The National Labor Relations Board has had a busy few weeks. First, over the dissent of its sole Republican Member, Brian Hayes, it issued a final rule implementing new procedures for union elections. Second, it issued a decision in D.R. Horton, 357 NLRB No. 184 (January 3, 2012), a much-anticipated case involving class action waivers in collective bargaining agreements. Third, on the heels of the D.R. Horton decision, President Obama made three “recess” appointments to the Board in an effort to give it a full complement of members and continue its operations in 2012. Finally, the Board released the much anticipated follow up to its Specialty Healthcare decision, opening the door for unions to organize “micro-units” within a larger workforce. These developments are discussed below.

The New Election Rules

Although rarely used, the NLRB possesses notice-and-comment rule making authority in addition to its normal practice of resolving disputes through adjudication. It was thus an extraordinary development when the Board issued a notice of proposed rule making on June 22, 2011 to overhaul its election procedures. The Board received almost 66,000 comments to its proposed rule by the close of the comment period on September 6, 2011, and held a public hearing at which 66 persons testified. Worried that it would lose its quorum when Member Brian Hayes’s appointment expired in December, the Board’s Democratic majority then hurried to issue a final rule before it lost its quorum. The Board issued its final election rule on December 21, 2011, but delayed the rule’s implementation until April 30, 2012, ostensibly to allow member Hayes to write a dissent.

By way of background, the Board plays a central role in the union election process. It makes determinations about appropriate units, voter eligibility and objections to the election process. For many years, the Board has employed an internal process for handling elections whereby they are generally held within six weeks of an election petition being filed. While pre-election litigation regarding the appropriate unit and eligible voters can slow the election process somewhat, only about ten percent of elections involve such pre-election litigation. In fiscal year 2011, the median time from the date a petition was filed to an election was 38 days, and 95 percent of all elections were held within eight weeks.

The New Rules as Enacted

Despite what appears to be an effective process, the Board majority consisting of Chairman Mark Pearce and Member Craig Becker pressed ahead with enacting the new election rules which, as adopted, consist of eight amendments to the Board’s traditional election procedures:

1.   The Board will strictly construe section 9(c) of the National Labor Relations Act to state that the only purpose of a pre-election hearing is to determine whether a question concerning representation exists.

2.   Hearing officers handling pre-election hearings will have the discretion to limit the presentation of evidence regarding supervisory status and similar eligibility issues if they do not believe such issues are relevant to a question concerning representation.

3.   Hearing officers will have the discretion to limit the availability of post-hearing briefs.

4,   Parties will no longer have the ability to seek pre-election review by the Board of hearing officer decisions as a matter of right; such issues generally will be deferred to post-election proceedings.

5.   The 25-day waiting period to conduct elections in cases where a party has filed a pre-election request for review will be eliminated.

6.   The Board will have to give “special permission” for pre-election review and such permission will be granted only in “extraordinary circumstances.”

7.   Board review of a hearing officer’s resolution of post-election disputes will become discretionary, and the Board will have the authority to reject any request for review that does not present “a serious issue for review.”

8.       Finally, the rules eliminate purportedly redundant regulations.

What the Rules Left Out

Almost as important as what is contained in the final rules is what is left out. Specifically, the final rules did not address several matters contained in the June proposal, including:

·         A proposal that the pre-election hearing be held within seven days after service of the notice of hearing.

·         A proposal that the employer be required to file a written statement of position prior to any pre-election hearing or waive any arguments that could have been raised in such a statement.

·         A proposal that the employer be required to provide the petitioning union a list of employees within two days after the direction of an election rather than seven days after such direction.

·         A proposal that the required employee list include employees’ phone numbers, e-mail addresses, work locations, shift information, and job classifications in addition to physical addresses.

·         A proposal that unions be allowed to file election petitions and related documents electronically.

While these proposals did not make their way into the final rule, they remain pending for later consideration—something which may be impacted by the recess appointments discussed below.

