On May 31, a divided National Labor Relations Board (NLRB) issued a very significant decision in American Baptist Homes of the West, increasing the impact of an employer’s motive in deciding whether the permanent replacement of economic strikers is lawful. Given this new focus on the employer’s motive, the floodgates to second-guessing employers’ motivations in retaining permanent replacement workers for economic strikers are now open. Under the logic used by the Board, the NLRB conceivably could now find a discriminatory employer motivation in virtually every replacement strike and use it as a reason to order immediate reinstatement of economic strikers with full back pay and the dismissal of replacement workers. This result would chill the hiring of replacement workers, thus reducing an employer’s ability to maintain its operations during an economic strike. With this outcome, the Board has eviscerated a completely legal economic tool that Congress and the Supreme Court of the United States have granted to employers. A very serious practical effect of the case could be not only to discourage employers from hiring long-term replacement workers as a valid strike tactic, but also to embolden unions to take employees out on economic strikes more frequently.

The American Baptist Homes decision issued by two Board members over the lengthy dissent of Member Philip Miscimarra, in effect, overrules well-established Board precedent (Hot Shoppes, Inc., 146 NLRB 802 (1964)) that an employer's motivation in retaining replacement workers is immaterial. The decision also undercuts one of the Supreme Court's longest-established Board precedents in Mackay Radio, 304 U.S. 333 (1938), which authorizes employers to hire replacement workers "at will" and  "with impunity" in economic strikes and allows the replacement workers to continue working long-term without automatic dismissal, while offering the returning economic strikers placement on a future preferential rehire list should jobs become available. Under Mackay Radio, an employer has the right to replace striking workers "at will" during an economic strike and, thus, can replace them without scrutiny into the employer's motivation regarding hiring long-term replacement workers. After American Baptist Homes, this right is—for all practical purposes—nonexistent.

The decision also partially accomplishes the purpose of the failed Striker Replacement Act from the 1993-1994 Legislative Session that would have required the automatic reinstatement of returning economic strikers and the immediate dismissal of long-term replacement workers, similar to the procedures required in unfair labor practice strikes. That proposed legislation, designed to increase employees' strike activity without adding to risk of being replaced, and thus weaken employers’ defenses against devastating strikes in an effort to maintain business operations, was rejected by Congress.

Facts of the Case

American Baptist Homes of the West operates a continuous care facility in Oakland, California. A unit of approximately 100 nonprofessional healthcare employees in various departments has been represented by Service Employees International Union (SEIU), United Healthcare Workers-West since March of 2007. Their latest collective bargaining agreement was set to expire on April 30, 2010, and negotiations for a new agreement began in February of 2010. Union picketing began on May 25, 2010 and the union received strike authorization from employees in mid-June. With the parties still far apart on significant terms and conditions of the agreement, the union notified American Baptist Homes that it intended to strike, effective August 2, 2010. At the same time, the union, on behalf of all employees, made an unconditional offer for strikers to return to work on August 8, 2010.

American Baptist Homes engaged a staffing agency at great expense and approximately 80 workers went out on strike. When contacted by the union's lawyer before the strike ended regarding whether the company intended to lock out the striking employees, a company spokesperson stated that it intended to permanently replace them "to teach the strikers and the Union a lesson" and to avoid future strikes. In subsequent testimony, another company spokesperson stated that it was the company's desire to have replacement workers available in the event that the strike continued or that future strikes arose and costs soared to maintain business operations. The union ended the strike on August 7, 2010 without having convinced the company to accept its demands; 44 of the returning strikers were permanently replaced and not rehired.

