Titan Tire Corp. of Freeport, Inc. v. United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union

In the

United States Court of Appeals

For the Seventh Circuit

No. 12-1152

TITAN TIRE CORPORATION OF

FREEPORT, INC.,

Plaintiff-Counter Defendant-Appellant,

v.

UNITED STEEL, PAPER AND FORESTRY,

RUBBER, MANUFACTURING, ENERGY,

ALLIED INDUSTRIAL AND SERVICE

WORKERS INTERNATIONAL UNION, et

al.,

Defendants-Counter Plaintiffs-Appellees.

Appeal from the United States District Court for the

Northern District of Illinois, Western Division.

No. 10 C 50296 — Frederick J. Kapala, Judge.

ARGUED DECEMBER 5, 2012 — DECIDED NOVEMBER 1, 2013

2 No. 12-1152

Before MANION and SYKES, Circuit Judges, and DARROW,

District Judge.*

MANION, Circuit Judge. Titan Tire Corporation of Freeport,

Inc. (“Titan”), purchased a tire manufacturing facility in

Freeport, Illinois, in late December 2005. In January 2006, Titan

entered into a series of labor agreements with Local 745, the

union which represented the Titan workers. After taking over

the Freeport facility, Titan paid the full union salaries of Local

745's President and Benefit Representative even though they

were on leave of absence from Titan and primarily working

away from the Titan facility. But in October 2008, Titan

informed the union that for two reasons it concluded such

payments violated Section 302(a) of the Labor Management

Relations Act (“LMRA”), which prohibits an employer from

paying money to union representatives.1 First, Titan concluded

the payments were illegal because Local 745 also represented

a bargaining unit at the Freeport School District but the

President’s full-time salary was being paid solely by Titan.

And second, it believed the payments illegal because the union

representatives were not working full-time from the Titan

facility and were not subject to Titan’s control.

*

The Honorable Sara Darrow, U.S. District Court for the Central District of

Illinois, sitting by designation.

1

Section 302(a) of the LMRA provides that “[i]t shall be unlawful for any

employer … to pay, lend, or deliver, or agree to pay, lend, or delivery, any

money or other thing of value … to any representative of his employees

who are employed in an industry affecting commerce.” 29 U.S.C. § 186(a).

No. 12-1152 3

The union filed a grievance against Titan, arguing that

Titan violated the various labor agreements when it stopped

paying the President’s and Benefit Representative’s full-time

salaries. It argued that such payments were exempt from the

general prohibition of Section 302(a) by Section 302(c), because

the President and Benefit Representative were current or

former employees of Titan and the payments were “by reason

of” their service as employees of Titan.2 An arbitrator found

that Titan made these payments “by reason of their former

employment” at Titan, and thus that the payments were lawful

under Section 302(c). The arbitrator ordered Titan to resume

paying the President’s and Benefit Representative’s full-time

salaries. Titan filed suit in federal district court to vacate the

arbitrator’s award and the union counterclaimed for enforce-

ment of the award. The district court granted the union’s

motion, denied Titan’s motion, and enforced the arbitrator’s

decision. Titan appeals.

This appeal presents an issue of first impression in this

circuit, namely whether a company may legally pay the full-

time salaries of the President and Benefit Representative of the

union representing the company’s employees. The Third

Circuit, in a divided en banc decision, in Caterpillar, Inc. v. Int’l

Union, United Auto. Aerospace & Agric. Implements Workers of

Am., 107 F.3d 1052 (3d Cir. 1997), held that paying the full-time

2

Section 302(c) exempts from the general prohibition “any money or other

thing of value payable by an employer to … any representative of [its]

employees, or to any officer or employee of a labor organization, who is

also an employee or former employee of such employer, as compensation

for, or by reason of, his service as an employee of such employer.” 29 U.S.C.

§ 186(c).

4 No. 12-1152

salaries of the union’s grievance chairmen did not violate

Section 302 of the LMRA because such payments were “by

reason of” the union representatives’ former employment at

Caterpillar. Conversely, the dissents in Caterpillar concluded

that the plain language of Section 302 barred the company

from paying the full-time salaries of the union grievance

chairmen, reasoning that such payments were not “because of”

the grievance chairmen’s prior service to Caterpillar, but rather

because of their current work for the union. Id. at 1059

(Mansmann, J., dissenting); id. at 1069 (Alito, J., dissenting).3

The Ninth Circuit in Int’l Ass’n of Machinists & Aerospace

Workers, Local Lodge 964 v. BF Goodrich Aerospace Aerostructures

Grp., 387 F.3d 1046 (9th Cir. 2004), also disagreed with the

majority’s reasoning in Caterpillar, but nonetheless concluded

that a company could legally pay a union’s full-time “Chief

Shop Steward” where the steward was subject to the em-

ployer’s control and thereby still an employee of the company.

The Second Circuit in BASF Wyandotte Corp. v. Local 227,

International Chem. Workers Union, 791 F.2d 1046, 1049 (2d Cir.

1986), in upholding a no-docking provision, also indicated that

an employer could not legally pay the full-time salary of a

union employee, stating: “we do not suggest that [Section

302(c)(1)] would allow an employer simply to put a union

official on its payroll while assigning him no work.”

3

The Supreme Court granted certiorari in Caterpillar. Caterpillar, Inc., v.

Int’l Union, United Auto. Aerospace & Agric. Implement Workers of AM., et al.,

521 U.S. 1152 (1997). However, following briefing and oral argument, the

parties settled and the Supreme Court dismissed the case. 523 U.S. 1015

(1998).

No. 12-1152 5

This circuit’s closest precedent comes from Toth v. USX

Corp., 883 F.2d 1297 (7th Cir. 1989). In Toth, we held that former

employees could accrue pension credit while working for a

union, but we also recognized that at some point “the terms of

compensation for former employment” could become “so

incommensurate with that former employment as not to

qualify as payments ‘in compensation for or by reason of’ that

employment.” Id. at 1305.

Such is the case before us today. Paying the full-time union

salaries of Local 745's President and Benefit Representative is

“so incommensurate with [their] former employment [at Titan]

as not to qualify as payments ‘in compensation for or by reason

of’ that employment.” Id. Rather, these payments are “by

reason of” the union’s President’s and Benefit Representative’s

service to Local 745 members, and those members include both

employees working for Titan and employees working for the

Freeport School District. We reach this conclusion based on the

plain meaning of Section 302, although our holding also

furthers the statutory purpose of preventing conflicts of

interest. Because such payments are illegal, the arbitrator’s

decision violates explicit public policy and thus “we are

obliged to refrain from enforcing it.” W.R. Grace & Co. v. Local

Union 759, Int’l Union of United Rubber, 461 U.S. 757, 766 (1983).

Accordingly, we reverse the district court's decision and vacate

the arbitrator's award.4

4

The Second and Ninth Circuits have both held that the payment of the

full-time salaries of union grievance representatives does not violate Section

302 of the LMRA. However, as discussed in more detail in this opinion,

(continued...)

6 No. 12-1152

I.

BACKGROUND

Titan Tire Corporation of Freeport, Inc. (“Titan”), pur-

chased a tire manufacturing facility in Freeport, Illinois, in late

December 2005. Employees at the Freeport facility were

represented by the United Steel, Paper and Forestry, Rubber,

Manufacturing, Energy, Allied Industrial and Service Workers

International Union (“USW”), and Local 745 (collectively “the

union”). In January 2006, Titan entered into three related labor

agreements with the union: (1) a Collective Bargaining Agree-

ment (“CBA”); (2) a Benefits Agreement; and (3) an Under-

standings Outside the Agreement. (Collectively “labor agree-

ments”). The relevant portions of those agreements are

discussed shortly. See infra pp. 12–13.

Following Titan’s purchase of the Freeport facility, Titan

continued its predecessor’s practice of paying Local 745's

President and Benefit Representative their full-time salaries,

plus benefits. The President’s and Benefit Representative’s

salaries were set by Local 745's bylaws which were approved

by members of Local 745. The bylaws provided that Local 745's

“[p]resident’s salary is 60 hours at the highest base rate in the

4

(...continued)

these decisions adopt different approaches to this question of law. This

opinion has been circulated under Circuit Rule 40(e) among all judges of

this court in regular active service. A majority of the judges in active service

did not wish to rehear the case en banc. Chief Judge Wood and Circuit

Judges Rovner, Williams, and Hamilton voted to grant rehearing en banc.

