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National Labor Relations Board v. Caravelle Wood Products Inc.

decided: August 8, 1972.


Clark, Associate Justice;*fn* Sprecher, Circuit Judge, and Campbell, District Judge.*fn**

Author: Sprecher


Caravelle Wood Products, Inc. refused to bargain with the Union*fn1 in order to challenge the Board's certification of the Union as exclusive bargaining representative of the Company's employees. The Board seeks enforcement of its decision and order, reported at 185 NLRB No. 115 (1970). We deny enforcement.

The Company manufactures wood products in South Chicago Heights, Illinois. It is a corporation whose stock is owned in equal portions by ten shareholders: Joseph Paradiso (president); his cousins Louis Paradiso (vice president), John Paradiso (head of receiving and mill room), Donald Paradiso (head of assembly), Nick Paradiso (head of shipping and packaging) and Rose Lecoure; the husband of another cousin, Richard Valentino; George Grutzius (head of mill room); Donald Kloss (head of finish room); and Charles Gaines. Thus 70 percent of the shares are owned by members of the Paradiso family; seven of the ten stockholders are active in the management of the Company.

Among the persons employed by the Company are eight relatives of shareholders: Gina and Paul Paradiso, the wife and son of Louis Paradiso; Deborah Paradiso, the daughter of John Paradiso; Inez Paradiso, the wife of Donald Paradiso; Irene, Raymond and Dennis Paradiso, the wife and sons of Nick Paradiso; and Donald W. Kloss, the son of Donald Kloss.

After directing a secret election among the Company's production and maintenance workers, the regional director excluded as "employees" the eight relatives because their parents or spouses were "substantial" shareholders in a closed corporation. The results of the election were 35 votes for the Union and 32 against. The six challenged ballots cast by excluded relatives might affect the result; enforcement of the order to bargain is therefore improper if those relatives should not have been excluded.

The regional director, whose decision was affirmed by the trial examiner and the Board, excluded the eight relatives under the definition of "employee" in section 2(3) of the National Labor Relations Act (29 U.S.C. ยง 152(3) (1965)):

The term "employee" shall include any employee, . . . unless this subchapter explicitly states otherwise, . . . but shall not include any individual employed as an agricultural laborer, or in the domestic service of any family or person at his home, or any individual employed by his parent or spouse. . . .

He based his exclusion on the Board's decision in Foam Rubber City #2, 167 NLRB 623 (1967).

Before Foam Rubber City the Board had interpreted section 2(3) to exclude the spouse of a sole shareholder, though technically the corporation, not the related shareholder, was the employer. P.A. Mueller and Sons, Inc., 105 NLRB 552 (1953); see Bridgeton Transit, 123 NLRB 1196 (1959); Colonial Craft, Inc., 118 NLRB 913 (1957). But the Board considered the child or spouse of even a controlling shareholder to be an employee; he was allowed to vote unless there was proof that because of the family relationship he had a "special status" allying him with the interests of management or divorcing him from a community of interests with other employees. Printing Industry of Delaware, 131 NLRB 1100 (1961).

In Foam Rubber City the challenged employee was the son of one 50 percent stockholder and the nephew of the other. The Board reasoned that, if the father and uncle had organized their business as a partnership, the son would not be an employee under section 2(3). NLRB v. Hofmann, 147 F.2d 679 (3d Cir. 1945). Having lifted one layer of the "corporate veil" in the case of a sole shareholder, the Board decided to lift another for "substantial" shareholders in closely held corporations. It held the son was not an "employee" under section 2(3).

In so interpreting section 2(3), the Board specifically disagreed with the Sixth Circuit Court of Appeals decision in Cherrin Corp. v. NLRB, 349 F.2d 1001 (1965), cert. denied, 382 U.S. 981, 15 L. Ed. 2d 471, 86 S. Ct. 557 (1966). There the employee's father owned 20 percent of the stock; she was the niece of all the other shareholders and officers of the corporation. The court decided the Board lacked power to exclude her from the unit solely because of the family relationship. See also Uyeda v. Brooks, 365 F.2d 326 (6th Cir. 1966).

The Board's decision in Foam Rubber City was not reviewed by a court of appeals; in fact, this is the first time a federal court has been faced squarely with a challenge to its validity. But this circuit has previously indicated its view of Foam Rubber City in Lake City Foundry Co. v. NLRB, 432 F.2d 1162, 1165-68 (7th Cir. 1970). There the Board excluded the three sons of the two principal stockholders. In strong dicta this court expressed its opinion that the Board did not have authority to "amend" section 2(3) to subvert the language chosen by Congress. Rejection of Foam Rubber City, however, was not the holding of the case. The election had occurred five months before the decision in Foam Rubber City ; the court merely held that the Board abused its discretion in applying Foam Rubber City retroactively.

The Board has not been consistent in its application of Foam Rubber City. In Buckeye Village Market, Inc., 175 NLRB 271 (1969), the son of the store manager, who also owned 10 percent of the stock, was included in the unit. The Board gave as its reasons: "[His] father does not own a substantial share of the Employer's stock, and . . . there is no evidence that he enjoys special status which allies him to management because of his father's position. . . ." 175 NLRB at 274. Yet in the present case the Board has excluded as employees persons in exactly the same ...

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