Fibreboard Paper Products Corp. v. National Labor Relations Board

379 U.S. 203, 85 S. Ct. 398, 13 L. Ed. 2d 233, 1964 U.S. LEXIS 2186, 6 A.L.R. 3d 1130, 57 L.R.R.M. (BNA) 2609

Opinions

Mr. Chief Justice Warren

delivered the opinion of the Court.

This case involves the obligation of an employer and the representative of his employees under §.§8(a)(5), 8 (d) and 9 (a) of the National Labor Relations Act to “confer in good faith with respect to wages, hours, and other terms and conditions of employment.” ¹ The primary issue is whether the “contracting out” of work being performed by employees in the bargaining unit is a statutory subject of collective bargaining under those sections.

Petitioner, Fibreboard Paper Products Corporation (the Company), has a manufacturing plant in Emery-ville, California. Since 1937 the East Bay Union Machinists, Local 1304, United Steelworkers of America, AFL-CIO (the Union) has been the exclusive bargaining representative for a unit of the Company’s maintenance employees. In September 1958, the Union and the Company entered the latest of a series of collective bargaining agreements which was to expire on July 31, 1959. The agreement provided for automatic renewal for another year unless one of the contracting parties gave 60 days’ notice of a desire to modify or terminate the contract. On May 26, 1959, the Union gave timely notice, of its desire to modify the contract and sought to arrange a bargaining session with Company representatives. On June 2, the Company acknowledged receipt of the Union’s notice and stated: “We will contact you at a later date regarding a meeting for this purpose.” As required by the contract, the Union sent a list of proposed modifications on June 15. Efforts by the Union to schedule a bargaining session met with no success until July 27, four days before the expiration of the contract, when the Company notified the Union of its desire to meet.

The Company, concerned with the high cost of its maintenance operation, had undertaken a study of the possibility of effecting cost savings by engaging an independent contractor to do the maintenance work. At the July 27 meeting, the Company informed the Union that it had determined that substantial savings could be effected by contracting out the work upon expiration of its collective bargaining agreements with the various labor organizations representing its maintenance employees. The Company' delivered to the Union representatives a letter which stated in pertinent part:

“For some time we have been seriously considering the question of letting out our Emeryville maintenance work to an independent contractor, and have now reached a definite decision to do so effective August 1, 1959.

“In these circumstances, we are sure you will realize that negotiation of a new contract would be pointless. However, if you have any questions, we will be glad to discuss them with you.”

After some discussion of the Company’s right to enter a contract with a third party to do the work then being performed by employees in the bargaining unit, the meeting concluded with the understanding that the parties would meet again on July 30.

By July 30, the Company had selected Fluor Maintenance, Inc., to do the maintenance work. Fluor had assured the Company that maintenance costs could be curtailed by reducing the work force, decreasing fringe benefits and overtime payments, and by preplanning and scheduling the services to be performed. The contract provided that Fluor would:

“furnish all labor, supervision and office help required for the performance of maintenance work ... at the Emeryville plant of Owner as Owner shall from time to time assign to Contractor during the period, of this contract; and shall also furnish such tools, supplies and equipment in connection therewith as Owner shall order from Contractor, it being understood however that Owner shall ordinarily do its own purchasing of topis, supplies and equipment.”

The contract further provided that the Company would pay Fluor the costs of the operation plus a fixed fee of $2,250 per month.

At the July 30 meeting, the Company’s representative, in explaining the decision to contract out the maintenance work, remarked that during bargaining negotiations in previous years the Company had endeavored to. point out through the use of charts and statistical information “just how expensive and costly our maintenance work was and how it was creating quite a terrific burden upon the Emeryville plant.” He further stated that unions representing other Company employees “had joined hands with management in an effort to bring about an economical and efficient operation,” but “we had not been able to attain that in our discussions with this particular Local.” The Company also distributed a letter stating that “sincé we will have no employees in the bargaining unit covered by our present Agreement, negotiation of a new or renewed Agreement would appear to us to be pointless.” On July 31, the employment of the maintenance employees represented by the Union was terminated and Fluor employees took over. That evening the Union established a picket line at the Company’s plant.

