Could Your Employee Participation Program Be Illegal?

At the recent White House Summit on Worker Voice, President Barack Obama addressed a town hall of employers, labor leaders and workers. The president wondered why employers aren’t willing to provide a “safe space” for groups of employees to informally discuss “more sensitive areas like wages” with their managers. He questioned “why even employers of goodwill might be hesitant to provide more voice to workers.”

Some soft answers about leadership and attitude were tossed around, but one cold, hard answer to the president’s question was conspicuously missing: Under certain circumstances, it may be illegal for employers to create the “safe space” the president envisions. 

Employees may be valuable sources of information and ideas for improving a business. However, employers wishing to involve employees in management decisions to any extent must beware of two statutory provisions: Section 8(a)(2) of the National Labor Relations Act (NLRA) and Section 302 of the Labor Management Relations Act (LMRA).

NLRA Section 8(a)(2): When Participation Means ‘Domination’

This section of the NLRA forbids any employer from “dominating or interfering with the formation or administration” of a “labor organization.” Although this sounds like it would only apply to companies actively fighting union-organizing efforts, the National Labor Relations Board (NLRB) and courts have applied it to disband all kinds of employee participation programs.

Section 8(a)(2) was signed into law by President Franklin Roosevelt in 1935. It hasn’t been amended since. In the early 1900s, nonunion committees of employee representatives were common. By 1935, 2.5 million workers were represented by nonunion employee representation programs. For example, from 1915-37 Goodyear, the tire company headquartered in Akron, Ohio, had an Industrial Assembly, composed of a “House” and a “Senate,” both elected by the employees. At that time, lawmakers feared that nonunion employee representatives would be pawns handpicked by management. Section 8(a)(2) was supposed to prevent only this “sham” representation. But over time, the law has expanded and now may inhibit any nonunion employee participation or representation.

The Process of an NLRA Section 8(a)(2) Case

Any Section 8(a)(2) case begins when someone files a charge with the appropriate NLRB regional office. A charge may be filed by the employer, a labor organization, an employee or any other person. Most often, unions trying to organize at a workplace file the charge. The regional office will then investigate the allegations in the charge. If the investigation indicates that a violation of Section 8(a)(2) may have occurred, an administrative law judge will review the evidence and make a decision.

Judges deciding Section 8(a)(2) cases look to see whether there is a “labor organization” and whether the employer “dominates” it. A labor organization can be virtually any group of employees making proposals to management. An employer may dominate a labor organization simply by organizing the group or setting the agenda for its meetings.

If the judge decides that there is a labor organization and it is dominated by management, the employer has violated Section 8(a)(2). The board or court will issue an order disbanding the group. The group may not modify its behavior and continue on—it must be permanently terminated.

If a party disagrees with the administrative law judge’s decision, it may appeal the decision to the NLRB. The NLRB’s decision may be appealed to the appropriate federal court.

3 Illegal Employee Participation Programs

At the summit, President Obama gave the hypothetical example of a group of employees making a proposal to their employer: “[A] bunch of us are having to moonlight and we’re dog-tired when we come to work. And if you gave us a little bit of paid sick leave, you’ll get it back because people will feel so much more loyalty.” Programs designed to encourage these kinds of proposals from employees may be considered labor organizations that are dominated by management.

Here are three examples of employee participation programs that were ordered to disband because judges decided they were labor organizations dominated by management:

• A company in Ohio had been purchased by a new owner. The new president of the company created the Moving Forward Team to discuss benefit options and ways to improve the work environment for employees. The company president selected the original four team members because the other employees “looked up to them.” Each of the original four members would select his or her successor. The president asked the Moving Forward Team questions such as: “What factors should management take into account when implementing a merit-based wage increase program?” Around the same time, the president disagreed with a union representing some employees at the company about how many employees supported the union. The union filed the Section 8(a)(2) charge (DaNite, 2011).

• At an electrical component manufacturing company with about 200 employees, financial trouble had led to significant dissatisfaction among rank-and-file employees. The company president announced to all employees that management had distilled numerous employee complaints into five categories and decided to form five “action committees” to address these issues. Each action committee, such as the No Smoking Policy committee, had six employees and one or two managers. Employees signed up to join the committees. Employees were paid for the time spent participating in committee meetings. A month after the committees were created, a union demanded recognition from the company. The company did not know the union was trying to organize when it formed the committees. The union filed the Section 8(a)(2) charge (Electromation, 1992).

