Obama Board Reaffirms Successor’s Right to Set Initial Terms of Employment when Taking Over Unionized Operation

By  Gerald T. Hathaway or Shavaun Adams Taylor

Last week, the National Labor Relations Board issued a refreshingly employer-friendly decision which allowed a successor company to implement new pay terms without having to first bargain with the labor union. In Paragon Systems, Inc., 362 NLRB No. 182 (2015), a divided three-member Board panel held that the new guard service, Paragon Systems, Inc. (Paragon), had given sufficient notice to employees of a change in pay and therefore could assert its right to unilaterally set the initial terms and conditions of employment when it assumed a federal contract from the predecessor employer, MVM, whose work force was represented by The Federal Contract Guards of America International Union.

A Successor Can Make Unilateral Changes

In 2011, the Board reinstated the “successor bar” doctrine, where a union is presumed to retain its majority status when the employees it represents are hired to work for a successor employer. UGL UNICCO Service Co., 357 NLRB 76 (2011). This decision overturned MV Transportation, 337 NLRB 770 (2002) in which the Bush Board had refused to impose a successor bar in favor of the employees’ right to free choice of a union representative.

Paragon was deemed a successor because the majority of its work force was made up of former MVM guards. Paragon conceded that it was a successor and in fact, agreed to recognize and bargain with the union. However, without first consulting with the union, Paragon implemented employee pay terms that were different from what its predecessor had in place. Specifically, Paragon reduced the amount of paid “guard mount” time – time spent getting and returning weapons and ammunition – from 30 minutes to 10 minutes per day and discontinued paying for “guard mount” time on weekends.

The union filed an unfair labor practice charge against Paragon which was dismissed by the Administrative Law Judge.

On appeal, the union and the NLRB’s general counsel argued that Paragon as a successor violated Section 8(a)(5) and (1) when it unilaterally made changes to the pay terms. In analyzing the case, the Board stated that “a ‘successor’ employer under NLRB v. Burns International Security Services, 406 U.S. 272 (1972), and Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27 (1987), is free to set initial employment terms without first bargaining with an incumbent union, unless ‘it is perfectly clear that the new employer plans to retain all of the employees in the unit,’ in which case ‘it will be appropriate to have him initially consult with the employees’ bargaining representative before he fixes terms.’” Paragon Systems, Inc., 362 NLRB. No. 182, slip op. at p. 2 (quoting Burns at 294-295). The Board went on to state that “[o]nce a Burns successor has set initial terms and conditions of employment, however, a bargaining obligation attaches with respect to any subsequent changes to terms and conditions of employment.” Id. In other words, once the successor has established the initial terms, it cannot make any unilateral changes to employment terms without first bargaining with the union.

The Board held that it was undisputed that Paragon was a Burns successor and had properly implemented the initial terms and conditions of employment when it started operations. Accordingly, the Board held that Paragon did not violate the Act when it made unilateral changes to the pay terms that had been in place under the prior employer’s agreement.

Effective Notice to Employees Is Critical

The key issue in this decision was not whether the successor had the right to implement its initial terms and conditions upon becoming the new employer, but the sufficiency of the notice given to employees regarding the change in pay terms. The majority found that Paragon provided adequate notice to employees that there may be a change in such terms. Specifically, prior to taking over the contract, Paragon announced that it had the right to establish compensation, benefits and working conditions; its job applications specifically advised applicants that employees would have to conform to all Paragon policies and reiterated Paragon’s right to set compensation, benefits and other terms and conditions of employment; and Paragon specifically informed applicants that shift schedules would be set in accordance with the operational needs of the contract being serviced by Paragon.

Taken together, these statements were found by the Board to have made clear to employees that Paragon was not adopting MVM’s practice regarding paid guard mount time. Additionally, the implementation of these pay changes occurred on the first day that Paragon assumed operations. The Board majority concluded that the change in pay was within Paragon’s right to set initial terms and conditions of employment.

The sole dissenting Board member argued not that the successor was prohibited from setting the initial terms and conditions of employment, but that the implementation of this change was unlawful because Paragon had not provided specific notice of the specific change. The dissent noted that none of Paragon’s prior statements and communications to employees specifically addressed paid guard mount time.

