Business Law Chapter 17 Essentially This When The New Company Operating

Chapter 17

THE ENFORCEMENT AND ADMINISTRATION OF THE COLLECTIVE AGREEMENT

INTRODUCTION

The seventeenth chapter focuses on arbitration and changes in status of employers. The chapter begins with a

discussion of arbitration’s background. Arbitration is favored under the country’s labor laws and policies. The

CHAPTER OUTLINE

I. Arbitration*

*Arbitration: The settlement of disputes by a neutral adjudicator chosen by the parties.

A. Background

1. Parties use arbitration to resolve disagreements privately, without court intervention.

2. Arbitration offers a number of advantages over court proceedings.

B. Interest Arbitration* Versus Rights Arbitration*

1. The public sector often utilizes interest arbitration because employees are

commonly prohibited from striking. The private sector utilizes interest arbitration much less.

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C. Rights Arbitration and the Grievance Process

1. The process that the parties utilize to handle complaints under the collective

agreement is known as the grievance process.

Grievance process: the process set up by a collective agreement to deal with complaints that arise

under the collective agreement

Grievance: a complaint that one party to a collective agreement is not living up to the obligations of the

agreement

II. The Courts and Arbitration

A. What is voluntary about an arbitration clause is its inclusion in the initial collective

agreement. On the other hand, once the arbitration clause is included in the agreement, the court will

compel arbitration if a party fails to do so voluntarily.

B. The Steelworkers Trilogy is a series of Supreme Court cases in which the Court laid the

parameters of its role in ordering arbitration or enforcing an arbitration award.

1. A court shall order arbitration under §301 of the NLRA unless it is indisputable that

CASE 17.1 TEXTILE WORKERS UNION OF AMERICA V. LINCOLN MILLS OF

ALABAMA

353 U.S. 448 171 (1957)

Facts: Textile Workers Union and Lincoln Mills were parties to a collective bargaining agreement.

Numerous grievances related to work loads and work assignment were brought through the grievance

procedure and denied by the employer. The employer then denied the union’s request for arbitration,

which then led the union to sue to compel arbitration under §301 of the NLRA.

The trial court held that the employer had to arbitrate the grievances. The employer appealed and the

appellate court reversed. The union then appealed to the U.S. Supreme Court.

Issue: Does §301 authorize a court to order the parties to a collective agreement to arbitrate a grievance?

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C. Arbitration clauses can also curtail an employee’s right to sue for employment

discrimination.

1. But, the Court held that an employee who lost in arbitration could still sue under

Title VII because an employee’s statutory rights are distinct from his or her rights under a

collective agreement.

D. It is not the court’s duty to decide the merits of the grievance—instead the court is limited to

deciding whether the party is making a claim that is on its face governed by the agreement.

E. Litton Financial Printing Div., Litton Business Systems v. NLRB (U.S. 1991) held there is a

continuing duty to arbitrate after the expiration of a collective agreement if the grievance arises

“under the agreement.” The grievance arises under the agreement if any of the following are true:

1. The facts and occurrences relating to the grievance occurred prior to the collective

F. The third case in the trilogy, United Steelworkers v. Enterprise Wheel & Car Co. (U.S.,

1960), held that the court is required to enforce an arbitrator’s decision if one of the parties does not

comply with it, unless the arbitrator clearly exceeded the authority given to him or her by the

CASE 17.2 EASTERN ASSOCIATED COAL CORPORATION V. UNITED MINE WORKERS

OF AMERICA, DISTRICT 17

531 U.S. 57 (2000)

Background: Eastern Associated Coal Corp. and the United Mine Workers were parties to a collective

bargaining agreement that had an arbitration provision that allows an employee in arbitration to be

Cihon/Castagnera, Employment and Labor Law, 9e Instructor’s Manual Chapter 17

discharged only for “just cause.” James Smith is a trucker for Eastern. As a trucker, he was subject to

random drug tests pursuant to DOT regulations. In March 1996, Smith tested positive for marijuana in a

random drug test. The case went to arbitration, and the arbitrator held that the positive drug test was not

Issue: Is a contractual agreement reinstating Smith, a worker who tested positive for marijuana, against

public policy?

