Employers No Longer May Rely on Past Practice of Unilaterally Changing Employee Benefits: NLRB

Practical Law Legal Update w-003-3609 (Approx. 10 pages)

Employers No Longer May Rely on Past Practice of Unilaterally Changing Employee Benefits: NLRB

by Practical Law Labor & Employment

Background

E.I. Du Pont De Nemours & Co. (Du Pont) offered its employees a health benefit plan under which it reserved the right to change or discontinue benefits at the time of annual enrollment. Since at least 1996, Du Pont had made annual changes to the benefits plan that applied to employees at all Du Pont facilities, including both unionized and non-unionized workers.

Du Pont had CBAs with local unions at two of its production facilities. The CBAs allowed employees to participate in the company plan subject to its terms and conditions, and Du Pont had made annual changes to benefits without objection from the unions. In 2002 and 2004, the CBAs expired, and Du Pont began negotiating new CBAs with the unions.

During negotiations, Du Pont made changes to its benefits plan before the annual enrollment period, as it had in the past. The unions filed separate unfair labor practice (ULP) charges alleging that the company violated the NLRA by failing to bargain before changing the terms and conditions of employment. The NLRB issued separate complaints regarding the separate facilities and local unions.

One NLRB administrative law judge (ALJ) dismissed the complaint, while another ALJ found Du Pont violated the NLRA. In separate appeals to the Board, the same two-member majority of the three member Board panel ruled against Du Pont in both cases, concluding that the company had no past practice of changing the plan in between the expiration of one CBA and the adoption of another and must have improperly relied on a union waiver of bargaining or management rights that expired with the parties' CBA.

Du Pont filed petitions for review of the Board's orders with the DC Circuit and the Board cross-petitioned for enforcement. In June 2012, the DC Circuit:

Granted Du Pont's petitions for review and denied the Board's cross-petitions for enforcement.
Held that the Board lacked a reasonable justification for departing from Board precedent permitting an employer to make unilateral changes to employee benefits during contract negotiations with a union where those changes:
- were consistent with a longstanding past practice of making unilateral changes to employee benefits during collective bargaining; and
- did not violate the NLRA.
Reasoned that:
- Du Pont's discretion in making the changes was limited enough to the annual enrollment period that the changes were lawful; and
- the NLRB erroneously analyzed Du Pont's past practice as indivisible from, and limited by, the management rights clause in the parties' expired CBA.
Found that the Board's decisions were inconsistent with its 2006 decision in Beverly Health and Rehabilitation Services, acknowledging that earlier decisions (a 2001 decision in Beverly Health and Rehabilitation Services and in Register-Guard) held that employers violate Section 8(a)(5) when they implement unilateral changes to employees' employment conditions following expiration of its CBAs with the employees' unions (see Beverly Health and Rehab. Servs., 335 N.L.R.B. 635, 636-37 (2001); Register-Guard, 339 N.L.R.B. 353, 356 (2003)).
Remanded the case to the Board with instructions for the Board to either:
- conform to its precedent in Capitol Ford (343 N.L.R.B. 1058 (2004)) and its 2006 decision in Beverly Health and Rehabilitation Services; or
- explain why it returned to the rule in its earlier decisions.
(See E.I. du Pont de Nemours & Co. v. NLRB, 682 F.3d 65 (D.C. Cir. 2012); Legal Update, NLRB Ignored Precedent Permitting Employer to Rely on Past Practice of Unilaterally Changing Employee Benefits: DC Circuit.)

The Board accepted the remand from the DC Circuit and invited the parties to file position statements.

Outcome

On remand the Board majority (Chairman Pearce and Members Hirozawa and McFerran):

Chose the second option identified by the DC Circuit, returning to the rule it followed in its 2001 Beverly Health and Rehabilitation Services decision and in Register-Guard.
Held that unilateral, post-expiration discretionary changes to an employee benefit plan are unlawful, despite:
- an expired CBA's management-rights clause; or
- a past practice of making discretionary changes to the plan under that management-rights clause.
Held that Du Pont was obligated to adhere to the employment terms and conditions that were in effect when the CBAs expired. That obligation remained until Du Pont either bargained a new CBA or to a good-faith impasse. The plan benefits in effect on the CBAs' expiration dates represented the status quo.

