The Stericycle Standard: A New Test for Workplace Rules

On August 2, 2023, the National Labor Relations Board (the “NLRB”) adopted a new standard for analyzing the legality of workplace rules. In Stericycle, Inc., 372 NLRB No. 113 (Aug. 2, 2023), the NLRB detailed the new standard it will apply to determine whether workplace rules unlawfully interfere with employees’ rights to engage in “protected concerted activity” under Section 7 of the National Labor Relations Act (the “NLRA”). The NLRB also stated that the new standard will be applied retroactively to invalidate existing workplace rules — even those that may have been deemed valid under the prior standard. In the wake of this decision, many employer handbooks and policies may need to be reviewed and revised.

 

Under Section 7 of the NLRA, employees have the rights to unionize and otherwise engage in activities to advance their common interests “for mutual aid or protection,” as well as the right to abstain from these activities.  29 U.S.C. § 157. The NLRB has long held that work rules may be unlawful on the ground that they indirectly “chill” Section 7 activities. Under the NLRB’s new standard for determining when such chilling occurs, the NLRB’s general counsel may show a work rule is presumptively unlawful by establishing that “an employee could [not would] reasonably interpret a rule to restrict or prohibit Section 7 activity . . .” Stericycle, 372 NLRB at 9 (emphasis and bracketed material supplied). An employer may rebut the presumption only by proving both “[1] that the rule advances a legitimate and substantial business interest and [2] that the employer is unable to advance that interest with a more narrowly tailored rule.” Id. at 10. While the first element provides an evidentiary avenue for an employer to establish its justification for the rule, and may not be a heavy burden to carry, the second element by definition applies a strict scrutiny review that will likely make it difficult for any rule, no matter how carefully written, to survive.

 

The NLRB’s Prior Standard

 

In Boeing Co., 365 NLRB No. 154 (2017), the NLRB analyzed the legality of work rules pursuant to a balancing test, in which it weighed: “(i) the nature and extent of the . . . rule’s potential impact on NLRA rights, and (ii) legitimate justifications associated with the . . . rule.” Id. at 10.

 

Upon considering these two factors, the NLRB placed work rules into three categories:

 

1. Those that are lawful to maintain because the rule, when reasonably interpreted, does not chill or interfere with the exercise of NLRA rights, or, alternatively, any potential impact is outweighed by the need for the rule;
2. Rules that warrant “individualized scrutiny in each case as to whether the rule, when reasonably interpreted” would interfere with or chill Section 7 rights, and if so, whether any adverse impact is outweighed by legitimate justifications for the rule; and
3. Rules that are unlawful because they prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.

 

Given that the two Boeing factors considered employee interests and employer interests respectively, many considered it a balanced approach. In contrast, as Board Member Kaplan observed in his Stericycle dissent: “[The Stericycle standard] . . . does not actually balance employee rights and employer interests . . .” Stericycle, 372 NLRB No. 113 at 17 (Kaplan, Bd. Mem., dissenting). Rather, “It gives dispositive weight to the ‘employee rights’ side of the balance.”  Id.

 

The New Standard

 

The Stericycle rebuttable presumption that a work rule is unlawful applies when an employee could reasonably interpret a rule to restrict Section 7 activity. While, at first blush, this showing may seem to be an objective standard, the Board has made clear that it is not; rather, the Stericycle test is incredibly subjective as to whether the work rule negatively impacts Section 7 rights.  “[I]n interpreting a rule [under the Stericycle test], the Board will take the perspective of the ‘economically dependent employee’ who contemplates engaging in Section 7 activity.” Stericycle, 372 NLRB No. 113 at 8-9.

