The Buffalo News has an article that shows that unionization is not the rainbows and unicorns that organizers promise.   The story involves the Ironworkers organizing of a company call Wendt Corp.  Over a year ago, Wendt’s employees voted in favor representation by the Ironworkers.  But, Wendt and the union still have yet to agree on a contract.  As we often tell employees thinking about organizing, voting in favor of the union and receiving the benefit of what the organizers promises are different things.  An affirmative vote means only that the employer must bargain in good faith with the union.  It does not mean the employer is forced to sign a collective bargaining agreement containing all of the goodies the union promises employees.

The article also shares some important statistics.  According to Cornell University:

reaching a first contract took an average of 378 days. Research showed 40 percent of contracts were settled within a year, 63 percent within two years, 70 percent within three years and 75 percent within four years.

That means a whopping 60% of union elections took over a year to result in a contract. It also means 25% (1 in 4) still had no contract in four years.  Why is that important to your employees?  Because while negotiations are ongoing, Section 8(a)(5) of the National Labor Relations Act prevents any changes in benefits.  That means no wages increases or other raises during that time period.  For Wendt’s employees, this means they have not appreciated the benefits of rising wages that other employees in the construction industry have seen. If I told you had a 1 in 4 chance of not getting a raise for four years if you did something, would you do it?   Not surprisingly, 20% of Wendt’s employees have left or retired.  They no doubt realized that in a tight labor market they could make more money elsewhere while not being beholden to the union’s negotiations.

What the article doesn’t say is if given the chance to do it over again, would Wendt’s employees vote for the union?  My suspicion is they would not.  And, neither would your employees if they knew that after a vote for a union money does not rain from the sky.

 

Bad omen. Last week, I wrote about a Appeals Court decision that affirmed a contractor’s escape from an over $600,000 withdrawal liability assessment from the Laborers Union.  The next day the Third Circuit (which covers PA, NJ, and DE) handed down a decision affirming a federal court’s decision to assess withdraw liability.  This one shows the dark side of not reading and understanding your CBA.

The belligerents in the litigation were, Penn Jersey, a construction material supplier, and Teamsters Local 676.  Their collective bargaining agreement contained a clause purportedly covering withdrawal liability.  Specifically, the clause stated “should the Employer withdraw from the Agreement in the future, there will be no withdrawal liability.  The CBA expired and Penn Jersey did not renew its agreement with the Teamsters.

The Teamsters Pension Fund later notified Penn Jersey that the company had incurred withdrawal liability amounting to $961,281.59—more than half of which had accrued after Penn Jersey withdrew from the Fund.  The Fund sued Penn Jersey, Penn Jersey sued the Teamsters (the Pension Fund and the Union are separate entities).  Penn Jersey argued that  the CBA absolved the company from making payments to the Fund and that responsibility for doing so shifted to the Local. (Sound familiar).  Importantly, Penn Jersey maintained that the withdrawal liability clause remained operational even after the expiration of the CBA.  Thus, Penn Jersey argued that the clause have it perpetual protection from any withdrawal liability.

The District Court granted summary judgment to the Teamsters and Penn Jersey appealed.  On appeal, the Third Circuit affirmed.  The Court reasoned that ordinary principles of contract interpretation should apply generally to collective-bargaining agreements. The Court then stated “[o]ne traditional principle of contract interpretation is that ‘contractual obligations will cease, in the ordinary course, upon termination of the contract.  The Court held that the Supreme Court noted that “an expired bargaining agreement has by its own terms released all its parties from their respective contractual obligations, except obligations already fixed under the contract but as yet unsatisfied.” 

Against this backdrop, the Court held that the CBA in question did not contain a “survival” clause—a provision which explicitly indicates which duties or obligations will continue beyond the life of a contract, and how long those obligations or duties are to endure.  The Court also ruled that the clause was silent on whether its duties and obligations continued past the life of the agreement.