Judge Wood’s dissent to the denial of rehearing follows.

No. 12-1152 7

plant,” and “[t]he benefit representative salary is 48 hours at

the highest pay rate of the plant.”

When Titan purchased the tire facility, Steve Vanderheyden

was serving as Local 745's President. Kevin Kirk took over as

President in 2009. In 2006 and throughout the underlying

litigation, Anthony Balsamo served as Local 745's Benefit

Representative.

From 2006 through October 2008, Titan paid Vanderheyden

and Balsamo their full union salaries. Then on October 31,

2008, Titan wrote to union president Vanderheyden and

informed him that Titan would no longer pay the full-time

salaries for Vanderheyden, Balsamo, and another union officer,

whose pay is not at issue on appeal. In this letter, Titan

explained that it believed that continuing to pay the salaries of

the union representatives would violate Section 302 of the

LMRA because Local 745 also represented school district

employees5 and because the President and Benefit Representa-

tive did not work out of the Titan facility and were not subject

to Titan’s control. Id.

While Titan ceased paying Vanderheyden and Balsamo

their full-time salaries, it instead paid directly to Local 745

amounts it believed due under the various labor agreements

for time the President and Benefit Representative worked on

union business. Local 745 then began paying the President’s

and Benefit Representative’s salaries; it also became responsi-

5

As discussed in more detail below, see infra pp. 11–12, Local 745 repre-

sented both workers at Titan and several classifications of employees at the

Freeport School District.

8 No. 12-1152

ble for the related federal tax withholding, unemployment

taxes, and worker’s compensation on their incomes. Titan,

though, continued to offer Vanderheyden (and later Kirk) and

Balsamo fringe benefits. Specifically, they remained eligible for

employee benefits, including health, dental, and life insurance,

and short-term disability coverage, although to participate in

those insurance plans they had to write Titan a check for their

share of the premiums and the payments did not come from

pre-tax earnings. Titan also continued to make pension

contributions and the President and Benefit Representative

maintained their seniority at Titan.6

Local 745 filed a grievance challenging Titan’s discontinua-

tion of payments to Vanderheyden and Balsamo. The griev-

ance went to arbitration. At arbitration, Local 745 argued that

under the governing labor agreements and the parties’ course

of conduct, Titan was responsible for directly paying the

President’s and Benefit Representative’s full salaries. In

making this argument, Local 745 relied on several provisions

from the governing labor agreements.

First, Local 745 relied on Article VII, Section 19 of the CBA,

which provided:

An employee who is designated Union repre-

sentative shall be compensated at his current

6

Article VIII, Section 3(e) of the CBA provided that: “An employee elected,

selected, or appointed for duty as an officer, representative or employee of

… the Local Union , … which assignment will take him from his employ-

ment with the Company, shall upon written request of the … Local Union

receive a leave of absence for the period of his service. … Seniority shall

accumulate throughout the period of his leave of absence.”

No. 12-1152 9

hourly rate for time lost from his regular shift

as a result of attending scheduled grievance

meetings with the Company. The maximum

number of hours to be paid by the Company

as provided in this paragraph shall be deter-

mined for each week on the basis of fifteen

(15) hours per week for one hundred (100)

employees.

Second, Local 745 relied on the Benefits Agreement, which

detailed the Benefit Representative’s duties7 and stated that

“the Employee designated as Benefit Representative will be

paid his current hourly rate for forty-eight (48) hours per week

plus 2% of previous year’s earnings as vacation pay. The

employee will be considered to be on a leave of absence for the

period of time he or she serves as Benefit Representative.”

Third, the union relied on provisions contained in the

Understandings Outside the Agreement. Here Local 745

pointed to provisions discussing the Benefit Representative

and “union business time.” In short, the Understandings

7

The Benefits Agreement provided that: “The Benefit Representative will

assist active bargaining unit employees, retired former employees and

spouse[s] of employees and retirees when requested by such employees,

spouses, or [Titan], in processing claims for benefits. The Benefit Represen-

tative will be involved in issues that relate to network administrators and

providers, the review of administrative changes, procedures and policies of

network administrators and provider withdrawals from a network that

affect the adequacy of the network coverage. In addition, the Benefit

Representative’s role will include education of employees, retirees,

surviving spouses and dependants on annual open enrollment, plan

designs, and efficient utilization of medical and other benefit programs.”

10 No. 12-1152

Outside the Agreement’s provision discussing the Benefit

Representative provided that Titan “will provide compensa-

tion for a Benefit Representative to be selected by the Local

Union after consultation with the Company.” The agreement

also set out the Benefit Representative’s pay, mirroring the

terms provided in the Benefits Agreement, quoted above.

The provisions in the Understandings Outside the Agree-

ment also discussed “union business time,” and, in sum, set

forth an agreement for the accounting of union business time.

It explained that hours will be “accumulated and ‘banked’ by”

Titan as provided in Article VII, Section 19 of the CBA. (As

noted above, that provision set a maximum number of hours

to be accumulated at 15 hours per 100 employees, per week.)

It also stated that deductions from the account would be made

for time spent on: union representation at a grievance meeting

or arbitration; Grievance Negotiation Committee participation

at a grievance meeting or arbitration; union investigation of a

grievance or safety violation; grievant and union witnesses’

attendance at a grievance meeting or arbitration; Union

President’s (or his replacement’s) time; “[t]ime beyond 48

hours in a week paid to the Benefit Representative (or his

replacement)”; and “[a]ny amount requested by Union for

payment to Union members.”

Titan for its part argued first that nothing in these agree-

ments required it to pay Local 745's President and Benefit

Representative their full-time salaries, but instead claimed the

labor agreements merely provided for payments to the union

for union business time. Titan further argued that if, under the

labor agreements and its past practice, it had agreed to directly

No. 12-1152 11

pay the President and the Benefit Representative, the agree-

ments were illegal and therefore could not be enforced.

At the arbitration hearing, the parties submitted as joint

exhibits, among other things, the CBA, the Benefits Agreement,

the Understandings Outside the Agreement, and the October

31, 2008, letter referenced above. The Union also presented

Local 745's bylaws and Titan presented the Agreement

between Local 745 and the Freeport School District, where

Local 745 also represented a bargaining unit.

Vanderheyden testified at length during the arbitration

proceedings on various matters. He confirmed that union

members voted on and approved the CBA, Understandings

Outside the Agreement, and the Benefits Agreement, excerpted

above. And while the documents themselves were not

“produced until after the ratification,” Local 745 held a

meeting for its members and provided a “full explanation of

the content of all three of those documents.”

Additionally, Vanderheyden testified in detail concerning

his activities on behalf of Titan employees. He explained that

under the bylaws he was a member of all committees and the

head of the Grievance and Negotiating Committee.

Vanderheyden testified that he devoted 55 to 60 hours a week

on representational activities on behalf of Titan employees,

although he explained that he was physically in the Titan plant

for designated hours only on Tuesdays and Thursdays, about

two hours in the morning and two hours in the afternoon.

Vanderheyden added that on the other days (Mondays,

Wednesdays, and Fridays), the Benefit Representative (Tony

12 No. 12-1152

Balsamo) worked out of the Titan plant for two hours in the

morning and two hours in the afternoon.

Vanderheyden also explained the structure of Local 745. He

testified that in addition to representing Titan employees,

Local 745 also, since 1999, represented four classifications of

employees working for the Freeport School District: teacher

assistants; food service workers; instructional material techni-

cians; and security monitors. There was only one collective

bargaining agreement for those four units and about 170

Freeport School District employees were represented by Local

745.

Under Local 745's bylaws, the school employees elect their

own leadership, with a unit chairperson, a separate grievance

and negotiating committee, a recording secretary, and a

separate steward structure. However, the arbitrator noted that

under “the agreement between the Freeport School District and

USW Local 745 the representational duties of the President and

Benefit Representative extend to both Titan employees and to

employees of the Freeport School District.” And both

Vanderheyden and Kirk testified at the arbitration hearing that

they assisted the school district’s unit chair, attended their

monthly membership meetings, and were involved with the

handling of some school district grievance proceedings.