 

Thus, the presumption of unlawfulness applies if any employee could reasonably - that is, conceivably - interpret the rule to infringe on his or her Section 7 rights. As Board Member Kaplan stated in his dissent:

 

“[The majority’s concept of a reasonable employee] is an individual predisposed to read into their employer’s work rules references to Section 7 activity where none exists, and who would not engage in protected concerted activity without first minutely examining each rule [in the employee handbook]. If this individual could possibly suspect that any isolated word or phrase in a rule that does not prohibit Section 7 activity might be interpreted to do so,” the rule is violative of Section 7. Id. at 17 (Kaplan, Bd. Mem., dissenting).

 

While the Boeing test inquired into the degree or “extent” of the infringement of the employee’s Section 7 rights, the Stericycle presumption applies regardless of degree of the infringement. In other words, the presumption of unlawfulness applies if any employee could conceivably interpret the rule to infringe on Section 7 rights to any extent, no matter how slight or nuanced.

 

Upon the general counsel meeting this low bar, the NLRB will presume the work rule is unlawful, and the employer must rebut the presumption by showing “[1] that the rule advances a legitimate and substantial business interest and [2] that the employer is unable to advance that interest with a more narrowly tailored rule.” Id. at 9.

 

While under Boeing, the NLRB only considered the legitimacy of a rule, under Stericycle, the employer must also prove that the degree of the interest is “substantial.” Common synonyms for “substantial” include “important” and “material.” Whether the NLRB will in the future find an employer has not satisfied the first element of the rebuttal because the subject matter of a rule is not sufficiently important remains to be seen.

 

Yet the truly difficult prong of the employer’s rebuttal is the showing that the employer is unable to advance its interest with a more narrowly tailored rule. This prong effectively requires the employer to show that the rule is drafted as narrowly as possible to avoid chilling Section 7 rights. The language “narrowly tailored” is reflective of the strict scrutiny standard applied by courts in constitutional law cases upon a showing of infringement of a person’s fundamental rights, such as rights to free speech, marriage, procreation, and privacy. Simply stated, Stericycle requires the employer’s rule to be the least restrictive alternative available for the employer to vindicate its legitimate and substantial business interest.

 

The Stericycle Work Rules as a Case Study

 

The facts underlying the Stericycle decision provide an opportune case study for how the NLRB will apply its new standard. Earlier in the life of that case, the NLRB’s general counsel challenged a number of Stericycle’s work rules. When the case came before an administrative law judge (the “ALJ”), he applied the Boeing test to find some of the rules lawful and others unlawful. Although the NLRB’s decision remanded several of these findings, it allowed several to stand. That distinction provides insight into the types of rules that will and will not withstand the scrutiny of the Stericycle test.

 

• Personal Device Rule

Stericycle applied a rule “restrict[ing] the use of personal mobile phones or other electronic devices to break time, requir[ing] that they be kept in lockers during worktime, and prohibit[ing employees] from entering work areas with their cell phones and other electronic devices.” Id. at 43. The ALJ found the rule lawful, noting the employer’s safety interest was legitimate, as Stericycle employees actively handled medical waste. Id. The ALJ also noted the protective clothes Stericycle employees wore, which included gloves, prevented employees from using phones. Id. The NLRB did not remand the ALJ’s determination, which indicates Stericycle’s personal device rule would withstand the NLRB’s new, heightened standard. Id. at 15.

 

• Personal Conduct Policy

Stericycle prohibited employee conduct “that maliciously harms or intends to harm the business reputation” of the company. Id. at 43. The ALJ found this rule unlawful, noting the provision made no exception for statements protected by Section 7, including comments about the terms and conditions of employment or criticism of management. In fact, the ALJ stated—and the NLRB implicitly affirmed—that negative and even false statements relating to Section 7 rights are protected. Id. Although the NLRB remanded the ALJ’s determination, it is doubtful that this rule would pass the heightened Stericycle standard. Id. at 15.