The Takeaway

You have to feel for Penn Jersey who no doubt thought it was free to walk away from the CBA without recourse.  However, as we saw in last weeks post, the drafting of language of a CBA demands precision.  In this instance, that lack of precision swung in favor of the union.  Sadly, had Penn Jersey insisted on clarity with one additional sentence stating that the clause survived termination it would have save itself $1,000,000.

 

Withdrawal liability is a huge issue facing unionized employers.  According to Bloomberg, 93% of the Top 200 largest pension plans are underfunded by a combined $382 billion.  Contractors that withdraw from a multi-employer pension plan can face hundreds of thousands or millions of dollars in assessed withdrawal liability.  However, employers may be able to avoid that liability, plus the legal and consulting fees to fight it, by simply reading their collective bargaining agreement.

In Laborers’ Pension Fund v. W.R. Weis Co., Inc., 879 F.3d 760, 762 (7th Cir. 2018), a contractor escaped an over $600,000 withdrawal liability assessment based on a common ambiguity found in a CBA.  In that case, W.R. Weis was a party to a CBA with the local Laborers Union that required it to contribute to a multi-employer pension plan for each hour worked by Laborers union members.  Gradually, W.R. Weis started assigning work that the Laborers traditionally performed to marble setters, who were covered by a collective bargaining agreement with the Bricklayers Union.  Finally, in 2012, W.R. Weis stopped using Laborers totally and formally terminated its CBA with the Laborers, thereby triggering withdrawal liability.

After the Laborers Union assessed liability, W.R. Weis challenged it under the construction industry exception.  Under that rule, a construction industry employer is liable for withdrawal liability only if “it continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required,” or resumes works within five (5) years after ceasing to do so.

The Union argued that the collective-bargaining agreement required pension-fund contributions for all “employees doing covered work.”  Thus, it did not matter if the employee performing covered work was a Laborers Union member.  In the Union’s eyes, if the work was covered by the CBA a contribution was owed. Conversely, Weis argued that the CBA required contributions only for “hours worked by Laborers [union members]”

The CBA required the Weis to “make a pension contribution of $8.57 per hour for each hour worked by all Employees covered by this Agreement in addition to the wages and welfare payments herein stipulated.”  However, the CBA also stated that Weis “agree[d] to be bound by the Agreements and Declarations of Trust establishing the Laborers’ Pension Fund, as well as any amendments thereto, and agree[d] to be bound by all actions taken by the Trustees of that fund pursuant to the Agreements and Declarations of Trust.”

The Fund trust agreement defined “Employee” “(1) any person “covered by a Collective Bargaining Agreement between an Employer and the Union or any of its local affiliates who is engaged in employment with respect to which the Employer is obligated by the Collective Bargaining Agreement to make contributions to the Pension Fund”; or (2) any person “employed by an Employer who performs work within the jurisdiction of the Union as said jurisdiction is set forth in any applicable Collective Bargaining Agreement or by any custom or practice in the geographic area within which the Employer operates and his Employees perform work.”

The Court explained, the term “Employee” in the collective-bargaining agreement implies that “Fund contributions are only required for employees who are laborers[ ] because the agreement is between [the] employer[ ] and the General Laborer’s District Council of Chicago and Vicinity.”  On the other hand, the Fund documents acknowledges that “Employees” for whom pension-fund contributions are made may well be workers covered by the agreement and anyone who performs work within the jurisdiction covered by the agreement. The Court concluded this created an ambiguity requiring evidence of the course of dealing between the parties to clarify it.

The Union admitted during trial that the Fund does not collect contributions from an employer who has already contributed to another union’s pension fund for the same work.  Thus, although the Bricklayers members were performing work that was within the work jurisdiction of the Laborers, historical practice showed that the Laborers treated the CBA narrowly and required contributions only for work actually performed by Laborers members.  The arbitrator concluded that contributions for work within the gamut  of the CBA were not required because the Laborers Union had not “previously required” contributions for work performed by members of a different union.

