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Joint Employer NLRB Rulemaking

NLRB Suggests Joint Employer Rules

On May 9, 2018, the National Labor Relations Board announced that is considering rulemaking on the subject of joint employer status. The joint employer standard has received much attention in recent year. The Board’s Republican majority tried to change the standard for this important analysis through a December 2017 case decision. However, the NLRB later withdrew that decision upon allegations that one of the Republican members had a conflict of interest. Shifting to rulemaking to change the joint employer standard may overcome the conflict issue.

Current Joint Employer Analysis

In 2015, a 3-2 Democratic majority Board decided a case involving whether Browning-Ferris Industries of California (BFI) was a joint employer with a company that supplied workers onsite at BFI. The NLRB departed from precedent and applied an “indirect control” standard that considerably expanded the situations where two entities would be joint employers under the National Labor Relations Act. The broad test only requires that the entities “share or codetermine those matters governing the essential terms and conditions of employment.” This is evaluated by asking whether each entity “possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.”

Before this case, the NLRB applied a “direct” and “substantial” control standard.

The primary difference was the shift from requiring actual exercise of control over workers to mere potential of control.

Initial Attempt to Return to Previous Standard

When President Trump took office, he named Philip Miscimarra the Chairman of the NLRB. Miscimarra was on the Board when the NLRB decided the Browning-Ferris case. He and the other Republican member at the time issued a vigorous dissent to the Democratic majority’s decision. Just before Miscimarra’s term expired in December 2017, he and a new Republican majority issued several prominent decisions reversing Obama-era NLRB precedent. This included an attempted reversal of the joint employer standard.

In a December 14, 2017, 3-2 Board decision, the NLRB announced it was returning to the earlier test. The restored test focused on which business(es) have “direct and immediate” control over terms and conditions of employment. It dismissed analysis of “indirect” factors that the Democrat majority introduced in 2015.

However, on February 26, 2018, the NLRB vacated the December 14, 2017 decision, reverting to the “indirect control” standard. Marvin Kaplan, whom Trump had appointed Chair upon Miscimarra’s departure, joined the two Democratic members in that decision. The other Republican member, Bill Emanuel, was not allowed to participate in the decision. The NLRB Inspector General’s Office had opined that Emanuel had a conflict of interest. His previous law firm had represented a party in the Browning-Ferris case, which the December 14, 2017 decision effectively overturned.

The alleged conflict may prevent Emanuel from deciding any case involving a change in the joint employer standard.

Shift to Rulemaking

The NLRB recently regained full strength with the Senate confirmation of Republican attorney John Ring as the fifth member. President Trump promptly replaced Kaplan with Ring in the Chairman seat. Ring, like Emanuel, may also face conflict challenges given the extensive client-base of his former firm.

Likely because the Republican majority would face repeated conflict claims in attempting to overturn Browning-Ferris through adjudication of an actual case, Chairman Ring has shifted to administrative rulemaking as the vehicle to change the joint employer standard. The NLRB has seldom relied on rulemaking to establish policy. So, this attempt to do so will itself likely face legal challenges.

Nonetheless, Chairman Ring offers a compelling argument for the rulemaking approach:

“Whether one business is the joint employer of another business’s employees is one of the most critical issues in labor law today,” says NLRB Chairman John F. Ring. “The current uncertainty over the standard to be applied in determining joint-employer status under the Act undermines employers’ willingness to create jobs and expand business opportunities. In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be.”

His Democratic colleagues unsurprisingly disagree. The NLRB’s press release on the matter specifically noted that “The inclusion of the proposal in the regulatory agenda does not reflect the participation of Board Members Pearce and McFerran.”

The press release explained that the next step would be the issuance of a Notice of Proposed Rulemaking. Although it added that “[a]ny proposed rule would require approval by a majority of the five-member Board,” that statement notably recognizes that the opposition of Members Pearce and McFerran will not be enough to overcome the expected consensus of the three Republican members.

Expected Outcome of Joint Employer Rulemaking

Chairman Ring even took to Twitter to make his views known: “The joint-employer standard is one of the most critical issues in labor law today—affecting millions of Americans in nearly every sector of the economy. Uncertainty over the standard undermines job creation & economic expansion. The new majority intends to get the job done.”

There’s no mystery of what that job is. It’s finding joint employers status only where multiple entities have “direct and immediate” control over workers.

And, although administrative rulemaking takes some time, Ring wants to do this quickly: “The Board majority will work to issue a proposed rule ASAP, and we will consider the views of all interested parties.”

Member Pearce, who was the NLRB Chair when it decided Browning-Ferris, also tweeted on this subject. Among his pointed comments: “Board majority “considering rulemaking” but says “Board majority…work[ing] to issue proposed rule ASAP” — certainly sounds like another objective is already set. .”

