NLRB Broadens Limits on Employers' Right to Permanently Replace Economic Strikers

Practical Law Legal Update w-002-5379 (Approx. 6 pages)

NLRB Broadens Limits on Employers' Right to Permanently Replace Economic Strikers

by Practical Law Labor & Employment

Background

American Baptist Homes of the West (American Baptist) operates a continuing care facility in California. A unit of 100 nonprofessional employees were party to a collective bargaining agreement (CBA) with the union, effective March 2007 to April 2010. On August 2, 2010 approximately 80 workers went on strike after the parties were unable to agree on issues of health care, pensions, and disciplinary policies. Before going on strike, the union sent American Baptist a letter on July 9 advising that all of the striking workers unconditionally offered to returned to work on August 7.

To cover the strike, American Baptist extended temporary employment offers to 60 to 70 employees (provided by a staffing agency) committed to work at least through August 5. However, between August 3 and August 6, American Baptist made approximately 44 offers of permanent employment to replace the striking employees.

On the final day of the strike (August 6), American Baptist began contacting employees who had been permanently replaced, notifying them of their status and informing them that they would be placed on a preferential rehire list. When asked by the union's attorney why American Baptist was permanently replacing the employees rather than locking them out, American Baptist's attorney replied that American Baptist:

"wanted to teach the strikers and the union a lesson. They wanted to avoid any future strikes, and this was the lesson that they were going to be taught."

On August 7, 50-60 striking employees scheduled to work that day reported to American Baptist, consistent with the unconditional offer to return to work included in the union's July 9 letter to American Baptist. At that time, American Baptist's security guards advised the employees that only some of them were permitted to return. Others were told they were permanently replaced and would be placed on a preferential rehire list.

The General Counsel argued that:

American Baptist violated Sections 8(a)(1) and 8(a)(3) of the NLRA by permanently replacing, failing to reinstate, or belatedly reinstating, striking employees to prevent them from exercising their rights under the NLRA.
American Baptist's decision to permanently replace the striking employees was motivated by an "independent unlawful purpose" under Hot Shoppes, Inc. (146 N.L.R.B. 802 (1964)).

The Executive Director of American Baptist:

Testified that she hired the permanent replacements because American Baptist could not afford to repeatedly engage the staffing agency if the unit employees decided to engage in future work stoppages, and that the cost of the initial temporary employees had been $300,000.
Conceded on cross-examination that it would have cost American Baptist less ($250,000 over three years) to fully implement the union's proposals on the remaining issues of contention.

The administrative law judge (ALJ):

Rejected the General Counsel's argument, finding that an "independent unlawful purpose" is established only when an employer's hiring of permanent replacements is "unrelated to or extraneous to the strike itself."
Concluded that American Baptist's motivation for permanently replacing the strikers (to teach them "a lesson" and ensure they would not strike again) was:
- related to the underlying strike; and
- therefore did not constitute an "independent unlawful purpose" under Hot Shoppes.

Outcome

The Board majority (Chairman Pearce and Member Hirozawa) reversed the ALJ, holding that American Baptist's:

Permanent replacement of the strikers was for an independent unlawful purpose.
Delay in reinstating certain strikers and refusal to reinstate others violated Sections 8(a)(1) and 8(a)(3) of the NLRA.

The Board began by describing workers' right to strike for economic purposes and an employer's right to replace economic strikers under certain circumstances, noting that:

Because employees have the right to strike in support of economic demands, an employer violates Section 8(a)(3) by failing to immediately reinstate these employees on their unconditional offer to return to work (NLRB v. Allis-Chalmers Mfg. Co., 388 U.S. 175, 181 (1967)).
In certain situations, however, an employer may establish a "legitimate and substantial justification" for failing to reinstate striking employees by showing that the strikers' positions have been filled by permanent replacements (NLRB v. MacKay Radio & Telegraph Co., 304 U.S. 333, 345-346 (1938)).
However, an employer's permanent replacement of strikers is unlawful if the employer was motivated by "an independent unlawful purpose" (Hot Shoppes, Inc., 146 N.L.R.B. 802, 805 (1964)).

The Board then interpreted the phrase "independent unlawful purpose" and held that it:

Does not require that the unlawful purpose be unrelated or extrinsic to the parties' bargaining relationship or the underlying strike to fall within the Hot Shoppes exception.
Includes an employer's intent to discriminate or to encourage or discourage union membership (see NLRB v. Erie Resistor Corp., 373 U.S. 221, 234-236 (1963); RGC (USA) Mineral Sands, Inc., v. NLRB, 281 F.3d 442, 450 (4th Cir. 2002); Movers & Warehousemen's Assn. of D.C. v. NLRB, 550 F.2d 962, 966 (D.C. Cir. 1977)).

The Board concluded that American Baptist:

Hired the replacement workers for an independent unlawful purpose.
Violated Sections 8(a)(1) and 8(a)(3) of the NLRA by delaying its reinstatement of certain strikers and refusing to reinstate others.

In his dissent, Member Miscimarra noted his disagreement with the majority's interpretation of "independent unlawful purpose," which he argued reads "independent" out of the phrase entirely. According to Miscimarra, the majority's decision:

Effectively overrules the central holding of Hot Shoppes, which made an employer's motive in hiring permanent replacements irrelevant.
Invalidates an economic weapon that the Supreme Court declared lawful more than 75 years ago in MacKay Radio.
Improperly changes the balancing of interests among employees, unions, and employers that Congress struck in the NLRA.

Practical Implications

The Board's decision in American Baptist Homes is one of the few post-Hot Shoppes Board decisions to consider the meaning of "independent unlawful purpose" and further limits an employer's ability to replace economic strikers. An employer must be cautious when permanently replacing striking employees (instead of just using temporary workers for the duration of the strike) to ensure that its reasons for doing so are not unlawful. However, this decision makes it difficult for an employer to permanently replace economic strikers without facing an unfair labor charge, as the employer now has to defend itself against the inevitable argument that its motivation was to punish the strikers or discourage striking.

UPDATE: On August 24, 2016, the Board denied the Respondent's motion for reconsideration, finding that the Respondent did not identify any material error or demonstrate extraordinary circumstances warranting reconsideration under Section 102.48(d)(1) of the Board's Rules and Regulations. (Am. Baptist Homes of the West, 364 N.L.R.B. No. 95 (Aug. 24, 2016).)

NLRB Broadens Limits on Employers' Right to Permanently Replace Economic Strikers | Practical Law