In an era when the National Labor Relations Board seldom finds actions by employers to be reasonable, that agency recently issued two decisions finding that a unilateral change in employee benefits provided under a collective bargaining agreement was consistent with the agreement and therefore lawful. American Electric Power, 362 NLRB No. 92 (2015); Bay Area Healthcare Group dba Corpus Christie Medical Center, 362 NLRB No. 94 (2015).   

American Electric Power

In this decision, the NLRB found that a company’s elimination of retiree medical benefits for future hires was based on a reasonable interpretation of a collective bargaining agreement and, therefore, the company had a “sound arguable basis” for making the change.  The critical factor in the decision was a distinction between a “midterm contract modification” under Section 8(d) of the National Labor Relations Act and a unilateral change in working conditions under Section 8(a)(5) of that statute.  Section 8(d) provides that when a collective bargaining agreement is in effect, neither party to the agreement can lawfully modify it. 

The NLRB stated that it will not find a violation of Section 8(d) under the midterm contract modification theory if the employer had a “sound arguable basis” for its belief that the agreement authorized the action.  In addition, the NLRB explained that where the dispute is solely one of contract interpretation and there is no evidence of anti-union animus, bad faith, or intent to undermine the union, it will not seek to determine which of two equally plausible contract interpretations is correct.

The NLRB overruled a previous decision in this case by an administrative law judge, who concluded that the company lacked a sound arguable basis for its interpretation and, therefore, it unlawfully modified the terms of the agreement.  The NLRB found that the ALJ failed to analyze the evidence under the “sound arguable basis” standard and instead incorrectly applied the “clear and unmistakable waiver” standard, which is used for allegations of a unilateral change in working conditions under Section 8(a)(5).

Bay Area Healthcare

In this case, the NLRB affirmed a finding by an administrative law judge who reached a result similar to the result in American Electric Power, although under a different rationale, after a company eliminated a contractual extended illness benefit and replaced it with a substantially different plan.  The ALJ found that the company had a contractual right to make this change in benefits and, therefore, the union had clearly and unmistakably waived its right to bargain over that issue.  Having found that the company lawfully made the change, the ALJ concluded that it was unnecessary to decide the Section 8(d) issue that was central to the Board's decision in American Electric Power. 

Although the ALJ’s rationale was different from the rationale of the American Electric Power decision, the NLRB did not correct this apparent inconsistency and it simply affirmed the ALJ’s decision without comment.  However, one member of the NLRB added a footnote explaining that the company had a "sound arguable basis" for concluding that it had satisfied the conditions of the collective bargaining agreement. 

Significance for Employers

As a result of these recent decisions, employers that are parties to a collective bargaining agreement may now have additional flexibility in making unilateral changes that are consistent with the provisions of the agreement.  Under the NLRB’s decision in American Electric Power, it appears that the employer will not need to prove that its interpretation of the agreement was correct; it will only need to prove that there was a "sound arguable basis" for that interpretation.  In addition, it appears that the employer will not need to prove that the union has waived its right to bargain over the change.  If the employer can prove that its interpretation of the agreement was correct, the NLRB’s affirmance of the ALJ’s decision in Bay Area Healthcare should provide additional support for the change. 

It is important to understand, however, that these decisions apply only to unfair labor practice charges filed under the NLRA.  In most cases, the union will also have the option of filing a grievance under a contractual grievance procedure and pursuing arbitration of the grievance.