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Second Circuit Backs NLRB: Facebook “Like” May Be Protected Concerted Activity Under Section 7 of the NLRA

Published on: March 9, 2016 | by Lindabury, McCormick, Estabrook & Cooper, P.C.

Section 7 of the National Labor Relations Act guarantees that “employees shall have the right to self-organization, to form, join, or assist labor organizations….and to engage in other concerted activities for the purpose of…..mutual aid or protection….”. The National Labor Relations Board (the “NLRB” or “Board”) has increasingly expanded the protections accorded to employee electronic communications under Section 7, even when electronic communication on social media includes disparaging and obscene comments about the employer. When social media posts touch upon the subject of employee wages, discipline or other terms and conditions of employment, these exchanges may constitute “concerted activity” protected by the NLRA.

Recently, the United States Court of Appeals for the Second Circuit upheld the NLRB’s decision in Triple Play Sports Bar and Grille (Triple Play) (2014), that the termination of two employees supporting a former employee’s obscenity-laced Facebook post disparaging Triple Play’s management was protected speech. While many employers believe that public disparagement and obscenities are a legitimate basis for termination, this decision illustrates the risks facing employers who take action against employees who increasingly resort to social media to complain about work-related matters.

Facts: LaFrance, a former employee of Triple Play, posted an update on her Facebook page criticizing Triple Play’s failure to properly complete tax withholding paperwork, causing her to owe the state money. The post stated “maybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money…Wtf???” Spinella, a cook at Triple Play, clicked the “Like” button accompanying LaFrance’s post. Sanzone, a waitress at Triple Play, posted “I owe too. Such an asshole.” Several customers of Triple Play viewed the Facebook activity and Triple Play was eventually notified of the Facebook activity and in turn terminated the employees.

The NLRB held that Triple Play’s terminations were unlawful because the Facebook activity concerned wages and thus was protected activity under Section 7. The NLRB also found that Triple Play’s “Internet/Blogging Policy” prohibiting employees from engaging in “inappropriate” discussions about the company or management had an impermissible “chilling effect” upon employees’ right to challenge management actions. Triple Play appealed the Board’s decision.

Holding: The Second Circuit upheld the NLRB’s determination that Spinella’s and Sanzone’s terminations violated Section 7. The court reaffirmed the NLRB’s reasoning that the Facebook activity was “concerted” Section 7 activity because it involved current employees and was part of a sequence of discussions that began in the workplace about Triple Play’s calculation of employees’ tax withholding. The court also reaffirmed the NLRB’s reasoning that the Facebook activity was “protected” Section 7 activity because it concerned workplace complaints about the employee’s tax liabilities.

The court rejected Triple Play’s argument that employees’ Facebook activity should lose NLRA protection because it was obscene, disloyal and false, relying upon the Second Circuit’s prior ruling in NLRB v. Starbuck Corp., (2011). In that case the court strongly suggested that an employee’s obscenities uttered in the presence of customers would not be protected. The Second Circuit distinguished the Starbucks holding, noting that there the employee’s obscene outbursts were made directly to customers and disparaged Starbuck’s products; thus Starbucks had a legitimate interest in protecting its reputation from defamatory attacks. The Second Circuit reasoned that an extension of the Starbucks holding to the online communications at issue in Triple Play could lead to chilling all employee speech online, noting that

“[a]lmost all Facebook posts by employees have at least some potential to be viewed by customers. Although customers happened to see the Facebook discussion at issue in this case, the discussion was not directed towards customers and did not reflect the employer’s brand. The Board’s decision that the Facebook activity at issue here did not lose the protection of the Act simply because it contained obscenities viewed by customers accords with the reality of modern-day social media use.”

The court further observed that the Facebook activity at issue in Triple Play was not disparaging, given that the discussion clearly involved the ongoing labor dispute over income tax withholdings, allowing anyone who viewed the discussion to evaluate the messages critically in light of that dispute.

Finally, the Second Circuit upheld the NLRB’s determination that Triple Play’s “Internet/Blogging Policy” proscribing any “inappropriate discussions” about the company had an unlawful chilling effect on employees’ right to freely complain about the terms and conditions of employment.

Takeaway: This case is yet another illustration of the expansive protections accorded to employees under Section 7 of the NLRA. Before disciplining an employee for his or her social media activity, employers must keep in mind that social media activities will not be stripped of NLRA protection merely because they contain obscenities that could be viewed by customers or because the employer considers them disparaging or defamatory. Given the uncertainty over the protections accorded social media activity under the NLRA, employers should consult with employment counsel before taking adverse employment action. Additionally, employers should consult with counsel to ensure their social media policies are carefully drafted to ensure they do not have a “chilling effect” on Section 7 rights.

The NLRB Speaks Again: Routine Confidentiality Requirements for Internal Investigations Take a Back Seat to Employees’ Section 7 Rights

Published on: August 30, 2012 | by Kathleen M. Connelly

Internal investigations by employers into allegations of unlawful harassment, theft or other workplace misconduct are commonplace in today’s work environment. In an effort to protect the complainant, the accused and the witnesses – not to mention the fundamental integrity of the investigation – employers typically warn those participating in the investigation that the matters discussed are confidential and are not to be discussed outside the context of the investigation. This standard common sense practice has now been deemed a potential violation of employee rights under the Section 7 of the National Labor Relations Act (NLRA) by the National Labor Relations Board.

As noted in our previous article in this issue, the NLRB is flexing its muscles to challenge employer practices in non-unionized workplaces that historically were not on the Board’s radar screen. These have included attacks on standard social media policies and employee handbook disclaimers as violations of employees’ rights to engage concerted activity. The NLRB’s July 13, 2012, ruling in Banner Health Systems is just another example of the Board’s extending its reach into non-unionized workplace. In that decision, the Board reasoned that a blanket confidentiality warning to employees during the course of an internal investigation could discourage employees from seeking the support of co-workers in pursuing or defending a claim of workplace misconduct. Because Section 7 of the NLRA accords employees the right to freely communicate with co-workers about the terms and conditions of employment without fear of retaliation by the employer, the Board concluded that any suggestion by the employer to maintain the confidentiality of the investigation could discourage employees from exercising these rights.

Although the Board stopped short of invalidating all confidentiality instructions during the course of an internal investigation, it cautioned that a blanket prohibition will not pass muster. To survive a challenge the employer must show that prior to giving a confidentiality instruction it engaged in a case-specific analysis to determine whether (1) witnesses were in need of protection; (2) evidence was in danger of being destroyed; (3) testimony was in danger of being fabricated; and, (4) there was “a need to prevent a cover up.” Absent such factors, the NLRB will find the confidentiality instruction a violation of Section 7 of the NLRA.

Compliance with the Board’s startling ruling will no doubt have some unintended adverse consequences for internal investigations. Employers may lose the only ammunition they have to ensure that serious and sensitive allegations of misconduct do not become hot topics at the water cooler. Efforts by employers to protect i) alleged victims of harassment from retaliatory action by the accused or his supporters; or ii) alleged victims or falsely accused employees from defamatory workplace rumors may be severely undermined. Finally, unfiltered discussions among employees about ongoing investigations can undermine the integrity of an investigation and the employer’s good faith attempts to reach an unbiased, objective conclusion about the alleged misconduct. Unless the NLRB recognizes the short-sighted consequences of its latest ruling, employers seeking to protect the confidentiality of sensitive workplace investigations are in jeopardy of running afoul of employee rights under the NLRA.

NLRB Finds That Wearing BLM Logo in the Workplace is Protected Concerted Activity

Published on: March 4, 2024 | by Kathleen M. Connelly

In a ruling that could have far reaching implications in both unionized and non-union work environments, the National Labor Relations Board (“NLRB” or “Board”) ruled that Home Depot violated Section 7 of the National Labor Relations Act (NLRA) when it terminated an employee for refusing to remove a BLM logo from his company apron that violated Home Depot’s dress code prohibiting the display of causes or political messages unrelated to the workplace.

Although not the first time the Board has addressed the right of employees to don attire with BLM insignia, the ruling provides insight on the factors the Board will find sufficient to rule that employer dress codes must yield to employees’ expressions of support for social justice movements or other political causes.

The Prior Rulings

In May 2023, an NLRB Administrative Law Judge (ALJ) found that Fred Meyers Stores, Inc. violated the NLRA by barring employees from wearing BLM insignia. The ALJ found that the display of BLM messages on work uniforms was protected activity under Section 7 of the NLRA because employees were advancing their interests as employees to advocate for “an anti-racist, pro-civil rights and pro-justice workplace.” In addition, although the wearing of the insignia was in violation of the company dress code, the store had tolerated other pins and face masks with LGBTQ+, inspirational messages and sports team insignia, and thus the store’s failure to bargain with the Union before enforcing the ban against BLM insignia violated Section 8(a)(5) of the NLRA.

In December 2023, another ALJ came to an opposite conclusion, finding that the wearing of BLM apparel was not protected activity under the NLRA, and Whole Foods was free to discipline employees who wore the insignia in violation of the company’s dress code policy. The ALJ cited the lack of any evidence of grievances or concerns of racist workplace behavior before employees began to wear the BLM insignia on their clothing, and thus concluded that the messages were not directly related to the terms and conditions of employment.

The Home Depot Ruling

Unlike the prior decisions, the Home Depot ruling was a 3-1 decision by full Board, which overruled an ALJ’s ruling that the wearing of BLM insignia was not protected activity.

The Board reiterated that the NLRA guaranteed employees the right to engage in “concerted activities” with co-workers for “mutual aid or protection” if aimed at improving terms and conditions in the workplace. The Board then painstakingly detailed numerous complaints by a group of Home Depot workers alleging racial discrimination at its Minneapolis area location that preceded management’s directive to one member of the group to remove the BLM insignia from his apron or face termination. The Board reasoned that the wearing of the BLM insignia constituted protected concerted activity because it was a “logical outgrowth” of these previous protests about workplace racism and was an effort by these employees to bring the issue to the attention of Home Depot management.

Although the Board observed that dress codes barring the display of political or religious messages are not facially unlawful, under the circumstances of this case – where the BLM message was on the heels of complaints of racism in the workplace – Home Depot violated Section 8(a)(1) of the NLRA by applying its facially-neutral dress code policy to restrict protected Section 7 activity.

The Impact of Home Depot

The Home Depot ruling should not be construed as a repudiation of dress codes that prohibit the display of messages in support of social justice movements. However, before enforcing such policies, employers should carefully assess the situation to ascertain whether there is any evidence that the donning of otherwise prohibited insignia was prompted, in whole or in part, by conditions in the workplace. If such a connection can be demonstrated, the Board is more likely to find that the messaging is part of protected concerted activity that trumps dress code prohibitions, not merely expressions of personal beliefs that are unrelated to the workplace and subject to enforcement of a dress code.

The Ever-Shifting Sands at the NLRB: Board Adopts New Standards for Assessing the Lawfulness of Work Policies and Independent Contractor Relationships

Published on: August 18, 2023 | by Kathleen M. Connelly

The National Labor Relations Board (“NLRB” or “Board”) is responsible for enforcement of employee rights under Section 7 of the National Labor Relations Act (NLRA) to engage in protected concerted activity, such as organizing unions, discussing wages and discipline, and other terms and conditions of employment.

Many employers are not mindful of the fact that these rights extend to both unionized and non-union workplaces. With the decline in union membership, the NLRB has increasingly turned its focus away from unionization issues to workplace practices that may run afoul of employee rights under the NLRA, as illustrated by two recent decisions from the Board.

The Landmark Stericyle Decision’s Impact On Employee Handbooks and Other Workplace Rules

In 2017 the Trump Era Board issued a new, more employer friendly standard for assessing when facially-neutral workplace rules could be construed to chill employees’ Section 7 rights. In its Boeing Co. decision, the Board announced a new three category test that balanced the employer’s interests in maintaining discipline and productivity and protecting its property, against employee rights to engage in concerted activities protected by the NLRA. The Boeing Board determined that certain categories of workplace rules (e.g., workplace civility, no-photography/recording, confidentiality of workplace investigations, insubordination, and defamation rules) were generally lawful because when reasonably interpreted, they do not prohibit or interfere with employees’ exercise of NLRA rights, or the potential adverse impact on those rights was outweighed by the employer’s legitimate business interests. A second category of workplace rules (e.g., conflict-of interest, confidentiality, media contact and off-duty conduct rules) posed the potential of interfering with Section 7 Rights and therefore should be subject to “individualized scrutiny” to determine if there was interference and if so, whether any adverse impact upon protected rights was outweighed by the employer’s legitimate justifications. A third category of rules (e.g., confidentiality rules prohibiting discussions of wages and rules prohibiting joining outside organizations) were deemed generally unlawful.

The Stericyle Standard: In Stericycle, the Board found fault with Boeing’s categorical approach, reasoning that it gave too much weight to the employer’s interests. The Board determined that the Boeing standard permitted employers to adopt overbroad work rules that could chill the exercise of Section 7 rights and dispensed with the requirement that employers narrowly tailor all workplace rules to avoid unnecessary burdening of employee rights. In overruling Boeing, the Board noted that “the standard we adopt remedies these fundamental defects.”

Under the new standard, the NLRB’s General Counsel must prove that a rule has a reasonable tendency to chill an employee’s exercise of rights. If this burden is established, the rule is presumptively invalid. To rebut that presumption, the employer must prove that the rule advances a “legitimate and substantial” business interest that cannot be advanced with a more narrowly tailored rule. This approach rejects the Boeing notion that there are categories of rules that are presumptively valid in favor of a case-by-case approach in all cases.

Consequences for Employers: The Stericyle standard eases General Counsel’s burden to show that a work rule may chill employee rights, and employers will face a tough battle trying to rebut the presumption of invalidity of the challenged work rule. To avoid costly challenges, employers should review their workplace policies to ensure that they can meet the new “narrowly tailored” standard.

