Under the Biden administration, the National Labor Relations Board (“Board”) has significantly tightened restrictions on employers in an effort to further the rights of employees to engage in protected, concerted activity under Section 7 of the National Labor Relations Act (the “Act’). For example, in May 2023, the Board announced its intent to stifle the use of employee non-compete agreements, and in February 2023, the Board issued an order in McLaren Macomb restricting the use of confidentiality and non-disparagement provisions in severance agreements for non-supervisory employees.
Consistent with these recent efforts, on August 2, 2023, the NLRB issued an order in Stericycle regarding the lawfulness of work rules, such as those set forth in employee handbooks, reversing Trump-era rules rendering most employer rules lawful, and reviving, though modifying, its prior standard.
20 Years of Shifting Standards
The Board’s standard regarding the lawfulness of certain work rules that may chill employees’ exercise of their rights under the Act has been in flux over the past 20 years. In 2004, the Board set forth the standard in Lutheran Heritage Village-Livonia (2004) that work rules cannot stand “if employees would reasonably construe the language to prohibit Section 7 activity.” While the Board has asserted that Lutheran Heritage implicitly allowed the Board to evaluate employer interests, the standard was criticized for not clearly addressing how employer interests factored into the Board’s analysis. However, Lutheran Heritage remained the standard for 13 years.
In 2017, under a newly constituted Board under former President Trump, the Board sua sponte issued a new, more employer-friendly standard in Boeing Co. (2017), which was further clarified in LA Specialty Produce Co. (2019). Under the Boeing standard, the Board balanced two factors: (i) the nature and extent of the potential impact on employees’ rights under the Act versus (ii) the employer’s legitimate justifications for maintaining the challenged work rule. The work rule would violate the Act only if the business justifications were outweighed by the adverse impact on employees’ Section 7 rights.
Interestingly, the Board also created a categorical classification system for evaluating rules under the new standard: Category 1 rules were “always lawful,” and of the type that would not interfere with Section rights or, if they did, such interference was necessarily outweighed by business justifications; Category 2 rules were sometimes lawful and warranted “scrutiny in each case”; and Category 3 rules were always unlawful to maintain.
The Board Revives Prior Employee Protections
With its ruling on August 2, 2023, in Stericycle, the Board reversed the Boeing standard noting that it permitted employers to adopt overbroad work rules that had the effect of limiting employees’ exercise of their rights under Section 7 of the Act. The Board opined that the Boeing standard “fail[ed] to account for the economic dependency of employees on their employers” which makes employees “typically and (understandably) anxious to avoid discharge or discipline,” and therefore inclined to “construe an ambiguous work rule to prohibit statutorily protected activities.” The Board further condemned Boeing for “condon[ing] overbroad work rules by not requiring the party drafting the work rules—the employer—to narrowly tailor its rules to only promote its legitimate and substantial business interests while avoiding burdening employee rights.”
To address these shortcomings, the Stericycle Board set forth a new burden-shifting framework. First, the General Counsel must prove that employees “could reasonably interpret the rule to have a coercive meaning . . . even if a contrary, noncoercive interpretation is also reasonable.” If the General Counsel meets this burden, the rule is presumptively unlawful. However, the employer may rebut the presumption by proving that the rule advances a legitimate substantial business interest and that the employer is unable to advance that interest with a more narrowly tailored rule. If the employer can make this showing, the work rule will be found lawful to maintain.
The Board emphasized that work rules will be analyzed from the perspective of an employee with financial dependence on the Company. The Board also rejected the categorical classifications espoused in Boeing, requiring instead a case-by-case analysis of any challenged work rules.
With this new standard, the Board effectively revived the prior Lutheran Heritage standard while addressing prior criticisms regarding the lack of guidance on the consideration of employer interests.
What Should Employers Do Now?
Employers can expect the current Board to have a very low threshold for a workplace rule to be found to infringe on employees’ Section 7 rights. Employers should review their employee handbooks and other internal policies with an eye toward ensuring their policies may not be construed by employees as chilling the exercise of their rights under Section 7 of the Act. Employers should pay particular attention to those provisions the Board previously deemed “always lawful,” such as investigative-confidentiality rules, non-disparagement rules, and rules prohibiting outside employment, as those provisions will now be analyzed on a case-by-case basis.
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