WHOLESALE DISTRIBUTION BEST PRACTICES

Leading wholesaler-distributors depend on NAW Institute for Distribution Excellence groundbreaking research studies because they help solve real-world business challenges.

 

YOUR 5-YEAR GROWTH ROADMAP


 

Order copies of Facing the Forces of Change®: Navigating the Seas of Disruption for everyone on your team!

 

NAW News

Legal Update

- January 2012

Federal Labor Law Protects Employee Use of Social Media to Discuss Work Conditions

The National Labor Relations Act (Act) applies to most private-sector employers—whether or not the employees are represented by a union. The Act protects the rights of employees to communicate with each other about wages, hours and other terms and conditions of employment. Section 7 of the Act states in part:

“employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

An employer may not interfere with, restrain, discipline or terminate an employee because the employee engages in “concerted activities” or otherwise exercises his or her section 7 rights. The source of interference may be a policy or work rule that is overly broad and could be interpreted by employees to prohibit activity protected by the Act. An employer who does interfere with protected activity may end up defending an employee’s unfair labor practice charge filed with the National Labor Relations Board (NLRB).

Employee Use of Social Media

An employee’s postings on Facebook, Twitter or other social media concerning wages, hours or working conditions that is intended for viewing by co-workers is subject to the Act’s protection as “concerted activity”. For example, the NLRB accused an ambulance service of illegally firing an employee (a Teamsters union member) after she criticized her supervisor on her Facebook page, using several vulgarities to criticize him. The posting drew several comments from co-workers that led to further negative comments about the supervisor. Company policy prohibited employees from making any disparaging or discriminatory comments to anyone when discussing the company, supervisors or co-workers. The case was settled with the employer agreeing to revise its social media policy and further agreeing not to discipline or discharge employees for engaging in discussions about work issues that are protected by the Act. (American Medical Response of Connecticut).

In another case, an employer discharged five employees for Facebook postings made on their own computers outside of working hours that criticized their working conditions and complained about a co-worker. In turn, this co-worker complained about the job performance of several of the fired employees. An NLRB administrative law judge ruled that the terminations violated the Act because the employees were engaged in protected concerted activity, namely, an electronic conversation among employees about their working conditions and another co-worker. The fact that some Facebook viewers that saw the postings were not employees did not change the result. The employer was ordered to reinstate the five employees with back pay and restoration of benefits. (Hispanics United Buffalo, Inc.).

Overly-Broad Social Media Policies

An employer with an overly-broad policy on employee use of social media may also be in violation of the Act, even if the policy does not expressly prohibit an employee from discussing wages, hours and working conditions, and even though the policy has never been interpreted or enforced to restrain such activity. When an employer’s policy or work rules are likely to have a chilling effect on the exercise of section 7 rights, the NLRB may find their maintenance is an unfair labor practice. For example, a policy that required employees to recognize and protect the confidentiality of any information concerning the employer or its employees was deemed overly-broad by the NLRB because it could be reasonably interpreted to prevent an employee from discussing working conditions or unionization with other employees.

Finally, the NLRB acting general counsel has issued two reports analyzing the Board’s recent enforcement actions involving employer implementation and enforcement of policies that regulate employee use of social media to discuss workplace issues. The reports set out various social media policy provisions and other work rules that the NLRB considers overly-broad and unlawful restraints on employee rights to make work-related statements on social media platforms. The reports may be viewed at: http://mynlrb.nlrb.gov/link/document.aspx/09031d458056e743 and http://www.nlrb.gov/news/acting-general-counsel-issues-second-social-media-report

 

NLRB Voids Employer’s Mandatory Arbitration Agreement with Employees That Bars Collective Claims or Class Actions

The National Labor Relations Board has ruled that an employer’s overly-broad mandatory arbitration agreement executed by all employees as a condition of employment constitutes an unfair labor practice in violation of the National Labor Relations Act (Act). (D.R. Horton, Inc. v. Michael Cuda, No. 12-CA-25764).

In this case, the employer required all employees to sign a mandatory arbitration agreement that stated:

  • All disputes and claims related to the employee’s employment (except claims for worker’s compensation and unemployment benefits) will be determined exclusively by binding arbitration;
  • That the arbitrator “may hear only employee’s individual claims,” “will not have the authority to consolidate the claims of other employees,” and “does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding”; and
  • That the signatory employee waives “the right to file a lawsuit or other civil proceeding relating to employee’s employment with the company,” and also waives “the right to resolve employment-related disputes in a proceeding before a judge or jury.”