 

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Workforce Downsizing Selection Procedures

Workforce Downsizing Selection Procedures

Even if it will only affect a smart part of the business, many companies face workforce downsizing at some point. The “why” is usually obvious. But it’s often more difficult to decide how to make these cuts. Here, I’ll suggest a general approach to selecting who will stay and who will go in consideration of possible legal constraints.

For more on this topic, check out my free webinar: Conducting Your Next Reduction in Force.

What’s the Motivation?

Money makes the world go ’round, and it’s usually what prompts companies to downsize their workforces. But finances aren’t the only reason organizations reduce their headcount.

Here are a few other reasons why a business may downsize:

  • Transition to New Operating Method
  • Automation of Functions
  • Elimination of Redundancies
  • Reallocation of Talent

Whatever the reason, make sure everyone involved in organizing the reduction in force understands it before they choose individual positions and employees. The company should document the rationale up-front. Then move on to evaluating how best to achieve the desired business outcome.

Don’t Identify People First

To best prevent and defend against claims by affected employees, companies should leave the identification of specific employees to the end of the selection process. The earlier specific employees are identified, the more likely they are to perceive the decision as being personal. Thus, the more likely they may believe the decision was discriminatory or in violation of their personal rights.

Sure, if the whole purpose is to outsource all engineering functions, and your company has two engineers, it will be obvious early on who will lose their jobs. But at least make sure there is a valid, documented reason for eliminating the internal engineering function. (Think about the scenario where your two engineers are in their 60s and are longtime employees. Be prepared to prove that their age isn’t the reason for the company’s decision!)

Especially where the goal is to reduce overall labor costs, most companies should start from the premise that all facets of the workforce are in play. Some will quickly narrow in on particular departments or job functions. But again, the rationale for those decisions should be documented as you move down the path toward the selection of individual employees.

Determine the Workforce Goal

Through the reduction analysis, the company should ultimately determine what it wants its workforce to look like after the downsizing is complete. This still doesn’t mean who the specific employees are. Instead, the focus is on functions, tasks, skills, etc.

For example, a company that initially has 125 employees may decide that it would operate best with about 100 employees. It then determines that all “front office” functions are still necessary–say, 25 employees. Of the other 75 post-reduction positions, 50 may be in production and 25 in sales/customer service. If there are currently 65 production employees and 35 sales/customer service employees, then the company must eliminate 15 production positions and 10 sales/customer service roles.

Next, the company must decide how to choose the 15 production and 10 sales/customer service employees to let go.

The company has options to get to the desired workforce size. It could gradually downsize by attrition when people leave. Or it could offer an incentive for employees to voluntarily resign. But here we’ll assume the company wants to reduce the workforce all at once through involuntary terminations–what many would call a layoff.

Picking the People

This component of workforce downsizing often becomes the most personal. It also creates the greatest risks of claims by affected employees. So, it’s important for the company to make these decisions without considering protected individual characteristics.

As discussed, ideally managers shouldn’t sit around the room and just throw out names of whom they want to see leave. Instead, the company should determine a structured selection process and apply it consistently.

Selection procedures may end up being objective or relatively subjective.

One straightforward objective selection criteria is length of service. If the company in the above example wanted to, it could just retain the 50 production and 25 sales/customer service employees who have been with the company the longest. The biggest downside to seniority-based workforce downsizing is that it doesn’t account for employees’ relative job performance and skillsets.

Subjective selection criteria, such as most performance evaluations, increase the risk of manager bias, if unintentional. Supervisors may naturally recognize people like them (based on age, race, sex, etc.) as being higher performers. Thus, it may be better to have multiple managers evaluate each individual and arrive at some quantifiable measure. Then the company would rank all the employees and keep the top ones.

No selection method is perfect. But it is important to establish the selection procedure before applying it to particular employees. Applying one method and then starting over after it doesn’t result in the “right” people being chosen adds risks to the equation. A company should specifically document why it changed course, assuming it has a legitimate non-discriminatory business reason to do so.

Additional Factors and Hurdles to Workforce Downsizing

The above analysis assumes employers have full discretion to determine which employees to let go in a workforce downsizing program. However, that might not always be the case.

If there is a union involved, the collective bargaining agreement may dictate how a reduction in force will occur. For example, unions often bargain for layoff based on inverse seniority. The union contract might also provide for severance pay that could affect the size of the reduction that the company pursues. Or it could even result in the company avoiding reductions in the unionized workforce altogether.

Some companies also have contracts with individual employees. These might either guarantee employment for a certain amount of time or, again, require severance pay.