The Atlantic Opera Decision Modifies – Yet Again – The Test For Independent Contractor Status

On June 13, 2023, the Board reverted to its prior employee friendly independent contractor test to find that makeup artists, wig artists, and hairstylists (“the stylists”) working for the Atlanta Opera were employees rather than independent contractors. Under the revived test, employers face a higher bar when seeking to classify workers as independent contractors excluded from the protections of the NLRA.

The Discarded SuperShuttle Standard: Since 2014 the NLRB applied the following non-exhaustive list of factors to determine independent contractor status:

The extent of control the employer exercises over the work
Whether the worker is engaged in a distinct occupation or business
Whether the work is done under the direction of the employer without supervision
The skills required for the occupation
Who supplies the instrumentalities, tools, and place of work
The length of time the worker is engaged
Whether the worker is paid by time or by job
Whether or not the work is a part of the regular business of the employer
Whether the parties believe there is an employer-employee relationship

Generally, these factors were considered equally, with no factor being given more weight than another.

However, under the NLRB’s Trump Era ruling in SuperShuttle DWF, Inc.(2019), the Board modified the test, reasoning that entrepreneurial opportunity for economic gain or loss was an “animating principle” to be applied to all factors of the independent contractor analysis. Under this approach, special weight was given to entrepreneurial opportunity by evaluating all factors based on the effect each factor had on a worker’s independence to pursue economic gain. This revised standard made it easier for workers in the gig economy to be classified as independent contractors.

The “New” Atlanta Opera Standard: In the Atlanta Opera decision, the NLRB dispensed with the SuperShuttle test’s focus on entrepreneurial opportunity as a decisive factor in the independent contractor analysis. Rather, the Board reverted to its prior standard which requires all factors be considered in light of the factual circumstances, with no one factor given more weight than another. Further, when considering a worker’s entrepreneurial opportunity, the NLRB will only consider actual opportunities, not theoretical opportunities.

Applying this new standard, the Board found that the stylists were employees, even though they were engaged in a distinct business, had specialized skills, and worked on a project basis rather than for an indefinite period generally associated with an employer-employee relationship. The Board also found that the stylists’ entrepreneurial opportunity was merely theoretical because there was no other opera in town that could engage the stylists to work.

Effect on Employers

The factors that the NLRB considers when determining whether a worker is an independent contractor have not changed. However, in reverting back to the more “employee-friendly” approach that considers entrepreneurial opportunity as only one factor may impact employers who heavily relied on this factor to establish independent contractor status in the current gig economy. Employers must be mindful of this change in the NLRB’s approach when hiring new workers and continuing to classify workers as independent contractors who cannot meet the requirements of the new standard.

Another Nail in the Coffin For Non-Competes? NLRB General Counsel Issues Memo Claiming That Most Non-Competes Violate The NLRA

Published on: June 1, 2023 | by Kathleen M. Connelly

On May 30, 2023 Jennifer Abruzzo, General Counsel for the National Labor Relations Board , sent a memorandum to all Regional Directors expressing her view that except in limited circumstances, non-compete provisions in employment and severance agreements constitute unfair labor practices under Section 7 of the National Labor Relations Act (“NLRA”) because they “tend to chill employees in the exercise of Section 7 rights” which protect employees’ rights to take collective action to improve working conditions. While many mistakenly believe the NLRA’s reach only extends to unionized workplaces, both unionized and nonunionized employers are liable for unfair labor practices that violate employee Section 7 rights.

More specifically, the memorandum claims that non-competes interfere with employees’ ability to:

Concertedly threaten to resign to secure better working conditions;
Carry out concerted threats to resign to secure better working conditions;
Concertedly seek or accept employment with a competitor to obtain better working conditions;
Solicit co-workers to work for a competitor as part of a broader course of collective activity;
Seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.

General Counsel Abruzzo noted that non-compete provisions chill the exercise of Section 7 rights “when the provisions could be reasonably 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.”

Permissible Non-Competes. Presumably because the NLRA does not apply to managerial staff, the memorandum notes that non-competes that only restrict managerial or supervisory employees, owners or truly independent contractors could be lawful. In addition, without providing any illustrative examples, General Counsel Abruzzo further noted that there might be “special circumstances” where a narrowly tailored non-compete is justified.

An Interagency Approach. Of particular concern to employers, the memorandum announced that NLRB is committed to an “interagency approach” to combating restrictions on the exercise of employee rights, including worker mobility. This is consistent with a 2022 memorandum of understanding between the NLRB and the Federal Trade Commission and the Department of Justice, both of which have issued pronouncements against the use of non-compete agreements. General Counsel Abruzzo’s memorandum is essentially an invitation for employees subject to non-competes to file complaints against their employers with the NLRB. As a result, employers can expect an increase in unfair labor practice charges challenging the legality of these agreements.

A Growing Trend. General Counsel Abruzzo’s memorandum is only the latest salvo in the growing attack on the enforceability of non-compete agreements. California, North Dakota, Oklahoma and Washington DC have enacted legislation effectively banning most non-competes. Nine states limit the use of non-competes to individuals with earnings above a salary threshold and similar efforts are underway nationally.

On the federal side, the Federal Trade Commission has proposed a new rule that would substantially ban the use of non-competes in response to an Executive Order from President Biden directing the agency to curtail their use. Should the rule be adopted, it will face years of legal challenges as an overreach of administrative authority.

Employer Actions

Given the increasing backlash against non-competes, coupled with the stated intention of the NLRB to prosecute the use of non-competes as unfair labor practices, employers should avoid efforts to impose or enforce these agreements against low paid, non-managerial employees absent unique circumstances. In addition, in the face of a growing judicial reluctance to enforce agreements that are not narrowly drafted to protect only the employers’ legitimate interests, employers should review all non-compete agreements and other post-employment restrictions with employment counsel to ensure compliance with this ever-changing landscape.

What Divorcing Parents of Special Needs Children Need To Know

Published on: November 2, 2022 | by Nicole A. Kobis and Elizabeth Candido Petite

Divorcing parents of minor children are faced with many hard decisions that must be addressed while separating. These considerations include resolving custody, parenting time and support for their children, which are often much harder and more emotionally charged than the issues involving dividing assets and calculating financial support between spouses. When there’s a child with special needs in the family, there are additional decisions to be made surrounding their continued care, often well past the time that other children would be deemed to be emancipated, and the finances surrounding the support they’re receiving. Special needs children are best served when their parents fully address these issues during the divorce proceeding and are able to focus on the best interests of the children, and the divorcing parents are best served by attorneys who fully understand the issues and can offer practical solutions based on the specific circumstances.

Child Support

In any divorce involving children, the parties need to resolve custody, which involves both the legal and physical sharing of their children. In most cases, parties will agree or a court will order that the parties share joint legal custody of their children. Joint legal custody generally means joint decision making for all major decisions in a child’s life. These major decisions typically fall into three larger categories, which are the child’s: (1) health, (2) education, and (3) well being. For example, both parties would need to participate in the decision-making process and agree on whether the child will attend public or private school or whether the child will have their tonsils removed on a nonemergency basis. If parents are unable to agree on these decisions, they can enlist the help of attorneys, mediators or the court, who will help decide these issues with or for them. For parents of a child with special needs these decisions may involve the continuation of certain therapies or treatments or their continued care if they’re no longer able to reside at home.