The Takeaway

Weis escaped an over $600,000 withdrawal liability not with expensive actuaries and consultants, but by arguing a common ambiguity found in collective bargaining agreements and trust fund documents.  So, whether it be a withdrawal liability assessment or just a demand for fringe benefit contributions, examine your CBA and trust documents first.

 

 

 

 

 

Yesterday, Governor Tom Wolf signed into law House Bill 566 which make major changes to Pennsylvania’s Contractor and Subcontractor Payment Act.  Owners and General Contractors that fail to take head of the changes could face significant financial consequences.

The Pennsylvania Contractor and Subcontractor Payment Act, known as CAPSA or simply the Payment Act, was passed into law in 1994.  The intent was “to cure abuses within the building industry involving payments due from owners to contractors, contractors to subcontractors, and subcontractors to other subcontractors.”  Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 500 (Pa. Super. Ct. 2009).  In reality, abuses still occurred.  While the Payment Act purportedly dictated a statutory right to payment within a certain amount of time and imposes stiff penalties for failure make payment, including 1% interest per month, 1% penalty per month, and reasonable attorneys fees, the language of the Payment Act left recalcitrant contractors with wiggle room.  Particularly, the Payment Act allowed owners and higher tier subcontractors to withhold payment “deficiency items according to the terms of the construction contract” provided it notified the contractor “of the deficiency item within seven calendar days of the date that the invoice is received.”  73 P.S. Section 506.  The problem was that the Payment Act did not expressly state where the notice must be in written, what it must say, and what happened if notice was not given.

The changes to the Payment Act close this and other loopholes.  Here are a summary of the changes:

  1. Contractual waivers.  Parties cannot waive the applicability of the act through contract.  Therefore, any clause in a contract purporting to waive the Payment Act’s applicability is void.
  2. Suspension of work.  Unpaid contractors and subcontractors have always enjoyed a common law right to suspend performance until payment was made.  Now, they also have a statutory right to do so.  Section 5 of the Payment Act ads a subpart (e) which states that an unpaid contractor or subcontractor can suspend performance without penalty if it is not paid.
  3. Written notice of deficiency items.  Owners or contractors seeking to withhold payment must now do so in writing and with a written explanation of its good faith reason for non-payment within 14 days of receiving an invoice that it intends not to pay in whole or in part.
  4. Waiver of defense to payment.  Perhaps the most critical change to the Payment Act is the part that says failure to provide written notice explaining non-payment within 14 days shall constitute a waiver of the basis and necessitate payment in full for the invoice.  As it stands, if notice is not timely and properly provided a contractor or subcontractor could file a complaint, get an admission that written notice was not provided, and move for judgment on the pleading or summary judgment.  In essence, failure to provide the required notice makes an owner or contractor strictly liable.
  5. Retainage.  If retainage is to be withheld beyond 30 days after final acceptance of the work, then an owner or contractor, as the case may be, must provide written notice as required for deficiency items.

The changes take effect on November 12, 2018.  Email me with any questions.

 

Like many areas of federal labor law, there are different rules for construction industry employers.  One major difference is in how employers become unionized.  Typically, under Section 9(a) of the National Labor Relations Act, a union becomes a collective bargaining agent of employees only after a majority of employees show support for union representation.  In other words, the employees chose whether to be represented by a particular union.  However, under Section 8(f) of the NLRA, construction industry employers can chose to become union without any showing of majority support by employees. In fact, construction industry employers don’t need to have any employees at all to sign a “8(f) agreement.”  Thus, these agreements have become known as pre-hire agreements.

Section 8(f) is said to have arisen to address the unique nature of the construction industry where the size of an employer’s workforce can fluctuate from project to project, where projects can be short term in nature, and where employees migrate to different construction industry employers frequently.

