Category: Labor & Employment

Creating a Social Media Policy

Posted on October 18, 2011 in the National Law Review an article by Brian J. Moore of Dinsmore & Shohl LLP regarding the importance of employers having a social media policy:

It is essential for employers to develop a social networking policy, especially in light of the many legal issues that may arise. Employers must consider the many goals that the policy intends to cover, such as:

  • Protecting the company’s trade secrets, confidential, proprietary and/or privileged information;
  • Protecting the company’s reputation;
  • Protecting the privacy of employees; and
  • Establishing guidelines for whether use of social networking sites during working hours is permitted, and if so, under what circumstances.

Employers must also consider the parameters in developing a new policy, such as:

  • Urging employees to go to human resources with work-related issues and complaints before blogging about them;
  • Setting forth the potential for discipline, up to and including termination, if an employee misuses social networking sites relating to employment;
  • Establishing a reporting procedure for suspected violations of the policy;
  • Enforcing the policy consistently and with regard to all employees;
  • Reiterating that company policies, including harassment and discrimination policies, apply with equal force to employees’ communications on social networking sites;
  • Reminding employees that the computers and email system are company property intended for business use only, and that the company may monitor computer and email usage; and
  • Arranging for employees to sign a written acknowledgment that they have read, understand and will abide by the policy.

As seen is the October 14th issue of Business Lexington

© 2011 Dinsmore & Shohl LLP. All rights reserved.

EEOC and Cracker Barrel Sign National Mediation Agreement

Recently posted in the National Law Review an article by U.S. Equal Employment Opportunity Commission regarding Cracker Barrel Old Country Store signing of a National Universal Agreement to Mediate:

WASHINGTON – Cracker Barrel Old Country Store, Inc. and the U.S. Equal Employment Opportunity Commission (EEOC) today announced the signing of a National Universal Agreement to Mediate (NUAM) to streamline the handling of employment discrimination claims.

With the signing of this agreement, Cracker Barrel joins more than 200 national and regional private sector employers, including several Fortune 500 companies, who have made similar arrangements with the EEOC. This agreement provides the framework for both organizations to informally resolve any workplace issues that may arise from time to time through Alternative Dispute Resolution (ADR) rather than through a traditional lengthy, formal EEOC investigation or potential litigation. The NUAM includes all Cracker Barrel locations.

“Nationwide mediation agreements like this are a classic win-win,” said Nicholas Inzeo, Director of the EEOC’s Office of Field Programs. “NUAMs are a non-adversarial and efficient way for companies to handle discrimination charges using the EEOC as a partner and advisor. EEOC mediation encourages a positive work environment, and the company saves time and money. Everyone benefits. We are gratified that a major employer such as Cracker Barrel has joined the growing ranks of companies that are making use of this innovative system.”

Cracker Barrel Vice President and General Counsel Michael J. Zylstra said, “Cracker Barrel is committed to providing a fully inclusive workplace, where diversity is welcomed and everyone is treated with courtesy and respect. This innovative agreement builds upon our existing policies and procedures to effectively and fairly resolve employee concerns and demonstrates our shared goal to create a bias-free workplace. We look forward to developing an even stronger relationship with the EEOC.”

Under the terms of the NUAM, any eligible charges of discrimination filed with the EEOC in which Cracker Barrel is named as an employer/respondent will be referred to the EEOC’s mediation unit. The company will designate a corporate representative to handle all inquiries and other logistical matters related to potential charges in order to facilitate a prompt scheduling of the matter for EEOC mediation.

Expanding mediation is a key component of the EEOC’s efforts to improve operational efficiency and effectiveness. The EEOC has entered into 233 national and regional Universal Agreements to Mediate (UAMs) with private sector employers, including several Fortune 500 companies. Additionally, EEOC district offices have entered into 1,743 mediation agreements with employers at the local levels within their respective jurisdictions. Since the full implementation of the EEOC’s National Mediation Program in April 1999, more than 136,000 charges of employment discrimination have been mediated, with nearly 70 percent being successfully resolved.

Cracker Barrel Old Country Store, Inc. (Nasdaq: CBRL) was established in 1969 in Lebanon, Tenn., and operates 604 company-owned locations in 42 states. For more information, visit www.crackerbarrel.com.

The EEOC enforces federal laws prohibiting employment discrimination. Further information about the EEOC and its mediation program is available on its web site at www.eeoc.gov.

