Supreme Court Decision In Mulhall Could Have Broad Implications For Labor Organizing


Labor law cases that reach the Supreme Court are rare. This term, much attention is focused on Noel Canning v. NLRB, where the Supreme Court will decide whether President Obama’s recess appointments to the NLRB were constitutional. While that case has implications for the hundreds of decisions issued by an NLRB that was populated with recess appointments, the long-term labor impact of Noel Canning is likely minimal. The Supreme Court faced a similar case years ago in New Process Steel, where it found that the Board issued hundreds of decisions without a proper quorum. To rectify the problem, the NLRB re-heard and re-issued decisions in many cases. This will likely be the same outcome should the Court find the recess appointments unconstitutional.

The case, however, before the Supreme Court this term that has much broader long-term implications for organized labor is UNITE HERE Local 355 v. Mulhall (Dkt No 12-99). In Mulhall, the Court will consider whether a “neutrality agreement” between a labor union and an employer during an organizing drive is a “thing of value” and therefore illegal under Section 302 of the Labor-Management Relations Act. Oral arguments are scheduled for Wednesday, November 13.

Importance of neutrality agreements. The importance of neutrality agreements for union organizing cannot be overstated. Under the National Labor Relations Act, an employer has the right to require a “secret ballot” election to determine if its employees want to be represented by a union. But an employer also has an option to voluntarily recognize a union, should it receive credible evidence that a majority of its employees desire union representation. While the traditional secret ballot election was the preferred method of union organizing for much of the first 50 years of the NLRA, in the late 1980s and early 1990s labor unions shifted their focus to non-traditional means of organizing and obtaining voluntary recognition. After all, the secret ballot election process can be expensive and time-consuming; the union must first obtain signatures from at least 30 percent of employees to even trigger an election (and unions usually seek a much higher percentage before asking for a vote), followed by a usually acrimonious 42-day election period. Even if the union wins — and to this day unions win the majority of NLRB elections — litigation over various aspects of the election process can drag on for months or years. In the post-Reagan era, when unions were hemorrhaging money and members, this “bottom-up” form of traditional organizing could not keep pace with labor’s continuing decline in membership.

In an effort to solve this problem, labor shifted its focus to “top-down” organizing. Instead of focusing on winning the support of employees as a prelude to recognition, unions turned to organizing “employers” — convincing the employer not to oppose unionization. The usual deal went something like this: Union threatens employer with a “corporate campaign” that will attack employer’s reputation and standing in the community; to avert the corporate campaign, employer agrees to a neutrality agreement and card-check organizing. In that agreement, the employer usually pledges to be neutral or silent towards organizing and not run an “anti-union” campaign. Given that employer informational campaigns can be very effective in tempering support for the union, the employer’s self-imposed gag order is the cornerstone of the entire deal. Under “card check,” the union can obtain the necessary “credible evidence” of majority support once a majority of employees sign cards — almost always out in the open — in support of the union. With neutrality/card-check agreements, gone are the days of the NLRB-conducted secret ballot election.

And what do employers receive in return for agreeing to forego the right to speak out in opposition to unionization? The union agrees to forego any corporate campaign attacks, which, for employers concerned with their reputations, is a significant concession. In fact, in many instances the same employer that the union was ready to clobber with a barrage of PR attacks suddenly becomes a model employer. Perhaps more significant, however, the employer may receive a commitment from the union to favorable contract terms: wages, health care, and paid time off similar to non-union workers, favorable management rights language, a lengthy contract term, and management-friendly policies.

Employers and unions, however, must walk a fine line in this “negotiation” of an agreement: some “framework” understandings between employer and union of what a labor contract would look like may be permissible pre-recognition, but negotiating a full-blown collective bargaining agreement before recognition has long been prohibited by the NLRA.

Dana Corp ruling. The legality of such an understanding was the subject of a 2010 NLRB decision, Dana Corp. In that case, the employer and union agreed to a card check/neutrality arrangement. In return, the employer received certain assurances concerning the terms and conditions of any future agreement, such as the contract length (at least four years), that the union would not “erode current” health care “solutions and concepts” concerning “premium sharing, deductibles, and out-of-pocket maximums,” and that certain “conditions” would be included in any CBA including job classifications, overtime, and flexible compensation arrangements.

In a 2-1 decision, the NLRB found the agreement lawful, holding that it was nothing more than a “framework” for a future CBA that “set forth certain principles that would inform future bargaining on particular topics.” In support of its position that the neutrality agreement was lawful, the NLRB stated that, “The courts have rejected arguments that card-check/neutrality agreements between unions and employers violate Section 302.”

Eleventh Circuit’s decision. Federal courts have consistently rejected the Sec. 302 “thing of value” argument. Both the Third and Fourth Circuits have found that a neutrality agreement did not constitute a “thing of value” within the meaning of the statute. Then came the Eleventh Circuit’s decision in Mulhall last year.

In Mulhall, Mardi Gras Gaming and UNITE HERE entered into a neutrality agreement that provided the union with access to the company’s employees during non-working hours; a list of employees with home addresses; and a promise from Mardi Gras to remain neutral concerning unionization. The agreement also provided for “card-check” style organizing, and required that Mardi Gras waive both its right to a secret ballot election and its ability to file any unfair labor practice charges against the union. Finally, the agreement stated that should the company and the union fail to reach an agreement on a first contract after 150 days, an outside arbitrator would set initial terms and conditions of employment. (Generally referred to as “interest arbitration,” this procedure, while common in public sector labor relations where the right to strike usually is lacking, is rare in private sector labor relations). In return, the union agreed to lend financial support to a ballot initiative on casino gaming and, if recognized as the bargaining agent for employees, to refrain from picketing, boycotting, striking, or undertaking any economic action against Mardi Gras. The union ultimately spent more than $100,000 campaigning for the casino initiative.

