We are now more than halfway through President Joe Biden's first term in office, and the National Labor Relations Board, with a Democrat majority and a Democrat-appointed general counsel, has certainly been making its mark.

Over the past six months, the news has been awash with major shifts in legal precedent and examples of aggressive prosecutorial action.

As the board broadens its interpretation and enforcement of the National Labor Relations Act, all employers — whether unionized or not — need to stay abreast of the latest developments, which include an expansion of which workers are employees under the NLRA, and what constitutes protected concerted activities, efforts to prohibit restrictive covenants and confidentiality agreements, and increasing penalties for violations of the act.

Truly, a new sheriff is in town. Here are some of the most recent developments that all employers need to know.

Redrawing the Lines Between Independent Contractors and Employees

There has long been a legal battle over the classification of workers as independent contractors versus employees.

Across the country, particularly with the rise of the gig economy, governments at all levels have struggled to distinguish the two when the circumstances are unclear. The result is that there are various different tests that different agencies and courts may apply depending on the circumstances.

The board has itself been part of the fray; because the act's protections cover only employees, it has had to set forth guidelines to distinguish independent contractors, who are excluded from the employment-related protections of the act.

Over the years, the NLRB has flip-flopped between broadening and restricting the circumstances under which a worker would be found to be an employee under the NLRA. Most recently, the NLRB issued a ruling that will make it more challenging for employers to prove that workers are independent contractors.

On June 13, the board, in The Atlanta Opera Inc., held that a group of makeup artists, wig artists and hairstylists were employees, not independent contractors, and thus covered by the NLRA.

In a detailed opinion, the board overturned its 2019 SuperShuttle ruling, and again narrowed the circumstances under which a worker may be excluded from the coverage of the NLRA as an independent contractor.

The board reiterated that the common law agency test applies. It further held that it will consider, on top of the traditional factors, whether the evidence shows that the independent contractor is, in fact, rendering services as part of an independent business, and give weight only to actual entrepreneurial opportunity.

As part of this analysis, the board will evaluate any constraints that a company imposed on the individual's ability to pursue other business opportunities.

The decision in Atlanta Opera is a significant shift in how the board will analyze cases involving the classification of an individual whom a company has asserted is an independent contractor.

The logical and intended result of this decision is that more workers will be deemed employees under the NLRA, and thus have the right to engage in certain protected activities, such as unionizing, among other protections.

This decision will likely have the greatest impact on workers participating in the gig economy, but will certainly have far-reaching effects into other industries as well. Practically all companies utilize independent contractors in some way or another, and will now have to contend with yet another shift in how the board applies its test, not to mention other shifts by other agencies and courts in assessing independent contractor status.

Now is the time, if a company has not done so already, to evaluate independent contractor classifications.

As states trend toward narrower independent contractor tests, such as through adoption of the so-called ABC test, which makes it more difficult to classify workers as contractors, and the federal government cracks down on misclassifications under the Biden administration, companies should carefully assess whether a worker whom it currently engages as an independent contractor could fail to meet any one of the various independent contractor tests.

This is especially true if that worker is exclusively providing services to the company or providing full-time equivalent services.

There are adjustments that companies can make to those independent contractor relationships to eliminate risk of legal misclassification, but companies need to be proactive about addressing the situation before someone files a complaint and the damage is already done.

Expanded Protections for Offensive Conduct

Section 7 of the NLRA protects the rights of nonsupervisory and nonmanagerial employees to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection.

This means that, among other protected conduct, employees have the right to talk among themselves and with others about the terms and conditions of their employment.

Employees also have the right to engage in organizing activities. While this may seem straightforward at first glance, it quickly gets complicated when, in the process of engaging in what may be protected activity, an employee violates an employer's civility or anti-discrimination policies.

What if an employee uses profane or offensive language in the workplace, but does so while engaging in conduct protected by the NLRA?

On May 1, the board reinstated a complicated set of fact-dependent tests to analyze situations where an employer has disciplined an employee for misconduct related to protected concerted activities.

In Lion Elastomers LLC,[1] the board overturned a 2020 board decision, General Motors LLC,[2] which standardized the analysis for allegations of unlawful discipline or discharge.

In General Motors, a Republican-majority board held that where a case involved an employee's abusive conduct in the course of Section 7 activity, the employer's motive for the adverse action mattered.

Accordingly, the board would analyze such cases under the traditional Wright Line standard, a burden-shifting test in which the general counsel must ultimately prove that an employer took an adverse action because the employee engaged in protected activity.[3]

Just a few years after issuing the General Motors decision, the now Democrat-majority board has completely changed course. In Lion Elastomers, the board held that different tests should apply to different types of misconduct.