The general counsel issued a complaint alleging violations of Sections 8(a)(1) and 8(a)(3) of the National Labor Relations Act (NLRA), asserting that the employer's motivation in hiring replacement workers constituted an "independent unlawful purpose" within the meaning of Hot Shoppes, Inc. However, citing Hot Shoppes and Mackay Radio, the Board's administrative law judge (ALJ) dismissed the complaint and ruled that the employer's statements did not constitute an "independent unlawful purpose," which is established only when the hiring of replacement workers is "unrelated to or extraneous to the strike itself." Here, the Board's ALJ ruled, the employer's statement regarding "teaching the strikers [and the union] a lesson" and avoiding future strikes was related to the strike itself.

The Majority’s Decision

A two-member Board majority overturned the ALJ's decision and ruled that the employer's statements evidenced an "independent unlawful purpose" for hiring replacement workers within the meaning of Hot Shoppes, Inc., even though these statements were directly related to the strike at issue. The decision found that the statements in question revealed that an unlawful anti-union retaliatory purpose was the motivation for the hiring of permanent replacement workers, and, in effect, reads the “independent” requirement right out of the standard.

The Board's decision opens the door to future scrutiny of employers’ motivations in deciding to hire permanent replacement workers and disregards the Supreme Court's admonition in Mackay Radio, and its own precedent in Hot Shoppes, Inc., that an employer may hire permanent replacement workers for economic strikers  "at will" and "with impunity," and that the employer's motivation is "irrelevant" and should not be subject to scrutiny so long as there is not an "independent unlawful purpose" for the hiring of replacement workers unrelated to the strike itself. The Board ordered the employer to reinstate all of the employees who had participated in the strike and were permanently replaced, with full back pay and interest, and to discharge the replacement workers.

Miscimarra’s Dissent

In a lengthy dissent, Board Member Miscimarra disagreed with the majority's interpretation of what constitutes an "independent unlawful purpose," which, he argued, read "independent" out of the phrase entirely. The dissent noted that the balanced exercise of economic warfare, such as strikes and lockouts, is usually motivated by the lawful purpose of inflicting economic harm by and on both sides, sometimes with devastating consequences for employers, employees, and unions—or all three. The Board's decision upsets that balance by inviting a search in every future case to divine an employer's motivation in hiring permanent replacement workers for economic strikers. Further, the dissent objects to the majority's invalidation of an economic weapon (among the several economic weapons available to both labor and management and permitted by the NLRA) that was approved by the Supreme Court over 75 years ago in Mackay Radio.

The dissent predicts that due to the potential financial liability for employers of having their motivations for retaining permanent replacement workers subject to Board scrutiny, the Board's decision will only discourage employers from engaging permanent replacement workers in economic strikes, thus weakening employers’ defenses to such strikes and emboldening unions to engage in greater strike activity.

The dissent concludes by noting that Congress made the decision to affirmatively protect certain economic weapons authorized in the NLRA, and that the Board is not free to rearrange the balance of those weapons and ignore Mackay Radio, Hot Shoppes, and other federal court and NLRB precedent protecting that balance. Given the significant change in that balance, we expect challenges to this standard as the issue reaches the federal courts.

Key Takeaways

Regardless of any legal challenges that may arise in the future, employers must live with the new standard. Any employer considering the use of permanent replacements during an economic strike may want to carefully control the message as to its reason for using permanent replacements. Although American Baptist Homes appears to acknowledge that employers do not have to provide a reason for using permanent replacements, the absence of a reason may lead to inappropriate speculation by management. The better answer may be to ensure that an employer focuses on legitimate reasons for the use of permanent replacements. One such rationale could be a conclusion by the employer that permanent replacements are better for the business and/or easier to obtain. (One would also hope that another reason for such a decision might be the employer’s desire to exert economic pressure on employees and the union to further the employer’s legitimate objectives at the bargaining table; the problem with this is that American Baptist Homes, could be interpreted to prohibit that motivation, even though such a holding would clearly violateMackay Radio and the NLRA.) Regardless of the reason for their decisions, employers contemplating the use of permanent replacement workers in economic strikes should promptly train all levels of management not to speculate as to the rationale for hiring permanent replacement workers and to defer any questions regarding their use to the company’s decision-makers.