In summary, most employment-related disputes with D.R. Horton had to be resolved through individual arbitration, and employees had to agree not to pursue employment-related class or collective litigation or claims in any legal forum. Section 7 of the Act provides in part that employees have the right “to engage in…concerted activities for the purpose of collective bargaining and other mutual aid and protection.” This right of “mutual aid” includes the ability of two or more employees acting together to maintain collective or class actions in any legal forum—whether in arbitration, before the NLRB or another agency, or in court—to resolve employment-related disputes.

In declaring D.R. Horton’s arbitration agreements unlawful under the Act the NLRB ordered the company to cease and desist from: (1) maintaining arbitration agreements that employees reasonably could believe bar or restrict their right to file charges of an unfair labor practice with the NLRB, and (2) maintaining arbitration agreements whereby the employees waive the right to maintain class or collective actions in all forums, whether judicial or in arbitration. Further, D.R. Horton was ordered to rescind or revise its arbitration agreements to make it clear to employees “that the agreement does not constitute a waiver in all forums of their right to maintain employment-related class or collective actions and does not restrict employees’ right to file charges with the National Labor Relations Board.”

According to the Board its ruling was not in conflict with the Federal Arbitration Act or the U.S. Supreme Court’s recent decision in AT&T Mobility v. Concepcion that approved the use of class arbitration waivers in consumer contracts for cellphone use. In its ruling the NLRB observed that “an agreement requiring arbitration of individual employment-related claims, but not precluding a judicial forum for class or collective claims, would not violate the NLRA, because it would not bar concerted activity.”

The NLRB’s decision is appealable in the 11th circuit court of appeals (covering Florida, Georgia and Alabama) or in the D.C. circuit. The case was narrowly decided, with two members (Messrs. Pearce and Becker) voting in favor and Republican Member Hayes being recused.

 

Manufacturer’s Exclusive Advertising Incentive Contracts with Distributors Survive Antitrust Challenge

On a pre-trial motion to dismiss, an Ohio federal district court has ruled that an equipment manufacturer’s exclusive advertising incentive contracts with its distributors do not violate the antitrust laws or unlawfully restrain competition. The antitrust claim was asserted as a counterclaim by the defendant in a patent infringement action brought by the manufacturer. (SPX Corp. vs. Mastercool U.S.A., Inc.).

SPX manufactures automotive refrigerant recovery equipment and sells the product through a network of independent distributors. The counterclaim alleged that SPX controls 85-90% of the equipment market and used its dominant market position “to reduce competition, innovation and consumer choice” in violation of the anti-monopoly provision in section 2 of the Sherman Act.

Through its distributor contracts, SPX provides advertising funds to distributors in exchange for their exclusive advertisement of certain SPX products. If a distributor advertises competitive products produced by an SPX rival, that distributor forfeits incentive funds. The agreement also prohibits a distributor from servicing a competitor’s equipment without SPX’s consent. However, the SPX agreements did not prohibit a distributor from selling a competitive product although doing so would result in forfeiture of advertising incentive funds.

Each distributor contract has a one-year term and either party may terminate the agreement “for any reason” by providing the other party with 30 days’ notice. In addition, either the distributor or SPX may terminate the contract without cause by providing 90 days’ notice of termination.

In dismissing the antitrust action against SPX, the court found that the facts as alleged in this case did not state a plausible claim of antitrust law violation. According to the court, such short-term terminable contracts with distributors do not approach the threshold of foreclosing competition. An SPX competitor is free to compete for SPX distributors by offering them terms more favorable than those offered by SPX, either at the conclusion of the one-year term or enticing an SPX distributor to exercise early termination.

This decision does not necessarily immunize a manufacturer with monopoly power to impose any sort of exclusive dealing requirements, or incentives to deal exclusively, on its distributor network. In each case the legality of an arrangement requires an analysis of whether the arrangement has substantially lessened competition in the market for the product or services. This requires taking into account all relevant factors, including the nature of the arrangement, the share of market foreclosed by the arrangement, the effect on potential new market entrants, the time period covered by the arrangement, the market power of the seller, and the seller’s ability to increase prices.

For discussion of a case where a manufacturer’s exclusivity arrangements with its dealership network did violate the anti-monopoly provision in the Sherman Act, go to www.naw.org/govrelations/advisory.php?articleid=485&print=print for an NAW Advisory reviewing U.S. v. Dentsply International, Inc. (“Manufacturer’s Exclusive Dealership Network May Violate Monopoly Law”).