Labor Relations Update

NLRB General Counsel Looks to Partner with the Federal Mediation and Conciliation Service (FMCS) to Support Voluntary Recognition and Collective Bargaining

On April 27, 2022, NLRB General Counsel Jennifer Abruzzo released a memorandum to all NLRB field offices detailing and encouraging an extensive partnership with the Federal Mediation and Conciliation Service (“FMCS”).

The FMCS is an independent agency created to “preserve and promote labor-management peace and cooperation.” In doing so, FMCS provides services to assist with collective bargaining, including trainings on collaborative contract negotiation, conflict resolution, and partnership building between management and unions. Additionally, FMCS provides mediation services and, as of April 26, 2022, offers assistance in card counts if an employer has agreed to voluntarily recognize a union where majority support for the union can be demonstrated via signed employee cards. FMCS services are free of charge at the time of certification, for first contract bargaining and if charges are filed alleging bad faith bargaining.

General Counsel Abruzzo stated that this partnership takes a “whole-of-government approach” and “builds on the strengths, expertise, and resources of each Agency to advance national policy.” Regions are encouraged to both remind parties of FMCS offerings and engage FMCS mediators when instituting remedies in 8(a)(5) and 8(b)(3) bad faith bargaining cases to facilitate good faith bargaining between parties. Additionally, General Counsel Abruzzo noted that Regions should integrate FMCS services “more directly” by attaching documents detailing FMCS services when sending notices or letters to parties pertaining to certification or unfair labor practices. The attachments note the offerings of FMCS and provide contact information for FMCS personnel so that parties can talk to the agency directly.

This partnership will likely have an interesting effect on NLRB resolutions going forward. Regions will likely try to incorporate FMCS services where possible and parties may find themselves before FMCS mediators, or involved in FMCS trainings, more so than before.

We will keep you updated on any new developments pertaining to this new partnership.

BREAKING: NLRB General Counsel Seeks to Scrap 50 Years of Precedent and Require Card Check Recognition

With Congress failing to make the organizing process easier for unions, the NLRB General Counsel Jennifer Abruzzo is now asking the Board to require employers to recognize unions without a secret ballot election.

As foreshadowed by her August 2021 memo on Mandatory Submissions to Advice, in a brief filed in Cemex Construction Materials Pacific LLC, the Office of the NLRB General Counsel argued that the Board should reinstate an antiquated Board standard that was rejected more than 50 years (since 1969)—the Joy Silk doctrine—that would require employers to recognize and bargain with a union if it is presented with signed authorization cards from a majority of workers.

Under this old standard, the burden of proof rests with the employer to demonstrate that it has a “good faith doubt” as to the union’s majority status where the union presents evidence of a card majority and the employer refuses to recognize the union. If the employer was unable to satisfy this “good faith doubt” test, the Board would order the employer to recognize and bargain with the union without a secret ballot election. According to the General Counsel, the rationale for reverting to the Joy Silk doctrine is that the “Board’s current remedial scheme has failed to deter unfair labor practices during union organizing drives and provide for free and fair elections.” While the Board may issue bargaining orders against employers whose unfair labor practices are so severe and pervasive as to make a fair election unlikely or impossible (known as a Gissel bargaining order), this is an extraordinary remedy that is only granted in the rarest of circumstances.

As such, the General Counsel is requesting the Board return to its “good faith doubt” test under Joy Silk, without requiring a showing of “substantial unfair labor practices” to demonstrate the employer’s lack of good faith in questioning a union’s card majority. Under the General Counsel’s proposed paradigm, an employer may still ask a union to respond to its good faith concerns about the authenticity of card signatures or the appropriate scope of the bargaining unit. However, an employer “may not simply refuse to respond or object to authorization cards as a method of demonstrating majority status.”