Moreover, noted the dissent, even if Paragon’s general statements regarding its right to establish compensation, benefits and other working conditions were broad enough to cover the guard mount pay, the fact that Paragon provided detailed information in the contingent offer letter regarding many of the changes in wages and benefits, but was silent regarding guard mount time, reasonably conveyed to employees that no change would be made to such pay.

Practical Takeaways

This decision is good news for potential buyers of businesses, and other employers who are deemed to be successor employers of unionized operations having union contracts, because it reaffirms a successor’s right to make unilateral changes to the initial terms and conditions of employment upon commencement of operations (so long it is not “perfectly clear” that the successor intends to follow the existing agreement – a doctrine beyond the scope of this alert, as the “perfectly clear” doctrine is anything but perfectly clear).

In order to make such changes lawfully, however, the successor must make certain to provide adequate notice about the changes to employees. Notice will be deemed adequate if the successor communicates that it has the right to establish wages, benefits, and working conditions and provides enough general detail about the terms that may be subject to change. A cautious employer should be as specific as it can be when setting initial terms and conditions.

Are College Football Players on Scholarships “Employees?” An NLRB Regional Director Says “Yes”

By: Mark D. Nelson

On March 26, 2014, the National Labor Relations Board’s Regional Director (RD) in Chicago ruled that Northwestern University’s football players who receive scholarships are “employees” under the National Labor Relations Act and have the right to form a union.   The potential implications of this ruling are significant.  If the decision is not overturned by the National Labor Relations Board (NLRB) or a federal court, every private college and university in the country that has scholarship athletes could face the unionization of athletes in sports that generate significant revenue.  Public universities could also be affected under state labor laws.

The RD found that the university, through the football program, exerts significant control over the football players.  During the six-week training camp immediately before the season, athletes are given daily itineraries that dictate football-related activities for that day.  During training camp, the players spend between 50 and 60 hours every week engaged in football-related activities.  In season, the players spend between 40 and 50 hours per week in practice, travel and playing games.  The coaching staff sets all of the details for away games and the activities of the players throughout the trip.  During the off season, players are expected to spend 12 to 25 hours of work on football activities.  In addition, the players must follow rules set by the coaching staff, including regulations concerning personal conduct, alcohol and tobacco use, and internet conduct and protocol.

The economics of college football played a large part in the RD’s decision.  From 2003-2012, the football program generated almost $235 million in revenue for the university through ticket sales, TV deals, merchandise and licensing agreements.  For their football services, the players receive tuition, fees, books, and room and board for up to five years.  These benefits have a monetary value up to $76,000 per year and $380,000 over five years.  The players do not receive a paycheck, but the RD found that the players “nevertheless receive a substantial economic benefit for playing football.”  Another significant fact was that each season the players had to sign a “tender” for their scholarships, which the RD determined to be “an employment contract.”  According to the RD, “it is clear that the scholarships that players receive are in exchange for the athletic services being performed” since the scholarships are tied to the players’ athletic performance; the scholarships can be revoked if players quit the team or violate team rules.  On the other hand, the RD found that walk-on players were not employees because they do not receive scholarships or any other economic benefit from the school.

Northwestern can appeal this decision to the NLRB in Washington D.C. and the legal battle could go on for several years.  In the meantime, the RD will schedule an election for the scholarship football players to vote on being represented by the College Athletes Players Association (CAPA).

Among the several questions/issues raised by this decision are:

Would scholarship athletes in sports that generate little or no revenue be considered employees?

As employees, are the football players entitled to minimum wage and overtime pay?

Are they covered by the Occupational Safety and Health Act and other employment-related laws?

Will this decision impact college graduate assistants, who are not employees under current NLRB law?

This unprecedented ruling is consistent with other recent Labor Board decisions establishing new law or reversing long-standing decisions, which make the National Labor Relations Act more favorable to labor unions.  This agenda is unlikely to change in the near future.

