BATH MARINE DRAFTSMEN’S ASSOCIATION V. NLRB: The First Circuit adopts a Uniform Standard of Analysis for Unilateral Change/Contract Modification Claims Involving Contract Interpretation

Issue Vol. 10 No. 1 January 2008 By Marjorie F. Wittner

More than sixty years after the passage of the Labor Management Relations Act, both the National Labor Relations Board and the courts have fundamental disagreements over the extent to which the Board may interpret provisions contained in collective bargaining agreements (cbas) to determine whether an unfair labor practice involving a change to employee terms and conditions of employment has occurred. This conflict stems in part from tension between the oft-cited principle flowing from the passage of Section 301 of the LMRA - that mere breaches of a cba do not constitute unfair labor practices - and Section 8(d) of the Act, which prohibits mid-term modifications of a cba without the Union’s consent. How should the Board go about analyzing whether there has been an unlawful contract modification if, as has been argued, the courts and arbitration, not the Board, are the proper forum for parties seeking interpretation of their cbas? In recent years, particularly in Bath Iron Works Corp., 345 NLRB 499 (2007), the Board has attempted to resolve this tension by applying two different standards to analyze claims in which an employer raises a defense that it was contractually privileged to take unilateral action. In cases alleging an unlawful refusal to bargain under §8(a)(5) of the Act, the Board analyzes the contract language at issue to determine whether the union has clearly and unmistakably waived its right to bargain over the change. However, in § 8(d) contract modification cases, the Board applies the less stringent “sound arguable basis” test, in which the Board will find no violation of the Act if the employer’s interpretation of the contract is plausible and the employer’s actions are otherwise untainted by union animus. Id.

However, in an apparent effort to rectify what it viewed as the inconsistent approaches used by the Board to analyze these types of cases, the First Circuit, in Bath Marine Draftsmen’s Association v. N.L.R.B., 475 F.3d 14 (2007) rejected the Board’s use of the two different tests, and instead adopted a hybrid analysis that combined elements of the contract coverage standard used by both the 7th and D.C. Circuits, and sound arguable basis standard to all cases involving allegations that the employer has unilaterally changed terms and conditions of employment without regard to its statutory obligation.

To understand the reasoning and import of Bath Marine, it is necessary first to examine the policies and reasoning underlying the three possible analytical frameworks: clear and unmistakable waiver, sound arguable basis and contract coverage. A discussion of the Board and First Circuit decisions and their implications will follow.

The Waiver, Contract Coverage and Sound Arguable Basis Standards
The clear and unmistakable waiver standard is based on the long-established proposition that the duty to bargain created by §8(a)(5) of the Act continues during the term of a collective-bargaining agreement. Provena Hospitals, 350 NLRB No. 64 at 4 (2007), (citations omitted). Unions therefore have a statutory right to require an employer to bargain before making a unilateral change with respect to a mandatory subject of bargaining. Because a waiver of statutory rights will not be lightly inferred, the Supreme Court and countless Board cases have held that an employer can act unilaterally only if the union has clearly and unmistakably waived its right to bargain. Metropolitan Edison Co. v. NLRB, 460 U.S. 693, 708 (1983) citing Mastro Plastics Corp., 370 U.S. 370, 380 (1956)(declining to infer from a general contractual provision that the parties intended to waive a statutorily protected right unless the undertaking is "explicitly stated."); C &C Plywood Corp., 148 NLRB 414, 416-418 (1964) enf’d denied 351F.2d 224 (9th Cir. 1965) aff’d sub. nom. NLRB v. C&C Plywood, 385 U.S. 421 (1967); Provena Hospitals, supra at 5, n. 19 (citing string of cases applying waiver standard). This standard reflects the longstanding policy determination that favors collective bargaining as a means of maintaining labor peace in the face of unilateral changes in working conditions.

