It surprises many employers without unionized workforces to learn that they are subject to the National Labor Relations Act. Like their unionized brethren, they risk violating the NLRA when dealing with employees who are engaged in “concerted activity” for the “purpose of mutual aid or protection.” It will surprise them even more to learn that the National Labor Relations Board has recently stretched to their limits the concepts of “concerted activity” and “mutual aid or protection,” concluding that an employee seeking witnesses while advancing her individual sexual harassment claim is acting in concert with others for their mutual aid and protection. This stretch expands the activities protected by the NLRA and consequently expands the NLRB’s jurisdiction over a wider range of potential claims.

In Fresh & Easy Neighborhood Market, Inc., a female employee’s message on a whiteboard to her supervisor was altered to include an inappropriate word and a figure urinating on her name. Because cameras were not permitted in the workplace, the employee copied the altered message and figure on a piece of paper and asked her co-workers to sign the paper as witnesses, acknowledging that the piece of paper accurately portrayed the whiteboard message as altered and defaced. The co-workers did so, but one later complained that she felt coerced and the second testified that she signed only to prevent a scene in front of customers. No one signed the paper as part of a joint effort, whether to complain about harassment or otherwise.

The employer conducted an investigation into the harassment claim, identified the perpetrator and disciplined him. The employer also questioned the employee who brought the complaint, asking her about the whiteboard writing and her request to co-workers to sign the paper. The employer instructed her not to obtain any additional statements while it investigated her complaint

To employers not used to dealing with the National Labor Relations Act, this would seem to be the end of the story – a successful investigation and conclusion to a Title VII sexual harassment claim. However, Fresh & Easy found itself before the NLRB, answering charges that it committed an unfair labor practice – interference with an employee’s rights under the Act – by questioning the complaining employee about her asking co-workers to witness her paper and instructing her not to obtain further statements.

Although the NLRB ultimately held for the employer and concluded there was no unfair labor practice, the Board found that the complaining employee had engaged in “concerted activity.” To the NLRB, the mere solicitation of employees to sign her paper for her individual claim of harassment was “concerted” action.

The Board further concluded that the conduct was “for the purpose of mutual aid or protection,” invoking the “solidarity principle,” which rests on the notion that employees share a common cause and that “an injury to one is an injury to all.” The principle posits that employees have an interest in helping one another because the next time they could be the one needing help or support.

Much can be debated about the Board’s conclusions about protected activity in this case. For example, did the Board confuse acting “in concert” with acting “in contact” with others? Did the Board, as one of the decision’s dissenters pointed out, err in relying on the “solidarity principle”? Consider that principle presumes as true what the employee is required to prove – that the conduct was for mutual aid or protection. The employee is relieved of his burden of proof.

More troubling, though, is the startling breadth of the decision and the lack of guidance to employers having to address and investigate a wide variety of workplace issues in its wake. The Board found for Fresh & Easy on extremely narrow grounds. Other employers might not be so fortunate.

Employees have many statutorily protected rights, including those related to wage and hour, workplace safety, workers’ compensation, unemployment compensation, benefits matters, and discrimination laws. A number of federal and state agencies exist to interpret and enforce statutes and rights. Injecting NLRA protections into employers’ investigations of harassment and other legal violations will needlessly complicate those investigations. All questioning of complaining employees and witnesses must be undertaken with an eye toward the NLRA’s general prohibition against employers’ questioning employees about their protected concerted activity, including why they chose to engage in that activity. Further, policies and procedures that previously did not implicate the NLRA might now be alleged to infringe on employees’ rights to engage in activities that previously would not have been protected.

If this case stands going forward for the proposition that enlisting even the most minimal support for individual statutory claims constitutes concerted activity to seek mutual aid or protection, then the mutual aid or protection requirement of the NLRA is essentially nonexistent. Moreover, the NLRA becomes an overarching employment statute and the NLRB the overarching watchdog with jurisdiction over all manner of workplace rights and issues.

For an employee seeking NLRA protections for his individual claim and activity, he need only assert that he is acting for “me, myself and I.”

— Melanie S. Tuttle

When choosing what form of entity to use to conduct a business, there are many factors and trade-offs to be considered. Plusses and minuses inhere in each choice. The Supreme Court, however, has managed to permit a few lucky business owners to “have it all,” or at least more than their share based on their choice of business entity.

The Court recently held in its Hobby Lobby decision that closely held, for-profit corporations do not have to provide a full range of contraceptives under the Affordable Care Act if their owners have a religious objection. The Court concluded that a closely held, for-profit corporation may exercise religion and be entitled to the benefits of the free exercise clause of the First Amendment and the Religious Freedom Restoration Act.

The decision has engendered much commentary, ranging from the ill effects on a woman’s right to choose an appropriate contraceptive method to the violence done to the most basic principle of corporate law. That principle is the separation of the corporation’s shareholders from the corporation itself.

