Discretionary Wage Increases Are Not Terms and Conditions of Employment under the NLRA: DC Circuit | Practical Law

Discretionary Wage Increases Are Not Terms and Conditions of Employment under the NLRA: DC Circuit | Practical Law

The US Court of Appeals for the DC Circuit held that discretionary wage increases granted by the employer after the annual budget review were not terms and conditions of employment that must be maintained before bargaining with thetis employees' union. In Arc Bridges v. NLRB, the DC Circuit found that because budget evaluations were highly discretionary, the employer did not violate Section 8(a)(3) of the National Labor Relations Act (NLRA) by granting a discretionary bonus for employees during union negotiations.

Discretionary Wage Increases Are Not Terms and Conditions of Employment under the NLRA: DC Circuit

by PLC Labor & Employment
Published on 13 Dec 2011 • USA (National/Federal)
The US Court of Appeals for the DC Circuit held that discretionary wage increases granted by the employer after the annual budget review were not terms and conditions of employment that must be maintained before bargaining with thetis employees' union. In Arc Bridges v. NLRB, the DC Circuit found that because budget evaluations were highly discretionary, the employer did not violate Section 8(a)(3) of the National Labor Relations Act (NLRA) by granting a discretionary bonus for employees during union negotiations.

Key Litigated Issues

On December 9, 2011, the US Court of Appeals for the DC Circuit issued its decision in Arc Bridges, Inc. v. NLRB. The DC Circuit granted the employer's appeal and remanded the case to the NLRB for further proceedings. It considered whether the employer:
  • By making semi-regular wage increases, which were given when management found it had "sufficient funds" or that increases were "feasible," were a term and condition of employment.
  • Unlawfully withheld a wage increase for some employees because they recently unionized.

Background

Between 1992 and 2006, each June, management of Arc Bridges, Inc.:
  • Reviewed its finances.
  • Assessed the economic climate.
  • Forecasted expenses and set budgets for the upcoming fiscal year.
In July of six of those 15 years (1997, 1999-2001 and 2005-2006), Arc Bridges provided wage increases to all of its employees. Management used no objective criteria when deciding whether to provide the increases. Rather, it provided wage increases in some of the years it thought that "sufficient funds" were available or it was "feasible."
In 2006 and 2007, some of Arc Bridges's employees voted to be represented by a union. In 2007, while management was negotiating an initial collective bargaining agreement with the union, Arc Bridges's executive director re-examined the company's plan to give an across-the-board wage increase to all employees. The executive director, in light of the union's economic proposals that would increase Arc Bridges's costs above its budget for the next year, decided to not to grant the wage increase and conserve funds, so it could make a counter-offer that met part of the union's demands and . However, after a rash of turnover among nonunion employees, the executive director decided to grant a wage increase in October 2007 to only the nonunionized employees.
The union then filed a charge with the NLRB, alleging:
  • The semi-regular wage increase was a term and condition of the unionized employees' employment.
  • The employer withheld the wage increase only from the unionized employees to discourage union membership in violation of Section 8(a)(3) of the NLRA.
After a trial, an NLRB administrative law judge (ALJ) held:
  • Arc Bridges had made wage increases a term and condition of employment by regularly providing them.
  • There was no evidence that Arc Bridges had withheld the wage increases from the unionized employees because of an unlawful motive rather than for legitimate budget concerns that the employer supported with evidence.
The NLRB's General Counsel appealed the ALJ's decision to the five-member panel (Board) heading the NLRB's judicial functions by filing exceptions. The Board:
  • Affirmed the ALJ's finding that the wage increase was "term and condition of employment" because management consistently, over an eight-year period (1998-2006), reviewed its finances and granted the wage increase when funds were available.
  • Overruled the ALJ's conclusion, holding instead that the employer violated the NLRA by withholding the wage increase to its unionized employees.
  • Ordered Arc Bridges to give back pay to the unionized employees as if they had received the October wage increase that other employees received.
Arc Bridges appealed the Board's decision by filing a petition for review with the DC Circuit. The NLRB filed a cross-petition for enforcement if its decision.

Outcome

The DC Circuit set aside the Board's order and remanded the case for further proceedings. It held that the wage increase was not a "term and condition of employment" but rather a discretionary bonus that Arc Bridges was not required to provide the unionized employees under the NLRA. In particular, this increase was discretionary because management:
  • Used no specific or objective criteria for determining when an increase was appropriate or the amount of an increase.
  • Did not grant the increase in many years, even when funds were available.
  • Had considered granting across-the-board increases after reviewing its annual budget for a much longer period than the Board found and granted the increase less than half the time.
The wage increases in this case were distinguishable from the annual raises based on objective criteria that the DC Circuit found to be conditions of employment in Daily News of Los Angeles v. NLRB (see below).
The DC Circuit also noted that:
  • Several of the Board's findings were not supported by the evidence including:
    • Arc Bridges had reviewed its budget consistently for eight years, but did not grant wage increases consistently for eight years; and
    • the timing of wage increases in July, if granted, was the only consistent routine in Arc Bridge's across-the-board wage increases in the prior 15 years.
  • The Board found a pattern of routine wage increases because it inappropriately selected a small sample size. A two year history of regular wage increases may establish a pattern in cases where there was only a two year history of operations (see below Kurdziel Iron of Wauseon Inc.), but two years (2005-2006) was too small of a sample of a 15 year history here.
  • Management decision to deem wage increases "feasible" or finding that there were "sufficient funds" were not sufficiently objective criteria to make granting them nondiscretionary.
  • The Board could not convert semi-regular granting of discretionary bonuses into routinely granted terms and conditions of employment by tying them to routine annual review of finances and setting of budgets, which were internal management function outside of the NLRB's purview (see below First National Maintenance Corp. v. NLRB). The timing of the bonuses if granted was not a characteristic that could create a term or condition of employment (see below Daily News).

Practical Implications

Employers often consider offering wage increases or bonuses at the end of a fiscal or calendar year. Employers must be aware that under the NLRA, if objective criteria are used to regularly determine whether to provide wage increases and how much of an increase, employers may lose discretion over granting those benefits when a union has requested or won an election to represent the employers' employees.
Employers that want to keep wage increases and bonuses discretionary must consider the factors highlighted in this case and be ready to present evidence of the history of its grants of benefits, if the NLRB alleges that those benefits have become terms and conditions of employment.
Employers should also be aware that if they periodically provide wage increases, bonuses or other benefits on a purely discretionary basis, they generally are prohibited from doing so:
  • In response to union organizing.
  • Before a union election.
  • After a union becomes the collective bargaining representative for the employer's employees.
For more information, please see, Practice Notes, Labor Law: Overview, Union Organization Process and Responding to Union Organizing Campaigns. See also Union Representation Process Checklist, NLRB Union Representation Process Flowchart and Companion Analysis and Subjects of Collective Bargaining Chart.

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