Now, when determining whether an employee's abusive conduct lost protection from the NLRA, thus permitting an employer to lawfully discipline the employee, the board will apply the following tests in the following circumstances:

1. To evaluate discipline related to employee misconduct that happened during workplace discussions with management, the board will apply the Atlantic Steel four-factor test. Under that test, the board considers: (1) the place of the discussion; (2) the subject matter of the discussion; (3) the nature of the employee's outburst; and (4) whether the outburst was, in any way, provoked by an employer's unfair labor practice.[4]
2. To evaluate discipline related to social media posts and to conversations among employees in the workplace, the board will apply a totality-of-the-circumstances test.[5]
3. To evaluate discipline related to picket-line conduct, the board will apply the Clear Pine Mouldings standard and analyze whether, under all the circumstances, the nonstrikers would have reasonably felt coerced or intimidated.[6]

In restoring these varied tests, the board explained that there is a fundamental difference between employee misconduct committed during Section 7 activity as opposed to during ordinary work.

The analysis should therefore focus on the employee's misconduct, i.e., how egregious was the misconduct, and the predictable effects on the exercise of Section 7 rights of the discipline, i.e., is it likely to intimidate or coerce employees.

Importantly, the current board believes that the employer's intent is not a significant consideration. Thus, an employer unaware of these legal restrictions and having no ill intent or anti-union animus can still find itself ensnared in litigation with the board's general counsel.

Not only does this decision create a complicated web of tests for employers to navigate, it also significantly affects employers' ability to enforce important workplace rules.

Employers have an interest in maintaining standards of conduct and civility in and outside the workplace. In particular, employers need the ability to prevent and prohibit misconduct that may violate local, state and federal anti-discrimination laws.

For example, many employers have zero tolerance sexual harassment policies. However, strict application of such a policy where sexually harassing misconduct took place within the context of Section 7 activity is now more likely to violate the act, as employer intent will matter little or not at all.

Efforts to Expand What Constitutes Protected Concerted Activity

Not only has the board enhanced restrictions against employer enforcement of workplace policies in the context of protected employee conduct, there is a concerted effort to expand the concept of protected concerted activity itself.

On May 3, in Fred Meyer Stores Inc., an administrative law judge found that employees engaged in protected concerted activity by wearing Black Lives Matter buttons and masks, even though such paraphernalia did not relate directly to employees' terms or conditions of employment.[7]

General Counsel Jennifer Abruzzo, who leads the enforcement arm of the board, had previously indicated that her office was seeking test cases to bring before the board so that she could advocate for an expansion of how the board defines protected concerted activity. The circumstances of Fred Meyer fit the bill.

In Fred Meyer, the employer maintained a dress code policy forbidding unauthorized buttons or slogans, with exceptions for special promotions and holidays. Some of these exceptions included football season game days, Relay for Life and LGBTQ Pride. After the onset of the COVID-19 pandemic, associates also started wearing personalized masks. Enforcement of the dress code policy was inconsistent.

After the murder of George Floyd, associates at Fred Meyer stores began wearing BLM buttons and masks. Though it violated the dress code policy, it was not until there was a complaint by a customer that store managers engaged in stricter enforcement of the policy.

Specifically, store managers prohibited employees from wearing the BLM slogan while at work. Notably, in this case, employees were in a union, but employees need not be in a union to exercise Section 7 rights.

The judge found that the employer had unlawfully prohibited workers from wearing BLM slogans in violation of the NLRA. The judge held that wearing BLM slogans and discussing racial prejudice constituted protected concerted activity for purposes of mutual aid and protection.

Further, because uniforms were a mandatory condition of employment, negotiations about or concerted refusals to follow the policy were protected activities. The judge also considered the company's historical inconsistency in applying the dress code policy, the CEO's public support for the BLM movement, and the effect that racial discrimination may have on working conditions.

Though an administrative law judge's decision does not constitute board precedent, it is an important bellwether for employers. The employer in Fred Meyer has indicated that it may appeal the decision to the board, which will provide the board an opportunity to expand its current legal interpretation of what constitutes protected concerted activity.

It is likely that the general counsel has other, similar cases in the works. Employers should anticipate that the general counsel will continue to prosecute cases where the alleged protected concerted activity involved political or social justice speech under the theory that the speech was tangentially related to working conditions.

This case illustrates the importance of consistently applying neutral workplace policies, particularly with respect to dress codes and employee conduct. Though we cannot predict exactly what the board may do to expand the reaches of the NLRA, employers should use this as an opportunity to assess their workplace policies and the enforcement of such policies.

Train supervisors to recognize employee speech that is, or could be, protected under the NLRA and about appropriate discipline for violations of company policy. Awareness and consistency are key to reducing the risk of inadvertently violating the NLRA.   

New Restrictions for Employment-Related Agreements, With Potentially More to Come

In February, the board shook employers across the country when it issued its now infamous decision in McLaren Macomb.[8]

In McLaren, the board held that severance agreements are unlawful on their face if they contain terms with a "reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights."

To the board, the mere proffer of such a severance agreement is unlawful. In other words, even if the employee declines, an employer could still violate the NLRA just by offering such an agreement.

In McLaren specifically, the employer offered severance agreements to 11 furloughed union employees. In exchange for severance benefits, the agreements contained confidentiality and nondisparagement provisions. The respective provisions were as follows:

1. Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
2. Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the employee has or had knowledge of, or involvement with, by reason of the Employee's employment. At all times hereafter, the Employee agrees not to make statements to Employer's employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.

The board held that the provisions, and thus the severance agreement as a whole, was unlawful. It explained that a severance agreement violates the NLRA if it "precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment."

The board also formally overturned two Trump-era board decisions: Baylor University Medical Center,[9] and IGT d/b/a International Game Technology.[10]

In those cases, the board examined the circumstances under which the employer presented the severance agreements, and required an additional showing of separate, unlawful conduct to find that such an agreement violated the NLRA.

In McLaren, the board ruled that the nondisparagement provision substantially interfered with employee rights to communicate about labor issues, disputes, or terms and conditions of employment, and thus was unlawful. Similarly, the confidentiality provision was unlawful because it broadly prohibited disclosure of the terms of the agreement "to any third person," which would include other coworkers or a union.

The board emphasized that "discussing terms and conditions of employment with coworkers lies at the heart of protected Section 7 activity," and the ability to discuss terms and conditions does not end when employment terminates.

Therefore, while not expressly referenced in the decision, it appears the board's restrictions also apply to settlement agreements.

In other words, the board's position is that employees may not knowingly bargain away their right to discuss terms and conditions of employment or to disparage their employer, even in exchange for valuable consideration.

Importantly, the prohibitions in McLaren apply only to nonmanagerial, nonsupervisory employees. Managers and supervisors are not covered by the NLRA. Thus, employers do not face a complete ban on such provisions.

It is also worth noting that the board is a federal agency, not a court. While employers should heed this decision and consider making changes to their severance agreement templates, if they have not already, employers should also analyze the potential impact of this decision on their specific operations.

The board has adjudicatory power to assess individual cases, not to enact federal and state statutes unilaterally. Further, board decisions are subject to appellate oversight, and the employer in McLaren has appealed the ruling to the U.S. Court of Appeals for the Sixth Circuit.

But even if the Sixth Circuit denies enforcement, the board can still apply the McLaren decision in jurisdictions outside those covered by the Sixth Circuit. Thus, the saga over the legality of such provisions under the NLRA continues.

Of course, Abruzzo also weighed in after the board issued its decision. Abruzzo published GC Memorandum 23-05 on March 22, clarifying her interpretation of McLaren. In FAQ format, the memorandum explained Abruzzo's opinion that:

• The holding could also apply to supervisors under certain circumstances;[11]
• The six-month statute of limitations to file an unfair labor practice charge continues to run while such provisions are in effect, not just from the date of execution; and
• The prohibitions apply beyond settlement agreements to any employer communication, such as preemployment or offer letters.

Then, a couple of months later, and without the backing of any actual board decision, on May 30, Abruzzo issued GC Memorandum 23-08, this time targeting the currently hot topic of the enforceability of noncompete and employee nonsolicitation provisions.

Abruzzo declared her office's position that noncompete agreements are unlawful because they chill employees from exercising their Section 7 rights under the NLRA.

The stated logic was that such agreements can reasonably be construed by employees to "deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work."

In effect, so Abruzzo's logic goes, restricting employees from entering into other competitive employment undermines their ability to engage in collective action, such as threatening to quit.

Unlike McLaren, GC Memorandum 23-08 is not board precedent. Rather, the policy statement sets forth Abruzzo's interpretation of the NLRA and prosecutorial positions. That said, employers should not ignore it, because Abruzzo is actively seeking test cases to give the board an opportunity to issue a decision that would restrict noncompete and nonsolicitation agreements.

Given the Biden administration's overall position as to noncompete restrictive covenants, and that other agencies, such as the Federal Trade Commission, are also considering broad prohibitions, employers should anticipate that the board will try to restrict such agreements in some way, if given the chance.

