Labor Relations & Wages Hours Update August 2013

The state law claim at issue in this case was for retaliatory discharge in violation of the Illinois Workers’ Compensation Act. Although the Act itself does not recognize a cause of action for employees fired in retaliation for exercising rights under the statute, Illinois courts recognize an implied private action. A claim of retaliatory discharge requires a plaintiff to show that “(1) he was discharged or threatened with discharge and (2) the employer’s motive in discharging or threatening to discharge him was to deter him from exercising his rights under the Act or to interfere with his exercise of those rights.” None of these elements called to mind a labor contract. Thus, the court concluded that the employee’s case was not within the territory that Congress carved out to be governed exclusively by federal rules under Sec. 301.

The case number is 13-1054.

Attorneys: Thomas F. Crosby, III (Winters, Brewster, Crosby & Schafer) for Philip Crosby. Bryan D. LeMoine (McMahon Berger) for Cooper B-Line, Inc.

By Lisa Milam-Perez, J.D.

Substantial evidence supported the NLRB’s findings that an employer unlawfully discharged eight employees for supporting a union organizing campaign, providing adverse testimony during a Board hearing, or engaging in other protected, concerted activity, the Eighth Circuit held, enforcing Board orders in two separate decisions (NLRB v RELCO Locomotives, Inc, August 20, 2013, Murphy, D). Judge Smith dissented; he would deny enforcement because the NLRB lacked a valid quorum when it issued the decisions below—an issue the majority declined to take up, deeming it both nonjurisdictional and waived by the employer because it was not first raised below.

“Sit down and shut up.” Two discharged employees were the acknowledged leaders of a nascent union organizing campaign, and there was ample circumstantial evidence that senior management knew of their union activities. The company CEO indicated that he knew there was a union drive afoot, and evidence suggested that another employee—an “openly and avowedly anti-union” coworker who bore a grudge against the pair—kept management apprised of ongoing campaign developments. In fact, the informer enjoyed “a meteoric progression to a coveted position” at the company for his efforts.

Moreover, there was substantial evidence that the company harbored animus towards the union campaign. Upon learning of the organizing drive, the CEO called a meeting with all employees (except for union contractors, who were told to leave the room) and delivered an hour-long speech on the negative influence of unions. When one of the union leaders rose and spoke out in favor of unions, the CEO told him to “shut up and sit down,” a clear indicator of hostility, the appeals court found. It also agreed with an ALJ’s finding that the CEO’s comment that inviting a union on-site was akin to “erasing the chalkboard” was an unlawful “bargain from scratch” threat.

Citing Sec. 8(c)’s protections for employer speech, the employer contended that the CEO’s comments could not be used as evidence of antiunion animus because they did not contain threats of reprisal or force or a promise of benefits. However, the appeals court concluded the “chalkboard” comment qualified as a threat of reprisal. The CEO’s demand that the union supporter “shut up and sit down” also could be considered as a threat of reprisal against the employee if he were to continue to advocate for the union, particularly since the company indicated that it fires employees for “insubordination.”

Further, the NLRB has consistently held that an employer's antiunion comments, while themselves lawful, could be considered as background evidence of animus. “Section 8(c) is designed to shield employers from claims that rest solely on an employer's communication that it disfavors unionization,” the appeals court wrote. “That does not mean that these remarks be excised when considering whether the employer has evinced a hostility to unions. Otherwise, Section 8(c) would effectively prevent an employer's statement of hostility to unions from being used as proof of such an attitude.”

The appeals court also rejected the employer’s reliance on a Title VII race bias case in support of its contention that these statements should not have been considered because the CEO was not the decisionmaker in the discharge of the union adherent. “While it may be unreasonable to assume that an employee is speaking on behalf of the company when he or she expresses racist sentiments, the same is not true in the labor context,” the court noted. “To the contrary, ‘it is eminently reasonable to assume that high-level corporate managers speak on behalf of the company when they express anti-union animus.’” When the CEO openly and overtly expressed his hostility towards unions, it was reasonable to assume that he was announcing the company’s policy. This viewpoint may then reasonably be imputed to other senior managers, including the decision-makers, the court explained.

