545 F.2d 1194 (9th Cir. 1976), 74-2740, Griffith Co. v. N.L.R.B.

Docket Nº:74-2740.
Citation:545 F.2d 1194
Party Name:1 Employee Benefits Ca 1268 GRIFFITH COMPANY et al., Petitioners, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
Case Date:November 04, 1976
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1194

545 F.2d 1194 (9th Cir. 1976)

1 Employee Benefits Ca 1268

GRIFFITH COMPANY et al., Petitioners,



No. 74-2740.

United States Court of Appeals, Ninth Circuit

November 4, 1976

As Amended on Denial of Rehearing and Rehearing En Banc April 5, 1977.

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John H. Stephens (argued), Los Angeles, Cal., for petitioners.

Jay Shanklin, Atty. (argued), N.L.R.B., Washington, D.C., for respondent.

Robert M. Simpson (argued), of Rose, Klein & Marias, Wayne Jett (argued), Los Angeles, Cal., for intervenors.

Before ELY and WALLACE, Circuit Judges, and RENFREW, [*] District Judge.

WALLACE, Circuit Judge:

This petition for review of a National Labor Relations Board (NLRB) decision presents a fairly novel and important issue of labor law: whether a provision in a collective bargaining contract prohibiting an employer from subcontracting work to any other signatory employer who is delinquent in required payments to common employee fringe benefit trusts violates federal labor law. The NLRB held that the agreement is valid and enforceable. We disagree and reverse and remand for further proceedings.

I. Factual Background

The three petitioners, Griffith Company, J.W. Nicks Construction Co. and Security Paving Co., Inc. (Griffith), are general construction contractors in southern California. Each is a member of a construction industry trade association which, jointly with two similar associations, negotiated a Master Labor Agreement effective July 1, 1969, to July 1, 1974, with the International Union of Operating Engineers, Local Union Number 12 (Union). The agreement covers hours, wages and working conditions for employees represented by the Union in eleven southern California counties. A large number of other employees have individually

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negotiated "short form" agreements with the Union which incorporate by reference most of the terms and conditions of the Master Labor Agreement.

These agreements obligate the employers to make specified contributions to four employee fringe benefit trust funds created pursuant to 29 U.S.C. § 186(c) (5). These trusts collect approximately $5 million per month from over 2,500 employers for the benefit of 40,000 employees. Each trust pools the contributions from all employers into one account. An employee's eligibility for benefits is generally dependent on hours worked, but has nothing to do with whether his employer actually made contributions to the trusts. Thus if an employer fails to make the required contributions, all beneficiaries suffer reduced benefit levels but no employees are completely cut off from benefits.

Over the years, delinquent employer contributions have been a significant problem. All four trust funds have experienced some financial difficulty and some have had to reduce benefits. The trusts have implemented a number of means to deal with delinquencies. One of these means is the subject of this case.

Once an offending employer is discovered and after informal settlement attempts have failed, the employer's name is placed on a delinquency list which is circulated to signatory employers. Article I, Paragraph B-15 of the Master Labor Agreement (Paragraph 15) then provides that no employer shall subcontract any part of a job to any subcontractor on the delinquency list until such subcontractor has paid the delinquent amounts. Paragraph 16 provides that if an employer does subcontract to a delinquent subcontractor in violation of Paragraph 15, then the employer is liable for the delinquency. If a subcontractor becomes delinquent after commencing work, the employer is liable for the delinquency and must terminate the subcontract. If the employer does not pay the amounts due, the Union is given the right to withhold services. 1

In early 1973, the trustees learned that Urban Pacific Construction Co. (Urban Pacific), a contractor who had signed a short form agreement with the Union and who was on the delinquency list, was doing subcontract work for Griffith and others. The administrator of the trust funds notified these contractors that they were liable for the delinquencies under the Master Labor Agreement. The trust's attorney made at least four telephone calls informing Griffith that if the delinquencies were not paid, the administrator would notify the Union of its right to withhold services from Griffith. Two of the contractors paid part of the delinquency; Griffith and some of the others did not. Part of the delinquency remaining unpaid, the administrator notified the Union that it had the right to withhold services from Griffith and the others who had not paid.

