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Parties Involved:
National Labor Relations Board
Respondent
Rock-Tenn Company
Petitioner
Teamsters Local 728
Intervenor

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 4, 1996 Decided December 17, 1996

No. 96-1046

ROCK-TENN COMPANY,

PETITIONER

v.

NATIONAL LABOR RELATIONS BOARD,

RESPONDENT

TEAMSTERS LOCAL 728,

INTERVENOR

On Petition for Review and Cross-Application for

Enforcement of an Order of the

National Labor Relations Board

Larry E. Forrester argued the cause for petitioner, with whomSteven C. Ellingson was on the briefs.

David B. Schwartz, Attorney, NationalLabor Relations Board, argued the cause for respondent, with

whom Linda R. Sher, Associate General Counsel, Aileen A. Armstrong, Deputy Associate General

Counsel, and Howard E. Perlstein, Deputy Assistant General Counsel, were on the brief. Paul J.

Spielberg, Deputy Assistant General Counsel, Margaret G. Neigus, Supervisory Attorney, and Jill

A. Griffin, Attorney, entered appearances.

Before: EDWARDS, Chief Judge, SILBERMAN and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

Concurring statement filed by Circuit Judge HENDERSON.

SILBERMAN, Circuit Judge: Petitioner challenges a National Labor Relations Board

determination that it violated §§ 8(a)(1) and 8(a)(5) of the National Labor Relations Act by refusing

to bargain with the Teamsters over its decision to permanently subcontract its trucking operations

and bywithdrawing recognition fromthe Union. We deny the petition and grant the cross-application

for enforcement.

I.

Rock-Tenn Company makes corrugated paper products in Norcross, Georgia. From

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Norcross, it sells and ships by truck finished products directly to customers. In June of 1992, RockTenn's drivers selected Teamsters Local 728 as their collective bargaining representative. The

Company and the Union had at least six negotiation sessions before the end of the year, but no

collective bargaining agreement wasreached. In March of 1993, SilverEagle Transport, Inc., which

had been hauling "freight" out of Rock-Tenn's plant, submitted to Rock-Tenn a proposal by which

SilverEagle sought to assume all of Rock-Tenn's trucking operations on an exclusive basis. RockTenn told the Union during a negotiation session in July that SilverEagle's proposal was under

consideration. The Union was informed that three factors made the move to subcontracting enticing:

a large annual cost savings(including labor costs), the avoidance of potential liability from having its

own fleet of trucks operating, and freedom from Department of Transportation regulations.

The day after the meeting, the Union formally demanded immediate bargaining directed

specifically to the subcontracting issue. The next day, Gary Spence, a driver, asked Rock-Tenn's

planning manager, Brannon Sims, about a rumor that the drivers would be laid off at the end of the

month. Sims confirmed the rumor, according to Spence, and told Spence that the plant manager

agreed that the layoff decision was final. Upon hearing this, Spence resigned.

The following day, Rock-Tenn wrote the Union that it had no duty to bargain over the

subcontracting decision, but that it would do so nonetheless. Accordingly, the parties scheduled a

negotiating session devoted to that subject, but sometime before the meeting, several driverstold the

Union's business agent that the company called the meeting only to notify them that trucking

operations were ending. Then, on the morning of the meeting, Rock-Tenn received a letter signed

by four of the seven remaining drivers. It stated, in part:

I feel like the decision that has recently been made, besides the economy end of

ithas been because of the underhanded tactics that was used [sic] on the part of

some ofthe union members.... Attached to this letter are the signatures of the drivers

that feel [we no longer need a union].

Rock-Tenn representatives arrived at themeeting, the letter in hand, onlyto informthe federal

mediator that it would not bargain with the Union because it no longer represented a majority of

employees. The company's executive general manager, the day after, met with the remaining drivers

to announce that Rock-Tenn would close down trucking operations at the end ofthe month. He then

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offered the drivers a severance package in return for their peaceful exit. On July 31, 1993, as

promised, Rock-Tenn laid off all the drivers, thus eliminating the bargaining unit, and SilverEagle

supplanted them.

The Board agreed with the ALJ that Rock-Tenn had made a final decision to subcontract its

trucking operations by the time Sims spoke with Spence, and therefore violated §§ 8(a)(5) and (1)

ofthe NLRAbydoing so without bargaining. The ALJ, and subsequently the Board, also determined

that withdrawalofunionrecognitionconstituted anunfairlabor practice because the employees wrote

their letter only in response to Rock-Tenn's unlawful decision to subcontract without bargaining.