In Hobby Lobby, the Supreme Court demonstrated a lack of understanding of not only the separation between the shareholders of a corporation and the corporation itself – that the corporation is not its shareholders and the shareholders are not the corporation and neither is held liable for the acts of the other – but also the difference between for-profit and nonprofit corporations. The Court blithely assumed that because certain religious organizations, formed as nonprofit corporations, may be exempt from the mandate to provide insurance coverage for the full range of contraceptives, there was principled reason for assuming that a for-profit corporation, simply because it too is a corporation, is capable of exercising religion and should likewise be exempt. But principled good reason does not exist.

The essential difference between a for-profit corporation and a nonprofit corporation does not lie so much in the profit motive, at least as identified by the Supreme Court, but rather in the fact that for-profit corporations have owners and nonprofit corporations do not. The profit motive in this context is properly understood to be not only the desire to enhance net revenues – both for-profits and nonprofits share that desire – but also consideration as to whom those profits redound. The key inquiry is for what or whom is the corporation working.

Nonprofit corporations have specific purposes and they work to further those purposes without gain, or profit, to any owner. Net revenues benefit the nonprofit’s purposes and mission, not any individual. Indeed, nonprofit corporations, to maintain their tax-exempt status, are prohibited from permitting any of their net earnings to inure to the benefit of any individual and no individual may share in the distribution of the nonprofit’s assets upon its dissolution. Such assets may be distributed only to other nonprofit corporations or the government.

Contrast the nonprofit with the for-profit corporation. For-profit corporations have shareholders – the owners, who may receive distributions and dividends from the corporation as well as its net assets upon dissolution and liquidation. The profit motive, in its narrow sense – the enhancement of net revenues, works to the benefit of the owners of for-profit corporations. For-profit corporations are not compelled to maximize profits in all conceivable ways. Owners of a for-profit may choose not to maximize profits and may cause the corporation to act in ways, such as by installing more extensive and expensive pollution control equipment than required or making donations to charitable endeavors, that potentially result in decreased net revenues. Their ownership, however, remains intact.

This brings us back to the concept of the separation between the shareholders and the for-profit corporation owned by them. There is no such separation concept for nonprofits because there are no shareholders. Hence, the Supreme Court’s fallacy was in analogizing the for-profit corporation to the nonprofit corporation and ignoring the separateness of shareholders and corporate entities simply because the concept of separateness between owners and corporations does not exist in the nonprofit model.

The Supreme Court did not, nor could it, articulate the religious beliefs of Hobby Lobby, Inc. It could state the beliefs only of the corporation’s owners. If the Hobby Lobby owners sell the corporation, what religion is Hobby Lobby then exercising? The only parties exercising religion are the owners. If the corporation is indeed considered capable of exercising religion, it may end up converting and its choice will be that of its new owners, not its own, giving lie to its ability to have its own religious convictions.

The religious beliefs of a nonprofit corporation having a religious purpose are relatively easy to ascertain. They are stated in the purposes and mission of the nonprofit. These beliefs are core to the nonprofit’s purposes and mission. In a sense, the religious organization is exercising religion through its very existence. Hobby Lobby exists to sell arts and crafts supplies and tchotchkes, ultimately for the benefit of its owners.

The mandate of the Affordable Care Act did not impinge on the Hobby Lobby owners’ free exercise of religion. It impinged only on their ability to own a corporation that is unfettered by a specific government regulation they find objectionable. With the Hobby Lobby decision, the Hobby Lobby owners truly managed to have their cake and eat it too. They retain all the benefits of ownership of a corporation while avoiding the corporation’s compliance with a law they individually find offensive. Perhaps they will next seek tax-exempt status?

— Melanie S. Tuttle

Some years ago I served on a church board of trustees. We had many issues to face—a new building campaign, a new minister search, as well as the day-to-day issues involved in maintaining a church community. No matter what issue was before us, one of my fellow trustees always started with, “What is our process to be? It’s the process that counts.” These words were not welcome to those who wanted to leap into the meaty substance of the issue, but they were incredibly wise.

In the governance of both for-profit and nonprofit corporations, directors and officers who adhere to good process will find their business decisions afforded deference by the courts if sued for those decisions. The business judgment rule generally shields directors and officers from liability when their business decisions are made in good faith, with due care and inquiry, without self-dealing or conflict of interest, and with a reasonable belief that they are in the best interests of the corporation. The business judgment rule is powerful. Judges will not second guess directors and officers who meet the requirements of the rule. It protects those who recognize the importance of process to their decision-making and adhere to sound policies and procedures.

So, what is good process? Essentially, it understanding what has to be decided and why, who is to decide, what information is needed to make the decision, how to get that information, how to evaluate that information, and then following through on all of that. If you look closely, process starts to resemble substance. And for that reason, decisions made with good process have good substance and are respected.

The difficulty arises in the desire to shortcut process. Process is not sexy. It is not convenient. It takes attention. Substance is sexy. Substance is the reason for the meetings; it is the reason to serve on the board; it goes to the corporation’s mission. But, decisions made without adequate process are vulnerable to lacking the substance they need to withstand scrutiny. Without understanding all that must underpin a decision, it is altogether possible that the decision lacks adequate underpinning. Substance requires support and that support comes from adequate process.