The formation of an 8(f) agreement is but one difference between it and a 9(a) agreement.  Another concerns the duty imposed on the employer at the conclusion of the agreement.  Under a 9(a) agreement, that is one where the employees have indicated majority support for the union, after the bargaining agreement expires, an employer has a duty to continue to bargain with the union in good faith for a new agreement.  However, under a 8(f) bargaining agreement, once the agreement expires the employer has no such duty and is free to become merit shop (non-union) or to enter into an agreement with a different union.

Being able to walk away from an 8(f) agreement at its expiration bestows obvious major benefits on an employer and works to the detriment of the union.  Therefore, many Section 8(f) agreements will contain language that attempts to convert them to Section 9(a) agreements by stating that the employer agrees that a majority of its employees support the union.

Last week in Colorado Fire Sprinkler, Inc. v. NLRB, the DC Circuit set forth the parameters of how a Section 8(f) agreement can be converted into a Section 9(a) agreement.  In that case the contractor signed a collective bargaining agreement with a local union.  The Court noted that the agreement was a standard multi-employer agreement negotiated between the local and a multi-employer association, the National Fire Sprinkler Association, which the Court referred to as “cookie cutter.”  As such, the employer did not negotiate any specific terms with the union.  The agreement contained language that stated “the Company acknowledged the Union’s status as the exclusive bargaining representative of its employees pursuant to Section 9(a) of the National Labor Relations Act.”  The contractor renewed the agreement on several occasions until 2010 when the employer did not renew the agreement.  The union then filed unfair labor practice charges against the employer claiming that it had unilaterally changed the terms and conditions of employment and refused to continue contributing to the union’s health and welfare benefit fund.

Both the administrative law Judge and the National Labor Relations Board found that the agreement had been converted into a Section 9(a) agreement.  However, on appeal, the DC Circuit reversed.  In addition to clarifying the test for when an 8(f) agreement is converted to a 9(a) agreement, the Court also took a very pro-worker view of the National Labor Relations Act.

The Court started its opinion by noted that the NLRA is designed to empower the “employees to freely choose their own labor representatives.”  (Its hard for me to write this as I lost a case on appeal in the Third Circuit concerning an 8(f) agreement where I strongly emphasized this point.)  The Court noted that Section 8(f) does not change this simply because it permits the employer to chose whether its employees are unionized or not.  Accordingly, the Court recognized that an 8(f) agreement is to presumed to be an 8(f) agreement – freely terminable by the employer at its expiration – unless there is clear evidence that the employees have independently chosen to convert it into a Section 9(a) agreement.

The Court then held that “‘contract language’and the ‘intent’ of the union and company alone generally cannot overcome the Section 8(f) presumption, and certainly not when ‘the record contains strong indications that the parties had only a section 8(f) relationship.'”  Instead, the record must indicate clear acts by the employees to indicate the desire to convert an agreement, such as signing authorization cards, signing a petition, or informally voting to confirm the union’s majority status.

The Court was clear that the union must present evidence of affirmative employee acts indicating majority support.  In doing so, the Court invalidated the Board’s test that required only that the union offer to show evidence of support.  In sum, the Court held “while an employer and a union can get together to create a Section 8(f) pre-hire agreement, only the employees, through majority choice, can confer Section 9(a) status on a union. So to rebut the presumption of Section 8(f) status, actual evidence that a majority of employees have thrown their support to the union must exist and, in Board proceedings, that evidence must be reflected in the administrative record.”

Takeaways

  • Never sign a Section 8(f) agreement that contains language purporting to claim a majority of employees support the union.
  • At the conclusion of an 8(f) agreement, do not merely accept a claim by a union that they have majority support.
  • While 8(f) agreement can be terminated by an employer at the expiration of the term, most collective bargaining agreements have some mechanism stating how that must be done.  Otherwise, the agreement automatically renews.