Highlighting the magnitude of the General Counsel’s position, the brief explicitly explained its understanding of the Joy Silk card check doctrine whereby

[T]he Board may determine that a bargaining order should issue if the circumstances demonstrate a lack of good faith doubt even absent unfair labor practices, such as due to testimony or internal documentary evidence revealing the employer’s purpose at the time of its refusal to bargain, the legitimacy of the employer’s proffered reasons for refusing to bargain, or its failure to offer any explanation. This would include situations in which the employer’s reason for refusing to bargain is to gain time in order to persuade employees to change their minds, even using what would otherwise be lawful persuasion.

Takeaways

This is only the General Counsel seeking to change precedent.  However, if the Board agrees with the General Counsel’s position and that action was upheld in the courts (both doubtful at this time), employers would lose the right to insist on a secret ballot election to ensure its employees have an opportunity to exercise their statutory right to refrain from union representation if they so choose. This would greatly facilitate the ease with which unions assert representative status over employees and likely encourage unions to seek to organize more workplaces.

As always, we will keep you up to date on the latest in this developing story.

Union Representation Petitions Increase by Astonishing 57% in the First Half of FY 2022

On April 6, 2022, the National Labor Relations Board (“NLRB” or the “Board”) issued a press release recognizing the shockingly large surge in new union organizing. Specifically, during the first half of Fiscal Year 2022 (October 1, 2021 to March 31, 2022), the NLRB reported that union representation petitions increased by 57%.

Representation petitions are filed by employees and unions requesting that the NLRB conduct an election to determine whether employees wish to be represented by a union.

NLRB General Counsel Jennifer Abruzzo stated that “there is a surge in labor activity nationwide, with workers organizing and filing petitions for more union elections than they have in the last ten years.”

This rise in activity, however, is accompanied by “critical funding and staffing shortages” for the NLRB, which makes addressing the large amount of union petitions a difficult feat to conquer. Although the NLRB is set to receive a new Congressional funding appropriation in Fiscal Year 2023, the NLRB claims this may not fully address staffing needs since “more than three-quarters (77%) of the NLRB’s budget goes directly to staffing costs.”

General Counsel Abruzzo noted the dire situation, stating that while the NLRB remains committed to processing petitions and other matters that are presented to the Board, “the NLRB needs a significant increase of funds to fully effectuate the mission of the Agency.”

We will be sure to keep you updated with any new developments related to this increase in union activity.

NLRB GC Seeks Dramatic Change to Employer’s Right to Speak to Employees About Unionization at Work

For decades, employers had been free to gather employees to discuss – in a non-coercive manner – the employer’s views on unionization, and had been free to share with employees what employees’ rights were with respect to the same.  Earlier today, the NLRB General Counsel issued a memorandum declaring her intent to attempt to overturn this nearly 75 years of National Labor Relations Board precedent regarding an employer’s ability to speak to employees.  In GC Memorandum 22-04, issued on April 7, 2022, argues that mandatory “captive audience” meetings and even simple one-on-one conversations during work are unlawfully coercive.

The General Counsel’s initiative is the latest in a long line of new initiatives dating back to last August, previously discussed in this space – however, this particular change was not previously outlined by the GC in her most recent memo (in August 2021) outlining her enforcement priorities.

The General Counsel’s Theory

The General Counsel refers to the current legality of such meetings as an “anomaly” that is “contrary to the basic principles of labor law,” namely, in that such meetings are contrary to the NLRA’s protection of “employees’ right to listen as well as their right to refrain from listening to employer speech concerning the exercise of their Section 7 rights.”

The General Counsel suggests that such meetings are often held under the threat of discipline, express or implied, by virtue of an inherent pitting of employees’ reliance on employers for their livelihoods against these rights.  In other words, the General Counsel suggests that employees who skip such meetings may fear retribution from their employer.  Accordingly, under the General Counsel’s theory, such meetings fall outside the realm of constitutionally-protected free speech because of an alleged unlawful coercive effect.

Of course, Board law has been settled since 1948 on the legality of such meetings, starting with the Board’s decision in Babcock & Wilcox Co., 77 NLRB 577 (1948).  There, the Board held that an employers’ compelling attendance at such meetings does not violate the Act.

