Can a Non-Union Company Be Compelled to Arbitrate?

Some of the most viewed topics on this blog are those concerning double breasted company.  That is a two separate firms, commonly owned, one that is a signatory to a union and the other that is merit shop.

An issue frequently encountered with double breasted construction companies is an union arbitrator’s jurisdiction over the non-signatory firm.  The issue usually goes something like this.  A signatory employer’s collective bargaining agreement contains language prohibiting double breasting (which could be invalid).  The collective bargaining agreement also contains an arbitration provision requiring all disputes concerning a breach of the agreement (a grievance) be decided by an arbitrator in private arbitration.  The union files a demand for arbitration claiming that the union signatory has breached the collective bargaining agreement’s anti-dual shop provision.  The union names the non-union firm as a party to the arbitration based on its status as an alleged “single employer.”

What should the non-union firm do?  It should ignore the arbitration demand or file an action in federal court to obtain a court order prohibiting the arbitrator from taking any action against it.  The law in most – if not all – jurisdictions is that an arbitrator has no jurisdiction over a non-signatory firm.  If the union obtains an arbitration award against the non-union firm, the District Court will vacate that award if the non-union firm requests relief.  The general rule is that only a court can determine whether a non-signatory is bound by a collective bargaining agreement.  Moreover, some courts have held that a court must determine that the union and non-union entities are a single employer before that will happen.  Because a single employer finding is fact sensitive, that cannot be done without discovery.

The take away.  If you own a dual shop firm and receive a demand from the union to arbitrate, you need to review your collective bargaining agreement, be prepared to fight the union, and win.

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5 Construction Law Trends to Watch in 2015

As we enter the New Year, here is a look at 5 areas that will be a hot bed of legal activity for contractors and their attorneys.

1.   Aggressive Union Activity.

Decreasing membership and market share, will cause Big Labor to ramp up efforts to “persuade” public and private owners to use an all union workforce.  This means increased picketing, bannering, and “ratting” of projects using non-union subcontractors.  On public projects, labor will continue to lobby government officials for the use of union only project labor agreements.  Owners and contractors need to be ready to combat labor’s tactics.

Union shop firms must be aware of their contribution requirements under their CBA.  The 2008 stock market crash (from which union pension funds have never full recovered), increasing vested liabilities from an aging workforce, and decreasing membership have lead many union health and welfare funds to be underfunded.  In fact, union pension funds may be the next big Washington bailout.  In the meantime, unions will aggressively pursue delinquent  contractors for contributions to health and welfare funds.

In Philadelphia (and perhaps around the country), eyes will be on jury’s verdict in the Ironworkers extortion trial involving former Ironworkers head, Joseph Dougherty.  A conviction could lead to a wave of indictments against union leaders that have engaged in similar tactics across the country.

2.  Increased Regulation of Contractors.

President Obama’s policy of creating a regulation nation continues unabated.  In 2014, the Obama administration issued 78,978 pages of new federal regulations many which impact contractors.  Any contractor or subcontractor performing work on a project receiving any form of federal funding assistance must be aware of the regulations that apply to them.

3.  Rising Default Rates.

With the federal reserve signaling the era of free money coming to an end, interest rates will rise.  Rising rates will make borrowing costs higher for both owners and contractors. Increased borrowing costs could lead many contractors to fail, especially firms that saw rapid expansion following the recession.  Owners may increasingly default as projects are increasingly difficult to finance.  Moreover, rising rates should slow the rapid increase in asset values, such as real estate.  This could make development projects less attractive leading to many proposed projects being shelved.  Bottom line for contractors, know you lien and bond rights.

4.  Growing Comfort with Public Private Partnerships.

Cash strapped state and local governments will continue to look to public private partnerships (PPP) as a way to fund infrastructure projects.  The success of high profile (and dollar) PPP projects in Florida, Pennsylvania, and Delaware will likely determine if the use of PPP as a source of infrastructure funding will increase in coming years.

5.  Continued Growth in Health Care and Institutional Construction.

Whether you agree with it or not, our current public policy is that everyone has a right to a college degree and healthcare.  Accordingly, the federal government has heavily subsidized higher education and healthcare.  Increased dollars in the hands of administrators in higher education and healthcare has lead to a building boom in these two sectors.  Eventually the music will stop, but in the near term contractors can expect increased work in these areas.