Vanderheyden had also been present for the negotiations with

the Freeport School District and, in fact, had signed the

collective bargaining agreement.

Although Vanderheyden (and later Kirk), as well as

Balsamo, served both employees working for Titan and the

Freeport School District, prior to the dispute at issue in this

No. 12-1152 13

case, they were paid entirely by Titan. The Freeport School

District employees represented by Local 745 did not contribute

to their salaries and the Freeport School District did not have

an agreement with Local 745 to pay the President or Benefit

Representative for time serving the District employees.

After the hearing, the arbitrator issued an opinion sustain-

ing the union’s grievance and ordered Titan to reinstate direct

salary payments to the President and Benefit Representative.

The arbitrator reasoned that Titan’s practice of directly paying

the President’s and Benefit Representative’s salaries for two

and a half years was “enough time to invoke the doctrine of

past practice.” The arbitrator further concluded that such

payments were “by reason of their former employment” with

Titan and “in accordance with the collective bargaining

agreement” and as such were legal under Section 302(c). The

arbitrator added that “[t]he effect of the bargained-for payment

is significant,” totaling nearly $80,000 annually for the Presi-

dent and about $50,000 for the Benefit Representative. And that

“[t]his savings of expense could result in either lower Union

dues or at least no raise in Union dues,” and thus “[t]he

payment by the Company of the President’s and Benefit

Representative’s salaries is therefore a direct benefit to the

Union membership.”

Titan filed suit in federal district court to vacate the arbitra-

tor’s award and the union counterclaimed for enforcement of

the award. The parties then filed cross-motions for summary

judgment. The district court denied Titan’s motion for sum-

mary judgment and granted the union’s motion for summary

judgment, holding that salary payments to the President and

Benefit Representative were not in violation of § 302 of the

14 No. 12-1152

LMRA. The district court found that the payments were made

to former employees and reasoned that such payments were

legal because they “were enshrined in the CBA, are not the

product of a dangerously imbalanced bargain, and do not raise

a potential for undue influence.” Titan appeals.

II.

ANALYSIS

On appeal, Titan argues that this court should vacate the

arbitration award requiring it to pay the full-time salaries of

the union’s President and Benefit Representative because such

payments violate § 302 of the LMRA. “We review de novo a

district court’s decision on cross-motions for summary judg-

ment, meaning that we review the arbitrator’s decision as if we

were the court of first decision.” United Food & Commercial

Workers, Local 1546 v. Ill. Am. Water Co., 569 F.3d 750, 754 (7th

Cir. 2009) (internal citations omitted).

“Judicial review of arbitration awards is extremely limited.”

Prate Installations, Inc. v. Chi. Reg’l Council of Carpenters, 607

F.3d 467, 470 (7th Cir. 2010). And courts should not “review the

arbitrator’s decision on the merits despite allegations that the

decision rests on factual errors or misinterprets the parties’

agreement.” Major League Baseball Players Ass’n v. Garvey, 532

U.S. 504, 509 (2001) (per curiam). Therefore, an arbitration

award “must be enforced if it draws its essence from the

collective bargaining agreement.” Chi. Newspaper Publishers’

Ass'n v. Chi. Web Printing Pressmen's Union No. 7, 821 F.2d 390,

394 (7th Cir. 1987) (internal quotation marks omitted).

No. 12-1152 15

Nonetheless, the Supreme Court has made clear that a

reviewing court should vacate an arbitration award if the

arbitrator’s interpretation of the collective bargaining agree-

ment was “contrary to public policy.” E. Associated Coal Corp.

v. United Mine Workers of Am., 531 U.S. 57, 62 (2000). And “[i]f

the contract as interpreted by [the arbitrator] violates some

explicit public policy, we are obliged to refrain from enforcing

it.” W. R. Grace, 461 U.S. at 766. The public policy must be

“well defined and dominant, and is to be ascertained ‘by

reference to the laws and legal precedents and not from

general consideration of supposed public interests.’” Id.

(quoting Muschany v. United States, 324 U.S. 49, 66 (1945)). A

violation of a statute or some other positive law is the clearest

example of a violation of public policy and “no arbitrator is

entitled to direct a violation of positive law.” EEOC v. Ind. Bell

Tel. Co., 256 F.3d 516, 526 (7th Cir. 2001) (en banc). See also

George Watts & Son, Inc. v. Tiffany & Co., 248 F.3d 577 (7th Cir.

2001) (distinguishing between “a manifest disregard of the

law,” which does not provide a basis to overturn an arbitra-

tor’s decision, and an arbitrator’s directive to “the parties to

violate the law,” which must be overturned by a court of law).8

8

In Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576, 584–89 (2008), the

Supreme Court held that the grounds for vacating or modifying an

arbitration award contained in the Federal Arbitration Act, 9 U.S.C. §§

10–11, are exclusive and that contracting parties could not expand that list.

The Hall Street Court did not overrule Eastern Associated Coal or W.R. Grace,

both of which recognized a public policy exception to the general prohibi-

tion on overturning arbitrator awards. See supra at 15. Thus, Eastern

Associated Coal and W.R. Grace still control. See also Affymax, Inc. v. Ortho-

McNeil-Janssen Pharmaceuticals, Inc., 660 F.3d 281, 284–85 (7th Cir. 2011)

(continued...)

16 No. 12-1152

Moreover, “[o]nce [a] public policy question is raised, we

must answer it by taking the facts as found by the arbitrator,

but reviewing [the arbitrator’s] conclusions de novo.” Iowa

Elec. Light & Power Co. v. Local Union 204 of the Int’l Bhd. of Elec.

Workers, 834 F.2d 1424, 1427 (8th Cir. 1987). And “the question

of public policy is ultimately one for resolution by the courts.”

W.R. Grace, 461 U.S. at 766.

In this case, Titan maintains that its payment of the union’s

President’s and Benefit Representative’s full-time salaries

violated public policy as defined by Section 302(a) of the

LMRA. As noted above, Section 302(a) provides: “It shall be

unlawful for any employer … to pay, lend, or deliver, or agree

to pay, lend, or deliver, any money or other thing of value …

to any representative of any of his employees who are em-

ployed in an industry affecting commerce. ” 29 U.S.C. § 186(a).

However, Section 302(c) exempts from this general prohibition

“any money or other thing of value payable by an employer to

… any representative of [its] employees, or to any officer or

employee of a labor organization, who is also an employee or

former employee of such employer, as compensation for, or by

reason of, his service as an employee of such employer.” 29

U.S.C. § 186(c).

Section 302 seeks to prevent employers from bribing union

officials. Toth, 883 F.3d at 1300. It also seeks to prevent those

representing employees from operating under conflicted

8

(...continued)

(explaining that the principle in George Watts, that a court may set aside an

award that directs the parties to violate the law, survives Hall Street).

No. 12-1152 17

interests and for personal profit. See United States v. Kaye, 556

F.2d 855, 865 n.12 (7th Cir. 1977).

The plain language of Section 302(a) would bar Titan’s

payment of the union’s President’s and Benefit Representa-

tive’s salaries because they “represent[] … employees who are

employed in an industry affecting commerce.” 29 U.S.C.

§ 186(a)(1).9 The union contends that Titan’s payments are

exempt from the general bar by Section 302(c) because the

payments are to a “former employee”10 “as compensation for,

or by reason of, his service as an employee” of Titan. 29 U.S.C.

9

Titan contends on appeal that “[p]ayments by Titan Tire to the Local in

lieu of keeping these full-time Union officials on the company payroll are

equally unlawful; the statute prohibits payments to ‘any labor organization’

that represents the company’s employees, as well” as payments to “any

representative of any employee.” Appellant Brief at 12 (quoting 29 U.S.C.

§ 186(a)(1)). The only issue before us, however, is whether to enforce or

vacate the arbitrator’s award and that award directed Titan to “reinstate

direct payments to the President and Benefit Representative.” Accordingly,

that is the only question we address.

