In theory, it is not an unfair labor practice to refuse to negotiate with a union engaged in competition with the employer—unless, of course, the employer gave the union other reasons for refusing to negotiate.

The National Labor Relations Board (NLRB) has recognized the disqualification defense on limited occasions to relieve an employer of its bargaining duties with unions that have a conflict of interest. For example, in Bausch & Lomb Optical Co., 108 NLRB No. 1555 (1954), the Board ruled lawful an employer’s refusal to bargain with a union because the latter established a company that directly competed with the employer.

In a 3–0 decision released on October 17, 2016, the NLRB rejected a healthcare company’s argument that the union was disqualified from representing the bargaining unit because, among other grounds, the employer failed to present evidence that the union’s alleged conflict of interest prompted the employer’s refusal to bargain. Instead, the Board held the healthcare company to the reasons it expressly conveyed during the negotiations.

In Prime Healthcare Services-Encino, LLC, 364 NLRB No. 128 (2016), SEIU United Health Care Workers-West (UHW) filed unfair labor charges against two hospitals owned by Prime Healthcare Services (Prime) for failing to (1) continue paying anniversary step wage increases to unit employees after the contracts expired and (2) provide requested healthcare information. Prime argued that the wage increases did not survive contract expiration and that the requested information was irrelevant and demanded in bad faith. Further, the hospitals asserted that “they had no legal obligation to bargain with UHW at all, as the Union disqualified itself, forfeiting its statutory right to represent the unit employees at the hospitals, because of its strategic partnership with [one of] Prime’s competitor[s].”

With respect to the disqualification theory, UHW also represented employees at hospitals owned by Kaiser Permanente and was a member of the National Coalition of Kaiser-Permanente Unions. The coalition and Kaiser were parties to a labor-management partnership agreement wherein Kaiser agreed to fully integrate the participating unions into the company’s strategic decision-making process. In return, the participating unions agreed to assist Kaiser in “achieving and maintaining market leading competitive performance,” “expand[ing] [Kaiser’s] membership in current and new markets,” and “market[ing] [Kaiser] as the employer and care provider of choice,” including “to new and existing union groups.” To execute its objectives, the unions “agreed to ‘focus . . . on real external threats’ to Kaiser, including ‘competition.’”

During the renegotiation period, Prime’s in-house labor counsel sent letters to the lead negotiator for UHW questioning whether the bargaining process had been compromised. Prime was concerned—based on the labor-management partnership agreement between Kaiser and the coalition—that UHW “might be working together with Kaiser to exclude Prime from the California healthcare market.” Acting on this concern, Prime requested information and documents regarding the relationship and communications between UHW and Kaiser. UHW ultimately denied the request. Months later, Prime filed an antitrust suit against SEIU, UHW, and Kaiser. Prime, however, neither filed an unfair labor practice charge with the NLRB nor unilaterally withdrew recognition from UHW.

The NLRB rejected Prime’s disqualification defense for several independent reasons. Assuming that the hospitals may assert such a defense, the Board found that Prime failed to show that the relationship between UHW and Kaiser warranted disqualification. The Board’s primary reason, however, was grounded upon estoppel.

According to the decision, “[Prime] failed to present any evidence that UHW’s asserted disqualifying conflict of interest and/or conduct had anything whatsoever to do with [Prime’s] alleged unlawful actions.” To demonstrate that the alleged conflict was merely pretext, the Board pointed out that, as to the anniversary step wage increases, the hospitals informed the unions that the increases would be discontinued due to Prime’s interpretation of the contract. With respect to the requested healthcare information, the opinion turned to Prime’s assertions to UHW that the request was irrelevant and made in bad faith. Neither reason relied upon UHW’s relationship with Kaiser.

Notably, the Board did consider that Prime at one point questioned and requested information from UHW about its relationship with Kaiser and even filed an antitrust action. However, the Board ultimately concluded that “there is no evidence that [Prime] ever actually asserted that UHW was disqualified from representing the unit employees.” Accordingly, “[Prime] cannot now assert as a defense . . . that they never had to recognize and bargain with UHW in the first place.” Essentially, because the hospitals conveyed to the unions other reasons for discontinuing the anniversary step wage increases and not producing the requested healthcare information, and never stated expressly that the relationship between UHW and Kaiser disqualified the former from representing Prime’s employees, Prime was estopped from asserting the disqualification argument.

Employers should be cognizant of the reasons they convey to union officials for their conduct during the negotiation process. Moreover, if an employer believes a union is competing with the employer’s business, and thus is disqualified from representing its employees, it should expressly state so. Mere inquiries, and even an antitrust lawsuit, appear to be insufficient.