Decision: No. The question of whether a contractual agreement to reinstate an employee violates public

policy is answered by ascertaining whether the agreement is contrary to an “explicit, well-defined, and

ANSWERS TO CASE QUESTIONS

1. The arbitrator held that Smith’s relapse was due to pressing personal and family problems and was

a one-time situation; and Smith had been a good employee for 17 years. The arbitrator therefore

2. The employer argues that the federal Omnibus Transportation Employee Testing Act of 1991 and

3. The court holds that the act and regulations provide for employer-labor negotiations over discipline

Cihon/Castagnera, Employment and Labor Law, 9e Instructor’s Manual Chapter 17

G. Paperworkers v. Misc. Inc. (U.S., 1984) held that an arbitration award can only be vacated if

it is contrary to an explicit public policy, not just contrary to “general considerations of supposed

public interest.

H. Judicial Enforcement of No-Strike Clauses

1. No-strike clause: is a clause in a bargaining agreement in which the union agrees

not to strike when a dispute arises over the agreement while the agreement is still in effect.

2. The court can imply a no-strike clause from the presence of an arbitration provision

Remedies for Breach of No-Strike Clauses

1) Section 301 Suits

a. An employer may recover damages for a breach of the no-strike clause through a suit

under Section 301

b. Section 301, while allowing damage suits for breach of no-strike clauses, places some

2) Section 301 and Other Remedies

a. In Groves v. Ring Screw Works, the collective agreement provided for arbitration in

discharge cases only upon agreement of both parties.

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3) Section 301 Preemption of Other Remedies

a. In Allis-Chalmers Corp. v. Leuck, the Supreme Court held that if the resolution of a state

law claim depends on the interpretation of a collective agreement, the application of the

state law is preempted by federal law.

I. The NLRB and Arbitration

A. The NLRB will defer a meritorious unfair labor practice charge to the

arbitration process where the following conditions are met:

1. The arbitrator must be explicitly authorized to decide the statutory

issue.

III. Changes in the Status of Employers

A. Successor Employers

1. Successor employer must arbitrate a grievance arising under the collective

agreement when:

a) there is a substantial continuity of identity in the business enterprise and

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CASE 17.3 FALL RIVER DYEING & FINISHING CORP. V. NLRB

482 U.S. 27 (1987)

Background: Sterlingwale operated a textile dyeing and finishing plant for 30 years prior to 1982. The

United Textile Workers of America, AFL-CIO represented the employees for nearly the same amount of

time. In the late 1970s, the business began to falter. In 1979, Sterlingwale reduced its workforce, and, in

1982, the company laid off all of its production employees. A skeleton crew remained, however, to look

after the property, plant, and equipment of the company. In late 1982, the entire company shut down. A

former Sterlingwale employee and a major customer then joined together to form Fall River Dyeing &

Finishing Corp. This new company, the petitioner in this case, purchased Sterlingwale’s assets and began

The Union proceeded to file an ULP charge alleging that Fall River’s refusal to bargain violated

§§8(a)(1) and (5) of the NLRA. The ALJ found that Fall River was a successor to Sterlingwale and, as a

result, Fall River’s duty to bargain began in January when former Sterlingwale employees were in the

majority. The ALJ found that the October demand remained in effect in January. Accordingly, petitioner

committed an ULP. The Board with a dissenter and the Court of Appeals of the First Circuit with dissent

both affirmed.

Issue: Is there a presumption of majority support for the Union when a successor company takes over

and retains a majority of the predecessor company’s employees?

