On June 8, 2012, the United States Court of Appeals for the District of Columbia Circuit held that changes made by E.I. du Pont de Nemours and Company (“DuPont”) to its ERISA-governed medical plan (the “Plan”) after the expiration of collective bargaining agreements (“CBA”) with two local unions did not violate the National Labor Relations Act (“NLRA”) because DuPont had an established practice of unilaterally changing the plan and because the Plan had a provision authorizing DuPont to make such changes.

DuPont’s CBAs with local unions expired in Kentucky and Delaware. Each CBA allowed employees to participate in the Plan “subject to all terms and conditions of the” Plan. Prior to the expiration of the agreements, DuPont had annually made changes to the Plan, without bargaining or objection by the unions. When the CBAs expired, DuPont and the unions were negotiating successor agreements. However, prior to the implementation of a new agreement, DuPont again made unilateral changes to its Plan.

The National Labor Relations Board (“NLRB”) held that DuPont violated Sections 8(a)(1) and 8(a)(5) of the NLRA by making unilateral changes to the Plan during ongoing negotiations with the unions. Generally, under Section 8(a)(5) of the NLRA, employers are barred from making unilateral changes to the terms and conditions of employment while negotiations over a successor CBA are ongoing unless and until the bargaining parties reach an impasse, at which point, the employer may unilaterally make such changes, and the employees may strike. Specifically, the NLRB relied upon the fact that DuPont had never previously made changes to the Plan during the period between the expiration of one CBA and the negotiation of another CBA (a “hiatus period”). The NLRB also held that unilateral changes were only authorized by a “management rights clause” in the expired CBA that allowed DuPont to make certain decisions without bargaining and that, once the CBA expired, so too did that clause. Therefore, the NLRB held that DuPont could not establish that it was merely following past practice.

The D.C. Circuit remanded this decision to the NLRB, relying upon 50-year old Supreme Court precedent (in NLRB v. Katz, 369 U.S. 736 (1962)) which holds that employers may implement unilateral changes when doing so is in line with long-standing practice because such actions merely maintain the status quo. The Court also pointed to established NLRB precedent allowing unilateral changes to health care benefit plans while negotiations are ongoing following the expiration of a CBA. For example, in Post-Tribune Co., 337 N.L.R.B. 127 (2002), the NLRB permitted an employer to increase premiums while negotiations were ongoing, because the employer had a consistent practice of so doing.

The D.C. Circuit rejected the NLRB’s attempt to distinguish DuPont’s changes on the basis that such changes had merely not previously been made during hiatus periods. In so doing, the D.C. Circuit held that the NLRB erred in assuming that the right to make such changes was contingent upon the management rights clause staying in effect. To the contrary, the Court held that the key determination was simply whether the employer had an established past practice of making such unilateral changes and that the continued right to make such changes did not depend upon whether the initial right to make those changes initially arose out of such a clause. Thus, the Court rejected the NLRB’s distinction between having a general established practice of making unilateral changes as opposed to a specific practice of making unilateral changes during hiatus periods. (As an aside, this distinction by the NLRB seems somewhat illogical. If an employer could only make unilateral changes during hiatus periods by previously making such changes during hiatus periods, it would be extremely difficult for an employer to ever begin that practice. By starting the practice of making unilateral changes during hiatus periods, the employer – who likely could not be said to be following past practice when making such a change for the first time – could run afoul of Section 8(a)(5) of the NLRA by making new types of unilateral changes while negotiations were ongoing.) However, the Court did hold that DuPont’s “discretion in making those changes was limited by the terms of the reservation of rights clause in the [Plan] documents, which permitted changes during – and only during – the annual enrollment period.”

This case is significant to unionized employers for several reasons. First, it reinforces the need for employers to ensure that their plans give broad rights to the company to make unilateral prospective changes to their employee benefit plans. Moreover, it should encourage employers to actually act upon those rights. This case suggests that the mere preservation of rights in a plan to make such changes will not authorize a company to actually make such changes during a hiatus period unless the company actually has an established practice of making such unilateral changes.

The case is E.I. du Pont de Nemours and Company v. NLRB, No. 10-1300 (D.C. Cir. June 8, 2012).