Process delays nothing. Most organizations have good policies and procedures in place. Review them. Adhere to them. When sound policies and procedures are in place, it does not take even a hiccup to comply with them if they are understood and respected. The problems arise when people want to jump to conclusions for various reasons. Perhaps they are convinced of their own rectitude: “I am right. Who could disagree?” Or, perhaps they are relying on their perceptions of what others are doing: “It must be right. Everyone else is doing it.” No matter how firmly articulated, these reasons are not reasoned. Process lends to reasoning, giving lie or credence to initial thoughts and plans.

Process may not make perfect but it goes a long way to making solid and defensible substance. That process may be all directors and officers need to protect themselves from their own decision-making and the second-guessing of their decisions.

—Melanie S. Tuttle

A necessary first step to solving any problem is defining it. Only by knowing the precise nature of the problem can one craft an appropriate solution that alleviates the problem without creating new, and perhaps greater, problems.

In a previous Musing, I discussed a nonprofit corporation whose efforts to prevent a husband and wife team from continuing to serve on the corporation’s board together may backfire and work to exclude a large segment of their membership from serving on the board and holding office. For the club, the perception existed that the husband and wife controlled the club and other club members could not participate in its governance.

The club’s “solution” to its perceived problem was to amend the club’s bylaws to provide that only one of two members sharing a household and holding joint household membership in the club may hold office at a time.

What, though, is the actual problem the club experienced and was a bylaw amendment purporting to take away a privilege of membership an effective way to solve it? As undesirable as it may be to some to have a husband and wife serving together on the board, it may be equally undesirable to have siblings, parent and child, other family members, longtime best friends, partners, business associates, etc., serving together.  Closeness and collusion may occur between persons other than spouses or persons sharing a household.

In the corporate governance framework, bylaws generally follow the state corporation statute and the articles of incorporation in order of control and take precedence over policies, which are at a lower level of formality. Bylaws govern the internal management of the company, addressing matters such as how directors are elected and how and when meetings of directors and shareholders or members are conducted.

The club’s bylaws provided for a nominating committee and a nomination and election process. The election process contemplated the naming of candidates to the slate that were not proposed by the nominating committee. If the husband and wife were continuously reelected while their serving was seen as a problem, then the real problem rested with the nominating committee and the membership body that continued to elect the couple. The solution did not lie in amending the bylaws but rather in taking full advantage of the bylaws as written and addressing the policies of the club and nominating committee and in the abilities of the nominating committee and club members to act in the club’s best interests.

Perhaps the club members considered a bylaws amendment an effective cure. But why resort to a sledge hammer when a scalpel will do? With this change to the bylaws, the club has lost the flexibility to name to the board those persons who might be the best candidates to serve at a given time. And the husband and wife team? For a modest increase in dues, each may become an individual member of the club and preserve the full privilege of holding office. The bylaw amendment provided no solution because it was not tailored to the problem facing the club.

—Melanie S. Tuttle

Email has brought much simplicity and speed to communications. Many of us are doing much, if not all, of our correspondence by email.  Easy and fast, email permits directors of for-profit and not-for-profit corporations alike to conduct business in an efficient manner between meetings. Or does it?  Be aware that even in this age of electronic everything, directors of North Carolina corporations still may take action in only one of two ways: at a meeting or by unanimous written consent.  Although technology and email may simplify these ways of acting, they cannot shortcut them.

Many of us who serve on nonprofit boards have received emails, soliciting our vote on some urgent matter that must be dealt with before the next regularly scheduled meeting. If a majority of the board members reply affirmatively to the issue, it is considered passed. Unfortunately, many of those “votes” are not valid.

The North Carolina Business Corporation Act and Nonprofit Corporation Act are designed to encourage discussion and the free exchange of ideas among directors.  Remember the classic Sidney Lumet film, 12 Angry Men?  In that film, a single dissenting juror slowly managed to convince the other 11 jurors not to convict a man tried for murder.  The statutes recognize the value of robust debate and interchange. Directors may meet together in a single physical location or by a means of communication that permits all the participating directors to simultaneously hear each other. Directors who participate in a meeting with such a means of communication — whether by telephone conference or Skype or similar technology — are considered to be present in person at the meeting.

The need for a meeting and interchange is not necessary when all the directors are of like mind on an issue.  Hence, directors may take action on the issue by unanimous written consent.  Unanimous means unanimous.  All directors must sign the consent action.

So, is there a place for email in director actions? Yes. If the corporation’s articles or bylaws or an action of the board of directors permits it, a director’s consent to action taken without a meeting may be in electronic form and delivered by electronic means. If all the directors agree with the action, email responses from each director can operate as the written consent. The motion or action should be clearly stated and the email responses should unambiguously agree to the action. The motion or action may be an attachment to the email, which each director may print, sign and return. The email responses should be maintained with the corporation’s board minutes.

The next time you as a board member are asked to vote by email, remember the defendant whose life hung in the balance in 12 Angry Men and the lone persistent and persuasive juror. Make certain that your board fulfills its statutory responsibilities and acts unanimously. If not all directors favor or consent to the action, hold a meeting to address it. Each director may hear and consider the views of the other directors and the majority of them may act to approve the matter.

–Melanie S. Tuttle