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Esmark Inc. v. National Labor Relations Board

decided: October 6, 1989.


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

Cudahy, Easterbrook and Flaum, Circuit Judges.

Author: Cudahy

Cudahy, Circuit Judge,

Esmark, Inc. petitions for review of an order of the National Labor Relations Board (the "NLRB" or "Board") finding Esmark guilty of violations of sections 8(a)(3) and 8(a)(5) of the National Labor Relations Act (the "NLRA"), 29 U.S.C. section 158(a)(3), (a)(5). The Board's order is reported at 289 NLRB No. 51 (June 29, 1988). We grant Esmark's petition for review and remand the case to the Board for further proceedings.


Esmark is a holding company. Prior to 1981, one of its wholly-owned subsidiaries was Swift & Company, one of America's great meatpacking firms.*fn1 By 1980, Esmark officials had become dissatisfied with Swift's fresh meats division. The fresh meats division required large amounts of cash for its daily operations, was perceived poorly in the financial community and, Esmark believed, was not competitive because of the high labor costs attributable to the company's master agreement with the United Food & Commercial Workers International Union (the "Union").

On April 25, 1980, Esmark's president Donald Kelly asked John Copeland, head of Swift's fresh meats division, to develop a plan for disposition of the division. After the Union rejected an employee stock ownership plan, Esmark began to explore the possibility of selling the fresh meats division as a separate corporation to outside interests. On June 26, 1980, Esmark's board of directors approved a restructuring plan under which several of Swift's fresh meats plants were to be closed, while the remainder would be included in a new corporation and sold.

On June 30, 1980, notices of closing were sent out covering the Moultrie, Georgia and Guymon, Oklahoma plants, which are at the center of this litigation. Originally, Moultrie and Guymon were not to be included in the newly formed corporation, but were to be closed permanently. Copeland subsequently concluded that the Moultrie and Guymon plants were competitive, except for their labor costs, and therefore should be included in the planned stand-alone fresh meats corporation. However, he remained concerned about the wage rates at the two plants. Throughout the latter half of 1980 and early 1981, Copeland and other Swift officials met with the Union's representative, Lewie Anderson, and attempted to persuade Anderson to agree to changes to the master agreement at Moultrie and Guymon. Since the collective agreement was not scheduled to expire until September 1, 1982, Anderson rejected all proposed modifications. Copeland informed Anderson that, if the Union would not agree to concessions, Moultrie and Guymon would be closed before the sale to the independent concern; after the sale, the new entity would reopen the plants, and would be free to set terms of employment at variance with those contained in the master agreement. (Copeland expected that only the Moultrie and Guymon plants would be reopened outside the terms of the existing labor contract -- apparently the master agreement wage rates were considered more competitive in other parts of the country.)

During August, September and October of 1980, various transactions were completed in preparation for the divestiture of the fresh meats division. Although these transactions may seem somewhat byzantine, it should be recalled that all of these transactions were carefully orchestrated to achieve maximum tax advantages, as well as for other business reasons, using highly competent legal and financial counsel. First, Swift set up its own wholly-owned subsidiary known as Transitory Food Processors. On October 15, the name of Transitory was changed to Swift & Company, effective October 24. On October 21, (the original) Swift transferred all of its assets, except for the fresh meats division, to Transitory, effective October 27. On October 24, the name of the original Swift & Co. was changed to Swift Independent Packing Company (Sipco).*fn2 To sum up: as of October 27, 1980, Sipco (old Swift) directly owned only the fresh meats operations which had been separated by Copeland; Sipco also owned a subsidiary, (new) Swift & Company, which in turn owned all of old Swift's other assets (principally those connected with processed meats operations). Then, on October 27, Sipco declared a dividend of all of the (new) Swift stock to Esmark. Thus, after October 27, Sipco owned only the fresh meats operations; the other aspects of the old Swift were owned by Esmark, through its wholly-owned subsidiary (old name, new corporation) Swift & Company.

Sipco was to be sold in principal part to outside interests through a public stock offering. But first the structure of the corporation to be sold was further altered. On January 26, 1981, Swift Independent Corporation ("Sic") was incorporated. On February 23, 1981, Esmark and Sic entered into an agreement whereby Esmark sold Sipco's stock to Sic in exchange for a promissory note for $100 million. On April 21, all of Sic's stock was transferred to Esmark, together with a $35 million note payable to Esmark, in exchange for Esmark's surrender of the existing $100 million Sic note. Thus, Esmark now held all of Sic's stock, Sic held all of Sipco's stock, and Sipco owned the fresh meats operations it had always owned, including the Moultrie and Guymon plants. Sic's stock, rather than Sipco's, would be sold to the public.

