Alerts and Updates

Recent Developments in Employment Law

November 2007

Big News from the National Labor Relations Board, New York's High Court, and New York and California Legislatures; DHS Changes to I-9 Form and Employer Handbook

NLRB UPDATES

NEW YORK COURT UPDATE

STATE LEGISLATIVE UPDATES

DEPARTMENT OF HOMELAND SECURITY

NLRB UPDATES

Voluntary Recognition of Union Will Not Bar Timely Filed Decertification Petition

On September 29, 2007, the National Labor Relations Board ("The Board") overturned 40 years of precedent when it ruled that an employer's voluntary recognition of a union will no longer immediately bar employees from filing a decertification petition or supporting a representative petition from another union. The Board's joint ruling in Dana Corporation and Metaldyne Corporation, 351 NLRB No. 28 (2007) is a significant departure from existing law and is important for employers that are presented with a union demand to enter into a card-check agreement, whereby an employer recognizes a union upon the showing of a card majority. Under the Board's decision, no election bar will be imposed after a card-based recognition unless (1) bargaining-unit employees receive notice of the recognition and of their right, within 45 days of the notice, to file a decertification petition or to support the filing of a petition by a rival union, and (2) 45 days pass from the date of the notice without the filing of a valid petition.

Factual Background

In September 2002 and August 2003 respectively, two different employers - Metaldyne Corporation and Dana Corporation (the "Employers") - entered into separate neutrality/card-check agreements with the United Auto Workers Union (the "Union"). Following the Union's solicitation of authorization cards and the verification of majority representation by a neutral third party, the Employers recognized the Union as the exclusive bargaining representative of their employees. Shortly after recognition, however, employees at each company filed a petition seeking decertification.

The Regional Directors for the respective regions dismissed the employees' petitions based on an application of the Board's recognition bar doctrine. Under this long-standing doctrine, announced by the Board in Keller Plastics Eastern, Inc., 157 NLRB 583 (1966), an employer's voluntary recognition of a union, in good faith and based on a demonstrated majority status, immediately bars an election petition filed by an employee or a rival union for a reasonable period of time. In its request for review, the employees argued that the voluntary recognition process is a far less reliable indicator of actual employee preference than a secret ballot election and "places too much unchecked power in the hands of an employer and its chosen partner union, threatens employee free choice, and eliminates the Board from the process." For these reasons, the employees requested that the Board abolish or, alternatively, modify the recognition bar to allow decertification petitions to proceed following voluntary recognition.

The Board granted the employees' requests for review in order to re-examine the recognition bar doctrine and to strike the proper balance between "two important but often competing interests under the National Labor Relations Act" - protecting employees' right to exercise their choice of a collective bargaining representative and promoting stability of bargaining relationships.

Rationale for Modification of the Recognition Bar

At the outset of its decision, the Board made clear that its ruling sought to provide greater protection for employees' statutory right of free choice and to give proper effect to the Board's preference for resolving representation questions through a secret ballot election as opposed to the "admittedly inferior" authorization card process. In contrast to secret ballot elections conducted under the watchful eye of a neutral board and the parties' observers, card signings are public acts, susceptible to group pressure and often accompanied by misinformation about the employees' representational options. The Board expressed concern that the voluntary recognition process is devoid of many of the procedural safeguards inherent in the election process, including prohibitions against improper electioneering tactics. The Board concluded that, although there was reasonable rationale for imposing an immediate bar in circumstances involving a Board election certification, such rationale was far less persuasive where there is only voluntary recognition. Accordingly, the Board determined that imposing certain notice and window-period requirements in the voluntary recognition process would afford greater protection for employees' statutory right of free choice.

The Board recognized that unions are increasingly and successfully turning to card checks as their preferred method of achieving recognition and made clear that its ruling did not seek to interfere with that process. Rather, its decision was intended to improve upon the process by better assuring that employee free choice is not impaired. In that regard, the Board held that a higher standard of notice to employees that recognition has been extended, and a post-recognition opportunity for employees to petition for an election, must be met before an election bar is imposed. The new notice obligations require the employer and/or the union to promptly notify the Regional Office, in writing, of the grant of voluntary recognition. Upon receipt, the Regional Office will send an official Board notice to be posted in conspicuous places at the workplace throughout the 45-day period, advising employees of the recognition and informing them of their right to file, within 45 days, a decertification petition supported by at least 30 percent of the unit employees or to show support for another union's filing of a petition to represent them.

