The foundation of the relationship between an employer and a union is the collective bargaining agreement negotiated by the parties. Central to those agreements are dispute resolution processes that allow for expedited procedures to resolve conflicts. Disputes between employers and unions are typically resolved through a grievance process that culminates in final and binding arbitration. These underpinnings of the labor-management relationship allow for industrial peace, stability, and finality. Historically, the National Labor Relations Board (NLRB) has granted deference to these mutually agreed-upon dispute resolution processes and their results.

On December 15, 2014, 60 years of stability, predictability and familiar process came to an end. In a 3-to-2 decision, a divided Board ruled in Babcock & Wilcox Construction Company, 361 NLRB 132, that the traditional standards governing how the NRLB assesses disputes arising under the grievance and arbitration provisions of the National Labor Relations Act (NLRA) shall be forever changed. The Babcock & Wilcox decision overturns long-standing precedent governing deferrals to arbitration awards, deferrals to prospective arbitration procedures, and deferrals to grievance settlements reached prior to arbitration.

Factual Background

Coletta Kim Beneli worked for Babcock & Wilcox Construction Company as a utility operator and served as the union steward representing the International Union of Operating Engineers, Local 428. According to the company, Beneli was discharged for an angry outburst and use of profanity in response to receiving a three-day suspension. The union grieved the suspension and discharge. During a Step 4 grievance hearing, the union asserted that Beneli had been discharged in violation of the collective bargaining agreement and in violation of the National Labor Relations Act. While the grievance was pending, Beneli filed an unfair labor practice charge and the Region deferred the charge to the grievance and arbitration process. After the NLRB’s deferral, the subcommittee who heard the grievance denied the grievance and upheld Beneli’s discharge. Unsatisfied with the results of the grievance, Beneli asked the Region not to defer to the arbitration; the Region reversed its deferral and issued a complaint.

Administrative Law Judge Jay R. Pollack heard the case and applied the then-current standard for assessing deferrals to arbitral awards and their final disposition. Judge Pollack applied the Spielberg/Olin standards and determined that (1) the parties had agreed to be bound by the decision; (2) the proceedings appeared to have been fair and regular; (3) the issue was factually parallel to the alleged unfair labor practice charge and the subcommittee considered those facts; and (4) the decision was not factually repugnant to the NLRA. Despite the fact that Judge Pollack would not have reached the same conclusion, Judge Pollack recommended deferral to the grievance and arbitration procedure.

The General Counsel of the NLRB filed exceptions to the decision. Rather than limiting the scope of the review to facts presented in the Babcock & Wilcox decision, the NLRB invited the parties and others to file briefs addressing the questions related to whether the current deferral standards are appropriate or should be modified and, if so, what standards should apply.

The Decision

Based upon a thinly supported assertion that the current standards do not adequately protect the Section 7 rights of employees, the Decision and Order of the three-member majority of the Board, Chairman Pearce and Members Hirozawa and Schiffer announced sweeping changes to the NLRB’s deferral processes in cases involving alleged violations of Sections 8(a)(3) and (1) of the NLRA.

Deferral to Arbitral Decisions. In Spielberg Mfg. Co., 112 NLRB 1080 (1955), the NLRB set forth the principle that it would defer to arbitral decisions wherein the proceedings appeared to have been fair and regular, all parties had agreed to be bound, and the decision did not appear to be repugnant to the NLRA. In 1984, in Olin Corp., 268 NLRB 573 (1984), the NLRB adopted the pre-Babcock & Wilcox standard which holds that deferral is appropriate when the contractual issue is factually parallel to the unfair labor practice issue, the arbitrator was presented with facts generally relevant to resolving the issue, and the arbitrator’s award was not clearly repugnant to the NLRA.

Under the newly created standard, the Board will only defer to arbitration decisions if the arbitration procedures appear to have been fair and regular, the parties agreed to be bound and the party urging deferral shows “(1) the arbitrator was explicitly authorized to decide the unfair labor practice issue; (2) the arbitrator was presented with and considered the statutory issue, or was prevented from doing so by the party opposing deferral; and (3) Board law reasonably permits the award.”

Prearbitral Deferral. Under the pre-Babcock & Wilcox standard, if a party filed an unfair labor practice charge and the evidence established an arguable violation of the NLRA and an existing collective bargaining agreement, the matter would be deferred to the dispute resolution process of the collective bargaining agreement if

  1. the dispute arose within the context of a long and productive collective-bargaining relationship;
  2. there was no claim of animosity toward the employee’s exercise of Section 7 rights;
  3. the grievance-arbitration process provided for arbitration of the dispute;
  4. the employer had expressed its willingness to utilize arbitration to resolve the dispute notwithstanding any timeliness or other procedural issues; and
  5. the alleged unfair labor practice was at the center of the dispute.

Collyer Insulated Wire, 192 NLRB 837 (1971); United Technologies Corp, 268 NLRB 557 (1984); and Dubo Mfg. Corp., 142 NLRB 431 (1963).