In addition to custody, parents need to develop and agree on a parenting time schedule whereby they’ll share time with their child once they no longer are an intact family unit. There’s no cookie cutter model for these time sharing arrangements but rather the best interests of the child should be the focal point in determining what makes sense for that specific family. A child’s special needs will be considered in these decisions as the issue of accessibility of each parent’s new home may be a factor if the child is in a wheelchair or walks with assistance or if their special needs affects their ability to transfer between locations.

A family with a special needs child needs to consider where the child will continue to attend school after the family is no longer intact. If the child is already in a public school setting, the family may have already had to go through the process of implementing an Individualized Education Program, more commonly known as an IEP, for a child. An IEP is a program or plan that’s established for a child with a disability that enables them to receive tailored instruction and services as a result of their disability. This includes services to help assist the child and monitor benchmarks and progress to ensure that the services provided are meeting the child’s needs and concrete objectives to allow for confirmation that the IEP is in fact being implemented by a school district. Many districts have reputations for providing better services for certain disabilities that may strongly favor keeping a child in that district over another. After a divorce, it’s important that each parent explicitly preserves their ability to attend any and all educational meetings and receive their child’s educational records. Schools will often cooperate in producing duplicate records so each parent receives their own copy, however, if not, a provision should be added into the parent’s settlement agreement that provides which parent will receive the records and create on obligation for that parent to duplicate and provide to the other parent a copy of what’s received by them.

If, after the intact family dissolves and the parents no longer reside in the same district as they did when they were an intact family, it’s important to decide in which district the child will continue their education. Assuming the parents have agreed to joint decision making for educational purposes, they’ll need to agree and designate which parent’s address will be used for educational purposes. If a child with special needs moves to another district, the new district can take the prior district’s IEP under advisement, but the new district will have to develop and implement a new IEP. If there’s no agreement as to which district a child will attend, state law would determine in which school district the child will be educated, which may or may not be more favorable to the child’s special needs.[1]

On the dissolution of an intact family, one parent will typically pay child support to the other parent for the benefit of any children born to the parents during their relationship. The amount and way in which child support is calculated varies by state, but factors such as each parent’s income, the number of overnights spent with each parent and any spousal support being paid by one parent to the other are generally considered. Child support payments are intended to only cover certain expenses incurred on behalf of children. Therefore, in addition to child support, it’s common for there to be additional expenses shared by the parents. A special needs child often will have reoccurring expenses for therapies, tutoring, additional appointments with specialists or medications that need to be shared by the parents.

The payment of child support ceases on the emancipation of a child. Emancipation is generally tied to the earliest occurring of several larger life milestones for a child, for example graduation from college or a trade school, graduation for high school and obtaining full time employment instead of going to college or a trade school, enlisting in the Armed Forces or marriage of the child.[2] For some special needs children, their limitations may never allow them to achieve any of the traditional milestones, and instead, parents may agree that due to these limitations they’ll have to be continue to financially support their child indefinitely.

In a situation in which a child’s limitations will result in the need for indefinite financial support, the necessity for government benefits becomes a crucial next step. When a child turns 18, certain other issues are triggered as a child reaches age of majority at that time. Child support is considered income to the child. This is important for a child with special needs, as this support would be considered income for purposes of qualifying for means tested benefits, such as Supplemental Security Income. These benefits are important for a family with a special needs child as these benefits enable them to ultimately qualify for Medicaid and services through other agencies servicing individuals with special needs. There’s a threshold amount whereby if a child’s income exceeds that figure, they won’t qualify for these benefits, and therefore, parents should consult with an attorney specializing in Medicaid regarding the drafting and preparation of a special needs trust into which a certain portion of the child support is deposited so as to not jeopardize the child’s qualification for these benefits. This threshold amount is subject to change and therefore, specific language regarding the payment of a certain amount of child support each year to a trust should be inserted into a settlement agreement negotiated at the time of the divorce.

Special Needs Trusts

Parents or other family members of individuals with special needs often set up a special needs trust (SNT) for the disabled person. An SNT is a type of trust designed specifically for beneficiaries who are mentally or physically disabled and who are, or who in the future may be, eligible to receive government assistance as a result of that disability. The primary purpose of the trust is such that the individual beneficiary remains eligible for Medicaid or other means-tested government benefits despite the fact that the assets of the trust can be used for their benefit under certain circumstances.

An SNT is a type of trust that includes at minimum these provisions: (1) clear evidence that the grantor’s intention is to supplement rather than “supplant, impair or diminish” government benefits for which the beneficiary is now or may in the future be eligible; (2) a direction that the trustee can’t use trust assets in such a way that would supplant, impair or diminish such benefits, unless the trustee determines that the beneficiary’s basic needs (food, clothing, shelter, or health care) would be better met if a distribution is made, and that “it is in the beneficiary’s best interests to suffer the consequent effect, if any, on the beneficiary’s eligibility for or receipt of government benefits or assistance;” and (3) the beneficiary can’t “assign, encumber, direct, distribute or authorize distributions from the trust.”[3]

When the SNT is established and funded by someone other than the disabled person, the trust is referred to as a “third party SNT.” In this type of SNT, the grantor can direct what happens to the remaining trust assets on the death of the beneficiary. This is the type of SNT typically set up by parents that this article contemplates. (In contrast, in a “first party SNT,” the beneficiary creates the trust for themself using their own funds, or someone else creates the SNT on behalf of the beneficiary using the beneficiary’s assets – for example, a legal settlement from a personal injury lawsuit that left the beneficiary disabled. A first party SNT must comply with stricter rules, most notably having a payback provision that requires the government to be paid back for the services it provides to the beneficiary during their lifetime before the remaining funds, if any, are distributed to others after the beneficiary’s death.[4])

Like any other type of trust, there are three main parties to an SNT: the grantor, the trustee and the beneficiary. The beneficiary is the disabled person for whom the trust property is to be used. The SNT will also identify remainder beneficiaries to receive assets on the beneficiary’s death. The grantor is the individual who creates the trust, and often the one who funds it. The trustee is the person who manages the trust investments and determines when and how much to distribute on behalf of the beneficiary.

In the case of an SNT created for a disabled child of divorced parents, who serves as trustee is often a touchy subject, because of how much control the trustee can wield. Because of the requirements of how the SNT funds can be used, it’s imperative that the trustee is in frequent contact with the beneficiary so the trustee acutely knows the needs of the beneficiary.

If the divorced parents don’t get along, then having them serve as co-trustees is likely inadvisable, as co-trustees must work together or a stalemate will result. Likewise, if only one parent is the trustee, this could lead to problems if the trustee-parent applies the funds in ways that the other parent doesn’t agree with or refuses to apply funds when the other parent believes it necessary to do so.