Going forward, the General Counsel suggests that employers must make clear that employees’ attendance is truly voluntary, similar to a Johnnie’s Poultry warning given to employees when an employer is investigating and preparing to defend against an unfair labor practice charge.

What Comes Next?

As we have noted before, a General Counsel Memorandum does not change the law in any respect.  However, it does signal that the General Counsel will be looking to bring a “test” case to the NLRB for a ruling in the near future.  Indeed, the General Counsel stated that she will ask the Board to consider its precedent in this area in “appropriate cases,” and also stated that “a brief will be submitted to the Board shortly” on the subject.  At that point, the Board will decide whether to overturn over seventy years of precedent, with appeals likely to follow.

Stay tuned.

Third Circuit Takes Supreme Court Cue and Rejects “Implied” Union Contracts

On March 30, 2022, three judge panel of the Third Circuit Court of Appeals unanimously overruled prior precedent allowing “implied” contracts to survive the expiration of a written agreement. The instant panel held, instead, that “implied” contract provisions that “have no durational limit of their own” are “governed by the general durational clauses of the CBAs.”  Pittsburgh Mailers Union Local 22, et al., v. PG Publishing Co. Inc., No. 21-1249 at *9 (3d Cir. 2022) overruling Luden’s Inc. v. Local Union No. 6 of the Bakery, Confectionery & Tobacco Workers International Union 28 F. 3d 347 (3d Cir. 1994). In upholding the District Court’s ruling granting summary judgment in favor of the Company, the panel refused to require the Pittsburgh Post-Gazette (“Post-Gazette”) to arbitrate a grievance with unions for its workers under their expired contract.

Factual and Procedural History

The Post-Gazette and the unions had a CBA which included an agreement to arbitrate disputes on a case-by-case basis. Two months before the contract expiration, the Company sent letters to the unions disavowing all contractual obligations at the CBAs expiration, other than established wages, hour and terms and condition of employment. While bargaining over a new contract, the Post-Gazette refused to cover a yearly increase in the unions’ health care costs, as it had under previous contracts. The unions claimed that the Post-Gazette violated the expired CBA by failing to provide these health benefits and sought to arbitrate the issue, citing Luden to support their claim that the Post-Gazette should still honor the arbitration clause in the expired contract.

After discovery, the unions and the Post-Gazette each moved for summary judgment. The District Court granted Post-Gazette’s motion for summary judgment, holding that the court could not compel the Company to arbitrate. The unions appealed.

The Third Circuit’s Analysis

In 1994, the Circuit held in Luden’s that “an arbitration clause may survive the expiration of termination of a CBA intact as a term of a new implied-in-fact CBA unless (i) both parties in fact intend the term not to survive, or (ii) under the totality of the circumstances either party to the lapsed CBA objectively manifests to the other a particularized intent [], to disavow or repudiate that term.” Luden’s, 28 F.3d at 364.

However, the Supreme Court issued two decisions in 2015 and 2018 undercutting Luden. In both rulings, the Supreme Court held that CBAs do not “infer” lifetime benefits unless the language explicitly says otherwise and that courts should interpret CBAs “according to ordinary principles of contract law.” M&G Polymers USA, LCC v. Tackett, 574 U.S. 427 (2015); CHN Industrial N.V. v. Reese, 138 S. Ct. 761 (2018).

In its decision to overrule Luden, Judge Roth explained that in keeping with these Supreme Court precedents, if a specific provision does not have its own durational clause, the general durational clause of the CBA applies. Further, the Panel reasoned that as a matter of contract law the arbitration provisions had no durational limit, and as such, the obligation to arbitrate expired with the CBA.

Takeaways

This decision—driven by clear rulings from the Supreme Court– is consistent with those in the Eighth, Ninth and Seventh Circuits, indicating that the Circuits are moving towards a general consensus regarding whether provisions in a CBA survive the expiration of the CBA. Employers with operations in other circuits should take note that certain provisions of the expired CBA – such as arbitration provisions – may survive expiration,–until such circuits rule on the issue in light of the Supreme Court precedent.

We will continue to monitor these developments and keep you informed as to any updates in other circuits.

