Over the course of one week in mid-December, the Democrat-appointed majority members of the National Labor Relations Board (NLRB or the Board) significantly altered the labor law landscape for employers by issuing a flurry of high visibility, much anticipated decisions. Among other things, these decisions will make it easier for unions to organize employees and expose employers to categories of damages previously not available for labor law violations. We address each of the Board’s recent decisions below, as well as highlight other cases that may be decided soon by the NLRB, along with other notable developments at the agency.
Expanded Remedies Now Available for Employer Unfair Labor Practice Violations
The National Labor Relations Act (NLRA or the Act) is the federal law administered and enforced by the NLRB. Parties that violate the Act are found to have engaged in “unfair labor practices.” Under the specific language of the Act, the NLRB can order what is referred to as “make-whole” relief for unfair labor practices, but it cannot provide additional remedies that exceed such make-whole relief, such as damages for emotional distress, pain and suffering, or punitive damages.
Notwithstanding this limitation on NLRA remedies, on December 13, 2022, a majority of NLRB members – specifically, the three Democrat-appointed members – decided (over the dissent of the Board’s two Republican members) in Thryv, Inc. that even though the NLRB cannot order anything beyond “make-whole” remedies for violations of the Act, employers that violate the Act can be required to compensate employees “for all direct or foreseeable pecuniary harms suffered as a result of the [employer’s] unfair labor practice.”
In Thryv, the Board found that the employer unlawfully laid off six employees without first bargaining with their union to an impasse. The Board then considered whether the employer should be required to pay damages beyond back pay incurred by the employees on account of their unlawful layoff, as well as whether those damages should be incorporated into the standard make-whole remedy under Section 10(c) of the Act.
Section 10(c) empowers the NLRB to remedy unfair labor practices by taking “such affirmative action including reinstatement of employees with or without backpay.” Thus, the “make-whole” remedy traditionally has been limited to reinstatement and an order for back pay. Although the Thryv majority declined to adopt the term “consequential damages,” it nevertheless substantially broadened the “make-whole” remedy the Board can order, holding that “make-whole relief encompasses, at a minimum…direct or foreseeable pecuniary harms that are a consequence of” an employer’s unfair labor practices (emphasis added). The majority reasoned that such a remedy was “necessary to more fully effectuate the make-whole purposes of the [NLRA].” Accordingly, now things like medical expenses incurred by unlawfully separated employees who would have had those expenses covered by an employer’s health insurance plan but for the unlawful separation are recoverable in NLRB proceedings. So too are items like credit card interest or rental car expenses incurred after loss of an employer-provided vehicle that could also be used for personal purposes.
The Board held that these expanded remedies now will be available “in every case in which [the Board’s] standard remedy would include make-whole relief, regardless of the egregiousness of the violation,” and that they will apply retroactively in all pending cases in the absence of “manifest injustice.” The takeaway from Thryv is that although the Board’s decision is likely to face legal challenges, for now employers are on the hook for all direct or foreseeable damages resulting from an unfair labor practice. It remains to be seen how substantial those damages could be. (Consider, for example, an unlawfully terminated employee who loses health insurance and then is diagnosed with a grave illness or is seriously injured in an accident and the possible expense associated with that which could be ordered to be paid by the employer.) Employers will have to watch what happens as this case moves forward. Although the Board in Thryv declined to opine on incorporating pain and suffering, emotional distress, front pay, or legal fees into its make-whole remedy, it noted that the NLRB’s General Counsel and various interested parties have pressed the Board on such measures. If Thryv survives appellate court review, those further expanded remedies could be on the table.
The Return of the Micro-Unit
The day after it issued its decision in Thryv, the NLRB issued its decision in American Steel Construction, Inc., in which the Board majority (again, the three Democrat appointees, over the objection of the two Republican appointees) overruled a 2017 case called PCC Structurals, Inc., which itself had overruled an earlier case from 2011 called Specialty Healthcare & Rehabilitation Center of Mobile, and reinstated the rule announced in Specialty Healthcare. That rule held then, and now once again holds, that where an employer seeks to expand a petitioned-for bargaining unit on the ground that the smallest appropriate unit excludes additional employees, the employer has the burden of proving that the excluded workers share “an overwhelming community of interest” with those within the proposed unit such that there is no rational basis for their exclusion. In more common language, the Board’s decision in American Steel reestablishes the standard that permits unions to organize “micro-units” of employees and puts the burden on employers to demonstrate why a union’s sought-after micro-unit should be rejected.