10

The union also argues that the payments are exempt under Section 302(c)

because the President and Benefit Representative are “current employees”

of Titan. The arbitrator, however, found that Titan paid the President’s and

Benefit Representative’s salaries “by reason of their former employment.”

(Emphasis added.) He further found that the President and Benefit

Representative performed no services that would qualify either as an

employee of Titan. The arbitrator’s findings of fact are not subject to review.

Garvey, 532 U.S. at 509. And we could not overturn an arbitrator’s factual

findings, even if we thought them wrong. Hasbro, Inc. v. Catalyst USA, Inc.,

367 F.3d 689, 692 (7th Cir. 2004). In any event, the record, which we have

fully reviewed, confirms the arbitrator’s conclusion that the President and

Benefit Representative were not current Titan employees.

18 No. 12-1152

§ 186(c). In support of its position, Local 745 relies heavily on

Caterpillar, Inc. v. UAW, 107 F.3d 1052 (3d Cir. 1997) (en banc).

A. Caterpillar, Inc. v. UAW, 107 F.3d 1052 (3d Cir. 1997)

In Caterpillar, the Third Circuit confronted the question of

“whether an employer granting paid leaves of absence to

employees who then become the union’s full-time grievance

chairmen violates § 302 of the Labor Management Relations

Act, 29 U.S.C. § 186.” Id. at 1053. The collective bargaining

agreement in that case “contained a ‘no-docking’ provision

allowing employees who were also union stewards and

committeemen to devote part of their work days to processing

employee grievances without losing pay, benefits or full-time

status.” Id. The CBA also “allow[ed] the union’s full-time

union committeemen and grievance chairmen to devote their

entire work week to union business without losing pay. These

employees [were] placed on leave of absence and [were] paid

at the same rate as when they last worked on the factory floor.”

Id. While on leave of absence, the union committeemen and

grievance chairmen conducted “business from the union hall,

perform[ed] no duties directly for Caterpillar, and [were] not

under the control of Caterpillar except for time-reporting

purposes.” Id.

Later, in the midst of a labor dispute in which the employ-

ees had returned to work without a contract, Caterpillar

informed the union that it would no longer pay the grievance

chairmen. Id. at 1053–54. The union filed an unfair labor

practice charge with the National Labor Relations Board and

Caterpillar countered with a suit in federal court seeking a

No. 12-1152 19

declaratory judgment that its payments violated § 302 of the

LMRA. Id. at 1054.

A divided en banc court held that the payments were lawful

under Section 302(c).11 Id. at 1057. The court reasoned that

while the grievance chairmen could not be considered current

employees of Caterpillar and their salaries could not be

considered “as compensation for” their past services as

Caterpillar employees, paying the grievance chairmen their

full-time salaries was lawful because such payments were “by

reason of” their past services as employees of Caterpillar. Id. at

1055. The court:

reach[ed] this conclusion because the pay-

ments arose, not out of some “back-door

deal” with the union, but out of the collective

bargaining agreement itself. Caterpillar was

willing to put that costly benefit on the table,

which strongly implies that the employees

had to give up something in the bargaining

process that they otherwise could have re-

ceived. Thus, every employee implicitly gave

up a small amount in current wages and

benefits in exchange for a promise that, if he

11

The court in Caterpillar overruled its earlier decision in Trailways Lines,

Inc. v. Trailways, Inc. Joint Council of the Amalgamated Transit Union, 785 F.2d

101 (3d Cir. 1986). The Third Circuit in Trailways had held that an em-

ployer’s agreement to continue making contributions to a joint union-

management trust fund on behalf of employees on leave of absence and

working full-time for the union was illegal under § 302. Id. at 108.

20 No. 12-1152

or she should someday be elected grievance

chairperson, Caterpillar would continue to

pay his or her salary.

Id. at 1056.

The court in Caterpillar further reasoned that “any attempt

to distinguish ‘no-docking’ provisions from the payments at

issue here is unpersuasive. We perceive no distinction between

union officials who spend part of their time (which may be

quite substantial) in adjusting grievances from the type of

employees who are involved here.” Id. at 1057. The court

further added that “we simply do not view the payments at

issue here as posing the kind of harm to the collective bargain-

ing process that Congress contemplated when it enacted the

LMRA. Section 302 of that statute was passed to address

bribery, extortion and other corrupt practices conducted in

secret.” Id.

B. By Reason Of Their Service As Former Employees

Based on Caterpillar’s analysis, the union maintains that

Titan’s payment of the full-time salaries to Local 745's Presi-

dent and Benefit Representative are exempt under Section

302(c) because those payments are “by reason of” their service

to Titan as former employees. As discussed below, we disagree

and instead find the reasoning of the Caterpillar dissents more

persuasive.12

12

The Ninth Circuit in BF Goodrich, 387 F.3d 1046, also disagreed with the

reasoning of Caterpillar. In BF Goodrich, also discussed infra pp. 38–42, the

court held that BF Goodrich could legally pay the union’s full-time “Chief

(continued...)

No. 12-1152 21

To address the union’s argument, we must first consider

the meaning of “by reason of” in Section 302(c). Initially, we

note that we agree with the majority in Caterpillar that the “by

reason of” language means something distinct from the “as

compensation for” language of Section 302(c). Caterpillar, 107

F.3d at 1055–56. The majority in Caterpillar, though, did not

inquire further on the meaning of that phrase. See Caterpillar,

107 F.3d at 1068 (Alito, J., dissenting) (“In reaching this

conclusion, however, the majority does not explain with any

specificity what it understands the phrase ‘by reason of’ to

mean.”).

12

(...continued)

Shop Steward” because he was subject to BF Goodrich’s control and thereby

an employee. But while it upheld the payments to the Chief Shop Steward,

the Ninth Circuit disagreed with Caterpillar’s reasoning, stating: “We thus

see things somewhat differently than the Third Circuit in Caterpillar,

where—without analyzing whether the full-time union grievance chairmen

whose corporate payments were at issue there qualified as employees of the

company or really served as employees of the union, see 107 F.3d at 1065–66

(Mansmann, J., dissenting)—the court sanctioned the company’s payments

to full-time representatives who worked from the union hall, outside any

meaningful corporate supervision (except for time-reporting requirements),

and who were classified as being ‘on leave of absence’ during the course of

their union work. Id. at 1053 (majority opinion).” BF Goodrich, 387 F.3d at

1059 (quoting Caterpillar, 107 F.3d at 1065–66 (Mansmann, J., dissenting)).

While BF Goodrich disagreed with Caterpillar’s reasoning, the Ninth Circuit

did uphold the payments to the Chief Shop Steward. It did so, though,

because the steward remained subject to the employer’s control and was

thereby a current employee of BF Goodrich. Conversely, in this case, the

arbitrator concluded that the President and Benefit Representative were not

employees of Titan and that finding is not subject to review. See supra p.17

n.9.

22 No. 12-1152

While the majority in Caterpillar did not explain what it

understood the “by reason of” exception to mean, the dissents

in Caterpillar did analyze this preliminary question. First, Judge

Mansmann explained:

The “by reason of” exception of section

302(c)(1) simply recognizes that current and

former employees might have a right to

receive payments from their employers that

arise from their services for their employers

but that are not properly classified as “com-

pensation.” The “by reason of” exception

includes pensions, 401(k) plans, life and

health insurance, sick pay, vacation pay, jury

and military leave pay, and other fringe

benefits to which all employees may be

entitled “by reason of” their service. … Al-

though not properly called compensation,

“by reason of” payments “arise from” the

employee’s services for the employer.

Without the section 302(c)(1) exception,

these payments would be illegal if paid to

any employee or former employee who also

worked for the union. Thus, an employee

who worked full time for the company, but

who held a part-time position with the union

(a practice permitted by the Supreme Court’s

decision in NLRB v. Town & Country Elec.,

Inc., 516 U.S. 85 (1995)), would be unable to

be paid his salary and could not receive

fringe benefits— despite working full time.

No. 12-1152 23

Section 302(c)(1) plainly exists to enable

company employees to obtain what is right-

fully theirs. In other words, the section

302(c)(1) exception does not entitle union

representatives to receive payments because of

their service for the union; the exception

allows union representatives to receive pay-

ments in spite of their current service for the

union.

