United States: US Employment Litigation Round-Up For June 2018

Recent Cases and New Laws Affecting Employers

Decision:  On June 6, 2018, National Labor Relations Board ("NLRB") General Counsel Peter Robb issued a new guidance memorandum (GC 18-04) clarifying the standard the NLRB will apply when interpreting employer workplace policies and handbooks following its recent decision in The Boeing Co., 365 NLRB No. 154 (2017). In Boeing, the NLRB rejected a prior standard it had applied for judging workplace rules, which generally prohibited an employer from maintaining any rule that an employee "could reasonably construe" as prohibiting the exercise of the employee's rights under Section 7 of the National Labor Relations Act ("NLRA"), in favor of a test that balances (1) the nature and extent of the potential impact of a rule or policy on the employee's NLRA rights and (2) the employer's "legitimate justifications associated with the rule." In connection with this balancing test, the NLRB delineated three categories of employment practices, rules and handbook provisions. The new memorandum provides additional guidance to the NLRB's regional directors and officers on how to categorize and evaluate such policies moving forward:

  • Category 1: Policies that are "generally lawful" because, "when reasonably interpreted," they do not "prohibit or interfere with the exercise of rights guaranteed by the [NLRA], or because the potential adverse impact on protected rights is outweighed by the employer's business justifications associated with the rule."

Examples: Policies that govern employee civility, insubordination, disruptive behavior and defamation; policies that protect the employer's confidential, proprietary or customer information that do not make mention of employee or wage information; rules governing the use of the employer's logos or intellectual property and authorization to speak on behalf of the employer; and policies that prohibit photography/recordings in the workplace.

  • Category 2: Policies that are "not obviously lawful or unlawful, and must be evaluated on a case-by-case basis" and whose legality often depends on context.

Examples: Policies that broadly govern conflicts of interest and do not specifically target fraud or self-enrichment; confidentiality policies that broadly encompass the employer's business or information (and thus could inadvertently incorporate employee wages, terms of employment or working conditions); and rules regarding disparagement or criticism of the employer, the use of the employer's name, the employees' general ability to speak to the media or third parties, off-duty conduct that might harm the employer and false or inaccurate statements that do not rise to the level of defamation.

  • Category 3: Rules that are "generally unlawful" because they plainly interfere with the exercise of protected rights and the adverse impact on protected rights outweighs any business justification.

Examples: Confidentiality rules that prohibit discussion of salaries, wages, commissions, benefits or working conditions, either internally our with third parties; and rules against joining outside organizations or voting on matters concerning the employer.

Impact: The NLRB's guidance memorandum clarifies that post-Boeing many employment policies and procedures that may have been deemed unlawful under the previous NLRB General Counsel memoranda will now be upheld. The memorandum, which specifically discusses a number of routine workplace policies and explains why such policies will generally be found lawful or unlawful under the NLRA, provides employers with a greater degree of predictability with respect to the legality of many of their policies. However, the general counsel makes clear that employers may not directly limit protected activity, such as discussion of wages, and that lawfulness of a policy can turn on the specific language and scope of the policy used. Employers should thus keep the new guidance in mind when drafting and revising workplace policies and should regularly review their workplace rules and policies to ensure compliance with the constantly evolving legal landscape in this area.

California Supreme Court Affirms Employers' Insurance Coverage for Negligent Employment Practices under General Liability Insurance Policy

Decision: The California Supreme Court recently held that employers' general liability insurance coverage for "accidents" includes coverage for claims of negligent hiring, retention and supervision of employees who intentionally injure third parties. In Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., the defendant construction company was retained to manage construction at a school. A student later sued the company, claiming that its employee had sexually abused her. The construction company submitted a claim under its general liability insurance policy, which provided coverage for any "bodily injury" caused by an "occurrence," defined in the policy as "an accident." The insurer asserted that the claim was not covered by the policy and refused to defend or indemnify the company. A federal district court sided with the insurer, concluding that the company's allegedly negligent acts were too attenuated from the employee's intentional conduct to be covered by the policy.

The US Court of Appeals for the Ninth Circuit certified the question to the California Supreme Court. The California Supreme Court disagreed with the district court's conclusion and explained that the relevant inquiry in interpreting whether the incident was an "accident" is to consider the employer's point of view rather than the intentionality of the employee's conduct. Thus, even though the employee's intentional act was the direct cause of the student's injury, the insured employer's negligence in hiring, retaining or supervising that employee could be considered an indirect cause of that injury. Applying these principles, the court found that the student's injury was a covered "accident" under the construction company's policy. The court emphasized that "employers may legitimately expect coverage for [negligent hiring, retention, and supervision] claims under comprehensive general liability insurance policies, just as they do for other claims of negligence," absent some specific exclusion in their policies.

Impact: Previously, there was some uncertainty among California state and federal courts about whether coverage for "accidents" under general liability insurance policies extended to claims for negligent employment practices. Liberty Surplus makes clear that such claims are covered, and it expresses a strong policy preference in favor of that coverage. This decision thus should give employers some comfort that their insurance policies will cover negligent employment practices claims in California, provided that the policies include the relevant "accident" language and that other exclusions do not apply. Of course, insurers may respond by inserting specific exclusions of employment practices negligence from their policies, so continued review is advisable.

NY Appellate Court Sides with Postmates in Couriers' Misclassification Action, Upholding Their Classification as Independent Contractors Rather Than Employees

Decision: A New York intermediate appellate court handed Postmates a victory in the ongoing battle over employment status in the gig economy. A panel of the Appellate Division for the Third Judicial Department voted 3-2 to overturn the New York Unemployment Insurance Board's finding that a courier should have been classified as an employee, making Postmates liable for unemployment insurance contributions. The Appellate Division explained that the relationship between Postmates and the courier lacked "the requisite indicia of supervision, direction and control necessary to establish an employer-employee relationship." The court focused on the fact that couriers are not required to report to any supervisor, that they unilaterally retain unfettered discretion as to whether to log on to the Postmates platform and that they are free to work as much or little as they want—there is no set work schedule and no requirement to complete a minimum or maximum number of deliveries. Moreover, couriers are free to choose the mode of transportation to make deliveries and the route to take. The court also relied on the fact that the couriers can simultaneously work for other companies, including Postmates' direct competitors, and are not required to wear a uniform. "[T]he fact that Postmates determines the fee to be charged, determines the rate to be paid, [and] tracks the subject deliveries in real time and handles customer complaints . . . does not constitute substantial evidence of an employer-employee relationship."

Impact: The Appellate Division's decision is the latest ruling on employee classification status in the gig economy. While the decision interprets New York's unemployment law, it will likely be cited by employers more broadly. Even though the Postmates decision is not binding on courts outside of New York's Third Department, it provides useful information to gig economy companies on how to structure their operations in jurisdictions where classification status is largely determined by the employer's level of control. 

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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