 

 

Any merit shop contractor or project owner with a project where merit shop or mixed merit shop / union shop crews are working will eventually deal with some form of union “picketing.”  The term picketing is placed in quotes because its legal definition differs from its colloquial understanding in the industry.  The colloquial term picketing includes a variety of union conduct, such as hand billing, displaying the infamous union rat (or rats), banners, and placards.  What you can and should do in response to union “picketing” depends on the circumstances.

What can the union do?

Generally, peaceful “picketing,” by itself, is not illegal.  Peaceful conduct includes union members handing out flyers (handbilling) to passers by that inform the public of the union’s dispute and displaying a banner or sign “shaming” an owner.  Does this mean that a union is always acting legally when engaging in this type of activity? No, the analysis is fact sensitive but a union’s “peaceful activity” can become illegal if it acts with a secondary intent.

What the union cannot do?

Unions cannot block access to your project, engage in violence, engage in a “mass” demonstration, picket a reserved gate, threaten neutral parties, signal picket, or engage in organizational picket for more than a 30 days (or sometime less).

What should you do?

If the union activity is relatively peaceful (albeit a nuisance) the best approach is to try to ignore it.  You should however keep a record of the activity in case the circumstances become un-peaceful.

What you can do?

If the union’s conduct simply cannot be ignored, then you have a few options.

    A. Set Up Dual Gate

Union’s can protest a labor dispute with the employer who has the ability to hire its members.  Therefore, the carpenters union can protest a labor dispute with a carpentry contractor but cannot protest a dispute with a plumbing contractor.  Picketing aimed a a neutral or secondary party is illegal under the National Labor Relations Act.  On a construction site, there are may different employers working.  The National Labor Relations Board has set up rules to deal with so called common situs picketing.

Under these rules, an project owner can establish a dual gate system.  If the system is established, the union must limit its protest to the gate (entrance) used by the contractor with whom the union maintains a dispute and at the times when the employer is on site.  At a minimum, this is a way to control the location of the picketing.

To establish a valid reserved or dual gate system, owners or contractors must notify the union, post notice of which gate are to be used to the primary contractor and which gate is to be used by the neutral contractors, and, importantly, the gates must be, in fact, used by those parties.  The gates cannot be “tainted.”  In this regard, it is a good idea to keep a record of all those coming and going through each gate.

If the union does not limit its dispute to the location of the primary gate, then it has committed an unfair labor practice and a charge can be filed against it with the National Labor Relations Board.

  B.  Injunctive Relief

Sometimes union activity becomes so unruly that only an order from a Judge can stop it.  (And, sometimes that is not even enough.)  The availability of injunctive relief against a labor union varies from state to state.  However, generally, injunctive relief is limited to situations where the union is engaging in violence, property destruction, mass picketing, or blocking access to a project.  Even in those situations, owners and contractors need to be prepared before they seek emergency relief from the court.  Before requesting injunctive relief, you should:

1.  Gather witnesses to the conduct for the purpose of providing affidavits and potentially testimony in court.

2.  Notify and keep of record of contacting the police to maintain order.  Some states, like Pennsylvania, require that law enforcement be unable to quell the union’s behavior before they will issue an injunction.  In other cases, the police will request that you obtain an injunction before they do anything.

3.  Photograph and record offending conduct.  However, you should not videotape or photograph peaceful conduct.  The National Labor Relations Act prevents you from conducting surveillance of peaceful union activity.  You can record conduct that is violent, blocking entrances, or creating a safety hazard.

4.  Write a letter to the union demanding that they cease and desist the conduct.  Although not technically required for an injunction to issue, because of the extraordinary nature of the remedy, Court will often want you to show that you exhausted all means before seeking relief from the Courts.