Employers should take a look at their noncompete and nonsolicitation agreements and assess whether, in light of the current political climate, it is worth making adjustments or eliminating such agreements for certain categories of employees.

States are also trending toward increased restrictions or outright prohibitions. Employers should be prepared to pivot quickly should the board, the FTC or some other governmental authority invalidate post-employment restrictive covenants.

Board Ramps Up Remedies Against Employers

Not only is the board expanding what employer actions may violate the NLRA, it is beefing up its remedial powers for cases where it has found such a violation.

Recently, it issued two significant decisions with respect to issuing remedies. Back in December 2022, the board significantly expanded the types of damages it may award to an aggrieved party in an unfair labor practice charge in Thryv Inc.[12]

The board held that, moving forward, in cases where the board includes an order for make-whole relief, the award shall automatically include compensation for "all direct or foreseeable pecuniary harms."

This could include extensive consequential damages, such as an employee's out-of-pocket medical expenses or credit card debt, if such damages were a foreseeable harm, as determined by the board.

This is a significant shift in how the board calculates damages. Historically, the board would seek back pay and reinstatement to make an employee whole.

Under this new directive, the board has given itself the authority to seek a higher monetary award for an alleged unfair labor practice charge. The employer in Thryv has appealed the decision, but in the meantime, not only does this affect potential damages awards, Abruzzo's office can now use the threat of a potentially unlimited damages award when negotiating settlements on behalf of an aggrieved party.

And, with Abruzzo's office zealously seeking make-whole relief for all settlement agreements, employers are likely to end up paying more to resolve an alleged unfair labor practice charge.

Similarly, in Noah's Ark Processors LLC, the board in April 2023 issued a different type of expansion of remedies, this time for what it determines are repeated or egregious violations.[13]

In that case, the board had already found that the employer twice engaged in bad faith bargaining. The procedural history of the related charges included an injunction, sanctions and findings of liability for several unfair labor practices.

According to the board, the company was continuing to act in an unlawful manner, which warranted additional remedies.

Relying on its "broad discretion to exercise [its] remedial authority," the board held that in instances of repeated or egregious violations, it had the authority to, among other actions:

• Add a more comprehensive explanation of rights to remedial notices;
• Mandate distribution of the notice and an explanation of rights to employees, possibly even with the participation of supervisors;
• Mail the notice to workers' homes;
• Require a signature of an official from the organization on the notice;
• Extend the period notices must be posted
• Authorize board staff to visit facilities and monitor compliance; and
• Reimburse bargaining expenses.

The board explained that it had the authority to amend remedies even when no party has taken issue with the judge's recommended remedies or requested additional forms of relief.

Essentially, the stakes for employers are higher than ever, and we anticipate that the board will continue to flex its remedial authority.

Conclusion

As the landscape shifts sharply in favor of unions and employees, employers should pay close attention to board developments.

Be proactive about training management to recognize when to escalate an issue, such as those involving potential Section 7 activity or union organizing. If caught in the quagmire of an unfair labor practice charge, not only may the company have to expend significant resources responding to investigative inquiries, but it could also be on the hook for steep penalties or even a board-issued injunction.

In many circumstances, the way the board interprets and applies the NLRA is not intuitive. It is vital to stay up to date on these board developments.

References

[1] Lion Elastomers LLC, 372 NLRB No. 83 (2023).

[2] General Motors LLC, 369 NLRB No. 127 (2020).

[3] Wright Line, 251 NLRB 1083 (1980).

[4] Atlantic Steel Co., 245 NLRB 814 (1979).

[5] See Desert Springs Hospital Medical Center, 363 NLRB 1824, 1839 fn. 3 (2016).

[6] Clear Pine Mouldings, 268 NLRB 1044, 1046 (1984).

[7] See Fred Meyer Stores Inc., 19-CA-272795 (May 3, 2023).

[8] McLaren Macomb, 372 NLRB No. 58 (2023).

[9] Baylor University Medical Center, 369 NLRB No. 43 (2020).

[10] IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020).

[11] Specifically, Abruzzo contended that, because the NLRA generally prohibits retaliation against a supervisor who refuses to commit an unfair labor practice, see Parker-Robb Chevrolet, 262 NLRB 402 (1982), it would be unlawful to proffer an overbroad severance agreement to a supervisor in connection with such a refusal, especially if it could prohibit the supervisor from participating in a Board proceeding

[12] Thryv, Inc., 372 NLRB No. 22 (2022).

[13] Noah's Ark Processors, LLC, 372 NLRB No. 80 (Apr. 20, 2023).

Reprinted with permission of Law360.