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FAQ’s Regarding “Double Breasted” Construction Companies

The terms “double breasted” or “dual shop” contractor refers two construction firms often sharing common ownership one of which is a signatory to a collective bargain agreement (the union firm) and the other that is not (the open shop firm).  Here are some frequently asked questions I have received in counseling clients who either already operate or are contemplating establishing a double breasted operation.

1.  Are Double Breasted Operations Legal?  

Yes.  The National Labor Relations Act (“NLRA”) does not prohibit double breasted operations outright.  However, the NLRA does prohibit an employer from interfering with employees’ collective bargaining rights and refusing to collectively bargain with the union representing the employees. Therefore, if the double breasted operation is not properly established, the National Labor Relations Board (“NLRB”) will treat the two entities as the same and, accordingly, the NLRB will impose liability on the union entity for violating the NLRA’s prohibitions on interfering with collective bargaining rights.

2.  Can Both the Union and Non-Union Entity Share Common Ownership?

Yes.  A common misconception is that common ownership invalidates a double breasted operation.  Accordingly, contractors will go to great length to conceal the common ownership of the union and non-union entities.  But, they do not have to.  While common ownership is certainly a factor in determining whether the union and non-union firm should be treated as one in the same under the NLRA (or a collective bargaining agreement), it is not conclusive.  In other words, courts do not simply look to common ownership in determining whether a legitimate operation exists.  In fact, both the NLRB and the courts have repeatedly held that common ownership alone is not dispositive of whether a single employer exists. 

Under the single employer test, NLRB uses four criteria in determining whether the entities are legitimately separate or whether they are actually a “single employer:” (a) interrelation of operations; (b) centralized control of labor relations; (c) common management; and (d) common ownership of financial control.  No one of these factors has been held to be controlling.  In fact,  the Board has stressed the first three factors, which go to show ‘operational integration,’ particularly centralized control of labor relations, are the most important. Therefore, even if both entities of the double breasted operation are commonly owned, an operation may not violate the single employer test if operations, labor relations, and management are kept separate.  

3.  My Collective Bargaining Agreement Prohibits Me from Going Double Breasted.  Can I still establish a non-union construction firm?

Yes,  but it will depend on the language in your CBA.  So called, anti-dual shop clauses appear in many collective bargaining agreements and aim to prevent a contractor from “double breasting” even when it would be permitted under case law.  Anti dual shop clauses are valid if they are lawful “work preservation” clauses. The lawfulness of a work preservation clause hinges on the amount of control the union contractor has over the non-union contractor’s employees. 

Courts apply a two pronged test to determine whether an anti-dual shop clause is valid. First, the agreement must seek to preserve work traditionally performed by employees represented by the union. Second, the contracting employer must have the power to give the employees the work in question, which is known as the “right of control” test.  As with the single employer test, control of labor is a key.  If the union entity has no control over the labor of the non-union entity, the anti dual shop clause is invalid on its face against the non-union entity.  Furthermore, because the contracting employer must be able to control the employees in question for an anti-dual shop clause to apply, any operation that passes muster under the single employer test would in theory not be subject to the anti-dual shop clause.

4.  Is there a downside to establishing a double breasted operation?

Yes.  Contractors that do not properly establish and maintain a double breasted operation face significant liability most notably in terms of ERISA contributions.  If the non-union entity is not properly separated, the firm could own union health and welfare funds benefits for employees whether those employees are union members or not.  This is due to the union security clause in the CBA that the union firm signed and because the CBA also will contain a provision that all employees become members of the union after a certain period of time.  This potential liability should not be taken lightly because the potential ERISA liability could easily reach in the several hundreds of thousands of dollars or more.

The takeaway – there is a tremendous opportunity for construction firms wishing to open a firm that is not bound by the labor rates contained in a collective bargaining agreement.  But that opportunity does not come without risks if the proper steps are not taken.