Contract Coverage
The clear and unmistakable waiver standard is not without its detractors. Both the 7th and DC Circuits, and now the First Circuit to a certain degree, apply the contract coverage standard when analyzing cases where an employer raises a contractual defense to an unfair labor practice charge, regardless of whether the case is a §8(a)(5) unilateral change or a § 8(d) contract modification. In those cases, instead of inquiring whether the union has explicitly waived its right by contract to bargain over the issue, the courts first examine whether or not there is a contract provision covering the clause. If there is, the courts reason that it is “incorrect to say that the union has ‘waived’ its statutory right to bargain; rather, the contract will control and the ‘clear and unmistakable’ intent standard is irrelevant.” Chicago Tribune Co. v. NLRB, 974 F. 2d 933, 937 (7th Cir. 1992), (citations omitted). If contract coverage is found, the court will interpret the language of the cba de novo to determine whether it permitted the employer’s unilateral action. Thus, in NLRB v. U.S. Postal Service, 8 F.3d, 832, 836 (D.C. Cir. 1993), the Court interpreted a broadly worded management rights clause to permit service reductions and reversed the Board’s determination that the union had not clearly and unmistakable waived its right to bargain over those reductions.

Sound Arguable Basis
As noted above, in cases in which an unlawful modification of a contract has been alleged under §8(d) of the Act, where the employer has a sound arguable basis for its contract interpretation and is not otherwise motivated by bad faith, union animus or attempting to undermine the union’s status as collective bargaining representative, the Board has from time to time since 1965 declined to enter the dispute to “serve as an arbitrator” to determine which party’s interpretation of the agreement is correct. NCR Corp., 271 NLRB 1212, 1213 (1984) citing Vickers, Inc., 153 NLRB 561, 570 (1965). This standard reflects the policy determination, which finds some support in §301’s legislative history, that mere contract breaches are better suited for resolution by arbitrators and courts, not the Board. Bath Iron Works, 345 NLRB at 502, citing NCR, 271 NLRB at n.6; C&C Plywood, 385 U.S. at 427-238.

The Board’s Decision in Bath Iron Works Corp.
In 1998, Bath Iron Works (Respondent) decided to merge its pension plan (Plan) into the larger pension plan of its corporate parent General Dynamics. The Respondent had three different cbas with each of the charging parties. All three agreements referenced its pension plan documents, but none of them expressly incorporated the Plan’s terms into the cba. The Plan, but not the cba, contained language reserving the Respondents right to modify, amend or terminate the plan. The Respondent discussed its decision to merge the plan with each of the three unions, but did not reach agreement. It ultimately implemented the merger without bargaining to impasse or resolution or obtaining the three unions’ consent. The Respondent defended its action on the grounds that the Plan’s terms, which were incorporated into the cbas, privileged it to implement the merger unilaterally.

In deciding whether the Respondent had acted lawfully, the Board, in a 2-1 decision, with Member Liebman dissenting, first analyzed whether the case was properly analyzed as a unilateral change or § 8(d) contract modification claim. Without much discussion, the Board concluded that the General Counsel’s sole allegation was an unlawful modification of the contract within the meaning of §8(d). Citing NCR Corp., supra, it then proceeded to analyze whether the contract had been unlawfully modified under the sound arguable basis standard. The majority dismissed the complaint, concluding that because both the Respondent and the unions had presented reasonable interpretations of the applicable contract language, the contract had not been unlawfully modified. The Board therefore refrained from deciding which of those interpretations was superior, on the grounds that arbitrators and the courts were better equipped to deal with those issues.

The dissent strenuously disagreed with most aspects of the majority’s decision. Citing a number of contrary precedents, the dissent challenged the majority’s basic premise that it was required to undertake two distinct analyses depending on the type of unilateral change alleged. The dissent contended that this “rigid” approach created the “anomalous result” that unions who have bargained and secured contractual provisions over mandatory subjects of bargaining are less protected from changes than unions who have been unable to secure a bargaining provision. The dissent essentially argued that “a change is a change,” and thus, whenever an employer raises a contractual defense, the clear and unmistakable waiver standard should be applied. 345 NLRB at 507.

The First Circuit’s Decision
On appeal, after reviewing the procedural and factual background of the case, the First Circuit set the stage for its decision by claiming that §8(d) “was not meant to confer on the Board broad powers to interpret collective bargaining agreements.” 475 F. 3d at 20-21. Rather, in enacting §301, Congress determined that the Board should not have general jurisdiction over all alleged violations of collective bargaining agreements; such matters should be placed within the jurisdiction of the courts. Id. at 20, quoting C&C Plywood, supra, 385 U.S. at 427. The Court conceded that under C&C Plywood, the Board did have some authority to construe collective bargaining agreements in the context of adjudicating unfair labor practices, but should not be considered the “sole or primary source of authority,” agreeing with the Board that that role was for the courts and arbitrators. 475 F. 3d at 21.

