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Merk v. Jewel Companies Inc.

decided: May 31, 1988.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 85 C 7876--Marvin E. Aspen, Judge.

Flaum, Easterbrook, and Manion, Circuit Judges.

Author: Easterbrook

EASTERBROOK, Circuit Judge.

Jewel Companies, which operates a chain of supermarkets,reached a collective bargaining agreement with Local 881 of the United Food and Commercial Workers Union in September 1982. The agreement ran until June 1985. In December 1983 Jewel asked the Union to agree to a reduction in wages and benefits notwithstanding the agreement. The Union refused. Jewel declared in February 1984 that an "impasse" had been reached and put its most recent proposal into effect. The result was a reduction of up to $1.25 per hour for about 18,000 employees.

Jewel claimed that it was entitled to reduce the hourly wage, notwithstanding the collective bargaining agreement, because it had an oral understanding with the Union that the question of wages would be reopened when a rival discount chain went into operation, which happened in the fall of 1983. The Union denied that it had made such a pledge and added that in its view an oral promise could not prevail over the written agreement. Its members overwhelmingly rejected a proposal to ratify the wage reductions. The Union invoked the arbitration clause of the agreement and asked the General Counsel of the National Labor Relations Board to issue a complaint charging Jewel with unfair labor practices. After Jewel refused to arbitrate the Union filed suit, and a district judge ordered Jewel to do so. The General Counsel eventually issued a complaint. Jewel was under the gun in two forums at once.

By then the collective bargaining agreement was nearing an end. Jewel and the Union tried to settle their dispute and reach a new agreement as a package. After hard bargaining they did so. Jewel agreed to restore most wages and benefits to the level provided in the 1982 agreement, retroactive to February 1984.*fn1 In June 1985 the Union's members ratified this agreement, roughly 80% voting in favor. The Union withdrew its request for arbitration, and at the joint request of Jewel and the Union the General Counsel dismissed the unfair labor practice charge. That dismissal is not reviewable. NLRB v. United Food & Commercial Workers Union, 484 U.S. 112, 108 S. Ct. 413, 98 L. Ed. 2d 429 (1987).

There was a catch. Only persons still employed on June 21, 1985, received back pay. Jewel takes the June 1985 agreement as a comprehensive settlement, extinguishing any rights of the 2,000 or so who retired, quit, or were fired between February 1984 and June 1985. The Union believes that the 1985 agreement, which is silent on the treatment of these employees, leave them to whatever devices they have under the 1982 agreement. In either case, Jewel was not making haste to give them cash, and the arbitration-which was within the Union's control-no longer offered them any prospects. Several of these former workers protested to the Labor Board's General Counsel, who ratified her decision to dismiss the complaint. They then filed this class action against Jewel and the Union, urging alternatively a breach of contract, reparable under § 301 of the Labor-Management Relations Act, 29 U.S.C. § 185, and a breach of the Union's duty of fair representation.

The district court granted summary judgment for the Union, concluding that it had no duty to represent-fairly or otherwise-persons no longer employed by Jewel at the time of the new contract. 641 F. Supp. 1024, 1027-32 (N.D. Ill. 1986). It could not breach a duty it did not owe. The tag-along "hybrid" contract/duty of fair representation claim against Jewel had to be dismissed as well. But the "straight" contract claim under § 301 might have substance, the court thought, because Jewel paid the former employees less than the agreement specified. The Union, which was no longer the representative of the ex-employees, could not compromise their claims. The district court therefore denied Jewel's motion for summary judgment. It certified two questions under 28 U.S.C. § 1292(b), and we accepted Jewel's interlocutory appeal.*fn2

In this court, as in the district court, the parties assume that unless the Union fairly represented the former employees, Jewel's motion for summary judgment was properly denied. Jewel contends that the Union represented all of its present and former employees; the Union denies that it owed any duty to the former employees (but insists that, if it did, it represented them fairly); the plaintiffs maintain that the Union did not represent them (and that it sold them down the river, showing that any representation was inadequate). The district court concluded that the Union faced a hopeless conflict of interest. The former employees, no longer members of the bargaining unit, could not vote against any compromise, so that the officers of the Union had nothing to lose and everything to gain by giving away the ex-employees' rights in exchange for larger payments for current employees. The court concluded that the Union did not have, and if it had did not discharge, a duty to represent the former employees fairly.