 

 Building and Construction Trades Council of Metropolitan District v. Associated Builders and Contractors of Massachusetts Rhode Island, Inc Massachusetts Water Resources Authority v. Associated Builders and Contractors of Massachusetts Rhode Island, Inc, 507 U.S. 218, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993) , affectionately knows as Boston Harbor, is the seminal Supreme Court decision that held that the National Labor Relations Act (“NLRA”) does not preempt government mandated project labor agreements (“PLAs”) if the government entity is acting as a market participant rather than a market regulator.  Boston Harbor has led to many believing that virtually all PLAs are legal when the government agency is a project owner or if the PLA involves a private project.  However, does Boston Harbor really cut that far?

In short, no.  The primary issue in Boston Harbor was one of preemption.  The Supreme Court addressed whether the NLRA preempted state and local laws and ordinances mandating PLAs.  On that narrow issue, the Supreme Court said there is no preemption if the government is acting as a market participant.   What the Court did not address is whether other federal statutes invalidate PLAs.  Specifically, whether PLA’s can run afoul of Section 8(e), the so called “hot cargo” provisions, of the NLRA.

Under Section 8(e) “”[i]t shall be an unfair labor practice for any labor organization and any employer to enter into any contract or agreement, express or implied, whereby such employer ceases or refrains or agrees to cease or refrain from handling, using, selling, transporting or otherwise dealing in any of the products of any other employer, or cease doing business with any other person.”  Virtually all PLAs require any contractor or subcontractor working on the project to sign a letter of assent or that prohibit subcontracting work to any contractor that refuses to sign the letter of assent.  The Courts and the Board have held that such clauses violate Section 8(e) unless the clauses fall within the so called construction industry proviso.

The construction industry proviso states “[p]rovided, [t]hat nothing in this subsection shall apply to an agreement between a labor organization and an employer in the construction industry relating to the contracting or subcontracting of work to be done at the site of the construction, alteration, painting, or repair of a building, structure, or other work.”  Therefore, for the statutory exception to apply there must be two things (a) the counter party to the agreement must be a “construction industry employer” and (b) the restriction must be limited to the site of the work.

But there is a third non-statutory prong that must be met.  Under the Supreme Court’s decision in Connell Construction Company, Inc v. Plumbers and Steamfitters Local Union No 100 8212 1256, 421 U.S. 616, 95 S.Ct. 1830, 44 L.Ed.2d 418 (1975) even if the counter party is a “construction industry employer” they still must have a bargaining relationship with the union.  In that case the Court held that the an agreement between a general contractor and a group of building trade unions violated Section 8(e) because, although Connell was a construction industry employer, the unions did not seek to represent any of the general contractors employees.  Similarly, most, if not all, private project labor agreements that I have reviewed contain an express disclaimer that the agreement does not apply to any employees of the private developer.

On this framework, in 2006, in the Labor Board held that a private project labor agreement between the Glen Falls Building & Construction Trades Council and a private developer of a co-generation electric power plant violated Section 8(e).
Glens Falls Bldg. & Constr. Trades Council & Int’l Union of Bricklayers & Allied Craftsmen, Local Union No. 6 & Int’l Bhd. of Carpenters & Joiners of N. Am., Local Union No. 229 & Int’l Ass’n of Heat & Frost Insulators & Asbestos Workers, Local Union No. 40 & Int’l Ass’n of Bridge, Structural & Ornamental Ironworkers, Local Union No. 12 & Laborers, 350 NLRB 417 (2007).  There, the Board held that because the Building Trades did not seek to represent any of the owner’s employees, the PLA violated Section 8(e) and was not saved by the construction industry proviso.

Finally, may PLAs state they apply to non-construction industry employers, like construction material, ready-mix concrete, and hot mix asphalt suppliers.  These are always invalid because the Board has ruled that Section 8(e) prevent application of the union subcontracting provisions in a PLA to these firms namely because this is work that is not being performed at the “site of construction” and that these firms are not “construction industry employers.”

The Takeaway

If you are a merit shop contractor faced with a private project labor agreement you should consider filing an unfair labor practice charge with the Nation Labor Relations Board, especially with a current Republican majority at the Board.