Second Circuit Finds that Employers May be Obligated to Accommodate a Disabled Employee's Commute

Posted in the National Law Review an article by attorneys James R. Hays, Jonathan Sokolowski and James R. Hays of Sheppard Mullin Richter & Hampton LLP regarding disabled employees and employers requirements to assist them:

 

The Second Circuit Court of Appeals has held that under the Americans with Disabilities Act (“ADA”) and the Rehabilitation Act, employers may be required to assist disabled employees with their commute.

In Nixon-Tinkelman v. N.Y. City Dep’t of Health & Mental Hygiene, No. 10-3317-cv, 2011 U.S. App. LEXIS 16569 (2d Cir. N.Y. Aug. 10, 2011), plaintiff Barbara Nixon-Tinkelman (“Plaintiff”), who has cancer, heart problems, asthma, and is hearing impaired, brought suit under the ADA and the Rehabilitation Act alleging that the New York City Department of Health & Mental Hygiene (“Defendant” or “DOHMH”) failed to reasonably accommodate her disability. Specifically, following her transfer from Queens to Manhattan, Plaintiff requested that DOHMH accommodate her commute by transferring her back to an office location closer to her home in Queens. DOHMH ultimately denied Plaintiff’s request.

The Southern District of New York dismissed Plaintiff’s complaint on Defendant’s motion for summary judgment, finding that activities which “fall outside the scope of the job, like commuting to and from the workplace, are not within the province of an employer’s obligations under the ADA and the Rehabilitation Act.” However, on appeal, the Second Circuit faulted the district court’s holding, explaining that certain circumstances may require an employer to provide commuting assistance to a disabled employee, and furthermore, that providing such assistance is not “inherently unreasonable.” Accordingly, the Second Circuit remanded the case to the district court, and tasked it with engaging in the “fact-specific inquiry” necessary to determine whether it would have been reasonable to provide Plaintiff with a commuting accommodation. On remand, the Second Circuit directed the district court to consider the following factors: (a) Defendant’s total number of employees; (b) the number and location of Defendant’s offices; (c) whether other positions exist for which Plaintiff was qualified; (d) whether Plaintiff could have been transferred to a more convenient office without unduly burdening Defendant’s operations; and (e) the reasonableness of allowing Plaintiff to work from home without on-site supervision.

In addition to the above-listed factors, the Second Circuit also noted that the district court should have contemplated whether transferring Plaintiff “back to Queens or another closer location, allowing her to work from home, or providing a car or parking permit” would have accommodated her needs.

Nixon-Tinkelman serves as a reminder to employers that they must carefully assess all requests for reasonable accommodations from disabled employees. Although employers are not required to provide the specific accommodations employees may request, they must nevertheless work with employees to determine what reasonable accommodations, if any, can be made.

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

NLRB Delays Implementation of Mandatory Notice Posting Rule

Recently posted in the National Law Review  an article regarding the NLRB postponing the date for employers to post notices informing employees of their rights to join a union  by Aaron J. Epstein of Andrews Kurth LLP:

 

Last week, the National Labor Relations Board (NLRB) postponed the effective date for its rule requiring most U.S. employers to post workplaces notices informing employees of their rights under the National Labor Relations Act (NLRA), including the right to join a union. The NLRB published the new rule on August 31, 2011, and initially set an effective date of November 14, 2011. However, in the face of two lawsuits challenging the validity of the new rule, and citing the need to conduct enhanced education and outreach, the NLRB has delayed the effective date until January 31, 2012.

Below is a brief overview of the new rule and the steps employers must take to comply.

To Whom the Rule Applies

The notice posting rule applies to all employers covered by the NLRA, whether or not they have a unionized workforce. NLRA coverage is intentionally broad and reaches almost all private sector employers. In the case of retail businesses, the NLRB’s jurisdiction covers any employer with a gross annual volume of business of $500,000 or more. The NLRB’s non-retail jurisdictional standard extends to most other employers. It is based on the amount of goods sold or services provided by an employer out of state, called “outflow,” or goods or services purchased by an employer from out of state, called “inflow.” Under this standard, any employer with an annual inflow or outflow of at least $50,000 is subject to the NLRA.

What the Rule Requires

The NLRB’s new rule dictates that employers post an 11-inch-by-17-inch notice detailing employee rights under the NLRA in a conspicuous place where other notifications of workplace rights and employer policies and rules are customarily posted. Employers are required to take reasonable steps to ensure that the notice is not altered, defaced, covered, or otherwise rendered unreadable. Additionally, employers who post personnel policies or workplaces notices on a company intranet or internet site must also post the NLRA notice on those sites, or they can provide a link to the notice on the NLRB’s website with the title “Employee Rights Under the National Labor Relations Act.”

