LMRA Bars Employer from Paying Salaries to Non-working Union Officials: Seventh Circuit

Practical Law Legal Update 0-548-2545 (Approx. 6 pages)

LMRA Bars Employer from Paying Salaries to Non-working Union Officials: Seventh Circuit

by Practical Law Labor & Employment

Background

In Titan Tire, the employer entered several labor agreements with a local union of the United Steel Workers, including a CBA requiring that it continue, as its predecessor company had, to pay the full salaries of the local union's president and benefit fund representative. Both of these individuals were on a leave of absence from Titan's predecessor company and performed no work for Titan. Rather, they worked exclusively for the union, which represented employees at Titan and a local school district. After more than two years of making direct salary payments, Titan stopped paying the salaries of the union officials alleging that the practice violated the Section 302(a) ban on employers paying union representatives. The union filed a grievance against the employer for violating the parties' CBA, past practices and other memorandum agreements.

The arbitrator ordered the employer to reinstate the union officials' salary payments, finding that they fell under an exception to Section 302(a) found in Section 302(c) for payments made "by reason of" the union officials' former employment and were further validated because they were required by the parties' written agreements in collective bargaining and past practices. The employer filed suit in district court to vacate the arbitrator's award, the union counterclaimed for enforcement and both parties moved for summary judgment. The district court granted the union's motion and enforced the arbitration decision. The employer appealed.

Outcome

A divided Seventh Circuit reversed the district court's decision and vacated the arbitration award because it required payments that explicitly violated public policy. The majority acknowledged that:

Appellate courts interpret Section 302(c)'s "by reason of" exception as permitting employers to provide union officials with vested fringe benefits based on their prior service to an employer.
Seventh Circuit precedent permitted former employees to receive compensation, such as pension service credits, while they are working exclusively for a union for brief periods, if that compensation was commensurate with their former employment (Toth v. USX Corp.)
The Third Circuit, in a divided en banc decision interpreted Section 302(c)'s "by reason of" exception as permitting payments similar to the ones in this case chiefly because:
- the union officials who received the payments could not have been elected to their positions if they had not first been employees of the employer;
- the governing CBA required the payments; and
- the payments did not frustrate the intent of Section 302(a), which is preventing employer bribes to unions.
  (Caterpillar, Inc. v. United Auto Workers.)

The majority rejected the Caterpillar majority's analysis of LMRA Section 302, found the Caterpillar dissenting opinions' analyses persuasive and concluded that the Section 302(c) exception did not make the payments ordered by the arbitrator in this case permissible under the LMRA. In particular the majority found that:

The salary payments differed from payments of vested fringe benefits to former employees currently serving as union officials permitted by various appellate courts under Section 302(c), because the salaries were not vested compensation related to prior work for Titan Tire.
The incremental accrual of years of service credits for the short period employees went on leave to serve as union officials permitted under Section 302(c) in Toth differed in degree from the long-lasting substantial salaries the union officials received here.
The salary payments were so incommensurate with the union officials' former employment at Titan Tire that they could not be for, or by reason of, that former employment. In particular the court observed that:
- the union officials would receive full-time salaries (equivalent to 40 and 60 hours per week at the highest hourly wage earned by any union-represented worker at Titan Tire), not tied in any way to the nature or duration of their prior service for Titan Tire. They would be paid as long as they served as elected union officials; and
- the salary payments to the union officials were for current service to the local union. The officials received no compensation from the union (or the local school district where other union members worked) even though they spent all of their time working for the union, simultaneously representing Titan employees and employees in a local school district in collective bargaining and CBA administration.
It is illogical to hold that a suspect payment under LMRA Section 302 is lawful because it was the product of collective bargaining or memorialized in a CBA. Section 302 prohibits agreeing to make payments to union officials and one illegal act should not cleanse another's illegality.
Although Congressional intent is not necessary to interpret clear statutory provisions, the Third Circuit erroneously interpreted the Section 302(c) exception too broadly because it interpreted the intent behind Section 302(a) too narrowly. Congress also intended that Section 302(a) prevent conflicts of interest. Here, the union officials controlled negotiations about their own compensation, and could potentially leverage agreement on less desirable bargaining unit member's terms and conditions of employment for better union official compensation. In addition, since union members could run for union official posts but non-member bargaining unit employees could not, the union officials' compensation terms in the CBA caused differential treatment of union and non-union bargaining unit members, an unfair labor practice under the NLRA.

