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Employer's Payment of Salaries to Union Reps on Union Business is Illegal, Seventh Circuit Panel Says

David P. Phippen
Constangy, Brooks & Smith, LLP - Fairfax Office

December 30, 2013

Previously published on December 2013

In a very significant case addressing interpretation of Section 302 of the Labor-Management Relations Act, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit held that employer payments of salary to union officials who spent nearly all of their time on union representational activities would violate Section 302. (We say "would" because the employer in this case was challenged after it stopped making such payments.)

Section 302(a) of the LMRA provides, in part, as follows: "It shall be unlawful for any employer ... to pay, lend, or deliver, or agree to pay, lend or deliver, any money or other thing of value ... to any representative of any of his employees." Section 302(c) provides an exception for payments "to any officer or employee of a labor organization, who is also an employee or former employee of such employer, as compensation for, or by reason of, his service as an employee ...."

Two employees of Titan Tire - the president of a local of the United Steel Workers and a union benefits representative - were spending nearly all of their work time on union activities, away from the company facility, for union-represented employees of Titan Tire and of at least one other employer, a school district. Although a collective bargaining agreement and longstanding past practice required payment of the union representatives' salaries, Titan Tire informed the union that the payments violated Section 302 and stopped paying. The union filed a grievance, and an arbitrator found in favor of the union. Titan Tire then sued in the U.S. District Court for the Northern District of Illinois to vacate the arbitration award. The union counterclaimed for enforcement. The court, like the arbitrator, sided with the union. But Titan Tire appealed to the Seventh Circuit, which sided with the company, and vacated the arbitrator's award as contrary to public policy.

The appeals court ruled that the payments would violate Section 302 because they were not "by reason of" work for Titan Tire: neither union representative did any work for the company, and neither was under the company's control. The Seventh Circuit panel rejected the reasoning of the U.S. Court of Appeals for the Third Circuit in Caterpillar v. UAW, a 1997 case in which the court ruled that paid leave to union officials in analogous circumstances did not violate Section 302 because the pay was "by reason of" past service to the employer.

After the Seventh Circuit's panel decision, the Steel Workers sought a rehearing en banc from the full Seventh Circuit. The court denied the request, but three judges dissented and would have granted rehearing. Thus, Titan Tire sets up an obvious split in the circuits and makes this issue ripe for Supreme Court review should the Steel Workers decide to petition for certiorari. (The Supreme Court granted certiorari in Caterpillar, but that case was settled before decision.)

Countless collective bargaining agreements - particularly those between unions and large employers - include "union duty" pay provisions. Accordingly, the issue of whether an employer may pay employee-union officials for conducting union business obviously has great significance for labor-management relations. Money flow to union officials helps fund the labor movement and makes the issue one that will surely draw the attention of the unions and the AFL-CIO, which in all likelihood is wrestling with strategy given its countervailing interest in avoiding LMRA violations. Employer organizations - whose members face the possible dilemma of violating their collective bargaining agreements or violating Section 302, which carries criminal sanctions - for the most part have not weighed in on the issue. For now, employers in the Seventh Circuit (Illinois, Indiana and Wisconsin) should take note of the Section 302 issue and act accordingly. Employers in other parts of the country should monitor the issue, at the very least. Titan Tire also serves as a useful reminder to employers to do internal housekeeping to identify, evaluate, and potentially stop any "special deals" for union officials that might violate Section 302, such as gifts, sponsorships, cash payments, loans, or donations, or use of company-owned property, facilities, or equipment including vehicles. With limited exceptions, "special deals" between employers and union officials carry the risk of a Section 302 violation.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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