Copies of the notice, in English and Spanish, are available at www.nlrb.gov or at any of the agency’s regional offices. The notice must be posted in English and in another language if at least 20 percent of employees are not proficient in English and speak the other language. The NLRB will provide translations of the notice, and of the required link to the NLRB’s website, in the appropriate languages. If a workforce includes two or more groups, each constituting at least 20 percent of the workforce, who speak different languages, an employer must post the notice in the language spoken by the larger group, and then may either post the notice in the language(s) spoken by the other group(s) or, at the employer’s option, distribute copies of the notice to those employees in their language(s). If such an employer is also required to post the notice electronically, it must do so in each of those languages.

Failure to Comply with the Rule

Failing to post the notice may, in and of itself, be treated as an unfair labor practice and subject an employer to remedial measures. The NLRB may also extend the six-month statute of limitations for filing a charge involving other unfair labor practice allegations against the employer. Finally, if an employer knowingly and willfully fails to post the notice, the failure may be considered evidence of unlawful motive in an unfair labor practice case dealing with other alleged violations of the NLRA.

© 2011 Andrews Kurth LLP

Medical Marijuana User Not Protected from Termination

Recently posted in the National Law Review an article by Darren A. Feider  of Williams Kastner regarding medical marijuana and employment:

A developing exception to Washington law of employment at will is the tort of wrongful termination in violation of public policy. This narrow exception was recently tested in Roe v. TeleTech Customer Care, 171 Wn.2d 736 (2011), when a new hire employee asserted that her employer had violated Washington public policy for terminating her for a positive drug test for marijuana.

In Roe, the new hire claimed to suffer from migraine headaches, causing chronic pain, nausea, blurred vision and sensitivity to light. Her physician prescribed medical marijuana and she smoked it four times a day, but ingested it only at home. She was offered a position as a customer service representative contingent on a background check and a drug screening. After failing the drug screening, the new hire informed her supervisor she had been prescribed medical marijuana. Her supervisor informed her that use of medical marijuana violated the company drug policy and terminated her employment during the training phase. She sued the company for wrongful termination in violation of public policy. The trial court dismissed the claim, finding that medical marijuana merely provided an affirmative defense to criminal prosecution under Washington state drug laws but did not imply a civil cause of action in employment. She appealed.

On appeal, the Roe court recognized that the voters of Washington had provided a defense to caregivers and physicians who prescribed marijuana to those with certain illnesses such as the new hire. That statute, however, did not provide protection for employment and specifically noted that the law did not require any accommodation of on-site use of medical marijuana.

The Roe court had focused on the language of the medical marijuana statute which only discussed protecting health care providers. The court also emphasized that there was no evidence that the statute provided employment protection or prohibited an employer from discharging an employee for medical marijuana use. The court found that the statute did not support a broad public policy that would remove all impediments to authorized medical marijuana use or forbid an employer from discharging an employee because she used medical marijuana.

The Roe court also recognized that Washington patients have no legal right to marijuana under federal law, which has the effect of establishing that there is not a broad public policy that would require an employer to allow an employee to engage in illegal activity.

The take-aways from the Roe decision are that Washington courts will move cautiously in expanding the scope of legal protections for employees. Washington courts will not attempt to graft on an expansion of the public policy tort claims. The Roe decision also emphasizes that employment in Washington is at will and that any public policy exceptions are narrowly construed.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

Legal Issues Surrounding Social Media Background Checks

Posted in the National Law Review an article by Michelle Sherman of Sheppard Mullin Richter & Hampton LLP regarding establishing an internal procedure for using the Internet to make employment decisions is one more piece of a sound ethics and compliance program that addresses how your company is using social media.

Agatha Christie had a novel take on invention being the mother of necessity. She disagreed and said, “[I]nvention, in my opinion, arises directly from idleness, possibly also from laziness. To save oneself trouble.” She may have been onto something when you think about businesses that are turning to outside vendors to research employees and job candidates for them. Whether or not these outside vendors are the best solution, however, remains to be seen.

  1. Companies Should Have An Internal Procedure For Researching Job Candidates And Employees On The Internet

We recommended earlier this year that businesses establish an internal procedure for making employment decisions based on Internet research, so they would not run afoul of state and federal laws that prohibit job discrimination based on protected factors. The protected factors include, for example: (1) Race, color, national origin, religion and gender under Title VII of the Civil Rights Act of 1964; and (2) Sexual orientation, marital status, pregnancy, cancer, political affiliation, genetic characteristics, and gender identity under California law. Most states have their own list of protected factors, which should be considered depending on where your company has employees.