Whether the new election rules will actually go into effect is an open question. There is ongoing litigation, including a lawsuit filed by the U.S. Chamber of Commerce and the Coalition for a Democratic Workplace seeking to enjoin the new rules.

Practical Impact for Employers

In the meantime, what is the practical impact of these new rules on employers? To be sure, the new rules will result in quicker elections in cases with contested unit and eligibility issues. They may also result in quicker elections in cases where there are no disputes over the unit or voter eligibility as regional directors seek to speed up the election process. At least one commentator has opined that elections could take place within 10-20 days of a petition being filed.

While quicker elections certainly mean less time to communicate with employees during the election period, savvy employers should have strong employee relations policies and programs in place long before a petition is filed. Such programs should establish open communication channels, provide for employee recognition, and implement competitive wages and benefits among other things. Implementing this type of program will not only help avoid a unionization drive in the first instance, but also will help build employee trust and establish efficient lines of communication that could be vital during a shortened pre-election period.

Perhaps the more concerning aspect of the new rules is that they introduce an increased level of uncertainty surrounding union elections. This is so because issues regarding appropriate voting units and voter eligibility will be deferred until after the election takes place. As a result, employers and employees may not know precisely which employees will be represented by the union at the time they are voting. Moreover, employers may mistakenly rely on supervisors as company agents during the election period, only to find out later that these supervisors are employees who are eligible to vote.

Finally, while the new election rules shorten the time from the filing of a petition to the time an election is held, it is not entirely clear that the new rules will shorten the overall election process. The new rules still allow for post-election litigation, and the uncertainty regarding eligible voters increases the risk of additional post-election unfair labor practice charges being filed.

D.R. Horton and Class Action Waivers

In D.R. Horton, the NLRB addressed whether an employer commits an unfair labor practice by requiring employees, as a condition of employment, to sign an agreement waiving their right to file class, collective or joint claims addressing terms and conditions of employment in any forum. The Board held that such agreements are unlawful.

Beginning in 2006, D.R. Horton required each of its new and existing employees to sign a Mutual Arbitration Agreement as a condition of employment. Among other things, this agreement required employees to submit all employment related claims to arbitration, and prohibited an arbitrator from consolidating claims of other employees, fashioning a proceeding as a class or collective action, or awarding relief to a group or class of employees. The agreement also contained an express waiver of rights to file a lawsuit or other civil proceeding related to the employee’s employment. The charging party signed the agreement and later notified the company that he was planning to pursue a collective action under the Fair Labor Standards Act. Citing the arbitration agreement’s language barring arbitration of collective claims, the employer denied that the charging party’s notification constituted effective notice of intent to initiate arbitration and refused to proceed with arbitration. The charging party then filed an unfair labor practice charge.

In reaching the conclusion that class action waivers imposed by employers as a condition of employment violate the Act, the Board emphasized that employees have a right guaranteed by the Act to engage in protected, concerted activity for mutual aid and protection. The Board further reasoned that one aspect of this protected right was the right to pursue litigation regarding terms and conditions of employment in a concerted fashion. Therefore, an employer’s requirement that an employee waive his ability to pursue class or collective claims in any forum amounted to a contract requiring employees to waive rights protected by the NLRA—something which is barred not only by the NLRA, but also by the older Norris-LaGuardia Act.

The Board held that there was no conflict between its decision and the Federal Arbitration Act, which was designed to place arbitration agreements on equal footing with other contracts, for a variety of reasons. These reasons include: (a) private contracts that conflict with the NLRA must yield to the NLRA; (b) the right to engage in collective legal action is a core, substantive right guaranteed by the NLRA; (c) the FAA itself states that private arbitration agreements may be invalidated where grounds exist at law or in equity for the revocation of any contract; and (d) even if there were a conflict, the later Norris-LaGuardia Act (passed subsequent to the FAA) repealed any and all laws that conflicted with its terms—including the FAA.