The employer argued it was irrelevant whether the feet were dangling—it was enough that the employer thought his feet were dangling, and that he had insubordinately disregarded instructions. But the ALJ discredited as “either implausible or an outright fabrication” the company official’s assertion that he believed the employee was insubordinate. The ALJ’s conclusion was further supported by the fact that, immediately after he was fired, the employee offered to bring the official over to his workspace to show that the safety ladder had been properly placed, but the official refused. This supported the inference that “was looking for an excuse to terminate a known union sympathizer.”

The employer argued to no avail that the employee’s action was not “concerted” but rather, a solitary pursuit, and thus not protected by the Act. Even action that “involves only a speaker and a listener” can qualify as concerted action if it bears a relation to group action on behalf of employees’ interests, the court noted. Given the employees’ vocal expression of concern about the uniform cleaning charges at a meeting earlier that same day, there was substantial evidence to support the Board’s conclusion to the contrary.

Next, the employer contended it did not fire the employee for calling the vendor, but because it mistakenly believed that he had harassed the vendor (though it turned out to be another employee). As such, the discharge was permitted, even if the harassment occurred while engaging in protected, concerted activity. This argument might have held sway if the stated (but mistaken) motive for termination was neutral, but the Supreme Court has refused to extend the “honest belief” safe harbor to circumstances where the stated motivation was “an alleged act of misconduct in the course of [protected] activity.”

Another vocal opponent of the uniform cleaning fees was let go for accruing too many attendance “points,” although there was an ongoing dispute about how many points were properly assessed. Management had been working with the employee to resolve the issue, but its cooperation ceased soon after he publicly challenged the uniform policy. The Board has ample evidence to find that the company may not have been planning to terminate him, or at least had been planning to investigate his claim that his attendance points should have been expunged—and that the discharge in fact was motivated at least in part by his protected activity.

The company also reacted to the uniform dispute by modifying its nondisclosure agreement to forbid any employee from contacting its vendors. The revised agreement also eliminated employees’ right to recover litigation costs if the employee prevailed in an action brought by the company. Although the employer demanded that employees sign the agreement, it never took disciplinary action against employees who refused. Nonetheless, the Board’s order directing the employer to rescind the nondisclosure agreement and disavow it publicly, in light of its chilling effect on employees, was upheld.

Adverse testimony. Two other employees were fired soon after they gave adverse testimony during a Board hearing into unfair labor practice allegations arising from the first four terminations. Given that the CEO was present at the hearing, the employer made little traction with its argument that it could not be proven that it was aware of their protected activity. Nor was the court swayed by the employer’s claim that there was no evidence the company harbored any animus toward their testimony. While five nonparty employees testified at the hearing, only the two who provided testimony adverse to the employer (and signed a statement on behalf of the union in that proceeding) were discharged.

Moreover, there was substantial evidence that the stated reasons for their terminations were pretextual. In one case, the employer cited offenses that could warrant discipline (such as failing to wear a hard hat), management embellished these incidents after the Board hearing, and added new allegations in order to justify his suspension, probation, and eventual firing. “The decision to add after the fact justifications to prior misconduct is itself a recognized ground for inferring animus.”

The ALJ also discredited the employer’s claim that it terminated one of the witnesses because he lacked a welding certificate, where four other employees who lacked welding certificates had not been discharged or placed on probation. Also, the employee had never been given an ultimatum to obtain a certificate or be terminated, and there was no evidence that his performance was substandard. Further, the delay in reprimanding the employee for these alleged violations (until after his Board testimony) further undermined the employer’s credibility. While it claimed that it held off on imposing employee discipline on advice of counsel because of the pending union election, the appeals court observed that the company reprimanded other employees during that time.

The other witness was ostensibly let go for being unproductive. Like the other witness, he was given a performance review for the first time in years. Yet the only evidence of a lack of productivity was when he was admonished by his supervisor for “walking around the shop” (while he was en route to assist a coworker with a job). Again, the employer argued that what mattered was not whether he was actually unproductive, but whether management believed that he was. Again, the ALJ had ample reasons to doubt the authenticity of this belief.

