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December 2011

Hot Topics in LABOR LAW REPORTS:

Board publishes final rule amending election process

The NLRB announced on Wednesday, December 21, that it has adopted a final rule amending its election case procedures. Effective April 30, 2012, the final rule is intended to reduce unnecessary litigation and delays in the representation election process and will be published in the Federal Register on Thursday, December 22. The U.S. Chamber of Commerce immediately filed a lawsuit to block the final rule, calling it a “huge gift to organized labor.”

The final rule focuses mainly on the NLRB’s procedures in the minority of cases when parties are unable to agree on issues such as when a petitioned-for unit is appropriate. In those cases, the Board has decided that the dispute will go to a hearing in a regional office; the NLRB Regional Director will decide the matter and, if appropriate, set an election. The new rule slightly alters the procedure by limiting the hearing to issues that are relevant to the question of whether an election should be conducted. The hearing officer will have the sole authority to limit testimony to relevant issues and to decide whether or not to accept post-hearing briefs.

Further, under the final rule, once the Regional Director has made the decision, all appeals of that decision to the Board will be consolidated into a single post-election request for review. This changes the current procedure under which parties can appeal regional director decisions to the Board at multiple stages in the process. In addition, the final rule makes Board review of the Regional Directors’ decisions discretionary.

These amendments to the process passed 2-1 in November, with Chairman Mark Gaston Pearce and Member Craig Becker voting in favor of the rule, and Member Brian Hayes voting against proceeding with publication of a final rule. Hayes will have the opportunity to publish a separate dissent before the effective date of the final rule.

In it announcement of the final rule, the Board noted that recently, approximately 10 percent of the Board’s election cases have gone through the hearing process. In those cases, elections took place an average of 101 days after the election petition was first filed. Those delays, said the Board’s chairman, necessitated the rule change.

“This rule is about giving all employees who have petitioned for an election the right to vote in a timely manner and without the impediment of needless litigation,” said Chairman Pearce.

The Board has been criticized for speeding through its process, despite its two public hearings and the solicitation of more than 60,000 comments. Pearce has said that the Board needed to proceed with these changes now, given the likelihood that the Board will be down to two members in 2012, depriving it of its ability to issue orders and decisions or to engage in rulemaking. Last week, President Barack Obama nominated Sharon Block and Richard Griffin as Members to the Board, but they, like their Republican counterpart Terrence Flynn, are unlikely to receive a vote, as Senate Republicans have the ability to block any confirmation vote.

The unlikelihood of a confirmation vote was underlined by Representative John Kline (R-Minn), the Chairman of the US House Committee on Education and the Workforce. Kline accused the Board of “ignoring the will of Congress” in issuing the rule, referring to the Workforce Democracy and Fairness Act passed by the Republican-controlled House. The Act would bar many of the reforms that the Board is trying to effect. He called on the Senate to pass that legislation, but most observers believe that the Democratic-controlled Senate will not schedule a vote on the measure.

Ranking member of Senate HELP committee says he will challenge NLRB election reforms under Congressional Review Act

Following the release of a final rule last week by the NLRB that amended its representation election processes, Senator Mike Enzi (R-WY), the Ranking Member on the Senate Health, Education, Labor and Pensions (HELP) Committee, said that he plans to challenge the rule under the Congressional Review Act (CRA), which allows the House or Senate to introduce a joint resolution of disapproval preventing federal agencies from enforcing their rules.

In a statement, Enzi accused the NLRB of promulgating the new rule to allow “union bosses to ambush employers with union elections.” Enzi contends that the rule, which shortens the pre-election process by, among other things, doing away with mandatory Board review of challenges, will deprive employers of the opportunity to present their case to their employees.

Enzi was not alone in his near-immediate challenge to the Board’s ruling. The U.S. Chamber of Commerce filed a lawsuit to stop the rule.

Board postpones effective date of notice posting rule

The NLRB on Friday, December 23, announced that it has postponed the effective date of its employee rights notice-posting rule until April 30, 2012. The decision to postpone the effective date resulted from a request by the federal court in Washington, D.C. that is currently hearing a legal challenge regarding the rule. The Board said that it expects that by delaying the date, it will allow for “the resolution of the legal challenges that have been filed with respect to the rule.” The new implementation date is April 30, 2012.

Flurry of NLRB-related activity sparks furious responses

On Wednesday, November 30, the NLRB ruled 2-1 to amend several of its election procedures. Later that day, the US House of Representatives voted, in party-line fashion, to severely limit the Board’s ability to make such changes. The competing actions serve as a snapshot on the battle that has erupted between the NLRB and the Republicans in Congress and battle lines have quickly been drawn.

Unions and their Democratic allies praised the Board for its decision to amend its election rules to do away with delays in the process. Joe Hansen, International President of the United Food and Commercial Workers (UFCW) Union, contended that the proposed rules “would be a modest but important first step toward fixing a broken process that favors CEOs over workers.” Hansen insisted that too many employers delay the process through “frivolous litigation and other procedural tactics,” resulting in “an unfair election or no election at all.”

Hansen then turned his attention to the House vote on the Workplace Fairness and Democracy Act, calling it “the latest act by a party more committed to denying the rights of workers to stick together than fixing the economy and creating jobs.” Hansen pointed out that the bill is not expected to pass the Senate.

Mary Kay Henry, President of the Service Employees International Union (SEIU), joined Hansen in his condemnation of the bill, calling it “an absurd piece of legislation that illustrates just how tone deaf some Members of Congress are to the jobs emergency in our country.” She further suggested that the recent vote in Ohio to overturn that state’s collective bargaining law that stripped collective bargaining rights from most public employees shows that Americans favor collective bargaining and workers’ rights.

One of the union’s top allies in the House, Representative George Miller (D-CA), blasted the passage of the bill, saying that it will “dramatically weaken workers’ right to a free and fair union representation election.” Miller noted that while the bill mandates that no election may take place sooner than 35 days after the filing of a petition, the bill offers no deadline for when an election must take place.

The bill’s main sponsor, Committee on Education and the Workforce Chairman John Kline (R-Minn), disagreed with Miller’s negative assessment, saying that the bill is a “critical step” in defending the rights of workers and employers.

Kline also attacked the Board for approving the amendments to the election rules, calling the resolution an “ambush elections scheme.”
The National Association of Manufacturers agreed with Kline, saying that the resolution amending the Board’s election rules is not as harmless as it first might appear.

In a statement on its blog, the NAM contends that the Board majority ignored its own precedent in approving the resolution with only three votes and calling the resolution “a wolf in sheep’s clothing.” The NAM also said that the House bill is “critical” to halting that ill-advised rule in its tracks.

Acting General Counsel ends Boeing case

NLRB Acting General Counsel Lafe Solomon has announced that his office has approved the withdrawal by the International Association of Machinists of the unfair labor practice charge brought against The Boeing Company, bringing an end to one of the most controversial actions by the Board in recent years.
The Machinists asked to be allowed to withdraw the charge one day after its members ratified a four-year collective bargaining agreement earlier this week. Following the request, the ALJ presiding over the case dismissed the complaint and remanded the case to the Board’s regional office in Seattle for further processing.

Solomon stated that the settlement was “the outcome we have always preferred, and one that is typical for our agency.” He noted that approximately 90 percent of “meritorious” NLRB cases are resolved through settlements before litigation even begins. He also said that the instant settlement guarantees the mutual success of the parties.

Machinists ratify Boeing contract; NLRB likely to drop complaint

Members of the International Association of Machinists have ratified a four-year contract extension with The Boeing Complaint, bringing a likely end to the ongoing strife between the union and employer that led to a highly controversial NLRB complaint against the airline manufacturer.

“I’m confident we’ve turned an important corner in the 76-year relationship between Boeing and the IAM,” said IAM Vice President Rich Michalski. “Both sides are committed to maintaining the high levels of communications and cooperation that produced this agreement.”

The contract places production of the 737 MAX in Renton and provides for annual wage and pension increases in each of the four years of the agreement. In addition, the members will get a one-time $5,000 ratification bonus. The contract also introduces an incentive pay plan for hourly employees, based on performance to metrics tracking safety, quality and productivity and makes improvements in key health care benefits for the unit members. The extension prolongs the current contract until 2016.

The airline declared that the contract shows the willingness of both sides to work together. Jim Albaugh, president and CEO of Boeing Commercial Airplanes, said that the deal “reflects an effort on the part of the company and the union to find a better way to work together and achieve common ground.”
The deal is also expected to bring an end to the NLRB’s complaint against Boeing, a complaint that drew heavy criticism from the Board’s political critics.
“I have contacted the NLRB to advise them of the ratification results and requested they initiate the appropriate steps to withdraw the complaint without delay,” said Michalski.

Issa will not end investigation into NLRB’s handling of Boeing matter

The House Oversight Committee. The end of the NLRB’s complaint against the Boeing Company will not end the U.S. House Oversight Committee’s investigation into the Board, according to a report in the Charlestown Regional Business Journal. The outlet is reporting that the Committee Chairman, Darrell Issa (R-CA) has informed the Board that its investigation into the Board’s handling of the Boeing matter will continue in order to ensure that the complaint was not an attempt by the Board to give leverage to the Machinists union in its negotiations with the airplane manufacturer.

NLRB Inspector General investigating reports that outside actors tried to get Member Hayes to resign

NLRB. According to a report published in Politico, the NLRB’s Inspector General, Dave Berry, has opened an investigation into whether outside actors attempted to persuade NLRB Member Brian Hayes to resign. The purpose of the resignation would have been to halt the Board’s efforts to reform its election processes, but had Hayes resigned, it would have also stopped all Board business, such as the issuance of orders and decisions, in its tracks. The investigation was initiated by Representative George Miller (D-CA), who expressed concerns that unnamed persons had attempted to influence Hayes to resign in order to block the Board from issuing decisions and rulemaking seen as favorable to unions.

Board issues final rule detailing delegation of authority in event of two-member Board

The NLRB, on Wednesday December 14, will publish a final rule in the Federal Register detailing its delegation of authority in the event of a two-member Board.

Board Chairman Mark Gaston Pearce has grown increasingly pessimistic that the U.S. Senate will confirm either of President Barack Obama’s nominees to the Board. Under the U.S. Supreme Court’s decision in New Process Steel v NLRB, the Board, in such an event, would be unable to conduct business once the recess appointment of Member Craig Becker expires on December 31, 2011. In advance of that date, the Board promulgated proposed rules intended to facilitate the delegation of some of its authority. The rule to be issued tomorrow will make those rules final.