The Board majority noted that:

The US Supreme Court has held that:
- employers generally violate the NLRA when they make unilateral changes to conditions of employment before the parties have reached a bargaining impasse; and
- an employer may make unilateral changes that are consistent with "longstanding practice" since these changes are a "mere continuation of the status quo."
(NLRB v. Katz, 369 U.S. 736, 747 (1962).)
Katz holds a narrow definition of what is a past practice that permits an employer's unilateral action without a bargaining agreement. The definition focuses on the amount of discretion the employer exercises.
In its 2001 decision in Beverly Health and Rehabilitation Services (Beverly I), the Board:
- held that an employer violated Section 8(a)(5) by implementing unilateral changes to employees' employment conditions after its CBAs with the employees' unions expired; and
- reasoned that the management rights clause in the CBAs relied on by the employer as its basis for making the changes did not survive the CBA's expiration.
(335 N.L.R.B. 635, 636-37 (2001).)
The Board held that when a union agrees to a management rights clause, it waives its right to object to discretionary unilateral changes only for the period that the CBA containing the clause remains in effect. The employer's discretionary changes do not amount to a past practice that an employer can continue following the CBA's expiration. (Beverly Health and Rehabilitation Services (Beverly I), 335 N.L.R.B. at 636-637; Register-Guard, 339 N.L.R.B. 353, 355-56.)
The Board broke from its decisions in Beverly I and Register-Guard, holding in The Courier Journal (Courier-Journal I) that the employer's unilateral changes to employees' health insurance after a CBA expired did not violate the NLRA because the employer had a longtime past practice of unilaterally making changes to the health plan, without the union objecting, under waiver provisions in successive contracts or in hiatus periods between contracts. The Board noted that "a unilateral change made pursuant to a longstanding practice is essentially a continuation of the status quo – not a violation of [the NLRA]." (342 N.L.R.B. 1093 (2004); see The Courier Journal (Courier-Journal II), 342 N.L.R.B. 1148 (2004).)
Relying on the Courier-Journal cases, the Board held in Capitol Ford that a successor employer could lawfully make unilateral changes consistent with those made by the predecessor employer during a hiatus period following expiration of a CBA (343 N.L.R.B. 1058 (2004); see a similar decision in Beverly Health & Rehabilitation Services, 346 N.L.R.B. 1319 (2006) (Beverly II)).
Health benefits are mandatory subjects of collective bargaining that generally may not be changed without bargaining to agreement or to impasse (Mid-Continent Concrete, 336 N.L.R.B. 258, 259 (2001)).
The Board has rejected employers' past practice defenses and found ULPs in cases involving unilateral changes to health benefits where the parties had an earlier bargaining relationship (Caterpillar, Inc., 355 N.L.R.B. 521 (2010)).

The Board majority rejected the Board's approach from the Courier-Journal decisions, Capitol Ford, and Beverly II because it would:

Inhibit collective bargaining and undermine unions as employees' collective representatives.
Render a management rights clause's expiration "meaningless" in situations where the employer had made unilateral changes under that clause while the CBA was in effect.
Give employers who had made unilateral changes under the management rights provision during the CBA's term little incentive to negotiate a new CBA with the union if it knew that it would retain discretion after the CBA expired.
Give employers broader latitude to make unilateral changes when negotiating for a successor CBA than would be permitted under Katz when negotiating an initial CBA.

Member Miscimarra dissented, stating, among other things, that:

The majority has created a Board-imposed duty on employers to negotiate over actions that "represent a continuation of what the employer has done before."
If no CBA exists, then under the majority's holding the employer must now bargain to agreement or impasse not just over the one action the employer has announced, but over "all mandatory bargaining subjects" under negotiation, and must do that before taking any action on any issue.
The majority portrays the Courier-Journal cases as "villains" that broke from well-established legal principles when in fact the Board long held that employer actions were not a "change" requiring bargaining under Katz.
The majority's definition of change is flawed and "defies common sense" because it views even the employer doing what it has always done as a change if the employer's actions in the past were taken when a CBA with a management rights clause was in effect.
Determining whether an employer's actions represent a change depends on looking at whether the employer's actions "are similar in kind and degree to what the employer did in the past."
The majority has no power to overrule the US Supreme Court as it is effectively doing here. This decision is controlled by the Supreme Court's decision in Katz, not by Board law.
Du Pont's changes were lawful and "consistent with its long-standing practice."

