On December 14, 2017, the National Labor Relations Board (the “Board”) issued a 3-2 decision in The Boeing Company, overturning the standard for evaluating facially neutral employee handbook policies under the National Labor Relations Act (the “Act”). In replacing the previous standard, the Board articulated a new employer-friendly balancing test that provides significantly more predictability as to when an employment policy violates the Act.

In Lutheran Heritage Village-Livonia, the Obama-era Board expanded its power to find employment policies unlawful if those policies could be “reasonably construed” by an employee to prohibit the exercise of any right granted to employees under Section 7 of the Act, including the right to engage in concerted activities. The Board has used this standard to invalidate a variety of facially neutral employment policies, including policies concerning social media, civility, recording and confidentiality.

Critics and commentators have stated the Lutheran Village standard was “unworkable” and made most employment handbooks unlawful. This standard often led to arbitrary results and invalidated policies that were intended to be a positive addition to the workplace environment, such as civility policies meant to foster “harmonious interactions and relationships” between employees. 

In Boeing, the Board abandoned the standard for employment policies set by Lutheran Heritage and articulated a new test for determining the validity of facially neutral handbook policies. The new balancing test weighs “(i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications for the rule or policy.” A slight or tangential impact on protected rights will no longer invalidate a rule where an employer has articulated a legitimate business interest. In Boeing, for example, the Board evaluated a “no-camera” policy, which strictly prohibited employees from taking pictures or video in the facility without prior approval. The Board found that while the policy might have a slight impact on concerted activity (i.e., a policy that would prohibit employees from photographing workplace protests, but would not prohibit the underlying protest), Boeing’s justifications for the rule—including protecting proprietary information, complying with federal contractor requirements and protecting national security—substantially outweighed the slight impact on concerted activity.

To provide further clarity going forward, the Board in Boeing articulated three categories of employment rules or policies:

• Category One rules or policies are always lawful. Such a rule or policy either: (1) when reasonably interpreted, does not prohibit or interfere with an employee’s rights under the Act; or (2) is supported by legitimate business interests that outweigh any potential adverse impact on protected rights under the Act. The Board specifically included civility policies within this category.
• Category Two rules or policies require individualized, case-by-case scrutiny to determine their lawfulness.
• Category Three rules or policies are always unlawful. These rules prohibit or interfere with employees’ rights under the Act, and have an adverse impact on employees’ rights that is not outweighed by the employer’s justification for the rule. An example of a category three policy would be a policy that prohibited employees from discussing wages or benefits with each other.

This new standard should bring a new level of predictability and reasonableness to determining whether employment policies violate the Act. Going forward, employers should ensure any policies that may potentially infringe on any employee rights under the Act, including the right to engage in concerted action, are justified by a legitimate business reason. Policies that were rescinded or “watered down” under the Lutheran Heritage standard—such as civility, confidentiality or social media policies—may be revived if the employer can articulate a legitimate business reason for such a policy. Of course, employers should always apply all employment policies consistently, as application of even a lawful policy to employees who have engaged in protected conduct still may violate the Act depending on the circumstances.

National Labor Relations Board Reestablishes Prior Test for Joint Employer

On December 14, 2017, the National Labor Relations Board (the “Board”) issued a determination in Hy-Brand Industrial Contractors that overruled an Obama-era interpretation of the joint employer doctrine that had greatly expanded potential liability for violations of the National Labor Relations Act (the “Act”). In a 3-2 decision, the Board concluded the indirect control test for determining joint employment liability articulated in Browning-Ferris was “ill‑advised as a matter of policy” and returned to long-standing precedent requiring direct control before an entity is deemed a joint employer for purposes of determining liability under the Act.

Before 2015, the Board had long held a non-employing entity must have exercised “direct and immediate control” over the essential employment terms governing another entity’s employees before joint liability would apply. In Browning-Ferris, the Board overruled this well-established precedent and dramatically expanded the joint employer standard. Browning-Ferris eliminated the requirement that an alleged joint employer exercise actual, direct control over workers and instead held the mere right to control was sufficient to establish joint employer liability, even if that right was never exercised. 

With two new Republican appointees, the Board in Hy-Brand overruled the Browning‑Ferris standard and reestablished the previous rule for determining joint employer liability. Specifically, an entity may not be held liable for a violation of the Act unless the entity actually exercised control over essential employment terms.  

In its decision, the Board articulated five reasons for overruling Browning-Ferris and reestablishing the prior rule:

• The Board exceeded its statutory authority under the Act when it expanded the definition of joint employer
• The Board relied on an incorrect view of our current economy and, as a result, created an overreaching definition of “employer”
• The Board modified the standard in a way that only Congress may
• The decision created confusion and instability in labor relations by abandoning long‑standing precedents regarding the identity of an “employer”
• The decision was an incorrect remedy for bargaining equality in employment

In all future and pending cases, two or more entities will be joint employers under the Act only if one entity has actually exercised control over the essential employment terms of another entity’s employees and has done so directly and immediately in a manner that is not limited and routine. The return to this standard provides employers more protection and allows them more effectively to assess the risk of exposure for potential violations of the Act when structuring business relationships. The decision should be particularly favorable to franchise entities, staffing agencies and general contractors, all of which faced increased scrutiny under Browning-Ferris. Importantly, while Hy-Brand provides a significant reprieve for employers facing liability under the Act, the decision does not alter the test for determining joint liability under other state or federal laws.

If your organization has questions regarding the impact of these rulings, please contact your Kutak Rock LLP attorney or a member of our Employment Litigation Practice Group.