Not surprisingly, the legal risks of making employment decisions using the Internet have become a real concern for businesses, especially when you consider that 54% of employers surveyed in 2011 acknowledged using the Internet to research job candidates. The actual number of employers using the Internet is probably higher, and sometimes companies may not even be aware that their employees are researching job candidates and factoring that information into their evaluations. This is yet another reason to establish an internal procedure for researching job candidates, and communicating your procedure to employees who are participating in the employment process.

There is nothing wrong with researching people on the Internet so long as it is done properly. The Internet has a wealth of useful information, some of it intentionally posted by job applicants for employers to consider such as LinkedIn profiles.

With this “necessity” to do Internet searches properly, some businesses have turned to outside vendors to do the research for them, and, thereby, try to reduce their legal exposure and the administrative inconvenience of doing it themselves. At least one of these vendors has received letters concerning its business practices from the Federal Trade Commission (“FTC”) and, more recently, two U.S. Senators.

  1. The Business Practices Of Outside Vendors That Provide Social Media Background Checks Are Being Examined For Compliance With Privacy And Intellectual Property Laws

On May 9, 2011, the staff of the FTC’s Division of Privacy and Identity Protection sent a “no action” letter to Social Intelligence Corporation (“Social Intelligence”), “an Internet and social media background screening service used by employers in pre-employment background screening.” The FTC treated Social Intelligence as a consumer reporting agency “because it assembles or evaluates consumer report information that is furnished to third parties that use such information as a factor in establishing a consumer’s eligibility for employment.” The FTC stated that the same rules that apply to consumer reporting agencies (such as the Fair Credit Reporting Act (“FCRA”)) apply equally in the social networking context. These rules include the obligation to provide employees or applicants with notice of any adverse action taken on the basis of these reports. Businesses should also be mindful of similar state consumer protection laws that may be applicable (e.g. California Investigative Consumer Reporting Agencies Act).

The FTC concluded by stating that information provided by Social Intelligence about its policies and procedures for compliance with the FCRA appears not to warrant further action, but that its action “is not to be construed as a determination that a violation may not have occurred,” and that the FTC “reserves the right to take further action as the public interest may require.” This FTC “no action” letter was reported fairly widely, and probably increased the comfort level of businesses that wanted to use an outside service for Internet background checks.

On September 19, 2011, Senators Richard Blumenthal (D-Conn) and Al Franken (D-Minn) sent a letter to Social Intelligence with 13 questions regarding whether the company is taking steps to ensure that the information it is gathering from social networks is accurate, whether the company is respecting the guidelines for how the websites and their users want the content used, and whether the company is protecting consumers’ right to online privacy. The letter raises some legitimate concerns, and requests a prompt response from Social Intelligence to the questions presented.

  1. Legal Assurances That Your Company May Want To Seek If Using An Outside Vendor

Some of the questions also warrant due consideration on the part of businesses receiving reports from outside vendors about how much weight they want to give the information provided. Further, what the business may want in the form of legal assurances from the outside vendor that no laws (e.g. FCRA, privacy, copyright, or other intellectual property laws) have been violated in gathering the information or providing screenshot copies of pages from social networking sites.

Some of the questions from the Senators which raise these concerns include, for example:

1. “How does your company determine the accuracy of the information it provides to employers?” [Social Intelligence is reportedly collecting social networking activity dating back 7 years, and, therefore, may capture something that was later removed, or was a “tag” post through a picture that the job candidate was not responsible for making public, and may have removed once it came to his attention.]

2. “Is your company able to differentiate among applicants with common names? How?” [e.g. Have they researched the correct “Jane Smith” of the hundreds on Facebook since social security numbers or other specific identifying information is not useful on social networking sites as it is with the standard background check.]

3. “Is the information that your company collects from social media websites like Facebook limited to information that can be seen by everyone, or does your company endeavor to access restricted information.”

4. “The reports that your company prepares for employers contain screenshots of the sources of the information your company compiles…These websites are typically governed by terms of service agreements that prohibit the collection, dissemination, or sale of users’ content without the consent of the user and/or the website….. Your company’s business model seems to necessitate violating these agreements. does your company operate in compliance with the agreements found on sites whose content your company compiles and sells?”

5. There appears “to be significant violations of user’s intellectual property rights to control the use of the content that your company collects and sells. …. These pictures [of the users], taken from sites like Flickr and Picasa, are often licensed by the owner for a narrow set of uses, such as noncommercial use only or a prohibition on derivative works. Does your company obtain permission from the owners of these pictures to use, sell, or modify them?”

