by Frank Rox
At the outset, it is worthwhile to take a look at the rather grim statistical picture. In fiscal year (FY) 2011, the National Labor Relations Board’s (NLRB) regional offices won 88 percent of unfair labor practice (ULP) and compliance cases decided by the Board and administrative law judges (ALJs). Of the ULP charges for which the NLRB filed a complaint in FY 2011, the Board’s regional offices achieved a 93 percent settlement rate. Historically, the Board’s litigation success rates have ranged from the mid-80s to the 90th percentile. Those statistics generally held true for FY 2013 and FY 2014. If anything, litigation results have improved with the NLRB’s increasing reliance on investigative subpoenas before issuing a complaint. 
In addition, as a prosecutorial agency, the NLRB rarely, if ever, engages in a “cost-benefit analysis” on whether to pursue an alleged violation after it has decided to issue a complaint. (There are limited exceptions, such as “noneffectuation” of the National Labor Relations Act (NLRA) and merit dismissals.) In other words, the NLRB engages in behavior that seems irrational to most people. For example, the Board may pursue the removal of a disciplinary notice (that is deserved in the employer’s eyes) that will be removed in several weeks anyway. The Board will expend enormous amounts of resources and virtually any sum of money to “win the case.” It’s no wonder that when employers are faced with the NLRB’s resolute pursuit, they seek to resolve the issue to get the government to “go away.”
The good news? The chances of settling a case before or after a complaint are very good, depending on the circumstances surrounding the charge. With those observations in mind, let’s consider how to analyze a ULP charge to put your organization in the most advantageous position.
Non-Board settlement
Employers will almost always get the best resolution by negotiating a settlement before a complaint is issued (called a non-Board settlement). There is often a lag between the NLRB’s decision to issue a complaint and the issuance of the complaint. Typically, NLRB regional offices will work with employers to delay the issuance of a complaint for a reasonable period of time if settlement discussions are underway.
Non-Board settlements (private agreements that result in the withdrawal of the charge) have become an increasingly important settlement tool. NLRB statistics show that the use of non-Board agreements has increased, and they now account for more than three-fourths of all settlements.
As a result of the increased use of non-Board settlements, the NLRB considers a nonexclusive list of factors, including:
- Whether the settlement is reasonable in light of the alleged violation, the risks of litigating the issue, and the stage of litigation;
- Whether the charging party, the employer, and the employee have agreed to be bound;
- The General Counsel’s position on the settlement;
- Whether fraud, coercion, or duress was present; and
- Whether the employer has had a history of NLRA violations or has breached previous settlement agreements resolving ULP charges.
To develop standardized criteria, the NLRB has identified six issues that frequently arise in non-Board settlements:
- Employees waiving their right to file NLRB charges for future ULPs;
- Employees waiving their right to assist other employees in the investigation and trial of NLRB cases;
- Confidentiality clauses and clauses that prohibit employees from engaging in nondefamatory speech about their employer;
- Penalties for breaching the settlement that require the return of back pay and assess costs and attorneys’ fees;
- Tax treatment of settlement payments; and
- Inclusion of front pay in Board-sanctioned settlements.
Waiver of the right to file charges for future ULPs. Generally, the NLRB has held that an employer violates the NLRA by insisting that employees waive their statutory right to file charges with the Board. However, employers do not violate the Act by insisting that an employee sign a release waiving claims that arose before the release’s execution date in exchange for sufficient consideration (e.g., back pay).
Waiver of the right to assist other employees in the investigation and trial of NLRB cases. A non-Board settlement that limits an employee’s ability to assist other employees by, for example, providing testimony or evidence implicates critical statutory rights and will invalidate the agreement. The NLRB has determined that such a limitation infringes on employees’ fundamental rights under the NLRA.
Confidentiality clauses and clauses that prohibit employees from engaging in nondefamatory speech about their employer. Non-Board settlements that contain clauses that prohibit employees from disclosing the financial terms of the settlement are appropriate. Thus, confidentiality clauses that prohibit an employee from disclosing the financial terms of a settlement to anyone other than his family, attorney, and financial adviser are normally acceptable.
Confidentiality clauses that go beyond prohibiting the disclosure of financial terms run the risk of not being approved by the NLRB. Compelling circumstances that warrant a broader nondisclosure provision may exist. They are considered by the Board on a case-by-case basis.
A non-Board settlement that limits an employee’s ability to engage in nondefamatory discussions about the employer with other employees will invalidate the agreement. Such a restriction will be found to be “repugnant to the purposes and policies of the Act” because it would adversely affect the employee’s right to engage in protected concerted activity.
Penalties for breaching the settlement that require the return of back pay and assess costs and attorneys’ fees. Increasingly, employers are including harsh penalties in case the charging party breaches the settlement in any way. The penalties often include the immediate return of back pay with interest. Also, they often state that the charging party must pay all costs and expenses, including attorneys’ fees, if the employer files suit to enforce the settlement or incurs damages or expenses by having to defend itself against new charges that are prohibited by the settlement.