The neutrality agreement was unconventional in one sense: most neutrality agreements do not include an express “exchange” of neutrality for political support at the polls. But, in another way, it was less imposing than neutrality agreements that have received approval from the NLRB, such as the agreement at issue in Dana, which included a CBA “framework” and guiding principles. Nevertheless, Martin Mulhall, a Mardi Gras employee opposed to unionization, filed a lawsuit seeking to enjoin the neutrality agreement on the grounds that it was a “thing of value” and thus violated Sec. 302. The district court dismissed the complaint for failure to state a claim because it concluded that the agreement could not constitute a “thing of value” under Sec. 302 as a matter of law.

In a surprising 2-1 decision, the Eleventh Circuit reversed. In reviewing the purpose of Sec. 302, the appeals court found that the law was intended to “prevent employers from tampering with the loyalty of union officials and to prevent union officials from extorting tribute from employers.” In light of this purpose, the inquiry is not whether “something . . . has monetary value,” but “whether its performance fulfills an obligation,” the court said. In that way, “[i]f employers offer organizing assistance with the intention of improperly influencing a union, then the policy concerns in Sec. 302 — curbing bribery and extortion — are implicated.”

While “employers and unions may set ground rules for an organizing campaign, even if the employer and union benefit from the agreement,” such ground rules can cross the line into a prohibited “thing of value,” the appeals court wrote, “if used as valuable consideration in a scheme to corrupt a union or to extort a benefit from an employer.” The court noted the $100,000 in political assistance that UNITE HERE gave Mardi Gras as evidence that the agreement had a monetary value and held that this was at least sufficient to state a claim under Sec. 302. The court remanded the case to the district court to determine why the union and Mardi Gras cooperated. Based on the holding, if the neutrality agreement was part of a “scheme” to “extort a benefit from” Mardi Gras, it presumably would violate Sec. 302.

In dissent, Judge Restani cited to both the Third and Fourth Circuit decisions as having better reasoning on the issue. The dissent also argued that the complaint should be dismissed even under the majority’s reading of the statute, pointing out that, at the pleading stage, the complaint “must contain factual allegations showing the union demanded these concessions as extortion or were offered by the employer as a bribe, and not just as regular ground rules of organizing.” According to the dissent, Mulhall never “alleged that Mardi Gras offered these concessions as a bribe” and instead “merely allege[d] that unions, in general, have or may have improper motives when negotiating for these concession.” Without more specific allegations, the dissent would have dismissed the complaint, even under the majority’s theory.

Supreme Court to decide. Mulhall (represented by the National Right to Work Committee) and Mardi Gras are both urging the Supreme Court to affirm the Eleventh Circuit’s decision. Much of their argument is that a neutrality agreement is a ‘thing of value” that is prohibited under Sec. 302 (under a strict construction of that provision). UNITE HERE and its allies dispute that point, but also argue that the legislative purpose of Sec. 302 is to prevent bribery or corruption, which is not implicated in this case. “Mulhall’s theory,” the union argues, “would criminalize the very things the Act promotes — industrial peace, voluntary and enforceable labor-management agreements, and arbitration — for they are valuable to labor organizations and Sec. 302 has no exceptions for them.” Finally, the union argues that the Eleventh Circuit’s focus on “intent” is misplaced because Sec. 302 is a strict liability statute and has no mens rea requirement.

Impact on organized labor. If the Supreme Court upholds Mulhall, the negative impact on labor unions could be significant. Affirming the “thing of value” theory would allow any employee disgruntled by a neutrality agreement to file a Sec. 302 lawsuit seeking to enjoin its enforcement. This could result in a proliferation of litigation concerning why the union and employer agreed to cooperate. The cases will then turn on whether the neutrality agreement constituted bribery or a form of corruption.

Drawing this type of very imprecise line is tricky. Obviously, labor leaders “get” something as the result of a neutrality agreement. But is this “something” really the same as, say, a trip to Vegas or cash in a bag? Ultimately, courts would need to flesh out these thorny factual and legal issues. But the fact that every neutrality agreement would be fraught with such legal risk could lead unions to abandon the entire neutrality agreement/card check arrangement altogether. Yet, without something lawful to replace it, labor unions risk jettisoning a highly effective organizing tactic. And a dwindling membership base could dwindle far more.

Effect on employers. For employers, the potential impact of Mulhall depends on whether neutrality agreements help or hurt their businesses. The prospect of having to relent to card check/neutrality or face a damaging corporate campaign is a no-win situation for an employer that believes unionization is bad for its business or that employees deserve a secret ballot election as a matter of fairness (or both). If the Supreme Court agrees with the Eleventh Circuit, Sec. 302 would act as a deterrent to a neutrality agreement in the first place, and help employers stay union-free.

Yet, for other employers — perhaps due to political pressure, industry practice, or legislative fiat — unionization is a “necessary evil.” In this circumstance, a neutrality agreement can be useful. In the “exchange” between the parties, the union obtains access, neutrality, and card check, while the employer receives a favorable — or at least reasonable — framework for contract terms that is “friendlier” to its business goals, without the threat of strikes. Given that collective bargaining is, at its heart, a series of exchanges anyway, it is hard for these employers to fathom that Sec. 302 could truly prohibit this type of “give and take” without outlawing collective bargaining in general.

Either way, all eyes in labor law will be focused on the Supreme Court Wednesday morning. If the Court adopts the Eleventh Circuit’s “thing of value” theory, labor organizing as we know it could change significantly.