In American Steel, a union filed a petition seeking to represent a proposed bargaining unit of only a subset of the employer’s employees (journeymen and apprentice field ironworkers). American Steel argued that this grouping was inappropriate for collective bargaining purposes because it excluded additional classes of employees that shared similar aspects of employment with the petitioned-for employees. Applying PCC Structurals – the standard then in place – the Regional Director agreed, holding that under that standard, the union failed to show that the proposed unit had interests sufficiently distinct from the excluded workers.
The NLRB agreed to review the Regional Director’s decision. In doing so, the Board first explained that it has long held that a bargaining unit is appropriate under Section 9(b) of the NLRA so long as the petitioned-for employees have a sufficient “community of interest.” In determining whether such a community of interest exists, the Board considers:
[W]hether the employees are organized into a separate department; have distinct skills and training; have distinct job functions and perform distinct work, including inquiry into the amount and type of job overlap between classifications; are functionally integrated with the employer’s other employees; have frequent contact with other employees; interchange with other employees; have distinct terms and conditions of employment; and are separately supervised.
Further, if the proposed unit constitutes a subdivision of employees, the unit must be: (1) homogeneous, (2) identifiable, and (3) [importantly here] sufficiently distinct.
In overruling PCC Structurals and returning to the Specialty Healthcare standard, the NLRB majority held that when this “sufficiently distinct” element is challenged by the employer on the basis that the smallest appropriate unit must also include employees not in the petitioned-for unit, the burden is on the employer to establish that the excluded employees share an “overwhelming community of interest” with the petitioned-for employees, “such that there is no rational basis for the exclusion.” Accordingly, by returning to the Specialty Healthcare standard, unions have once again been given the green light to seek convenient, small subsets of employees employed by an employer, with the employer then having the burden to establish that other employees, excluded by the union’s proposed unit, share a difficult-to-define and harder-to-establish “overwhelming community of interest” with the petitioned-for employees to avoid a fractured workplace consisting of subsets of represented and unrepresented employees (or subsets of employees represented by different unions).
The NLRB held that Specialty Healthcare’s what’s-old-is-new-again standard will apply retroactively in all pending cases. By all measures, the Board’s action in American Steel is an enormous win for unions, and no doubt will generate more targeted organizing by unions of employee subgroups.
While acknowledging that five circuit courts of appeal have declined to apply the Johnnie’s Poultry standard, the NLRB majority (again, over the dissent of the two Republican members) explained that adherence to the Johnnie’s Poultry standard is necessary because it “balances the heightened risk of coercion to employees, the legitimate employer need to question employees to prepare its defense, and the Board’s institutional interest” by ensuring employees speak truthfully without fear of reprisal. Employers therefore must ensure continuing compliance with that standard.
NLRB Maintains Rule Regarding Pre-Litigation Employee Interviews
In its third high-profile 3-2 decision in the same number of days, the NLRB reaffirmed in Sunbelt Rentals, Inc. its bright-line, per se standard used to determine whether employer questioning of employees about their protected concerted activities in preparation for Board proceedings is unlawfully coercive. That standard – first articulated in 1964 in a case called Johnnie’s Poultry – requires employers (and their lawyers) to strictly adhere to the following safeguards when questioning an employee on matters involving activities protected by Section 7 of the Act or risk “a finding that the interrogation was per se unlawful”:
[T]he employer must communicate to the employee the purpose of the questioning, assure him that no reprisal will take place, and obtain his participation on a voluntary basis; the questioning must occur in a context free from employer hostility to union organization and must not be itself coercive in nature; and the questions must not exceed the necessities of the legitimate purpose by prying into other union matters, eliciting information concerning an employee’s subjective state of mind, or otherwise interfering with the statutory rights of employees.
NLRB Says Employers Must Allow Access to Union Protesters
The NLRB’s coup de grâce for employers in its busy week was its December 16, 2022 decision in Bexar County Performing Arts Center (Bexar II), in which the Democrat-appointed majority, once again over the dissent of their Republican-appointed colleagues, held that the operator of a performing arts center in San Antonio, Texas violated the NLRA by barring employees of the San Antonio Symphony from protesting on its property. On remand from a federal court of appeals, which declined to enforce the Board’s initial 2019 decision in the case, the Board majority abandoned its prior decision in the case, which held that an employer must permit contractor employees to access its property only if the contractors “regularly and exclusively” work at that property, and, as it did in American Steel, reinstated a more union and employee-favorable standard from a 2011 case called New York New York Hotel & Casino.
In Bexar II, unionized performers with the San Antonio Symphony engaged in a protest at the Bexar County Performing Arts Center over a decision by the San Antonio Ballet to use pre-recorded music rather than live music performed by the symphony’s members. The Performing Arts Center kicked the protestors off the property. In an earlier decision in the case from 2019, a then-Republican majority of the Board held that the Performing Arts Center’s ejection of the symphony employees was a lawful exercise of the center’s property rights. In so doing, the Board overruled the standard from New York New York, holding instead that employees of a contractor that work on the employer’s property can only access the property to protest if they regularly work on-site and if they do not have a reasonable alternative way to protest other than by trespassing on the employer’s property.