The Union filed unfair labor practice charges against the Company, alleging violations of §§ 8 (a)(1), 8 (a) (3) and 8 (a)(5). After hearings were held upon a complaint issued by the National Labor Relations Board’s Regional Director, the Trial Examiner filed an Intermediate Report recommending dismissal of the complaint. The Board accepted the recommendation and dismissed the complaint. 130 N. L. R. B. 1558.

Petitions for reconsideration, filed by .the General Counsel and the Union, were granted. Upon reconsideration, the Board adhered to the Trial Examiner’s finding that the Company’s motive in contracting out its maintenance work was economic rather than antiunion but found nonetheless that the Company’s- “failure to negotiate with . . . [the Union] concerning its decision to subcontract its maintenance work constituted a violation of Section 8 (a) (5) of the Act.” ² This ruling was based upon the doctrine established in Town & Country Mfg. Co., 136 N. L. R. B. 1022, 1027, enforcement granted, 316 F. 2d 846 (C.- A. 5th Cir. 1963), that contracting out work, “albeit for economic reasons, is a matter within the statutory phrase 'other terms and conditions of employment’ and is a mandatory subject of collective bargaining within the meaning of Section 8 (a) (5) of the Act.”

The Board ordered the Company to reinstitute the maintenance operation previously performed by the employees represented by the Union, to reinstate the employees to their former or substantially equivalent positions with back pay computed from the date of the Board’s supplemental decision, and to fulfill its statutory obligation to bargain.

On appeal, the Court of Appeals for the District of Columbia Circuit granted the Board’s petition for enforcement. 116 U. S. App. D. C. 198, 322 F. 2d 411. Because of the importance of the issues and because of an alleged conflict among the courts of appeals,³ we granted certio-rari limited to a consideration of the following questions:

“1. Was Petitioner required by the National Labor Relations Act to bargain with a union representing some of its employees, about whether to let to an independent contractor for legitimate business reasons the performance of certain operations in which those employees had been engaged?

“3. Was the Board, in a case involving only a refusal to bargain, empowered to order the resumption of operations which had been discontinued for legitimate business reasons and reinstatement with back pay of the individuals formerly employed therein?”

We agree with the Court of Appeals that, on the facts of this case, the “contracting out” of the work previously performed by members of an existing bargaining unit is a subject about which the National Labor Relations Act requires employers and the representatives of their employees to bargain collectively. We also agree with the Court of Appeals that the Board did not exceed its remedial powers in directing the Company to resume its maintenance operations, reinstate the employees with back pay, and bargain with the Union.

I.

Section 8 (a)(5) of the National Labor Relations Act provides that it shall be an unfair labor practice for an employer “to refuse to bargain collectively with the representatives of his employees.” Collective bargaining is defined in § 8 (d) as

“the performance of the mutual ■ obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment.”

“Read together, these provisions establish the obligation of the employer and the representative of its employees to bargain with each other in good faith with respect to ‘wages, hours, and other terms and conditions of employment . . . The duty is limited to those subjects, and within that area neither party is legally obligated to yield. Labor Board v. American Ins. Co., 343 U. S. 395. As to other matters, however, each party is free to bargain or not to bargain . . . .” Labor Board v. Wooster Div. of Borg-Warner Corp., 356 U. S. 342, 349. Because of the limited grant of certiorari, we are concerned here only with whether the subject upon which the employer allegedly refused to bargain — contracting out of plant maintenance work previously performed by employees in the bargaining unit, which the employees were capable of continuing to perform — is covered by the phrase “terms and conditions of employment” within the meaning of § 8 (d).

The subject matter of the present dispute is well within the literal meaning of the phrase “terms and conditions of employment.” See Order of Railroad Telegraphers v. Chicago & N. W. R. Co., 362 U. S. 330. A stipulation with respect to the contracting out of work performed by members of the bargaining unit might appropriately be called a “condition of employment.” The words even more plainly cover termination of employment which, as the facts of this case indicate, necessarily results from the contracting out of work performed by members of the established bargaining unit.