A corporate trustee could be a solution, although most banks and trust companies have minimums that many SNTs wouldn’t meet. Moreover, corporate trustees are less likely to be intimately involved with the beneficiary and understand their needs. Such inaction could land a corporate trustee in hot water, which is what happened in a New York case concerning an autistic boy. The boy’s mother named a large bank as corporate trustee of his SNT, but several years into the administration of the trust, the court discovered that although no funds had been disbursed on behalf of the beneficiary, the trustee had taken its full commission, and the court wasn’t pleased.[5]

Which parent serves as grantor of the SNT could also be a potential issue. The options are likely limited to both parents serving as co-grantors, or one parent serving as sole grantor. Typically trusts authorize anyone, not just the grantor, to contribute funds so it’s possible for the non-grantor parent to nevertheless make contributions to the trust to benefit the disabled child. However, the grantor often has some controls over the trust, which is why serving as grantor could create a power struggle for divorced parents that don’t get along.

For example, a trust often authorizes the grantor to nominate a successor trustee if the trustees named in the document cease serving as trustee or to permit the grantor to remove a trustee and replace it with another one (although this removal and replacement power is often only available in the case of corporate trustees). Despite the problems that could result in a power struggle between the parents if only one parent is the grantor holding these powers, not including them in the trust could be an even bigger problem, as it could necessitate having to go to court to change trustees later on, which could be costly and result in unnecessary delays to the trust administration.

Under some circumstances, statutory provisions could avoid a court proceeding. For example, NJSA 3B:31-49, which is part of New Jersey’s version of the Uniform Trust Code, authorizes the “qualified beneficiaries” of a trust to appoint a successor trustee. NJSA 3B:31-27 allows an irrevocable trust to be modified or terminated by the consent of all trustees and beneficiaries, “if the modification or termination is not inconsistent with a material purpose of the trust.” With respect to an SNT, the problem is often whether the disabled beneficiary is able to participate in such actions, and if not, whether someone else can do so on their behalf.

Ultimately, when divorcing parents are establishing an SNT for their child’s benefit, they should look past their differences and focus on the best interests of the child so that the trust and the money contributed to it will be used to benefit their child. If parents truly can’t agree, and depending on how much money is at stake, the best course of action might be for each parent to create a separate SNT for the child’s benefit that each parent can control.

Guardianship

When a special needs child reaches the age of majority, parents will need to consider initiating the process of obtaining a guardianship over that child. A guardianship is necessary if the child is incapacitated, meaning that they’re not able to make legal decisions for themselves due to their disability or other reason.[6] The guardian(s) will step into the shoes of that child and be legally authorized to make decisions on that child’s behalf. Not all children with special needs require the appointment of a guardian. There are cases in which a limited guardianship may be more appropriate. A limited guardianship carves out and reserves specific areas whereby the child is still permitted to make certain decisions on their own. A common decision that’s carved out in a guardianship is allowed the alleged incapacitated individual the right to vote.

When parents divorce, it’s important to determine which parent will apply to be appointed as the guardian of the child. This agreement can be part of the negotiation of a settlement agreement during the divorce process. In many instances of an amicable separation, it is possible for both parents to serve as co-guardians, whereby they would each be afforded the legal right to make decisions on behalf of their child. However, in those instances, it will be important that the parents remain aligned in agreeing and making the decisions jointly.

[1] See example N.J.A.C. Section 6A:22-3.1

[2] See example N.J.S.A. 2A:17-56.67

[3] N.Y. E.P.T.L. Section 7-1.12(a)(5). New York refers to these trusts as “supplemental needs trusts,” but they function the same as a “special needs trust.”

[4] See, e.g., 42 U.S.C. 1396p(d)(4)(a)

[5] In re Mark C.H., 906 N.Y.S.2d 419 (Surr. Ct., N.Y. Cty. 2010)

[6] N.J.S.A. 3B:12- 24.1(d)

New York Significantly Expands Protections for Workplace Whistleblowers

Published on: November 23, 2021 | by Kathleen M. Connelly

New York has long lagged behind New Jersey in according protection to employees who blow the whistle on unlawful or unsafe conditions in the workplace. Unlike its sister state, New York employees had a higher bar for achieving protected whistleblower status under section 740 of the New York Labor Law (NYLL), and employers had viable defenses that could undermine an employee’s claim.

On October 29, 2021 Gov. Hochul signed into law amendments to NYLL Section 740 that significantly expand the rights of employees in ways that bring it line with the expansive protections accorded New Jersey employees. These amendments go into effect January 26, 2022.

Expanded definition of “employee”: The definition of “employee” was amended to include not only current employees, but former employees as well as independent contractors providing services to an employer.

Expanded scope of protected whistleblowing activity: Prior to the amendments, New York whistleblowers were only entitled to protection if they reported an actual violation of law, rule or regulation. Under the amendments, employees cannot be subject to any retaliation because the employee engaged in any of the following activities:

discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that the employee reasonably believes is in violation of law, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety;
provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into such activity, policy or practice by such employer; or
objects to, or refuses to participate in any such activity, policy or practice.

By incorporating the reasonable belief standard, employees can pursue retaliation claims even if it turns out that the employer’s conduct was perfectly legal; so long as the employee had a reasonable belief that it was not lawful, they are still entitled to the statute’s protections.

Expanded definition of ‘law, rule or regulation”: This definition was expanded to include executive orders and judicial or administrative decisions, rulings or orders.

Expanded definition of “retaliatory action”: While previously limited to discharge, suspension, demotion or other adverse employment action taken against an employee in the terms and conditions of employment, this definition was expanded to include i) actual or threatened adverse employment action affecting the terms and conditions of employment; ii) actual or threatened adverse actions that would affect current or future employment; and iii) threatening or contacting immigration or other authorities about the immigration status of an employee or a member of his/her household or family.

Lowering the burden on employees to disclose internally before notifying a public body: Prior to the amendments, employees had to initially report any violations to the employer to afford it a reasonable opportunity to cure the alleged violations before reporting the violation to a public body. Now employees need only show that they made a “good faith effort” to pre-notify the employer before contacting a public body. In addition, prior notification to the employer is excused if i) there is an imminent and serious threat to public health and safety; ii) the employee reasonably believes it will result in the destruction of evidence or concealment of the activity; iii) the practice could reasonably be expected to endanger a minor; iv) the employee reasonably believes that the employee or other persons will be physically harmed if there is prior notification; or v) the employee reasonably believes that the employer is already aware of the unlawful or harmful practice and will not correct it if reported.

Expanded statute of limitations and remedies: The statute of limitations will be expanded from one to two years. In addition to injunctive relief, reinstatement, lost wages and benefits, costs and attorney fees, employees can now recover front pay, a civil penalty of up to $10,000, and punitive damages for “willful, malicious or wanton” violations. However, the amendments did not disturb the provision allowing courts to award attorney fees to the employer if it finds that action was brought by the employee without any basis in law or fact.

Employer publication: Employers are required to conspicuously post a notice informing employees of their rights under the amended Section 740 “in easily accessible and well-lighted places customarily frequented by employees and applicants.” The New York Department of Labor is expected to issue a new poster that can be utilized by employers before the amendments go into effect on January 26, 2022.

Actions to take now: Employers should train managers and supervisors about the expanded rights of whistleblowers under New York law and modify any existing policies and procedures to conform to these new requirements.