The union appealed that decision to the United States Court of Appeals for the DC Circuit, which refused to enforce the NLRB’s decision, calling it arbitrary and inconsistent, and sending it back to the NLRB for reconsideration. When the case returned to the NLRB, the composition of the Board had changed, with a now Democrat-appointed majority. This majority abandoned their colleagues’ earlier decision in the case and reinstated the rule from New York New York. Accordingly, the Board held that the Performing Art Center violated the law by ejecting the symphony protestors, effectively elevating the rights of employees over the property rights of the owners of the property.
The takeaway from this decision is that unless an employer can show why its property interests are greater than the Section 7 interest of employees of contractors that perform services on its property, the employer/property owner will engage in an unfair labor practice by removing those employees from the premises to stop or prevent protected concerted activities. A second appeal of the case is likely here, so employers should pay attention for further developments.
What’s Left? Other Pending Cases of Note
After the NLRB’s busy week, employers rightfully may be spinning from the developments discussed above. However, there are a number of cases currently pending before the NLRB which may bring even more change.
In late 2021 and early 2022, the NLRB issued notices and invitations to file briefs – a procedure it follows in cases where it is considering either reversing precedent or establishing new law – in three cases, each of which remains undecided.
In The Atlanta Opera, Inc., the NLRB invited parties to address whether the NLRB should continue to follow the standard set in SuperShuttle DFW, Inc. to determine whether a worker is an independent contractor or an employee. It is widely believed that the current NLRB is likely to reverse SuperShuttle DFW and use the pending case to return to the prior standard established by the Obama NLRB in 2014 in FedEx Home Delivery. The effect of that would be to make it more likely for workers to be found to be employees rather than independent contractors, at least for purposes of the NLRA, meaning that these individuals would have the protections of and rights under the Act and can organize into unions.
In Stericyle, Inc., the NLRB is reexamining the standard for determining whether employer work rules improperly interfere with, restrain, or coerce employees in the exercise of rights guaranteed under the NLRA. Readers of our blog will recall that in 2017 and again in 2019, the NLRB changed the standard in(through decisions in Boeing Co. and LA Specialty Produce Co.) to a more employer-friendly standard, implementing a test that classifies employer rules into three categories that balance employer and employee interests. It is widely anticipated that through Stericycle, the NLRB will return to the standard previously established in Lutheran Heritage Village that evaluated only whether the rule could be interpreted in such a way as to chill employee rights under the statute. A return to that standard could once again create a climate under which employer rules are extensively scrutinized and found unlawful based on purely hypothetical outcomes.
The NLRB is examining in Ralphs Grocery Company whether employers can include confidentiality terms in arbitration agreements with employees, including whether a prohibition on such terms would run afoul of the Federal Arbitration Act.
There is no timeline for when a decision may issue in any of these cases. However, given the NLRB’s issuance of high-profile decisions over the last few weeks, it would not be surprising for decisions to issue some or even all of these cases in the near future. Last, although not the subject of notices and invitations to file briefs, the NLRB General Counsel is pursuing two novel legal theories that employers need to monitor. The first is the attempt by the General Counsel to revive the long-ago-abandoned Joy Silk standard, under which an employer would be required – without an election – to recognize a union that claimed to have support of a majority of employees, unless the employer can show a legitimate “good faith doubt” as to that majority support. The other is the General Counsel’s effort to overrule an NLRB decision from more than 70 years ago (Babcock & Wilcox) which held that employers may lawfully conduct non-coercive “captive audience meetings” with employees to present their views on unionization during an organizing campaign. Cases involving each of these issues are currently progressing through the NLRB litigation pipeline at this time and are likely to come before the Board for decision in 2023.
Other Important NLRB Developments
NLRB General Counsel Signals Intent to Issue Complaint Alleging Collegiate Student-Athletes Are Employees
The NLRB hears cases brought to it when the agency’s top prosecutor – the General Counsel – issues an unfair labor practice complaint. Procedurally, this occurs when an NLRB Regional Director, acting through a delegation of prosecutorial authority, issues that complaint.
On December 15, 2022, the General Counsel announced that the Regional Director for Region 31 of the NLRB in Los Angeles found merit in claims that the University of Southern California, the Pac-12 Conference, and the NCAA violated the NLRA by misclassifying USC’s student-athletes as non-employees and by maintaining and applying rules that restrict the student-athletes’ ability to form a union and engage in other protected concerted activities. If the parties fail to reach a settlement – which appears unlikely at this time – the Regional Director will issue a complaint on behalf of the General Counsel.