Sixth Circuit Approves NLRB Micro-Bargaining Units

By: Francesco Nardulli

On August 15, 2013, the Sixth Circuit Court of Appeals affirmed the National Labor Relations Board’s (NLRB or the Board) controversial ruling in Specialty Healthcare, 357 NLRB No. 83 (2011), which has allowed the proliferation of what some term “micro-bargaining units.”  This decision makes it easier for unions to organize employees from all industries into smaller units than in the past and makes it challenging for employers to successfully challenge smaller bargaining units.

The Board’s Specialty Healthcare decision overruled its decision in Park Manor Care Center, 305 NLRB 135 (1991), which set forth the Board’s previous test for determining the appropriateness of a bargaining unit in non-acute healthcare facilities.  Park Manor Care established a “pragmatic and empirical community of interest” approach that considered traditional community-of-interest factors, as well as evidence considered relevant by the Board during rulemaking concerning acute-care hospitals and the Board’s prior experience involving the types of facilities in dispute or units sought.  In Specialty Healthcare, the Board ruled that an employer claiming that the proposed bargaining unit should include additional employees must be able to show that the excluded employees share an “overwhelming community of interest” with the employees in the proposed bargaining unit.  Under Specialty Healthcare, numerous decisions have found small units appropriate that would not have been approved under previous Board law.

In Kindred Nursing Ctrs. E., LLC v. NLRB, Case No. 12-1027 (6th Cir. Aug. 15, 2013), the successor in interest to Specialty Healthcare’s facility in Mobile, Alabama challenged the Board’s ruling that a bargaining unit of Certified Nursing Assistants “constituted an appropriate unit.”  Pursuant to Specialty Healthcare, the Board had found a unit of fifty-three CNAs to be an appropriate bargaining unit, while Kindred Nursing argued that the bargaining units should have included an “additional eighty-six non-supervisory, non-professional service and maintenance employees.”  In its attack on the Specialty Healthcare decision, Kindred Nursing argued that the Board had abused its discretion because it

“adopt[ed] a new approach and [did] not return to applying the traditional community-of-interest approach; (2) [did] not ‘reiterate and clarify’ the law by adopting the overwhelming-community-of-interest test, but inappropriately imports this test from another area of labor law; (3) violat[ed] section 9(c)(5) of the National Labor Relations Act in its application of the traditional community of interest test and adoption of the overwhelming-community-of-interest test; and (4) [made] all of these changes through adjudication instead of rulemaking.”

In rejecting Kindred Nursing’s arguments, the Sixth Circuit first stated that it must uphold both the Board’s bargaining unit determination and its interpretation of the National Labor Relations Act (“NLRA”) unless the Board had abused its discretion.  The Court noted that in exercising its discretion, the “Board must cogently explain why it has exercised its discretion in a given manner.”  Citing oft-quoted precedent that the Board must select an appropriate unit and is not required to select the most appropriate unit, as well as the principle that the Board has the discretion to develop standards for determining the appropriateness of a bargaining unit, the Sixth Circuit found that it was in the Board’s discretion to overrule its own precedent and adopt a test based on prior Board precedent – even if it represented a material change in the law.  Furthermore, the Court found that the Board had not departed substantially from prior law as it had previously relied upon the overwhelming-community-of-interest test in prior cases, and that it had explained its reasons for adopting its new standard.  The Court noted that the Board’s new test had been approved by the District of Columbia Circuit prior to the Board’s holding in Specialty HeatlhcareSee Blue Man Vegas, LLC v. NLRB, 529 F.3d 417 (D.C. Cir. 2008).

