The NLRB's New, Developing Standard for Assessing Lawfulness of Work Rules | Practical Law

The NLRB's New, Developing Standard for Assessing Lawfulness of Work Rules | Practical Law

An Article discussing the National Labor Relations Board (NLRB) decision in Stericycle, Inc. which sets the NLRB's new standard for evaluating whether employment policies, employee handbook provisions, and other work rules that do not expressly restrict employees' protected concerted activity are nonetheless facially unlawful under the National Labor Relations Act (NLRA). It provides analysis for employers as the NLRB overrules Boeing Co. and its progeny, which applied a categorical approach to work rules for more than five years.

The NLRB's New, Developing Standard for Assessing Lawfulness of Work Rules

Practical Law Article w-040-3871 (Approx. 12 pages)

The NLRB's New, Developing Standard for Assessing Lawfulness of Work Rules

by Practical Law Labor & Employment
Law stated as of 17 Nov 2023 • USA (National/Federal)
An Article discussing the National Labor Relations Board (NLRB) decision in Stericycle, Inc. which sets the NLRB's new standard for evaluating whether employment policies, employee handbook provisions, and other work rules that do not expressly restrict employees' protected concerted activity are nonetheless facially unlawful under the National Labor Relations Act (NLRA). It provides analysis for employers as the NLRB overrules Boeing Co. and its progeny, which applied a categorical approach to work rules for more than five years.
On August 2, 2023, in Stericycle, Inc., the majority of the panel (Board) heading the judicial functions of the National Labor Relations Board (NLRB) adopted a new legal standard for evaluating facial challenges to employer work rules not expressly restricting employees’ protected concerted activity under Section 7 of the National Labor Relations Act (NLRA) (Chairman McFerran and Members Wilcox and Prouty, with Member Kaplan dissenting) (372 N.L.R.B. No. 113 (Aug. 2, 2023)). The majority overruled Boeing Co., LA Specialty Produce Co., and all the work rule decisions applying the categorical classification system articulated in those precedents over the past five-plus years (365 N.L.R.B. No. 154 (Dec. 14, 2017); 368 N.L.R.B. No. 93 (Oct. 10, 2019); for more information on the decisions applying Boeing, see The NLRB's Boeing Categories for Employment Rules Chart).
Under the majority's new burden-shifting analysis, a challenged work rule is presumptively unlawful under Section 8(a)(1) of the NLRA if the NLRB's General Counsel proves that the rule "has a reasonable tendency to chill employees from exercising of their Section 7 rights." The Board assesses that tendency:
  • Based on the perspective of an economically dependent, layperson employee, who contemplates engaging in protected concerted activity.
  • Regardless of:
    • the employer's intent; or
    • whether an alternative, noncoercive interpretation of the rule also is reasonable.
However, the employer may rebut this presumption, and the Board might find a work rule lawful, if the employer shows both that:
  • The rule advances a legitimate and substantial business interest.
  • The employer's legitimate and substantial business interest could not be achieved by a more narrowly tailored rule.
The majority concluded that it must adopt a new standard because, among other reasons:
  • Boeing, as clarified by LA Specialty Produce:
    • dispenses with individualized scrutiny of rules in favor of a categorical approach that permits employers to adopt overbroad work rules that chill employees’ exercise of their Section 7 rights under the NLRA; and
    • did not adequately account for the economic dependency of employees on their employers.
  • The so-called Lutheran Heritage standard, which preceded Boeing and LA Specialty Produce:
    • failed to identify whether and how employer justifications for work rules should be raised and assessed; and
    • also did not adequately account for the economic dependency of employees on their employers.
    (Martin Luther Memorial Home, Inc. (d/b/a Lutheran Heritage Village-Livonia)(Lutheran Heritage), 343 N.L.R.B. 646 (2004).)
The majority also expressly declined to uphold Boeing progeny that deemed certain categories of work rules as always lawful, including:
For a full analysis of the types of work rules the Board analyzed under Boeing and the categories the Board assigned to those rules, see The NLRB's Boeing Categories for Employment Rules Chart.
Stericycle provides a wireframe for the new standard for assessing the lawfulness of work rules. The decision does not apply that standard and leaves many questions about how the Board would apply the standard unanswered. The Board remanded to the administrative law judge (ALJ) allegations that the employer violated Section 8(a)(1) by maintaining rules governing personal conduct, conflicts of interest, and confidentiality of harassment complaints. The Board instructed the ALJ to issue a supplemental decision after permitting the parties to present evidence on those remanded issues in light of the new standard it announced in the case.
The majority concluded that the new standard would apply retroactively, including to all pending cases. Consequently, the Board may ultimately apply the new standard for the first time in another case. (Stericycle, Inc., 372 N.L.R.B. No. 113 (Aug. 2, 2023).)
The majority adopted the new standard after issuing a notice and invitation for briefing in the case; see Legal Update, NLRB Invites Briefs on Employer Work Rules Standard).