Id. at 1058–59 (Mansmann, J., dissenting) (citations omit-

ted).

Judge Mansmann stressed that the key “is that the em-

ployee must receive the compensation or other payment

because of his or her service for the employer.” Id. at 1059

(emphasis added). She then concluded: “[t]he payments at

issue in this case are entirely unrelated to the representatives’

services for the employer. I believe that the plain language of

the section 302(c)(1) exception does not encompass the pay-

ments at issue here.” Id. at 1059.

We agree with Judge Mansmann’s analysis and similarly

conclude that the plain language of the section 302(c)(1)

exception does not encompass the payments at issue here (the

paying of Local 745's President’s and Benefit Representative’s

full-time salaries) because such payments are not “by reason

of” their service as former employees of Titan. Or in the words

of Judge Mansmann, they are not “because of” their service to

Titan. Rather, the President and Benefit Representative receive

their full-time salaries “because of” their service to Local 745,

which in this case includes not just their service to union

24 No. 12-1152

members working for Titan, but also to union members

working for the Freeport School District as teacher assistants,

food service workers, instructional material technicians, and

security monitors.13

Then-Judge Alito in his separate dissent also analyzed the

meaning of the “by reason of” language, albeit slightly differ-

ently. He explained that the majority’s interpretation of 302(c)’s

phrase “by reason of, his service as an employee of such

employer” improperly seeks only a “but-for” causation, that is,

“but-for” their status as former employees they would not be

entitled to the full-time pay. Id. at 1068–69. But the phrase “by

reason of” means “because of” or “on account of,” and usually

that means that it is a major cause. Id. He illustrated this point

13

The arbitrator in this case found that “the USW and the Teachers Union

were scrupulous in keeping their affairs separate. … It appeared to me that

the contact between offices of the USW and the Teachers Union was

minimal at best and in more of an advisory role than as a direct union

representative.” The arbitrator’s finding is questionable given that

Vanderheyden testified that they did not keep records of hours worked for

Titan employees and Freeport School District employees. It is also

questionable whether negotiating and signing a collective bargaining

agreement, as Vanderheyden did on behalf of the Freeport School District

employees, can be considered minimal contact. We must, though, accept the

arbitrator’s findings of fact, even if we think them wrong. Hasbro, 367 F.3d

at 692. However, even accepting the arbitrator’s view that the union was

scrupulous in keeping the Titan and Freeport School District affairs

separate, the undisputed fact remains that Local 745's President and Benefit

Representative served both groups of employees, but were paid solely by

Titan. This circumstance alone distinguishes this case from Caterpillar and

shows that their salaries were earned “because of” their current service to

union members and not “by reason of” their former employment with

Titan.

No. 12-1152 25

with some colorful examples, such as: “The Green Bay Packers

could not have won Super Bowl XXXI without defeating the

San Francisco Forty-Niners in the first round of the playoffs.

However, it would seem quite odd to say that the Packers won

the Super Bowl ‘by reason of’ defeating the Forty-Niners.” Id.

at 1069.

So too here. But for the President’s and Benefit Representa-

tive’s prior service as Titan employees, they would not be

entitled to Titan paying their full-time union salaries. How-

ever, that merely establishes their “eligibility” for such pay-

ments, not their “right” to payment. See id. at 1070 (“The basic

problem with the union’s argument is that it confuses an

employee’s eligibility for a payment with his right to it.”).

The majority in Caterpillar also attempted to characterize

the current payments as being “by reason of” the employees’

past service to the employer by postulating that “every

employee implicitly gave up a small amount in current wages

and benefits in exchange for a promise that, if he or she should

someday be elected grievance chairperson, Caterpillar would

continue to pay his or her salary.” Caterpillar, 107 F.3d at 1056

(majority opinion). Similarly, the union in this case argues,

“[b]y the same token, every Titan employee implicitly gave up

a small amount of current wages and benefits in exchange for

the promise that if he or she someday would be elected Local

Union President or appointed to serve as the Benefit Represen-

tative, Titan would continue to pay his or her wages while on

leave.”

But as then-Judge Alito explained, “[t]his argument is

inventive—but wrong.” Id. at 1070 (Alito, J., dissenting). He

26 No. 12-1152

noted that “postulating that each regular employee ‘pays’

something for the contingent right to future compensation by

the employer does not obviate the problem that past service as

a regular employee is not the sole or even a major cause of this

future compensation.” Id. at 1070. Rather, “there are two other,

more important causes of that compensation: selection as a

grievance chairman and the satisfactory performance of the

work of a grievance chairman on a daily basis.” Id. Moreover,

the majority’s reasoning in Caterpillar, would mean current

employees are “paying” now for the future right to receive

their full salaries while on leave of absence to work for the

union. Id. at 1070–71. In turn, then, “[t]he first group of

employees chosen as grievance chairmen would not have

previously made any ‘payments’ to the employer in exchange

for the contingent right to receive future wages and benefits

from the employer.” Id. at 1071. Therefore, even under the

majority’s theory, “the company’s payments to the initial

group of grievance chairmen would be illegal.” Id.

Additionally, Caterpillar’s reasoning (that every employee

gave up a small amount in compensation now in exchange for

the chance to later be paid to serve as a grievance chairperson),

also wrongly equates paying fringe benefits to former employ-

ees for performing their past job with paying former employ-

ees their current salaries for working for the union. Courts

have uniformly concluded that the “by reason of” exception of

302(c) allows union workers to receive fringe benefits earned

during their prior service to an employer. See United States v.

Phillips, 19 F.3d 1565, 1575 (11th Cir. 1994) (“by reason of”

exception applies to fringe benefits “such as vacation pay, sick

pay, and pension benefits”); Toth v. USX Corp., 883 F.2d 1297,

No. 12-1152 27

1303 n.8 (7th Cir. 1989) (severance pay and payments to

disabled employees are “by reason of” former employment);

BASF Wyandotte, 791 F.2d at 1049 (“by reason of” payments

include “vacation pay, sick pay, paid leave for jury duty or

military service, pension benefits, and the like”).

However, paying a former employee a salary to do another

job for another employer is different in both kind and degree

from paying fringe benefits to a former employee.14 First, it is

different in kind: Fringe benefits vest prior to an employee

leaving his employer’s service. As the Eleventh Circuit

explained in Phillips, 19 F.3d at 1575: “An employee’s ‘right’ to

receive a ‘benefit’ while on leave with the union has been

upheld when it vested before the employee began the leave of

absence to work for the union as well as before the employer

delivered the benefits.” See also Caterpillar, 107 F.3d at 1072 n.5

(Alito, J., dissenting) (“[S]ome payments made after the

termination of the recipient’s employment with the company

can be made ‘by reason of’ his or her prior employment. What

is important is whether the recipient has a right to the payment

before he or she leaves the company, not the date on which the

payment is actually made or received.”). Conversely, the

President’s and Benefit Representative’s “right” to be paid

their full-time union salaries arises only once those individuals

are no longer employed by Titan and instead are working for

the union. Thus, the right to full-time salary payments from

14

Titan does not contend that it is illegal for it to continue providing fringe

benefits or to allow the President and Benefit Representative to retain their

seniority, as required by the labor agreements, and the legality of such

provisions are not before us on appeal.

28 No. 12-1152

Titan have not vested. As such, they are not exempt under

Section 302(c)(1). See Phillips, 19 F.3d at 1575 (“[T]he section

[302(c)(1)] exception does not apply when a company pays a

union official who was a former employee, but who did not

have a right to such payment before he severed his employ-

ment relationship with the company.”).

Admittedly, some fringe benefits are dependent on what the

former employee does, such as payment for medical, military,

or jury duty leave. But the right to those benefits have vested

prior to the employee taking the leave, and the right to receive

the benefit does not depend on the quantity or quality of future

services. In other words, the “what” a former employee does

on their leave of absence, such as for sick leave or jury duty

leave, is merely a qualification for the benefit, it is not the

reason for the benefit.15 Moreover, such fringe benefits are

generally applicable to all employees, whereas here only union

members elected to office can receive such payments.16

15

The Second Circuit in BASF Wyandotte, 791 F.2d at 1049, found “no

meaningful distinction” between commonly available fringe benefits such

as sick leave, military leave, or jury leave, and leave granted current

employees pursuant to a “no-docking” provision in a collective bargaining

agreement. But as discussed infra pp. 37–42, this case is not a “no-docking”

case. And as BASF Wyandotte found, there is a distinction between a no-

docking fringe benefit and paying a former employee his full union salary.

