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Union agreement over subcontractor upheld

A union could enforce a “letter of agreement” preventing a highway construction general contractor from doing business with a named subcontractor, the 1st U.S. Circuit Court of Appeals has ruled.

The National Labor Relations Board argued that the agreement violated section 8(e) of the National Labor Relations Act, 29 U.S.C. §158(e).

But the 1st Circuit disagreed.

“Rather, … the evidence in the record indicates that the agreement was intended to preserve union jobs …, a lawful purpose under the Act,” Judge Kermit V. Lipez wrote for a unanimous three-judge panel.

The 26-page decision is National Labor Relations Board v. International Brotherhood of Teamsters, Local 251.

North Kingstown, R.I., attorney Marc B. Gursky argued the appeal on behalf of the union. Thomas J. McAndrew of Providence, R.I., represented the general contractor.

Agreement and discord

The case involved employer J.H. Lynch & Co., a general contractor with facilities in Rhode Island. The employer was a signatory of the Construction Industries of Rhode Island’s collective bargaining agreement with Local 251 of the International Brotherhood of Teamsters. Local 251 was the longtime representative of truck drivers employed by Lynch.

The union’s vice president and business agent, Joseph Boyajian, was especially troubled by Lynch’s use of two subcontractors, Northeast Transportation Inc., and Cullion Excavating Corp., because they did not pay their drivers the prevailing rate of compensation established by the terms of the collective bargaining agreement.

The employer’s president, David Lynch, eventually promised not to use Northeast or Cullion. He ended up sending a letter to Boyajian in 1999 memorializing the agreement between the parties.

The letter stated: “The trucking services of Northeast Transportation Corp. and Cullion Excavating Corp. will not be utilized. Should a particular project come along that requires excessive trucking and we are not able to supplement our fleet adequately, we will notify you of the situation to allow us to amicably resolve the problem. The Employer acknowledges the Union’s right to strike to enforce this Agreement.”

Years later the union organized a strike, resulting in Lynch filing charges against Local 251. The major issue was whether the parties’ 1999 agreement violated section 8(e) of the act by impermissibly preventing Lynch from doing business with a third party.

Such an agreement is valid, the 1st Circuit said, “if its objective is the preservation of work for bargaining unit employees — such an agreement involves primary activity.”

By contrast, if the purpose of the agreement is to further union objectives with respect to a third party — such as pressuring the third party to accept unionization of its employees — it involves secondary activity and violates section 8(e).

An administrative law judge found that the agreement violated section 8(e) of the act with regard to Cullion, but not Northeast. Upon review, the NLRB, emphasizing the plain terms of the May 1999 agreement, found that the agreement’s application to both subcontractors violated section 8(e) of the act and entered a remedial order.

Lawful purpose

In reversing the ALJ’s decision, the NLRB focused exclusively on the language of the agreement and particularly on the fact that Northeast and Cullion were identified by name in the agreement.

The board concluded that the agreement violated section 8(e) regardless of the circumstances surrounding the negotiation of the agreement or whether the agreement was actually intended to preserve union jobs.

But the 1st Circuit found that “because significant record evidence of these surrounding circumstances indicated that the May 1999 agreement did not have an impermissible purpose, the plain text of the agreement is not substantial evidence supporting the Board’s conclusion.”

Because the union was aware that other subcontractors aside from Northeast and Cullion were utilized, singling out those two companies indicated that the agreement was intended to achieve union objectives with those companies and not to preserve work, Lynch argued.

“However, the relevant inquiry is not whether Lynch used other subcontractors, but whether Lynch used other subcontractors that failed to pay the prevailing rate,” Lipez responded. “There is record evidence, in the form of testimony at the hearings before the ALJ, that, as of May 1999, these were the only subcontractors used by Lynch that failed to pay the prevailing rate.”

The NLRB acknowledged in its decision that an agreement that permits an employer to subcontract bargaining unit work only to subcontractors that honor the economic terms of the collective-bargaining agreement serves a lawful primary purpose — eliminating any economic incentive to take work away from employees in the unit.

“In this case, the May 1999 agreement between Local 251 and Lynch is precisely this sort of agreement,” Lipez said. “It identified Northeast and Cullion by name because, at that time, those were the only subcontractors that did not pay the prevailing wage.”

Thus, Lipez reasoned, “the agreement was tailored to directly address the practice that the union believed threatened bargaining unit work and violated the collective bargaining agreement.”

The court found that both prongs of the test for identifying lawful work preservation agreements were present; the objective of the agreement was to preserve bargaining unit work, and the party with whom the agreement was made, Lynch, had the power to assign employees the work in question.

“The NLRB reached a different conclusion only because it focused on the face of the agreement and ignored evidence of the surrounding circumstances,” Lipez observed. “Accordingly, we reverse the Board’s decision with respect to that portion of the May 1999 agreement concerning Northeast and we reinstate the finding of the ALJ that the May 1999 agreement did not violate section 8(e) of the Act with respect to Northeast.”

Because Local 251 did not challenge the NLRB’s decision that the May 1999 agreement violated section 8(e) of the act with respect to its prohibition against use of Cullion, the court concluded that the board was entitled to enforcement of that portion of its order.

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