NLRB Erred in Finding No Sound Arguable Basis for Company's Severance and Vacation Pay Calculations: Fifth Circuit | Practical Law

NLRB Erred in Finding No Sound Arguable Basis for Company's Severance and Vacation Pay Calculations: Fifth Circuit | Practical Law

In Hallmark-Phoenix 3, LLC v. NLRB, the US Court of Appeals for the Fifth Circuit held that the National Labor Relations Board (NLRB) erred in finding that an employer lacked a sound arguable basis for withholding carryover vacation pay due to terminated union employees under a collective bargaining agreement (CBA) and for not including a "lead pay" wage differential in certain employees' severance pay.

NLRB Erred in Finding No Sound Arguable Basis for Company's Severance and Vacation Pay Calculations: Fifth Circuit

by Practical Law Labor & Employment
Published on 05 Apr 2016 • USA (National/Federal)
In Hallmark-Phoenix 3, LLC v. NLRB, the US Court of Appeals for the Fifth Circuit held that the National Labor Relations Board (NLRB) erred in finding that an employer lacked a sound arguable basis for withholding carryover vacation pay due to terminated union employees under a collective bargaining agreement (CBA) and for not including a "lead pay" wage differential in certain employees' severance pay.
On March 24, 2016, in Hallmark-Phoenix 3, LLC v. NLRB, the US Court of Appeals for the Fifth Circuit held that the NLRB erred in finding that an employer lacked a sound arguable basis for:
  • Withholding carryover vacation pay due to terminated union employees under a collective bargaining agreement (CBA).
  • Not including a "lead pay" wage differential in terminated lead employees' severance pay.
The Fifth Circuit upheld the NLRB's findings that the employer committed an unfair labor practice (ULP) by unilaterally modifying its CBAs with two unions, holding that the employer did not have a sound arguable basis when it refused to:
  • Pay severance to terminated employees of two unions.
  • Include a lead pay premium in the accrued vacation pay for employees of one of the unions.
( (5th Cir. Mar. 24, 2016).)

Background

Hallmark, a contractor providing services to the US Air Force, had CBAs with two separate unions, the Transport Workers Union (TWU) and the International Alliance of Theatrical Stage Employees and Motion Picture Technicians, Artists and Allied Crafts (IATSE). After losing its contracts with the Air Force, Hallmark laid off each of the union's employees working at Hallmark's facilities. The unions filed ULP charges with the NLRB alleging that Hallmark violated the NLRA by unilaterally modifying the CBAs to avoid paying:
  • Severance pay.
  • Accrued vacation pay.
  • A lead pay wage differential in the severance and accrued vacation pay due to "lead employees."

Severance Pay

Although the Air Force remitted to Hallmark severance pay for Hallmark's former employees, Hallmark refused to pay out the money to the former employees. On severance pay, the IATSE CBA provided that:
"[a]ny employee with more than 6 months of continuous service credit, who has established seniority, shall be entitled to severance pay when involuntarily laid off because of lack of work for a period in excess of 30 days . . .No employee shall be entitled to severance pay in cases where such layoff is due to fire, flood, explosion, bombing, earthquake or Act of God, causing damage at locations where work is performed under this agreement, or from strikes or work stoppages resulting in the inability to maintain normal operations."
The TWU CBA contained similar severance pay language.

Accrued Vacation Pay

The TWU CBA provided the following about accrued vacation pay:
"[A]n employee who has completed his probationary period shall be paid for his accrued vacation upon termination of employment with the Company, except that he shall not be paid for such vacation if he has been discharged for a cause involving monetary or material loss to the Company."
The TWU CBA also allowed for "carry over" of unused vacation hours (subject to a maximum of 180 hours) but provided that "[c]arry over does not apply if [Hallmark] is not the successful contractor for the rebid of VOM Contract."
The IATSE CBA contained similar accrued vacation pay language.

Lead Pay

Both CBAs required that Hallmark pay employees performing "lead" functions an additional $1.50 per hour above their regular straight-time base rate. The TWU CBA provided that:
"Any employee selected by Management to perform a lead function shall receive $1.50 per hour in addition to his regular straight-time base rate of pay for all hours worked as lead. If an employee performs as a lead for 30 days or more and is off on holiday, vacation or sick leave, he shall continue to receive lead pay . . . The Lead category is in direct association with a specific job assignment. Once an employee is placed in the Lead category, he retains it so long as the Company's requirement for a Lead continues. Should the requirement cease to exist or the employee vacates the assignment for any reason, he is no longer a Lead."

NLRB Proceedings

The NLRB did not defer the predominantly CBA-interpretation matter to arbitration because Hallmark refused to permit the arbitrator to rule on the bargaining-related ULP charges. Ultimately, the NLRB held that Hallmark:
  • Unlawfully modified the CBAs.
  • Had no sound arguable basis under the terms of the CBA to:
    • refuse to pay severance;
    • refuse to pay all accrued vacation pay due to TWU-represented employees;
    • exclude the lead pay wage differential from the severance and accrued vacation for lead employees;
    • include waiver-of-claim language in final paychecks; or
    • decline to deduct and remit union dues from IATSE's accrued vacation checks.
Hallmark petitioned for review and the NLRB cross-petitioned for enforcement in the Fifth Circuit.

