A recent decision of the U.S. Court of Appeals for the Fifth Circuit illustrates the potential pitfalls of outsourcing in the face of a union campaign, as well as the steep hurdle employers face in overturning a decision of the National Labor Relations Board (“NLRB”). In Remington Lodging & Hospitality, LLC v. NLRB, the Fifth Circuit enforced an NLRB order holding that a hotel management company’s decision to outsource the hotel’s housekeeping department was motivated at least in part by anti-union animus and therefore violated Section 8(a)(3) of the National Labor Relations Act (“the Act”).
In late 2011, Remington Lodging & Hospitality, LLC (“the Management Company”) was hired to manage the Hyatt Regency Long Island hotel (“the Hotel”). At the time the Management Company took over management, the Hotel’s housekeeping functions had been outsourced to a staffing company. Consistent with its general preference to directly employ its workers, the Management Company brought the housekeeping function back in-house, and terminated the Hotel’s contract with the staffing company.
Unfortunately, the Hotel’s guest-room component score – its primary indicator of housekeeping effectiveness – continued to decline, and by June of 2012 had hit its lowest level. That month, the Management Company contacted the staffing company about re-outsourcing the Hotel’s housekeeping department, and in August entered into a new agreement with the staffing company to do so.
The NLRB held that this second outsourcing was at least partially motivated by a desire to discourage membership in a union that had begun making efforts to unionize the housekeepers around the time the Management Company elected to re-outsource the department.
On appeal, the Fifth Circuit rejected the Management Company’s argument that to prove a violation of Section 8(a)(3) of the Act, the NLRB must produce evidence that the discrimination “in fact caused or resulted in a discouragement of union membership.” As the NLRB had failed to introduce such evidence, the Management Company argued the NLRB’s order was not supported by substantial evidence.
In rejecting this argument, the Fifth Circuit noted that requiring actual evidence of discouragement was “completely inconsistent” with Fifth Circuit precedent. The court stated flatly the NLRB “need not prove discouragement as a matter of fact.”
While the Management Company asserted that the decline in guest-room component scores explained its decision, the court upheld the NLRB’s resolution of this contested issue of fact. The court noted that the NLRB had relied on evidence of two union-related conversations between housekeepers and Hotel supervisors prior to the outsourcing decision, as well as the statement of another supervisor that the outsourcing decision was “because of the union.” Together these constituted substantial evidence of an unlawful motive. Stating that it must pay “special deference” to the NLRB’s resolution of conflicting evidence, the court upheld the NLRB’s order.
The lesson for employers is a familiar one – be mindful of the potential repercussions of outsourcing decisions, and careful when considering and articulating the underlying motivation. Conflicting evidence is enough to find illegal motivation.