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National Labor Relations Board v. Potential School for Exceptional Children Inc.

decided*fn*: August 23, 1989.


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

Manion, Kanne, Circuit Judges, and Pell, Jr., Senior Circuit Judge.

Author: Pell

PELL, JR., Senior Circuit Judge

The National Labor Relations Board and the intervening individuals petition this court for the enforcement of the Board's order requiring the respondent, Potential School for Exceptional Children ("the School"), to remedy unfair labor practices in which the School was found to have engaged. The sole question presented is that of the Board's jurisdiction over the School.


The School is a nonprofit organization that receives funding from state of Illinois agencies to operate a special education and therapy program for children. The School also receives funding from the federal government to operate a separate Head Start program. The funds received from these agencies are kept separately and the School operates each program independently of the other. In 1982, the School employed a total of forty-five individuals. Of these, approximately twenty were assigned to work in the School's therapeutic program. The remaining employees were assigned to the Head Start program. This case involves only employees who worked in the therapy program funded by the state.

The Board found that the School violated section 8(a)(1) of the National Labor Relations Act, 29 U.S.C. ยง 158(a)(1), by threatening and then discharging two psychotherapists because they repeatedly protested about the School's delay in paying their wages and about an announcement of imminent layoffs. The School does not dispute the facts upon which these findings are based or deny that its conduct violated the Act. Instead, the School contends for the first time that the Board lacks jurisdiction over the School's operations because of the funding the School receives from state and federal sources.


The facts upon which the Board determines it has jurisdiction may be challenged only upon timely exception, in the absence of which the Board's findings are not open to attack in a later proceeding. St. Anthony's Hosp. Systems v. N.L.R.B., 655 F.2d 1028, 1030 (10th Cir. 1981), modified sub nom. Beth Israel Hosp. & Geriatric Center v. N.L.R.B., 688 F.2d 697 (10th Cir. 1982). The School failed to file any objections to the factual findings regarding jurisdiction; in fact, before the Board's hearing officer, the School admitted sufficient facts existed to establish jurisdiction. Thus, our review of the School's challenge is limited to whether the facts presented in the record support an exercise of the Board's jurisdiction. The Board's finding that it properly exercised jurisdiction must be accorded great weight and the finding will not be disturbed on review unless the Board acted unfairly and caused substantial prejudice to the affected employer. Staff Builders, Inc. v. N.L.R.B., 879 F.2d 1484, slip op. at 4 (7th Cir. 1989); N.L.R.B. v. Parents and Friends of the Specialized Living Center, 879 F.2d 1442, slip op. at 9 (7th Cir. 1989).

The Board has developed a jurisdictional standard that exempts from the Board's jurisdiction an employer who lacks control over the essential terms and conditions of employment. In Res-Care, Inc., 280 NLRB No. 78 (1986), and Long Stretch Youth Home, 280 NLRB No. 79 (1986), the Board held that it will decline to assert jurisdiction over a labor dispute involving a private employer which contracts with a government entity if, under the terms of the government contract, the government entity directly controls the levels of wages and fringe benefits that the employer can pay to its employees. The Board noted that unless the employer retains control over decisions affecting a core group of "basic bargaining subjects," meaningful bargaining with any union is precluded. In those instances where the employer lacks the final say on key terms and conditions of employment, it would be a wasteful act for the Board to superintend the employers' labor relations and thus the Board will decline to assert jurisdiction over the employer. See also Correctional Medical Systems, 289 NLRB No. 103 (1988).

The School contends that, by virtue of its contractual relationships with federal and local governments in administering the programs it provides, it is deprived of sufficient control over its labor relations to engage in meaningful collective bargaining and is, therefore, exempt from the Board's jurisdiction. Although the School asserts that the state and federal agencies have assumed pervasive control over the School's labor relations, the record is devoid of any supporting facts. The School mounts two attacks. First, it relies upon this court's finding in N.L.R.B. v. Chicago Youth Centers, 616 F.2d 1028, 1029 (7th Cir. 1980) and Lutheran Welfare Services of Illinois v. N.L.R.B., 607 F.2d 777, 778 (7th Cir. 1979) that the federally funded Head Start program requires significant oversight by federal agencies.*fn1 However, the unfair labor practice at issue here did not evolve from the School's Head Start program but from the state-funded therapeutic day school program. The School operates this program independently of the Head Start program, staffing it with its own employees and funding it from different revenues. Thus, whatever affect the federal regulations regarding Head Start may have upon the labor relations of the School's Head Start program employees, they have nothing to do with the labor relations of the therapeutic program employees.

Second, the School contends that because it was dependent upon receipt of funds from the state to meet its payroll and other obligations, the state exerted "subtle influence on labor policies." While it appears that the School submits a budget to state agencies and receives a per-diem payment from the agencies each month according to the number of students served in the day care program, there is no evidence that this funding is tied to the School's proposed budget expenditures for wages and benefits. It is now well beyond the limits of reasonable advocacy for an employer to claim that its dependence upon public funds is a basis for limiting the Board's jurisdiction, especially where, as here, the employer retains substantial and significant discretion as to the allocation of funds and benefits within its budget. See, e.g., Staff Builders, slip op. at 5; Parents and Friends of the Specialized Living Center, slip op. at 20-21; N.L.R.B. v. Austin Developmental Center, Inc., 606 F.2d 785, 789 (7th Cir. 1979); N.L.R.B. v. St. Louis Comprehensive Neighborhood Health Center, Inc., 633 F.2d 1268, 1271 (8th Cir. 1980) (financial limitations placed on employer by virtue of its funding process merely serve to define the economic framework within which the employer and union may conclude their bargaining), cert. denied, 454 U.S. 819, 70 L. Ed. 2d 89, 102 S. Ct. 99 (1981). The School does not deny that it retains ultimate control over the wage and fringe benefits levels for its employees in the therapeutic program. It simply posits that how it exercises this control is influenced by the funding process. For example, the School claims that the state agencies' control over the School's labor policies is evidenced by "the linkage of employee performance to the purse strings." Because the state had placed the School on probation for the poor quality of the records the School submitted to the agency, the School contends that employee performance was closely tied to funding which was threatened by this poor performance and thus the School lacked control over labor relations. However, the School admits that it holds final authority over the hiring and firing of all employees. We, therefore, find no logical basis for the School's contention that it "lacked control over labor relations" when the School possessed the authority to discharge employees if it found their performance inadequate and a threat to future funding.

The School's second example of the agencies' purported influence is similarly fallacious. The School alleges that the unfair labor practice with which it is charged would never have occurred had the School timely received its funding from the agency. We hardly think this was the type of "control" over wages contemplated by the Board in Res-Care. See, e.g., Austin Developmental Center, 606 F.2d at 791 (the agency's control must be direct and substantial). The School discharged the employees for engaging in concerted activities protected under Sections 2(2), (6), and (7) of the Labor-Management Relations Act. That these employees' activities related to payment of their wages and lay-offs is merely incidental. The School's attempt to link the unfair labor practice to the School's funding process in an effort to defeat jurisdiction is simply unpersuasive.

Alternatively, the School requests a remand for further inquiry into the relationship it has with state agencies but the School suggests no facts warranting exploration that might alter the Board's findings. We find this request curious in two respects. First, the School's objection to the Board's jurisdiction, raised for the first time in this court after it had exhausted below its arguments directed to the charge itself, smacks of last minute desperation. This, in itself, is not necessarily poor advocacy, but for our second concern. In mounting this last stand, the School has offered nothing but specious arguments as its battle cry. The School failed to allege one fact that arguably would require the Board to decline jurisdiction. ...

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