The Board's Ruling Is Prospective

Although the Board's current practice is to apply new standards to "all pending cases in whatever stage," the Board determined that retroactivity here would destabilize established bargaining relationships. The Board thus ruled that it will apply the modified recognition bar doctrine prospectively to voluntary recognition agreements that postdate its decision.

What This Means for Employers

The Board's decision in Dana Corporation is a significant departure from existing law since, unlike Board certifications, employees will have 45 days to file for decertification or to support an election petition by a rival union, measured from the date they are formally notified.

Less Protection for "Salts" Applying for Jobs at Non-Union Facilities: NLRB Shifts Employer's Heavy Burden to General Counsel

In Toering Electric Co., 2007 NLRB LEXIS 413 (September 29, 2007), the National Labor Relations Board (the "Board") addressed two important issues: (1) the extent to which an applicant for employment enjoys the same protection against discriminatory hiring that is afforded to employees; and (2) the burden of proving that an applicant, who has allegedly experienced discrimination in hiring, meets the definition of "employee" that is protected under the National Labor Relations Act ("NLRA").

Many employers have experienced "salting" at their workplaces. Salting occurs when a union sends its members to a non-unionized workplace to obtain employment and then to organize the employees at the facility. Some salts may be genuinely interested in gaining employment with the non-union employer. However, other salts have no such intention. In submitting applications for employment, their only intention is to create opportunities to file unfair labor practice charges against the employer if the employer fails to offer them employment. These charges serve to impose upon the non-union employers the expenses associated with defending themselves against unfair labor practice charges in legal proceedings and to disrupt the non-union workplace through the use of unfair labor practice strikes. By its recent decision in Toering, the Board has made it more difficult for applicant salts to file unfair labor practice charges against non-union employers on the basis of discriminatory hiring.

Under Section 8(a)(3) of the NLRA, an employer commits an unfair labor practice if it discriminates in regard to hiring or tenure decisions on the basis of an employee's membership or non-membership in a union. The Board has previously determined that an applicant for employment enjoys the same protection under Section 8(a)(3) that is afforded to employees. In Toering, the Board clarified the extension of 8(a)(3) to job applicants by holding that, for an applicant to be entitled to protection, he/she must be genuinely interested in establishing an employment relationship with the employer. This holding has eliminated the protections against discriminatory hiring available to applicant salts who have no genuine interest in pursuing employment with the employer.

In 1996, Toering Electric Co. became the target of a union salting campaign. In response to a "help wanted" ad in the newspaper, the organizer of the International Brotherhood of Electrical Workers, Local 275, mailed his resume along with resumes of 18 other union members to Toering in two submissions. Toering did not hire any of the 18 union applicants. The union claimed that Toering had committed unfair labor practices by engaging in discriminatory hiring. Toering defended its decision by stating that the fact that the resumes were out-of-date and incomplete led it to believe that the individual applicants were salts who were not genuinely interested in seeking employment. It argued that, because of their lack of interest in employment, the applicant salts did not enjoy the protection of Section 8(a)(3) against discriminatory hiring afforded to employees.

Rationale for Modification of Salters' Protection

The Board concluded that an applicant for employment was entitled to protection as an employee under Section 8(a)(3) only if he/she was genuinely interested in seeking to establish an employment relationship with the employer. Its decision was based on several factors. First, the Board explained that an "employee" protected under the NLRA should have an actual or anticipated economic relationship with the employer. Because an applicant with no genuine interest in seeking an employment relationship would have no actual or anticipated economic relationship with an employer, he/she would not be an "employee" within the meaning of the NLRA. Additionally, the Board noted that the purpose of the NLRA was to remedy actual harm suffered by employees, not merely to punish employers for engaging in discriminatory behavior. Thus, because an applicant with no genuine interest in obtaining employment with the employer would suffer no actual harm on the basis of the employer's decision not to hire him/her, the applicant would have no remedy under the NLRA. Finally, the Board stated that the failure to limit the scope of protection afforded to applicants under the NLRA would result in the real and unacceptable possibility of abuse of the Board's processes.

