Labor contracts and discretionary changes to wages, hours, and working conditions in a post-Raytheon landscape
Following recent decisions of the National Labor Relations Board, it is now nearly impossible for employers to make unilateral decisions consistent with past practices when negotiating a first contract and when negotiating a successor contract after the previous one expires. On August 30, 2023, the Board reversed yet another existing precedent in Wendt Corporation, 372 NLRB No. 135 (2023), and Tecnocap LLC, 372 NLRB No. 136 (2023). This presents new challenges for employers.
What was the previous standard?
For decades before 2016 and beginning again in 2017 – when the Board decided Raytheon Network Centric Systems, 365 NLRB No. 161 (2017), and reinstituted the past-practice doctrine – employers could make discretionary changes to wages, hours, and working conditions during negotiations for a first a contract when those changes were "similar in kind and degree" to actual past practices developed pre-union certification. Raytheon also applied the kind-and-degree test to unilateral changes made during negotiations for a successor agreement after the previous one expired.
The reason, the Board explained, is that maintaining the status quo sometimes requires that the employer continue making changes, even while bargaining a first contract or a successor agreement. This is known as "dynamic status quo," and employer modifications that are consistent with it are not considered "changes" in working conditions at all. For example, if an employer has an established practice of granting annual raises, then the policy of regularly increasing wages becomes a term and condition of employment. Maintaining the status quo thus means maintaining the expectation that annual increases will continue in the same way they have for years. Raytheon thus recognized that discretionary aspects of a policy or practice can be as much a part of the status quo as non-discretionary ones so long as such actions are consistent with – i.e., are similar in kind and degree to – a pattern of pre-existing past practices.
Raytheon sounds reasonable. How did the Board change it?
The Board overruled Raytheon when it issued its decisions in Wendt and Tecnocap. Under the new standard, past practices exist only when the practice does not involve "a large measure of discretion" (which is a term the Board did not define). Such practices must also be "longstanding," emerging only after the commencement of a bargaining relationship. Practices developed before certification of a union as the bargaining representative are now irrelevant, as are practices developed under a management-rights clause (broadly defined) reserving an employer's discretion to unilaterally make changes to mandatory subjects of bargaining. Finally, the past practice must be "fixed by an established formula containing variables beyond the employer's immediate influence," "result[]… from nondiscretionary standards and guidelines," and occur with such regularity, frequency, and consistency that employees would reasonably expect it to reoccur. In short, an employer's already "narrow" past-practice defense got so impossibly narrow that unilateral changes will now "rarely[, if ever,] be justified."
Why did the Board vitiate Raytheon?
According to the Wendt majority, when the United States Supreme Court decided NLRB v. Katz, 369 U.S. 736 (1962), it placed unilateral decisions involving "substantial amount[s] of discretion" beyond the reach of the past-practice defense. Because Raytheon's "similar in kind and degree" test privileged unilateral changes that involved an employer's exercise of discretion, the Wendt Board concluded that Raytheon was inconsistent with Katz. According to the Board, Raytheon could not be reconciled with Katz's general prohibition against discretionary changes.
Chairman McFerran and Members Wilcox and Prouty also clarified and expanded on what constitutes a "long-standing" past practice. They did so in two ways.
First, the Board held that as a matter of law an employer "can never" defend a unilateral change allegation by invoking a past practice developed pre-certification, i.e., before the commencement of a bargaining relationship. That the employer in Wendt had laid off employees on multiple occasions during other economic downturns before the union's certification as the bargaining representative was thus ultimately irrelevant.
Second, the Board elaborated on the requirement that "a past practice must occur with such regularity and frequency that employees could reasonably expect the 'practice' to continue or reoccur on a regular and consistent basis." The key to this part of the analysis, the Board explained, "is whether the [post-certification] unilateral change was fixed by an established formula containing variables beyond the employer's immediate influence … [and] resulted from nondiscretionary standards and guidelines." The "paradigmatic" example, according to the Board, is "an annually recurring event over a significant period of years." Thus, "[w]hile the regularity and frequency components of the past-practice defense are not subject to precise mathematical formulation, … the further the … employer strays from showing an annualized or similarly recurring event, the more unlikely it is that the employer has met its burden of showing a regular and frequent past practice."