The Static Portions of the Board's Work Rules Analysis

While Lutheran Heritage, Boeing, and Stericycle collectively represent a portion of the Board's work rule analysis that has been in flux, much of the Board's analysis of work rules has been static. The NLRB consistently holds that an employer interferes with Section 7 rights and therefore violates Section 8(a)(1) of the NLRA by:
  • Promulgating an employment policy, work rule, or employment agreement provision (collectively employment rule):
    • that explicitly restricts Section 7 activity; or
    • in response to union activity.
  • Applying an employment rule to restrict the exercise of Section 7 rights.
(Lutheran Heritage, 343 N.L.R.B. at 646-648, overruled in part by Boeing Co., 365 N.L.R.B. No. 154, slip op. at 1, 3, and 7-14, and overruled in part on other grounds by AT&T Mobility, LLC, 370 N.L.R.B. No. 121, slip op. at 4-8 (May 3, 2021) (ruling that an unlawful application of an otherwise lawful employment policy does not automatically warrant a finding that the rule can no longer be lawfully maintained).)
An employer can also violate the NLRA by simply maintaining a rule that would "reasonably tend to chill" employees from exercising their rights under the NLRA, including communicating about employment terms and conditions. This is true even where:
  • No employees engage in concerted activity covered by the rule.
  • The employer does not enforce the rule.
(Lafayette Park Hotel, 326 N.L.R.B. 824 (1998).)
Neither Boeing nor Stericycle alter these principles (372 N.L.R.B. No. 113, slip op. at 2, n.3, 3-4).
Likewise, Boeing and Stericycle did not alter other precedent that balances employee rights and employer interests, such as precedent concerning:
(372 N.L.R.B. No. 113, slip op. at 3, n.6, 13.)

Horizon Issues

Stericycle Applies Retroactively

The Board held that applying the new standard retroactively would not cause manifest injustice because:
  • Boeing:
    • was unclear and led to confusing results;
    • did not promote the NLRA's goal of ensuring that employers do not maintain unlawfully overbroad work rules that have a reasonable tendency to chill employees from exercising their statutory rights; and
    • was clarified by LA Specialty Produce less than four years ago, and therefore is not long-standing precedent on which employers rely.
  • Even if the Board found a rule in a pending case that would have been upheld under Boeing to be unlawful under Stericycle, the remedy will be an order to rescind the rule, leaving the employer free to replace the rule with a more narrowly tailored substitute. There would be no particular injustice.
(372 N.L.R.B. No. 113, slip op. at 13.)
Given that employers have been drafting work rules for five-plus years based on Boeing and its progeny, there likely will be litigation concerning whether employers justifiably relied on these precedents and ought not be subject to Stericycle's undeveloped analysis retroactively.

