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Westinghouse Electric Corp. v. National Labor Relations Board

decided: January 13, 1987.


On Petition for Review and Application for Enforcement of an Order of the National Labor Relations Board.

Author: Easterbrook

Before POSNER, COFFEY, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge

Westinghouse Electric Corp. repairs and rebuilds electric generators, transformers, motors, and other apparatus at more than 60 locations around the country. The employees of a little more than half of these are represented by unions. The United Electrical, Radio and Machine Workers of America (the Union) negotiates with Westinghouse concerning the employees in Chicago, Seattle, and Detroit, the three apparatus shops involved in this case.

The Union negotiated a national agreement with Westinghouse under which the workers are placed in grades. A grade 10 employee will do more skilled work, on average, than a grade 9 employee, and be paid more. The hourly rate for each grade is established by "key sheets" negotiated locally. Each repair job or operation also is graded. Work requiring grade 10 skills usually is assigned to employees of grade 10 or higher. On occasion work is assigned to employees whose permanent grades are lower than the skill level required for the job; in that event, the hours devoted to the job will be paid at the higher rate rather than the employee's regular rate. This process, called a "temporary rate adjustment", is a ratchet; an employee is not paid at a lower rate for doing work simpler than his regular grade entails.

Between 1981 and 1983 the revenues of Westinghouse's repair operations fell from $174 million to $135 million; in 1983 the operations had a net operating loss of $7.8 million. Labor costs are the principal expenses of a repair business, so Westinghouse decided to reduce them. Its contracts with the Union ran through July 1985, however; and the Union was not keen on reducing its members' income. Managers at Westinghouse instructed the head of each apparatus repair shop to reduce that shop's "average earned rate" (wages plus the value of fringe benefits) by $1.70 per hour. One memorandum said:

There are many ways to accomplish this task. The most "results" oriented practice to reduce your average earned rate in each plant would be to redistribute your labor grades. Other examples of methods to supplement the effect of redistribution would be to cut back on group leader pay or night shift premium.

"Redistribution" is a euphemism for a reduction in average grade levels. The collective bargaining agreements fixed the rate of pay for each grade, but they did not fix the number of employees in each grade. One way to achieve a "redistribution" in grades would be to reduce the grade level of every worker in the plant, and with it the hourly wage. Another would be to lay off the workers in the higher grade levels and allow these workers -- often with the most seniority in the plant -- to "bump" the workers on lower levels, who would in turn bump those below the, and so on through the roster. The problem is that either the demotion method or the layoff method produces a result that is functionally identical to a reduction in hourly pay for the same employees. The Union charged that Westinghouse had committed unfair labor practices, in violation of § 8(a)(5) of the National Labor Relations Act, 29 U.S.C. § 158(a)(5). The administrative law judge found that Westinghouse had violated § 8(a)(5) by breaking its agreements with the Union, and the Board adopted the ALJ's opinion, adding only two footnotes.

The gist of the ALJ's opinion is that Westinghouse set out to, and did, reduce its average hourly wage. Because it could not do this explicitly, the indirect method of "redistributing" grade levels also must be a breach of contract. The ALJ fortified his finding that the demotions were a ruse for evading the collective bargaining agreements by observing that each employee did the same work after the demotion as before. Yet the ALJ also concluded that the demotions at Detroit were lawful. This is so, he reasoned, because they had been carried out in the form of layoffs. The plant laid off some workers and recalled them to lower grades. Other workers were demoted, and in the process at least one job vanished. The ALJ thought that the contract permitted a recall to any grade, and he also dismissed the claims of employees demoted at Detroit without being laid off.

The curious result is that so long as Westinghouse gets rid of an employee, it may do whatever it likes with grade distributions, while if it manages to keep everyone on the payroll, it may not reduce anyone in grade (at least not without charging and proving inability to perform the work of the grade). The ALJ has read the agreement to give each employee tenure in his grade as well as seniority in the plant -- unless Westinghouse lets someone, anyone, go, in which case no one has tenure. This is an implausible reading of a labor agreement, and the ALJ did not identify the language that supports such a reading.

Neither the national nor the local agreements mention assignments of workers to grades. The national agreement has a management-rights clause, so vague it could mean anything or nothing. This one states: "The Union recognizes that it is the responsibility of the Company and its Plant Managements to maintain plant efficiency and agrees that Management shall have the freedom of action necessary to discharge its responsibility for the successful operation of the Company. This responsibility includes . . . the determination of the products to be manufactured and the production schedules." See also Dreis & Krump Mfg. Co. v. Machinists, 802 F.2d 247, 252 (7th Cir. 1986). The agreement is silent on the tenure of employees in grades, so each side is driven to analogy. The Union and the ALJ analogize the "redistribution" to a reduction in hourly wages; Westinghouse analogizes it to a layoff of the people in the highest grade, followed by the bumping of less senior employees. The Union's preferred analogy is supported by many memoranda urging plant managers to depress their average wages, not caring much about methods or justifications. Westinghouse's preferred analogy is supported by the fact that in assigning new grades at the Chicago and Seattle plants, the managers followed the agreement's "Employee Security and Protection Plan", allowing more senior employees the privilege of displacing others and offering any worker whose salary was reduced more than 10% the option of being laid off.