But the corporate maneuverings were not yet completed. Since only Moultrie and Guymon were to be reopened outside of the master agreement, Sipco officials decided to create a new wholly-owned subsidiary of Sic, New Sipco, Inc., which would hold only the Moultrie and Guymon facilities. (It is unclear precisely what this final transaction was meant to accomplish.)*fn3 The Moultrie and Guymon plants were transferred to New Sipco in late April, 1981.

While still under Sipco's control, however, Moultrie and Guymon were closed on April 17, 1981. As the ALJ noted,

Benefits were paid to separated employees at Moultrie and Guymon at special offices away from the plants. . . . The purpose was apparently to emphasize the fact that Sipco and the old Fresh Meat Division of Swift & Company were entirely different companies than New Sipco, Inc. [and] . . . that New Sipco, Inc., . . . for whom most of the employees would work if and when rehired . . ., should be recognized as a new employer.

ALJ op. at 29.

In early 1981, Esmark and Sipco officials prepared a prospectus for the sale of Sic stock. This prospectus (which Anderson first saw in draft form in February), boldly proclaims Esmark's intentions with regard to its subsidiaries' labor contracts:

Sipco's Guymon, Oklahoma and Moultrie, Georgia plants are in the opinion of management, efficient facilities capable of successful and competitive operations. However, labor costs at these plants under the Master Agreement . . . were significantly higher than those prevailing at many plants in their respective areas. A new subsidiary of the Company intends to open Guymon and Moultrie shortly after completion of this offering with the objective of achieving competitive labor costs at these facilities. . . . The possible reduction of such costs at the Guymon and Moultrie plants will add further strength to Sipco's ability to compete effectively and profitably in the fresh meats industry.

(emphasis supplied).

The main event occurred on April 22, 1981. On the 21st, as noted, Esmark had exchanged its $100 million note for a $35 million version, together with all of Sic's stock. On the 22nd, Esmark sold 65% of Sic's outstanding stock to the public, retaining only a 35% minority interest. On April 30, a Sipco official wrote two letters to Anderson. The first, on Sipco stationery, informed Anderson of the stock sale, and that Moultrie and Guymon were now owned by New Sipco. The second letter, on New Sipco stationery (the distinctness of the two corporate entities apparently being viewed as critically important to the success of the "close and then reopen" strategy), informed Anderson that New Sipco, as a successor employer, would unilaterally set wage rates for Moultrie and Guymon when they reopened. The letter also stated that New Sipco would be pleased to receive applications from Sipco's former employees.

Interviews were conducted beginning about May 3. In order to preserve its image as a "new" employer New Sipco required each applicant to complete an application form, take a physical, etc. Despite this application process "almost all of the newly hired employees . . . had [previously] worked for Sipco." ALJ op. at 31.*fn4 The master agreement was not applied at either Moultrie or Guymon.

The ALJ concluded that the conduct described above had violated neither section 8(a)(3) (which generally prohibits discrimination in employment based on an employee's union activities or affiliation), nor 8(a)(5) (prohibiting an employer from refusing to bargain with the union representing its employees or repudiating a collective bargaining agreement). The ALJ noted that Esmark had entered all of these transactions with an economic motivation; further, the judge found that Esmark was not a single or joint employer with its subsidiaries, and therefore could not be held liable for their actions. The judge also found that Sipco and New Sipco were "successor employers," and consequently were not obligated to apply the master agreement at Moultrie and Guymon. Therefore no 8(a)(5) violation had occurred when Sipco and New Sipco refused to adhere to the terms of the master agreement. Further, no plan to evade the master agreement by closing and reopening the plants in violation of section 8(a)(3) had been carried out. Esmark (the party disposing of the plants) and Sipco (the party reopening them) were independent entities, acting for their own lawful reasons; they had not jointly participated in an unlawful plan to evade the master agreement.