Stericycle Does Not Address Savings Clauses

Consistent with its policy of not issuing advisory opinions, the majority declined to address whether an employer could disclaim an intention to infringe on Section 7 rights or incorporate any other particular language into a work rule to remove ambiguities or avoid potential overbreadth. The majority noted that the present case does not involve any potential "safe harbor" or savings clause provision.
However, the majority noted generally that it would evaluate explanations or illustrations the employer incorporated into the challenged work rule concerning how it does not apply to Section 7 activity (372 N.L.R.B. No. 113, slip op. at 11, n.21 and 14 n.26).
Apparently, the majority also declined at this time to evaluate expansive language that the General Counsel's office previously urged the Board to endorse in briefs for this case (NLRB Gen. Counsel Br. In Response to The Board's January 6, 2022 Notice and Invitation to File Briefs, Stericycle, Inc., Case 04-CA-137660, pp. 14-15, n.20 (filed Mar. 7, 2022)).
The General Counsel recommended the Board adopt a model statement of rights and endorse employers including the statement in work rules and employee handbooks as exclusionary language or a disclaimer stating that no provision of the policy or handbook should be interpreted as restricting employees' exercise of the noted rights. The General Counsel asserted the model statement should identify the following rights:
"(1) discussing wages and other working conditions with co-workers or a union; (2) taking action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, or seeking help from a union; (3) striking and picketing, depending on its purpose and means; (4) taking photographs or other recordings in the workplace, together with co-workers, to document or improve working conditions, except where an overriding employer interest is present; (5) organizing a union to negotiate with your employer concerning your wages, hours, and other terms and conditions of employment; (6) forming, joining, or assisting a union, such as by sharing employee contact information; (7) talking about or soliciting for a union during non-work time, such as before or after work or during break times, or distributing union literature during non-work time, in non-work areas, such as parking lots or break rooms; (8) wearing union hats, buttons, t-shirts, and pins in the workplace, except under special circumstances; and (9) choosing not to engage in any of these activities."
It remains to be seen whether the Board would find the General Counsel's language:
  • Sufficient to save an otherwise ambiguous or overbroad work rule.
  • Necessary to save an otherwise ambiguous or overbroad work rule.

The Perspective of an Economically Dependent Employee Is Undeveloped

In NLRB v. Gissel Packing Co., the Supreme Court noted that in the context of determining whether employer statements before a union election were lawfully protected opinions or predictions about union organizing or unlawful, or unlawful coercive threats about the dire consequences of that organizing, the evaluation must consider the statements from a special employee perspective. In particular, the Supreme Court stated that the Board must take into account the employees' "economic dependence" on their employers and "the tendency of [the employees], because of that relationship, to pick up intended implications of the employer's speech that might be more readily dismissed by a more disinterested ear" (395 U.S. 575, 617 (1969)).
In Stericycle, the majority extends this premise to assessing work rules, asserting that when deciding whether a challenged facially neutral work rule may be lawfully maintained, the Board must take into account the employees' economic dependence of the employees on their employers and the tendency of employees, because of that relationship, to construe implications of the employer's work rule that disinterested parties would not recognize. (372 N.L.R.B. No. 113, slip op. at 8.) In other words, the Board intends to evaluate work rules as if it were an employee who:
  • Is aware of Section 7 rights.
  • Would be anxious about losing their job from violating a work rule.
  • Infers potential limits on Section 7 rights from work rules that do not expressly reference Section 7 rights or activities.
  • Would avoid Section 7 activity to avoid violating a rule.
This will lead to work rules being construed more broadly to limit protected concerted activity than a disinterested "reasonable person" would. It is not clear that federal appellate courts will find the Gissel analysis and the unique employee perspective it requires apposite to work rule interpretations. Regardless of whether it is deemed logical and reasonable for the Board to use an employee perspective fashioned in Gissel for a different context, it is unclear how the Board will assess work rules using this perspective.

It Is Unclear How Employers Could Show Work Rules Are Sufficiently Narrowly-Tailored

The majority declined to explain how an employer might prove that there is no narrower work rule than the challenged rule that would adequately advance its legitimate and substantial business interests. As the dissent noted, it would be very unlikely that an employer could introduce evidence that it maintains the current rule because a prior narrower rule failed adequately to advance the legitimate and substantial business interest.
The majority also declined, absent a particular work rule in a particular workplace to analyze, to suggest how a work rules generally could potentially be narrowly tailored.
(372 N.L.R.B. No. 113, slip op. at 14.)