The Court also rejected Kindred Nursing’s arguments that the Board improperly changed its bargaining unit standards by adjudication rather than by rulemaking, and that Specialty Healthcare violated Section 9(c)(5) of the NLRA.  The Court first noted that the Supreme Court had specifically held in NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974), that the Board is not precluded from choosing adjudication as a method of developing new standards.  As for Kindred Nursing’s Section 9(c)(5) argument, the Court held the Board’s decision did not violate this Section 9(c)(5) because it does not assume that a requested bargaining unit is per se appropriate; rather, Specialty Healthcare requires an employer to make the showing of an overwhelming community of interest only after the proposed bargaining unit is deemed appropriate.[1]

In light of the approval of the District of Columbia and Sixth Circuits, it is likely that Specialty Healthcare’s “overwhelming-community-of-interest” test will be the rule unless or until the make-up of the Board changes sufficiently, which is unlikely during the remainder of President Obama’s second term, or it is reversed by the U.S. Supreme Court.  Moreover, it has been applied in industries beyond non-acute healthcare facilities.  With the increased risk of targeted organizing campaigns aimed at small units of sympathetic employees, the need for employers in all industries to proactively consider union avoidance strategies has never been more important.

_________________________________________________________________________________________

[1] The Supreme Court has interpreted section 9(c)(5) to prohibit the Board from approving bargaining units “based solely upon the extent of organization.”  NLRB v. Metro. Life Ins. Co., 380 U.S. 438, 441-442 (1965).

Bye-Bye, Big Labor? What Michigan’s “Right to Work” Law Means for Employers

By: Mark D. Nelson and Alejandra Lara

Michigan’s new right to work law, which endorses the right to engage in or refrain from collective action and prohibits the closed shop, analogous to right to work laws in many other states, is not well received by labor unions.  Why do unions hate right to work laws, particularly when they change the way things have been for decades?  Because unions lose – they lose revenue because employees can no longer be forced to pay dues or agency fees to the union in order to keep their jobs.  Unions also lose power – they can no longer fine employees who violate the union’s rules.  The union continues to have the obligation to represent all employees in the bargaining unit equally, but will likely get paid less (in dues) for doing so.

The Michigan right to work law will not be effective immediately for everyone.  The new right to work law only applies to an agreement, contract, understanding or practice that takes effect or is extended or renewed after the effective date, approximately March 28, 2013.

On December 11, 2012 Michigan enacted a right to work law.  Governor Snyder signed House Bill 4003, which applies to the public sector, and Senate Bill 116, which applies to the private sector, into laws.  This legislation will prohibit an individual from being required as a condition of obtaining or continuing employment to do any of the following:

  1. Refrain or resign from membership in, voluntary affiliation with, or voluntary financial support of a labor organization.
  2. Become or remain a member of a labor organization.
  3. Pay any dues, fees, assessments, or other charges or expenses of any kind or amount or provide anything of value to a labor organization.
  4. Pay to any charitable organization or third party an amount that is in lieu of, equivalent to, or any portion of dues, fees, assessments, or other charges or expenses required of members of or employees represented by a labor organization.

If an agreement, contract, understanding or practice between or involving an employer and a labor organization violates the above provisions it is unlawful and unenforceable.  Therefore, Michigan private sector employees will retain all of their existing rights under the National Labor Relations Act and any collective bargaining agreement between their employer and union representative, should they choose to retain their union representation.  The new law will prohibit agreements from binding employees to the different facets of union membership including payment of union dues and assessments, union rules, or union fines, penalties or punishment, including union discipline or fines for working during a strike or crossing picket lines.  Ultimately, the employee will now have the ability to decide whether to join a union.

Current collective bargaining agreements are “grandfathered” and this prohibition only applies to an agreement, contract, understanding or practice that takes effect or is extended or renewed after the effective date, approximately March 28, 2013.  Therefore, employees have to abide by the current contracts until they expire.  A recent NLRB decision stated that an employer’s obligation to check off union dues continues after the expiration of a union contract establishing such arrangement.  In light of this decision, it would be prudent for employers, if a current agreement expires or is extended after March 28, 2013, to tread carefully when providing employees an opportunity to opt out of the union or payment of union dues.  Employers should ensure they are lawfully communicating with their employees whose contracts expire after March 28, 2013 when providing information or resources to them about how to opt out.

The future of big labor is uncertain.  Unions stand to lose massive numbers of members and large sums of money when employees are given a choice to decline membership.  This isn’t the entire story, though.  The National Labor Relations Board has in recent years been heavily pro-union and only stands to get stronger through appointments from President Obama.