Before the Board's decision in Toering, there was an automatic presumption that every individual who applied for a job was genuinely interested in employment and thus protected as an "employee" under Section 8(a)(3). If an employer was charged with an unfair labor practice, it could raise the issue of the applicant's lack of genuine interest in employment only as an affirmative defense. To better achieve its goal of discouraging disinterested applicants from filing charges against employers for discriminatory hiring, the Board in Toering abandoned the automatic presumption of "employee status" afforded to all applicants. Instead, it imposed upon the General Counsel the ultimate burden of proving an applicant's genuine interest in establishing an employment relationship with the employer once the employer makes a preliminary showing that the application is not genuine. Evidence that the applicant rejected a prior employment offer, has an out-of-date or incomplete application, uses offensive language on the application, etc., are all indicia of a lack of genuineness.

What This Means for Employers

The Board's decision in Toering is a significant victory for non-union employers. It narrows the scope of applicants who are afforded the protection of "employee status" under Section 8(a)(3) of the NLRA by requiring that such applicants be genuinely interested in seeking an employment relationship with the employer. Additionally, the decision shifts the ultimate burden of proving that an applicant is genuinely interested in employment to the General Counsel. In essence, the Toering decision minimizes protections for union salts who seek to uncover discriminatory hiring practices by non-union employers, since the employer's motive for failing to hire them is not relevant unless the General Counsel first establishes that they were genuinely interested in employment.

However, employers should exercise caution and make certain that they have sufficient evidence of an applicant's lack of interest before denying employment on the ground that they are a union salt. It should be noted that the fact that an application is received as part of a batch submitted by a union is not itself sufficient to conclude that the applicant is not genuinely interested in employment, provided that the applicant authorized submission of his/her application with the batch. Because the sufficiency of evidence is a discretionary determination, employers should seek the advice of counsel before making any decision to deny employment on the basis of an applicant's alleged disinterest in actual employment.

Labor Board Makes It Easier for Employers to Hire At-Will Permanent Replacement Workers

Following an economic strike, strikers retain their status as employees and are entitled to reinstatement to their former positions at the conclusion of the strike unless the employer can establish legitimate and substantial reasons for the failure to reinstate the strikers. Such "legitimate and substantial reasons" can include the hiring of permanent replacement workers.

However, it is the employer's burden to prove strikers were permanently replaced. This proof must be specific and must demonstrate a mutual understanding between the employer and the replacements that their jobs are "permanent." Furthermore, because the use of permanent replacement workers often results in the loss of the striking employees' jobs, disputes about the legality of the permanent replacements are frequent and contentious.

In 1997 the National Labor Relations Board, toward the end of the Clinton presidency, issued a decision known as Target Rock, 324 NLRB 373 (1997), that effectively heightened the risks to employers who wished to use permanent replacements. In Target Rock the employer had its replacement employees sign a boilerplate at-will statement that "I understand that the employer follows an employment-at-will policy in that I or the employer may terminate my employment at any time, or for any reason consistent with applicable state or federal law." The Board held that this statement "obviously does not support the Respondent's position that the striker replacements were permanent" and ordered the reinstatement of the allegedly permanently replaced striking employees with back pay.

This decision was troubling to employers because it suggested that an employer who hired "permanent" replacements could not hire such employees on an at-will basis, and that if an employer wished to replace strikers with permanent replacements, it must enter into some type of "permanent" contractual arrangement with them.

Board Reverses Course

Fortunately, the Board has recently changed its view. In Jones Plastics & Engineering Co., 351 NLRB No. 11 (2007), the Board reversed Target Rock insofar as it held "that at-will employment is inconsistent with or detracts from an otherwise valid showing of permanent replacement status." The Board found that because the employer had its replacement employees sign statements at the beginning of their employment that they were "permanent replacements" for employees "presently on strike," that, along with the lack of any other evidence that the replacements were temporary, was sufficient to establish permanent replacement status notwithstanding an at-will disclaimer in the same statement.

What This Means for Employers

This decision makes it easier to hire permanent replacements who are also designated at-will employees. An employer should have employees it hires with the intention of permanently replacing strikers sign a statement where this intention is expressly acknowledged. However, if permanent replacements are hired, care must still be taken to ensure that no other communications with them contradict or cast doubt upon their status as permanent replacements for purposes of the National Labor Relations Act. Even in Jones Plastics, the Board made clear that it would examine job advertisements and all other communications with replacement workers to determine their status as permanent or temporary.

