U.S. Supreme Court’s Epic Decision Validates Class Action Waivers

On May 21 the U.S. Supreme Court resolved the question whether the National Labor Relations Act prevents an employer from enforcing an employee’s contractual waiver of the right to sue the employer on a class or collective basis. In a 5-4 decision, the Court held that arbitration agreements requiring the processing of claims one-by-one and prohibiting class actions must be enforced, and neither the Federal Arbitration Act’s saving clause nor the National Labor Relations Act “permits this Court to declare the parties’ agreements unlawful.”  Epic Systems Corp. v. Lewis; Ernst & Young v. Morris; NLRB v. Murphy Oil USA, Inc.

In each of these three cases, the employee signed a contract mandating the resolution of workplace disputes through arbitration on an individualized basis, and later brought collective action claims under the Fair Labor Standards Act for unpaid wages.  In seeking to void their class action waivers, the employees relied on the NLRB’s 2012 decision in D. R. Horton, Inc. and also argued that the FAA’s savings clause allowed the Court to deny enforcement of the arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”

In the D. R. Horton case, the NLRB ruled that the NLRA effectively nullified the FAA in cases where an employer seeks to compel arbitration of employee claims on an individual basis only, by expanding the definition of “concerted activity” to include the right to bring a class or collective action. The NLRB ruled that an agreement not to bring a class or collective action is unenforceable as violative of the NLRA, even though waivers of other NLRA rights are enforceable.

The Court majority rejected the NLRB’s holding and held that the NLRA focuses on the rights to organize unions and bargain collectively. The Court commented that it “has never read a right to class actions into the NLRA – and for three quarters of a century neither did the [NLRB].” Justice Gorsuch, writing for the majority, reasoned that it is “pretty unlikely” that the NLRA was intended to protect the right to bring class or collective actions, especially since the NLRA makes no mention of them, and as recently as 2010 the NLRB’s General Counsel opined that the NLRA does not protect these rights.

The Court also relied on the FAA’s policy favoring arbitration agreements and legal precedent acknowledging the “unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.” To hold all such provisions unenforceable, the Court stated, would cause arbitration to “wind up looking like the litigation it was meant to displace.”

This sweeping decision will likely eliminate some of the reservations and indecision that the employer community has had regarding including in their new employee orientation paperwork agreements requiring arbitration of employment-related claims on an individual basis only.

For more information regarding the value that mandatory arbitration agreements and class action waivers may add to your organization and how to design and roll out arbitration procedures that will survive legal challenge, please contact one of the Partners in the firm’s Labor Law Practice Group: James J. McGovern III, Esq., at jmcgovern@nullgenovaburns.com, Patrick W. McGovern, Esq., at pmcgovern@nullgenovaburns.com, Douglas E. Solomon, Esq. at dsolomon@nullgenovaburns.com, or John R. Vreeland, Esq., at jvreeland@nullgenovaburns.com  — or call us at 973.533.0777.

The D.C. Circuit Vacates NLRB Ruling on Driver Status in FedEx Case

In early March 2017, the D.C. Circuit in FedEx Home Delivery v. NLRB, 2017 U.S. App. LEXIS 3826 (D.C. Cir. 2017) vacated a National Labor Relations Board (“NLRB” or “the Board”) ruling that Connecticut FedEx drivers constitute employees under the National Labor Relations Act (“NLRA”). The D.C. court said that the case was indistinguishable from a 2009 case before the panel involving a group of Massachusetts drivers.

In 2007, single-route FedEx drivers based in Hartford, CT elected Teamsters Local 671 (“Union”) to represent them which lead to FedEx filing subsequent objections to the NLRB. While the appeal was pending, the D.C. Circuit decided FedEx Home Delivery v. NLRB (FedEx I), 563 F.3d 492 (D.C. Cir. 2009), finding that FedEx drivers based out of the company’s Wilmington, MA terminal constituted independent contractors under the NLRA. In its holding, the court vacated the NLRB’s order to engage with the union and denied the Board’s cross-motion for enforcement. The court held that the NLRB was bound to apply the common-law ten factor agency test as set forth in the Restatement (Second of Agency), but explained that rather than a control inquiry, that the emphasis of these factors should be on  “entrepreneurial opportunity” for gain or for loss as it relates to the determination of a worker’s status.  FedEx identified three specific entrepreneurial opportunities available to the drivers: (1) drivers’ ability to hire other drivers; (2) drivers’ ability to sell routes; and (3) drivers’ ability to operate multiple routes.  Persuaded by these arguments, the court held that the FedEx drivers were independent contractors.