Second Chance at Paycheck Protection Program Loan: An Overview of Program Application and Loan Forgiveness Requirements

Published on: May 5, 2020 | by James K. Estabrook and Elizabeth Engert Manzo

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on Friday March 27, 2020, introduced the Paycheck Protection Program (the “PPP”) with the intended goal of preventing job loss and small businesses failure due to losses caused by the COVID-19 pandemic. The PPP was designed to support small business and employees by providing forgivable loans to employers if they maintained their employees and payroll. It was initially funded with $349 billion on a first come, first serve basis. Initial applications from small businesses and sole proprietorships opened on April 3, 2020 and all of this initial funding was exhausted within 13 days, or by April 15, 2020.

On Tuesday, April 21, 2020, the Senate passed an “interim” coronavirus relief Bill, titled the “Paycheck Protection Program and Health Care Enhancement Act” (the Senate Bill). The Senate Bill amends the CARES Act to (i) increase the amounts authorized for the PPP in accordance with Section 7(a) of the Small Business Act, increase the Economic Injury Disaster Loans (EIDL loans), and increase emergency grants under the CARES Act, and (ii) authorize additional funding for hospital and provider recovery and
coronavirus testing.

Despite many complaints about the design, administration and fairness of the PPP, the new Senate Bill was passed by the House on Thursday, April 23, 2020. It is expected to be signed by the President soon thereafter. Notably, the Senate bill does not modify the PPP’s lending program in any material degree but simply appropriates additional emergency funds.

As currently designed the “Paycheck Protection Program and Health Care Enhancement Act” passed by the Senate:

Provides an additional $310 billion in PPP loans – forgivable loans to small business to cover the cost of payroll and operating expenses:

1. $30 billion in guaranteed loans for lenders with less than $10 billion in assets.
2. $30 billion in guaranteed loans for lenders with $10 billion to $50 billion in assets.
3. $60 billion dollars is set aside for loans made by smaller insured depository institutions and credit unions.

Provides an additional $10 billion for Emergency Economic Injury Disaster (EIDL) grants.
Appropriates an additional $50 billion for the Disaster Loans Program Account.
Allows agricultural enterprises as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)) with not more than 500 employees to receive EIDL grants and loans.
Provides an additional $75 billion for reimbursement to hospitals and healthcare providers to support the need for COVID-19 related expenses and lost revenue.
Provides $25 billion for necessary expenses to research, develop, validate, manufacture, purchase, administer, and expand capacity for COVID-19 tests.

Because the focus of this article is Paycheck Protection Program (PPP) forgivable loans, we will not discuss the other grant, loan and testing programs set forth in the Senate bill.

Where can I find PPP guidance which explains the PPP program requirements?

In addition to the initial CARES Act, the U.S. Small Business Administration (“SBA”) issued two interim rules on April 2, 2020 and April 3, 2020, as well as an interim final rule issued on April 15, 2020.

The SBA also issued Affiliation Guidance.

And, Frequently Asked Questions were issued on April 6, 2020, and repeatedly updated, five times through April 17, 2020. The FAQ can be found here and should be consulted for updates.

Notably, FAQ #17 states that borrowers and lenders may rely on the laws, rules, and guidance available at the time their PPP application was submitted even though borrowers (who submitted loan applications that have not yet been processed) “may”
revise their applications based on clarifications reflected in the FAQs. Also, please note FAQ #31, which addresses “economic need” certification requirements, as discussed more fully in heading “How do I apply?” below.

Who is Eligible for the PPP?

Eligibility for Covered Loans broadly includes any business concern, nonprofit organization, veterans organization, or Tribal business concern if:

it was in operation on February 15, 2020 paying employees or independent
contractors, and
the entity employs no more than the greater of:

- 500 employees whose principal place of residence is in the U.S.; or
- if applicable, the business meets the SBA employee-based or revenuebased size standards for the industry in which the entity operates or the SBA’s “alternative size standard” after application of the “affiliation” rules

Also eligible for Covered Loans are individuals operating under sole proprietorships or as independent contractors or as eligible self-employed individuals if:

they were in business on February 15, 2020, and
they submit the necessary documentation to establish eligibility (i.e. payroll processor records, payroll tax filings, Form 1099-MISC, or income and expenses from a sole proprietorship).

If Eligible, How Much Can I Borrow and How Do I Determine that Amount?

Under the PPP, the maximum loan amount is the lesser of:

$10 Million or
2.5 times the average total monthly payments for “Payroll Costs” over the 12 months before applying for the loan, plus the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020.

FAQ #14 clarifies that borrowers can calculate their aggregate payroll costs and number of employees using data from either the previous 12 months or from calendar year 2019.

What is included in Payroll Costs?

“Payroll cost” for borrowers (other than independent contractors/sole proprietorships) equals the sum of:

payments of  compensation to employees in the form of salary, wages, commission, or similar compensation; (other than excess portions of annualized compensation of an employee exceeding $100,000);
cash tips or the equivalent;
payments for vacation, parental, family, medical, or sick leave; (but not including qualified sick or family leave benefits paid under FFCRA per FAQ #8);
allowances for dismissal or separation;
payments for the provision of group healthcare benefits, including insurance premiums;
payments of any retirement benefits; and
payment of State and local tax assessed on employee compensation. (FAQ #16 clarifies that payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages)

FAQ #15 clarified that payments to independent contractors or sole proprietorships are not counted for purposes of Covered Loan calculations or forgiveness of other small business Borrowers.

For independent contractors, “payroll cost” is the sum of payments of any compensation or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment or similar compensation (not in excess of more than $100,000 in 1 year, prorated).

Are Employee Benefit Contributions included with payroll cost?

FAQ #7 clarifies that the CARES Act exclusion of annual employee compensation in excess of $100,000 applies only to cash compensation, not to non-cash benefits, including: employer contributions to defined benefit or defined contribution retirement
plans, payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and payment of state and local taxes assessed on compensation of employees. Therefore, these non-cash benefits may be
included as a payroll cost, even for employees who have cash compensation in excess of $100,000 annually.

Which Payroll Costs are Excluded?

Payroll Costs expressly exclude: (1) compensation of an employee whose principal residence is outside the United States; (2) the excess portions of annualized compensation of an individual employee exceeding $100,000; (3) Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and (4) qualified sick and family leave benefits for which an employer tax credit is allowed under the Families First Coronavirus Response Act.

How many loans can I get?

Note that no eligible borrower may receive more than one PPP loan. This means that if you apply for a PPP loan, you should consider applying for the maximum amount.

If a borrower received an SBA EIDL loan between January 31, 202 and April 3, 2020, the borrower can also apply for a PPP loan. If the EIDL loan was used for payroll costs, the PPP loan must be used to refinance the EIDL loan. Proceeds from any EIDL loan
advance up to $10K will be deducted from the loan forgiveness amount on the PPP loan.

What Can the Loan Be Used For?

The proceeds of a PPP loan are to be used for:

payroll costs (as defined above), **payroll costs must be at least 75% of loan proceeds;
costs of continuing group health care benefits;
interest payments on any mortgage obligation (but not any prepayment or principal on a mortgage);
rent and utilities;
interest on any other debt obligations incurred before February 15, 2020; and
the refinancing of any EIDL loan made between January 1, 2020 and April 3,
2020.