Under the final rule, the Board will refer all motions for default, judgment, summary judgment, or dismissal to its chief administrative law judge. Ruling by the chief ALJ cannot be directly appealed to the Board, but the Board will consider exceptions to the ruling if those exceptions are included in a statement of exceptions. Similarly, the Board will defer all requests for special permission to the chief ALJ and all administrative and procedural requests to the executive secretary; both of those individuals will have the authority to issue rulings on such requests.

Board final rule does away with automatic impounding of ballots in representation cases during periods of two-member boards

The NLRB on Friday, December 30, will publish a final rule eliminating, during periods in which the Board has less than three members, the automatic impounding of ballots when the Board has not acted upon a request for review. The final rule is an addendum to a final rule issued on December 14 that set forth the processes under which two-member boards will operate.

The US Supreme Court ruling in New Process v NLRB stated that the Board must have a quorum of at least three members in order to conduct business. When the term of Member Craig Becker ends on December 31, the Board will fall below three members and, thus, the Board has been issuing rules that govern how it will operate during such periods.

In the current final rule, the Board revises Section 102.67 of its Rules and Regulations, which currently states that all ballots in representation cases must be impounded whenever the Board has not acted on a pending request for review. However, in the final rule, the Board expresses its concern that the effect of that rule during periods in which the Board lacks a quorum would be to “withhold information” from employers and employees. The Board further notes that the investigation of, and final adjudication on, the merits of the objection would also be delayed. Moreover, if the request for review is denied, as happens in 85 percent of the cases, these delays would serve no purpose.

Therefore, the Board’s final rule states that decisions by Regional Directors on elections shall be final, and that while parties have 14 days from notice of the election to file a request for review, elections shall be directed and conducted regardless of the request. The final rule also states that in any case in which a pending request has not been ruled upon before the Board loses a quorum, those ballots will be impounded. Parties will have the opportunity to request review once the Board regains a quorum.

President announces intent to nominate two to NLRB

On Thursday, December 15, President Barack Obama announced his intent to nominate Sharon Block and Richard Griffin as Members of the NLRB. On the same day, the President withdrew the nomination of Member Craig Becker for a full term. Becker’s recess appointment is due to expire at the end of the year.
Block currently serves as the Deputy Assistant Secretary for Congressional Affairs at the DOL and worked as Senior Labor and Employment Counsel for the Senate HELP Committee from 2006-2009; in that capacity, she worked for the late Senator Edward M. Kennedy. Block also has NLRB experience, thanks to her service to former Chairman Robert Batista as his senior attorney; she also served as an attorney in the NLRB’s appellate court branch from 1996 to 2003.
The second nominee, Richard Griffin, is currently the General Counsel for International Union of Operating Engineers (IUOE). Griffin has been with the union since 1983 and had served in a number of capacities, including Assistant House Counsel and Associate General Counsel. Like Block, Griffin also has NLRB experience, having served from 1981 to 1983 as a Counsel to NLRB Board Members.

The President’s announcement comes roughly two weeks before the recess appointment of Member Becker is due to expire. Once that appointment expires, the Board will be unable to issue decisions and orders, as it will have only two members. Republicans in the US Senate have been unwilling to confirm Terrence Flynn as a Member to the Board and it is unclear whether the two new nominees will fare any better. It is possible, however, that the President nominated Block and Griffin with an eye toward using the recess appointment power to name them to the Board. House Republicans could block that move by remaining in session rather than allowing Congress to adjourn for the holiday break. House Republicans have been holding a series of brief, pro forma sessions to prevent the Senate from adjourning.

In a statement, Richard Trumka, President of the AFL-CIO, praised the nominations, saying that “Dick Griffin and Sharon Block are outstanding choices for the NLRB.”

Republican senators urge president not to make recess appointments to the Board

The 47 Republican members of the U.S. Senate have sent a letter to President Barack Obama urging him not to make recess appointments to the National Labor Relations Board. In the December 19 letter, the Senate Republicans asked the president not to recess appoint Sharon Block and Richard Griffin to the NLRB, but made no promise to hold a confirmation vote for the nominees.

Last week, the president announced that he would nominate Block and Griffin and that he would withdraw the nomination of NLRB Member Craig Becker, who was recess appointed after he failed to be confirmed by the Senate. The Republican senators blocked a confirmation vote on Becker and most observers predict that they will similarly block a confirmation vote on Block and Griffin.

It is the Becker appointment that the GOP members point to as a reason not to recess appoint Block and Griffin. They blamed the recess appointment for “unending controversy throughout Member Becker’s entire term on the Board” and contended that the controversy “has undermined the credibility of the entire NLRB.”

The GOP is under heavy pressure not to confirm any of the president’s three pending nominees to the NLRB. When Becker’s recess term ends on December 31, the Board will fall below its acceptable three-member quorum for issuing decisions and orders and will be unable to take action on pending cases. Many opponents of the Board have urged their political allies to deny confirmation so as to prevent the Board from engaging in what they see as pro-labor activities.

DOL and NLRB funded through 2012, but with strings attached

In the recently passed 2012 fiscal year appropriations bill, the DOL will receive $14.5 billion, while the NLRB will get $278 million. However, both appropriations come with various restrictions on how the nation’s main labor agencies can spend their money.

According to a summary of the massive appropriations bill, the DOL will get $145.4 million more in FY 2012 than it received in 2011, an increase in funding that largely stems from a provision in the appropriations bill that fully funds Job Corps in FY 2012. If the Job Corps funding is removed, the DOL actually gets $545.6 million less than it received last year, and $942.2 million below the president’s funding request. The NLRB’s allocated funds are $4 million less than it received last year, $8.9 million below the president’s budget request.

Despite the cuts, the funding carries restrictions for both agencies that will impact the more controversial items on their regulatory agendas. The NLRB is prohibited from using any of the funds to issue any new administrative directive or regulation that would allow employees to vote in representation elections through electronic means enabling off-site, remote, or otherwise absentee voting. The DOL is barred from implementing its H-2B Wage Methodology for Temporary Non-Agricultural Employment rule, which revises the methodology used to calculate wage rates under the H-2B program that gives visas to foreign workers when qualified U.S. workers are not available and when that employment would not adversely affect the wages and working conditions of similarly employed U.S. workers. That rule is currently the focus of several court challenges. The DOL is also barred from using funds to either implement or enforce its rule on coal dust until independent assessment of the integrity of the data and methodology behind the rule is conducted. The DOL is also barred from using the newly allocated funds to enforce a regulation under the FLSA that subjects automotive service managers, service writers, service advisors, and service salesmen who are “not primarily engaged in the work of a salesman, partsman or mechanic” to minimum wage and overtime requirements.

In addition, OSHA is prohibited from using any of its allocated funds to develop, implement, or enforce a rule that would add a column for Musculoskeletal Disorders (MSD) to the Occupational Injury and Illness Recording and Reporting Requirements form. EBSA is not allowed to use its funds to promulgate a proposed 2010 rule that would revise ERISA’s definition of “fiduciary” for the purposes of rendering investment advice. In September 2011, the EBSA announced that it had decided to repropose this rule.


LEADING CASE NEWS

3rdCir: Unique enforcement scheme of NLRA warrants application of two-part test for Section 10(j) injunctive relief; generic traditional four-part equitable test for injunction rejected

Although a federal district court granted a regional director’s request for interim injunctive relief under Sec. 10(j), the Third Circuit ruled that Supreme Court decisions relied on by the district court involved statutory schemes unrelated to the NLRA, and did not warrant abrogation of its two-prong approach to Sec. 10(j) petitions (Chester v Grane Healthcare Co, December 7, 2011, Vanaskie, T). Rather, the appeals court concluded that the standards that it uses to determine whether injunctive relief would be just and proper is “informed by the policies underlying Sec. 10(j). The two-part test incorporates equitable factors into its analysis that other circuits consider when applying the four-part test to Sec. 10(j) relief.

Background. Prior to January 2010, Cambria County owned Laurel Crest nursing home. As a public employer, the county was subject to the Pennsylvania State Public Employee Relations Act (PERA) and Laborers’ affiliated local union was the collective bargaining representative of its employees. In September 2009, Grane Healthcare, a private entity, entered into a purchase agreement with the county to purchase the facility. On January 1, 2010, Grane assumed operations of the facility. The new employer conducted initial hiring and retained most of the current employees who applied. Among the employees not hired by Grane were several union officers, including the local president and business manager.

In anticipation of the sale, the union requested Grane to recognize it as the exclusive collective bargaining representative of Laurel Crest employees. The employer refused the union request. Thereafter, the union filed an unfair labor practice charge with the NLRB. In May 2010, following an investigation, the NLRB General Counsel issued a complaint alleging that Grane unlawfully refused to recognize and bargain with the union as the representative of bargaining unit employees, and it unlawfully refused to hire union officers who applied for employment. Thereafter, the regional director petitioned for temporary injunctive relief under Sec. 10(j) in the district court. Applying the four-factor test governing preliminary injunctions, the district court granted the interim bargaining order but denied the interim instatement of two union officials. Both parties appealed.

Grane appealed, arguing that the district court erred in concluding that the four-factor test was satisfied. While the regional director contended that the district court erred in rejecting the Third Circuit’s two-part test and applying the four-part test, he also argued that the court erred by declining to grant an interim instatement order.

Standard for relief. The Third Circuit began its analysis by addressing the issue of whether the district court erred in concluding that Supreme Court precedent vitiates its established two-part test for Sec. 10(j) relief. First, the appeals court noted that since NLRB v Hartz Mountain Corp, it has consistently adhered to the two-prong standard — that a district court must merely find “reasonable cause” to believe an unfair labor practice has occurred and must determine that the relief sought is “just and proper.” Other courts of appeal, including the Fourth, Seventh, Eighth and Ninth, have rejected the two-part approach and interpret Sec. 10(j)’s just and proper clause as requiring the traditional four-factor equitable framework courts apply to grant preliminary injunctions pursuant to FRCP 65(a). The First and Second Circuits apply a hybrid standard.