• At a unionized DuPont plant, the company created six safety committees and one fitness committee. Each committee was composed of employee volunteers and at least one manager and addressed a certain set of topics. For instance, the Antiknocks Committee flagged safety problems and made proposals to higher management for how to correct them. The Fitness Committee proposed the construction of new tennis courts and a pavilion for higher management to approve. Managers on the committees often set the agenda for the meetings. After a few years, the union proposed creating a joint union-management safety committee. Management rejected the idea, and instead proposed supplementing the existing safety committees with some discussions on safety between managers and union leaders. The union filed the Section 8(a)(2) charge (DuPont, 1993).

NLRA Section 8(a)(2) Compliance Checklist

Although Section 8(a)(2) charges are typically filed by unions, all managers involved in employee participation programs should be aware of risk factors for violating Section 8(a)(2). Any person may file a Section 8(a)(2) charge at any time—no union involvement is required.

Here are some questions to consider when creating or administering an employee participation program:

• Are employees making proposals as a group or individually?

Employees always have the right to “confer” with their managers during the workday without loss of pay. However, when employees bring concerns or proposals to management as a group, they may enter the Section 8(a)(2) danger zone.

• Are employees just giving information, or are they making proposals that management may accept or reject?

Without violating Section 8(a)(2), employers can create employee committees that simply give management on-the-ground information. These groups may not, however, make any proposals to managers or discuss any "more sensitive" issues like wages or vacation time.

Employers can also create employee committees in effect empowered to make final managerial decisions. For example, Crown Cork & Seal, a metal packaging company headquartered in Philadelphia, did not violate the law when its managers created a board of employee representatives that suggested modifications to hours, layoff procedures and vacation policies. The plant manager, who technically had the authority to reject these modifications, “could not recall a single instance in which he overruled [the employee board].” Additionally, a grievance committee that only adjudicates, especially when the committee has final say, will generally not violate Section 8(a)(2).

The middle ground, where employees get to voice their proposals but management retains authority to accept or reject them, seems like the right balance for many companies, but it could also be just enough to spark a Section 8(a)(2) charge.

• What subjects does the employee participation program address?

Section 8(a)(2) only applies when the group discusses “mandatory bargaining subjects.” These include wages, hours, grievances and conditions of work. An employee group that only makes recommendations about production and process would not violate Section 8(a)(2).

• Are employee participants in the program elected by fellow employees?

Technically, in order to violate Section 8(a)(2), an employee participation program must have members that “represent” their fellow employees. The classic sign of representation is an election. However, the board and courts have considered volunteers or members picked by managers to be representatives of their fellow employees, especially when other employees perceived them as representatives.

• Whose idea was it to create the employee participation program? Who organized the program?

When it comes to avoiding a Section 8(a)(2) problem, the more that employees take charge of the employee participation program, the better. If employees initiate and organize the program, the risk of a Section 8(a)(2) violation is relatively low. When managers get involved in setting up the program, the company enters murky legal territory. When managers come up with the idea for the program, this is considered a sign of employer “domination,” and thus creates a higher risk of Section 8(a)(2) violation.

• Who sets the agenda for the group’s meetings?

If managers determine the topics for discussion, the board or courts are more likely to disband the program.

LMRA Section 302: More Money, More Problems

Another law that may affect an employee participation program is Section 302 of the Labor Management Relations Act. Section 302 forbids an employer from giving any “thing of value” to employee representatives or representative bodies, possibly including supplies or pay for time spent acting in a representative capacity. Violation of Section 302 can be a felony, punishable with incarceration.

This provision has mostly come up in cases involving “no docking” contracts, under which the employer continues to pay an employee on leave while he or she serves as union representative. Courts around the country are divided; some have ruled that these contracts violate LMRA Section 302, while others find that Section 302 was only meant to address bribery and other surreptitious payments. Even in nonunion workplaces, managers should be aware that this law is on the books, especially when deciding whether to pay employees for time spent representing fellow employees in employee participation programs.

Potential Exposure

In practice, NLRA Section 8(a)(2) and LMRA Section 302 cases are relatively uncommon. Nonetheless, as managers consider giving employees a voice through employee participation programs, they should also consider potential exposure to these two statutes.

Tara Mahoney and Allison Drutchas are attorneys with Honigman in Detroit.