  1. Conclusion

Establishing an internal procedure for using the Internet to make employment decisions is one more piece of a sound ethics and compliance program that addresses how your company is using social media. If using an outside vendor to perform social media background checks is part of that policy, you should assure yourself that the company is acting in compliance with the relevant laws.  

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

Administrative Law Judge Finds Employer Unlawfully Discharged Employees Based on Facebook Posts

Recently posted  in the National Law Review an article by Stephen D. Erf, Heather Egan Sussman and Sabrina E. Dunlap  of McDermott Will & Emery regarding the NLRB found that an employer unlawfully terminated five employees because they posted comments on Facebook:

In a first of its kind ruling, a National Labor Relations Board (NLRB) Administrative Law Judge (ALJ) found that an employer unlawfully terminated five employees because they posted comments on Facebook related to working conditions.  This is a landmark decision because, up to this point, employers have only been able to rely on the prosecution trends of the General Counsel’s office, including a recently issued report on the topic, and not actual decisions by the adjudicative body of the NLRB.

This landmark case involved an employee of Hispanics United of Buffalo (HUB) (a nonunionized organization), who posted a message on Facebook sharing critical comments made by a coworker concerning employees’ poor job performance and asking for the employees’ reactions.  Five employees commented on the post, defending their job performance and criticizing the critical employee and their working conditions, including work load and staffing problems.  HUB later discharged the Facebook poster and the employees who responded to the post, stating that their comments constituted harassment of the critical coworker.

Based on an unfair labor practice charge filed by one of the employees, the NLRB’s Buffalo Regional Director issued a complaint in May 2011. The ALJ heard the case in July and, on September 2, issued a written decision finding that the employees’ Facebook posts were protected concerted activity under Section 7 of the National Labor Relations Act (NLRA) because they concerned a conversation among coworkers about the terms and conditions of employment and the employees’ conduct was not sufficiently inappropriate as to lose the protection of the NLRA.  The ALJ awarded the employees back pay and ordered HUB to reinstate the five employees.  The ALJ also ordered HUB to post a notice at its Buffalo facility explaining to employees their rights under the NLRA and committing not to violate those rights in the future.

While NLRB complaints related to social media have been on the rise, this is the first ALJ decision specifically addressing employees’ use of Facebook.  As a result, employers are wise to consider the ALJ’s decision when disciplining employees based on social media activity.

© 2011 McDermott Will & Emery

ANALYSIS: 'ObamaCare' label is sticking

Posted on September 29, 2011 in the National Law Review an article by Wendell Potter  of Center for Public Integrity regarding backers of the president’s health plan are loosing the public relations battle:

Backers of the president’s health plan are losing the public relations battle

The Kaiser Family Foundation just released the findings of its annual survey of businesses to determine how much the cost of employer-sponsored health coverage has gone up. There were some unexpected findings.

Tea Party members protest President Obama’s health care mandate in Cincinnati. Tom Uhlman/AP

One was that the average cost of annual premiums for family coverage is now more than $15,000. The 9 percent increase in the cost of health insurance over last year caught many people by surprise, because it represented a bigger hike in premiums than in recent years.

What seems clear is that insurers decided last year to charge their customers considerably more than necessary this year to be able to meet Wall Street’s profit expectations; insurance companies are also concerned that such increases will be more difficult once health care reform is fully implemented in 2014.

Here’s another surprise. Kaiser found that 50 percent of small employers are aware that they are now eligible for a tax credit from the federal government—thanks to the Affordable Care Act—if they provide subsidized coverage to their employees. I can hardly believe the awareness of the tax credit is that high.

As I have traveled across the country in recent weeks, speaking to a wide range of audiences, one thing has become abundantly clear: the provisions of the Affordable Care Act already in effect are anything but abundantly clear to people.

That’s because opponents of health care reform have won the public relations battle in defining the Affordable Care Act.

While the most recent Kaiser survey did not seek the views of the general population nor ask employers what they think or know about the Affordable Care Act, other polls show that advocates of the new law have been losing ground in the battle for public support.

This week I have been speaking at Florida churches —  a Catholic church in Winter Park, outside Orlando, Monday night, and a Unitarian Universalist church in Clearwater Tuesday night.  The hosts wanted an overview of what’s in the new law and what’s not—to provide factual, unbiased information and also to dispel many of the myths that have gained traction, starting before the law was even enacted.

What the hosts told me—and what I learned from talking to people who attended the forums—is that the Obama Administration and the national groups that backed  the legislation have essentially been missing in action when it comes to explaining the benefits of the law.