We have some doubt whether this is the right way to approach the question. Perhaps if the Union did not represent the ex-employees, that simply left them to the mercy of Jewel. The entitlements established by collective bargaining agreements do not survive their expiration or modification. So if, for example, the 1982-85 agreement had established a plan under which Jewel provided health benefits for its employees and retirees, the Union and Jewel would have been free to abolish those benefits for subsequent periods, even though the Union does not represent retirees. If the Union and Jewel had reached an impasse, Jewel would have been free to put into place its last proposal, which might not have included health benefits. Anderson v. Alpha Portland Industries, Inc., 836 F.2d 1512 (8th Cir. 1988); Bartman v. Allis-Chalmers Corp., 799 F.2d 311 (7th Cir. 1986); cf. DeGeare v. Alpha Portland Industries, Inc., 837 F.2d 812 (8th Cir. 1988) (ERISA does not alter the rule of labor law in this respect). That the retirees had worked in earlier years in the expectation that they were receiving money today and health benefits later would not matter. Because of the time limit on the collective bargaining agreement, any subjective expectation they may have had is not enforceable. And the Union, which under Allied Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 30 L. Ed. 2d 341, 92 S. Ct. 383 (1971), does not necessarily represent retired workers, may choose to negotiate an agreement that provides more for today's workers and less for retirees. This becomes effective against retirees on the employer's say-so; the lack of representation does not give the retirees rights greater than those provided in collective bargaining agreements. Perhaps Jewel and the Union could undo the expectations of ex-workers about wages, just as they could frustrate their expectations about health benefits and other deferred compensation (to the extent ERISA does not cause these rights to vest). The collective bargaining agreement, after all, is between the Union and the employer, not between the workers (with union as agent) and the employer. On this view the union and employer may modify "their" agreement and let the chips fall where they may. Perhaps too Jewel can be seen as having invoked in February 1984 a modification clause (albeit unwritten) of the collective bargaining agreement, just as it says, after which everyone got the contracted-for wage between February 1984 and June 1985; when in June 1985 the Union negotiated "back pay" this was in the nature of a bonus for existing employees (in lieu of higher future wages) rather than reparations for an established wrong. The Union had no duty to any former employee in June 1985, so these persons cannot complain that the Union did not get them a "signing bonus" too: they did not sign and did not agree to reduce their future wages in exchange.

This is not necessarily the right way to look at the subject, however. The former employees do not contend that the terms of the 1982-85 collective bargaining agreement survived its expiration. They simply want the terms honored during the years they were in force, when, they contend, they were third party beneficiaries. Once they left Jewel's employ, as they see things, the Union lost any control over their fate. Had the Union agreed in June 1985 that its existing members would receive no back pay, the plaintiffs believe that this would not have affected their claims, which "vested" (the plaintiffs say) hour-by-hour as they worked between February 1984 and their last day at Jewel. This could create a bargaining nightmare, because no one could represent all of the former employees, and Jewel could not settle their claims even if it treated them exactly as it treated those who continued to work. It is not, however, such a fanciful position that we can reject it out of hand. Because the district court proceeded on the assumption that Jewel could not change the terms unilaterally once the 1982-85 agreement expired, and the parties have not briefed this question,*fn3 we resolve the case on the terms on which it was presented.

The district court asked the question: Is the Union the representative of the ex-employees, capable of compromising (here, extinguishing) their contractual rights? It answered "no" for two reasons: the former employees are not "employees" under § 2(3) of the National Labor Relations Act, 29 U.S.C. § 152(3), so that the Union is not their statutory representative; and in any case the Union faced such a conflict of interest that it could not fulfill its implied duty of "fair representation", see Steele v. Louisville & Nashville R.R., 323 U.S. 192, 89 L. Ed. 173, 65 S. Ct. 226 (1944); Vaca v. Sipes, 386 U.S. 171, 17 L. Ed. 2d 842, 87 S. Ct. 903 (1967), and again is forbidden to compromise their claims. We start with the second point.