The majority reconciled its opinion with precedent from other circuits by distinguishing those cases on their facts. In particular, the majority noted that this decision does not conflict with precedent holding that employers may pay salaries to union officials who continue to perform some work for them. The court noted that its analysis squares with opinions upholding payments of union officials who remain company employees from the US Court of Appeals for the:

Second Circuit, which upheld a CBA provision permitting union shop stewards to abandon their assigned work for portions of the day to process union member grievances without losing pay (no-docking provision) (BASF Wyandotte Corp v. Local 227, Int'l Chem. Workers Union).
Ninth Circuit, which upheld the payment of a "full-time" on-site chief shop steward whom the employer could still control as a current employee (Int'l Ass'n of Machinists, Local Lodge 964 v. BF Goodrich Aerospace Aerostructures Group).

A majority of the court declined to rehear this case en banc. Three judges dissented and would have granted rehearing en banc because they anticipate this decision will substantially affect arbitration and labor relations. The dissent found that the majority's opinion:

Is inconsistent with precedent requiring courts to accept the results of arbitration, even if they disagree with the results.
Overturned an arbitration award that was not inconsistent with the LMRA. The dissenting judges asserted that the Third Circuit majority's analysis in Caterpillar was correct.

Practical Implications

The LMRA provides for criminal penalties where employers make unlawful payments including payments to union officials that violate Section 302(a). Circuit courts have rarely interpreted LMRA Section 302, and even less frequently considered whether collectively bargained employer obligations to pay union officials for time they work for their unions are lawful. The Third Circuit's Caterpillar decision provided little guidance to employers and unions, at best suggesting that questionable payments to former employees turned union officials were more likely permitted than prohibited. In Titan Tire, the Seventh Circuit splits from the Third Circuit and takes a broader view of what is prohibited under LMRA Section 302(a) and a narrower view of what is permitted under LMRA Section 302(c)'s exception.

In light of Titan Tire:

Employers with unionized workplaces (and purchasers of companies with unionized workplaces) should review CBAs, other written labor agreements and past practices to assess whether there are any agreements or practices that may be unlawful under the Seventh Circuit's more prohibitive analysis.
Employers that are parties to potentially unlawful agreements or past practices may consider using the decision as a basis for refusing to continue making the payments.
Employers that are asked to include potentially unlawful payment to union official provisions in collective bargaining may consider using Titan Tire as a basis for refusing to agree to those terms.
Employers in the Third Circuit should expect courts to continue applying Caterpillar, but may consider referring the courts in that circuit to Titan Tire when arguing for a new standard is advantageous.

It is likely that the Steel Workers will petition the Supreme Court for certiorari, asking the court to reverse Titan Tire and adopt the more permissive analysis of LMRA Section 302 for employer payments to union officials in Caterpillar. For what it is worth, Justice Alito authored one of the dissenting opinions in Caterpillar when serving as a Third Circuit judge.

Whether or not the Supreme Court considers Titan Tire on appeal, employers should look out for further circuit court interpretations of the LMRA Section 302(c) and the Supreme Court's analysis of Section 302 on the appeal of the US Court of Appeals for the Eleventh Circuit's decision in Mulhall v. UNITE HERE Local 355 (see Legal Update, Employer's Organizing Assistance to Union Can Be a Prohibited Payment of a "Thing of Value": Eleventh Circuit).

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