N.L.R.B. v. Big Bear Supermarkets No. 3
| Decision Date | 02 April 1980 |
| Docket Number | No. 79-7100,AFL-CI,I,79-7100 |
| Citation | 640 F.2d 924 |
| Parties | 103 L.R.R.M. (BNA) 3120, 88 Lab.Cas. P 11,998 NATIONAL LABOR RELATIONS BOARD, Petitioner, v. BIG BEAR SUPERMARKETS # 3 and its alter ego Richard Holmes, Respondent. Amalgamated Meat Cutters & Butchers Workerman of North America,ntervenor. |
| Court | U.S. Court of Appeals — Ninth Circuit |
David A. Fleischer, N.L.R.B., Washington, D. C., on brief, for petitioner.
Richard D. Prochazka, San Diego, Cal., Edwin C. Schreiber, Beverly Hills, Cal., George King, Oakland, Cal., (argued), for respondent; Charles J. Eisner, Oakland, Cal. on brief.
Application for Enforcement of an Order of the National Labor Relations Board.
Before GOODWIN, HUG, and SKOPIL, Circuit Judges.
The National Labor Relations Board petitions this court for enforcement of its order finding Big Bear Supermarkets #3 ("Big Bear") in violation of section 8(a)(1), (3) & (5) of the National Labor Relations Act, 29 U.S.C. § 158(a)(1), (3) & (5). The Board found that Big Bear violated section 8(a)(1) & (5) of the Act by repudiating collective bargaining agreements covering employees of Big Bear's market in La Mesa, California, and by refusing to recognize and bargain with the Retail Clerks Union Local 1222 and the Amalgamated Meat Cutters Union Local 229. The Board also found that Big Bear violated section 8(a)(1) & (3) of the Act by transferring employees from the La Mesa market because of their union representation.
The principal issue of this appeal is whether Big Bear and Richard Holmes, franchisee of the La Mesa market, are a single employer within the meaning of section 2(2) of the Act. The Board's findings of unfair labor practices are based on its conclusion that Holmes is the alter ego of Big Bear, and therefore that Holmes and Big Bear are a single employer rather than parties to a bona fide franchise agreement. We affirm the decision of the Board and grant enforcement of its order.
Big Bear owns and operates a chain of markets in the San Diego area. For over 20 years, the Retail Clerks Union and the Meat Cutters Union have acted as the exclusive bargaining representatives for Big Bear employees who are members of multi-store bargaining units at Big Bear meat and grocery markets. At the time this controversy arose, Big Bear was party to a collective bargaining agreement with the Retail Clerks Union that ran from July 28, 1975 to July 30, 1978, and was party to a collective agreement with the Meat Cutters Union that ran from November 8, 1976 to November 4, 1979. Each collective agreement covered Big Bear employees at the La Mesa market.
In each of the two fiscal years ending July 31, 1975 and July 31, 1976, the Big Bear market at La Mesa suffered net losses totalling more than $50,000. The financial difficulties were principally due to a series of state condemnations that dramatically reduced the parking space for the shopping center in which the La Mesa market is located.
Effective November 15, 1976, Big Bear franchised the La Mesa market to Richard Holmes, a former store manager at another Big Bear market. The parties stipulated in the record before us that the La Mesa market is the only operation that has been franchised by Big Bear. 1 Holmes is the son of a director, officer and shareholder of Big Bear.
Big Bear transferred the union employees at the La Mesa market to other Big Bear operations, and Holmes hired new employees. Neither union was notified of the transfer. Moreover, although the collective agreement with the Retail Clerks Union provides that employees subject to transfer are entitled to a seven-day period to accept the transfer or to apply for employment with the new owner, none of the transferred employees was given that option. Big Bear and Holmes have refused to apply the terms of the collective agreements to the new La Mesa employees, to recognize or bargain with the Unions with respect to those employees, and to comply with the request of the Retail Clerks Union for the names and addresses of the new employees that work in job classifications falling within the bargaining unit represented by the Retail Clerks Union.
The Unions filed unfair labor practice charges against Big Bear. The General Counsel for the Board issued a complaint alleging that the La Mesa store is an alter ego of Big Bear within the meaning of section 2(2) of the Act, and that the franchise arrangement was a sham transaction motivated by Big Bear's desire to retain control over the La Mesa market while cutting losses by avoiding the terms of the collective agreements. Holmes was permitted to intervene in the case and to participate fully in the proceedings before the Administrative Law Judge ("ALJ").