In 2014, the NLRB issued a revised decision in FedEx Home Delivery, 361 N.L.R.B. No. 55 (Sept. 30, 2014) which found that the facts pertaining to the Hartford drivers and those discussed in FedEx I were “virtually identical.” Still, however, the NLRB declined to adopt the D.C. Circuit’s 2009 interpretation of the NLRA because it disagreed with the court’s emphasis on “entrepreneurial opportunity” as the key factor in determining a worker’s status. Specifically, it said that the Board should give weight to actual, not merely theoretical, entrepreneurial opportunity, and it should evaluate the constraints imposed by a company on the individual’s ability to pursue that opportunity. Moreover, it noted that FedEx unilaterally drafts, promulgates, and changes the terms of its agreements with drivers, a feature that weighs “heavily in favor of employee status” along with the Board’s view that the drivers lacked independence and were disallowed the initiative and decision-making authority normally associated with an independent contractor   The Board also found that FedEx engaged in unfair labor practices affecting commerce under the NLRA by refusing to recognize and bargain with the union.

In the present case, FedEx argued that the question had already been argued before the D.C. Circuit in FedEx I and involved the same parties, thus the same result should follow. The court agreed and denied the Board’s cross-application for enforcement, granted FedEx’s petitions for review, and vacated the Board’s orders. The D.C. Circuit noted that in FedEx I, the Board considered all common-law factors and was still persuaded that the drivers were independent contractors. The court also noted that the U.S. Supreme Court previously held that that the question whether a worker is an “employee” or “independent contractor” under the NLRA is a question of “pure” common-law agency principles that a court can review and does not require special administrative expertise.

The takeaway for employers is that in determining whether workers are employees or independent contractors, employers must remember that despite significant overlap, there are in fact different tests as related to the NLRA, federal taxes, the Fair Labor Standards Act, state wage and hour law, ERISA, the Affordable Care Act, and various other circumstances.  While the D.C. Circuit has for the moment clarified (or rather reinforced) its view as to the proper test under the NLRA, employers should always focus on where their greatest liability is and attempt to cater to the relevant test as much as possible.

For questions about independent contractors or trucking and logistics, please contact John Vreeland, Esq., Chair of the Transportation, Trucking & Logistics Group and a Partner in the Labor Law Practice Group at jvreeland@nullgenovaburns.com or (973) 535-7118, or, Harris S. Freier, Esq., a Partner in the Firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or (973) 533-0777. Please also sign-up our free Labor & Employment Blog at www.labor-law-blog.com to keep up-to-date on the latest news and legal developments effecting your workforce.

Third Circuit Deals Blow to Jersey City Ordinance Requiring PLAs on Privately Funded Projects in Exchange for Tax Abatements

Jersey City’s Municipal Code offers real estate developers generous tax exemptions that are designed to spur the City’s economic growth, but the tax incentives have strings attached. Specifically, to receive a tax exemption, even on a privately funded project, the developer must agree to use the City-approved project labor agreement (“PLA”), which is a pre-hire agreement that favors unionized contractors and subcontractors. On September 12, 2016, the Third Circuit Court of Appeals reinstated claims against Jersey City that its tax exemption ordinance mandating PLAs is preempted by the National Labor Relations Act and the Employee Retirement Income Security Act, and violates the dormant Commerce Clause of the U.S. Constitution. Now the case returns to the District Court for a determination whether Jersey City’s PLA requirement is unlawful. The Court was careful to explain that its ruling has nothing to do with public construction projects, and is limited to the City’s attempted regulation of privately funded projects. Associated Builders and Contractors v. City of Jersey City, No. 15-3166 (3rd Cir. Sept. 12, 2016).

By imposing the PLA requirement on privately funded projects that sought tax abatements, the Third Circuit found that Jersey City “require[d] that an employer negotiate with a labor union and that all employees be represented by that labor union as part of the negotiations— even if the developers, contractors, and subcontractors do not ordinarily employ unionized labor and the employees are not union members.” In addition, the City’s standard PLA requires that employers and unions agree not to strike or lock-out during construction, and agree to sponsor or participate in apprenticeship programs.

The Court of Appeals found that the three laws allegedly violated by Jersey City’s ordinance — the NLRA, ERISA and the Commerce Clause — “share the same threshold requirement before their constraints are triggered: that the allegedly unlawful act by the state or local government be regulatory in nature,” as opposed to action by a market participant. The Court determined that Jersey City is not a market participant because the City “is not selling or providing any goods or services with respect to Tax Abated Projects, nor acting as an investor, owner, or financier with respect to those projects.” Invoking Supreme Court precedent, the Court rejected the City’s claim that offering tax abatements gives the City a proprietary interest in the project. The Court found that the City acted instead as a market regulator and since the ordinance strips employers and employees of the economic weapons of strikes and lockouts, and relates to employee benefit plans, the City’s ordinance may indeed be preempted by the NLRA and by ERISA. Finally, by enacting “regulatory measures designed to benefit in-state economic interests by burdening out of state competitors,” the ordinance arguably violates the dormant Commerce Clause.