From these two findings, the Board readily agreed with the ALJ that the company's direct contact

with Spence and the other employees violated the NLRA. The Board ordered Rock-Tenn, inter alia,

to bargain with the Union, to offer reinstatement to the eight drivers, and to sever, if necessary,

contractual relations with SilverEagle.

II.

Petitioner contends that it was not obliged to bargain with the Union over its decision to

subcontract itsshipping service, but that in any event, it did, at least up to the point that it legitimately

withdrew recognition. Of course the Board's conclusion regarding Rock-Tenn's duty to bargain turns

on an interpretation of § 8(a)(5) of the Act, which imposes on an employer a legal obligation to

bargainwith a union (representing its employees) over "wages, hours, and otherterms and conditions

of employment." 29 U.S.C. § 158(d) (1994) (emphasis added). That phrase is hardly

self-explanatory, and so the Board's construction of it is entitled to Chevron deference. The Board

has less room here than in the average case, however, because Supreme Court opinions have played

a major role in marking off the boundaries of the ambiguous term "conditions of employment." We

turn then to the decisional body of law. Essentially, petitioner's argument is that it was not obliged

to bargain with the Union on the subcontracting issue because bargaining would have been futile:

There was no way the Union could alleviate Rock-Tenn's concern over the significant liability risks

it bore by having a fleet oftrucks on the road, nor over the burden that Department of Transportation

regulations imposed on Rock-Tenn. Moreover, SilverEagle's labor costs were so much lower that

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it would require each of Rock-Tenn's drivers to give up more than $25,000 a year to remain

competitivewhich, according to petitioner, is wildly unrealistic.

Petitioner relies on a recent Board decision that we affirmed, United Food and Commercial

Workers Int'l Union, AFL-CIO, Local 150-A v. NLRB, 1 F.3d 24 (D.C. Cir. 1993) ("Dubuque

Packing"), which dealt not with subcontracting but rather with plant relocation. The Board, in that

case, held that the GeneralCounsel hasthe initial burden to show only that a plant relocation decision

is "unaccompanied by a basic change in the employer's operation" to establish a prima facie case that

the employer's decision is a mandatory subject of bargaining. Dubuque Packing Co., 303 N.L.R.B.

386, 391 (1991). But the employer can defeat the complaint if it can prove that labor costs were not

a factor in its decision orand this is a crucial "or"that the Union could or would not have made

sufficient concessions to have altered the employer's decision. See Dubuque Packing, 1 F.3d at 30.

The Board declined to apply the Dubuque Packing standard for relocation decisions(and, in

particular, its futility exception) to this case, instead relying on the much earlier Supreme Court

decision in Fibreboard Paper ProductsCorp. v. NLRB, 379 U.S. 203 (1964), which dealt specifically

with an employer's subcontracting decision. In Fibreboard, the Court held that the replacement of

bargaining unit maintenance employees with those of an independent contractor "to do the same work

under similar conditions of employment" is subject to mandatory bargaining. Id. at 215. The Court

specifically rejected, in the circumstances of that case, the employer's contention that bargaining

would have been futile, observing that "it is not necessary that it be likely or probable that the union

will yield or supply a feasible solution but rather that the union be afforded an opportunity to meet

management's legitimate complaints that its maintenance was unduly costly." Id. at 214 (internal

quotationmarks omitted). Justice Stewart wrote a separate concurring opinion, however, cautioning

against a too doctrinal interpretation of Fibreboard that would apply it to core entrepreneurial

decisions that might be described as subcontracting, pointing out that "all that is involved [in

Fibreboard] is the substitution of one group of workers for another to perform the same task in the

same plant under the ultimate control of the same employer." Id. at 224 (Stewart, J., concurring)

(emphasis added).

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In the early post-Fibreboard period, the Board found virtually all subcontracting decisions

subject to mandatory bargaining, though it insisted it was not adopting a per se approach, see, e.g.,

Empire Dental, Co., 211 N.L.R.B. 860 (1974); General Motors Corp., 191 N.L.R.B. 951 (1971);

Westinghouse Electric Corp., 150 N.L.R.B. 1574 (1965), and it did not define "subcontracting" as

expansivelyasJustice Stewart feared. See General ElectricCo., 240 N.L.R.B. 703 (1979) (employer

not required to bargain over subcontracting decision that did not involve work regularly or normally

performed by bargaining unit employees). Then in 1981, the Supreme Court in First National

Maintenance Corp. v. NLRB, 452 U.S. 666, held that a maintenance company that was providing

service to commercial customers and that wished to discontinue its contract with one of those

customers was not obliged to bargain with its union even though the employees dedicated to that

contract were to be terminated. See id. at 686.