Conflicts among members of a union are inevitable and do not prevent a union from representing all employees in the bargaining unit. "Inevitably differences arise in the manner and degree to which the terms of any negotiated agreement affect individual employees. The mere existence of such differences does not make them invalid. The complete satisfaction of all who are represented is hardly to be expected." Ford Motor Co. v. Huffman, 345 U.S. 330, 338, 97 L. Ed. 1048, 73 S. Ct. 681 (1953). See also Humphrey v. Moore, 375 U.S. 335, 349-50, 11 L. Ed. 2d 370, 84 S. Ct. 363 (1964). Older employees may want the union to obtain seniority systems and hefty pension plans, while younger employees may prefer wage scales linked to productivity and may want cash now rather than pensions later. As Pittsburgh Plate Glass demonstrates, unions face a conflict between benefits for active workers and benefits for the retired. Members will disagree about how to meld seniority lists in the event of a merger; some will prefer endtailing, some dovetailing. See Barton Brands, Ltd. v. NLRB, 529 F.2d 793 (7th Cir. 1976). Current members may like their high pay, while employers may want to reduce the average wage; union and employer therefore may agree that employees hired in the future (who by definition are not yet members of the bargaining unit) will receive lower pay. A two-tier wage structure poses many of the same problems as the two-tier settlement in this case. The list of potential conflicts can be extended indefinitely. Unions resolve these in bargaining, and they are not disqualified from representing members of the bargaining unit just because some members will benefit at the expense of others. There may be no satisfactory way to resolve the conflicts even in principle. See Mayer G. Freed, Daniel D. Polsby & Matthew L. Spitzer, Unions Fairness, and the Conundrums of Collective Choice, 56 S. Cal. L. Rev. 461 (1983). Congress has required unions to deal with conflicts by considering the interests of each group (the duty of fair representation) and by conducting internal operations in a democratic fashion. These statutory guarantees, coupled with the pressure the incumbent union faces from others seeking to organize the employees (or from the threat of decertification and non-union operation), induce unions to make reasoned choices. They will not be perfect, but they are apt to be good. See Comment, The Union Judgment Rule, 45 U. Chi. L. Rev. 980 (1987) (discussing the different sources of marketplace pressure leading unions to represent their many constituencies fairly well).

Sometimes the success of these devices-whether internal union politics or the threat of replacement by a new and better union-will be apparent. Suppose the Union, desirous of preserving a reputation for effective representation (in order to attract new members), had insisted that Jewel treat equally all who worked between February 1984 and June 1985, whether or not they were still on Jewel's payroll. Equal treatment would suggest that the Union had represented past employees fairly in relation to its current members.*fn4 So it is not impossible to imagine the Union adequately representing former employees, any more than it is impossible to imagine a union representing retirees vigorously. Every union knows that its members eventually become ex-employees as they retire or change jobs. Some will remain in the industry (and stay as members); the Union wants to keep them happy; many of the 2,000 former employees of Jewel must still work in supermarkets. Even those who plan to leave both industry and union (by retirement or a change in line of work) want the union to look after their interests when they go, and they treat ex-employees well today so that they may be treated well tomorrow. The employer, too, has an interest in just treatment of former employees, for it wants to attract new labor and has a reputation to protect. It will look after former employees' interests, to an extent, in bargaining. Cf. Daniel R. Fischel, Labor Markets and Labor Law Compared with Capital Markets and Corporate Law, 51 U. Chi. L. Rev. 1061 (1984). The potential for conflict among groups of employees therefore does not mean that a union is forbidden to attempt to broker the interests of the different groups. If it did, the idea of "exclusive representation", a bedrock principle of the NLRA, would quickly be lost. Steele, the ...

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