We Knew This Was Coming: NLRB General Counsel Recommends Abandoning Workplace Rule and Confidentiality Rule Frameworks

As foreshadowed by the NLRB General Counsel’s August 2021 Advice Memorandum (which we discussed here), the vacillating standard for the legality of employer handbooks and policies and confidentiality requirements during open employer-investigations have been ripe for reversal by the NLRB.

On March 7, 2022, in response to the NLRB’s January 6, 2022 notice and invitation to file briefs, the NLRB General Counsel filed a post-hearing brief in the case Stericycle, Inc., asking the Board to abandon its existing frameworks for evaluating facially-neutral workplace rules (Boeing) and confidentiality rules during open investigations (Apogee).

The Long Fight Over Common Workplace Rules

As we have previously discussed, the Board in Boeing overruled the Lutheran Heritage standard, which required the Board to determine whether an employer’s workplace rule would be “reasonably construed” to prohibit the exercise of employees’ NLRA rights under Section 7 of the Act. Boeing Company, 365 NLRB No. 154 (2017); Lutheran Heritage 343 NLRB 646 (2004). The application of Lutheran Heritage resulted in a mad dash to parse common workplace policies in the hunt for potential violations of the National Labor Relations Act.

Instead, the Board, in Boeing, established three categories for evaluating the lawfulness of workplace rules: (1) lawful rules, (2) rules that required individualized scrutiny, and (3) unlawful rules.

The GC’s post-hearing brief recommended that the Board revert to the Lutheran Heritage standard, describing the Boeing framework as “more complicated, less predictable, and much less protective of employee rights.”

The brief also provided several recommendations as to how the Board may strengthen the Lutheran Heritage standard:

  • The Board should not presume that employees are aware of their rights under the NLRA.
  • The Board should presume that employees will likely interpret a rule to be restrictive of their NLRA rights.
  • The Board should substitute the word “could” for “would” in the standard, and add the word “unlawfully” so the test states as follows: a rule is unlawful if “employees [c]ould reasonably construe the language to [unlawfully] prohibit Section 7 activity.”
    • The first change (could to would) makes the test more consistent with the Board’s application of Lutheran Heritage in subsequent cases and the Board’s general standard for employer statements, according to the NLRB GC.
    • The second change (adding unlawfully) would remove any doubt as to facially-neutral policies that represent lawful restrictions of Section 7 activity, such as neutral rules limiting solicitation to non-working time.
  • The Board should permit rules that would ordinarily be considered restrictive in some situations as lawful, if the rule is (1) narrowly tailored to a special circumstance and (2) the employer’s interest in the rule outweighs its employees’ Section 7 rights.
  • The Board should provide a statement of employees’ statutory rights that employers could include in handbooks to create a presumption that other rules within the handbook do not prohibit those rights.

Evaluation of Confidentiality Rules During Open Investigations

In addition, the NLRB GC encouraged the Board to abandon its Apogee framework when evaluating confidentiality rules during an open investigation. Apogee Retail LLC d/b/a Unique Thrift Store, 368 NLRB No. 144 (2019).

As we have previously discussed, the Board in Apogee overruled the Banner Estrella Medical Center standard, which required an employer to determine, on a case-by-case basis, whether its interests in preserving the integrity of an investigation outweighed employees’ Section 7 rights. Banner Estrella Medical Center, 362 NLRB 1108 (2015), enf. denied on other grounds 851 F.3d 35 (D.C. Cir. 2017).

In Apogee, the Board held that an employer’s confidentiality restrictions for information relating to workplace investigations are categorically lawful under Boeing, where such rules explicitly apply for the duration of an investigation only.

The GC’s brief recommended returning to the Banner Estrella Medical Center standard, arguing that Apogee chills Section 7 rights during open investigations asserting—without citation to any proof– “employees…reasonably fear discipline based on a violation of said [confidentiality] rule.”

Two amicus briefs from the U.S. Chamber of Commerce and the HR Policy Association and Retail Litigation Center have been filed.