Id. at 1049 n.1, 1050.

16

This circuit in Toth, 883 F.2d 1297, discussed infra pp. 30–34, also stated

that to qualify as a payment “by reason of” former employment, it is crucial

that the term is included in a CBA and “uniformly applicable and nondiscrim-

inatory.” Id. at 1304 (emphasis added).

No. 12-1152 29

In fact, that only union members can qualify for the

purported fringe benefit (that is, full-time paid leave to serve

as a union officer), seemingly would render such a benefit

illegal under the NLRA because it discriminates between union

and non-union members. As the Supreme Court explained in

Radio Officers’ Union of Commercial Telegraphers Union, A.F.L. v.

NLRB, 347 U.S. 17 (1954), where the union is the “exclusive

bargaining agent for both member and nonmember employees,

the employer could not, without violating § 8(a)(3), discrimi-

nate in wages solely on the basis of such membership even

though it had executed a contract with the union prescribing

such action.” Id. at 47. The Court further explained that

“[s]tatements throughout the legislative history of the National

Labor Relations Act emphasize that exclusive bargaining

agents are powerless to make agreements more favorable to

the majority than to the minority.” Id. at 47 (internal quotation

omitted). Yet, such disparate treatment served as the basis for

the Third Circuit’s reasoning in Caterpillar: “Every employee

implicitly gave up a small amount in current wages and

benefits in exchange for a promise that, if he or she should

someday be elected grievance chairperson, Caterpillar would

continue to pay his or her salary.”17

17

Judge Mansmann in her dissent expanded on this problem and we find

her discussion particularly instructive: “In an open shop, not all employees

governed by the collective bargaining agreement will necessarily be

members of the union. An employee who is not a member of the union (and

who therefore cannot aspire to become a grievance chairperson) will

nonetheless be forced to endure a lower salary or reduced benefits due to

his co-workers' decision to ‘give up something.’ In addition, unions will be

(continued...)

30 No. 12-1152

As discussed above, there is a difference in kind between

fringe benefits and paying a union official’s full-time salary.

There is also a difference in degree. Paid leave for jury duty,

military reserve duty, or sick leave, is short-term, while the

President and Benefit Representative are seeking full-time

leave pay for years of service to Local 745. Additionally, pay-

ing Local 745's President’s full-time salary totals nearly $80,000

annually, with another approximately $50,000 a year going to

the Benefit Representative. Fringe benefits may be expensive,

but not to this degree. In fact, the President’s union salary

could well exceed the salary he would have earned while

actually working for Titan because the bylaws base his salary

on 60 hours of work per week at the highest base rate at the

plant. At a certain point, the degree is so great that it would not

be reasonable to say the payment is “by reason of” past service

to the employer.

Toth, 883 F.2d 1297, made this point. In Toth, former USX

workers sought pension benefits based on time they had been

on leave of absence from USX to work for the union. Id. at 1298.

17

(...continued)

able to circumvent the problems that arise when some employees elect not

to join the union or pay union dues—they will seek agreements from the

employer to subsidize representatives’ salaries in exchange for reductions

in pay or benefits. These agreements will be negotiated and ratified without

the input of the non-union employees. Thus, an employee who elects not to

pay union dues may nonetheless face reductions in salary or benefits so that

the union (which he or she does not support) may prosper. The payments

at issue here are surely not ‘by reason of’ the nonunion employees’ services

—yet those same payments are made possible by the non-union employees'

reduced salary and benefits.” 107 F.3d at 1062–63.

No. 12-1152 31

Prior to 1984, USX had allowed its employees to accrue

pension-benefit rights while on leave of absences for up to two

years. Id. at 1298. In 1984, USX changed its leave of absence

policy to permit former employees to continue accruing

pension credit until they retired, whether they worked for the

company or had left to work for the union. Id. The change in

the leave policy resulted from alleged collusion between USX

and union leaders to benefit a select few higher-ups at the

union. Id. at 1299–1300. However, shortly after the plaintiffs in

Toth applied for benefits, USX rescinded the leave of absence

policy, contending that the policy violated section 302 of the

LMRA. Id. at 1299.

After quoting the relevant statutory language, this court in

Toth focused on the meaning of “by reason of” an employee’s

past employment. We first rejected the Third Circuit’s view in

Trailways18 that the “by reason of” clause only exempts

payments made to former employees while they were employ-

ees of the company. Id. at 1303. We then explained that “[o]ne

obvious instance in which continuing payments constitute

recompense for past services is when those continuing pay-

ments were bargained for and formed part of a collective

bargaining agreement.” Id. at 1304. This is because “[e]mploy-

ees might accept lower wages now in return for future benefits;

the work they subsequently perform is as surely performed in

order to earn those future benefits as it is to earn current

wages. In those cases future benefits would be ‘in compensa-

tion for’ or ‘by reason of’ past employment.” Id. at 1304. We

18

As noted earlier, the Third Circuit in Caterpillar overruled its prior

decision in Trailways, 785 F.2d 101.

32 No. 12-1152

added that “collective bargaining and inclusion in a generally

disseminated collective bargaining agreement, whose terms are

uniformly applicable and nondiscriminatory, are crucial.” Id.

at 1304.

However, and significantly for purposes of this case, Toth

explained that, “[a]t some point, it is conceivable that a bargain

struck by the union and the employer might yet violate section

302—if, for example, the terms of compensation for former

employment were clearly so incommensurate with that former

employment as not to qualify as payments ‘in compensation

for or by reason of’ that employment.” Id. at 1305. In support

of this proposition, Toth quoted from BASF Wyandotte, wherein

the Second Circuit stated, “we do not suggest that [section

302(c)(1)] would allow an employer simply to put a union

official on its payroll while assigning him no work. … [T]his

would be precisely the kind of device that §§ 302(a) and (b)

were designed to prevent.” Toth, 883 F.2d at 1305 (quoting

BASF Wyandotte, 791 F.2d at 1050). Toth then added that “full-

time pay for no service cannot reasonably be said to be

compensation ‘by reason of’ service as an employee.” Toth, 883

F.2d at 1305. And Toth also explained that “given the overall

purpose of section 302 (to prevent bribery), we may not

construe the phrase ‘as compensation for, or by reason of’ too

broadly.” Id. at 1303–04.

After setting forth these general principles, Toth concluded

that the USX “policy in the case before us cannot qualify as

‘compensation for or by reason of’ former employment because

… the USX’s leave policy was not a part of the bargained-for

collective bargaining agreement. It was a unilateral change—

under the plaintiffs’ own allegations, a bribe.” Id. at 1305.

No. 12-1152 33

The facts of this case clearly differ from Toth. There is no

allegation that the payments were bribes. Rather, the arbitrator

found, based on the labor agreements and past practices, that

Titan was contractually obligated to pay the union President’s

and Benefit Representative’s full-time salaries. And those labor

agreements were approved by union members. Local 745 relies

on these facts to claim that the payments are “by reason of” the

President’s and Benefit Representative’s former service as

Titan employees. In making this argument, Local 745 asserts

that Toth stands for the proposition that “payments pass

muster under Section 302(c)(1) where the obligations are

established in a collective bargaining agreement.”

This argument misreads Toth. As Titan correctly points out,

Toth does not stand for the proposition that any payments

authorized by a CBA are “by reason of” the former service of

the employee. In fact, such a reading of Section 302(c)(1) would

render the general prohibition contained in Section 302(a) a

nullity. Caterpillar, 107 F.3d at 1061 (Mansmann, J., dissenting)

(concluding that “the majority expands the exception such that

the rule is rendered a nullity”). It would also allow parties to

contract away the criminal prohibition Congress established in

Section 302(a). Further, such an argument cannot be squared

with the plain language of Section 302(a) because that section

prohibits not merely the paying of money to a union represen-

tative, but the agreeing to pay such a representative, which of

course is what a CBA is: an agreement to pay. 29 U.S.C.