Although it might be thought that the First National Maintenance Corporation was an

"employer" similar to the Fibreboard Paper Products Corporation, the Court saw a fundamental

difference between the two: First National Maintenance was a subcontractor with a staff of

employees, whereas Fibreboard was a contractor. The key distinction between the two cases is that

in Fibreboard "[t]he maintenance work still had to be performed in the plant.... [T]he [c]ompany

merely replaced existing employees with those of an independent contractor to do the same work

under similar conditions of employment." Fibreboard, 379 U.S. at 213. In First National

Maintenance, on the other hand, the subcontractor's abrogation of the contract obviously did not

involve a plan to have the same work done by a different set of employees employed under the

subcontractor's auspices and ultimate control. Rather, the Company's decision was a determination

to "shut down part of a business," First National Maintenance, 452 U.S. at 680, "a significant change

in [its] operations, a change not unlike opening a new line of business or going out of business

entirely." Id. at 688. Cf. Textile Workers Union of America v. Darlington Manufacturing Co., 380

U.S. 263, 273-74 (1965) (holding that an employer hasthe absolute right, at least asfar asthe NLRA

is concerned, to terminate his entire business for any reason). The Court admitted, as the dissent

emphasized, see 452 U.S. at 690 (Brennan, J., dissenting), that First National Maintenance's union

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1 The Court conducted this balancing test after delineating a three-part framework for

analyzing management decisions, see id. at 676-77, and concluding that First National

Maintenance's decision fell into the "category" that required balancing. But, as is so often true

with three-pronged tests, the content of the poles is clear, and only the middle category is in

doubt. 

might have been able to offer a wage concession to make the contract more profitable, but the Court

was satisfied that the employer made its decision based not on its labor costs but instead on the

customer's refusal to pay enough (the company claimed to be "losing money" on the relevant

contract), and therefore this sort of decision fell within a category of management decisions where

the benefits of collective bargaining are outweighed by the "burden placed on the conduct of the

business."1Id. at 679.

It is more than a little difficult to understand the Court's economic analysis, since any

company's profitability can be enhanced equally by lowering costs as well as by increasing revenue.

But the distinction drawn is more understandable when viewed in relation to the language of the

NLRAan explicit reference to labor costsseemsto implicate a "termor condition of employment,"

29 U.S.C. § 158(d), more directly than does the overall profitability of a business contract. First

National Maintenance must be seen, then, as simply drawing a boundaryalbeit a tenuous

onebetween decisionsthat appearto be drivenprimarily bylabor cost considerations and those that

are not; the latter are the more core entrepreneurial decisions which, as the Court noted, Justice

Stewart spoke of in his concurring opinion in Fibreboard. See 452 U.S. at 677.

Although the Court in First National Maintenance described Fibreboard as having implicitly

performed the same balancing analysis as did it,see 452 U.S. at 679, the question arose anew whether

the logic ofFirstNational Maintenance implied that there were two different kinds ofsubcontracting

decisions: Fibreboard subcontracting and those that fell on the First National Maintenance side of

the divide which may or may not call for bargaining. And, was the burden-shifting procedural

framework that the Board had developed for relocation decisions in Dubuque Packing the

appropriate methodological approach to determine whether bargaining was required? Petitioner

arguesthat the latter question should be answered in the affirmative. It will be recalled that Dubuque

Packing allows an employer to avoid mandatory bargaining if it can show that, even if labor costs

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2

See also Oklahoma Fixture Co., 314 N.L.R.B. 958, 959-60 (1994), denied enf. on other

grounds, 79 F.3d 1030 (10th Cir. 1996), in which the Board did not require mandatory bargaining

for a subcontracting decision that was based solely on the company's concerns with legal liability

that could drive the company out of business. 

were a factor in its decision, it would not have been reasonable to expect the Union to make the

degree of concession necessary to render the subcontracting proposal sub-optimal.

The Board, in 1992, in Torrington Industries, 307 N.L.R.B. 809, acknowledged that there

might well be a sort of subcontracting that should be treated as a core entrepreneurial decision,2but

then concluded that so long as an employer simply substituted one group of workers for another, in

Justice Stewart's words "under the ultimate control of the same employer," Fibreboard, 379 U.S. at

224 (Stewart, J., concurring), the Board was faced with a Fibreboard prototype and it was not

necessary to consider how strong a role labor costs played in the subcontracting decision. Thus, the

Board refused to import its Dubuque Packing analysisinto a classic Fibreboard situation regardless

of the labor cost factor.