You may recall that the issue of whether scholarship athletes at private universities are employees who can join unions first surfaced in 2015, when a union filed a petition to represent football players at Northwestern University. In that case, a Regional Director found that the student-athletes were employees and therefore could unionize. However, on review, the NLRB concluded that it “would not effectuate the policies of the Act” to assert jurisdiction over student-athletes, effectively – pardon the pun – punting on the issue. (See our prior blog post on this issue here.)
This announcement should come as no surprise. The current NLRB General Counsel signaled her position on this issue in a memorandum issued in September 2021 shortly after her appointment, in which she explained her position that student-athletes at private universities are employees and her intent to purse remedies accordingly. This matter therefore appears destined for a hearing before an NLRB administrative law judge, who will issue a recommended decision determining whether the NLRB’s General Counsel is correct on the student-athletes’ status as statutory employees. The loser on that issue can then appeal to the NLRB. If USC, the Pac-12, and the NCAA lose before the NLRB, they can then appeal to a federal appeals court. So this case is just kicking off, and may well be headed for overtime (Sorry, couldn’t resist.)
Member Ring’s Term Expires
The NLRB is comprised of five members, each appointed by the President with the advice and consent of the Senate to five-year terms. Although not established by statute, it is tradition (and the timing of appointments make it such) that the majority of Board members are appointed by the sitting president, and therefore aligned to the political ideologies (at least with respect to labor relations) of the current administration. The NLRB therefore has been comprised since August 2021 of a majority of Democrat members nominated by President Biden (Chairman McFerran and Members Prouty and Wilcox), with the remaining two members – Members Ring and Kaplan – being holdover Republican appointees first appointed by former President Trump.
However, Member Ring’s term expired on December 16, 2022, leaving the Board with only four members, and only one Republican appointee. It is anticipated that President Biden – like his predecessors under similar circumstances – may move slowly to fill the vacancy, waiting to nominate a Republican member until such time as another Democrat seat is up for nomination to balance out any Congressional opposition. With Member Wilcox up for renomination in August 2023 (Member Wilcox is currently serving the remainder of a five-year term that previously was unfilled; NLRB five-year terms continue to run even when vacant), that may mean that Democrats hold a 3-1 advantage on the Board for many months to come. This likely will lead to more pro-union, pro-employee decisions, as the accentuated imbalance on the Board means that there is no longer the possibility of two Republican appointees being assigned to a three-person panel for decisions, as is the norm in NLRB cases. It further means that the delays that often accompany controversial and sometimes precedent-shifting cases may be reduced, since there will be less opposition, and less dissent, given the lack of one Republican NLRB member.
NLRB Receives Funding Increase
In 2014, the NLRB’s agency-wide budget – the money appropriated to it by Congress to investigate and litigate unfair labor practice claims and oversee representation case proceedings under the Act, as well as other agency activities – was $274.2 million. That amount had not increased since 2014, prompting the Board’s Chairman and General Counsel to send a letter to Congress in November 2022 warning that if the NLRB does not receive an increase in its appropriation, the agency may be required to furlough some of its 1,200 career staff, which will result in case processing delays and other adverse consequences. Predictably, unions and employee advocacy groups voiced support for an increase in the NLRB’s budget. Business and trade organizations however suggested to Congressional leaders that the agency’s caseload does not warrant an increase in its budget.
On December 20, 2022, the Consolidated Appropriations Act, 2023 (H.R. 2617) was released. Included in the Government’s $1.7 trillion budget for 2023 is $299.2 million for the NLRB, an increase of approximately 9% over the agency’s budget for the past eight years, but $20 million less than the agency had requested. Interestingly, a condition was attached to Congress’ appropriation to the NLRB: that “[n]one of the funds…be used to issue any administrative directive or regulation that would provide employees any means of voting through any electronic means in an election to determine a representative for the purposes of collective bargaining.” Although there have been suggestions from stakeholders that NLRB election procedures should be modernized to include electronic voting, with this limit on Board spending, those changes will not come any time soon.
The NLRB’s decisions in Thryv, American Steel, and Bexar II are likely to have an immediate impact on many employers. Its decision in Sunbelt Rentals merely reaffirms existing law and thus should not have much of an effect. More open issues of considerable importance are ripe for decision, and the current ideological imbalance on the Board will only embolden the NLRB and the General Counsel to continue to advance an openly pro-union agenda. Employers should be prepared for more adverse decisions from the Board and further aggressive prosecutorial decisions by the General Counsel in 2023. We will continue to bring updates on future developments.