Takeaways

It is hardly surprising that the Board is taking aim at these policies.  It has become regular practice to overrule precedent from the last administration.  The General Counsel’s recommendations in her post-hearing brief outline potential paths that the NLRB could take in reshaping the standard for lawful handbook policies and reverting to the prior standard regarding restrictions on confidentiality during employer investigations.  In particular, the fickle standard for handbook policies has made it difficult for an employer to issue policies that it can reasonably expect will be long-lasting.  The practical effect of overturning the current case law will be that employers will once again be forced to defend policies in the absence of any other unlawful behavior.  We expect the Board to address the standards regarding these issues in this case—potentially adopting the GC’s view in at least some measure.  We will follow up with future developments regarding the Board’s action in response to the GC’s recommendations.

Stay tuned, we will keep you posted as developments occur.

 

NLRB General Counsel Announces Commitment to Inter-Agency Coordination

On February 7, 2022, the White House Task Force on Worker Organizing and Empowerment issued a report recommending, among other things, increased coordination among agencies working on labor and employment matters.  In a memorandum circulated on February 10, 2022, National Labor Relations Board General Counsel Jennifer A. Abruzzo announced her agreement with that recommendation and directed her officers to increase coordination with their counterparts at other agencies, such as the Equal Employment Opportunity Commission and the Department of Labor.  Abruzzo noted that while several of her office’s existing memoranda lay out guidelines for coordination with other agencies, those guidelines and related efforts need to be strengthened.

Among the areas regarding which greater collaboration is needed, Abruzzo highlighted the already-announced interagency goal of combatting retaliation, which we discussed in an earlier article here.  Abruzzo also emphasized the importance of coordinating with the Internal Revenue Service, the Federal Trade Commission, and the Department of Justice’s Antitrust Division with respect to unfair and anticompetitive practices harmful to employees’ labor rights.  She further noted the value of coordination with other agencies—such as the Department of Homeland Security and the Department of Justice’s Employee Immigrant Rights Section—with a view to ensuring the labor rights of immigrant workers.  Additionally, she pointed out the need for coordination among agencies in their ongoing responses to the COVID-19 pandemic.

Increased coordination, Abruzzo explained, would enable the NLRB to help secure workers’ rights to union representation, protect them from systemic abuses such as discrimination or retaliation, reduce the gender and racial wage gaps, and promote economic opportunity, fairness, and employee mobility.  We will follow up with any developments regarding these inter-agency efforts.

President Biden Signs Executive Order Requiring Project Labor Agreements for Large-Scale Federal Construction Projects ($35 Million)

On February 4, 2022, President Biden signed an Executive Order on Use of Project Labor Agreements for Federal Construction Projects (the “Order”), which requires the federal government to require a project labor agreement (“PLA”) before awarding any “large-scale construction contract,” defined as a contract for which the estimated cost is $35 million or more.  The Order’s effective date is immediate, but some delay will necessarily occur before implementation, as the Federal Acquisition Regulatory Council must propose appropriate regulations by June 4, 2022, and the Director of the Office of Management and Budget must issue related guidance.

PLAs control the terms and conditions of employment of workers on specific construction projects, including wages, hours, working conditions, dispute resolution methods, and by banning work stoppages and strikes.  PLAs are known as “umbrella” or “uber” collective bargaining agreements, because PLA contracts generally exist on top of any specific union trade agreements.   Democrat politicians and unions often hail PLAs as alleviating the interconnected issues that often plague large, complicated construction projects where a work stoppage or dispute by one trade group may significantly impact the entire project.  Meanwhile, Republican administrations and construction industry groups usually call for the rescission of PLA usage, citing increased costs and reduced competition amongst contractors.

The Order continues to make good on President Biden’s early promise to be the most “union friendly” president in history, and will affect an estimated $262 billion in federal construction contracting for nearly 200,000 workers.