The district court concluded that the Supreme Court’s decisions in Weinberger v Romero-Barcelo and Winter v Natural Resources Defense Council, Inc, require application of the traditional four-part equitable test. It determined that these two decisions suggest courts are to apply the traditional four-factor test in the absence of a “necessary and inescapable” congressional intent to depart from traditional equitable standards. However, the Third Circuit determined that nothing in those decisions present a conflict with its Sec. 10(j) rulings sufficient to enable the appeals court to reverse nearly 40 years of precedent.
The appeals court first noted that neither Romero-Barcelo nor Winter involved statutory schemes analogous to the NLRA. Both cases presented the standard scenario for courts granting injunctive relief. Moreover, nothing in those cases suggested that the Supreme Court contemplated the relatively unusual scenario of interim injunctive relief in the context of a pending unfair labor practice proceeding. Thus, in light of the purposes behind the NLRA, the Third Circuit concluded that the holdings in Romero-Barcelo and Winter did not extend to the Sec. 10(j) context. The NLRA erects a unique statutory scheme that authorizes district courts to grant interim injunctive relief in labor dispute cases over which they have no jurisdiction to decide the merits. This specialized scheme distinguishes Sec. 10(j) injunctive relief from the generic context.

Congress’ clear purpose in creating Sec. 10(j) was not to limit the scope of the NLRB’s authority to decide violations, but to preserve its powers to do so by giving it an opportunity to seek an injunction of alleged violations before an injury becomes permanent or the Board’s remedial purposes become meaningless. Moreover, the Board does not seek interim relief to vindicate private rights, but acts in the public interest. This factor also distinguishes Sec. 10(j) petitions from ordinary preliminary injunction motions. Accordingly, the Supreme Court’s decisions in Romero-Barcelo and Winter were not conflicting authorities that required the Third Circuit to reverse its established precedent.

Merits of petition. Turning to the question of whether the district court erred in granting an interim bargaining order, the Third Circuit ruled that even though the lower court applied the incorrect standard in evaluating the regional director’s Sec. 10(j) petition, it was unnecessary to remand on this issue. The court determined that the undisputed facts showed that an interim bargaining order was plainly warranted under the two-part test. Grane did not dispute that the facts on the record satisfied the standard for substantial continuity, where it hired a majority of its predecessor’s employees and continued the operations of the nursing home. Rather, the employer argued that because the union was certified under state law rather than the NLRA, it could not qualify as an “incumbent union.”

However, the appeals court noted that its task was not to decide the merits of the employer’s arguments regarding successorship principles, but to examine whether the regional director’s legal analysis was “substantial and non-frivolous.” The appeals court found that it had little difficulty concluding the standard was met, and there was reasonable cause to believe the regional director would prevail in establishing that Grane was a successor employer. Thus, there was reasonable cause for the charge that Grane’s refusal to recognize and bargain with the incumbent union was a violation of the Act. Moreover, the court observed that when a successor employer refused to recognize an incumbent union, it “inflicts a particularly potent wound on the union and its members.” An ultimate Board order that Grane recognize the union may be ineffective if the union lost significant support. Consequently, the bargaining order was necessary to preserve the “fruits of the collective bargaining process that otherwise would have been available” to the employees prior to such an order.

With respect to the instatement order, the appeals court determined that there were not sufficient undisputed facts on the record for it to evaluate whether an order should be granted under the two-part test. Consequently, it remanded that aspect of the regional director’s petition to the district court to conduct an analysis of the facts under the two-part test.
The case numbers are 11-2573 and 11-2978.

9thCir: Board must reconsider whether employee’s outburst stripped him of NLRA protections

The NLRB erred in its assessment of one of the four Atlantic Steel factors that it uses to determine whether an employee loses the protection of the NLRA by virtue of obscene, degrading or insubordinate comments, the Ninth Circuit ruled, granting review of a Board order finding that a used car dealership violated the Act when it discharged a salesman following his profane outburst against the company owner (Plaza Auto Center, Inc v NLRB, December 19, 2011, Quist, G). The Board should have given full effect to a law judge’s factual and credibility finding that the salesman’s behavior was menacing or at least physically aggressive, unless “the clear preponderance of all the relevant evidence” convinced the Board that the findings were incorrect, the appeals court noted. Moreover, while the Board’s holding appeared to be premised upon the conclusion that there was no evidence of threatening conduct by the salesman, “[u]nder the Board’s own precedents, obscene, degrading, and insubordinate comments may weigh in favor of lost protection even absent a threat of physical harm,” the appeals court wrote.

Background. The salesman was fired within two months of being hired by a Yuma, Arizona, used car dealership. He complained regularly that, during “tent sales” held in the parking lot at the local Sears, the employer did not allow salesman to take bathroom and meal breaks. He also complained about the fact that the salesmen were paid on a straight commission basis and inquired into whether minimum wage laws were being violated. In addition, the salesman asked the dealership to provide information on the dealer costs of the vehicles that he sold, contending that he was being cheated on his commissions. In response to this steady stream of complaints, the salesman typically was told to go work elsewhere if he didn’t like the employer’s policies.

Finally, during a meeting in the owner’s office, the salesman was admonished for “asking too many questions” and “talking a lot of negative stuff” that would have a detrimental impact on the sales force. The salesman simply countered with more questions about vehicle costs, commissions, and the minimum wage. The owner responded that the salesman had to follow the company’s policies and procedures, that car salespeople normally do not know the dealer’s cost of vehicles, and that he should not be complaining about pay. He then told the salesman that if he did not trust the company, he shouldn’t work there. At that point, the salesman lost his temper and began to berate the owner in a raised voice, calling him a “fucking crook” and an “asshole.” The salesman also said that the owner was “stupid,” that “nobody liked him,” and that his employees talked about him behind his back. During this exchange, the salesman stood up, pushed his chair aside, and said that if the owner fired him, he would regret it. Calling his bluff, the owner fired the salesman.

An NLRB law judge found that the dealership violated Sec. 8(a)(1) several times by inviting the salesman to quit after he engaged in protected protests of working conditions (a finding affirmed by the Board and, in the instant ruling, the Ninth Circuit.) As to the discharge, however, the ALJ concluded that, while he was engaged in protected activity during the meeting, the salesman surrendered the NLRA’s protections by his obscene remarks and personal attacks on the owner. A Board majority reversed on this point. Applying its four-factor Atlantic Steel test, the Board held the salesman’s inappropriate remarks toward the owner were not so severe as to cause him to lose the protection of the Act.

Atlantic Steel factors. The Ninth Circuit accepted in large part the Board’s application of its four-factor Atlantic Steel test. As for the first factor, the place of the offending discussion, the appeals court would not disturb the Board’s finding that this factor favored continued protection because the meeting occurred in the owner’s office away from the workspace and did not affect employee discipline. While the dealership argued that the salesman had requested and initiated the meeting with the intent to humiliate the owner in front of other employees, the court found no support in the record for this contention, or for the employer’s assertion that the salesman’s conduct disrupted its business.

Similarly, the Board’s conclusion that the subject matter of the meeting concerned complaints related to terms and conditions of employment, such as the dealership’s compensation practices, was well supported. The employer argued that while the meeting initially concerned terms and conditions of employment, this was no longer the case once the salesman began to demand to know the dealership’s vehicle costs, which it had no legal obligation to disclose. However, the appeals court found the topic of vehicle costs was closely related to and intertwined with the salesman’s concerns about receiving proper compensation because the salesman had contended that he could only verify that his commissions were correct if he knew what the company paid for the vehicles.

Moreover, the appeals court rejected the employer’s contention that the salesman’s outburst was provoked by the owner’s lawful refusal to disclose the dealership’s vehicle prices. Substantial evidence supported the finding that the tirade was contemporaneous with the owner’s censure of the salesman’s protected complaints as “a lot of negative stuff” and the company’s unfair labor practice of suggesting that he could work elsewhere if he did not like the company’s policies. Thus, there was no basis to segregate the salesman’s offensive conduct from his protected complaints about the dealership’s employment policies and practices. Accordingly, the fourth Atlantic Steel factor — whether the outburst was provoked by an employer unfair labor practice — weighed in favor of continued statutory protection.

The sticking point was the third Atlantic Steel factor: the nature of the actual outburst. The Board ruled that the record did not support a finding that the salesman’s conduct was physically threatening or intimidating and, as such, the nature of the outburst did not warrant a loss of protection. However, the law judge had found that the nature of the conduct weighed against continued statutory protection, describing the outburst as “repeated, extensive, and personally derogatory statements to a supervisor” and thus insubordination, noting further that the salesman used “obscene and personally denigrating” terms that were accompanied by “menacing conduct” and language. Yet the Board seemingly considered the ALJ’s finding immaterial, the Ninth Circuit observed. “Implicit in the Board’s analysis,” the Ninth Circuit noted, was “the suggestion that an employee’s outburst does not factor into the loss of the Act’s protection unless accompanied by physical conduct, or at least a threat that is physical in nature.” But this notion was at odds with the Board’s own precedents, which recognize that an employee’s offensive and personally denigrating remarks alone can result in loss of protection, the appeals court concluded.

Unaccompanied by threats. The Ninth Circuit was persuaded by the reasoning of the District of Columbia Circuit in Felix Industries, Inc v NLRB, a case in which its sister circuit also was called upon to review the Board’s application of this Atlantic Steel factor. In that case too, the Board had found an employee’s conduct was unaccompanied by any threat or physical gestures or contact and, on that basis, held the employee had not lost the Act’s protection. The DC Circuit found this rationale contradicted Atlantic Steel, in which the Board disavowed any rule “‘whereby otherwise protected activity would shield any obscene insubordination short of physical violence.’” Returning to the case at hand, the appeals court pointed out that the Board proffered a similar explanation here. Yet the salesman’s outburst, even if brief, was no less obscene, degrading, and insubordinate than the employee’s outburst in the DC Circuit case, the Ninth Circuit pointed out. “Thus, like the Felix Industries court, we find it necessary to remand this matter to the Board to allow it to properly consider whether the nature of [the salesman’s] outburst caused him to forfeit his protection.”

The appeals court rejected the Board’s assertion that it should nonetheless find that it had properly balanced the factors because it would have reached the same result even if the third factor weighed against protection. The Board’s reasoning in support of that statement was internally inconsistent, the reviewing court noted. After stating that it was adopting the ALJ’s credibility and factual findings regarding the meeting, the Board then proceeded to reject the ALJ’s findings that the salesman’s conduct was “belligerent,” “menacing,” and “at least physically aggressive if not menacing.” In another apparent inconsistency, the Board claimed to rely on the ALJ’s findings in concluding that the outburst did not amount to a threat of physical harm. But the “belligerence” finding was essentially a credibility finding, the court observed. The ALJ expressly determined that the salesman’s testimony on this point was incongruous and “not as believable” as the testimony provided by the employer’s witnesses.