Kaiser’s finding that 50 percent of small businesses were familiar with the tax credit would certainly come as a shock to Dr. Patrick Cannon, advocacy director for Florida CHAIN (Community Health Action Information Network). He has been traveling the state trying to reach small business owners and educate them about the tax credit.

He has found almost no one even knows about it. This undoubtedly helps explain why the number of small businesses offering coverage to their employees dropped significantly in the most recent Kaiser survey.

Cannon believes that one of the reasons is that reform advocates missed an important opportunity to brand the Affordable Care Act in positive terms—starting with the most basic term of all, the name of the law itself.

As Cannon pointed out, opponents of the law  use a single term to describe the law: ObamaCare. The term has so seeped its way into the vernacular that even some of the law’s advocates have started using that pejorative label. The groups that support the law, he notes, use a wide range of terms to describe it.

Cannon is embarking on an effort among supporters to be consistent in calling it the Affordable Care Act.

Because opponents have been able to define the law on their own terms (or term), advocates are finding it increasingly difficult to have civil conversations with people about it—including with independents.

Liz Buckley, executive director of Focus Orlando, told me that, “If you even try to have conversations with people about it, people think you’re just trying to reelect Obama. They just shut down the conversation.”

Why the administration has been so inept or disengaged is baffling. It’s true that people will be skeptical of information about the law that comes straight from the White House, but the folks behind the Obama campaign in 2008 seemed to know how to get third parties motivated and active on behalf of the candidate.

Where are those folks now? If the White House is serious about making sure the law goes forward—and making sure the Obama legacy is a positive one—they better get in gear and turn public awareness and attitudes around. Otherwise, pretty soon,it may be too late.

Reprinted by Permission © 2011, The Center for Public Integrity®. All Rights Reserved.

Carried Interest Language Narrowed, but Remains Far-Reaching

Recently posted in National Law Review an article by Kevin J. Feeley, Gary C. Karch and Patrick J. McCurry of McDermott Will & Emery regarding Obama administration’s recent carried interest tax provision:

This newsletter summarizes the Obama administration’s recent carried interest tax provision. The provision is not expected to be enacted soon, but the proposal contains drafting changes of interest to those following the discussion.

On September 12, 2011, President Obama submitted to U.S. Congress legislative text for the American Jobs Act, including a revised version of the carried interest tax provision that has been introduced several times since 2007. The latest provision is unlikely to be enacted soon, but gives an indication of the form that ultimately enacted legislation may take. The latest language appears narrower than prior versions, but remains potentially applicable to more taxpayers and transactions than one would expect from the announced purpose to treat the carried interest income of investment fund managers as ordinary income subject to self-employment tax.

General Approach Continues

The latest provision would add a new Section 710 to the Internal Revenue Code. New Section 710 would continue to create a new defined term called anInvestment Services Partnership Interest (ISPI). It also continues to provide thata partner’s income from holding or disposing of an ISPI is ordinary and subject to self-employment tax, even if it would be capital gain and not subject to self-employment tax under general tax rules.

The latest provision also continues to apply to all partnership interests, not just interests received for services or otherwise disproportionate to capital, unless a Qualified Capital Interest (QCI) exception applies. The QCI exception continues to apply only to a class of equity that is held by persons who do not provide any services to the partnership and are not related to the partner holding the ISPI. There is no exception for completely pro rata partnerships, as there was in the most recent prior version.

ISPIs Defined More Narrowly

Prior versions defined an ISPI as any partnership interest where the holder was expected to provide services regarding the acquisition, financing, management and disposition of securities, real estate and partnership interests, referred to as Specified Assets. The latest proposal limits the ISPI definition to partnerships in which “substantially all” of the assets are Specified Assets; the holder owns the partnership interest in connection with a business that “primarily involves” the acquisition, financing, management and disposition of Specified Assets; and more than half the contributed capital of the partnership is contributed by persons who hold their partnership interests for the production of income. The “production of income” requirement appears intended to imply that the interest is not held as part of a business. This change may exclude partnerships that conduct operating businesses, and partnerships in which more than half the owners are involved in the business.

The ISPI definition attributes a business of one member of a corporate group to all others. This provision may be intended to remove most corporate internal partnerships and external joint ventures from becoming subject to the rules.

The limitation of the ISPI definition to partnerships in which substantially all of the assets are Specified Assets may remove the so-called enterprise value of some investment fund managers from ordinary income treatment. The fund manager’s carried interest from funds it operates would be ordinary, but a gain attributable to the enterprise value of the fund manager itself might qualify as capital gain.

No Loss Deferral

Prior versions of the carried interest legislation deferred all losses from an ISPI. This provision is dropped from the most recent legislation.