Decision: Yes. The policy behind the NLRA is to promote “industrial peace.” A presumption of majority

support advances industrial peace by “promot[ing] stability in collective-bargaining relationships,

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The second rule to apply is when the duty to bargain arose. A duty to bargain arises at the point when

there is a “substantial and representative complement” of workers. Factors the Board uses to make this

determination include: “whether the job classifications designated for the operation were filled or

substantially filled and whether the operation was in normal or substantially normal production” along

with “the size of the complement on that date, the expected elapsed time before a substantially larger

complement begins to work, and the certainty of the employer’s expansion plans. The Court found that

the Board’s finding that a “substantial and representative complement” existed by mid-January is

supported by substantial evidence because almost all of the job classifications were filled, at least half of

the employees it would ultimately employ in those classification were hired, and the company had hired

a majority of its full complement, and the employer began full production. Thus, in mid-January the

employer had a duty to bargain with the Union.

ANSWERS TO CASE QUESTIONS

1. The NLRB’s “substantial and representative complement” rule holds that the determination of the

composition of the successor’s workforce is to be made when 1) the job classifications designated

for operation were substantially filled, and 2) the operation is in normal or substantially normal

2. The factors the NLRB considers are whether the business of both employers is essentially the same,

whether the employees of the new company are doing the same jobs in the same working

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conditions under the same supervisors, and whether the new entity has the same production process,

3. The continuing demand rule holds that the demand by a union that a successor recognize and

bargain with it, when made premature to the successor employer reaching the appropriate

complement, continues in force until moment the employer reaches the substantial and

3. At least one court has held that a two-year gap before the successor employer takes

over is too long of a time period to maintain continuity. CitiSteel USA v. NLRB (D.C. Cir.,

1995) is an example.

4. An employer intending to rehire most of the predecessor company’s employees may

lawfully recognize the union that represented them and negotiate hiring terms with the

union.

ETHICAL DILEMMA

To Retain or Not to Retain?

Immense Multinational Business (IMB) plans to purchase all of CastCo’s entire plant, assets, and

operations. The International Molders Union represents CastCo’s employees but IMB’s employees are

not unionized. IMB wishes to continue most of CastCo’s operations and also is considering keeping

CastCo’s employees.

ANSWERS TO QUESTIONS:

The issue here is whether to rehire the workers from CastCo, the former employer. Rehiring the former

workers would provide an experienced workforce, familiar with the business and the facility. In contrast,

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7. A company who refuses to comply with the terms of a union’s collective agreement

with a predecessor employer that is found to be the “alter ego” of the original employer

violates §§8(a)(1) and 8(a)(5).

IV. Bankruptcy and the Collective Agreement

A. 11 U.S.C. §1113 allows a company that files bankruptcy to reject the collective agreement

only if the following conditions are satisfied:

1. The employer has proposed to the union contractual modifications necessary to

permit reorganization and has treated all interested parties equitably.

B. A hearing on the employer’s petition must be heard within fourteen days and the decision on

the rejection issue must be issued by the court within thirty days after the hearing.

THE WORKING LAW

Reorganizations of GM and Chrysler Gave UAW a Unique Role as Union and Investor

In 2009, as part of GM and Chrysler’s bankruptcy, the United Auto Worker’s union, which represented

each company’s employees, ended up in the unique position of owning a large portion of the newly

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C. §1113’s provisions apply to employers covered by the NLRA as well as employers covered

by the Railway Labor Act.

CASE 17.4 IN RE AMR CORPORATION

477 B.R. 384, aff’d. by 523 B.R. 415 (S.D.N.Y. 2014)

Facts: American Airlines, Inc. [American] filed under Section 1113 of the Bankruptcy Code for

bankruptcy court permission to reject the collective bargaining agreements between American and its

pilots, flight attendants and some of its transit workers. These employees are represented by three

unions: (1) the Association of Professional Flight Attendants [APFA]; (2) the Allied Pilots Association

[APA]; and (3) the Transit Workers Union of America [TWU].

Issue: Has American met the requirements under Section 1113 to reject its collective agreements?

Decision: The court concluded that American’s proposed changes to furlough and codesharing have not

D. A bankruptcy filing does not relieve the employer from its obligation to recognize and

bargain with the union.

E. When there is no bankruptcy filing, an employer cannot invoke an economic necessity

defense to justify unilaterally cancelling an agreement, and as a result the employer violates Section

8(a)(5). But, the NLRB may be enjoined from proceeding on ULP charges from such a unilateral

modification by a bankruptcy court when the ULP proceedings threaten the employer’s assets.