Therefore, although the Board stated that it would have reached the same result even if the nature of the outburst weighed in favor of lost protection, the Ninth Circuit would not take this assertion at face value; it could not be certain that the Board would have reached the same result had it adopted the ALJ’s finding that the salesman’s outburst involved physically aggressive and menacing conduct. As such, the appeals court directed the Board either to reject the ALJ’s credibility and factual findings with a reasoned explanation for doing so, or to adopt those findings in their entirety as to the Atlantic Steel factors.
The case numbers are 10-72728 and 10-73125.

11thCir: Employer’s claim for damages caused by work stoppage in violation of CBA not subject to arbitration

A federal district court erred in dismissing a mine operator’s suit for damages caused by a union-conducted work stoppage that violated the parties’ bargaining agreement without reaching the merits, and holding that the dispute was subject to arbitration, ruled the Eleventh Circuit (Jim Walter Res, Inc v United Mine Workers, December 6, 2011, Hodges, W). The employee-oriented grievance machinery in the parties’ CBA qualified and limited the universe of claims and grievances subject to arbitration, the appeals court found, and the language of the agreement negated the intention that the employer’s claim for damages must be submitted to arbitration.

The employer, a coal mine operator, was under contract with the United Mine Workers as the bargaining representative of its employees. Among the provisions of the CBA was a clause providing for memorial periods not to exceed 10 during the life of the agreement, and a separate agreement provided that the memorial periods would be designated for legitimate reasons. (“Memorial period” was not defined in the contract.) One month, on two separate occasions, the union observed memorial periods away from work. The employer claimed that the work stoppages were not “legitimate” memorial periods. In response, the union asserted that the memorial periods were properly designated to allow members to attend meetings being conducted by the DOL’s Mine Safety and Health Administration. The employer countered that the real motivation for the work stoppages was a workplace dispute at one of its mines concerning work scheduling and other conflicts.

Employee-oriented provisions. The district court granted the union’s motion for summary judgment seeking to compel arbitration of the employer’s damage claims. According to the union, the arbitration provision of the CBA expressed a mutual intention to resolve all disputes and claims without recourse to the courts. Although conceding the contractual commitment, the employer asserted the contractual provision was exclusively employee-oriented, and that the CBA did not provide for arbitration of a claim or grievance brought by the employer.

Observing that this case did not present a novel issue, the Eleventh Circuit first reviewed relevant Supreme Court decisions dating back to the Steelworkers Trilogy. In finding the mine operator’s claim to be arbitrable, the district court relied upon the reasoning of the Second Circuit in ITT World Communications v Communications Workers of America, a case involving similar contractual provisions. In that case, the Second Circuit concluded that an order to arbitrate a labor dispute should not be denied unless it may be said with positive assurance that the arbitration clause was not susceptible of an interpretation that covers the dispute. That is, doubts should be resolved in favor of coverage. However, the Second Circuit approach has recently been the subject of critical comment by the Supreme Court in Granite Rock Co v International Brotherhood of Teamsters, the Eleventh Circuit observed. Accordingly, it was not persuaded to follow ITT World Communications. Instead, the court followed its own precedents in Firestone Tire and Rubber Co v International Union United Rubber, Cork, Linoleum & Plastic Workers and Friedrich v Local Union No 780, IUE, which held that an employer was not bound to arbitrate a claim for damages flowing from an alleged breach of a no-strike clause where “the contractual grievance machinery is wholly employee oriented.” Thus, the appeals court reversed the district court’s grant of summary judgment in favor of the union.
The case number is 10-14086.

DCCir: Employer’s denial of across-the-board wage increase to newly unionized employees did not violate NLRA; appeals court denies enforcement of NLRB ruling that wage hike was established condition of employment

An employer was granted review of an NLRB ruling that it had unlawfully refused to implement a wage increase after its employees became unionized, ruled the DC Circuit Court (Arc Bridges, Inc v NLRB, December 9, 2011, Randolph, A). Examining the employer’s pay practices back to 1992, the appeals court determined that it granted an across-the-board increase in only six of 15 years, so the Board erred when it concluded that annual across-the-board wage increases were an established condition of employment.

Background. The employer, a nonprofit corporation, ran assisted living programs and provided employment counseling and support services for individuals with developmental disabilities. It relied heavily on state and federal funding. Beginning in 2006, a union conducted an organizing campaign that culminated with the election of two bargaining units. In bargaining sessions that yielded little progress, the union demanded a 50-percent wage increase over three years, significant increases in benefits, and other changes. Calculating that such wage and benefits increases would consume more that a quarter of its operating revenues in the first year, and an even greater share in subsequent years, management informed the union that its proposal was a financial impossibility.
In June 2007, the employer had planned to grant all employees a three-percent wage increase, as it had in the two preceding years. Because of ongoing labor negotiations, however, the employer shelved that plan. According to its executive director, the employer feared that a significant disparity between the three-percent increase and the union’s larger demand would provoke a strike. She also was concerned that implementing the increase would leave the employer without funds to meet the union’s remaining demands, and that a unilateral wage increase would expose it to a refusal-to-bargain charge. However, because of high turnover among nonunion employees, the employer decided to grant those workers the planned three-percent hike. When union officials learned of the increase, they immediately asserted that the employer “owed” an identical increase to represented employees. After management refused, the union filed charges with the NLRB.

Initially, an administrative law judge dismissed the complaint. While the Board sustained the ALJ’s factual findings, however, it disagreed with his conclusions. The Board found the employer’s budget review each June and across-the-board wage increase each July amounted to an established condition of employment. Thus, the Board determined that the employer’s refusal to maintain that condition in 2007 was “inherently destructive” of employee rights. To remedy this violation, the NLRB ordered the employer to reimburse each union employee for the increase they should have received.

Enforcement denied. The Board’s decision that the employer’s annual budget review and across-the-board wage hikes (if sufficient funds existed) resulted in a condition of employment was arbitrary and unsupported by substantial evidence, the DC Circuit held. As the employer pointed out, it did not use any particular criteria to determine when to give an increase, or the amount of the increase when it gave one. Moreover, even under the Board’s formulation, there were no objective criteria to determine whether there would be a wage increase. Because the employer gave wage increases when “sufficient” funds were available, the pay hikes were highly discretionary, depending on management’s budget forecasting, its assessment of the economic climate, and its plans for the upcoming fiscal year, as well as other considerations, the appeals court found.

Moreover, the DC Circuit determined that the Board’s decision contained a large evidentiary hole. The employer did not grant wage increases in three of the five years immediately preceding the 2007 wage decision. Between 1999 and 2006 the employer gave either an across-the-board increase or no increase at all. It did grant individual, merit-based increases, or increases to specific groups of employees. Therefore, the evidence did not establish that the employer consistently granted across-the-board pay increases. Rather, the data demonstrated that the employer granted an across-the-board increase in six of 15 years — less than half of the time. As such, there was no way that the Board could have reasonably derived any established pattern or practice by the employer of granting annual wage increases.

With no other evidence in the record to support of the conclusion, the DC Circuit rejected the NLRB’s finding that the employer’s grant of across-the-board increases in 2005 and 2006 was sufficient to establish a term or condition of employment. The Board was not free to discount evidence contradicting its conclusion, ruled the appeals court, in granting the employer’s petition to review the Board’s decision and denying the Board’s petition for enforcement.
The case numbers are 10-1330 and 10-1360.

DCCir: On-site work stoppage by Hilton employees did not enjoy protection of NLRA; NLRB gave too much weight to absence of grievance procedure

A Hilton hotel acted lawfully when it suspended a group of workers for engaging in an on-site work stoppage in support of a union activist who was suspended pending an investigation that he had stolen property from a hotel guest, ruled the DC Circuit (Fortuna Enter, LP v NLRB, December 9, 2011, Randolph, A). Because the NLRB has never quantified the weight to be given to any one of the factors included in Quietflex Manufacturing Co, it erred when it emphasized the absence of a group grievance procedure in its assessment of whether the employees’ protest enjoyed the protection of the NLRA. However, the appeals court enforced that portion of the Board’s order finding that the hotel acted unlawfully by issuing warnings for violations of its facilities use policy, where it “disparately applied” the policy against union supporters.

Background. Following the suspension of the union adherent, a group of between 70 and 100 employees gathered in the staff-only cafeteria seeking to meet with the hotel’s general manager or food and beverage director. The gathering lasted appropriately 90 minutes. When Hilton supervisors learned of the gathering, they advised the employees to return to work or clock out and go home. While a handful of the employees returned to work, the holdouts were suspended. Ultimately, the employees offered to return to work, but management declined the offer, citing the suspensions. All told, 77 protesters were suspended for five days each. The suspensions left Hilton shorthanded.

Three weeks later, two of the work stoppage participants were invited to speak at a meeting of the California Teachers Association being held in the hotel. When management learned of their speech, which occurred during the employees’ lunch breaks, it issued a written warning for violating its facilities use policy. Under that policy, on-duty employees were prohibited from entering the hotel’s public areas without authorization. Three other employees received similar warnings for attending the meeting.

Thereafter, the NLRB’s general counsel issued a complaint based on the suspensions and warnings. After considering the factors mentioned in Quietflex Manufacturing Co, an administrative law judge concluded that the employees’ organizational interests outweighed Hilton’s property rights. The NLRB affirmed the ALJ’s rulings. The Board determined that the length of the work stoppage and the potential for interference with the provision of hotel services made the question of whether the employees lost the protections of the NLRA a close one. However, because Hilton officials failed to make it clear that the employees would not be able to meet with senior management at that time and would have alternative opportunities to present their concerns, the employees did not lose the protection of the Act. The Board also found that Hilton “disparately applied” its policy regarding employees in public areas and that the policy was a pretext to discipline known union supporters.

Quietflex factors. As an initial matter, the DC Circuit concluded that on-site work stoppages may qualify as concerted economic pressure entitled to protection under NLRA Sec. 7. However, the protection is not absolute because on-site work stoppages trench upon employers’ private property rights. The NLRB’s task is to accommodate these competing interests. In Quietflex, the Board offered a list of factors it had “considered” in previous cases “in determining which party’s rights should prevail in the context of an on-site work stoppage.” Here, Hilton asked the appeals court to set aside the Board’s order with respect to the suspensions because its assessment of the Quietflex factors was flawed.