§ 186(a) (“It shall be unlawful for any employer … to pay, lend,

or deliver, or agree to pay, lend, or deliver, any money or other

thing of value … to any representative of any of his employees

who are employed in an industry affecting commerce.”

34 No. 12-1152

(emphasis added)). Or as Judge Mansmann aptly put it: “If an

agreement to pay is unlawful under section 302(a)(1), it is

illogical to use the same agreement as a basis for finding that

the resultant payment is lawful under section 302(c)(1).”

Catperillar, 107 F.3d at 1061 (Mansmann, J., dissenting).

Moreover, while Toth stated that inclusion in a collective

bargaining agreement was crucial to the legality of a payment

to a union representative, 883 F.2d at 1305, this court also noted

the need for there to be “a firm connection” between the

bargained-for term and “the terms of prior employment.”Toth,

883 F.2d at 1305. This means that, at some point, “a bargain

struck by the union and the employer might yet violate section

302—if, for example, the terms of compensation for former

employment were clearly so incommensurate with that former

employment as not to qualify as payments ‘in compensation

for or by reason of’ that employment.” Id. at 1305.

That is what we have here. Paying Local 745's President

and Benefit Representative their full-time union salaries has no

firm connection to their prior service as Titan employees. Such

payments are also different in kind from other fringe benefits.

And they are different in degree because it is “so incommensu-

rate with that former employment. ” Accordingly, it is not “by

reason of” that former employment.

C. Statutory Purpose

Our conclusion above that Titan’s agreement with the

union to pay Local 745's President’s and Benefit Representa-

tive’s full-time salaries is illegal under Section 302 is also

consistent with the statutory purpose of that Section. Initially,

we note that where the statutory language is clear, we need not

No. 12-1152 35

consider the statutory purpose. Five Points Rd. Joint Venture v.

Johanns, 542 F.3d 1121, 1128 (7th Cir. 2008). And we believe the

statutory language in this case is clear. However, we address

the statutory purpose here because the majority opinion in

Caterpillar relied on the underlying purpose of Section 302 to

uphold the payments at issue in that case.

Specifically, in Caterpillar, the majority noted: “[W]e simply

do not view the payments at issue here as posing the kind of

harm to the collective bargaining process that Congress

contemplated when it enacted the LMRA. Section 302 of that

statute was passed to address bribery, extortion and other

corrupt practices conducted in secret.” Caterpillar, 107 F.3d at

1057.

We acknowledged in Toth that “[i]t is fairly universally

acknowledged that a central purpose of section 302 as a whole

was to prevent employers from bribing union officials.” Toth,

883 F.3d at 1300. But another central purpose of section 302 is

to prevent conflicts of interest. See Kaye, 556 F.2d 855. In Kaye,

we observed that Section 302

condemns union employees and representa-

tives who act to further self-interest or per-

sonal profit: For centuries the law has forbid-

den any person in a position of trust to hold

interests or enter into transactions in which

self-interest may conflict with complete

loyalty to those whom they serve. … [N]o

responsible trade union official should have

a personal financial interest which conflicts

with the full performance of his fiduciary

36 No. 12-1152

duties as a workers’ representative. … Play-

ing both sides of the street, using union office

for personal financial advantage, undercover

deals, and other conflicts of interest corrupt,

and thereby undermine and weaken the labor

movement. … The Government which vests

in labor unions the power to act as exclusive

bargaining representative must make sure

that the power is used for the benefit of

workers and not for personal profit.

Kaye, 556 F.2d at 865 n.12 (quoting United States Code

Congressional and Administrative News, 86th Cong., 1st Sess.,

P.L. 86-257, pp. 2330–31); see also Phillips, 19 F.3d at 1574 (“The

Taft-Hartley Act, 29 U.S.C. §§ 141–187, is, in part, a conflict-of-

interest statute designed to eliminate practices that have the

potential for corrupting the labor movement. To achieve this

goal, Congress prohibited all payments from employers to

representatives of their employees and union officials [in

Section 302(a)]” (citation omitted)).

Thus, preventing bribery is not the sole purpose of Section

302. And prohibiting an employer from paying the full-time

salaries of the union’s President and Benefit Representative

serves the statute’s goal of preventing conflicts of interest. In

this case, the union’s President was also head of the Grievance

and Negotiating Committee. Thus, he was negotiating the very

labor agreements that provided for his full-time salary, as well

as the full-time salary of another union official, both at the

highest factory rate for 60 and 48 hours respectively. While

their salaries were approved by the union membership in the

union bylaws, that membership has no way of knowing

No. 12-1152 37

whether Titan’s agreement to pay the union salaries came at

the expense of lower salaries or benefits for plant workers.

That is not to say that the payments were bribes or backroom

deals—there is no evidence of that kind. But the President has

an incentive to preserve his own salary and to make his

generous salary appear cost-free to union members by having

it covered by Titan, rather than union dues. It is this conflicted

interest and diversion of employee wages to union leaders

which Section 302(a) seeks to address. See Caterpillar, 107 F.3d

at 1060 (Mansmann, J., dissenting) (such an arrangement

“create[s] a conflict of interest for union negotiators who may

agree to reduced benefits for the employees in exchange for

financial support for the union”); see also, 92 Cong. Rec. 5428

(1946) (“It prohibits taking money that has been earned by the

employees themselves and paying it to a union.” (Statement of

Senator Taft)).

D. No-Docking Provisions

Before closing, we pause to stress that our holding in no

way calls into question the validity of no-docking clauses.

“Under a no-docking clause, the employer agrees that shop

stewards may leave their assigned work areas for portions of

a day to process employee grievances without loss of pay.”

Caterpillar, 107 F.3d at 1056. As the Second Circuit recognized,

no-docking arrangements have been consis-

tently upheld by the courts as not in violation

of § 302, see NLRB v. BASF Wyandotte Corp.,

798 F.2d 849, 854–56 (5th Cir. 1986); BASF

Wyandotte Corp. v. Local 227, 791 F.2d 1046 (2d

Cir. 1986); Herrera v. Int’l Union, UAW, 73

38 No. 12-1152

F.3d 1056 (10th Cir. 1996), aff'g & adopting

dist. ct. analysis, 858 F. Supp. 1529, 1546

(D.Kan. 1994); Communications Workers v. Bell

Atlantic Network Servs., Inc., 670 F.Supp. 416,

423–24 (D.D.C. 1987); Employees' Independent

Union v. Wyman Gordon Co., 314 F.Supp. 458,

461 (N.D.Ill. 1970).

Id.

The Third Circuit in Caterpillar believed the legality of no-

docking clauses meant that a CBA provision providing for full-

time pay for union committeemen and grievance chairmen was

likewise exempt under 302(c)(1). The court thought “any

attempt to distinguish ‘no docking’ provisions from the

payments at issue here is unpersuasive.” 107 F.3d at 1057. And

it “perceive[d] no distinction between union officials who

spend part of their time (which may be quite substantial) in

adjusting grievances from the type of employees who are

involved here.” Id. The court also noted “it would be strange

indeed if Congress intended that granting four employees two

hours per day of paid union leave is permissible, while

granting a single employee eight hours per day of that same

leave is a federal crime.” Id. at 1056.

Again, we disagree with Caterpillar. Here we find the

reasoning of the Ninth Circuit in BF Goodrich, which also

rejected this line of reasoning, more persuasive. In BF Goodrich,

the court held that BF Goodrich could legally pay the union’s

full-time “Chief Shop Steward” because he was subject to BF

Goodrich’s control and thereby an employee. But in reaching

this conclusion, the Ninth Circuit rejected the union’s argu-

No. 12-1152 39

ment that paying the salary and benefits of a full-time union

representative is permissible under a contractual “no-docking”

provision, because such payments are authorized by Section

8(a)(2) of the National Labor Relations Act (“NLRA”). 29 U.S.C.

§ 158(a)(2); BF Goodrich, 387 F.3d at 1052. Specifically, Section

8(a)(2) provides “[t]hat subject to rules and regulations made

and published by the [NLRB], an employer shall not be

prohibited from permitting employees to confer with him

during working hours without loss of time or pay.” (Emphasis

added.) 29 U.S.C. § 158(a)(2). As the Ninth Circuit explained,

that language has been unchanged for nearly 70 years and

there are similar provisions in the Railway Labor Act and the

Federal Service Labor-Management Relations Statute. BF

Goodrich, 387 F.3d at 1052–53.

