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Corporate Counsel Connect collection

June 2015 edition

NLRB analysis of common employment policies; Impeding whistleblowers; Consumer product warranties

NLRB analysis of common employment policies

Employers that are auditing, revising, and drafting employment agreements, policies, and handbooks now have extensive guidance about language that would trigger National Labor Relations Board (NLRB) unfair labor practice (ULP) litigation.

The NLRB General Counsel recently issued a memorandum identifying why language commonly contained in non-unionized employee agreements, policies, and handbooks was considered either unlawful or lawful under the National Labor Relations Act (NLRA). The memorandum also includes excerpts of policies from Wendy's International LLC's handbook that the General Counsel's Office found unlawful and the revised NLRB-approved handbook policies that were reissued under a high-profile ULP settlement.

Although the memorandum is not binding law, it provides insights about language and prohibitions the NLRB may likely use prosecutorial discretion to challenge. Where unions lose elections, employers should also expect that unions may use the memorandum to assert that previously unchallenged employment agreement, policy, or handbook language impermissibly discouraged employees from engaging in NLRA-protected activity, tainting the results and requiring the NLRB to run a new election.

To reduce the risks of ULP charges, investigations, and prosecutions, or union election results being overturned, employers should consider:

  • Using the memorandum for guidance when drafting or auditing employment agreements, policies, and handbooks
  • Defining the scope of provisions in employment agreements, policies, and handbooks so employees could not reasonably interpret them as precluding NLRA-protected activities
  • Avoiding the memorandum's "red flag" language if that language is not necessary for legal and business interests different from or arguably greater than NLRA compliance
  • Using the NLRB-approved terms or policies, if those adequately protect the employer's interests beyond NLRA compliance

For more information on the NLRB memorandum, see Legal Update, NLRB General Counsel Red Flags Common Terms in Employment Rules.

Impeding whistleblowers

Recent SEC enforcement activities suggest public companies should review their employment agreements and other policies and procedures addressing employee confidentiality to ensure they do not improperly restrain whistleblowers from communicating with the SEC.

The SEC recently announced its first-ever enforcement action under Exchange Act Rule 21F-17, one of a set of rules implementing the Dodd-Frank Act's whistleblower protection requirements. The rule prohibits impeding an individual from reporting suspected wrongdoing to the SEC, including through enforcement or threatened enforcement of a confidentiality agreement.

In its settlement order against KBR Inc., the SEC focused on the company's practice of requiring employee witnesses in internal investigation interviews to sign confidentiality statements. The statements warned that employees could face discipline, including termination, if they discussed any investigation without prior approval from KBR's legal department. According to the SEC, this blanket pre-approval requirement violated Rule 21F-17, even though there was no evidence KBR had ever attempted to enforce any of these confidentiality statements.

While this was the first Rule 21F-17 enforcement action, it may not be the last. In February 2015, it was widely reported that the SEC was contacting companies to request copies of all confidentiality, severance, and settlement agreements. The SEC's enforcement director has also recently stated that several investigations similar to the KBR investigation are in progress.

Given the SEC's expansive view of whistleblower protections and its aggressive enforcement efforts, companies should:

  • Read the original language in KBR's confidentiality statements and the revised language KBR agreed to adopt, each as set out in the SEC's settlement order, to understand the types of provisions that could trigger an enforcement action
  • Review their policies and procedures governing internal investigations and employee confidentiality, as well as all existing employment, confidentiality, severance, and settlement agreements to ensure there are no provisions that could be interpreted as impeding employees from reporting suspected wrongdoing to the SEC

For more information on whistleblower protections under the federal securities laws, see Practice Note, Whistleblower Protections under Sarbanes-Oxley and the Dodd-Frank Act.

Consumer product warranties

Following the Federal Trade Commission's (FTC's) settlement with BMW of North America, LLC, counsel should evaluate the written product warranties their clients provide to consumers to ensure that they comply with the Magnuson-Moss Warranty Act's (Warranty Act's) requirements, including its prohibition on using tie-in sales provisions. Seemingly innocuous warranty conditions can violate federal rules and create liability for warrantors. BMW's MINI Division sells MINI passenger cars to consumers and provides consumers with written warranties. BMW conditioned its warranty coverage on consumers buying only MINI parts and using only MINI dealers to perform maintenance and repair work. Using non-MINI parts and dealers voided the warranty.

In an administrative complaint against BMW, the FTC alleged that this condition violated the Warranty Act's rule against using tie-in sales provisions in consumer warranties. These provisions condition the availability of a warranty on the consumer buying an article or a service that is identified by brand, trade or corporate name.

As part of an agreement to settle this complaint, BMW agreed to:

  • Discontinue using tie-in sales provisions in its MINI warranties
  • Cease representing that in order for a consumer's MINI to operate safely or maintain its value, a MINI dealer or center must perform the maintenance work
  • Notify consumers that it no longer requires them to use only MINI parts and MINI dealers to perform maintenance and repairs

Generally, businesses are not legally obligated to provide written warranties for consumer products. If they do provide a written warranty, however, the content of those warranties must meet federal standards established by the Warranty Act. If a party provides a written warranty that falls short of the Warranty Act's requirements or includes prohibited provisions, that party could face private litigation from consumers or enforcement actions from the FTC.

For more information on the requirements for sellers and manufacturers that provide consumers with written warranties, see Practice Note, The Magnuson-Moss Warranty Act for Consumer Goods.

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