The Board reversed the ALJ's 8(a)(3) and 8(a)(5) rulings. Under the NLRB's stock sale cases, a collective bargaining agreement generally continues in effect despite a stock sale. In the Board's view, a stock sale was all that had occurred between the plant closings on April 17 and the reopenings in May. Therefore, Sipco remained bound by the master agreement (which it had adopted before the stock sale), and its repudiation of the contract violated section 8(a)(5). As to the 8(a)(3) charge, the Board stressed that, from the first discussions regarding the restructuring, Esmark and its subsidiaries had intended to close and then reopen the Moultrie and Guymon plants as a means of evading their obligations under the master agreement. Therefore, the closing of the plants on April 17, and the consequent discharge of all of the plants' employees, was "inherently destructive" of important rights of the work force -- specifically, the right to the benefits of a collective bargaining agreement during its term. Thus, the closing and employee discharges had violated section 8(a)(3). The Board also extended liability for the unfair labor practices to Esmark, finding that it had been an "active participant" in the unfair labor practices committed by its subsidiaries. Esmark petitions for review. The Board has filed a cross-application for enforcement of its order.


Esmark first argues that the Union's unfair labor practice charge was untimely. Section 10(b) of the NLRA provides that "no complaint shall issue based upon any unfair labor practice occurring more than six months prior to the filing of the charge with the Board." 29 U.S.C. ยง 160(b). Section 10(b)'s limitations period commences when the aggrieved individual has actual notice that an unfair labor practice has been committed.*fn5 In addition, the NLRB has held that, at least in some contexts, the 10(b) period may begin to run when the charging party receives unequivocal notice of an adverse decision, even though the decision will be implemented in the future.*fn6

The 10(b) period begins when the victim of an unfair labor practice receives unequivocal notice of a final adverse decision. Rumors or suspicions will not do;*fn7 nor is it relevant when an unlawful decision was actually made, if the decision was not communicated to the affected party until later.*fn8 Moreover, the decision must be final, and not subject to further change; knowledge that another party might commit an unfair labor practice when the time is right will not start the 10(b) period.*fn9 While the victims of an unfair labor practice should be encouraged to file a charge with the NLRB as soon as possible, individuals should not be forced to file anticipatory or premature charges, challenging tentative or merely hypothetical decisions, in order to protect their statutory rights. The 10(b) period does not commence until an aggrieved party has knowledge of the facts necessary to support a present, ripe, unfair labor practice charge.

The Union filed its unfair labor practice charge on May 29, 1981. Therefore, the charge is timely so long as the Union did not receive notice of the plan to evade the collective bargaining agreement before November 29, 1980. Esmark argues that the decision to close the Moultrie and Guymon plants, and reopen them in the guise of a "successor" employer, was made on June 26, 1980, and therefore the Union's charge is untimely. It is undisputed that the Union received formal notice of the plant closures on June 30, 1980. But the Union does not allege that the decision to close the plants was an unfair labor practice when considered in isolation. What the Union challenges is Esmark's plan to close and then reopen the Moultrie and Guymon facilities in a manner calculated to free the Esmark group of its obligations under the collective agreement. The 10(b) period did not begin until the Union learned of all aspects of the reorganization, and specifically that the plant closings were part of a larger plan involving evasion of the master agreement. It is irrelevant when Esmark actually made the decision to commit an unfair labor practice if that decision was not disclosed to the Union until much later.

We agree with the NLRB that Esmark's "plans for the plants were inchoate and imprecise" until well into the 10(b) period. Slip op. at 16 n. 11. As the activation of Sic and New Sipco in the spring of 1981 demonstrates, it was not clear before the limitations period commenced exactly what form the sale transaction would take -- whether the transaction would be structured as an asset or stock sale, and exactly whose stock or assets were to be sold (Swift and Company, Sipco, New Sipco or Sic). Moreover, although Esmark argues that it told the Union in the fall of 1980 that the new owners of Moultrie and Guymon would "undoubtedly" repudiate the master agreement, it was also Esmark's position in its discussions with the Union that the new owner would be an independent concern, and would make its own decisions concerning the business' operations: whether or not to reopen Moultrie and Guymon, whether or not to adhere to the master agreement and which employees to hire.*fn10 As our discussion below should indicate, the form of an acquisition transaction, the nature of the new employer's operations and the composition of its workforce are pivotal considerations in determining the extent of a new employer's obligations to a predecessor's workers. Yet none of these highly relevant facts were known by Esmark, much less the Union, at the time Esmark insists the Union should have ...

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