Board Reverses 34-year Rule and Requires Employers to Give Unions Actual Witness Statements

By: Mark D. Nelson

Since 1978, the National Labor Relations Board has allowed employers to refuse to provide unions with copies of witness statements obtained during an investigation of employee misconduct.  In Anheuser-Busch, 237 NLRB 982 (1978), the Board agreed with a U.S. Supreme Court ruling that disclosure of witness statements to a union would create a risk of coercion and intimidation and could well cause witnesses to be reluctant to provide truthful statements or participate in Board investigations.  Recognizing that a union may have a legitimate need for information related to the investigation, the Board required employers to provide summaries of the witness statements to the union.  This requirement balanced the confidentiality rights of the employees providing the statements with the union’s interest in relevant information.

The Board has rejected this “bright-line” rule and replaced it with a “balancing test” to decide when and under what circumstances an employer must give the union actual witness statements.  Under this new approach, articulated in American Baptist Homes of the West, d/b/a Piedmont Gardens, 359 NLRB No. 46 (2012), employers must produce witness statements to a union upon request unless the employer can prove its confidentiality interest outweighs the union’s need for the information.

In Piedmont Gardens, the employer operated a continuing care facility that offered independent living, assisted living and skilled nursing care level options to its residents.  In June 2011, a charge nurse informed the Human Resources Director that she had seen two certified nursing assistants sleeping on the job.  The HR Director asked the charge nurse to prepare a written statement and assured her it would be kept confidential.  Another charge nurse who witnessed the sleeping employees prepared a written statement after learning that her fellow charge nurse had done so, but without an assurance of confidentiality.  Based on the witness statements, one of the sleeping employees was terminated.

The union requested all written statements relied on in making the termination decision and the names and job titles of everyone who was involved in the investigation.  The employer refused to provide any of the requested information, but it offered to work with the union to reach an “accommodation to disclosure.”  No information was provided to the union, and it filed an unfair labor practice charge.

The Board majority held that the employer was required to provide the witnesses’ names and job titles, along with the witness statement from the charge nurse who was not assured of confidentiality.  However, the Board stated it would not apply its new standard in this case because it would cause a “manifest injustice” to the employer who was guided by the Anheuser-Busch standard.  Thus, the employer did not have to provide the witness statements of employees who were told their statements would remain confidential.

The discarded Anheuser-Busch standard provided employers and unions certainty about their respective rights and obligations regarding disclosure of witness statements given during an employer’s investigation of possible wrongdoing.  The new standard eviscerates certainty and creates a standard that is vague, subjective and outcomes will be unpredictable because each situation will be based on its unique and nuanced facts.  As noted by dissenting Board Member Hayes, the new standard “will often put human relations officials…in the position of making a legal assessment whether their employer’s confidentiality interests are legitimate, substantial, and superior to the interest of the union requesting witness statements.”

This ruling follows another recent Board decision that ruled employers can no longer, as a matter of human resource practice or policy, require employees to maintain confidentiality of investigatory interviews.  Banner Health System, d/b/a Banner Estrella Medical Center, 358 NLRB No. 93 (2012). Unionized employers now must consider when and how they can give confidentiality assurances to employees who provide witness statements and under what parameters the employer’s confidentiality interests are more important than the union’s right to obtain witness statements. Employers should analyze their investigatory practices and policies in light of these two rulings.

The likely real-world implications for unionized employers is that unions will demand witness statements with regularity and, if the employer refuses, file unfair labor practice charges.  More frequent involvement of legal counsel may well be necessary because of the vague and fact-specific balancing act employers are now required to make.

How the “Ambush” Election Process Will Work: NLRB’s Acting General Counsel Issues Guidance on New Procedures

The talk of the employer community lately has been the National Labor Relations Board’s highly controversial final rule that severely and substantially modifies certain procedures in representation cases. The Board claimed that the final rule, approved December 22, 2011, was designed to reduce unnecessary litigation in representation cases and thereby enable the Board to better fulfill its duty to expeditiously resolve questions concerning representation.

To read the full alert authored by Bruce Stickler and Mark Nelson click here.