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Update: Cement Workers Ordered Back to Work

Crain’s New York Business is reporting that an arbitrator has ordered striking concrete workers back to work on four sites covered by project labor agreements (“PLA’s”).  In my previous post, I discussed how these workers were violating the terms of the PLA’s No Strike/Work Stoppages Clause.

Despite the Cement Union’s decision to ignore the clear terms of the PLA and go on strike, the Real Estate Board of New York still finds value in them:

“When we got the [project labor agreement], the main thing we got out of it was the no-strike clause,” said Mr. Spinola said. “The fact that we had the PLA and enforced it, and they’re back working today demonstrates there was a value to the PLA.”

Moreover, although it is reported that workers have honored the arbitrator’s ruling and returned to work on some sites, the Union plans to appeal the decision.  According to Crain’s:

“A source close to the building trades said the Cement and Concrete Workers District Council would appeal the ruling. The source said the union’s counsel was not properly notified about Tuesday’s hearing and therefore did not know about it in time to show up. Had officials known about the hearing, they would have argued that the no-strike provision was no longer in effect because the workers’ contract expired at the end of June.”

I will continue to monitor this interesting story.

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Thou Shall Not Picket the Sabbath: More Fallout from Brandon Medical Center

As promised, I am back blogging on construction (however, my previous posts will not be the last your hear about hard money lending).

In a previous post, I discussed the scuttlebutt surrounding NLRB’s decision in Brandon Medical Center, which blessed the use of large inflatable rats to protest a secondary employer’s decision to hire a non-union contractor.  Based upon the Board’s Brandon Medical Center, and earlier decisions in Eliason, Silverline Construction, and Forcine Concrete & Construction Co., Inc., I predicted that short of outright thuggery, it would be difficult to imagine what conduct the Board would deem coercive.  A recent General Counsel advice memorandum shows that my prediction may be coming true.

In Abestos, Lead, & Hazardous Waste Laborer’s Local 78 (Midway Jewish Center),  Local 78 picketed the Midway Jewish Center using an inflatable rat and hand-billing after the Center’s general contractor hired a merit shop asbestos abatement contractor.  The Rat held a sign that encouraged the public to call the Center’s rabbi to chastise him for allowing a merit based firm on site.  Expectantly, the General Counsel advised the Regional Director that following the Board’s decision in Brandon Medical Center that the union’s action did not violate Section 8(b)(4)(ii)(B). Never mind that the the picketing, including handing handbills to worshipers coming to the Center , continued during passover and on Saturday (which the Board’s memo reminds readers is the “Jewish Sabbath,” as not to be confused with other Saturday Sabbaths). A copy of the Midway Jewish Center case is available here.  Midway Jewish Center.

Seriously, can the union really argue that it was engaged in expressive activity directed to the public?  And, would it have really hurt Local 78 if they gave picketing a rest during Passover?  Of course not, because the Local’s goal was not to influence the public, rather it was to harass those going to worship, who had little — if anything — to do with the selection of the merit shop asbestos abatement firm.  

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Unions Challenge Iowa PLA Ban

According to the Des Moines register, two union trade organizations have sued Iowa Governor  Terry Branstad and 10 other elected officials over Governor Branstad’s executive order banning Project Labor Agreements on Iowa Public Projects.  A copy of the Executive Order can be downloaded here:  Iowa PLA Executive Order

The Complaint challenges the removal of PLA’s from the bid specification on two state projects pursuant to the Governor’s Executive Order.  A copy of the complaint is available here:  Central Iowa Building and Construction Trades, et. al. v. Terry E. Branstad, et. al Interestingly, the Unions allege that the National Labor Relations Act preempts the Governor’s Executive Order.  This argument is typically one that is used by opponents of PLA’s seeking to invalidate them.  It is also an argument which Federal Court’s have routinely denied.  Indeed, recently, the Supreme Court declined to review a 9th Circuit Opinion which refused to strike a PLA as preemepted under the NLRA.

Perhaps the best argument the unions make is that PLA’s are binding contracts requiring them to be utilized once the public entity executes it.  The complaint does not attach a copy of the PLA in question.

As PLA’s face increased scrutiny from cash strapped state and local governments, it will be interesting to see how this case plays out.    Stay tuned.

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