The Board also went to great lengths to distinguish the Supreme Court’s recent decisions in 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009), holding that a union can agree to a clause waiving employees’ rights to bring an action in court alleging discrimination, and AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), which struck down a judicially-imposed California rule prohibiting class action waivers in contracts of adhesion. With respect to 14 Penn Plaza, the Board stated that it was okay for a union to waive certain section 7 rights during the give and take of bargaining, but that individual employees could not be compelled to do so as a condition of employment. With respect to Concepcion, the Board stated while the contract at issue there could cover tens of thousands of people, the average employer has only 20 employees, and, further, the Board’s holding involves only one type of contract, namely, contracts between employers and employees covered by the NLRA.

In summary, the Board held:

[E]mployers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of classwide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis.

(Emphasis original).

Member Hayes recused himself from this case, so there is no dissenting opinion, but it is almost a certainty that the decision will be appealed. Some possible avenues of attack include the Supreme Court’s recent jurisprudence enforcing class action waivers in arbitration agreements, the fact that there is little support for the proposition that filing class/collective action lawsuits involving statutes over which the Board has no enforcement authority constitutes protected activity, and the Board’s failure to recognize that individuals are just as capable of waiving their rights and resolving disputes with their employers as unions are of doing so on employees’ behalf. Moreover, the fact that D.R. Horton was decided by two Board members due to Member Hayes’s recusal may leave the case vulnerable to attack under New Process Steel, L.P. v. NLRB, 130 S.Ct. 2635 (2010), which held that the Board could not act with less than a three member quorum. Finally, to the extent that the Obama Administration’s recent recess appointments attempt to apply D.R. Horton going forward, their appointment is subject to legal challenge, as discussed below.

In the meantime, employers should keep in mind that this decision is somewhat limited in scope. It is not necessarily a ban on all arbitration for the following reasons:

·         The decision applies only to employees covered by the Act, not to managers, supervisors or independent contractors;

·         The decision does not apply to agreements to arbitrate purely individual claims (although the Board has held that some types of individual arbitration agreements are unlawful); and

·         The Board expressly declined to address whether an employer could insist that class claims be arbitrated or to decide the legality of agreements that are not a condition of continued employment or supported by consideration other than continued employment (such as eligibility for certain benefits).

Finally, the only way the Board will address class action waivers directly in the future is if an affected employee files an unfair labor practice charge. While the decision may be persuasive authority in other forums, it is not directly binding on state or federal courts, which may be more receptive to enforcing such agreements in light of recent Supreme Court authority. This uncertainty seems to have placed the Board’s stance on class arbitration agreements on a collision course with the Supreme Court’s more permissive stance, and it is unclear how these issues will be resolved. In any event, employers should be cognizant of the risk that class action waivers in arbitration agreements may not be enforced under certain circumstances.

If the petitioned-for unit satisfies [the community of interest standard], the burden is on the employer to demonstrate that the additional employees it seeks to include share an overwhelming community with the petitioned-for employees, such that there “is no legitimate basis upon which to exclude certain employees from the larger unit because the traditional community-of-interest factors ‘overlap almost completely.’”

The Board majority found that the employer failed to meet this heavy burden, citing a number of differences between the wall-to-wall unit and the petitioned-for unit (some of which seem nuanced and subtle). Although all employees were required to have high school diplomas and driver’s licenses and wear company uniforms, the Board found that the RSAs and LRSAs wore “classier” uniforms, were subject to stricter qualifications standards, and worked on schedules covering 24 hours each day, unlike other jobs that were only staffed for part of each day. RSAs and LRSAs were also subject to a mandatory “Incentive Compensation Plan” and a “Core Model for Sales” performance improvement plan which subjected them to transfer or discharge if certain threshold sales were not met. This “potentially punitive” aspect of the performance improvement plan did not apply to other job classifications within the facility. 