Neither party disputed that this was the actual reason for their terminations. The critical question, then, was whether their (unfounded) statements about their coworker’s discharge were concerted activity. The ALJ's determination, adopted by the Board, that their activity was concerted was reasonable. “Repeated conversations about the effect of a company decision on other workers qualifies as concerted activity, and an employee cannot be terminated for engaging in such conversations,” wrote the court. The talk among employees had provoked worries that mass layoffs were imminent, or that even popular and productive employees could be eliminated by overly strict interpretations of company policies, the court reasoned.

The employer insisted it could fire the loose-lipped employees because their statements were not true. However, the court noted, false and inaccurate employee statements are protected under the Act so long as they are not malicious. Contrary to the employer’s assertion, there was no evidence to support a finding that the employees’ statements were malicious; they were not made with either actual knowledge of their falsehood or with reckless disregard for their veracity. In fact, there was substantial evidence that many workers in the plant honestly believed that their coworkers had been fired. And the employees stopped spreading the rumor once they found out it was untrue. One of the employees even actively tried to stop the rumor’s spread at that point. “Even assuming that [the employer] honestly believed that [the employees] had behaved maliciously, that subjective belief is irrelevant unless the two workers were actually guilty of the alleged misconduct during their protected concerted activities,” the appeals court reiterated.

Recess appointments issue waived. Finally, the Eighth Circuit declined to add to the growing body of jurisprudence regarding the validity of President Obama’s recess appointments to the NLRB. The appeals court had not previously considered head-on whether a challenge to the NLRB’s quorum is jurisdictional in nature. However, noting that the Supreme Court, the D.C. Circuit, and the Sixth Circuit have all so held, the appeals court concluded the same. Further, no “extraordinary circumstances" warranted consideration of the employer’s belated challenge to the NLRB's recess appointments, as “all of the facts and legal arguments necessary to make an appointments clause challenge were available to [the employer] when its case was heard by the Board.” Therefore, having failed to raise the issue previously, the employer could not now assert that the Board lacked a lawful quorum when it issued the decisions below.

The case numbers are 12-2111, 12-2447, 12-2203, and 12-2503.

Attorneys: Beth S. Brinkmann, U.S. Department of Justice, Linda Dreeben, National Labor Relations Board, for NLRB. Michael Klupchak (Laner & Muchin), Gene R. La Suer (Davis & Brown), and Paul E. Starkman (Pederson & Houpt) for RELCO Locomotives.

8th Cir.: Despite employer’s rejection of CBA in bankruptcy, former parent company still obligated to pay benefits to “assumed retirees”

By Ronald Miller, J.D.

The Eighth Circuit reversed the denial of declaratory relief to Patriot Coal and Heritage Coal that Peabody Holding’s obligation with respect to health care benefits owed to assumed retirees would not be affected by modification of the benefits of retirees of Heritage or Eastern Coal under Section 1114 of the Bankruptcy Code (In re Patriot Coal Co aka Eastern Coal Holding Co aka Patriot Coal Corp Midwest, August 21, 2013, Kressel, R). Although Heritage Coal was granted permission to reject its “me too” CBA with a union, it specifically did not seek to modify the assumed retirees’ benefits. As a consequence, Heritage was still statutorily obligated under Sec. 1114 to provide benefits under the terms of an individual employer plan, and Peabody Holding was obligated to fund those benefits as it agreed to under a liabilities assumption agreement it entered with the union.

The players in this case were all previously subsidiaries of Peabody Energy. After a strategic spin-off, only Peabody Holding remains with the parent Peabody Energy, while Heritage and Eastern operate under the Patriot Coal umbrella. While neither Heritage nor Eastern were members of a multiemployer bargaining association of coal operators, they entered into a “me too” agreement with the mine workers union. The agreement provided for health and other benefits for retirees. While Peabody Energy was contemplating the spin-off, Peabody Holding entered into an assent agreement with the union stating that it was “primarily obligated” to pay for the benefits of approximately 3,100 of Heritage’s retirees, known as the assumed retirees under the terms of an individual employer plan maintained by Heritage.