The inclusion of “contracting out” within the statutory scope of collective bargaining also seems well designed to effectuate the purposes of the National Labor Relations Act. One of the primary purposes of the Act is to promote the peaceful settlement of industrial disputes by subjecting labor-management controversies to the media- ■ tory influence of pegoti^tion.⁴ The Act was framed with an awareness that refusals to confer and negotiate had been one of the most prolific causes of industrial strife. Labor Board v. Jones & Laughlin Steel Corp., 301 U. S. 1, 42-43. To hold, as the Board has done, that contracting out is a mandatory subject of collective bargaining would promote the fundamental purpose of the Act by bringing a problem of vital concern to labor and management within the framework established by Congress as most conducive to industrial peace. .

The conclusion that “contracting out” is a statutory subject of collective bargaining is further reinforced by industrial practices in this country. While not determinative, it is appropriate to look to industrial bargaining practices in.appraising the propriety of including a particular subject within the scope of mandatory bargaining.⁵ Labor Board v. American Nat. Ins. Co., 343 U. S. 395, 408. Industrial experience is not only reflective of the interests of labor and management in the subject matter but is also indicative of the amenability of such subjects to the collective bargaining process. Experience illustrates that contracting out in one form or another has been brought, widely and successfully, within the collective bargaining framework.⁶ Provisions relating to contracting out exist in numerous collective bargaining agreements,⁷ and “[contracting out work is the basis of many grievances; and that type of claim is grist in the mills of the arbitrators.” United Steelworkers v. Warrior & Gulf Nav. Co., 363 U. S. 574, 584.

The situation here is not unlike that presented in Local 24, Teamsters Union v. Oliver, 358 U. S. 283, where we held that conditions imposed upon contracting out work to prevent possible curtailment of jobs and the undermining of conditions of employment for members of the bargaining unit constituted a statutory subject of collective bargaining. The issue in that case was whether state antitrust laws could be applied to a provision of a collective bargaining agreement which fixed the minimum rental to be paid by the employer motor carrier who leased vehicles to be driven by their owners rather than the carrier’s employees. We held that the agreement was upon a subject matter as to which federal law directed the parties to bargain and hence that state antitrust laws could not be applied to prevent the effectuation of the agreement. We pointed out that the agreement was a

“direct frontal attack upon a problem thought to threaten the maintenance of the basic wage structure established by the collective bargaining contract. The inadequacy of a rental which means that the owner makes up his excess costs from his driver’s wages not only clearly bears a close relation to labor’s efforts to improve working conditions but is in fact of vital concern to the carrier’s employed drivers; an inadequate rental might mean the progressive curtailment of jobs through withdrawal of more and more carrier-owned vehicles from service.” Id., at 294.

Thus, we concluded that such a matter is a subject of mandatory bargaining under § 8 (d). Id., at 294-295. Thé only difference between that case\and the one at hand is that the work of the employeés in the bargaining unit was let out piecemeal in Oliver, whereas here the work of the entire unit has been contracted out. In reaching the conclusion that the subject matter in Oliver was a mandatory subjéct of collective bargaining, we cited with approval Timken Roller Bearing Co., 70 N. L. R. B. 500, 518, enforcement denied on other grounds, 161 F. 2d 949, (C. A. 6th Cir. 1947), where the Board in a situation factually similar to the present ease held that §§ 8 (a) (5) and 9 (a) required the employer to bargain about contracting out work then being performed by members of the bargaining unit.

The facts of the present case illustrate the propriety of submitting the dispute to collective negotiation. The Company’s decision to contract out the maintenance work did not alter the Company’s basic operation. The maintenance work still had to be performed in the plant. No capital investment was contemplated; the Company merely replaced existing employees with those of an independent contractor to do the same work under similar conditions of employment. Therefore, to require the employer to bargain about the matter would not significantly abridge his freedom to manage the business.