** Importantly, at least seventy-five (75%) of the loan proceeds must be used for payroll costs, and if not, only a portion of the loan that was used for qualified purposes will be forgiven.

If a borrower uses Covered Loan proceeds for unauthorized purposes, the SBA will direct the borrower to repay those amounts.

Furthermore, under the Guidance, if you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud, and the SBA will have recourse against shareholders, members, or partners who use Covered
Loan proceeds for unauthorized purposes.

How do I apply?

You will need to complete the PPP loan application and submit the application with the required documentation to an approved lender that is available to process your application. Applications can be found here.

When applying, you will need to provide your lender with payroll documentation. As part of your application, you will need to certify the following:

Current economic uncertainty makes the loan necessary to support your ongoing operations.
The funds will be used to retain workers and maintain payroll or to make mortgage interest, lease, and utility payments.
You have not and will not receive another loan under this program.
You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amount of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the
eight weeks after getting this loan.
Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Not more than 25% of the forgiven amount may be for non-payroll costs.
All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

On April 23, 2020, the SBA issued additional Guidance, stating that before submitting a PPP application, all borrowers must “assess their economic need for a PPP loan.” Specifically, all borrowers should review carefully the required certification that
“current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other
sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. While it is unclear as to how the SBA will interpret “access to other sources of liquidity,” and “not significantly detrimental to the
business,” we expect that the forgiveness portion of the loan may include an audit of the loan amount to ensure the application was made in good faith.

Importantly, the newly issued Guidance allows a borrower that has obtained a PPP loan prior to April 23, 2020 to repay the loan in full by May 7, 2020. For example, according to the Guidance, it is highly unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such company should be prepared to demonstrate to the SBA, upon request, the basis for its certification. Therefore, any borrower that applied for a PPP loan prior to the issuance of the Guidance and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certification in good faith.

Is a Guaranty or Collateral Required for the Loan?

Neither a guaranty nor collateral is required for the loan. The CARES Act specifically provides that the loans are non-recourse against any individual, shareholder, member or partner of a recipient of a loan as long as such individuals use the loan proceeds for permitted uses (as discussed above).

What is the Interest and Maturity on the Loan?

Guidance has capped the interest rate at 1% with a 2-year maturity (decreased from a maximum maturity of 10 years under the Act). Prepayment penalties are not permitted.

When will I have to begin paying principal and interest on my PPP loan?

Even if the loan amount is not forgiven in whole or in part, you will not have to begin any payments for 6 months following the date of disbursement of the loan. However, interest at 1% will accrue on PPP loans during this 6-month deferment.

Can my loan be forgiven in whole or in part?

A PPP loan is eligible for loan forgiveness up to the full amount of the loan plus any accrued interest.

What time period is relevant for loan forgiveness?

PPP loan forgiveness is fact-sensitive and based upon the borrowers use of the PPP loan proceeds during the 8-week period that begins on the date the lender makes the first disbursement of PPP loan to the borrower. FAQ # 20 states that the lender must
make the first disbursement of the loan no later than 10 calendar days from the date of loan approval.

Which expenses are potentially forgivable?

Under existing guidance, loan forgiveness is available for the sum of documented:

payroll costs (as defined above)
covered mortgage interest payments (which were in place prior to February 15, 2020)
covered rent and lease payments; (which were in place prior to February 15, 2020) and
covered utility payments (electricity, gas, water, telephone, and internet which were in place before February 15, 2020)

However, very importantly, at least 75% of the PPP loan must be used for payroll costs.

AND

The amount of PPP forgiveness may be reduced if the borrower either:

reduces the number its employees during that 8-week period (as applied against the employer’s “comparable period” which for most businesses is, at the Borrower’s choice, the average number of “full-time equivalent” employees per month employed by the borrower between either February 15, 2019 through June 30, 2019, or January 1, 2020 through February 29, 2020); or
reduces salaries by 25% or more of employees with annual salaries of $100,000 or less (as compared to the employee’s average compensation during the last full quarter).

Are there any exceptions if the employer was forced to reduce the number of its
employees or reduces salaries during that 8-week period?

An employer may qualify for an exception if, prior to June 30, 2020, the employer rehires the number of employees or reinstates the compensation of an employee that was impacted between Feb. 15, 2020, through April 26, 2020.

What is the consequence if I cannot restore my number of employees or salary levels prior to June 30, 2020?

If an employer still does not meet the requirements for this exception by June 30, 2020, then the amount of the loan eligible for forgiveness will be reduced ratably, and the remaining unforgivable portion of the loan will become a 2 year loan at a 1% interest
rate and 6 month initial deferral period on repayment.

How are “Full Time Equivalent” employees under the CARES Act defined in order to calculate the number of employees?

Presently, there is no definition of “full-time equivalent employees” in the statute or in the other SBA guidance issued to date. Until additional guidance is issued, it is therefore uncertain how the below categories of employees will be calculated.

existing employees: on paid leave, on reduced leave, are furloughed, or on workshare programs
former employees: receiving severance, who voluntarily terminated, or who were terminated for cause

When will additional loan forgiveness guidance be available?

Under the CARES Act, additional guidance on PPP loan forgiveness must be issued by the SBA by April 26, 2020 and because of the number of lingering questions, it is highly anticipated.

Conclusion:

Should you have any additional questions, the attorneys at Lindabury McCormick, Estabrook & Cooper are available to assist the MCAA members and affiliated chapters.

NLRB Changes Course And Issues New Common Sense Guidance For Employer Handbook Rules

Published on: July 27, 2018 | by Kathleen M. Connelly

Most employers are aware that employee handbook rules that impede employees’ abilities to engage in protected concerted activity – e.g., organizing unions, discussing wages, discipline or other terms and conditions of employment – run afoul of rights guaranteed by Section 7 of the National Labor Relations Act (NLRA). Under the prior administration the National Labor Relations Board (NLRB) took a very narrow view, finding that facially-neutral policies that could conceivably be construed to chill Section 7 rights are unlawful. As a result, employers were in peril of having the most innocuous workplace rules aimed at advancing basic employer interests, such as workplace civility, subject to challenge. Thankfully, the newly-constituted Board overruled years of precedent in favor of a much more reasonable and employer-friendly approach to assess the legality of employee handbook rules.

In December 2017, the Board issued its ground-breaking decision in The Boeing Co., 365 NLRB No. 154, announcing a new three category test that balances the employer’s interests in maintaining discipline and productivity and protecting its property, against employee rights to engage in concerted activities protected by the NLRA. On June 6, 2018, General Counsel of the NLRB issued a memorandum entitled “Guidance on Handbook Rules Post-Boeing” that serves as a useful roadmap for how the Board will apply its new three-category standard to a wide array of workplace rules commonly found in employee handbooks and other policies. The Guidance makes is clear that that the mere possibility that a workplace rule could be interpreted to preclude Section 7 activity is no longer a justification for finding the rule unlawful, and that “ambiguities in rules are no longer to be interpreted against the drafter, and generalized provisions should not be interpreted as banning all activity that could conceivably be included.”

