On December 14, 2017, in a pair of employer-friendly decisions, the National Labor Relations Board overturned its momentous 2015 Browning-Ferris Industries^[1] joint-employer decision, as well as its 2004 Lutheran Heritage Village-Livonia^[2] standard for weighing the legality of employee handbook policies.

In Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co., the Board reinstated the narrower standard of "direct and immediate" control for determining joint employment, which had been in place prior to the Browning-Ferris ruling. In The Boeing Co., the Board decided that a challenged employment rule's potential impact on workers' NLRA rights must be balanced against the employer's legitimate business justifications for the rule.

Joint Employer Standard

In Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co., 365 NLRB No. 156 (Dec. 14, 2017) the Board voted along party lines^[3] to overturn the expansive joint employment standard set in Browning-Ferris. Browning-Ferris held that a company and its contractors or franchisees could be deemed a single joint employer under the National Labor Relations Act (NLRA) – even if the company had not exerted control over workers’ terms and conditions – if the company maintained "indirect control" or the ability to exert such control.

The majority concluded that the Browning-Ferris standard was a "distortion of common law," "contrary" to the National Labor Relations Act, "ill-advised as a matter of policy," and its application would prevent the Board from "foster[ing] stability in labor-management relations."  According to the majority, Browning-Ferris rewrote the decades-old test for determining who is the employer by redefining and expanding the test that makes two separate and independent entities a “joint employer” of certain employees. This change, according to the majority, subjected countless entities to unprecedented new joint bargaining obligations that most did not even know they had, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity.

Thus, in Hy-Brand, the Board reverted back to its previous joint employment test, which questions whether a business has "direct and immediate" control over terms and conditions of employment. The majority stated:  "A finding of joint-employer status shall once again require proof that putative joint employer entities have exercised joint control over essential employment terms (rather than merely having 'reserved' the right to exercise control), the control must be 'direct and immediate' (rather than indirect), and joint employer status will not result from control that is 'limited and routine.'"

Using the pre-Browning-Ferris test, the Board found that Hy-Brand and Brandt Construction, which are construction companies owned by the same individuals, were joint employers and, thus, each liable for firing seven workers who had gone on strike to protests wages and working conditions.

The two Democratic Board members issued a strongly worded dissent, arguing that the case could have been decided without reaching the joint employer issue at all and questioning the process used to change the standard.

Notwithstanding the Hy-Brand decision, Republican congressional lawmakers likely will continue efforts to codify a more narrow joint employer standard, given the NLRB's potential to change the standard again in the future. In November 2017, the House of Representatives passed a bill (H.R. 3441) to amend both the NLRA and the Fair Labor Standards Act to define joint employer as one that exercises direct, actual and immediate "significant control" over essential working conditions. The Senate has not taken up this legislation.

Employee Handbook Guidance

In The Boeing Co., 365 NLRB No. 154 (Dec. 14, 2017), the company maintained a policy restricting the use of camera-enabled devices such as cell phones on its property because its work is highly sensitive. Boeing’s no-camera rule did not explicitly restrict activity protected by Section 7 of the NLRA, it was not adopted in response to NLRA-protected activity, and it was not applied to restrict such activity. Nevertheless, applying the Lutheran Heritage test, the administrative law judge found that Boeing’s no-camera rule violated the NLRA, reasoning that maintenance of the rule was unlawful because employees “would reasonably construe” the rule to prohibit Section 7 activity.

The Board majority observed that the Lutheran Heritage standard had caused extensive confusion and litigation for employers, unions, employees, and the Board itself, and had led to arbitrary results. For example, the majority compared rules deemed lawful, which prohibited “abusive or threatening language to anyone on Company premises,” “verbal abuse,” “abusive or profane language,” or “harassment,” with rules deemed unlawful, which prohibited “loud, abusive, or foul language” “false, vicious, profane or malicious statements toward or concerning the . . . Hotel or any of its employees,” and "negative energy or attitudes.”

Therefore, the Board rejected the Lutheran Heritage approach and established a different test:

When evaluating a facially neutral policy, rule or handbook provision that, when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, the Board will evaluate two things:  (1) the nature and extent of the potential impact on NLRA rights and (2) legitimate justifications associated with the rule.

Applying its new standard, the majority found that Boeing's justifications for its restrictions on the use of camera-enabled devices on Boeing property outweighed the rule’s more limited adverse effect on the exercise of Section 7 rights. These justifications included evidence that Boeing’s no-camera rule:  was an integral component of its security protocols, which are necessary to maintain Boeing’s accreditation as a federal contractor; played a key role in ensuring that Boeing complied with its federally mandated duty to prevent the disclosure of export-controlled information or the exposure of export-controlled materials to unauthorized persons; helped prevent the disclosure of Boeing’s proprietary information; limited the risk that employees’ personally identifiable information would be released; and limited the risk of Boeing becoming a target of terrorist attack. Conversely, the Board found the adverse impact of Boeing’s no-camera rule on NLRA-protected activity was comparatively slight. The majority determined that the vast majority of images or videos blocked by the policy did not implicate any NLRA rights.

The Board also prospectively delineated three categories into which the Board will classify employment policies, rules and handbook provisions:

• Category 1 rules are lawful in all cases, either because:  (i) the rule cannot reasonably be interpreted to prohibit or interfere with workers' NLRA rights; or (ii) any interference is outweighed by the business justifications.

Examples of Category 1 rules are the no-camera requirement maintained by Boeing, and rules requiring employees to abide by basic standards of civility.^[4]

 • Category 2 rules are legal in some cases, depending on their application. These rules require individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.

• Category 3 rules are always unlawful because they prohibit or limit NLRA-protected conduct in a manner not outweighed by the business justifications. An example of Category 3 is a rule that prohibits employees from discussing wages or benefits with one another.

The Board also cautioned that, although the maintenance of particular rules may be lawful, the application of such rules to employees who have engaged in NLRA-protected conduct may violate the Act, depending on the particular circumstances presented in a given case.

Employer Take Away

For the time being at least, the NLRB has returned to a more narrow standard for determining joint employment, which means that entities should not be deemed joint employers under the NLRA unless they exercise "direct and immediate" control over terms and conditions of employment.

At the same time, the Board will use a balanced approach to evaluating workplace rules, taking into consideration both the potential impact on NLRA rights and an employer's legitimate justifications associated with the rule. Employers may wish to re-consider certain workplace rules and policies in light of this new approach.

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[1] 362 NLRB No. 186 (2015).

[2] 343 NLRB 646 (2004), petition for review docketed Browning-Ferris Indus. of Cal. v. NLRB, No. 16-1028 (D.C. Cir. filed Jan. 20, 2016).

[3] The majority was composed of NLRB Chair Philip Miscimarra and the board’s two newest members, Bill Emanuel and Marvin Kaplan. Democratic members Mark Gaston Pearce and Lauren McFerran issued a joint dissent.

[4] The Board overruled past cases in which the Board held that employers violated the NLRA by maintaining rules requiring employees to foster “harmonious interactions and relationships” or to maintain basic standards of civility in the workplace.