The Company was concerned with the high cost of its maintenance operation. It was induced to contract out the work by 'assurances from independent contractors that economies could be derived by reducing the work force, decreasing fringe benefits, and eliminating overtime payments. These have long been regarded as matters. peculiarly suitable for resolution within the collective bargaining framework, and industrial experience demonstrates that collective negotiation has been highly successful in achieving peaceful accommodation of the conflicting interests. Yet, it is contended that when an employer can effect cost savings in these respects by contracting the work out, there is no need to attempt to achieve similar economies through negotiation with existing employees of to provide them with an opportunity to negotiate a mutually acceptable alterñative. The short answer is that, although it is not possible to say whether a satisfactory solution could be reached, national labor policy is founded upon the congressional determination that the chances are good enough to warrant subjecting such issues to the process of collective negotiation.

The appropriateness of the collective bargaining process for resolving such issues was apparently recognized by the Company. In explaining its decision to contract out the maintenance work, the Company pointed out that in the same plant other unions “had joined hands with management in an effort to bring about an economical and efficient operation,” but “we had not been able to attain that in our discussions with this particular Local.” Accordingly, based bn past bargaining experience with . this union, the Company unilaterally contracted out the work. While “the Act does not encourage a party to engage in fruitless marathon discussions at the expense of frank statement and support of his position,” Labor Board v. American Nat. Ins. Co., 343 U. S. 395, 404, it at least demands that the issue be submitted to the media-tory influence of collective negotiations. As the Court of Appeals pointed out, “[i]t is not necessary that it be likely or probable that the unión 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.”

We are thus not expanding the scope of mandatory bargaining to hold, as we do now, that the type of “contracting out” involved in this case — the replacement of employees in the existing bargaining unit with those of an independent contractor to do the same work under similar conditions of employment — is a statutory subject of collective bargaining under § 8 (d). Our decision need not and does not encompass other forms of “contracting out” or “subcontracting” which arise daily in our complex economy.⁸

IL

The only question remaining is whether, upon a finding that the Company had refused to bargain about a matter which is a statutory subject of collective bargaining, the Board was empowered to order the resumption of .maintenance operations and reinstatement with back pay. We believe that it was so empowered.

Section 10 (c) provides that the Board, upon a finding that an unfair labor practice has been committed, That section “charges the Board with the task of devising remedies to effectuate the policies of the Act.” Labor Board v. Seven-Up Bottling Co., 344 U. S. 344, 346. The Board’s power is a broad discretionary one, subject to limited judicial review! Ibid. “[T]he relation of remedy to policy is peculiarly a matter for administrative competence . . . .” Phelps Dodge Corp. v. Labor Board, 313 U. S. 177, 194. “In fashioning remedies to undo the effects of violations of the Act, the Board must draw on enlightenment gained from experience.” Labor Board v. Seven-Up Bottling Co., 344 U. S. 344, 346. The Board’s order will not be disturbed “unless it can be shown that the order is a patent attempt to achieve ends other than those which can fairly be said to effectuate the policies of the Act.” Virginia Elec. & Power Co. v. Labor Board, 319 U. S. 533, 540. Such a showing has not been made in this case.

“shall issue ... an order requiring such person to cease and desist from such unfair labor practice, and to take such affirmative action including reinstatement of employees with or without back pay, as will effectuate the policies of this Act . ...” ⁹

There has been no showing that the Board’s order restoring the status quo ante to insure meaningful bargaining is not well designed to promote the policies of the Act. Nor is there evidence which would justify disturbing the Board’s conclusion that the order would not impose an undue or unfair burden on thé Company.¹⁰

It is argued, nonetheless, that the award exceeds the Board's powers under §10 (c) in that it infringes the provision that “ [n] o order of the Board shall require the reinstatement of any individual as an employee who has been suspended or discharged, or the payment to him of any baek pay, if such individual was suspended or discharged for cause. . . .” The legislative history of that provision indicates that it was designed to preclude the Board from reinstating an individual who had been discharged because of misconduct.¹¹ There is no indication, however, that it was designed to curtail the Board’s power in fashioning remedies when the loss of employment stems directly from an unfair labor practice as in the case at hand.

The judgment of the Court of Appeals is

Affirmed.

