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In this Issue:

News & Analysis

The Good, the Bad and the Ugly

By David Phippen
Fairfax - Metro Washington D.C. Office


Catch-up after the shutdown - Both the National Labor Relations Board and the U.S. Department of Labor went into "essential staff" mode during the federal government shutdown, which finally ended October 17. While the shutdown was in place, the NLRB cut full-time staff down from 1,611 to a skeleton crew of 11 (five Board members, and the Acting General Counsel and several senior personnel). The NLRB website was locked and essentially taken "off air." Deadlines were extended indefinitely, but the Section 10(b) six-month limitations period applicable to unfair labor practice charges continued to run, with the Board indicating that it would treat filings on October 18 like filings on the first day after a weekend. Hearings and election proceedings were also postponed. At the DOL, hearings were suspended, and the running of limitations periods was tolled. These entities are expected to have a significant backlog for the next couple of weeks.

Senate HELP Committee approves nomination of Richard Griffin as NLRB General Counsel - On September 18, the Senate Committee on Health, Education, Labor and Pensions approved the nomination of Democrat Richard Griffin to be General Counsel of the NLRB. The 13-9 vote largely fell along party lines. The full Senate is expected to hold a procedural vote on October 28 that will determine when the nomination will be voted on by the Senate. After confirmation by the full Senate, which most commentators expect, Griffin will replace Acting General Counsel Lafe Solomon, who is expected to retire. Griffin was one of the 2012 "recess" appointments to the NLRB that were ruled invalid by the U.S. Court of Appeals for the District of Columbia Circuit in the Noel Canning decision. The U.S. Supreme Court has granted certiorari in that case, and a decision is expected in 2014.

President Obama's nomination on September 11 of Professor David Weil to head the U. S. Department of Labor's Wage and Hour Division may generate a larger confirmation fight. Weil's writings as an academic, most recently at Boston University, indicate that he may place a priority on aggressive, punitive enforcement of wage and hour laws. On the other hand, that already seems to be the trend at the Wage and Hour Division, with or without Weil.

Supreme Court takes up challenge to "fair share" agreement to pay union fees, and taxation of severance benefits - Noel Canning did not make the Supreme Court's 2013 oral argument docket, which means it will be heard in 2014, but the Court granted certiorari this month in two other important labor and employment cases.

On October 1, the Court agreed to hear Harris v. Quinn, a case involving an Illinois Executive Order and an agreement by the state with the Service Employees International Union to require employees to pay "fair share" fees to the SEIU to cover collective bargaining and grievance administration costs. The plaintiffs are two non-union home healthcare workers acting as personal care aides to recipients of federal Medicaid benefits that are paid through the state. The plaintiffs allege that the "fair share" agreements violate their right of free speech by forcing them, through government action, to accept the union as their representative and to support the union with the state-required fees. Both a federal district court in Illinois and the U.S. Court of Appeals for the Seventh Circuit rejected the claims, with the Seventh Circuit holding that the state could compel them, as state employees, to financially support the union as an exclusive collective bargaining representative. The employees contend that payment from Medicaid funds through the state is not enough to make them "state employees" and force them to support the union. They assert that the case squarely presents the issue of whether compulsory union representation can be extended beyond public employees to employees who are merely paid by public aid programs. The National Right to Work Legal Defense Foundation represents the employees and put forward a strong case in having certiorari granted.

Certiorari was also granted in In re Quality Stores, Inc., where the issue is whether severance payments to employees as part of an involuntary reduction-in-force benefit plan are subject to Social Security and Medicare taxes under the Federal Insurance Contributions Act. The case arose out of a bankruptcy of a Michigan-based company. The company paid severance benefits to terminated employees under two plans, and withheld FICA taxes under protest. Subsequently, the company and its affiliated companies, and some of the employees, brought an adversary bankruptcy action seeking a refund of $1,000,125 in FICA taxes, asserting that the severance payments were not "wages" subject to FICA withholding but were "supplemental unemployment compensation benefits," also known as "SUB payments." The bankruptcy court, a federal judge in the Western District of Michigan, and the U.S. Court of Appeals for the Sixth Circuit all agreed that the payments were SUB payments rather than wages, and were not subject to FICA taxes. In doing so, the Sixth Circuit reached a conclusion at odds with a 2008 decision of U.S. Court of Appeals for the Federal Circuit.

