Can a Neutrality Agreement be an "Improper Payment" to a Union?

by Proskauer - Labor Relations
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[author: Ronald Meisburg]

A recent U.S. Court of Appeals decision has opened the door for attacks on the legality of some neutrality agreements entered into between unions and employers.  In Mulhall v. UNITE HERE, Local 355 et al., __ F.3d __ , No. 11-10594 (11th Cir., January 18, 2012), a case backed by the National Right to Work Legal Defense Foundation, the court held that organizing assistance by an employer, of the type typically contained in a neutrality agreement, may violate the law if it was entered in order to improperly influence a union.  

For years unions have been urging – many times through the pressure of bitter corporate campaigns – that employers enter into neutrality agreements.  Under such an agreement, an employer agrees to remain neutral in any campaign to organize its employees.  Neutrality agreements may also require the employer to recognize the union as the representative of its employees on the basis of signed union cards or a union petition, rather than a secret ballot NLRB election; give the union information on the employer’s employees; grant the union access to company property in order to campaign and collect cards; and give similar advantages to the union.  In return, the union might agree to cease its corporate campaign and/or offer the employer assistance in some other aspect of its business (e.g., support for a regulatory decision desired by the employer). 

It has been argued that such agreements by employers constitute a “thing of value” which, when given to a union, violate section 302 of the Labor Management Relations Act, 29 U.S.C. §186.  In pertinent part, section 302 makes it unlawful for 

 . . . any employer . . . to pay, lend, or deliver, any money or other thing of value . . . to any labor organization, or any officer or employee thereof, which represents, seeks to represent, or would admit to membership, any of the employees of such employer. . . . [Emphasis added.] 

These previous attempts have been rejected. Adcock v. Freightliner LLC, 550 F.3d 369, 374 (4th Cir. 2008) and Hotel Employees & Restaurant Employees Union Local 57, 390 F.3d 206, 219 (3rd Cir. 2004).  

In Mulhall, the employer entered into a neutrality agreement – which included the employer’s obligation to provide information on and access to its employees – in return for the union’s promise to lend financial support to a casino gaming ballot initiative favored by the employer.  The union eventually expended over $100,000 supporting the ballot initiative.  

The court held that the neutrality agreement was a “thing of value” within the meaning of section 302, and that such agreements “can become illegal payments if used as valuable consideration in a scheme to corrupt a union or to extort a benefit from an employer.” (Slip op. at 8.)   The plaintiff alleged that the employer “bought” the union’s assistance in one area (the ballot initiative) in return for the payment of a thing of value (the neutrality agreement).  The court held that this was sufficient to make out a claim under section 302, and remanded the case to the federal district court to consider that claim and “determine the reason why the [union and the employer] agreed to cooperate with one another.” Slip op. at 9. 

It must be emphasized that the court in Mulhall did not suggest that neutrality agreements are generally illegal:  “As we see it, an employer’s decision to remain neutral or cooperate during an organizing campaign does not constitute a § 302 violation unless the assistance is an improper payment.”  Id.  However, the decision opens the door for the development of the law – at least in the 11th Circuit – on the question of under what circumstances a neutrality agreement may be an “improper payment”. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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