Mr. Justice Goldberg took no part in the consideration or.decision of this case.

1

The relevant provisions of the National Labor Relations Act, as amended, are:

“Sec. 8. (a) It shall be an unfair labor practice for an employer—

“(5) to refuse to bargain collectively with the. representatives of his employees, subject to the provisions of section 9 (a). . . .

“(d) For the purposes of this section, to bargain collectively is the performance of the mutual, obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment, or the negotiation of an agreement, or any question arising thereunder, and the execution of a written contract incorporating any agreement reached if requested by either party, but such obligation does not compel either party to agree to a proposal or require the making of a concession ....

“Sec. 9. (a) Representatives designated or selected- for the purposes of collective bargaining by the majority of the employees in a unit appropriate for such purposes, shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment, or other conditions of employment ...”

2

The Board did not disturb its original holding that the Company had not violated §8 (a)(1) or §8 (a)(3), or its holding that the Company had satisfied its obligation to bargain about termination pay.

3

Labor Board v. Adams Dairy, Inc., 322 F. 2d 553 (C. A. 8th Cir. 1963), post, p. 644.

4

See declaration of policy set forth in §§ 1 and 101 of the Labor-Management Relations Act, 1947, 61 Stat. 136, 29 XJ. S. C. §§ 141, 151 (1958 ed.).

5

See Cox and Dunlop, Regulation of Collective Bargaining by the National Labor Relations Board, 63 Harv. L. Rev. 389, 405-406 (1950).

6

See Lunden, Subcontracting Clauses in Major Contracts, Pts. 1, 2, 84 Monthly Lab. Rev. 579, 715 (1961).

7

A Department of Labor study analyzed 1,687 collective bargaining agreements, which applied to approximately 7,500,000 workers (about one-half of the estimated work force covered by collective bargaining agreements). Among the agreements studied, approximately one-fourth (378) contained some form of a limitation on subcontracting. Lunden, supra, at 581.

8

As the Solicitor General points out, the terms “contracting out” and “subcontracting” have no precise meaning. They are used to describe a variety of business arrangements altogether different from that involved in this case. For a discussion of the various types of “contracting out” or “subcontracting” arrangements, see Brief for Respondent, pp. 13-17; Brief for Electronic Industries Association as amicus curiae, pp. 5-10.

9

Section 10 (c) provides in pertinent part: “If upon the preponderance of the testimony taken the Board shall be of the. opinion that any person named in the complaint has engaged in or is engaging in- any such unfair labor practice, then the Board shall state its findings of fact and shall issue and cause to be served on such person an order requiring such person to cease and desist from such unfair ' labor practice, and to take such affirmative action including reinstatement of employees with or without back pay, as will effectuate the policies of this Act .... No order of the Board shall require the reinstatement of any individual as an.employee who has been suspended or discharged, or the payment to him4of any back pay, if such individual was suspended or discharged for cause. . . .”

10

The Board stated: “We do not believe that requirement [restoring the status quo ante] imposes an undue or unfair burden on Re- ■ spondent. The record shows that the maintenance operation is still ■ being performed in much the same manner as it was prior to the subcontracting arrangement. Respondent has a continuing need for the services of maintenance employees; and Respondent’s subcontract is, terminable at any time upon 60 days’ notice.” 138 N. L. R. B?. at 555. n. 19.

11

The House Report states that the provision was “intended to put an end to the belief, now widely held and certainly justified by the Board’s decisions, that engaging in union activities carries with it a license to loaf, wander about the plants, refuse to work, waste time, break rules, and engage in incivilities and other disorders and misconduct.” H. R. Rep. No. 245, 80th Cong., 1st Sess., 42 (1947). The Conference Report notes that under § 10 (c) “employees who are discharged or suspended for interfering with other employees at work, whether or not in order to transact union business, or for engaging in activities, whether or not union activities, contrary to shop rules, or for Communist activities, or for other cause [interfering with war production] . . . will not be entitled to reinstatement.” H. R; Conf. Rep. No. 510, 80th Cong.; 1st Sess., 55 (1947).