John Mabee, president and principal stockholder of Big Bear, testified before the ALJ that the decision to franchise the La Mesa market was prompted by legitimate business considerations. He testified that the market was sold to minimize further losses, but that the Big Bear name was retained through the franchise arrangement to prevent encroachment on its market share in the area and to maintain a "draw" to the La Mesa shopping center, which Mabee himself owns and leases to several commercial tenants.
The franchise agreement recites that the parties intend Holmes to act as an independent contractor rather than as an agent of Big Bear. The agreement is in many respects patterned after a contract that has been held by the Board in Southland Corporation, 170 N.L.R.B. 1332 (1968), to afford the franchisee the status of an independent contractor. However, the La Mesa franchise agreement departs significantly from the Southland agreement in its provisions relating to rent, advertising, termination of the agreement, and inventory.
The franchise agreement allows Big Bear to retain significant control over the operations of the La Mesa store with respect to product lines, advertising, honoring of advertised specials and discount coupons, issuance of trading stamps, and supervision and technical assistance. Although Holmes, as franchisee, is allowed to exercise some managerial discretion not granted to managers of Big Bear markets, in many circumstances he must obtain approval from Big Bear before exercising that discretion, and failure to obtain such approval is cause for termination of the franchise agreement. The La Mesa market retains its appearance as part of the Big Bear system.
Holmes has full control over the hiring and firing, work schedules, working conditions, and compensation of the new employees at the La Mesa market. The new employees earn lower wages and benefits than are provided for in the collective agreements.
Of particular importance are the financial provisions of the franchise agreement. Holmes leases the premises and equipment at the La Mesa market from Big Bear. He purchased $116,400.81 in inventory with an unsecured promissory note for that amount and a down payment of $2,000 on the note. The note bears an interest rate of 5%, and the franchise agreement provides for periodic payments on the note, partially based on Holmes's net earnings, with no apparent time limit for repayment. 2
Big Bear performs accounting services for Holmes through a system known as the Open Account. Big Bear pays the expenses for the operation of the La Mesa market, debiting that amount to the Open Account; Holmes deposits his daily sales receipts with Big Bear, resulting in a credit to the Open Account. Because many operation expenditures necessarily precede sales receipts from the market's operation, the Open Account provides Holmes with an interest-free advance of funds for business expenses. 3
The franchise agreement provides that Big Bear will remit to Holmes, and debit to the Open Account, a weekly "draw on anticipated profits" in the amount of $425, roughly equivalent to salaries earned by managers of Big Bear stores. This amount is guaranteed regardless whether any profit is currently earned by the La Mesa market.
Nothing in the express provisions of the franchise agreement shifts from Holmes the ultimate risk of loss if the market fails, but Big Bear apparently is obligated to carry losses forward through the Open Account until the agreement is terminated for cause. Although Big Bear may sue Holmes on the promissory note in the event of failure of the La Mesa market, the note is not secured by any of Holmes's property to protect Big Bear from absorbing possible losses. Profits earned through operation of the market are divided between Big Bear and Holmes, 40% to Big Bear and 60% to Holmes.
On these facts, the ALJ concluded that the franchise arrangement was an arm's length transaction motivated by legitimate business considerations. Accordingly, he rejected the General Counsel's alter ego theory and recommended dismissal of the complaint.
Contrary to the ALJ, the Board concluded that the franchise agreement was a sham transaction, that Holmes is Big Bear's alter ego with respect to the La Mesa store, and that Holmes and Big Bear constitute a single employer under section 2(2) of the Act. The Board found that Big Bear violated section 8(a) (1) & (5) by refusing to recognize or bargain with the Unions with respect to the La Mesa market, by refusing to apply the terms of the collective agreements to the new La Mesa employees, and by refusing to supply the Retail Clerks Union with the requested information about the new employees. Additionally, the Board found that Big Bear violated section 8(a)(1) & (3) by transferring the former La Mesa employees because of their union representation. The Board ordered Big Bear to cease committing the unfair labor practices and to engage in affirmative remedial action. The Board's decision is reported at 239 N.L.R.B. No. 26 (1979).
The Board petitions for enforcement of its order pursuant to 29 U.S.C. § 160(e). We granted the...
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