NEW YORK COURT UPDATE

New York Court Recognizes Cause of Action for Misappropriation of Electronic Data

In Thyroff v. Nationwide Mutual, New York's highest court ruled that the common-law cause of action of conversion applies to certain electronic computer records and data. In so holding, the Court resolved an unsettled issue of state law and provided employers with a powerful additional remedy against employees who misappropriate confidential information and other company property.

The Facts

Plaintiff Louis Thyroff was an independent insurance agent for defendant Nationwide Mutual Insurance Company. In 1988, the parties entered into a contractor's agreement whereby Nationwide agreed to lease Thyroff computer hardware and software, referred to as the agency office-automation (AOA) system. In addition to the entry of business data, Thyroff also used the AOA system for personal e-mails, correspondence and other data storage.

In September 2000, Nationwide advised Thyroff that his contract as an exclusive agent had been cancelled, repossessed its AOA system and denied Thyroff further access to the computers and all electronic records and data. As a result, Thyroff was unable to retrieve his customer information and other personal information that was stored on the computers which he claimed ownership to as an independent insurance agent. Thyroff initiated an action against Nationwide in the U.S. District Court for the Western District of New York, asserting several causes of action, including a claim for the conversion of his business and personal information stored on the company's computer hard drives. The District Court held that the complaint failed to state a cause of action for conversion.

On appeal to the U.S. Court of Appeals for the Second Circuit, Thyroff sought reinstatement of his conversion claim. Nationwide responded that his claim could not be based on the misappropriation of electronic records and data because New York does not recognize a cause of action for the conversion of intangible property. The Second Circuit found that the law was unsettled on the issue of whether a conversion claim extends to electronic data under state law and, as a result, certified the question to the New York Court of Appeals.

The Decision

In New York, conversion - the unlawful appropriation of another's property - originally applied only to interferences with or misappropriation of "goods" that were tangible personal property. Notwithstanding the long-standing reluctance to expand conversion beyond the realm of tangible property, courts later recognized that an intangible property right may be united with a tangible object for conversion purposes, a theory referred to as the "merger" doctrine.

Under the merger doctrine, a conversion claim will apply to intangible property, such as shares of stock, that are merged or converted into a document, such as a stock certificate. Accordingly, conversion of the certificate may be treated as conversion of the shares of stock represented by the certificate. More recently, the court ruled that a plaintiff could maintain a cause of action for conversion where the defendant infringed the plaintiff's intangible property right to a musical performance by misappropriating a master recording, a tangible item of property capable of being physically taken.

Thyroff was the Court's first opportunity to consider whether the common law should permit conversion for intangible property that did not strictly satisfy the merger test. Recognizing that it "is the strength of the common law to respond, albeit cautiously and intelligently, to the demands of common sense justice in an evolving society," the Court decided that the time had arrived to depart from the strict common-law limitation of conversion. In its analysis, the Court looked back on the reasons for the merger doctrine and the law's initial expansion of conversion to encompass a different class of property, which was motivated, in part, by "society's growing dependence on intangibles." At the core of the merger rule was the concept that intangible property interests, such as stock, could be converted only by exercising dominion over the paper document that represented that interest. Now, however, it is customary that stock ownership exists exclusively in electronic format. In this regard, a thief can use a computer to access a person's financial accounts and transfer the shares to another account. Similarly, electronic documents and records stored on a computer can be converted by simply pressing the delete button.

Emphasizing society's increasing reliance on computers and electronic data, the Court concluded that "it generally is not the physical nature of a document that determines its worth, it is the information memorialized in the document that has intrinsic value." Accordingly, the information that Thyroff stored on his leased computers in the form of electronic records of customer contacts and related data had value to him regardless of whether the format in which the information was stored was tangible or intangible. In the absence of a significant difference in the value of the information, the Court ruled that the protections of the law should apply equally to both forms, physical and virtual, and that New York law would recognize a cause of action for conversion of such information.