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Griffith and two other contractors filed complaints with the NLRB charging that Paragraphs 15 and 16 of the Master Labor Agreement constituted an agreement to cease doing business with another employer in violation of section 8(e) of the National Labor Relations Act (Act), as amended, 29 U.S.C. § 158(e), and that certain threats to strike violated section 8(b)(4)(ii)(B) of the Act, 29 U.S.C. § 158(b)(4)(ii)(B). The trustees of the fringe benefit trust funds were permitted to intervene. After a hearing, an administrative law judge dismissed the complaints in their entirety. The NLRB, with two members dissenting, affirmed. 2 Griffith petitioned this court for review. 3

II. Contentions of the Parties

Section 8(e) of the Act provides generally that it is an unfair labor practice for a labor organization and an employer to enter into an agreement whereby the employer agrees "to cease doing business with any other person." 29 U.S.C. § 158(e). 4 Section 8(b)(4)(ii)(B) of the Act provides that it is an unfair labor practice for a labor organization "to threaten, coerce or restrain any person" where an object is to force any person "to cease doing business with any other person." 29 U.S.C. § 158(b)(4)(ii)(B). 5

Griffith contends that Paragraphs 15 and 16 of the Master Labor Agreement violate section 8(e) by requiring Griffith to cease doing business with delinquent subcontractors. It also charges that the action of the trusts' administrator in notifying the Union of its right to withhold services and the acts of the trusts' attorney's informing Griffith that the administrator would take such action violated section 8(b)(4)(ii)(B) as threats with the object of forcing Griffith to cease doing business with delinquent subcontractors.

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The administrative law judge and the NLRB both conceded that the challenged contractual provisions and the administrator's efforts to enforce them contemplated that signatory contractors such as Griffith would cease doing business with delinquent subcontractors such as Urban Pacific. They argued, however, that the statutes invoked prohibit not all agreements and threats with a cease doing business thrust but only so-called "secondary" activity. Because the activity in this case was found to be lawful "primary" activity and not secondary, Griffith's complaint was dismissed. The administrative law judge found, and the Union and the trustees contend, that the activity here came within the well-established "union standards" exception to section 8(e) and (b). The NLRB implicitly rejected this position but agreed with the administrative law judge's alternative ground that the activity came within a new exception sanctioned by broad language in National Woodwork Manufacturers Association v. NLRB, 386 U.S. 612, 87 S.Ct. 1250, 18 L.Ed.2d 357 (1967). Therefore, the NLRB did not reach two other issues: whether section 8(e) should apply at all because of the provision excluding certain aspects of the construction industry 6 and whether the trust funds' administrator and the trust funds' attorney were agents of the Union for whose actions the Union is accountable pursuant to section 8(b)(4).

Responding to the conclusions of the NLRB, Griffith contends that the activity here was secondary, that the fringe benefit provisions in the contract are not permissible union standards clauses and that any new exception to section 8(e) for such clauses is not consistent with National Woodwork.

III. Primary-Secondary Distinction

Section 8(b)(4) was added to the Act by the Labor-Management Relations Act of 1947, ch. 120, Tit. 1, § 101, 61 Stat. 141-42. The statute has been difficult to interpret because its language seems to reach traditionally accepted labor practices. For example, traditional picketing of struck primary employers seeks, as one object, to encourage individual employees of neutral employers not to cross the picket lines. Yet this activity seems to come within the statutory proscription of inducement to cease doing business with others. The Supreme Court held in NLRB v. International Rice Milling Co., 341 U.S. 665, 672-73, 71 S.Ct. 961, 95 L.Ed. 1277 (1951), that the Act could not be read to diminish the traditional right to strike unless the diminution is specifically set forth and that no such specific provision in section 8(b)(4) reached such primary activity. Over the years the problem of secondary effects of primary activity received considerable attention from the courts and the NLRB. See ABA, The Developing Labor Law 617-40 (C. Morris ed. 1971).

In 1959 the Landrum-Griffin Act added a proviso to section 8(b)(4) making explicit Congress' intent not to prohibit otherwise lawful primary strikes and picketing, 7 Act of Sept. 14, 1959, Pub.L. No. 86-257, Tit. VII, § 704(a), 73 Stat. 542, and added section 8(e). Id. § 704(b), 73 Stat. 543. 8 Although the language of section 8(e) is as broad as that of section 8(b)(4) before the addition of the proviso, the courts and the NLRB have held that it also prohibits only agreements with a secondary aim. National Woodwork Manufacturers Association v. NLRB...

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