At a time when Patriot and Heritage and Peabody Holding all were subsidiaries of Peabody Energy, the companies entered into the liabilities assumption agreement. The liabilities assumption agreement reiterated that Heritage had an obligation to provide retiree healthcare pursuant to its “me too” labor contract. It further stated that the parties desired that Heritage continue to provide the retiree healthcare. Peabody Holding assumed some of the liabilities for providing retiree healthcare “to the extent expressly set forth in this agreement.”

On October 31, 2007, Peabody Energy parted ways with Patriot Coal and several subsidiaries. The spun-off companies comprised the coal operations with union-represented labor. Patriot became a parent company, and Heritage and Eastern were among its subsidiaries. In 2012, Heritage and Eastern filed for bankruptcy. Patriot and Heritage then filed this adversary proceeding to gain bankruptcy court approval to reject a CBA. Section 1114 requires a debtor to timely pay retiree benefits unless the bankruptcy court determines that modification of those benefits is necessary. Ultimately, Patriot was allowed to reject the CBA and modify retiree benefits for certain current retirees. The Sec. 1114 proposal called for modifying the retiree health care benefits of all Heritage retirees, except assumed retirees, by transferring the obligation to provide benefits from Heritage to a voluntary employee beneficiary association (VEBA).

Primary obligator. Thereafter, Patriot and Heritage sought a declaratory judgment that Peabody Holding’s obligations with respect to the healthcare benefits owed to the assumed retirees would not be affected by modification of the benefits of retirees of Heritage or Eastern under Sec. 1114. Finding that all liabilities remained with Heritage and Peabody was simply obligated to fund those liabilities, the bankruptcy court denied the request for declaratory relief, and granted summary judgment to Peabody Holding. According to the bankruptcy court, because the “me too” agreement had been rejected, Heritage was no longer obligated to provide the assumed retirees’ benefits, and Peabody was not required to fund them. Patriot and Heritage appealed.

On appeal, Patriot and Heritage argued that Peabody was the primary obligator of the assumed liabilities, that the Sec. 1114 proposal did not propose modifying the assumed retirees benefits, and that the bankruptcy court’s Secs. 1113 and 1114 order was not a successor labor contract. Under the bankruptcy court’s theory, only Heritage or Peabody could be liable to the union, and it held that only Heritage was liable.

The assumed retirees’ benefits survived rejection of the CBA under Sec. 1113, ruled the appeals court. The plain anguage of Sec. 1114(e)(1) indicates that a CBA can be rejected under Sec. 1113 and the debtor would still be required to timely pay for, and refrain from modifying, retiree benefits provided for in that labor agreement unless authorization to modify is granted under Sec. 1114. While Heritage’s rejection of its CBA relieved it of its contractual obligation to pay benefits, it still had a statutory obligation to pay those benefits. Thus, upon rejection of the “me too” agreement under Sec. 1113, absent modification under Sec. 1114, Heritage was still required to comply with the terms of the individual employer plan and provide its retirees benefits under the plan.

In this instance, the appeals court observed that neither Heritage nor the union requested modification of the assumed retirees’ benefits. Before the bankruptcy court, Heritage was adamant that its motion to reject the CBA did not seek to modify the assumed retirees’ benefits. The legal effect of this carve-out language was that Heritage specifically requested that the court not grant it such approval. With such a request in the motion, those benefits remained undisturbed by the court’s order granting Heritage permission to modify the rest of its retirees’ benefits.

Consequently, the appeals court disagreed with the bankruptcy court’s conclusion that only Heritage was liable for the benefits. Heritage was made liable to the union through the “me too” agreement that required it to provide non-pension benefits to its employees and retirees at the levels in the individual employer plan. Peabody Holding was made liable through the assent agreement. This provision made clear that Peabody Holding was liable. While Heritage rejected its “me too” agreement with the union, the liabilities assumption agreement remained in effect. Heritage was still statutorily obligated under Sec. 1114 to provide benefits under the terms of the individual employer plan, and this is precisely what Peabody Holding agreed to assume and pay. Thus, the decision of the bankruptcy court was reversed.

The case number is 13-6031.

Attorneys: Andrew S. Gehring (Davis & Polk) for Patriot Coal Co. Carl E. Black (Jones & Day) and Steven N. Cousins (Armstrong & Teasdale) for Peabody Holding Co., LLC.