Finally, even a carefully prepared employee selection process could produce arguably discriminatory results. If a disproportionate number of the employees losing their job share the same protected characteristic (e.g, race, sex), then the employees might have a claim for disparate impact employment discrimination. That type of claim can be viable even if the company had no intent to discriminate. When workforce downsizing involves a large enough pool of employees, employers can conduct statistical analyses to evaluate latent bias in their selection process. Skewed results may be one good reason to rework the selection procedure and start again.

For more on workforce downsizing, check out my free webinar on Conducting Your Next Reduction in Force.

New York WARN Act

New York WARN Act

State and federal Worker Adjustment and Retraining Notification (WARN) Acts require companies to provide notice before taking certain actions to reduce the size of their workforce. For employers conducting reductions in force in New York, the state law will almost always be more restrictive. Thus, complying with New York’s WARN Act will usually also satisfy the federal requirements.

[Here’s a succinct infographic on the New York WARN Act.]

Covered Employers

The New York WARN Act requires employers with at least 50 total employees to give written notice before implementing covered workforce reductions affecting at least 25 employees.

“Part-time employees” and properly classified independent contractors do not count in determining whether a WARN event will occur. However, the definition of “part-time employee” is multifaceted and likely to differ from how the company normally classifies its workers.

Timing of Notice

The New York WARN Act requires written notice 90 days before a “plant closing,”  “mass layoff,” or “relocation”. Each of those terms has a nuanced definition under the law.

WARN Notice Events

A “plant closing” occurs where an employment site (or one or more facilities or operating units within an employment site) will be shut down, and the shutdown will result in an “employment loss” for 25 or more employees during any 30-day period.*

A “mass layoff” occurs where there is to be a group reduction in force that does not result from a plant closing, but will result in an employment loss at the employment site during any 30-day period* for: (a) 250 or more employees, or (b) 25-249 employees if they make up at least 33% of the employer’s active workforce.

*Sometimes the 30-day periods referenced above extend to 90-days in determining whether WARN notices are required.

New York’s WARN Act also refers to a “relocation” situation that is not part of the federal WARN Act. In New York, a “relocation” occurs where all or substantially all of the industrial or commercial operations of an employer will be removed to a different location 50 miles or more away from the original site of operation and 25 or more employees suffer an employment loss.

An “employment loss” occurs in any of these situations: (a) employment terminations other than a discharge for cause, voluntary departure, or retirement; (b) layoffs exceeding six months; and (c) a reduction in an employee’s hours of work of more than 50% in each month of any six-month period. Hence, companies may need to issue WARN notices even if the intention is not to permanently end the employees’ employment.

Exceptions

WARN notices may not be required every time the above conditions exist. The exceptions, however, are narrowly applied. Any company seeking to rely on one should discuss the matter with an attorney experienced in working with the WARN Acts.

For example, the WARN Acts recognize a “faltering company” exception. But the mere fact that the company must reduce its workforce isn’t enough to qualify for the exception. (Or else there would be no point to the laws in the first place!). This exception only applies to plant closings and is limited to situations where a company has sought new capital or business in the attempt to stay open and giving notice would ruin the opportunity to get the new capital or business.

Similarly, an “unforeseeable business circumstances” exception applies to closings and layoffs caused by business circumstances that were not reasonably foreseeable when notice would otherwise have been required. But, the employer still must give as much notice as possible.

Here are some other scenarios where WARN notices may not be required:

  • The company offers to transfer employees to a different work location within a reasonable commuting distance.
  • The reduction of force results from the completion of a project for which the employees were hired with the understanding that their employment was only for the limited duration of the project (e.g., seasonal employment).
  • A new company will continue employment in connection with the sale of a business.
  • A closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought, or storm.
  • The company permanently replaces economic strikers in accordance with the National Labor Relations Act.

WARN Notice Recipients

When notices are required, they must be sent to:

  • affected employees,
  • their unions (if applicable), and
  • certain local, state, and federal government officials.

When the New York State Department of Labor receives a WARN notice, it publishes the information on its website.

Penalties

If a company should have given notice under the New York WARN Act and does not, then it may be held liable for damages to each employee who should have received notice. The employer may have to pay up to 60 days’ pay and benefits, plus civil penalties and attorneys’ fees.

Plan Ahead to Comply with the New York WARN Act

This law forces employers to plan months ahead before reducing their workforces by large numbers. The exceptions generally do not protect employers just because they didn’t know about or want to comply with the notice requirements. As soon as a reduction in force becomes foreseeable, companies must contemplate WARN Act compliance. Sometimes, these requirements will end up forcing employers to delay their desired employment actions. Advance planning and consultation with an experienced labor attorney are usually the best means of avoiding or alleviating that outcome.

 

You may also be interested in my free webinar: Conducting Your Next Reduction in Force.