The New Three-Category Test: When assessing the legality of workplace rules, the NLRB will now assign workplace rules to one of the following three categories:

Category 1: Rules that are Generally Lawful to Maintain. Rules in this category are generally lawful because when reasonably interpreted, they do not prohibit or interfere with employees’ exercise of NLRA rights, or because the potential adverse impact on those rights is outweighed by the employer’s legitimate business justification of the rule. The Guidance identified the following types of rules as falling into this category:

Civility rules (those requiring employees act civilly and refrain from disparaging clients, coworkers and others conducting business with the employer)
No-photography and no-recording rules (those requiring employees to secure prior approval from management before taking photographs in the workplace or recording workplace conversations)
Rules against insubordination, non-cooperation, or on-the-job conduct that adversely affects operations
Disruptive behavior rules
Rules protecting the confidential, proprietary, and customer information or documents
Rules against defamation and misrepresentation
Rules against using employer logos or intellectual property
Rules requiring authorization to speak for the company
Rules banning disloyalty, nepotism, or self-enrichment

Absent unlawful application of the foregoing rules, the Board will generally deem these rules lawful.

Category 2: Rules Warranting Individualized Scrutiny. Rules in this category are not obviously lawful or unlawful, and thus must be evaluated on a case-by-case basis to determine whether the rule would interfere with NLRA rights, and if so, whether any adverse impact upon these protected rights is outweighed by the employer’s legitimate justifications. The Guidance identifies the following “possible examples” of those rules requiring individualized scrutiny:

Broad conflict-of-interest rules that do not specifically target fraud and self-enrichment
Confidentiality rules that broadly encompass “employer business” or “employee information” (as opposed to lawful rules regarding customer or proprietary employer information, or unlawful rules that restrict employees from discussing wages and terms and conditions of employment )
Rules regarding disparagement or criticisms of the employer (as opposed to lawful civility rules regarding the disparagement of employees)
Rules regarding the use of the employer’s name (as opposed to lawful rules restricting use of the employer’s logo or trademark)
Rules generally restricting the ability of employees to speak to the media or third parties (as opposed to lawful rules restricting the ability of employees to speak to the media or third parties on the employer’s behalf)
Rules banning off-duty conduct that might harm the employer (as opposed to lawful rules banning insubordinate or disruptive work conduct, or unlawful rules specifically banning participation in outside organizations )
Rules against making false or inaccurate statements (as opposed to lawful rules against making defamatory statements)

If a category 2 rule is challenged, the Board will consider any factors raised by the parties or identified by Region that weigh in favor of either the rule’s negative impact on protected NLRA activity or the employer’s legitimate business interest furthered by the rule.

Category 3: Rules that are Unlawful to Maintain. Rules in this category are generally unlawful because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights outweighs any justifications associated with the rule. Examples of these rules include:

Confidentiality rules specifically restricting employees from discussing or disclosing information regarding wages, benefits or working conditions
Rules against joining outside organizations or voting on matters concerning the employer

The Guidance warns that Category 3 rules are so broad that they substantially impact the exercise of NLRA rights, and employers generally do not have a legitimate interest is such expansive restrictions where narrower rules would serve the employer’s legitimate goals.

Although the Guidance establishes the framework that will be applied by the Board in assessing the legality of facially-neutral workplace conduct rules, the Guidance notes that how the new Boeing standard will apply to rules requiring confidentiality of discipline or arbitration remains unclear and such cases must be submitted by the Regions to the Board’s Division of Advice. Moreover, the Guidance cautions that the application of a facially-neutral rule against employees engaged in protected NLRA activity is still unlawful.

What’s an Employer to Do? Employers should review their employee handbooks and other policies and evaluate how their policies stack up under the new Three Category Test announced in the Guidance.

How Can An Employer Avoid Discrimination And Legal Liability When Implementing A Dress Code?

Published on: April 2, 2018 | by Lindabury, McCormick, Estabrook & Cooper, P.C.

Although not required by federal or New Jersey law, many employers utilize policies, which govern appropriate dress and grooming standards for employees in the workplace. For example, when attending business meetings with visitors or clients, employers may require that employee attire reflect that of the individuals with whom that employee is meeting. In other circumstances, employees may simply rely upon common sense and good judgment regarding their appearance and clothing in the workplace or employers may choose to give employees examples of what is appropriate and inappropriate attire. In doing so, however, employers need to be mindful of the potential implications under federal laws such as Title VII of the Civil Rights Act of 1964 (“Title VII”), the Americans with Disabilities Act (“ADA”), or state laws like the New Jersey Law Against Discrimination (“NJLAD”).

Specifically, employers need to be aware of the following potential forms of discrimination that that may arise as a result of a dress code policy:

Disability: A policy that does not take into account a reasonable accommodation to its dress code for an individual with a disability may lead to claims under the ADA or NJLAD, unless doing so would result in undue hardship.
Religion: A policy that prohibits head coverings, for example, may lead to allegations of religious discrimination if that employee is required to wear certain head gear as part of his or her religious beliefs.
Race: A no-beard policy that prohibits men from having facial hair has been found to disproportionally impact African-American males and may lead to racial discrimination claims.
National origin: A dress code may not treat some employees less favorably because of their national origin. For example, a dress code that permits casual attire, but prohibits certain kinds of ethnic dress, such as traditional African or East Indian attire, would lead to claims of discrimination based on national origin.
Sex or gender: Requiring women to dress in traditional female clothing (i.e. skirts or dresses) may lead to discrimination claims based on sex or gender. Likewise, this same policy may lead to claims against transgender employees based on their gender non-conformity.

Given these potential risks, it is crucial that employers word their policy in such a way as to avoid discrimination and reduce exposure to legal liability.

Solution: Adopt a Clear Dress Code to Reflect the Employer’s Individual Business Environment.

A properly drafted dress code will not only help to maintain a professional atmosphere that is conducive to the employer’s business environment, but it will also help to limit an employer’s legal exposure given the aforementioned risks under both federal and state law. When implementing a dress code policy, employers should be mindful to incorporate the following:

Adopt a gender-neutral policy, which expressly states the employer’s business-related reasons for implementing the policy;
Consider different standards of dress for different job classifications, i.e. office versus warehouse;
Identify consequences for failing to comply with the dress code policy, including sending employees home without compensation for that day or for those hours not worked;
Include a provision addressing the availability of reasonable accommodations to the dress code policy under the ADA and NJLAD;
Consider including a provision stating that the employer’s policy does not intend to interfere with an employee’s Section 7 Rights. For example, a dress code that prevents an employee from wearing a button or slogan may be deemed unlawful if wearing the button or slogan is found to be protected, concerted activity. For a more complete discussion of what conduct amounts to “protected, concerted activity,” please see our previous “Social Media and Discipline” Toolkit Blast.
Include an acknowledgment page, which recognizes that the employee has received and reviewed the policy.

Finally, it is also very important that employers properly train supervisors and managers on implementing these policies to ensure that the policies are being applied consistently. If you have any specific questions about drafting a dress code or disciplining employees for violating a dress policy, please contact our office directly.