 

A recent NLRB decision underscores the dangers of improperly operating a double breasted construction firm.  In Rdm Concrete & Masonry, LLC, Collective Concrete, Inc., & Remco Concrete, LLC, Alter Egos & A Single Employer & New Jersey Bldg. Laborers Dist. Council, 366 NLRB No. 34 (Mar. 13, 2018), the Board held that the three respondents, RDM, Collective, and Remco were alter egos of each other and were collectively bound by the terms of the collective bargaining agreement with the Laborers Union.

A. Background

The three charged entities were all owned by members of the same family.  Collective Concrete was owned by Ryan Ciullo.  In 1999, Ryan started Collective.  Collective listed his parents residence as it official place of business.  Ryan’s father Mark owned a separate company, D&M Mansonry.  When Ryan started Collective, Mark was winding down D&M and would assist Ryan with operating collective.  In 2001, Collective signed a Section 8(f) agreement with the Laborers Union.  Thereafter, Collective signed three successor 8(f) agreements with the Laborers.  As suspected, the agreement covered the terms and conditions of Collective employees performing Laborers Union claimed work.

While covered by those agreements, the Laborers Union filed grievances against Collective.  Mark, Ryan’s father, represented Collective at those grievance hearings.  In one matter, an action was initiated in federal court to overturn an arbitration award and Mark signed an affidavit in that case.

In 2007, Mark formed RDM a concrete and masonry firm with no union affiliation.  When he formed RDM, Mark stopped working for Collective.  However, RDM performed the same type of work as Collective and Collective transferred some equipment to RDM.  Ryan does not hold an ownership interest in RDM but was employed by RDM.  Moreover, RDM and Collective shared back office employees, who happened to be Ryan’s wife and mother.  At a certain point, Collective and RDM shared office space.  When Collective ran into financial trouble, RDM transferred $1.6 million dollars to it.

Then in 2014, RDM signed an agreement with the Union.  Circumstances arose that led to a consent judgment being entered in favor of the Union and against RDM and Collective, jointly and severally.

Soon, RDM’s work slowed down.  And, in 2015 Ryan started a new company called Remco, which also performed masonry and concrete work.  Ryan testified that he formed Remco to obtain non-union work.  In 2016, the Union demanded that Remco recognize it as the bargaining agent for its employees under the collective bargaining agreements with RDM and Collective.

B.  The Outcome and Damages.

As expected, the Board found that Collective and RDM were a single employer and Remco was an alter-ego or “disguised continuance” of RDM.  The Board applied its long standing rule that the collective-bargaining agreement of an employer applies to its alter ego, as of the date of the alter ego’s first use of bargaining unit employees. E. G. Sprinkler Corp., 268 NLRB 1241, 1241 fn. 1 (1984).  The Board further ordered that the entities make the employees whole for any loss of earnings or benefits, plus interest compounded daily. That means that Collective, RDM, and Remco could owe huge sums of money.

C.  The Take Aways

  1. Forming a double breasted operation carries huge risks for those that are not prepared to properly organize and operate the two firms.
  2. Forming a non-union entity for the purpose of avoiding bargaining obligations will almost always fail.
  3. Improperly forming a double breasted entities carries with it the potential for huge penalties.

I don’t know much about the Ultimate Fighting Championship (“UFC”).  I don’t follow the sport.  However, I do follow the NLRB dockets and the matter Zubba, LLC d/b/a Ultimate Fighting Championship caught my attention.  After some diligent research (a/k/a googling it), I learned that this case was apparently causing some scuttlebutt in the UFC world.  However, employers in all industries where unionization efforts are prevalent can learn something from the complaint.

The complainant in the case is Leslie Smith.  Ms. Smith is a female mixed martial artist (“MMA”).  She apparently is good enough to have obtained a world wide ranking of #9.  She has fought on the UFC circuit for several years.  In her spare time, Ms. Smith also leads an organization called “Project Spearhead.”  Project Spearhead isan effort to unionize UCF’s fighters.  Among other things, Ms. Smith launched a website www.projectspearhed.com to draw attention to her cause.  Ms. Smith had promoted the website and her unionization efforts through social media, traditional media, and planned on wearing a mouth piece in an upcoming fight to promoted her pro-union webpage.