The Court then addressed the Union’s argument on appeal that the General Counsel’s complaint had alleged both §8(a)(5) and §8(d) allegations, thus warranting application of the waiver standard. Finding that the complaint did contain both allegations, the Court nevertheless declined to apply the clear and unmistakable waiver standard. Citing NCR Corp. and other cases in which it claimed the Board had applied the sound arguable basis standard in the context of a §8(a)(5) claim, the Court stated that the Board’s “historic vacillation” over which standard to apply justified a less deferential than usual approach to the Board’s expertise. Id. at 25. Accordingly, the Court announced that it was adopting the contract coverage test to determine whether the unions had already exercised their rights to bargain. In the very next sentence of the decision, however, the Court stated, “the unfair labor practice determination depends solely on the interpretation of the contract in place and the appropriate standard for the Board to apply is the sound arguable basis standard.” Id. at 25. The Court touted this framework as consistent with the NCR line of cases and the NLRA. The Court also claimed that its approach unified the Board’s “vastly disparate standards” and resolved the fact that the Board has never clearly articulated a test for distinguishing between §8(a)(5) and §8(d) cases.

Application of the Hybrid Analysis
To determine, as the Court confusingly puts it, “whether a subject is covered by a cba, such that the sound arguable basis standard is appropriate,” the Court first considered whether the parties had bargained over the Plan. Id. Concluding that they had, the Court then reviewed, de novo, the question of whether the Company’s interpretation had a sound arguable basis. Holding that it did, the Court next considered whether the employer had acted in bad faith, expressly deferring to the Board’s determination that it had.

The Court also addressed and rejected most of the Member Liebman’s dissenting argues in the case below, including that unions with contract coverage have less protection in the face of a change than unions that do not. The Court did not necessarily disagree with this assessment, but did not find it dispositive, because “parties routinely make concessions during bargaining.” Id. at 28.

Implications of Bath Marine
In Provena Hospital, supra, decided just eight months after Bath Marine, the Board contended that the Court’s apparent adoption of both the contract coverage and sound arguable basis test rendered the decision’s implications “unclear,” because the two tests were not the same. 350 NLRB No. 64 at n. 1. This is somewhat unfair. Although the decision’s initial references to the two standards is certainly confusing, when one reads further, it is clear that the Court has established a hybrid two-part test that requires faithful application of the Board’s sound arguable basis standard after it has been determined that the contract covers the dispute at issue.

One troubling aspect of Bath Marine test, as with the contract coverage test, generally, is its “one size fits all” approach to the two types of change cases. For example, where the change at issue does not implicate a cba provision, but the employer’s defense does, although there may still be “contract coverage,” the union could not have filed a grievance or sued in federal court under §301 Application of the waiver standard is particularly appropriate under those circumstances, since the union would have had no recourse to arbitrators or the courts. See C&C Plywood, 385 U.S. at 562-563 (where cba had no arbitration clause, Board’s construction of cba to resolve the unfair labor practice was in no way inconsistent with concept that arbitration as the instrument of national labor policy for resolving contract differences).

It is beyond the scope of this article to examine merits and flaws of each of the three standards discussed above in great detail. Nevertheless, the Board’s analysis of the lawfulness of the employer’s unilateral action in contract defense cases should, at a minimum, depend on whether the change could have been the subject of a grievance or suit under §301, and whether the employer defends its unilateral action on the basis of the same contract provision, a different provision, or even, as in the Bath Marine case, other documents referenced in the contract. Taking into account these different factors would adequately safeguard a union’s statutory right to require an employer to bargain or obtain its consent before making unilateral changes without usurping the role of arbitrators or courts as an instrument of national labor policy for resolving contract differences.

In Bath Marine, the First Circuit introduced a new way to analyze the validity of an employer's claim that a contract provision privileged its right to make unilateral changes to working conditions. Although it is unlikely that this decision will have any impact on the Board in the near future, the First Circuit's attempt to combine the Board’s sound arguable basis standard with the contract coverage standard into a single test to be applied to all contract defense cases may prove appealing to other appeals courts looking to simplify or unify its approach to these types of cases. For the reasons set forth above, this trend should be resisted.