The Board also focused on the RSAs’ and LRSAs’ job duties. Unlike the other classifications in the employer’s petitioned-for unit, the RSAs and LRSAs welcomed customers upon arrival at rental counters and processed customer paperwork. These tasks differed from those assigned to other agents who assisted customers in selecting their vehicle, checked vehicle identifications and contracts when customers exited the facility, and assisted customers in returning vehicles. Similarly, bus drivers, mechanics, vehicle shuttlers, and staff assistants performed distinct tasks separate from the RSAs’ and LSRAs’ responsibilities. 

In light of these distinctions, the Board found that the evidence did not show that RSAs and LRSAs shared an overwhelming community of interest with other employees. In reaching this conclusion, the Board distinguished its decision in United Rentals, on which the regional director had relied in finding that the employer’s sought-after wall-to-wall unit was appropriate. The facility at issue in United Rentals, the Board noted, employed only 18 employees, all of whom performed the functions of different classifications “regularly and in many instances every day.” Although the Board acknowledged that the occasional interchange among RSAs, LRSAs, other agents and staff assistants, the Board held that this “infrequent and limited interchange [did] not preclude a finding that the petitioned-for unit had a distinct community of interest.”

Dissenting from this decision, Member Hayes pointed out what many feared when the Board first issued Specialty Healthcare in August, writing that “it is difficult to imagine a multiclassification, multifunction workplace where the jobs of all workers are nevertheless so homogenous that [inter-classification] distinctions cannot be drawn.” For this reason, Hayes continued, Specialty Healthcare as applied in DTG Operations provides unions a major organizing advantage. However, the extent of this apparent doctrinal shift regarding an employer’s ability to challenge a petitioned-for unit remains unsettled. The Board has so far limited its application to rental car and nonacute healthcare employers, and not to an instance where the union petitioned for a small subset of a traditionally accepted unit such as a production and maintenance unit. The Board also reiterated in Northrop Grumman Shipbuilding Inc., another recent case applying Specialty Healthcare, that Specialty Healthcare was “not intended to disturb any rules applicable only in specific industries” other than the non-acute healthcare industry. 357 NLRB No. 163 (December 30, 2011) (quoting Specialty Healthcare). Further, the Board’s ruling in Specialty Healthcare is currently subject to review in federal court, and also faces several recently proposed legislative challenges.

It is clear that the Board is imposing the burden on the objecting employer to show that any exclusions from a petitioned-for unit are inappropriate. What is less clear are the factors that the Board will consider when determining whether excluded employees and employees in the petitioned-for unit share an “overwhelming community of interest.” However, some guidance may be derived from the fact that the both Specialty Healthcare and DTG Operations borrow from the D.C. Circuit’s Blue Man Vegas opinion, which, unlike the Board’s opinions, provides a practical illustration of the “overwhelming community of interest” test. 529 F.3d 417 (D.C. Cir. 2008). In Blue Man Vegas, the court held that a unit is inappropriate if the “functional integration and overwhelming similarities” among the petitioned-for unit and excluded employees demonstrates that there is “no legitimate basis” for excluding other employees, or, in other words, if the petitioned-for unit is “irrational” and “unsupported by substantial evidence.” 529 F.3d at 422. While the D.C. Circuit’s application of this test is not necessarily less onerous than the Board’s, its elaboration on the contours of this test will likely be useful for employers looking to challenge a union’s petitioned-for unit. 

Conclusion

2012 is already shaping up to be another eventful year at the NLRB. Our next alert will further comment on the areas discussed here, as well as several other trends that will likely lead to noteworthy changes in the next few months. These topics include, among other things, the Board’s continual focus on social media cases and changes to the Board’s General Counsel’s willingness to defer to the grievance and arbitration process in some cases.  Finally, Chairman Pearce’s stated desire for the Board to become known as “the resource for people with workplace concerns that may have nothing to do with union activities” promises a continuation of the Board’s focus on protected concerted activity cases in the non-union context. As always, we will continue to monitor and analyze these changes and their implications for employers.

If you have any questions regarding this alert, please contact one of the lawyers listed below or visit the Haynes and Boone Labor and Employment Practice page of our website.