For many years, the position of the Internal Revenue Service has been that severance pay benefits of any sort are taxable as amounts paid in lieu of wages. The IRS makes an exception for a narrow class of certain supplemental unemployment benefits that are (1) tied to receipt of state unemployment compensation and (2) paid periodically over time. Employers who have had or are contemplating reductions in force with severance benefits should monitor the Quality Stores case and, even now, prepare to file a refund claim for FICA taxes paid in connection with a reduction in force, depending on what the Supreme Court decides. Such refund claims generally must be filed within three years after the April 15 deadline for the tax year for which the refund is claimed.

AFL-CIO charts strategy at annual convention - The AFL-CIO held its national convention in Los Angeles in early September. Keynote speakers from the political arena included U.S. Sen. Elizabeth Warren (D-Mass.) and Secretary of Labor Thomas Perez. Senator Warren called for an increase in the minimum wage and lashed out at the U.S. Supreme Court, which she labeled "pro-corporate." Secretary Perez contended that organized labor is a key to rebuilding a middle class and an economic recovery, and he walked through the Obama Administration's agenda, stressing immigration reform, a minimum wage increase, a "crackdown" on misclassification of employees as independent contractors, tougher OSHA standards and Davis-Bacon Act enforcement, pay equity, amendments to Title VII that would protect LGBT workers, and increased protection for union organizing and collective bargaining rights. Secretary Perez apparently made no mention of the anticipated final regulations from the Department of Labor that are expected to narrow the "advice exemption" from the "persuader" reporting requirements of the Labor-Management Disclosure and Reporting Act.

Consistent with the theme of the keynote speeches, convention delegates adopted several resolutions intended to expand AFL-CIO dues-paying membership and advance the goals of the labor movement. According to published reports, these included resolutions to (1) form alliances with other groups such as the NAACP, the Sierra Club, and La Raza, and back "worker center" organizations; (2) increase union organizing in the southern United States; (3) include a place within the AFL-CIO structure for employees not represented by unions to join and participate; (4) revise the Affordable Care Act to make it more favorable to union-sponsored health and welfare benefit funds and their participants; (5) generally revise the labor laws to aid organizing; (6) raise wages through support or opposition to various pieces of legislation; and (7) appoint a special committee for strategic evaluation of programs and the financial needs associated with them. Some of the resolutions were debated vigorously, as some unions in the AFL-CIO have interests that are not aligned on all points with the larger organization. In general, the AFL-CIO can be expected to continue advocating so-called progressive causes championed by the Obama Administration and its supporters, with the ACA issue being one exception that unions will work with the Administration to resolve.


Employers, behave (even more)! NLRB launches smartphone app - On August 30, the NLRB announced its launch of a smartphone app for iPhone and Android users that provides access to information about the Board and the National Labor Relations Act. A generally favorable "product review" of the NLRB app from Constangy's own Employment & Labor Insider blog is available here. According to the Board, it had more than 82,000 inquiries about workplace issues in 2012. "It is clear the American people have questions about the law," said Board Chair Mark Gaston Pearce. "We are using 21st century technology to inform and educate the public about the law and their rights." The app provides information about the NLRA and the Board's services and Regional Offices, as well as a link to the Board's website. (While you're downloading the NLRB app, be sure to get Constangy's new, free iPhone app, too. Our app will soon be available in an Android version as well – we will keep you posted.)