The NLRB considers those types of penalties overly broad and vague. According to the Board, they inhibit employees from engaging in legitimate protected activity because they fear incurring severe financial consequences as a result of breaching the settlement. Narrowly drawn, properly worded penalty clauses that seek damages that are directly related to a breach of the settlement will not be considered improper.
Tax treatment of settlement payments. The NLRA provides for back pay and interest to make employees whole for losses caused by an employer’s unlawful conduct. Long-established policy states that back pay provided as a result of a ULP must be treated as wages for tax purposes. Interest should be treated as nonwage taxable income. That policy is consistent with U.S. tax law and regulations.
Under increased scrutiny from the NLRB, parties are having a difficult time obtaining approval for lump-sum back pay awards if taxes and FICA are not withheld and the employee is issued a 1099 form for tax purposes. Employers have used this tool to “sweeten the pot” for employees, who frequently are in tax brackets where little, if any, tax is owed.
While an NLRB regional office’s final approval of a non-Board settlement depends on the circumstances, regional directors have been instructed to refuse withdrawal requests if the parties have clearly failed to treat the monetary remedy properly for tax purposes.
Including front pay in Board-sanctioned settlements. Front pay refers to the practice of paying more than 100% back pay to obtain a settlement. In practice, this “sweetener” can be effective in getting employees (as well as unions) to approve a waiver of reinstatement to their former job. Recognizing the realities of the workplace, the NLRB now will approve settlements of more than full back pay in exchange for a waiver of reinstatement in non-Board settings as well as the informal settlement process.
Thus, the General Counsel no longer requires settlements to include front pay in “side letters” kept out of the official record. Details of those changes are outlined in Memorandum GC 13-02 (issued January 2013) and may be found at www.nlrb.gov/reports-guidance/general-counsel-memos. Further, a “written waiver of reinstatement” is no longer required with approval from the NLRB’s operations management division. The operations management division serves as the General Counsel’s HR and policy division for overseeing the NLRB’s regional offices.
Although NLRB headquarters’ involvement in the non-Board settlement process has increased in recent years, the final say in determining whether to approve a withdrawal request rests in the hands of the regional directors. Regional directors are generally hesitant to reject a voluntary settlement that is agreed to by both parties if the alternative is a trial with an uncooperative—and frequently hostile—charging party or witnesses. Thus, it’s easy to see that the best time to negotiate a resolution to a ULP charge is early in the process before potential back pay accumulates and a complaint is issued. The stakes increase after a complaint is issued.
Informal settlement process
If a non-Board settlement is not obtained, a complaint will be issued, and a trial date will be set. At that point, the employer has fewer options to resolve the case short of trial. Regional offices’ and NLRB headquarters’ involvement in the process makes it much more difficult to obtain a resolution that would be satisfactory to the employer.
If an employer loses at trial and during the appeal process, then certain consequences follow. With limited exceptions, the employer will have to post a notice informing employees about the ULP violations for 60 days. The ALJ’s order will undoubtedly involve a reinstatement provision for illegally discharged employees and monetary remedies with interest.
In an informal settlement approved by a regional office, the employee notice will still be required to resolve a case after a complaint has been issued. The NLRB’s guidelines for informal resolutions are more stringent than for non-Board settlements.
Some of the more recent initiatives in settlements approved by the General Counsel involved the use of “default language” and special remedies. Special remedies include the NLRB’s “first contract bargaining” cases. In those cases, the Board finds merit to an allegation of bad-faith bargaining and orders the reading of notices to employees, union access to the employer’s bulletin boards, periodic reports on the status of bargaining, and consideration of injunctive relief. That type of charge involves mandatory submissions to the NLRB’s Division of Advice unless the case has been settled before a complaint has been issued. If a complaint is issued before a non-Board settlement is reached, the NLRB may demand reimbursement for large sums of money paid under the settlement. In the union-organizing context, the Board may require special notice reading provisions and access to the employer’s facilities.
Default language, which is now virtually mandatory in all informal settlements, requires the employer to admit to a violation if the NLRB finds a violation or reoccurrence of the settled ULP. For example, if an employer settles a charge by “agreeing to bargain in good faith” and the General Counsel later determines that the employer continued to bargain in bad faith, then the Board may ask for summary judgment (pretrial dismissal) regarding the previously settled conduct without having to prove its original allegation of bad-faith bargaining.
Bottom line
Once the decision to settle a charge has been made, it benefits the employer to resolve the issue as soon as possible. The NLRB’s involvement in the informal settlement process is problematic and creates obstacles to a satisfactory resolution.
There are positives to settling a case, including saving litigation costs. In addition, settling allows employers to put the matter behind them, avoids the disruption of a protracted trial, and provides certainty regarding the outcome. In most cases, non-Board settlements avoid the notice-posting requirement. Employers can often obtain a waiver of reinstatement early in the process, when paying 100 percent back pay is not onerous. Thus, prompt settlements allow employers to cut off potential liability for back pay in the future (e.g., an employee is laid off, causing back pay liability to resume).
Before joining Lehr Middlebrooks & Vreeland, P.C., Frank Rox served as a senior trial attorney for the NLRB in Atlanta for more than 30 years. He may be contacted at frox@lehrmiddlebrooks.com.