Importantly, however, the Order does not require construction companies to unionize, it only binds a federal construction contractor’s employees to the terms of a PLA.  PLAs must always contain: (1) guarantees against strikes, lockouts, and similar job disruptions; (2) prompt, mutually binding procedures for resolving labor disputes; (3) mechanisms for labor-management cooperation on “matters of mutual interest and concern, including productivity, quality of work, safety, and health”; and (4) terms that fully conform to federal law, regulations, other executive orders, and Presidential Memoranda.

There are a few exceptions to the PLA requirement.  The Order will not mandate a PLA if doing so would:

  • Substantially reduce potential bidders,
  • Otherwise be inconsistent with federal law, or
  • Would result in inefficiency, such as projects of short duration and lacking complexity, only involving one craft or trade, or involving particularly specialized construction work.

Furthermore, a PLA will not be required based on unusual and compelling need, and other factors deemed acceptable by senior officials in federal agencies.  No procedure has been announced for determining whether a project may be subject to an exception.

Perhaps most significantly, the Order will not travel downstream to projects controlled by state and/or local governments, even if those projects receive federal funding.  Therefore, the Order will not affect the majority of projects that will be undertaken by state and local governments regarding the recent Infrastructure Investment and Jobs Act (2021).

In order to implement the Order, President Biden also provided for strategy training for the 40,000 federal contracting employees.  Agencies will be required to report their use of PLAs on large-scale construction contracts, as well as any exceptions granted.

NLRB GC Announces Initiative Seeking 10(j) Relief For Threats Or Coercive Conduct During Organizing Campaigns

On February 1, 2022, the General Counsel (“GC”) of the National Labor Relations Board (“NLRB”) announced a new initiative encouraging NLRB Regions to seek injunctive relief under Section 10(j) of the National Labor Relations Act (“NLRA” or “Act”) where workers have alleged unlawful threats or other coercion by employers during union organizing campaigns—even if the employer had not followed through on its threat or coercive action.  This important announcement comes on the heels of the GC’s August 2021 Memorandum, illustrating the GC’s re-affirmation of the NLRB’s emphasis on seeking injunctive relief in federal court for certain urgent matters pursuant to Section 10(j) (discussed previously here), and the November 2021 Memorandum instructing Regions to seek full and immediate remedies regarding immigration-related threats and retaliatory conduct at every stage of an unfair labor practice case, including 10(j) injunctive relief.

As brief background, Section 10(j) of the Act allows the Board to seek temporary injunctions in federal court while cases are being litigated in order to ensure that any remedy the Board might issue would not be moot or hollow.  Cases where 10(j) injunctions may be appropriate are first identified by the Region processing the underlying charge, then referred to the GC, and the GC must then obtain Board authorization before seeking an injunction in federal court.

In her Memorandum describing the new initiative, the GC explained that injunctive relief under 10(j) is typically sought once an employer has already followed through on its threats to terminate union supporters or take other adverse action against employees.  Under the new initiative, however, Regions are encouraged to consider seeking injunctions “immediately after determining that workers have been subject to threats or other coercive conduct during an organizing campaign, before an employer follows through on its threats or coercion.”  According to the GC, “threats or other coercive conduct need to be promptly stopped, not only to erase the chilling impact they have on employees, but to prevent escalation of the words into action.”

The Memorandum requests that the Regions promptly investigate threats or other coercive conduct made during a union organizing drive and immediately submit those cases for consideration of injunctive relief—even in the absence of any employee discharges or other alleged violations under Section 8(a)(3) of the NLRA.

In addition, the GC advised that the NLRB’s Section 10(j) Manual will be updated to include “cases where employers swiftly react to organizing efforts with threats or coercion, even in the absence of other unlawful action,” to the list of cases appropriate for Section 10(j) injunctions.

Based on this Memorandum, the GC intends to expand the use of 10(j) injunctive relief during organizing campaigns purportedly to avoid “irreparable harm” suffered by the employees under the circumstances outlined above.  The stated goal of the policy is to enjoin an employer’s conduct in such a manner that would prevent the escalation of unlawful threats or coercive conduct that would ultimately harm the employees’ Section 7 rights.