F. Bankruptcy and Retiree Benefits

1. Healthcare benefits were readily negotiated between employers and unions from the

1950s to the 1970s. Beginning in the 1980s, however, the cost of benefits like these (legacy

Cihon/Castagnera, Employment and Labor Law, 9e Instructor’s Manual Chapter 17

a) The bankrupt employer must first propose a modification to the retiree’s

c) If the representative rejects the modification, the employer can petition the

bankruptcy court to compel the modification. If the employer takes this path, it must

first convince the court of the following facts:

(1) The modification is necessary for reorganization;

ANSWERS TO END OF CHAPTER PROBLEMS

QUESTIONS

1. Arbitration is the process of using a neutral adjudicator to settle disputes. Rights arbitration is the

process of using arbitration to settle disputes over the interpretation and application of a collective

2. The court will enforce the contractual promise to arbitrate when either party seeks to arbitrate a

3. An employer may discipline or discharge employees striking in violation of a “no strike” clause,

provided the strike is an economic strike rather than an unfair labor practice strike. An employer

4. According to United Technologies, the NLRB will defer consideration of an unfair labor practice

complaint to arbitration where: a) the dispute arose in the confines of a long and productive

collective bargaining relationship; b) there was no claim of anti-union animosity to the

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CASE PROBLEMS

6. Needs In this case, Allied made the following arguments: “Allied asks the Court to vacate the

arbitrator’s award because his award was “arbitrary and capricious” and exceeded his authority in

a number of ways. First, Allied argues that the finding with respect to the November 7, 2011,

incident that the truck arm had extended on its own was without evidentiary support and was

contrary to Reeves’ own admission that the arm was fully retracted at the time of the incident.

7. The company could argue that the arbitrator exceeded his or her authority under the collective

agreement⎯by basing the decision on personal notions of right and wrong (of equity) rather than

8. In Ionosphere Clubs, the majority held that the application of the automatic stay provision of the

bankruptcy code to an arbitration brought under the collective bargaining agreement violated

Section 1113(f) of the code. The two-judge majority reasoned that such a stay allowed the

Cihon/Castagnera, Employment and Labor Law, 9e Instructor’s Manual Chapter 17

9. The judge affirmed the arbitration award. The company’s failure to disclose all reasons for its

10. The court held that the agreement was ended if the paper ceased publication⎯the guarantee of

11. The Supreme Court held that the employer was required to arbitrate the issue. The Court held that

the dispute arose under the contract, even though it arose after the expiration of the contract. The

Court also stated that nothing in the arbitration clause expressly excluded arbitration of disputes

12. The Supreme Court held that Howard Johnson was not required to arbitrate the question because

there was not a substantial continuity of identity in the work force hired by Howard Johnson and

13. The Court of Appeals vacated the injunction granted by the District Court. The agreement stated

14. The Court held that the arbitrator had not based his decision on the “just cause” provisions of the

15. The Court of Appeals vacated the injunction issued by the District Court. The Court of Appeals

16. The 9th Circuit Court of Appeals, affirming the trial court, held that her suit under state law was

HYPOTHETICAL SCENARIOS

17. Yes. 11 U.S.C. §1113 allows a bankrupt employer to reject the collective agreement if certain

conditions are satisfied. When there is no bankruptcy filing, an employer cannot invoke an

economic necessity defense to justify unilaterally cancelling an agreement, and, as a result, the

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18. Yes. The factors set out by the NLRB in Fall River Dyeing basically define “substantial

continuity” as continuity in tasks, process, customers, and supervision. Also, the Board keeps in

mind the question whether those employees who have been retained will understandably view

19. §1113 allows a company that files bankruptcy to reject the collective agreement only if the

following conditions are satisfied: The employer has proposed to the union contractual

20. Yes. The dispute is clearly subject to the grievance-arbitration provision of the collective

bargaining agreement, and the employer has expressed its willingness to arbitrate the dispute.

21. Paperworks v. Misco, Inc., the Court held that an arbitration award can only be vacated if it is