Longshoremen part company with AFL-CIO - On August 29, the International Longshore and Warehouse Union disaffiliated from the AFL-CIO after 25 years of affiliation. In a letter to AFL-CIO President Richard Trumka, Robert McEllrath, president of the ILWU International, cited other AFL-CIO unions' failure to honor ILWU picket lines, as well as jurisdictional disputes where other unions have taken work historically performed by ILWU-represented workers. McEllrath also criticized the AFL-CIO for taking "moderate, overly compromising policy positions," noting frustration with the AFL-CIO support of taxation of medical plans under the Affordable Care Act, and support of immigration reform legislation that would give high priority to immigrants with "higher education and profitability to corporations" while imposing long waiting periods on "janitors and farm workers who would greatly benefit from the protections granted by legalization." McEllrath said that by disaffiliating, the ILWU simply was returning to its tradition of "militant independence." He indicated that the ILWU foresees further threat from "robotics and computer-operated machinery" and that ILWU survival and job security for members will depend on whether the ILWU can "keep the jobs." He stressed, "We will not let other affiliates jeopardize our survival ..." Meanwhile, ILWU-represented workers have faced lockouts at ports in the Northwest, after the ILWU commenced "work-to-rule" job actions that failed to produce any positive results for the workers.

Union's litigation tactic backfires - The United Food and Commercial Workers Union apparently thought it could organize an Arizona bakery by suing the bakery for violations of the Fair Labor Standards Act and refusing to go away unless it got card-check recognition and a neutrality agreement – even after the bakery paid everything it owed the workers, plus the same amount again as exemplary damages. Although the employee-plaintiff was entitled to attorneys' fees under the Fair Labor Standards Act because he prevailed on his "negligible" wage claim, the court drastically reduced the attorneys' fee request, granting them only $35,000 of the $144,202.09 in fees that they had claimed they were owed. Then, the court reduced even that, in effect, by sanctioning the attorneys in the amount of $33,328, leaving them with a "net" fee recovery of $1,672, plus $3,000 in court costs.

According the the court's decision, the Union filed the FLSA lawsuit in November 2011, the day after it lost its third election to organize the bakery. The bakery requested mediation the day after it was served with the lawsuit, and although the Union would not agree to mediation, it agreed to have an "informal meeting." The meeting was held in late December 2011, and the "plaintiff's" lawyers came accompanied by a union organizer rather than the plaintiff. The lawyers acknowledged that the plaintiff's wage claim was "negligible" but said they would resolve the case only if the bakery agreed to card-check and a neutrality agreement. In February 2012, the bakery paid all wages due to the workers, as well as exemplary damages, all of which was verified by the UFCW lawyers no later than April 25, 2012. Nonetheless, the litigation continued until late 2012 or early 2013. According to the court, the UFCW "unreasonably and vexatiously protracted this litigation."

Although the court justifiably slapped down the UFCW, the employer in this case still had to pay double back pay to all affected employees, its own attorneys' fees and costs, plus the paltry amount of UFCW attorneys' fees and $3,000 in court costs. Thus, the case is a useful reminder that all employment and labor relations activities are inter-related: none stand in isolation from the others. A motivated union will try to exploit to its advantage any area of employer weakness that it can. Here, the UFCW chose the FLSA route, but unions have also been known to leverage discrimination, harassment, and retaliation claims, as well as others.

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Constangy, Brooks & Smith, LLP has counseled employers on labor and employment law matters, exclusively, since 1946. A "Go To" Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by sources such as Chambers USA, Martindale-Hubbell, and Top One Hundred Labor Attorneys in the United States, and the firm is top-ranked by the U.S. News & World Report/Best Lawyers Best Law Firms survey. More than 140 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Alabama, California, Florida, Georgia, Illinois, Massachusetts, Missouri, New Jersey, North Carolina, South Carolina, Tennessee, Texas, Virginia and Wisconsin. For more information, visit www.constangy.com.


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