The Board determined that the employees occupied the cafeteria to express support for a coworker to ensure that Hilton would not unfairly target other union supporters for discipline. Hilton’s contention that the occupation was unprotected because it was intended only to seek information failed to appreciate the nature of the employees’ grievance. Rather, the employees gathered to express their shared concern about discrimination against union supporters. Thus, the subject of their concern fell within the NLRA’s definition of a “labor dispute,” agreed the appeals court.

With respect to Hilton’s other arguments, the DC Circuit addressed only “whether the work stoppage interfered with production,” and “whether employees had adequate opportunity to present grievances to management” or access to “an established grievance procedure.” Although the record showed that the work stoppage disrupted some of Hilton’s operations, it did not appear that the “interference-with-production” factor played a significant role in the Board’s ruling, observed the appeals court. The Board adopted the ALJ’s determination that Hilton’s complaint procedure addressed only individual complaints and not group grievances. Moreover, the record supported the finding that Hilton officials suspended the employees without notifying them that a meeting with senior management was not immediately possible or offer a future opportunity to meet. However, the appeals court agreed with Hilton that it did, in fact, have a grievance procedure in place, that was widely known and often used, so that management did not have an obligation to inform the employees that it would hear and consider their concerns in the future.

Hilton had an “open door” policy to handle employee complaints. Although the Board acknowledged the policy, it erred in finding it inadequate on the ground that the policy did not deal with group grievances. That finding was at odds with the text of the policy, which was in no way limited to individual complaints. Thus, the Board’s grievance procedure finding was not supported by substantial evidence.

Facilities use policy. On the other hand, the DC Circuit enforced that portion of the NLRB’s order finding that Hilton acted unlawfully by issuing warnings to employees for violations of its facilities use policy. The appeals court noted that there was no question that the warnings adversely affected the terms or conditions of employment of the five employees. Moreover, it was also clear that Hilton management knew each of the employees engaged in protected union activities. There is no requirement that the employees’ union activities occur on the same day the adverse employment action is taken, observed the court. Consequently, because Hilton stipulated that it knew generally of the employees’ union activities, that fact fully satisfied this standard. Thus, because Hilton did not investigate other violations of the facilities use policy, the hotel’s selective enforcement of the policy against union activists justified the Board’s inference of anti-union animus and also foreclosed any argument by Hilton that it “would have taken the same action in the absence of the unlawful motive.”
The case numbers are 10-1272 and 10-1298.

DCCir: NMB didn’t act in an arbitrary and capricious manner in adopting new rule that union elections will be decided by majority of votes cast

The National Mediation Board did not act in an arbitrary and capricious manner when it issued a new rule specifying that representation elections will be decided by a majority of the votes cast, and those not voting will be understood as acquiescing to the outcome of the election, ruled a divided DC Circuit (Air Transport Assn of America, Inc v National Mediation Board, December 16, 2011, Tatel, D). Here, the appeals court considered and rejected each of the arguments by the Air Transport Association (ATA) that the new rule was arbitrary and capricious because: (1) it was unsupported by “compelling reasons;” (2) the Board arbitrarily disregarded its traditional premise that the old rule promoted labor stability; (3) the new rule was inconsistent with the Board’s treatment of its decertification and run-off procedures; and (4) the Board failed to conduct an evidentiary hearing as precedent required. Judge Karen Henderson dissented.

Background. For 75 years, the NMB counted non-voters in representation elections as voting against union representation, thereby requiring a majority of eligible voters to affirmatively vote for representation before a union could be certified. Previously, the only way employees could vote against union representation was by not voting at all. In 2010, after issuing a Notice of Proposed Rulemaking, holding an opening meeting, and evaluating public comments, the Board changed its approach in several respects. Ballots will now contain a “no union” option so that employees can affirmatively vote against union representation. Moreover, the Board will no longer interpret an abstention as a vote against union representation. Finally, the new rule provides that “a majority of valid ballots cast will determine the union representative.”

In explaining its rule, the Board noted that in the political context, non-voters are assumed to acquiesce in the outcome of elections on the theory that such an assumption better captures what they intend to convey by abstaining. The Board believed that elections conducted under the new rule would better reflect the true intent of non-participants, thus increasing the overall accuracy of representation determinations. The ATA, an organization comprising major air carriers, filed suit alleging that the new rule ran afoul of RLA section 2, Fourth’s plain text because it allows a union to be certified when less than a majority of all eligible voters vote. A federal district court granted summary judgment to the NMB, finding nothing in the RLA unambiguously requiring that a majority of all eligible voters select the representative of the employees, nor does it require that a majority of all eligible employees vote in order for the election to be valid. Additionally, the district court concluded that the Board’s reading of the RLA was reasonable. This appeal ensued.

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The case numbers are 10-5253, 10-5254, and 10-5255.

DCCir: NLRB must explain why it didn’t consider interim earnings when calculating backpay for employees affected by unilateral cut in hours

The NLRB failed to explain why it did not consider the interim earnings of employees who were forced to take second jobs to compensate for earnings lost when their employer unilaterally cut their hours, the DC Circuit Court of Appeals ruled (Deming Hosp Corp d/b/a Mimbres Memorial Hosp v NLRB, December 20, 2011, Brown, R). Although the appellate court did not say that the Board must consider the interim earnings when calculating backpay for employees affected by the employer’s unfair labor practice, it did remand the backpay calculation to the Board for an explanation as to why it did not consider the interim earnings.

The employer unilaterally reduced the hours of certain employees from 40 to between 32 and 36 hours per week. Two employees were forced to take a second job to compensate for the loss of income. A law judge found the employer owed backpay to the employees and held the backpay award should not be reduced by the amount the employees earned in their second job. The Board adopted the findings without further elaboration and ordered the employer to pay. The employer petitioned for review of the Board ruling, arguing that the Board erred in refusing to consider the relevancy of the interim earnings to its backpay calculation.

Interim earnings. The D.C. Circuit held that the Board erred in not explaining why it failed to consider the interim earnings of the affected employees when calculating backpay. The court noted that in FW Woolworth, the Board held that it would not consider the interim earnings of employees who were unlawfully terminated because such consideration encouraged employers to delay reinstatement on the theory that the interim earnings would be used to offset an eventual backpay award. The court also noted that, in Ogle Protection Service, the Board later held that it would consider interim earnings on a quarterly basis when backpay resulted from the employer’s failure to bargain, because employees who were not terminated would likely not be looking for other employment. The appeals court found that Woolworth applied when employees were either laid off or terminated, and Ogle applied when employees were neither laid off nor terminated.

In the instant case, the Board ordered the employer to provide backpay relief, but ignored the employer’s offer of proof that two employees did in fact take other jobs because the “clear language” of Ogle required it not to consider the interim earnings and because it feared that considering the earnings would require employees in the future to “moonlight.” Rejecting both arguments, the appeals court found Ogle’s clear language did not address the instant situation because that case applied to situations in which employees did not take on extra work. Ogle did not, however, state that if the Board was unable to calculate interim earnings on a quarterly basis it could not consider them at all.

The court also rejected the Board’s concern that considering interim earnings would force employees to moonlight. Although victims of unfair labor practices who have not lost their jobs were not required to mitigate damages, the court also noted that there are circumstances under which the Board could be obliged to consider interim earnings. The court suggested that the Board could reduce backpay for non-terminated employees who sought interim earnings, while leaving alone backpay for non-terminated employees who did not seek out interim earnings. Moreover, the Board has considered interim earnings in cases dealing with small reductions in both hours and wages, the court noted further.

Other rulings. The D.C. Circuit next ruled that the Board did not exceed its authority in ordering the employer to provide backpay to employees hired after the unlawful reduction in work hours. While the employer argued that it should not have to provide backpay because the new employees did not experience any change in working conditions, the court ruled that the hours reductions affected the entire department and all workers, including new ones, in that department. Because the reduction caused new employees to suffer a loss of earnings, they also were entitled to backpay.

Finally, the appeals court rejected the employer’s argument that its backpay liability should be tolled to the date on which it offered to resume bargaining, because the union refused to negotiate over the hours reduction. Because the employer failed to rescind the reduction, the union was not obliged to begin bargaining, as it would have been bargaining from a weakened position.

The case number is 11-1064.

DCCir: Employers’ unilateral imposition of terms of last contract offer in absence of impasse violated NLRA

The union had not reached an impasse in its bargaining with two employers, because the union had offered substantial concessions in its last proposal prior to the employers’ decision to unilaterally implement the terms and conditions of employment laid out in their last offer, the DC Circuit ruled (Wayneview Care Center v NLRB, December 23, 2011, Garland, M.) Because the appellate court found that the parties had not reached impasse, it granted the Board’s cross-petition for enforcement of its order finding that the employers had violated the NLRA.

Background. The employers were separate companies that ran nursing homes staffed by employees who were represented by the union. After the employers and union agreed to consolidate the negotiations over successor contracts, the employers’ mutual COO acted as the spokesman for the employers. The union’s first proposal called for an annual wage increase, more paid days off, and for the employers to participate in the union’s health insurance plan. Following assignment of a union rep to the negotiations, the union dropped its demand for a reduced work week and pushed back the date by which the employer would have to begin participating in the union health plan; but the COO stated that the two biggest obstacles to an agreement were the health insurance issue and the union’s position on no-frills employees.

On August 18, 2005, the parties held a lengthy negotiating session that lasted until three in the morning. During that session, the union dropped its demands regarding the health insurance plan and the decrease in the number of no-frills employees, the employers’ main concerns. Although no deal was reached, the employer countered with an offer that also contained concessions, and the union negotiator gave his mobile number to negotiators for the employers so that negotiations could continue over the weekend. The employers instead responded with a regressive offer, which they called their last, best offer and they refused further negotiations.

During this time, the union had threatened strikes at both locations and the employers had lined up replacement workers. After workers at one location voted not to authorize a strike, the union informed the employer, but was told that the employees should not come to work, as the employer had hired replacement workers. One employee was told that she needed to vote to decertify the union if she wanted to return to work. The employees at the second location did engage in a five-day strike, but the employer refused their unconditional offer to return to work unless they accepted the last, best offer. After the employer implemented the terms of that offer at both locations, the union filed charges with the NLRB. Ruling that the parties had not reached an impasse, the Board found that the unilateral implementation of the terms of the regressive contract therefore violated the NLRA. The employers appealed.

