NLRB Ignored Sound Arguable Basis Test Defense for Unilateral Wage Reduction: Fourth Circuit | Practical Law

NLRB Ignored Sound Arguable Basis Test Defense for Unilateral Wage Reduction: Fourth Circuit | Practical Law

The US Court of Appeals for the Fourth Circuit in NLRB v. Daycon Products, Co. remanded a wage reduction case to the National Labor Relations Board (NLRB) to consider whether an employer had a sound arguable basis for interpreting a collective bargaining agreement (CBA) to allow it to make unilateral wage reductions.

NLRB Ignored Sound Arguable Basis Test Defense for Unilateral Wage Reduction: Fourth Circuit

by PLC Labor & Employment
Published on 04 Mar 2013 • USA (National/Federal)
The US Court of Appeals for the Fourth Circuit in NLRB v. Daycon Products, Co. remanded a wage reduction case to the National Labor Relations Board (NLRB) to consider whether an employer had a sound arguable basis for interpreting a collective bargaining agreement (CBA) to allow it to make unilateral wage reductions.
On February 28, 2013, the US Court of Appeals for the Fourth Circuit issued an opinion in NLRB v. Daycon Products, Co., declining to grant or deny the NLRB's petition for enforcement against an employer that unilaterally reduced eight bargaining unit employees' contractual wage rates. Instead, the court remanded the case for the NLRB to consider whether the employer, Daycon Products Co. (Daycon), had a sound arguable basis for interpreting a collective bargaining agreement (CBA) to allow it to make unilateral reductions.
On August 12, 2011, the NLRB held that Daycon unlawfully failed to engage in collective bargaining required under the NLRA by unilaterally reducing wage rates for the eight employees (see Legal Update, NLRB Holds Employers Who Mistakenly Overpay Employees Cannot Unilaterally Reduce Their Wages). While under a prior CBA, the employer mistakenly gave the employees raises. The employer and the union relied on a wage schedule that included the mistakenly inflated wages in bargaining for a new CBA. When the employer discovered the error two years into the current CBA and the union refused to modify the current CBA to correct the mistake, the employer unilaterally reduced the employees' wages.
A three-member panel (Board) heading the NLRB's judicial functions:
  • Held that the current CBA wage schedule reflected the eight employees' agreed-upon wages, and that once the employer entered into the current CBA, it was barred from unilaterally altering the employees' wages.
  • Ordered the employer to restore the eight employees to the wage levels listed in the current CBA and make them whole for any loss of earnings or other benefits.
The NLRB applied to the Fourth Circuit to enforce the Board's decision. In response, Daycon argued that:
  • An employer may unilaterally correct administrative errors resulting in employees being paid more than required.
  • The Board failed to apply the "sound arguable basis" test, under which the Board ordinarily will not find an unfair labor practice where an employer has a sound arguable basis for its interpretation of a contract and is neither motivated by union animus nor acting in bad faith (Bath Iron Works Corp.).
The Fourth Circuit rejected Daycon's first argument, finding that it cited no authority to show that an employer's mistake under a prior contract term permits employers to later unilaterally modify wage rates in the middle of a subsequent CBA's term. However, the court found that the Board had failed to apply, distinguish or even mention the sound arguable basis test. Although the court acknowledged that it was likely that the Board thought Daycon's interpretation of the CBA was not reasonable, in the absence of any mention of the test, it lacked a basis for sustaining the Board's decision.
Noting that the Board cannot simply ignore its own precedent, the Fourth Circuit declined to grant or deny the Board's petition, and remanded the case to the Board to expressly apply or distinguish the sound arguable basis test.
Court documents: