The recent decision by the United States Court of Appeals for the First Circuit in Pan American Grain Co. v. NLRB serves as a good reminder for unionized businesses contemplating layoffs: They may be obligated to bargain with the union that represents their employees not only over the effects of the layoff on employees but, possibly, the decision itself.

In Pan American, the court affirmed the NLRB’s ruling that a Puerto Rico grain company violated federal labor law by laying off 15 striking workers in February 2002 without giving their union an opportunity to bargain over the decision. Approximately 40 employees had been on strike for about two months when the employer announced that 15 of the striking employees would laid off “due to economic reasons and as a result of a substantial decrease in production and sales.” During the unfair labor practice proceedings that ensued following the union’s unfair labor practice charge filing, the employer claimed that the layoffs were prompted due to a combination of its efforts to modernize its operations and reduced sales. The NLRB ruled, and the court agreed, that in situations where there are multiple motives for a layoff, the employer has a duty to bargain with the union over the layoff decision as long as it is based at least partially on labor costs.

As a remedy for the employer’s violation of its duty to bargain, the NLRB ruled that the employer was liable for full back pay to the 15 employees who had been laid off. Pan American argued to the court that full back pay to the 15 employees dating back to 2002 would constitute an undue burden on the company and noted that it had not increased its workforce since the February 2002 layoffs. On review, the court stated that the employer should be allowed to introduce evidence to the NLRB at the compliance proceedings to show that the reinstatement and full back pay of the 15 employees would be unduly burdensome.

The Pan American case serves as a potentially very expensive lesson for one employer that, even in these economically-troubling times, no unionized business can afford to overlook the possibility that it may be required under federal labor law to bargain with a union over the decision to layoff employees. The decision makes clear that the duty to bargain over a layoff decision exists even if labor cost savings are only one factor among many. An employer can satisfy its decision-bargaining obligation by giving the union timely notice that a layoff decision is being contemplated. If the union asks for more information about the factors behind the decision and/or to bargain over the decision, the employer may be obligated to provide the information and/or to bargain with the union over the decision before the employer becomes irrevocably committed to implementing the layoff. Decision bargaining could include being willing to consider alternatives proposed by the union to achieve the desired cost savings. Decision bargaining does not require that the employer and union reach agreement. However, at a minimum, the employer and union must have bargained to a bona fide, good faith impasse before the employer can implement its decision.

All unionized businesses should also keep in mind that they have a duty to bargain with a union over the effects of a layoff. Effects bargaining might include the number and order of layoffs, severance pay, health insurance, bumping rights, preferential hiring at other facilities, and job search assistance, among other things. In some instances, some or all effects bargaining issues are already addressed in the collective bargaining agreement between an employer and a union.

Tough economic times sometimes call for difficult workforce decisions. Employers should be careful not to make a bad situation worse by risking unfair labor practice liability.