Impasse. The Board had reason to believe that the parties had not reached an impasse, the appeals court found. When an employer unilaterally imposes changes in the terms and conditions of employment, absent an impasse in bargaining, it violates the NLRA. In determining whether an impasse has been reached, the Board considers a number of issues, including the importance of the disputed issue to the overall bargaining and the good faith bargaining of the parties. In the instant case, the appeals court found that the parties had continued negotiating and making concessions up to the date on which the employers stopped bargaining. Moreover, the appeals court concluded that the union had offered major concessions on the two issues most important to the employers – the health insurance and no-frills employees issues – just before the employers refused to bargain further. These facts supported the Board’s finding that the parties had not reached an impasse.

Furthermore, the court rejected the employers’ contention that the union had negotiated in bad faith. According to the employers, the union had “rigidly adhered” to a contract it had negotiated with other nursing homes, but the court found that the union’s proposal to the employers differed from that contract with regard to wages and paid time off. Moreover, the union’s concessions on the issues most important to the employers indicated that it was negotiating in good faith.

Additionally, the court found that the parties had not deadlocked over the health insurance issue, because just before the employers declared an impasse, the union had offered concessions on the issue. Even if deadlock had occurred, the court found no evidence that it had blocked progress on other aspects of the negotiations. Thus, the court found that the Board’s ruling that no impasse existed was reasonable.

Employee lock-out. Furthermore, the Board had relied on substantial evidence in ruling that the employers had locked out the employees in order to coerce the union to accept the regressive contract, in violation of the Act, ruled the appeals court. For example, the employers had faxed the union that it would not allow the employees to return to work unless the union accepted the regressive offer and that the employers did, in fact, implement that contract. Although the employers argued that the lock-outs were justified by business necessities, the court found no evidence to suggest that the unions had threatened further strikes at the facility in which a strike did occur. Additionally, at the facility where the employees voted not to strike, the court found that the employer could have easily informed the replacement workers that the strike did not occur and that their services would not be needed. Thus, the court found that the lock-out violated the Act.

Decertification efforts violated the Act. Further affirming the Board’s ruling, the appeals court found that the employers had unlawfully attempted to cause the employees to decertify the union. An employee was promised benefits from the director of nursing if she voted to decertify the union. That conduct was intended to assist a decertification petition in violation of the Act.
The case number is 10-1398.

DelSCt: Arbitrator’s shared suffering with discharged grievant who lost a family member to cancer did not require disclosure; arbitration award stands

An arbitrator’s unfortunate loss of his wife to cancer a few months prior to reinstating a grievant who attributed his tardiness for work to the cancer-related death of his mother-in-law, who provided child care, did not give the appearance of bias or partiality, the Delaware Supreme Court found (Delaware Transit Corp v United Transp Union, November 28, 2011, Holland, R). Because the arbitrator was not required to disclose a shared life experience with a party or party's agent, a lower court did not err in denying the employer’s declaratory judgment motion to vacate the award.

Background. The grievant in the underlying case was a paratransit driver with four children. His wife worked as a nurse on an 11:00 p.m. to 7:00 a.m. shift; the grievant drove a split shift from 7:00 a.m. to 10:00 a.m., and then 2:00 p.m. to 6:00 p.m. These work schedules allowed for one parent to be home with their children at all times, with the exception of the two hours between 6:00 a.m. to 8:00 a.m. The coupled had relied on the wife’s mother, who lived with the family, to provide care during those hours. However, she passed away in July 2008.

Meanwhile, the driver had been accruing “misses” at work, defined under the bargaining agreement as the failure to report on time for the scheduled work day. He had five misses over a rolling 12-month period and was subjected to progressive discipline; after his mother-in-law’s death, he quickly racked up two more. The driver tried to proactively avert a further violation, meeting with his supervisor, the labor relations official, and the employer’s executive director to explore his options. He sought retroactive FMLA leave, but was ineligible. His request for a discretionary leave of absence was denied. He also asked to switch to an uncovered paratransit run with a different start time that better matched the family’s childcare needs. Without consulting with the union, the employer denied this request as well, claiming that to grant it would violate the CBA’s bidding rules. His efforts having failed, an eighth inevitable “miss” due to childcare problems resulted in his termination.

Arbitration award. An arbitrator sustained the union’s grievance and ordered reinstatement of the driver, concluding that the employer lacked just cause for discharge. He found that the employer’s failure to consider allowing the driver to switch runs was arbitrary or amounted to disparate treatment, apparently moved by the fact that the driver was trying to solve his situation and had come to various members of management for help.

Citing AAA labor arbitration rules requiring disclosure of “any circumstance likely to affect impartiality,” the employer sought to modify or vacate the award. It argued that the integrity of the arbitration proceeding was compromised because the arbitrator did not disclose to the parties that his wife had died of cancer a few months before the hearing.

The arbitrator’s “shared personal life experience” may cause him to be sympathetic to the grievant, whose asserted reason for his tardiness was the death of his mother-in-law, the employer reasoned; as such, the failure to disclose to the parties his wife’s death from cancer required the award to be vacated. Rejecting the employer’s challenge to the award, the lower court concluded that the relevant AAA rule only concerned actual financial or personal relationships between the arbitrator and a party or an agent of the party. The potential affinity suggested here was not the type that would taint an arbitration proceeding, the court concluded.

Evident partiality. Under the U.S. Supreme Court’s Commonwealth Coatings decision, the Delaware high court noted, an arbitrator’s award can be vacated if he failed to disclose a substantial relationship with a party, or a party’s agent or attorney. An “evident partiality” standard applies to an arbitrator’s failure to disclose, although courts are divided as to what “evident partiality” entails. Reviewing the relevant case law, the state supreme court noted that an arbitrator need only disclose personal or financial relationships with parties or their agents in order to steer clear of concerns of evident partiality. Moreover, to demonstrate evident partiality sufficient to require vacatur, it held the party challenging the award must demonstrate that a reasonable person would conclude that the nondisclosed information was “powerfully suggestive of bias.” The employer failed to do so here.

The mere fact that an arbitrator may share a personal life experience with the grievant was not legally sufficient to constitute a substantial relationship that a reasonable person would conclude was powerfully suggestive of bias. Thus, no evident partiality was shown, and the award need not be vacated.
Although the employer contended that the arbitrator should have disqualified himself once it became known about the grievant’s mother-in-law, the court likened the situation to one in which a judge who (under judicial rules) is not disqualified from presiding over a divorce proceeding because he is divorced, or an adoption case because he has children. Similarly, an arbitrator is not disqualified because of a shared life experience with a grievant, so disclosure of a shared life experience is not mandatory. Because the arbitrator in this case had no obligation to disclose that his wife had recently died from cancer, the lower court properly allowed the arbitration award to stand.

The case number is 85, 2011.


Hot Topics in WAGES HOURS

White House announces new rules providing minimum wage and overtime protections for in-home care workers

Saying that “we can’t wait for Congress to act,” the White House has announced a proposed rule that will give minimum wage and overtime protections to almost two million workers who provide in-home care services for the elderly and infirmed. The White House says that FLSA protections should apply to these workers.

“The nearly 2 million in-home care workers across the country should not have to wait a moment longer for a fair wage,” said the President. “They work hard and play by the rules and they should see that work and responsibility rewarded.”

Current law exempts “companion” workers from FLSA minimum wage and overtime pay protections, and the Obama Administration is contending that the law, created in 1974, was meant to exempt casual babysitters and companions for the elderly and infirm, not workers whose vocation was in-home care service and who were responsible for their families’ support. The White House notes that 1.79 million home care workers are currently employed as professional caregivers. Moreover, many of those caregivers belong to demographic groups, such as African-Americans and Hispanics, greatly affected by the ongoing economic downturn.

Thus, the rule proposed today would expand minimum wage and overtime protections cover all home care workers employed by third parties, like staffing agencies. It would cover workers employed by families performing skilled in-home care work, such as medically related tasks for which training is typically a prerequisite. Once the proposed rule is published, the DOL will invite interested parties to submit comments.

The proposed rule is part of this fall’s “We can’t wait” campaign being pushed by the Obama Administration, which has accused Congressional Republicans of being unwilling for political purposes to help stimulate the economy.

Richard Trumka, President of the AFL-CIO, praised the proposed rule as “a long-overdue matter of basic justice for … hundreds of thousands of workers.” Trumka also noted that the proposed rule will “allow more families the choice of home-based care as a long-term care option.”

The proposed rule drew fire, however, from Congressional Republicans. Representative John Kline (R-Minn), Chairman of the House Committee on Education and the Workforce, attacked the rule as being likely to lead to “reduced hours for home care workers and higher costs for taxpayers. Moreover, our nation’s elderly may pay the greatest price in the form of more costly services and fewer opportunities to obtain the care they need in the comfort of their own homes.”

U.S., Colorado labor departments sign memorandum of understanding relating to employee misclassification

On Monday, December 5, Nancy J. Leppink, the DOL’s Wage and Hour Division deputy administrator, and Ellen Golombek, executive director of the Colorado Department of Labor and Employment, signed a memorandum of understanding (MOU) regarding the improper classification of employees as independent contractors. This partnership is the 11th of its kind for the DOL.

The Obama DOL has increased its efforts in combating employee misclassification, which it calls a “growing problem.” In 2010 alone, the Division collected nearly $4 million in back wages for minimum wage and overtime violations under the FLSA stemming from employer’s misclassification of employees as independent contractors. The DOL contends that employee misclassification often leads to the denial of benefits, compensation, and insurance to workers and can harm “law-abiding” employers.

“Misclassification costs everyone,” said Golombek. “It destabilizes the business climate by creating an unlevel playing field and causing responsible businesses to suffer unfair competition. The efforts we will be launching with the U.S. Department of Labor will promote accountability that Colorado employers and employees will welcome.”

The DOL has entered into similar arrangements with Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah, and Washington.

Agriculture Department issues final rule requiring contractors to attest to labor law compliance

On Thursday, December 1, the Department of Agriculture’s Office of Procurement and Property Management issued a direct final rule requiring its contractors to attest that to the best of their knowledge, both they and their subcontractors are in compliance with all applicable labor laws. Under the rule, contractors must also report any violations to their contracting officers.

