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10th Circuit: Arbitration Clause Prevents Termination of Union Relationship

By Thomas R. Revnew   9/21/2007

An interest arbitration clause contained within a Section 8(f) agreement prevented an employer from terminating its relationship with the union on expiration of the agreement, according to the 10th Circuit Court of Appeals .

Section 8(f) of the National Labor Relations Act (NLRA) allows employers in the construction industry to enter into agreements in which they agree to hire union members absent any showing that the union represents a majority of employees. These agreements are an exception to the general rule under the NLRA, which prohibits employers and unions from signing agreements before a majority of employees have authorized the union to represent them. A typical Section 8(f) agreement also permits an employer to terminate the contract (and therefore its relationship with the union) at the end of the contract term.

McElroy’s Inc. and the Sheet Metal Workers Union entered into a Section 8(f) agreement that included an expiration date of May 31, 2005, an “extension clause” and an “interest arbitration clause.” The extension clause provided that the agreement shall “continue in force from year to year” after the expiration date “unless written notice of reopening is given not less than 90 days prior to the expiration date.” If such notice is given, the agreement continued in full force and effect “until conferences relating thereto have been terminated by either party, provided, however, that the contract expiration date ... shall not be effective in the event proceedings under Article X, Section 8 are not completed prior to that date.”

Article X, Section 8 was the interest arbitration clause, which provided that “any dispute arising out of failure of the parties to negotiate a renewal of this agreement shall be settled,” in the case of a deadlock in negotiations, by the National Joint Adjustment Board (NJAB).

On Feb. 25, McElroy timely notified the union of its intent to terminate the Section 8(f) agreement on its expiration date. The same day, however, the union sent a letter to McElroy’s seeking to reopen negotiations in accordance with the extension clause. McElroy’s did not respond to the union’s repeated request to negotiate a new agreement.

Ultimately, the union submitted the dispute to the NJAB, which held a hearing in which McElroy elected not to participate. McElroy’s submitted a letter to the NJAB stating it had no obligation to bargain with the union because it terminated the Section 8(f) agreement. However, the NJAB issued an order directing McElroy’s and the union to execute a new three-year Section 8(f) agreement with the terms set forth in its order.

When McElroy’s refused to honor the NJAB’s order, the union filed suit in federal district court to enforce the order. The district court and the 10th Circuit enforced the NJAB’s order. In particular, the 10th Circuit found that while Section 8(f) permits an employer to terminate such an agreement unilaterally upon its expiration date, the extension and interest arbitration clauses in the instant agreement prevented termination.

The Tenth Circuit found that that the extension and interest arbitration clauses left the parties with two options upon expiration of the contract: automatic renewal on a yearly basis or, if notice was given 90 days prior to the expiration date, negotiation of a new agreement. If one party gave the requisite notice to reopen negotiations within the 90-day period, the other party had a duty to negotiate. Furthermore, if the parties failed to negotiate a new agreement, became deadlocked in negotiations and one of the parties submitted to the dispute to the NJAB, the parties were bound by the NJAB’s decision.

Sheet Metal Workers’ International Union Local No. 10 v. McElroy’s Inc ., 10th Cir., No. 06-3189 (Aug. 29, 2007).

Professional Pointer: The extension and interest arbitration clauses contained within the Section 8(f) agreement at issue in this case are fairly common clauses proposed by a number of trade unions. These provisions have been enforced by numerous courts in a manner that prevent the contractor from terminating the relationship with the union. Prior to executing a Section 8(f) agreement or any collective bargaining agreement, employers should carefully review and consider the effect of all of the contractual provisions and consult with their labor counsel.

Thomas R. Revnew is an attorney in the firm of Seaton Beck & Peters , the Worklaw® Network firm in Minneapolis.

Editor’s Note: This article should not be construed as legal advice.

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