With the newly created standard, the NLRB will not defer to the parties’ dispute resolution processes “unless the parties have explicitly authorized the arbitrator to decide the unfair labor practice issue, either in the collective bargaining agreement or by agreement of the parties.” Aside from the mandated explicit authorization of the unfair labor practice issue, the Board affirmed the General Counsel’s ultimate discretion to decide “whether and under what circumstances to defer to arbitration before issuing complaints.”

Deferral to Settlement Agreements. The pre-Babcock & Wilcox standard allowed for deferral to a settlement agreement if

  1. the proceedings appeared to be fair and regular;
  2. all parties agreed to be bound by the settlement;
  3. the agreement was not clearly repugnant to the NLRA; and
  4. the parties “considered” the unfair labor practice issue.

Alpha Beta Co., 273 NLRB 1546 (1985), review denied sub nom. Mahon v. NLRB, 808 F.2d 1342 (9th Cir. 1987); and Postal Service, 300 NLRB 196 (1990).

Under the newly created standard, the NLRB will not defer to settlements unless the parties specifically intended to settle the unfair labor practice issue, the unfair labor practice is addressed in the settlement agreement, and Board law reasonably permits the settlement agreement. The Board will consider all of the circumstances surrounding the settlement agreement including

(1) whether the charging party(ies), the respondent(s) , and any of the individual discriminates have agreed to be bound, and the position taken by the General Counsel regarding the settlement; (2) whether the settlement is reasonable in light of the nature of the violations alleged, the risks inherent in litigation, and the stage of the litigation; (3) whether there has been any fraud, coercion, or duress by any of the parties in reaching the settlement; and (4) whether the respondent has engaged in a history of unlawful conduct or has breached previous settlement agreements.

What Does It All Mean?

The NLRB has eviscerated the practical benefits of the traditional deferral standards. In rewriting these standards, the Board has thrown open the door for challenges to every arbitral decision, every negotiated dispute resolution process, and every mutually agreed upon settlement.

Given these new mandates, employers must consider whether their collective bargaining agreements should be modified to include reference to the rights protected by the NLRA. If a grievance is filed under the collective bargaining agreement, all settlements need to be reviewed for potential unfair labor practice issues and, if they exist, the agreement must specifically incorporate the parties’ intent to resolve those issues. Underlying both of these issues will be the willingness of a union to make the necessary modifications to a collective bargaining agreement or affirmatively waive any NLRA issues in a settlement. From a practical perspective, it will be difficult for the parties to waive issues that may not have been considered or raised at the time of the settlement. The Babcock & Wilcox decision increases the potential for labor strife and decreases the potential for negotiated agreements and settlements.

The impact on arbitration processes and arbitration decisions is equally onerous. All requests for deferral must specifically reflect the inclusion of the unfair labor practice issue. Because arbitration is a creature of contract, the willingness of a union to agree to the issue’s inclusion may impact the arbitrability of the issue. Parties will now have to more thoroughly assess whether an arbitrator is qualified to address the issues that may implicate rights under the NLRA. Even if the matter is deferred, there is little protection from the General Counsel’s withdrawing its deferral if the filing party is unhappy with the arbitrator’s decision. Thus, it now seems that final and binding arbitration is no longer “final and binding.” If the unfair labor practice charge is not specifically addressed in the arbitrator’s decision, the decision is subject to challenge.

The most significant change in the deferral standard may be the change from a “repugnant to the Act” standard to a standard that requires the decision to be reasonably permitted by Board law. Despite the Board’s assurance to the contrary, this final change creates a system of de novo review of every decision. The Board will sit as the superarbiter of the facts presented and determine whether it agrees with the decision of the underlying arbitration.

The Board now also holds that “cause” for discipline or discharge is not enough. An affirmative finding by the arbitrator that the asserted protected right was not a motivating factor in the discipline or discharge is required. Even with an arbitration decision that includes such a ruling, the Board will review the decision to determine if it complies with current Board law.

The new standards place a much heavier burden on the party asserting deferral, which is almost always the employer. The party asserting deferral now bears the burden of proving that the arbitrator actually considered the unfair labor practice or that the opponent affirmatively prevented consideration of the issue. The party asserting deferral is also responsible for establishing that the decision is not contrary to current Board law. Although the Board readily admits that not all arbitrators are fluent in Board law, arbitrators can be held to a standard equal to that of an administrative law judge. The Board will require “a reasonable application of the statutory principles that would govern the Board’s decision, if the case were presented to it, to the facts of the case.”

The Babcock & Wilcox decision is yet one more example of a Board that is pursuing a very aggressive pro-labor agenda. This Board has imposed the new “ambush election” rules, which will become effective on April 14, 2015. The Board overturned Register Guard in Purple Communications Inc. and granted employees the right to use employer email systems to communicate about any and all workplace issues during non-work time. Next on the Board’s list appears to be the long-standing principles that govern the subcontractor and franchisee systems.