Outcome

The Fifth Circuit granted:
  • Hallmark's petition for review as to the NLRB's holdings on Hallmark's refusal to:
    • pay out carry-over vacation to laid-off employees; and
    • include lead pay premiums in TWU-represented employees' severance pay calculations.
  • The NLRB's petition to enforce its order that Hallmark pay:
    • severance to the laid off employees; and
    • laid off TWU-represented employees for accrued vacation with lead pay included in the calculations of accrued vacation.
The Fifth Circuit held that:
  • The NLRB had discretion not to defer to arbitration because Hallmark had not clearly indicated that it was willing to have the dispute with the union resolved in arbitration.
  • The NLRB did not abuse its discretion when it exercised jurisdiction to decide the matter because an employer's failure to adhere to CBA terms can constitute a unilateral contract modification giving rise to a ULP.
  • Hallmark had a sound arguable basis for not including lead pay premiums in severance pay for TWU lead employees because:
    • the TWU CBA was silent regarding inclusion of lead pay premiums in severance payments, while it expressly addressed incorporating lead pay into payment calculations into other CBA provisions about employees who were "currently working," including sick leave, holidays, and vacation; and
    • the NLRB failed to support its contrary position that lead pay premiums must be included in severance pay calculations with a cite to a specific provision in the TWU CBA requiring that or evidence that Hallmark had a past practice of including it in those calculations.
  • Hallmark had a sound arguable basis for refusing to pay out carry-over vacation to laid off TWU-represented employees because:
    • Hallmark's argument relying on the TWU CBA carryover language (that carry over did not apply because Hallmark was "not the successful contractor for the rebid of VOM Contract") was not implausible;
    • the process that led the Air Force to cancel its contracts with Hallmark and in-source the work that Hallmark previously performed could be viewed as "akin to the normal rebid process" and therefore the carryover language from the TWU CBA could be applicable; and
    • the wording of the rebid clause suggested that the parties did not account for the possibility that the Air Force might in-source the work and did not intend to preclude the clause from applying if Hallmark lost the contract due to in-sourcing, as opposed to the Air Force contracting with another outside bidding company.
  • Hallmark lacked a sound reasonable basis for deeming the IATSE-represented employees terminated rather than laid off and denying them severance payments ordinarily owed to laid-off employees under the CBA because:
    • the Air Force's cancellation of the contract could not reasonably be interpreted to be a "work stoppage" causing job losses. The context in which work stoppage was used, in the same sentence as strikes, precluded such a generic understanding of "work stoppage" from being read into the CBA;
    • the commonly used meanings of termination and layoff overlap and the IATSE CBA does not distinguish, and actually conflates termination and layoff; and
    • Hallmark's demand for and collection of funds from the Air Force for prospective severance payments owed under the CBAs related to the cancellation of the contract belied its understanding that the cancellation would cause layoffs requiring the severance compensation the unions demand. Hallmark's refusal to distribute severance payments from the funds collected from the Air Force suggested that Hallmark acted with bad faith away from the collective bargaining table.
  • Hallmark failed to preserve, and therefore waived, arguments supporting its decision to withhold severance pay from the TWU-represented employees by not raising them to the NLRB in earlier proceedings (see 29 U.S.C. § 160(e) and Woelke v. Romero Framing, Inc. v. NLRB, 456 U.S. 645, 666 (1982)).
  • Hallmark lacked a sound reasonable basis for withholding the lead pay wage differential in TWU lead employees' accrued vacation pay. Hallmark's past practice of including lead pay premiums in pay outs for accrued vacation undercut any argument that language in the TWU CBA suggested that the parties agreed that lead pay premiums would apply to vacation payment calculations only for employees who were "currently working."
  • Hallmark waived any arguments it had about the inclusion of lead pay premiums in IATSE-represented employees severance and vacation pay.
  • Hallmark did not render moot the NLRB's ULP holdings about its including waiver-of-claim language in employees' final pay checks or failing to deduct union dues from those checks. Based on this decision and the court's enforcement of part of the NLRB's order, Hallmark must make additional future payments to laid-off employees. Hallmark's disavowal and efforts to correct ULPs from prior payments do not moot the NLRB's order to cease and desist from including similar waiver language and declining to deduct union dues as they bear on the future payments.
The Fifth Circuit noted that:
The Fifth Circuit remanded to the NLRB only for purposes of calculating:
  • The accrued vacation pay for TWU-represented employees.
  • The severance pay for TWU-represented lead employees, taking account of the lead pay wage differential.

Practical Implications

The Fifth Circuit's decision in Hallmark Phoenix illustrates how circuit courts expect the NLRB to analyze CBAs when evaluating hybrid breach of CBA and bargaining ULP cases. The case is relevant because it involves interpretation of premium pay, severance payments and accrued vacation pay-out terms which are commonly found in CBAs. It is more relevant to employers to understand how the NLRB interprets CBA clauses and how circuit courts will review NLRB interpretations in this era when the NLRB will defer less frequently to arbitrators' interpretations of CBAs (see Legal Updates, NLRB Sets New Arbitration and Grievance Settlement Deferral Standards and NLRB General Counsel Releases Playbook for NLRB Regions Addressing Deferral Issues Following Babcock & Wilcox Construction).