The final rule adds a subpart and clause entitled “Labor Law Violations” to the Agriculture Acquisition Regulation (AGAR). The AGAR will now contain language that must be included in all USDA solicitations and contracts exceeding the simplified acquisition threshold.
The language in the rule states that the contractor certifies that it and its subcontractors are in compliance with all “applicable” labor laws and warns that the department will “vigorously pursue” action against any contractor that violates relevant labor laws while providing supplies and/or services under the government contract.

If the department does not receive any adverse comments on the proposal within the 60-day response window, the terms of the direct final rule will take effect 90 days after the rule’s December 1, 2011, publication in the Federal Register.

Class action suit filed against Apple over alleged employee misclassification

On December 8, the California law firm of Blumenthal, Nordrehaug & Bhowmik announced that it has filed a class action lawsuit against Apple, Inc on behalf of at-home call center employees alleging that Apple improperly classified them independent contractors in order to avoid paying Apple's share of payroll taxes and other business related expenses through the use of a Yellow Dog Contract. Hilton v. Apple is currently pending in Santa Clara Superior Court as Case No. 111-CV-214597.

According to the complaint, Apple requires its home call center employees to each form a separate Virtual Services Corporation. Those alleged shell corporations acted to insulate Apple from liability for its Business Related Expenses, according to the complaint. The lawsuit refers to the agreements as “Yellow Dog Contracts” that violate not only employment laws, but also fundamental public policy.

Department announces minimum hourly wage rates for H-2A workers

On Thursday, December 22, the DOL will publish a notice in the Federal Register announcing the minimum hourly wage rates that employers must pay H-2A workers so that the wages of similarly employed U.S. workers are not adversely affected.

The DOL calculates the H-2A adverse effect wage rates for each occupation and location by using the U.S. Department of Agriculture's annual wages rates from its regional Farm Labor Survey of nonfamily field and livestock workers. The DOL publishes the rates in the Federal Register on an annual basis; the rates are effective the day they are published and apply only to the H-2A program. The Department does so to inform employers who wish to participate in the program about the wages and will make the complete list of rates available starting on December 22.

“Ensuring that employers participating in the H-2A program adhere to these wages helps protect the wages and working conditions of U.S. workers while providing a legal means for employers to access foreign workers with critical skills needed to help keep our economy strong,” said Jane Oates, assistant secretary of labor for employment and training. “Employers who play by the rules deserve to compete on a level playing field, and all workers deserve to work with dignity under the full protection of our laws.”

FAA issues final rule on pilot work hours and rest periods

Last week, on December 21, the Federal Aviation Administration (FAA) issued a final rule governing rest periods and work hours for commercial airline pilots. The final rule, which mandates longer rest breaks and fewer hours for pilots, was immediately praised by the Association of AirLine Pilots as “historic progress.”

Under the final rule, commercial pilots must have a 10-hour rest period between flights, and eight of the hours must be allocated for uninterrupted sleep. The previous rule mandated nine hours rest and failed to take uninterrupted sleep time into consideration. The final rule also requires that pilots be free from duty for at least 30 consecutive hours per week and allows for flight duty periods between 9-14 hours for single crew operations; the prior rule allowed for a maximum 16-hour duty period. Of the new duty periods, only eight to nine hours may be spent on actual flight time and pilots must get a rest period of at least 10 consecutive hours immediately before beginning a reserve period.

In addition, the final rule makes both the airline and the pilot jointly responsible for fatigue mitigation and required pilots to affirmatively attest that they are fit for duty. Once a pilot reports being too fatigued to fly, the airline must remove the pilot from duty.

Commercial passenger airline operators will have two years to make changes to their pilots’ work schedules. The rule does not apply to cargo-only flights.

Minimum wage set to rise in eight states

By John Gramlich, Stateline Staff Writer
The New Year will bring a bit more money for workers in eight states, where minimum wages are tied to inflation and will increase starting on January 1.
Workers in Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington will see their salaries rise by anywhere from 28 to 37 cents an hour, according to the National Employment Law Project (NELP), which advocates for low-income employees and keeps track of minimum wages in all 50 states. For full-time workers, that works out to $582 to $770 a year.

Of the eight states, Washington will have both the biggest increase in the minimum wage — at 37 cents an hour, or $770 a year — and the highest minimum wage in the nation, at $9.04 an hour, according to NELP. All of the eight states have minimum wages that are above the federally prescribed rate of $7.25 an hour.

A ninth state, Nevada, also could raise its minimum wage in 2012, but that would not happen until July. Missouri has previously tied its minimum wage to inflation, but the state announced that its rate would stay at the federal level, where it has been since July 2009.

As Stateline noted earlier this year, automatic increases in state minimum wages can be controversial. While supporters of the increases see them as economic stimulus measures that will provide more money to working Americans, detractors note that the burden will fall on businesses. Companies in Florida and Washington sued to block the latest round of increases, but lost in both states.

FMCSA issues final rule on hours of service

Last week, the Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) issued a final rule establishing new hours of service (HOS) regulations for commercial truck drivers.

Under the new rule, the current 11-hour daily driving limit will be maintained unless further study indicates that the benefits of reducing the limit outweigh the costs. The rule does reduce by 15 percent the weekly maximum number of hours a truck driver is permitted to work; the new maximum hours will be 70. That reduction will be achieved by limiting a driver’s “34-hour restart” to once every 168 hours (7 days). That restart period will include at least two periods of time between 1:00 and 5:00 a.m. (measured by the driver’s home terminal time), which is intended to increase the driver’s opportunity to sleep.
In addition, the rule requires that the drivers spend no more than 8 consecutive hours on duty without taking at least one 30 minute break, which may include meal breaks, sleep breaks or other off-duty time. The rule does, however, exempt commercial motor vehicles (CMVs) carrying certain explosives from the rest period, as those drivers may spend their 30 minute period attending to their truck.

Under the rule, any driver or employer who either drives, or allows a driver to drive a CMV for 3 or more hours beyond the 11-hour limit will face civil penalties, with employers facing a maximum penalty of up to $11,000 per offence and drivers a penalty of up to $2,750 per offense.

California announces launch of taskforce aimed at enforcing wage and hour compliance

The California Department of Industrial Relations (DIR) has announced that its newly created Labor Enforcement Task Force (LETF) will begin operations on January 1, 2012. LETF is a collaborative effort between state agencies including DIR, the Employment Development Department, Contractor's State Licensing Board, Board of Equalization, and the Bureau of Automotive Repair. LETF will also collaborate with the Department of Insurance, the Attorney General and Local District Attorneys, and others in affected communities.

“The goal of LETF is to ensure fair and safe working conditions in all workplaces and promote a level playing field for employers through education and enforcement of state laws,” said Labor and Workforce Agency Secretary Marty Morgenstern. “Labor law violators endanger workers and have an unfair market advantage over law-abiding businesses. We cannot tolerate businesses that skirt the law.”

LETF will focus on collaboration, wider information-sharing and use of new technology for enforcement. It will also conduct outreach and education efforts to inform businesses of their rights and responsibilities under the law. The task force will focus on ensuring that workers receive lawful wages and are provided safe working conditions and that, therefore, the State receives taxes due from employers and collects penalties owed by employers who violate labor laws. Other stated goals include leveling the playing field so that employers who comply with the law and support California's economy do not have to compete with employers who break the law and the elimination of the “underground economy.”


LEADING CASE NEWS

CalSCt: Insurance claims adjusters exempt “administrative” employees not entitled to overtime pay; administrative/production worker dichotomy improper test

In a long awaited decision, the California Supreme Court has ruled that insurance claims adjusters were exempt “administrative” employees not entitled to overtime compensation under the California Labor Code and regulations of the California Industrial Welfare Commission (IWC) (Harris v Superior Court of Los Angeles County, December 29, 2011, Corrigan, C). In this instance, the California high court ruled that the court of appeals improperly relied on the administrative/production worker dichotomy as a dispositive test as to whether or not the claims adjusters were exempt administrative employees.
Background. The employees were claims adjusters employed by Liberty Mutual Insurance and Golden Eagle Insurance. They filed four class action lawsuits alleging that the insurers erroneously classified them as exempt administrative employees and seeking damages for unpaid overtime work. The trial court certified a class of non-management California employees classified as exempt who performed claims-handling activities. Subsequently, the employees moved for summary judgment against the insurers’ affirmative defense that they were exempt from overtime under IWC Wage Order No 4.

Depending on whether employee claims arose before or after October 1, 2000, the date the IWC replaced an earlier version of Wage Order No 4, the court decertified the class in part. For claims arising before October 1, 2000, the trial court decided that the Bell cases (Bell v Farmers Ins Exchange (Bell II) and Bell v Farmers Ins Exchange (Bell III) compelled a ruling that the claims adjusters were nonexempt “production workers” under the earlier version of Wage Order No 4. The court decertified the class as to all claims arising after October 1, 2000, the effective date of a new Wage Order No 4. Both parties appealed, and a divided appeals court ruled for the employees. Focusing its analysis on Wage Order No 4, the appeals court majority concluded that the adjusters could not be considered exempt employees, either before or after the order’s amendment. This appeal followed.

Administrative exemption. The approach taken by the appeals court majority failed to properly analyze the question, concluded the California Supreme Court in reversing the appellate decision because it misapplied the substantive law. Under Labor Code Sec. 515, subdivision (a), in order for an employee to qualify as an “administrative” employee, he or she must (1) be paid at a certain level; (2) their work must be considered administrative; their primary duties must involve administrative work; and (4) they must discharge those primary duties by regularly exercising independent judgment and discretion. The court observed that the narrow question on this appeal involved the second point, whether the employees’ work was administrative.

Section 515, subdivision (a) directs the IWC to conduct a review of the duties that meet the test of the exemption, and if necessary, modify the regulations. After such a review, the IWC updated Wage Order No 4. A comparison of Wage Order 4-1998 and Wage Order 2-2001 reveals that the latter contains a much more specific and detailed description of work that it properly described as administrative. Thus, the question here is whether the employees’ work as claims adjusters was encompassed by the expanded language of the statute, wage orders and federal regulations that delineate what work qualifies as administrative, declared the state high court.

Wage Order 4-2001 specifically directed that whether work is exempt or nonexempt “shall be construed in the same manner as such terms are construed” in specific regulations under the FLSA effective as of the date of the order — 29 CFR Secs 541.201-.205; 541.207-.208; 541.210; and 541.215. Parsing the language of Sec. 541.205 reveals that work qualifies as “administrative” when it is “directly related” to management policies or general business operations. Work qualifies as directly related if it satisfies two components: (1) it must be qualitatively administrative; (2) quantitatively it must be of substantial importance to the management or operations of the business. Both components must be satisfied before work can be considered “directly related” to the management policies or general business operations in order to meet the text of the exemption.

Qualitative component. In the trial court, the employees moved for summary adjudication of the insurers’ affirmative defense that they were exempt from overtime compensation. Specifically, the employees attacked the insurers’ showing as to the qualitative component — whether the work was administrative in nature. Thus, on review, the state supreme court limited its discussion to that question. The court expressed no opinion as to whether the record revealed a triable issue on the quantitative component of the test.

To argue that the test of the administrative exemption could not be met, the employees placed great emphasis on the so-called administrative/production worker dichotomy, as applied in the Bell cases. The administrative/production worker dichotomy distinguishes between administrative employees who are primarily engaged in “administering the business affairs of the enterprise” and production-level employees whose primary duty is producing the commodities that the enterprise exists to produce and market. However, the Bell cases are distinguishable from this case in two important ways. First, those opinions carefully limited their holdings to their facts. Second, because Wage Order 4-1998 did not provide sufficient guidance, the Bell II court looked beyond the language of the wage order and employed the administrative/production worker dichotomy as an analytical tool. By comparison, Wage Order 4-2001, along with the incorporated federal regulations, set out detailed guidance on the question.

The court of appeals placed substantial reliance on the Bell cases in concluding that the employees were not exempt administrative employees. However, it erred when it relied on distinguishable authority to create a rigid rule. The appeals court majority did not consider all the relevant aspects of federal regulations former part 541.205, specifically subpart (b). Instead, it reached out for support to other federal regulations not incorporated in Wage Order 4-2001. Federal regulations former part 541.205(a), (b) and (c) must be read together in order to apply the “directly related” test and properly determine whether the work at issue satisfies the administrative exemption. The IWC statement issued in connection with Wage-Order 4-2001 clearly stated that “only those federal regulations specifically cited in its wage orders, and in effect at the time of promulgation” shall be applied in defining exempt duties under California law. Thus, the California Supreme Court reversed the judgment of the court of appeals.
The case number is S156555.

4thCir: Maryland wage statute not fundamental public policy, could not trump choice of law provision; unvested incentive program “units” not “wages” under New Jersey law

A former sales representative who claimed she was owed unvested units under an incentive program designed to retain talented employees failed to state a claim under New Jersey law, ruled the Fourth Circuit, affirming the dismissal of her claims (Kunda v CR Bard, Inc, December 23, 2011, Gregory, R). The appeals court also affirmed that, under the terms of the incentive program, New Jersey law applied, and Maryland’s wage payment statute is not a fundamental public policy that would trump the parties’ contractual choice of law.

Background. The employee, a sales representative for CR Bard, a New Jersey corporation, was compensated with a semi-monthly salary, commissions, and other fringe benefits. In 2003, Bard implemented an equity-based, long-term incentive program that allowed for the deferral of bonus and commission awards on a pre-tax basis. Participants deferred part of their compensation in return for vested “elective units” that could be redeemed for shares of Bard stock. Bard matched each elective unit with premium units, which only vested after continuous employment with Bard for a seven-year vesting period from the date the units were issued.

To be eligible to participate in the incentive program, a sales rep had to meet certain performance criteria. The employee participated in 2002, 2003, and 2005, receiving four premium units per elective unit in 2002, and two premium units per elective unit in 2003 and 2005. In 2008, Bard terminated her employment without cause. Apart from certain premium units from 2002 that were vested on an accelerated schedule, her premium units were unvested at the time of termination, and Bard deemed them forfeited.

The plan had a New Jersey choice-of-law provision. However, the employee filed suit in Maryland, claiming that she was entitled to the remaining vested premium units. The federal district court granted Bard’s motion to dismiss, holding that New Jersey law, and not Maryland law, applied. The court also found the employee had failed to state a valid claim under the New Jersey Wage Payment Law (NJWPL) or any other New Jersey law. In addition, the court found that, even if Maryland law applied, the employee had no claim under the Maryland Wage Payment and Collection Law (MWPCL).

Choice of law. Under Maryland law, the “law of the state chosen by the parties to govern their contractual rights and duties will be applied” unless an exception is applicable. Although the incentive plan provided for New Jersey choice of law, the employee argued that Maryland law applied under the public policy exception. The district court granted Bard’s motion to dismiss, finding that New Jersey law applied because application of the MWPCL is not a fundamental state public policy. The Fourth Circuit agreed.

The appeals court first pointed out that not every statutory provision is a “fundamental policy” of a state and the mere fact that Maryland law is dissimilar to that of another jurisdiction does not render the latter contrary to Maryland public policy. The court then analyzed the MWPCL, finding that it contained no express legislative intent that the statute was a fundamental Maryland public policy, nor language indicating that it could not be waived by agreement or that contractual terms contrary to its provisions would be void and unenforceable. The court thus concluded that the MWPCL is not a fundamental Maryland public policy. The court noted that the fact that New Jersey provided comparable statutory protection also undermined the notion that the MWPCL was a fundamental public policy. For these reasons, the court affirmed the district court’s conclusion that New Jersey law applied.

Unvested shares not wages. The Fourth Circuit also agreed with the district court that the unvested shares were not wages under New Jersey law. The NJWPL requires that employers pay all wages due to employees, but explicitly excludes “any form of supplementary incentives and bonuses which are calculated independently of regular wages and paid in addition thereto.” In the court’s view, any premium units the employee received through the program were incentives for her to continue her employment at Bard and were not payment for the sales she completed. Thus, the court determined the premium units fell outside the NJWPL definition of wages and the employee had no claim under the NJWPL.

The court also rejected the employee’s argument that the program’s forfeiture clause was unreasonable and thus inapplicable and invalid. The court reasoned that (1) the provision was in writing and all of its terms were fully disclosed prior to participation; (2) the risk of forfeiture was unambiguously disclosed; (3) the seven-year period of delay for absolute ownership was neither onerous nor unreasonable; and (4) the employee freely, willfully, and knowledgeably consented. Moreover, although the employee was terminated without cause, there was no evidence that employees were terminated to avoid paying premiums and the forfeiture clause was reasonably designed to accomplish the purpose of retaining high-performing employees. Thus, the forfeiture clause was reasonable and enforceable, and the motion to dismiss was affirmed.

In a footnote, the Fourth Circuit also stated that, even if Maryland law applied, the employee would not have a claim because the unvested shares would not be “wages” under the MWPCL and, therefore, were never owed to the employee.

The case number is 09-1809.

9thCir: Nonresident instructors who performed work in California could pursue claims for overtime under California’s Labor Code

Three out-of-state instructors who performed work for Oracle in California could pursue their claims for overtime under California’s Labor Code and for unfair competition under Sec. 17200, ruled the Ninth Circuit (Sullivan v Oracle Corp, December 13, 2011, Fletcher, W). Following the California Supreme Court’s determination that the appeals court had correctly ruled in an earlier opinion addressing the employee’s claims for overtime work performed within the state, a district court decision granting summary judgment to Oracle was reversed. However, the district court’s ruling that Sec. 17200 did not reach the employees’ FLSA claims for work performed outside California was affirmed.

Background. Oracle employed “instructors,” on a contract basis through a subsidiary, to train its customers throughout the United States in the use of its software. The company provided the training materials and it “recognized revenue” for the work performed by the instructors. As part of their jobs, the instructors traveled to destinations away from their city of domicile. For a number of years, Oracle classified its instructors as “teachers.” Teachers are exempt from the overtime provisions of California’s Labor Code and the FLSA. In 2003, Oracle reclassified its California-based instructors and began paying them overtime. In 2004, it reclassified all other instructors and began paying them overtime as well. However, the company did not provide retroactive overtime for work performed by nonresidents prior to the reclassification.

Three nonresidents of California brought a class action seeking damages under California law for failure to pay overtime for their work in California. Only some of the employees’ work was performed for Oracle in California. A district court granted summary judgment in favor of Oracle on all three of the employees’ claims on the ground that California law did not apply to them. The employees appealed.

Nonresident plaintiffs. As an initial matter, the Ninth Circuit noted that it had previously reversed the decision of the district court with respect to the employee’s first two claims, holding that the Labor Code and California’s Unfair Competition Law, Sec. 17200, applied to overtime work that the employees performed in California. However, it affirmed the district court’s ruling that Sec. 17200 did not apply to overtime work performed outside of California even if the employer violated the FLSA. Oracle petitioned for a rehearing en banc on the appeals court’s decision on the first two claims. Thereafter, the appeals court withdrew its opinion and certified the claims to the California Supreme Court. The California Supreme Court agreed with the answers the Ninth Circuit gave in its original opinion to the three questions.

In answer to the first question, the California high court concluded that California’s overtime laws apply to the work of nonresidents performed in the state. Further, the state court determined that Sec. 17200 also applied to overtime work that the employees performed in California. Finally, the court confirmed that Sec. 17200 does not reach the employees’ FLSA claims for work performed outside of California. In light of the California Supreme Court’s determination, the Ninth Circuit concluded that California’s Labor Code applied to work performed in California by nonresidents, such that the employees were entitled to overtime for work performed there in excess of eight hours per day or 40 hours per week.

Constitutional claims. Next, the Ninth Circuit rejected Oracle’s due process clause and commerce clause arguments with respect to the application of the California’s Labor Code to work performed by nonresident employees in California. With respect to California’s application of its Labor Code, the appeals court noted that a state court is rarely forbidden by the Constitution to apply its own state’s law. However, for a state’s substantive law to be selected in a constitutionally permissible manner, the state must have significant contact creating state interests, such that the choice of its law is neither arbitrary nor fundamentally unfair. In this instance, Oracle had its headquarters in California; the decision to classify the plaintiffs as teachers and to deny them overtime was made in California; and the work in question was performed in California. Thus, the appeals court concluded that the contacts creating California interests were clearly sufficient to permit the application of California’s Labor Code.

Further, because California applies its Labor Code equally to work performed in California, whether the work is performed by residents or by out-of-state residents, Oracle’s Commerce Clause argument also failed. Thus, the Ninth Circuit reversed the district court’s grant of summary judgment with respect to the employee’s first two overtime claims.

The case number is 06-56649.