Why it matters

The National Labor Relations Board (NLRB or Board) ended 2017 with a bang, reversing two prior standards with a pair of employer-friendly decisions. First, the Board overruled the Lutheran Heritage Village-Livonia standard with regard to facially neutral workplace rules, policies and employee handbook provisions. Disavowing the “reasonably construe” standard, the NLRB adopted a new test to consider two things when evaluating a facially neutral provision: the nature and extent of the potential impact on National Labor Relations Act (NLRA) rights, and legitimate employer justifications associated with the rule. That 3-to-2 decision was followed by another split ruling overturning Browning-Ferris Industries on the scope of joint employer liability. Going forward, two or more entities will be deemed joint employers under the NLRA if there is proof that one entity has actually exercised control over essential employment terms of another entity’s employees and has done so directly and immediately in a manner that is not limited and routine.

Detailed discussion

In the first major ruling, the National Labor Relations Board (NLRB or Board) considered The Boeing Co.’s policy restricting the use of camera-enabled devices (such as cellphones) on its property. As a designer and manufacturer of military and commercial aircraft, Boeing performs work that is highly sensitive and sometimes even classified. To protect security, the company has a “no-camera” rule.

As the rule was facially neutral and not adopted to explicitly restrict activity protected by Section 7 of the National Labor Relations Act (NLRA), an administrative law judge (ALJ) applied the test set forth in Lutheran Heritage Village-Livonia. Reasoning that employees would “reasonably construe” the rule to prohibit Section 7 activity, the ALJ struck it down.

Boeing appealed to the NLRB, which reversed, tossing out the Lutheran Heritage standard and adopting a new rule.

“The judge’s decision in this case exposes fundamental problems with the Board’s application of Lutheran Heritage when evaluating the maintenance of work rules, policies and employee handbook provisions,” the NLRB majority wrote. “[W]e have decided to overrule the Lutheran Heritage ‘reasonably construe’ standard. The Board will no longer find unlawful the mere maintenance of facially neutral employment policies, work rules and handbook provisions based on a single inquiry, which made legality turn on whether an employee ‘would reasonably construe’ a rule to prohibit some type of potential Section 7 activity that might (or might not) occur in the future.”

Multiple defects were inherent in the Lutheran Heritage standard, the Board said, beginning with a “single-minded consideration” of NLRA-protected rights without taking into account any legitimate employer justifications associated with policies, rules and handbook provisions. The test also improperly limited the Board’s own discretion and “has defied all reasonable efforts to make it yield predictable results,” the Board added.

As a result, over the past 13 years, the NLRB has invalidated “a large number of common-sense rules and requirements that most people would reasonably expect every employer to maintain,” the Board said. “We do not believe that when Congress adopted the NLRA in 1935, it envisioned that an employer would violate federal law whenever employees were advised to ‘work harmoniously’ or conduct themselves in a ‘positive and professional manner.’”

The NLRB established a new standard in place of Lutheran Heritage for evaluating a facially neutral policy, rule or handbook provision, which requires evaluation of two things: “(i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule. We emphasize that the Board will conduct this evaluation, consistent with the Board’s ‘duty to strike the proper balance between … asserted business justifications and the invasion of employee rights in light of the Act and its policy.”

As a result of this balancing, the Board delineated three categories of employment policies, rules and handbook provisions. Category 1 includes rules that the Board designates as lawful to maintain “either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule.”

Boeing’s no-camera rule fits into this category, the NLRB said, as do other rules requiring employees to abide by basic standards of civility.

In Category 2, the Board fit rules “that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.”

Finally, Category 3 will feature rules that the Board will designate as unlawful to maintain “because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.” An example would be a rule that prohibits employees from discussing wages or benefits with one another.

These categories are not part of the test itself, the NLRB noted, but represent a classification of results from the Board’s application of the new test.

Applying the new standard to Boeing’s no-camera rule, the Board reversed the ALJ’s decision and found that maintenance of the rule did not constitute unlawful interference with protected rights in violation of Section 8(a)(1) of the NLRA.

The dissenting members of the Board offered a stinging rebuke to the majority, arguing that the new test is “overly protective of employer interests and under protective of employee rights,” operating as “a how-to manual for employers intent on stifling protected concerted activity before it begins.”

But the NLRB was only beginning its changes, issuing a second decision that flipped the switch on the legal standard for joint employers.

In 2015, the Board adopted a standard in Browning-Ferris Industries of California, Inc., that even when two entities have never exercised joint control over essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on the existence of “reserved” joint control, or based on indirect control or control that is “limited and routine.”

An ALJ applied that standard in a case involving Hy-Brand Industrial Contractors and Brandt Construction Co. and found the two entities were joint employers for purposes of the NLRA when they terminated a total of seven workers. When the employers appealed to the Board, the NLRB took the opportunity to establish a new test.

“We find that the Browning-Ferris standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations,” the Board majority wrote. “Accordingly, we overrule Browning-Ferris and return to the principles governing joint-employer status that existed prior to that decision.”

The NLRB said that Browning-Ferris rewrote the decades-old test for determining who is the employer, a change that “subjected countless entities to unprecedented new joint bargaining obligations that most may not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts, and picketing.”

The Board found five major problems with Browning-Ferris: (i) It exceeded the NLRB’s statutory authority; (ii) it based its rationale on an incorrect position that present conditions are unique to our modern economy; (iii) it effectively permitted the Board to rewrite the principles of agency; (iv) it abandoned a long-standing test that provided certainty and predictability, and replaced it with a vague and ill-defined standard; and (v) it applied the wrong remedy to a perceived inequality of bargaining leverage in collective bargaining relationships.

In overruling Browning-Ferris, the NLRB reinstated the prior joint employer standard for pending cases and with retroactive application.

“Thus, a finding of joint-employer status requires proof that the alleged joint-employer entities have actually exercised joint control essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine,’” the Board said.

Applying the new test to the parties in the case, the Board found Brandt and Hy-Brand were still joint employers. “Substantial evidence supports a finding that the two entities exercised joint control over essential employment terms involving Brandt and Hy-Brand employees, the control was direct and immediate, and it was not limited and routine,” the NLRB wrote.

Again, two members of the Board dissented from the decision. The case was not a proper vehicle for reconsidering the joint employer standard, the dissenters said, and “the resurrected standard not only is impossible to reconcile with the common law of agency, [but] it also violates the explicit policy of the [NLRA]: to ‘encourag[e] the practice and procedure of collective bargaining.’ Today’s decision is an unfortunate and unwarranted step backward.”

To read the decision and order in The Boeing Company, click here.

To read the decision and order in Hy-Brand Industrial Contractors, Ltd., click here.