What This Means for Employers

This decision provides a powerful remedy for New York employers to bring a cause of action against employees who steal company information or property. Unlike claims for breach of fiduciary duty or misappropriation of trade secrets, conversion may be easier to plead than other claims because it does not require that the employer establish willfulness or wrongful conduct.

STATE LEGISLATIVE UPDATES

New York Requires Written Agreements for Commissioned Salespersons

New York has amended Section 191.1(c) of its Labor Law to require employers to enter into written agreements with commissioned salespersons setting forth in detail the agreed upon terms of the compensation arrangement. This amendment, which became effective October 16, 2007, was made to combat the difficulties the Department of Labor experienced in investigation of wage payment claims for commissions in the absence of a written agreement memorializing the terms of commission arrangements.

Specifically, the new provision requires employers and commission salespersons to enter into a written agreement, signed by both parties, which describes how wages, salary, drawing account, commissions and all other monies earned and payable shall be calculated. Where the writing provides for a recoverable draw, the frequency of reconciliation shall be included. Such writing shall also provide details pertinent to payment of wages, salary, drawing account, commissions and all other monies earned and payable in case the employment is terminated by either party. The agreement must be kept on file by the employer for a period of not less than three years and made available to the Commissioner upon request. The failure of an employer to produce a written agreement of this type upon request by the Commissioner shall give rise to a presumption that the terms of the employment the commissioned salesperson has presented are the agreed terms of employment.

What This Means for Employers

Employers who fail to prepare detailed written agreements specifying the compensation arrangements they have with commissioned salespersons will proceed at their peril should they end up in a dispute with the commissioned salesperson over compensation owed, whether during or at the end of their employment. Therefore, employers should prepare and require commissioned salespersons to sign written agreements that explicitly spell out key economic terms of their employment. Notably, claims under the Labor Law can be brought by either the Commissioner or the individual on his/her own. A prevailing claimant can recover not only wages owed, but liquidated damages equal to 25 percent of that amount, along with reasonable attorneys fees. Therefore, employers should be careful about detailing the terms of their economic arrangements with commissioned salespersons effective immediately.

California Promulgates Military Spousal Leave Law

California employers with 25 or more employees must now provide up to 10 days of unpaid leave to qualified employees whose spouses return on leave from military duty under certain circumstances. This law is similar to one passed by New York State earlier this year. To qualify for leave, all of the following criteria must be met:

  1. The employee must work an average of at least 20 hours per workweek;
  2. The employee must be the spouse (or registered domestic partner) of a military member, i.e., a member of the Armed Forces of the United States, the National Guard or Reserves;
  3. The military member must have been deployed during a period of military conflict. If the employee's spouse is a member of the Armed Forces of the United States, then the member must also have been deployed to an area designated as a combat theater or combat zone by the President of the United States;
  4. The employee must provide notice to the employer of the intention to take leave within two business days of receiving official notice that the military member will be returning on leave; and
  5. The employee must provide written documentation to the employer certifying that the military member will be on leave from deployment.

Designated as emergency legislation, this new law took effect immediately on October 9, 2007, when signed by California's Governor Arnold Schwarzenegger. This new leave will not affect any other leave-of-absence rights employees may otherwise have under existing state or federal laws. Additionally, employees who take this leave are protected by law from retaliation for requesting or taking this leave.

DEPARTMENT OF HOMELAND SECURITY

The Department of Homeland Security Announces Changes to I-9 Form and Employer Handbook

As of October 31, 2007, an official of the Department of Homeland Security announced at a liaison meeting with the American Immigration Lawyers Association that a new Form I-9, Employment Eligibility Verification, will be issued shortly, as well as a revised Employer handbook. The Form I-9 is used to verify employment eligibility, and each employer in the U.S. must have a Form I-9 in their files for each employee hired after November 6, 1986, and must maintain that Form I-9 in their records for a prescribed period of time.

The new form and handbook will now be issued based on changes made in the 1997/98 regulations. The current form was last revised on May 31, 2005, although a revised form dated November 21, 1991, is still available for use by employers at this time. The new form and handbook were expected to become available to the public as early as the week of November 5, 2007.

Another, newer form is next anticipated in 2008. Regulations regarding these changes will be published at a later time. We will provide further details as they become available.

For Further Information

If you have any questions about this Alert or would like more information, please contact any of the attorneys of the firm's Employment & Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.