Five-Plus Years of Boeing Work Rule Precedents Are Overruled but Might Still Be Instructive

Stericycle created a gulf in binding work rule precedent when it overruled Boeing and its progeny. The majority discarded over sixty rulings on the lawfulness of various types of work rules without providing replacement analysis. For example, since Stericycle overruled Apogee Retail LLC (d/b/a Unique Thrift Store), there is no governing Board precedent concerning confidentiality instructions concerning workplace investigations (368 N.L.R.B. No. 144 (Dec. 16, 2019); see Legal Update, NLRB Approves Greater Confidentiality in Workplace Investigations). The Board seemingly must start from scratch with not a single case applying the new Stericycle analysis.
However, because the Board is likely to deem more work rules unlawful under Stericycle than under Boeing, some inferences about lawfulness determinations under the Stericycle standard may be drawn from the robust Boeing analysis. For example, it is likely that rules under Boeing that were:
  • Categorically unlawful likely would be unlawful under Stericycle.
  • Categorically lawful as not restrictive of Section 7 activity would be subject to individualized scrutiny on a case-by-case basis under Stericycle.
  • Subject to individualized scrutiny on a case-by-case basis remain subject to individualized scrutiny on a case-by-case basis under Stericycle.
  • At the margin between lawful and unlawful because of their potential impact on Section 7 activity are more at risk of being found presumptively unlawful under Stericycle.
For a full analysis of the types of work rules the Board analyzed under Boeing and the categories the Board assigned to those rules, see The NLRB's Boeing Categories for Employment Rules Chart.

Remnants of Boeing Progeny Might Survive Stericycle, at Least Temporarily

Stericycle overruled the work rules cases relying on Boeing and LA Specialty Produce. The decision later expressly denounced several specific decisions, including AT&T Mobility, LLC for applying Boeing to deem work rules on certain subjects categorically lawful (372 N.L.R.B. No. 113, slip op. at 2, 7, n.12; see 370 N.L.R.B. No. 121, slip op. at 2-4 (May 3, 2021) (no-recording work rules)). Based on those pronouncements, one might think that Stericycle overruled Boeing and LA Specialty Produce progeny, including AT&T Mobility, in their entirety. However, in a footnote, Stericycle confirmed that it was not overruling AT&T Mobility's holding that an unlawful application of an otherwise lawful employment policy does not automatically warrant a finding that the rule can no longer be lawfully maintained. The Board declined to address that ruling "at this time" because the issue was not presented in Stericycle. (372 N.L.R.B. No. 113, slip op. at 2, n.3.)
This disclaimer implies that:
  • Stericycle does not necessarily overrule Boeing and LA Specialty Produce progeny for rulings beyond their analysis of work rules' lawfulness and assignments of those work rules to Boeing categories.
  • The remnant holdings from the Boeing and LA Specialty Produce progeny, including AT&T Mobility, might survive only until they are squarely challenged before the Board.

Conclusion

After creating a fairly predictable category classification system for five-plus years for work rules under Boeing, the Board overruled those holdings and replaced them with vague, yet-to-be-applied principles. Stericycle raises the specter of increased unfair labor practice (ULP) investigations and prosecutions concerning work rules.
While it remains unclear what may ultimately be deemed lawful and unlawful under the NLRA by the Board or reviewing appellate courts, the Stericycle analysis promises to return, as Member Kaplan noted in his dissent, to "a bygone era, from 2011 to 2017, when the Board majority rarely saw a challenged rule it did not find unlawful."
NLRA-covered employers should:
  • Stay tuned for:
    • decisions applying the developing Stericycle analysis; and
    • the General Counsel's evolving prosecutorial agenda and theories of employer ULP liability concerning work rules that do not expressly regulate Section 7 activity.
  • Consider auditing employment policies, handbooks, or other work rules to determine if they might be:
    • revised to be more clear, precise, and narrow; and
    • supplemented with examples and illustrations of conduct that the work rule is intended both to address and to not address.
  • Evaluate what legitimate and substantial business interests employment policies, handbooks, or other work rules promote.
  • Weigh the values derived from promulgating employment policies, handbooks, or other work rules as drafted against the increased risks of ULP litigation and liability.
  • Remember the business and non-NLRA legal compliance considerations that drive decisions and actions.
  • Expect increased ULP charges, investigations, and litigation concerning work rules including, employment policies, and employee handbook provisions and consider adjusting HR and litigation budgets accordingly.