Disposition Provisions Narrowed Somewhat

The proposed legislation continues to require recognition of ordinary income in normally tax-free transfers. The proposal continues the exception for contributing an ISPI to another partnership if an election is made to treat the resulting partnership interest as an ISPI. The proposal adds an exception for some gifts and charitable contributions. However, other tax-free transactions including corporate contributions and mergers where ISPIs are among the assets would be taxable to the extent of the gain inherent in the ISPIs.

Publicly Traded Partnership Provisions Deferred 10 Years

The proposed legislation provides that publicly traded partnerships with income from ISPIs could continue to be publicly traded pass-through entities for 10 years after enactment.

Exceptions and Phase-Ins Removed

Unlike some prior versions of the legislation, the latest version would apply to 100 percent of ISPI income beginning January 1, 2013. The legislation does not contain an exception or a reduced rate of recharacterization for the disposition of ISPIs held more than five years.

The proposal does not contain exceptions for pro rata partnerships or family farms. The pro rata partnership exception was thought to exclude family partnerships that could not use the QCI exception because all partners are related. It is unclear whether family partnerships and family farms would avoid the provision due to the narrowing of the ISPI definition described above.

© 2011 McDermott Will & Emery

Recent NLRB Actions: Notice Posting Requirement, Proposed Election Rules and New Case Law Tilt Toward Organized Labor

Recently posted in the National Law Review an article by  Irving M. Geslewitz of Much Shelist Denenberg Ament & Rubenstein P.C.  regarding NLRB published proposed rules:

Many recall the push a few years ago to enact a legislative bill, the Employee Free Choice Act, that would have required an employer to recognize and bargain with a union without a secret ballot election if the union could present cards signed by a majority of the employer’s workers indicating their wish to have a union. That bill, strongly favored by organized labor, never got enough traction to get passed into law.

Proponents of the measure turned to non-legislative approaches to alter what they saw as a stacked deck against unions that accounted, in part, for their poor record in union elections. With the advent of a newly constituted National Labor Relations Board (NLRB) appointed by the Obama administration, some of that hope may have been fulfilled. Through its rule-making authority, the NLRB recently has imposed on employers a new notice posting requirement intended to heighten employee awareness of their collective bargaining rights, and is also proposing a new set of election rules that should improve unions’ chances in elections. In addition, through its administrative case adjudication authority, the NLRB has issued three case decisions reversing precedent—one that makes it easier for a union to choose the unit of employees in which an election will be conducted, and two that make it harder for employees to oust an incumbent union.

These developments come on the heels of the controversial legal action by the NLRB’s Acting General Counsel seeking to enjoin Boeing from opening a new non-union manufacturing facility in South Carolina, as well as a flurry of unfair labor practice complaints against employers that discipline employees in connection with the use of social media (see related article on the NLRB’s recent guidance regarding social media in the workplace). Together, these actions have some in the business community complaining of a decidedly pro-union tilt by the NLRB.

The New Posting Rule

The NLRB has issued a final rule requiring most private-sector employers, beginning on November 14, 2011, to notify employees of their rights under the National Labor Relations Act (NLRA) by posting a standard notice. Now available on the NLRB website and from NLRB regional offices, the notice informs employees that they have the following rights:

  • To organize a union to negotiate with their employer concerning their wages, hours and other terms and conditions of employment;
  • To form, join or assist a union;
  • To bargain collectively through representatives of their own choosing for a contract with their employer setting wages, benefits, hours and other working conditions;
  • To discuss their terms and conditions of employment or union organizing with their coworkers or a union; and
  • To strike and picket under certain circumstances.

The notice also advises employees of their right to choose not to engage in any of these activities.

The posting requirement applies to all but the smallest of private-sector employers, but not to agricultural, railroad and airline employers that are excluded from coverage by the NLRA. Posting is required whether or not there is a union in the employer’s workplace. In addition to a physical posting, every covered employer must post the notice on an Internet or Intranet site if personnel rules and policies are customarily available there.

Failure to post the notice may be treated as an unfair labor practice under the NLRA. In addition, if there are other unfair labor practice allegations against the employer, the NLRB may extend the six-month statute of limitations for the filing of those charges. Also, a failure to post may be considered evidence of unlawful motive in an unfair labor practice case involving other alleged violations of the NLRA.

The NLRB justifies its actions by claiming that many employees are not aware of their rights under the NLRA and that the new rule is in line with other labor laws that impose posting requirements. Opponents argue, however, that such a notice posting (previously required only in limited situations, such as when an election is scheduled) is unnecessary and promotes unionization through its heavy emphasis on the right to unionize and collectively bargain.