The Board subsequently applied Torrington in a case where an employer subcontracted

trucking services, not because of labor costs, but because his union drivers were alleged to engage

in theft, to prompt customer complaints for carelessness, and to perform less efficiently than the

subcontractor's drivers. Furniture Rentors of America, Inc., 311 N.L.R.B. 749 (1993). The Third

Circuit thought the Board's Torrington doctrine was "ham handed," at least as applied in that case.

Furniture Rentors of America, Inc. v. NLRB, 36 F.3d 1240, 1248 (3d Cir. 1994). It was not

adequate, in our sister circuit's view, for the Board simply to determine that a case before it fit what

the Board thought was the Fibreboard paradigmthe subcontractor's employees are to perform

essentially the same work and there is no change in the direction and scope of the enterpriseto

impose a bargaining obligation regardless of the employer's reasons for the change. The court saw

productivity as akin to (but not quite the same thing as) labor costs, but in any event determined the

other factorstheft and carelessnessto be the employer's primary concern and these were not

amenable to collective bargaining. The Court did not hold that the Dubuque Packing analysis

applied, but instead remanded to the Board for further consideration. See id. at 1250.

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3

It is not apparent why the subcontractor would have any lower liability costs (insurance

premiums) than would Rock-Tenn. Indeed, even complying with regulatory requirements is in

essence a labor cost burden, although it may or may not fall on bargaining unit employees. 

The short answer to petitioner is that we think the Board, in implementing the statute and

interpreting the governing Supreme Court decisions, permissibly distinguishes what it calls a

Fibreboard subcontract from a relocation decision. The latter is obviously closer to the core

entrepreneurial decision that the Supreme Court concluded is not subject to mandatory bargaining

at all. We need not, in this case, determine, as the Third Circuit concluded, that even if labor costs

are a factor, if there are other dominant considerations like employee theft or carelessness that are

simply not amenable to collective bargaining, a decision is taken out of the Fibreboard paradigm.

In our case, it is rather obvious that the employer's primary concern was labor costs.3

The case comes down, then, to the question whether Rock-Tenn was entitled to show à la

Dubuque Packing that it would have been futile to seek wage concessions from the Union to the

degree that Rock-Tenn asserts would have been necessary to match SilverEagle's offer. The Board

is authorized to insist that such an "argument" be presented first to the union in the bargaining

context. The Board's reading of the governing Supreme Court opinions seems legitimate to us. The

Board's rejection of petitioner's futility argument tracks closely the Supreme Court's language in

Fibreboard, see, e.g., 379 U.S. at 214 ("[A]lthough it is not possible to say whether a satisfactory

solution could be reached, national labor policy isfounded upon the congressional determination that

the chances are good enough to warrant subjecting such issues to the process of collective

negotiation."), and nothing in First National Maintenance contradicts that reasoning. That is not to

say that the Board had no discretion in the matter; it is, however, a permissible reading of the statute

in light ofthe SupremeCourt opinionsto hold that when a subcontracting decision turns on labor cost

considerations and involves "the samework undersimilar conditions ofemployment," it is a prototype

Fibreboard case regardless of the alleged futility of bargaining.

III.

The rest of the case is easy. There is adequate support in the record for the Board's finding

that, notwithstanding Rock-Tenn's obligation to bargain over the subcontracting decision, it had

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4 Based on its findings that Rock-Tenn failed to bargain and unlawfully withdrew recognition

of the Union, the Board reasonably treated the subsequent negotiation for severance and the lay

off as unlawful. 

decided to subcontract and communicated that decision to employees before the union had a chance

to bargain. Of course, the testimony of Spence and Sims differed as to what the latter told the

former, but the ALJ credited Spence, and on this record that is enough; we are in no position to

challenge that credibility finding. In any event, the employees' letter to management disavowing the

union referred to "the decision that has recently been made," which clearly referred to the

subcontracting decision. Petitioner's argument that the Board was obliged to find that the referenced

decision was Rock-Tenn's determination to considersubcontracting issilly. For the same reason, the

Board's determination that petitioner's withdrawal of recognition from the Union was unlawful is

easily sustained. The employee letter was obviously provoked by the petitioner's subcontracting

decision. Several of the employees had notified a union business agent before the letter was ever

written that trucking operations were ending.4

* * * *

For the foregoing reasons, the petition for review is

Denied.

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