Absent a request for rehearing or a petition for rehearing en banc, this case will return to the District Court for a determination whether the PLA requirements in the City’s tax exemption ordinance are enforceable. The larger questions are whether PLAs now in place on privately funded projects in Jersey City will remain in effect and, if not, whether this affects developers’ tax exemptions. Also an open question is whether the Third Circuit’s decision affects similar tax exemption ordinances in other municipalities that impose PLA requirements. Questions relating to this important decision and the path forward for developers in Jersey City and elsewhere in the state may be directed to any partner in our firm’s Labor Law Practice Group – James McGovern III, Patrick McGovern, Douglas Solomon, and John Vreeland.

NLRB Sets the Example for Sound Social Media Policies

The National Labor Relations Board (“NLRB”) recently issued its Third Report on social media cases. In doing so, it emphasized the importance of clarifying permissible and prohibited conduct through the use of examples. By using examples in this context, employers can avoid situations where an employee can reasonably interpret the social media policy as restricting Section 7 rights under the National Labor Relations Act (“NLRA”) which protects protected concerted activity when employees communicate with one another to discuss the terms and conditions of their employment. Moreover, providing examples can prevent a social media policy from being found to be overbroad.

In its review of social media cases, the NLRB Third Report cites many instances where policies were found to violate the NLRA because they did not include clarifying examples. For instance, a policy that instructed employees to not release confidential information regarding guests, team members or the company was impermissible because there was no limiting language or context to assure employees that Section 7 rights were not restricted. In addition, a policy instructing employees to ensure that posts were accurate and not misleading was overbroad because it could be interpreted to prohibit employee discussions about working conditions and did not provide examples of the prohibited conduct.

However, the NLRB Third Report pinpoints a few instances where policies that were otherwise overbroad were nevertheless found to be lawful due to the inclusion of clarifying examples. A policy prohibiting harassment, bullying, discrimination, and retaliation between co-workers in the workplace and online (even if it was after work hours) was found to be permissible because a list of prohibited conduct was provided, and included only plainly egregious activity. Finally, the NLRB found that Wal-Mart’s social media policy was valid in its entirety, and attached the entire policy to the report as an “example” of how “examples” can be used effectively to prevent a social media policy from being overbroad or interpreted as infringing upon Section 7 rights under the NLRA.

If you need assistance regarding an existing social media policy or with developing a new social media policy, please contact Joseph M. Hannon, Esq., jhannon@nullgenovaburns.com or Brett M. Pugach, Esq., bpugach@nullgenovaburns.com, in the Labor Law Practice Group.

NLRB Posting Requirement Tied Up in Court and Delayed to April 30, 2012

Multiple court challenges continue to delay the effective date of the National Labor Relations Board rule approved in August 2011 requiring an employer to post a notice informing employees of their rights under the National Labor Relations Act. The requirement initially was to take effect in November 2011 but was delayed to January 2012 and further delayed to April 30, 2012. The latest postponement was requested by Judge Amy Berman of the United States District Court for the District of Columbia in connection with a lawsuit filed by the National Association of Manufacturers and other employer advocate groups.

The posting requirement requires private-sector employers specifically to post a notice informing employees of their rights to join a union, bargain collectively through union representatives for a contract with their employer, and discuss wages and benefits with co-workers or a union. The employer community argues in the court challenges that the Board’s jurisdiction is limited to cases where unions are trying to organize employees or an employer has been charged with an unfair labor practice. The suits also argue that the NLRB exceeded its statutory authority by making failure to post the notice an unfair labor practice, with no basis in the NLRA for doing so.

In January 2012 plaintiffs in the District of Columbia suit argued that the NLRB lost its authority to implement and enforce the challenged rule when the term of Board member Becker expired and President Obama made three recess appointments to bring the Board up to its full complement of five members. Plaintiffs argue that the President’s three recess appointments were unconstitutional and claim that as a result, there are only two lawfully appointed Board members, which prevents the NLRB from implementing the rule. With the outcome of the litigation challenging the NLRB posting rule still hard to predict, employers should continue to monitor the status of the rule and be prepared to comply by April 30, 2012 if the Board prevails in the litigation.

If you have any questions about this imminent posting requirement, feel free to contact Patrick McGovern, Esq. or John Vreeland, Esq. in our Labor Law Group.