If this were nothing but a battle of characterizations, we would defer to the Board's. There is rarely a "right" characterization of a complex pattern. Yet on the way to a characterization the Board must meet the competing arguments and avoid material errors of logic. The ALJ's disposition of this case, and therefore the Board's is troubling because of the suppressed assumption that the collective bargaining agreement forbids any indirect method of reducing wages. This is the fulcrum of the ALJ's analysis. Yet the contract does not say this, and the ALJ contradicted his central assumption when he implicitly concluded that Westinghouse may reduce the grade level of every employee so long as at least one is let go. The law is full of instances in which people may choose among means to an end, even though one means is forbidden or more costly than another. For example, as merger, an acquisition of assets, and an acquisition of stock may be functionally identical, yet the securities and tax laws will treat them very differently. E.g., Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S. Ct. 2297, 85 L. Ed. 2d 692 (1985). State law may require a vote to carry out a corporate merger but allow a sale of assets without a vote. Hariton v. Arco Electronics, Inc., 41 Del. Ch. 74, 188 A.2d 123 (Del. 1963); see also Frandsen v. Jensen-Sundquist Agency, Inc., 802 F.2d 941 (7th Cir. 1986). A bond indenture may require a premium payoff or an opportunity to convert debt to stock on sale of the company's assets, but if the transaction is accomplished by merger the bondholders may be out of luck. See Broad v. Rockwell International Corp., 642 F.2d 929 (5th Cir.), cert. denied, 454 U.S. 965, 70 L. Ed. 2d 380, 102 S. Ct. 506 (1981) (en banc); Field v. Allyn, 457 A.2d 1089 (Del. Ch. 1983) (the "equal dignity" principle allows managers to select the least-restricted method to carry out a corporate transaction). An administrative agency that lacks the power to regulate a transaction directly may be able to do so indirectly by establishing conditions on the exercise of its admitted powers. See Trans Alaska Pipeline Rate Cases, 436 U.S. 631, 654-56, 56 L. Ed. 2d 591, 98 S. Ct. 2053 (1978).

Whether a contract or law forbids indirect means to a given end is a question of construction, to be settled by examining the language, structure, history, and functions of the contract or law. To the extent the ALJ looked at these, he produced contradictory results, as we have discussed. It is difficult to believe that this collective bargaining agreement forbids all acts that reduce average wages. It does not forbid layoffs, which reduce wages drastically, or selective layoffs of the employees in the most highly paid grades. It does not forbid elimination of the grades with the highest pay. And it would not be in the interest of the parties to forbid adjustments in light of changing work. Suppose a plant has 40 repair workers and two sources of business: a huge oil-fired electric generating plant that needs complex repair work on its turbines, and businesses that need simple repair work on their air conditioners. Suppose also that each source of business occupies the time of 20 workers. The plant would have 20 workers in grade 10 (complex work) and 20 workers in grade 5 (simple work). If the oil-fired generating plant were to shut down, Westinghouse would need to trim its staff. If the junior workers in the plant are also those in grade 5, a simple layoff based on seniority would leave the plant with 20 workers earning grade 10 wages and doing grade 5 work. That is a formula for disaster; the wages must be reduced, or the remaining 20 workers must be laid off too -- something neither workers nor management desire, if the remaining work is enough to keep the plant in business. The appropriate end position is 20 workers doing grade 5 work at grade 5 wages. It could be achieved by laying off the junior workers and demoting the senior workers to grade 5 -- yet the ALJ construed the agreement as forbidding this unless done simultaneously with the layoff. So if Westinghouse should "lay off" the grade 10 workers and let them bump the others out of their jobs, that would be permitted under the ALJ's reading; but if Westinghouse first laid off the grade 5 workers, tried to make a go of the shop, and only later found that it had to demote the grade 10 workers, that would be forbidden. Nothing in the language or history of this agreement suggests such a self-defeating meaning.

That the agreement allows demotions in response to a change in the average difficulty of a plant's work does not establish whether such a change occurred. Westinghouse's revenues fell rapidly, but perhaps the average difficulty of the work was unaffected. In that event, the ALJ would have been entitled to infer that the "redistribution" of grades was a sham, a method of reducing wages in violation of contract. The ALJ evidently thought the demotion a sham, for although he never said so expressly he found that (a) the employees did the same work before and after the "redistribution" of grades; (b) the number of "temporary rate adjustments" approximately doubled after the "redistribution"; and (c) ...

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