Since 10(j) injunctions are litigated directly in federal district courts—not before an Administrative Law Judge and then the Board, with the right to appeal to federal circuit courts, like the manner in which the merits of an unfair labor practice charge are litigated—the federal district and appellate courts will ultimately have the last word on whether the conduct outlined by the GC in the Memorandum warrants the extraordinary remedy of injunctive relief.

We will keep you posted.

Third Circuit Rejects RICO Claim Filed Against Unions for Conduct During Corporate Campaign By Adopting A Union’s “Claim-of-Right” Defense

The Third Circuit issued a noteworthy split 2-1 decision last month, finding that a company’s claim under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) against several Unions failed, where the Unions’ tactics as part of a corporate campaign and its “extortion through fear of economic loss” directed at the company is committed to achieve a legitimate union objective.  See Care One Mgmt., LLC v. United Healthcare Workers East, No. 19-3693 (3d Cir. 2021).  The Court also found that the alleged acts of vandalism and sabotage could not be attributed to the Unions, and thus the Company’s RICO claims could not survive summary judgment.

Factual and Procedural History

Five Unions engaged in a “corporate campaign” against Care One Management LLC and related companies (collectively, the “Company”), seeking to pressure the Company to recognize the Unions for collective bargaining purposes and, according to the Unions, to provide better wages and working conditions to Company employees. The Company described this campaign as a “campaign of intimidation, interference, threats, deceptive trade practices, abuse of process, vandalism, and other illegal and extortionate conduct.”

As background, a “corporate campaign” is a multi-faceted and typically long-running attack by a union or unions against a company in order to pressure the company to accede to the union’s bargaining demands.  Corporate campaigns routinely involve conduct by the unions directed towards harming the company’s reputation and damaging its media, political, and/or business relationships, as well as extensive litigation filings.

Here, the acrimonious relationship between the Unions and the Company involved, among other things:

  • Unfair labor practice charges filed by the Unions against the Company related to petitions for election the Unions filed, and allegedly discriminatory terminations by the Company toward several employees.
  • On the eve of the parties’ collective bargaining negotiations, certain of the Company’s facilities were vandalized and sabotaged – e.g., patient identifying information was mixed up, medical records were altered, equipment damaged or hidden, and laundry equipment vandalized. An investigation commenced by the State’s Attorney, but it did not yield any suspects or charges.  The only evidence tying the conduct to the Unions were plans to inspire workers to “become angry about their working conditions” and to resort to “more militant” levels of activity”—but nothing more specific.  After the vandalism occurred, the Unions sent out communications denying that they had anything to do with the conduct.
  • The Unions also launched a public campaign attacking the Company’s labor and business practices, through print and radio ads and billboards. The Unions indicated that they subjected their attacks to fact checking, but the Company disagreed.
  • The Unions also lobbied government officials to investigate the Company’s billing practices, and engaged in public demonstrations against the Company.

The Company filed suit against the Unions in federal court, claiming they had engaged in actions that amounted to a pattern of racketeering in violation of RICO.  RICO imposes criminal and civil liability for those who engage in certain “prohibited activities.”  While RICO claims are typically reserved to combat organized crime, employers have filed RICO claims against unions in response to aggressive corporate campaigns, where the conduct involves a “pattern of racketeering activities.” A “racketeering activity” includes “any act or threat involving…extortion…which is chargeable under State law and punishable by imprisonment for more than one year.”  For an act to be a predicate offense under state law, the conduct must be “generally classified as extortionate.”

Specifically, the Company asserted that the Unions had engaged in the “extortionate actions” of (i) fear of economic loss, and (ii) sabotage / vandalism.

On summary judgment, the District Court granted the Unions’ motion and dismissed the complaint as a matter of law. The District Court concluded that the Unions’ conduct directed toward “economic loss” did not reach the level of “extortionate” to state a viable claim under RICO.  Central to the District Court’s holding was that it used the federal Hobbs Act definition of “wrongfulness” in concluding that the Unions were not guilty of extortion under state law.  The District Court also found that the alleged sabotage and vandalism could not be attributed to the Unions.

