It is also causing concern among companies that use staffing services or that have outsourcing arrangements, as well as among property owners and managers. Under the new NLRB framework, major franchisor corporations may now find themselves forced to sit alongside their franchisee counterparts when negotiating with employees over working conditions, workplace rules, or wage and hour issues. The growing number of companies that rely on staffing agencies to hire staff and handle day-to-day employment issues may find themselves on the receiving end of an unfair labor practice charge over an incident that does not involve their own employees. Although Browning-Ferris represents a significant shift with respect to the joint employer standard, the Board’s pending joint employer case against McDonald’s Corporation—due to be decided sometime in 2016—will establish the true impact of the decision on the franchisor/franchisee business model. In the meantime, employers should proactively review existing franchisor, staffing agency and outsourcing agreements to determine whether they may be considered a joint-employer under the Act, whether the agreements can be adjusted to reduce the likelihood of joint employer status, and the implications that designation may have with respect to bargaining and unfair labor practice allegations.