NLRB Imposes Strict New Limits on Employer Work-Rules

Introduction

On 2 August 2023, a divided National Labor Relations Board (NLRB or Board) held in Stericycle¹ that employers violate the National Labor Relations Act (NLRA or Act) when they issue facially neutral work-rules,² such as a no-camera policy in the workplace, that a “reasonable employee,” viewed through the lens of economic dependence on their employer, could believe infringes on their Section 7 rights.

The NLRB’s decision in Stericycle, which was split along partisan lines, overturned a Trump-era precedent³ that divided employer work-rules into three categories—universally legal, conditionally legal, and uniformly illegal under the NLRA—that were relatively straightforward for employers to understand and the Board, by its own admission, to adjudicate. Stericycle marks a return to the Obama-era Board approach that resulted in frequent challenges to employee policies.

As addressed in greater detail below, Stericycle affects unionized and non-unionized employers, who will likely face greater NLRB scrutiny over their implementation of previously uncontroversial work-rules—regardless of an employer’s intent behind issuing a work-rule.

Facially Neutral Work-Rules Must be ‘Narrowly Tailored’ to Serve Employers’ Legitimate and Substantial Business Interests and Balanced Against Employees’ Section 7 Rights

In Boeing, the Trump-era Board created the above-referenced three-category system for adjudicating whether employer work-rules violated Section 8(a)(1): universally legal, conditionally legal, and uniformly illegal. For facially neutral work-rules that may be conditionally legal, the Board applied a balancing test that weighed an employer’s legitimate business interests linked to the work-rule at issue, such as maintaining workplace discipline, against an employee’s interest in exercising their Section 7 rights, which include the rights to organize unions, collectively bargain with their employer, and engage in protected concerted activity. 

Boeing and its progeny⁴ could be viewed as a rejection of the “reasonable employee” test previously advanced by the Obama-era Board, which found a challenged work-rule unlawful “merely because it could be interpreted, under some hypothetical scenario, as potentially limiting some type of Section 7 activity.”⁵ 

The Stericycle Board abandoned Boeing’s interpretation of the “reasonable employee” test, claiming its “primary problem” was that it permitted employers to adopt overbroad work-rules that chilled employee rights because it “failed to reflect the true coercive potential” of such rules. Boeing’s framework chased an “abstract goal” of predictability which, in the Stericycle majority’s view, was unlikely to be achieved given the variety of work-rules and their settings. The Stericycle Board felt it better to sacrifice “complete certainty and predictability,” if it comes at the expense of “arbitrarily expanding the universe of work[-]rules deemed always lawful to maintain, at the obvious expense to employees.”

Relying on pre-Boeing NLRB case law⁶ and its interpretation of decades-old Supreme Court precedent,⁷ Stericycle’s core holding is that employer work-rules violate Section 8(a)(1) if a reasonable employee can view the rules as a potential infringement of the employee’s Section 7 rights, taking into account the employee’s economic dependency on the employer. Effectively, the Board has substituted what it described as the “abstract goal” of predictability in favor of the miasma of the “workplace reality” that employees allegedly face.

From a litigation standpoint, Stericycle now requires the NLRB General Counsel to first show that an employer’s work-rule could be reasonably interpreted to infringe on Section 7 rights when viewed from the perspective of an economically dependent employee under certain circumstances. Assuming the NLRB General Counsel meets that initial burden, the challenged work-rule is presumptively invalid and can only be saved if the employer rebuts the presumption by proving the work-rule advances a legitimate and substantial business interest and that the employer is incapable of pursuing that interest with a more narrowly tailored version.

Critically, an employer’s innocent intent behind a work-rule (i.e., no intention to interfere with employee Section 7 rights) is “immaterial” and may not serve as a defense to an unfair labor practice charge under Section 8(a)(1). If an employee can reasonably interpret the work-rule as coercive toward their Section 7 rights, then it is presumptively invalid, even if a reasonable, contrary, and non-coercive interpretation exists.

Employer Considerations When Revising Work-Rules Post-Stericycle

Because Stericycle applies retroactively, employers and their counsel should first reexamine work-rules within company handbooks and standalone policies through the above-described framework that the Board will now apply when adjudicating their legality.

Special attention should be paid to previously uncontroversial, facially neutral work-rules that would have passed muster under Boeing, such as a no-camera rule in sensitive workplaces that involve goods and services linked to national security.⁸ General so-called civility work-rules that ban, for example, “controversial statements or conduct” may become a regular target of the NLRB General Counsel post-Stericycle because they may not be sufficiently narrowly tailored in the Board’s view.

Frustratingly, the Board declined to provide practical examples of employer work-rules it will now deem to violate Section 8(a)(1), and if or how they could be narrowly tailored to survive scrutiny under Stericycle.

The Board also left unaddressed what it considers sufficiently legitimate and substantial business interests such that employers can prospectively justify their existing and future work-rules. Presumably, preserving trade secrets, maintaining workplace discipline, and combating employee disloyalty are among such interests based on longstanding NLRB case law.⁹ 

Further, the NLRB declined to elaborate on what exactly it means by an employee’s economic dependency on its employer.¹⁰ It is unclear if the Board will adjudicate the legality of employer work-rules on a sliding scale based on, for example, whether the hypothetically reasonable employee is a low-wage or high-wage worker. Similarly, it remains to be seen whether the Board will deem non-union employees to be more economically dependent than unionized employees.

For now, employers and their counsel should consult pre-Boeing NLRB law—and federal appellate courts’ application of it—to sketch the outer limits of acceptable work-rules.¹¹ 

Additionally, employers should analyze their work-rules in light of the current composition of the Board and the aggressive, pro-employee positions that the NLRB General Counsel has also espoused—for example, most non-competition agreements are illegal under the Act.¹² 

A Broader View of Stericycle

Looming over Stericycle—and likely future Board decisions—is the potential alteration or demise of the Chevron¹³ doctrine in the Supreme Court’s upcoming term.¹⁴ Under Chevron, when a federal statute is silent or ambiguous on the legality of a challenged underlying agency regulation, then if the agency’s interpretation of that statute is reasonable a court must defer to that interpretation—even if the court disagrees with the agency’s interpretation of the law.

The end of Chevron could have a material impact on the NLRB’s interpretation of the Act through case-by-case adjudication. At least one amicus brief challenging Chevron has explicitly identified the Board’s frequent doctrinal shifts on fundamental issues under the NLRA as reason for abandoning Chevron.¹⁵ This is because Chevron was predicated on the notion that courts should defer to institutional agency expertise, not the NLRB’s or another federal agency’s political whims, which change based on whichever political party is in power. Perhaps that is why the Board has taken pains to emphasize in recent rulings, including Stericycle, that its holdings are rooted in longstanding Supreme Court precedent.

For the time being, though, Chevron remains good law and handbook work-rules should be reviewed with Stericycle in mind.