The Third Circuit’s Decision Affirming the District Court

After review, the Third Circuit affirmed the District Court’s decision.  Importantly, at the outset, the Third Circuit noted that the “generic” definition of extortion used by the District Court (defined as “obtaining something of value from another with his consent induced by the wrongful use of force, fear, or threats”) was substantially similar to the definition of “extortion” applied by courts interpreting the federal Hobbs Act, and thus the Court looked to cases under the Hobbs Act for guidance.

The Hobbs Act is a federal law prohibiting extortion or robbery by wrongful use of force or fear.  The U.S. Supreme Court carved out a “claim-of-right defense” under Hobbs for a union pursuing legitimate labor objectives (such as better pay and working conditions), even if the union’s means for seeking this objective are violent or destructiveSee United States v. Enmons, 410 U.S. 396, 398 (1973).  The Third Circuit rejected the interpretation that Enmons is narrowly limited to strike violence, and reasonably extends to all labor strife.  Moreover, until now, the “claim-of-right” defense under Hobbs had generally not been applied by a federal court to a union’s conduct purportedly in violation of RICO.  Given the Third Circuit’s decision to look to Hobbs Act cases for guidance, the Court easily found that the allegedly extortionate conduct constituting economic loss did not constitute “wrongful” “extortionate” conduct, as the Unions did not even engage in violent or destructive conduct.  Accordingly, the Third Circuit held that the Unions did not violate RICO.

As to the second grounds of extortion, the Court held that the Company did not present sufficient evidence that the Unions— rather than simply union members or employees—were sufficiently connected to the alleged vandalism of the facilities.  The Company alleged that given the timing, a jury could infer that the vandalism was conducted by Union members.  The Court held that this was insufficient under the Norris LaGuardia Act, which requires Union “authorization” and “clear proof of actual participation in, or actual authorization of, such acts, or of ratification of such acts after actual knowledge thereof.”  No such evidence was presented against the Unions, and the Company’s second claim for extortion through sabotage under RICO failed as a matter of law.

The Dissent

The dissent argued, among other things, that the narrow “claim-of-right” defense for labor organizations under the Hobbs Act should not apply to RICO claims.  The dissent asserted that the “linguistic parsing in Enmons is…not obviously applicable,” as the “wording chosen by states to outlaw extortion does not necessarily track the wording of the Hobbs Act.”  Since a RICO claim requires the violation of a predicate state law, and here, the Unions violated several state laws’ extortion provisions based on their conduct, the dissent concluded that the Company established a prima facie claim under RICO.

Takeaways

The Third Circuit appears to be the first Court of Appeals to issue such an expansive rejection of a company’s RICO claim in the context of a corporate campaign based on the “claim-of-right” defense under the Hobbs Act.  This decision appears to create new law in applying a RICO claim to a Union’s aggressive corporate campaign tactics, and could serve as a useful defense for unions in other jurisdictions and/or create a potential split among the Circuits that may need to be resolved by the Supreme Court.

Although there are not many recent Circuit Court decisions addressing RICO claims in the context of a corporate campaign, the principle upon which the Third Circuit’s ruling was based—that a union may use coercive labor actions to attain legitimate objectives—has been discussed by many Circuit Courts, including the Fifth Circuit and the Eighth Circuit.  In a somewhat analogous situation to a corporate campaign, where a labor organization’s extortionate conduct at issue included nonviolent “threats of slowdowns” and violence, the Second Circuit upheld a jury instruction that the Hobbs Act “does not apply to labor disputes in which workers seek to obtain lawful and legitimate labor objectives” and stated the use of violence does not violate Hobbs.  See United States v. Mulder273 F.3d 91, 104 (2d Cir. 2001).  Only time will tell whether other Circuits adopt this principle in the context of RICO claims, which is an important counter-attack for Employers in response to aggressive and illegal Union corporate campaign tactics.

We will continue to monitor this case and whether the Company intends to petition the Supreme Court, and we will track the impact of this development in subsequent decisions.  We will keep you posted!

 

 

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