Board Majority Holds Perpetual Wage Increases Post-Contract Expiration

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

In NLRB Decision Finley Hospital, a National Labor Relations Board (Board) majority (Members Pearce and Block) held, over the strong dissent of Board Member Brian Hayes, that a 3 percent annual pay increase for nurses represented by Service Employees International Union (SEIU) Local 199 survived the expiration of a one-year collective bargaining agreement. The contract language was limited to the duration of the agreement and provided in Article 20.3 of the agreement as follows (emphasis added):

20.3 Base Rate Increases During Term of Agreement.

For the duration of this Agreement, the Hospital will adjust the pay of Nurses on his/her anniversary date.  Such pay increases for Nurses not on probation, during the term of this Agreement[,] will be three (3) percent. If a Nurse’s base rate is at the top of the range for his/her position, and the Nurse is not on probation, such Nurse will receive a lump sum payment of three (3) percent of his/her current base rate.

The one-year agreement expired on June 20, 2005, without a successor agreement having been reached, and the next day the employer informed the employees that for anniversary dates which occurred after June 20, the wage increases would not be continued pursuant to the terms of Article 20.3 until a successor contract was negotiated. The union, while it was negotiating with the employer, filed an unfair labor practice charge arguing that maintaining the “status quo” included requiring the continuation of all pay increases until a new contract was reached—with no end date for that obligation.

Based on a finding that there was no “clear and unmistakable waiver” by the union, the Board majority held that the wage increases tied to employee anniversary dates were, essentially, perpetual increases that could only be stopped by a new contract or agreement by the union. This, notwithstanding the clear contract language that these increases only applied during the term of the agreement.

In so holding, the Board explained that the qualification of the language “for the duration of the Agreement” did not waive the employer’s statutory duty (or the union’s statutory right) to bargain before a change in the status quo (which was defined as including these perpetual wage increases) because the “waiver” by the union was not “clear and unmistakable.”

The Board majority based its decision on an extension of the U.S. Supreme Court’s decision in NLRB v. Katz, 369 U.S. 736, 743 (1962), holding that it is an unfair labor practice for an employer to “unilaterally change conditions of employment under negotiation,” and citing other decisions, that the duty to maintain the status quo pending negotiations applies whether the term or condition of employment at issue was established by the employer alone or jointly by the parties through a collective bargaining agreement. The Board majority reasoned that even where a contractual right does not survive expiration of the contract, the statutory right does.

The import of the Board’s decision, in effect, is that contract terms, including annual wage increases, never expire, but continue indefinitely as a statutory right, regardless of the plain language of the agreement negotiated freely and voluntarily by the union and the employer—strictly limiting continued contract terms to the duration of the agreement. The elephant in the room is, if you are a union with acceptable wage increases continuing in perpetuity following the expiration of the agreement, why would you ever execute a new contract, especially if the new contact might require wage concessions?

Member Hayes’s Dissent

Board Member Hayes’s dissent provides clarity as to the import of the majority’s decision. Member Hayes writes that the majority mistakenly framed the issue as a “waiver” when the proper inquiry is to identify the statutory status quo for wages that an employer is required to maintain during negotiations—not perpetual wage increases. As he wrote, the majority suddenly morphed a statutory status quo into a statutory obligation to maintain a status quo of change, or as he termed it: the “Dynamic Status Quo.” That is, rather than maintaining wage levels as they existed on the final day of the contract, the Board majority holds that the employer is required to continue giving employees annual 3 percent wage increases until the parties negotiate a successor contract, reach agreement, or reach impasse.

Member Hayes posed the question: what if the contract provided for annual 3 percent wage concessions? Would the Board require the signatory employer to continue annual 3 percentage wage decreases in wages even after the contract expired?

Practical Advice

The only practical advice for employers is to be as specific as possible in limiting the terms and conditions to the duration of the contract—although it’s hard to imagine how much more specific and clear the contract language could be in the current case—and perhaps to get the union to adopt contact language that “clearly and unmistakably” waives continuation of a post-expiration wage increase. Another practice tip would be to express wage increases in terms of dollars and cents, rather than as a percentage.

Harold (Hal) P. Coxson is a shareholder in the Washington, D.C. office of Ogletree Deakins, and he chairs the firm’s Governmental Affairs Practice Group.


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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