Tecnocap, the companion case to Wendt, involved shift changes made post-expiration of the CBA. Those same shift changes would have been authorized by a scheduling article reserving to management the unilateral authority to extend shifts to meet operational needs. Notwithstanding the fact that the employer exercised its reserved discretion on multiple occasions during the life of the CBA to change shifts, the Board held that "discretionary unilateral changes ostensibly made pursuant to a past practice developed under an expired management-rights clause—or as in this case, a narrower subject-specific contractual reservation of managerial discretion—are unlawful." The reason, the Board explained, is that "the essence of the management-rights clause is the union's waiver of its right to bargain. Once the clause expires, the waiver expires, and the overriding statutory obligation to bargain controls" absent evidence of the parties' intent to continue the clause beyond the contract's term. Consequently, a past practice developed under a management-rights clause—or some other reservation of management discretion—cannot as a general matter privilege the continuation of even the same kind and degree of unilateral, discretionary changes post-expiration without violating the Act.
Wow! This seems like bad news for employers. What does it mean in practical terms?
The bottom line is that Wendt and Tecnocap impose so many limitations on the past-practice defense that it is hard to fathom it surviving outside of the most unusual circumstances. Employers acting without providing advance notice to the union and extending an opportunity to bargain thus do so at their own peril, regardless of how seemingly well-established or expected an actual practice might be.
Take annual cost-of-living adjustments as an example. Such increases are often formulaic, automatic, and devoid of discretion. A practice of granting them can also be uninterrupted and decades old. But because under Wendt an employer can no longer rely on adjustments made before a union's certification, negotiations for a first contract would have to drag on for years before such a practice could be considered "long-standing." And even then, such changes could be justified only if the union remained silent and waived its right to bargain such increases during negotiations. It would be an intrepid employer that would risk unilateral COLA increases in this circumstance, regardless of how well-established and expected such increases might otherwise be.
The Board's decision in Wendt also calls into question well-settled rules regarding the imposition of discipline. There are too many variables in the workplace and in employee behavior to formulate a policy that eliminates all discretion from the disciplinary process. And for the better part of 80 years, employers have been free to impose discipline, even serious discipline, during negotiations for a first contract so long as the employer's exercise of discretion remained within the range of past disciplinary decisions. See 800 River Road Operating Co., LLC ("Care One"), 369 NLRB No. 109 (2020). Although the Board did not directly address employee discipline in Wendt, it does seem to foreclose any discretionary decision-making, casting doubt on nearly eight decades of case law that otherwise privileges an employer's disciplinary decision-making during negotiations for a first contract. Additional clarification from the Board is thus required before the full ramifications of Wendt become clear.
The extent to which well-developed and widely accepted practices survive a CBA's expiration and continue as part of the post-expiration status quo are now also in doubt. Parties routinely negotiate contracts that authorize employers to exercise discretion with respect to one or more mandatory subjects of bargaining. Such provisions grow naturally out of the give-and-take of the bargaining process and need not be limited to a formal management-rights article. But according to the Board, any and all provisions reserving some amount of management discretion, however "narrow[ly] [defined and] … subject-specific," constitute a management right that expires with the CBA. Employers now take considerable risk when continuing with each and every one of those practices regardless of how well ingrained they may otherwise be, even if they date back decades. Given the frequency and regularity with which employers and unions negotiate provisions that involve the reservation of some management discretion, assessing which practices can be lawfully continued and which cannot has thus become an increasingly fraught and complicated task that is sure to engender waves of future litigation.
The time-honored past-practice defense is an evolving area of the law, and there is still much to be determined. DWT will continue to monitor developments on this issue and other labor issues. Contact legal counsel if you would like to learn more about NLRB decision-making or about minimizing the risk of unilaterally implementing changes to wages, hours, and other conditions of employment.
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