The Board majority rebutted the dissent, noting that:

Its decision neither contradicted Katz nor set a new definition for a "change to employment terms and conditions."
The DC Circuit's remand instructions show that the issue of what type of unilateral action constitutes a "change" under Katz remains open and the DC Circuit allowed the Board to address whether Beverly I and Register-Guard are in accord with Katz and the NLRA.
The issue of whether an employer's unilateral action constitutes a change to employment terms and conditions depends on more than, as the dissent states, "whether the employer's actions are similar in kind and degree to what the employer did in the past."
Board decisions both before and since Beverly I and Register-Guard held that employers did not violate the NLRA when they used a contractual management-rights waiver as a basis for making broad discretionary changes. However, those earlier and later decisions conflict with longstanding Board precedent:
- addressing change and past practice in other bargaining contexts, whether for initial or successor agreements; and
- limiting management-rights clauses to their contractual term.
Its decision in this case will not:
- disrupt the bargaining process as it will simply prevent employers from indefinitely continuing to make discretionary unilateral changes under an expired management rights clause; or
- introduce any great new burden on employers or on the bargaining process.

Based on E.I. Du Pont, the Board also held in American National Red Cross that one of its chapters and one of its regions each violated Section 8(a)(1) and 8(a)(5) of the NLRA by unilaterally implementing changes to their employees’ 401(k) and pension benefits plans following expiration of CBAs that had covered the employees (364 N.L.R.B. No. 98 (Aug. 26, 2016)).

Practical Implications

On remand from the DC Circuit, the Board's decision in E.I. Du Pont overruled the Courier-Journal cases and their progeny and developed an analysis that restricts employer's reliance on past practices to permit unilateral changes. Employers that have longstanding past practices of making unilateral revisions to employee benefit plans based on management rights provisions must now avoid making those changes if the CBAs containing the provisions have expired or negotiate for interim CBA extension agreements to extend the application of past practices to critical periods such as at annual benefit adjustment and enrollment periods.

UPDATE:

On December 15, 2017, in Raytheon Network Centric Systems, the Board expressly overruled E.I. Du Pont de Nemours and held that an employer's discretionary unilateral changes made following the expiration of a collective bargaining agreement (CBA), based on the employer's past practice under the expired CBA's management rights provision, do not violate Section 8(a)(5) of the NLRA (365 N.L.R.B. No. 161 (Dec. 15, 2017)).

UPDATE:

On October 11, 2018, in consolidated proceedings E.I. Du Pont De Nemours, before the NLRB on remand from the DC Circuit, the Board held that it's recent decision in Raytheon Network Centric Systems, 365 NLRB No. 161 (2017), controls here and requires dismissal of the consolidated cases in their entirety (367 N.L.R.B. No. 12., (Oct. 11, 2018)).

UPDATE:

In Wendt Corp., the Board overruled Raytheon Network Centric Systems's holding that an employer's unilateral conduct during bargaining is a lawful continuation of past practice, regardless of the measure of discretion involved, as long as the employer's conduct does not materially vary from its prior actions in kind or degree. The NLRB held that Raytheon's construction of the past practice defense was incompatible with the US Supreme Court's seminal decision in NLRB v. Katz which prohibited unilateral conduct informed by substantial employer discretion. The NLRB also reaffirmed the principle that an employer may not base a past practice defense on unilateral changes implemented before its employees were represented by the union, when the employer had no statutory duty to bargain. (372 N.L.R.B. No. 135 (Aug. 26, 2023).)

In Tecnocap LLC, the Board also overruled Raytheon's holding that discretionary changes implemented pursuant to a grant of authority contained in a collective bargaining agreement's (CBA) management rights clause (or similar contractual reservation of managerial discretion) cannot constitute a past practice that an employer may continue unilaterally after the contract's expiration while the parties bargain for a successor agreement (372 N.L.R.B. No. 136 (Aug. 26, 2023)).

For more information on these cases, see 2023 Traditional Labor Law Developments Tracker: Section 8(a)(5): Employer Refusal to Bargain.

Employers No Longer May Rely on Past Practice of Unilaterally Changing Employee Benefits: NLRB | Practical Law