 

• Conflict of Interest Policy

Stericycle policy prohibited employee activities that “constitute[] a conflict of interest or adversely reflect upon the integrity of the company” including any “activity in which a team member obtains financial gain due to his/her association with the Company” and any “activity, which by its nature, detracts from the ability of the team member to fulfill his/her obligation to the Company.” Id. at 44. The ALJ found this policy unlawful, holding that it held no clear business interest and that it prohibited Section 7 activities such as protests and boycotts. Id. Although the NLRB remanded the ALJ’s determination, it is doubtful that this rule would pass the heightened Stericycle standard.

 

• Harassment Complaints Policy

Stericycle policy prohibited employees from disclosing “complaints and the terms of their resolution.” Id. at 44. The ALJ found the policy unlawful. Id. Although the ALJ noted Stericycle had a legitimate interest—preventing harassment of employees—the ALJ found the policy overbroad to the extent it encompassed all complaints, which would include complaints involving Section 7 activities. “Employees who submit a complaint or participate in a complaint do not have to agree to keep the complaint, report, or investigation confidential.” Id. Although the NLRB remanded the ALJ’s determination, it is doubtful that this rule would pass the heightened Stericycle standard. Id. at 15.  Stericycle effectively overrules in relevant part Apogee Retail, LLC, d/b/a Unique Thrift Store, 368 NLRB No. 144 (2019), which held that rules requiring employees to maintain the confidentiality of workplace investigations for the duration of the investigation are per se lawful to maintain.

 

• Electronic Communications Policy

Stericycle policy stated that “personal telephone calls and emails should be infrequent and brief and limited to urgent family matters.” Id. at 45. In assessing this rule, ALJ stated, “As written, the policy poses a clear restriction upon employees [sic] Section 7 rights and the Company has not shown the special circumstances needed to justify its restriction on the nonbusiness use of its email system, even on break time.” Id. However, the ALJ ultimately found that, because Stericycle’s union employees did not have access to any work email accounts, the Rule did not violate their Section 7 rights. Id. The NLRB did not remand the ALJ’s determination, but likely only because the employees did not have access to the company’s email system in the first place. Id. at 15.  The negative implication of this decision is that the NLRB is poised to overrule Caesar’s Entertainment Corp., d/b/a Rio All-Suites Hotel and Casino, 368 NLRB No. 143 (2019), which held that because a corporate email system is the employer’s property, an employer may ban all non-business email communications, including communications protected by Section 7, unless the company email system is the only reasonable means for employees to communicate with each other during non-work time.

 

• Camera and Video Use Policy

Stericycle policy prohibited “employees from taking pictures, or video or audio recordings with personal or company-issued . . . equipment without the permission of their supervisor/manager.” Id. at 45. The ALJ found the policy unlawful. Id. The ALJ noted that, although Stericycle had an interest in its proprietary information and processes, the policy infringed on recordings taken in furtherance of Section 7 activities. Id. The NLRB did not remand the ALJ’s determination, indicating Stericycle’s camera and video use policy would not withstand the NLRB’s new, heightened standard. Id. at 15.

 

 

The Future of Work Rules in a Post-Stericycle World

 

In the coming weeks, we expect both the NLRB to file a petition with the Third Circuit Court of Appeals to enforce its decision and Stericycle to file an appeal challenging the NLRB’s decision. Yet, for the present, Stericycle is law, and employers will need to narrowly tailor their work rules to comply with the Stericycle standard. Although the NLRB’s decision provides minimal advice to employers drafting rules, the decision does encourage employers to use language explicitly stating that their rules do not prohibit Section 7 activity. See id. at 14 n.26. Yet perhaps Board Member Kaplan’s dissent provides the best advice by stating:

 

Employers would be well advised to. . . avoid a finding of presumptive unlawfulness . . . by retaining competent labor counsel to craft, for inclusion in their employee handbooks, language that would make it impossible . . . to interpret any rules contained therein to restrict Section 7 activity.

Id. at 30 (Kaplan, Bd. Mem., dissenting).

 

Nyemaster Goode’s Labor and Employment Law practice group has substantial experience in NLRB matters and drafting or revising workplace rules or policies, and stands ready to assist employers as they review and revise their workplace policies.