Proposed Rule Changes to NLRB Election Procedures

The NLRB has published proposed rules that would significantly accelerate the union election process. While not explicitly stated, the likely combined effect of the rule changes would shorten the time between the filing of an election petition and the election itself by more than half. Under the proposed rules, employers could expect the NLRB to conduct elections within 10 to 21 days after a petition is filed, rather than the current average of 31 days.

Among the more significant changes are the following:

  • Regional NLRB offices typically conduct pre-election hearings within 14 days after a petition is filed. Under the new rules, pre-election hearings would be held within seven days after an election petition is filed.
  • Employers are not currently required to identify every issue prior to the pre-election hearing. Under the new rules, employers would be required to identify all issues regarding unit scope, voter eligibility and supervisory issues before the pre-election hearing, at the risk of waiving issues not raised at the first opportunity.
  • Under current practice, pre-election hearings can involve disputes over whether certain employees are eligible to vote, such as whether an individual is a supervisor. Under the proposed rules, however, disputes over the eligibility or inclusion of less than 20% of the employees in the proposed unit will be deferred to post-election proceedings.
  • Review of pre-election hearing decisions now takes place before the election is conducted. Under the proposed rules, such review would be deferred until after the election.
  • Currently, employers must provide the NLRB with a list of eligible voters and their home addresses (used by the union to communicate with voters) within seven days after the NLRB Regional Director issues an order setting the election. Under the proposed rules, not only would that period be reduced to two days, but also the employer would have to provide the e-mail addresses and telephone numbers of employees eligible to vote in the election.

In effect, the proposed new rules would dramatically alter the landscape in NLRB-conducted union elections. By significantly shortening the pre-election period, the rules would hamper the employer’s ability to contest the scope of the unit of employees selected by the union for inclusion in the election. But of even more importance, the new rules would shorten the timeframe available to employers to communicate with employees on the wide variety of issues that arise in a union organizing campaign, such as the reasons why voting for the union may not be in their best interests. Opponents, who include dissenting NLRB Board Member Brian Hayes, contend that the real objective of the proposed new rules is to make it easier for unions to win elections by handicapping the employer’s ability to oppose them.

At the same time, the U.S. Department of Labor (DOL) has proposed a new rule that also would negatively affect an employer’s ability to communicate with employees in union elections. The Labor-Management Reporting and Disclosure Act (LMRDA) already requires reporting of arrangements, receipts and expenditures derived from providing so-called “persuader activity” services. Historically, attorneys providing legal advice regarding lawful employer communications to employees have been exempt from this requirement. The DOL’s proposed rule, however, would severely curtail this exception, rendering such attorney advice as “reportable” under the law.

Recent NLRB Decisions Reversing Case Precedent

In addition to having rule-making authority, the NLRB acts as a review body that establishes case law interpreting the NLRA. In three decisions issued on August 26, 2011, the NLRB set new standards favoring organized labor—each time over a dissent.

Perhaps the most wide-ranging of these decisions is Specialty Healthcare and Rehabilitation Center of Mobile, 357 NLRB No. 83, in which a union sought an election at a non-acute care nursing home limited to certified nursing assistants. The employer argued that the unit was too small and should include cooks, schedulers, recreational staffers and other workers. Reversing case precedent, the NLRB disagreed. But the NLRB also indicated that in any case in which an employer challenges a petitioned-for unit as inappropriate because it does not contain additional employees, the burden is on the employer to demonstrate that the employees excluded by the petition share an overwhelming community of interest with the included employees. This decision may make it significantly easier for unions to organize sub-units of an employer—such as employees of one department—as opposed to an entire facility.

The other recent decisions make it harder for employees to oust incumbent unions. In Lamons Gasket Company, 357 NLRB No. 72, the NLRB ruled that if an employer voluntarily recognizes a union as a collective bargaining representative for a particular unit of the workforce based on a card check, then the NLRB would observe a strict bar of six to 12 months after the union’s first bargaining session during which it would not consider a petition by employees for an election to decertify the union or otherwise attempt to oust the union. This action reversed a 2007 decision holding that employees could ask for such an election within 45 days of management’s recognition of the union. Similarly, in UGL-UNICCO Service Company, 357 NLRB No. 76, the NLRB overruled a prior decision that had created a small window—immediately after the sale or merger of a business—during which the incumbent union’s status could be challenged if 30% of employees showed interest. Now, an incumbent union will have six to 12 months after the parties’ first bargaining session to negotiate with the successor company before such a challenge could be mounted.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.