On April 21, 2018, Ms. Smith was schedule to fight, but her opponent apparently did make weight.  (Louden Swain she was not.)  That fight would have been Ms. Smith’s last fight under her contract with UFC.  Ms. Smith requested that the UCF extend her contract for two more fights in exchange for her fighting a heavier weighing opponent.  UFC declined.  Moreover, UFC notified Ms. Smith that her contract would not be renewed.

The success of Ms. Smith’s case hinges on whether she is an employee or independent contractor.  The National Labor Relations Act protects employees but not independent contractors.  Ms. Smith claims she has been mis-classified as an independent contractor.  The employee v. independent contractor has been a hot issue of late.  The NLRB will apply a eleven (11) factor test known as the right to control test to determine whether Ms. Smith is an employee or independent contractor.  As the Board and Courts have held no one factor is controlling.  But, following the decision in FedEx Home Delivery v. Nat’l Labor Relations Bd., 849 F.3d 1123 (D.C. Cir., 2017), 849 F.3d 1123, 1126 (D.C. Cir. 2017)  whether the “putative independent contractors have significant entrepreneurial opportunity for gain or loss” has become a critical factor.  Smith is vulnerable on this issue.

If I were representing UCF, on cross examination, I would ask Ms. Smith a series of questions concerning this factor, such as, whether she considers herself a brand, whether she hopes to win her fights, whether she hopes that he ranking will improve, and whether she hopes her success will lead to opportunities to derive income from sources other than actual fights (i.e sponsorship and licensing deals).

The Takeaways.

I see two takeaways for employers in industries that are the frequent target of unionization efforts.

  1.  Ignore the Gut Reaction to Rid Yourself of the Problem.

Ms. Smith is claiming she was effectively terminated because of her union activities.  Simply put, under the National Labor Relations Act you cannot retailate against an employee who voices support for unions or unionization.  The complaint underscores the need to treat anyone engaged in a unionization effort careful before terminating them or simply changing their employment conditions.  Even if this was not a motivating factor in UFC’s decision to not renew her contract, the decision could have been a strategic error.

The complaint does not mention whether her Project Spearhead was gaining any traction with other MMA fighters.  Apparently there are 350 UCF MMA fighters.  So, for Ms. Smith’s efforts to go anywhere she would have to obtain signatures from 30% of those fighters or 105.  If Ms. Smith was able to obtain that level of support, then the Board would determine whether the critical issue of whether the fighters are employees, entitled to a union election, or independent contractors, who are not.  Now, as Ms. Smith seems to boast in he complaint, that threshold issue can be decided without her having to first obtain the 105 signatures.

UCF strategic mistake is that they could have effectively dealt with Ms. Smith unionization efforts by keeping her in the fold through carefully crafted PR campaign and other efforts to dissuade fighters from forming a union.  Meanwhile, they could preserve the issue of independent contractor status for a later date and even begin the process of creating a record specifically tailored to address that issue, if and when, the date arrived when it needed to be argued.  If Ms. Smith’s complaint is successful, a future UCF unionization effort becomes much easier.

2.  Call her bluff.

If you are concerned about your company becoming unionized, then you need to look hard at how your are treating your employees and how your are educating them on what it means to be union.  If your are treating your employees well then they are not going to be receptive to the union message. How well you are treating your employees needs to be viewed objectively.  Also, you need to constantly educate your employees why employee free choice is superior to unionization.  The union message is seductive, in part, because the union organizer is a highly trained salesperson and knows what to say to get in the door with your workforce.  However, a properly educated workforce will see the message for what it is, cheap sales talk that the union cannot often back up.