In addressing this argument, the Ninth Circuit in BF

Goodrich first noted that harmonizing the seemingly contradic-

tory provisions found in Sections 8(a)(2) and 302(a) “may seem

a daunting task.” Id. at 1053. But the court then concluded

there was no need to do so because “[t]he provisions of the

agreement requiring Goodrich to compensate a full-time union

representative differ from typical no-docking provisions—at

least as [the] NLRA contemplates them.” Id. The court ex-

plained that the “without loss of time” language of Section

8(a)(2) was a “key linguistic signal” and that “if an employee’s

only responsibility is to represent union employees in the

grievance process, no ‘working hours’ could be ‘los[t] by his

doing just that.” Id. Thus, [t]he company would have no reason

to ‘dock’ the employee’s pay; he would simply be doing what

his contract provides.” Id. The Ninth Circuit also explicitly

rejected the Third Circuit’s reasoning in Caterpillar that there is

40 No. 12-1152

no difference between a part-time no-docking provision and a

full-time one, stating: “[I]t is not inconceivable that Congress

might treat these different arrangements differently. Quite

simply, the potential for corporate payments to undermine the

independence of a union representative may be considerably

greater when the employee’s entire salary and benefits are

attributable to his conduct as a representative.” Id. at 1056

n.13.19

We agree with the Ninth Circuit that Section 8(a)(2) does

not apply to full-time union employees and that “this case

differ[s] from the no-docking provisions contemplated by the

NLRA.” Id. at 1054. In this case there is “no loss of time”

because Local 745's President and Benefit Representative are

not working for Titan at all. See also BASF Wyandotte, 791 F.2d

at 1049 n.1 (“[N]o-docking provisions have relevance only to

persons who are currently serving as employees.”). Moreover,

as the Ninth Circuit recognized, Congress could have reason-

ably decided to treat part-time no-docking provisions differ-

ently than full-time pay to union employees, namely the desire

19

See also Caterpillar, 107 F.3d at 1064 (Mansmann, J., dissenting) (distin-

guishing payments to full-time union “grievance chairmen” and no-docking

provisions, in part, because “employees subject to no-docking payments are

more likely to do union work on an ‘as needed’ basis. They are also more

likely to be able to schedule grievance meetings and other union work at the

mutual convenience of the employees and the employer. In contrast, the

grievance chairmen in this case are paid full time regardless of whether

there is any union work to be done. They are never available to perform

services for the employer.”); id. at 1073 (Alito, J., dissenting) (“‘No docking’

provisions differ, at least in degree, from the type of arrangement that is

before us, and there are times in the law when differences in degree are

dispositive.”).

No. 12-1152 41

to prevent “corporate payments [from] undermin[ing] the

independence of a union representative.” BF Goodrich, 387 F.3d

at 1056 n.13. Whatever Congress’s intent, though, we must

consider the statutory language and must read the statutory

language, if possible, to give effect to both Section 8(a)(2) and

Section 302. Section 8(a)(2) permits no-docking provisions for

employees and thus we read Section 302 as allowing the same.

Nothing in the statutory language, however, permits full-time

pay for former employees—even if they are doing all of the

same things an employee might do part-time pursuant to a no-

docking provision. Had Congress intended to authorize such

payments, it could have so provided. It is for Congress and not

the courts to create exceptions within the LMRA’s plain

language. Packard Motor Car Co. v. NLRB, 330 U.S. 485, 490

(1947); Caterpillar, 107 F.3d at 1058 (Mansmann, J., dissenting).

Furthermore, the facts of this case distinguish the situation

before us even more from typical “no-docking” provisions

because Local 745's President and Benefit Representative are

not “‘confer[ring] with [the employer]’ or otherwise represent-

ing union interests in connection with the grievance process,”

on a full-time basis. BF Goodrich, 387 F.3d at 1053 (quoting 29

U.S.C. § 158(a)(2)). Rather, the President and Benefit Represen-

tative are doing many other things, including assisting retirees

with health and life insurance benefits and aiding individuals

laid off in obtaining unemployment and other benefits, as well

as representing four classes of workers in the Freeport School

District. The President and the Benefit Representative in this

case are just not equivalent to the full-time committeemen or

grievance chairmen whose pay was at issue Caterpillar. In

42 No. 12-1152

short, as in BF Goodrich, “[t]he legality of no-docking provi-

sions is not before us.” Id.

III.

The arbitrator found that the labor agreements between

Titan and the union required Titan to pay the full-time salaries

of Local 745's President and Benefit Representative. However,

such an agreement violates the plain language of Section 302(a)

of the LMRA and is not exempt by Section 302(c) because the

President’s and Benefit Representative’s full-time salaries are

not vested rights earned “by reason of” their former employ-

ment at Titan. Rather, the President and Benefit Representative

earn their current salaries because of their service to Local 745

members. Because the arbitrator’s order to Titan to reinstate

direct salary payments to the President and Benefit Represen-

tative would require Titan to violate Section 302, its decision

must be vacated. For these and the forgoing reasons, we

REVERSE and REMAND for further proceedings consistent

with this opinion.

No. 12‐1152  43

WOOD, Chief Judge, with whom WILLIAMS and HAMILTON,

Circuit Judges, join, dissenting from the denial of rehearing en

banc.  The  majority  has  chosen  to  create  a  conflict  with  the

Third  Circuit  in  this  case  over  the  proper  interpretation  of

section 302 of the Labor Management Relations Act (LMRA),

29 U.S.C. § 186. The question, briefly, involves when an em‐

ployer is entitled to pay money or any other thing of value to

a union representative who is a present or former employee.

See section 302(c)(1), 29 U.S.C. § 186(c)(1). The importance of

the question is attested by the Supreme Court’s grant of certi‐

orari in Caterpillar, Inc. v. Int’l Union, United Auto. Aerospace &

Agric. Implements  Workers  of Am., et al., 521 U.S. 1152 (1997).

Although  that  case  was  settled  before  the  Court  issued  an

opinion,  that  happenstance  says  nothing  about  the  signifi‐

cance  of  the  issue.  Moreover,  for  the  reasons  I  sketch  out

here, I believe that the majority has adopted a position that is

inconsistent with  the  LMRA and  that  disregards the  proper

standard of review for arbitral awards. I would set this case

for argument before the en banc court, because I believe that

there are powerful reasons to affirm the district court.

I begin with the fact that this court is being asked to over‐

turn an arbitral award. Despite the fact that arbitral awards

must be upheld even if a court disagrees with the outcome,

Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013),

and  even  if  a  court  thinks  that  a  mistake  of  law  has  been

made,  Stolt‐Nielsen  S.A.  v.  AnimalFeeds  Int’l  Corp.,  559  U.S.

662, 671 (2010), the panel here has engaged in de novo review

of  the  arbitrator’s  conclusion  that  Titan  made  payments  to

the  president  and  benefit  representative  of  the  Union  “by

reason of their former employment” with Titan. That finding

of  the  arbitrator  is  a  classic  application  of  the  law  to  facts.

The  question  before  this  court  is  therefore  not  whether  we

44  No. 12‐1152

would have made the same finding; it is whether the parties

agreed  to  commit  that  issue  to  arbitration,  and  whether  the

arbitrator’s  decision  is  tied  to  the  collective  bargaining

agreement.

The  panel  has  tried  to  shoehorn  its  decision  into  the

narrow space created by the doctrine that arbitrators are not

authorized to order parties to take an illegal act, recognized

in EEOC v. Ind. Bell Tel. Co., 256 F.3d 516, 524 (7th Cir. 2001)

(en banc), and based on the Supreme Court’s cases explaining

that  a  reviewing  court  should  not  enforce  an  arbitration

award  that  is  contrary  to  “well  defined  and  dominant”

public policy. W.R. Grace & Co. v. Local Union 759, Int’l Union

of  United  Rubber,  461  U.S.  757,  766  (1983).  But  I  am  not

persuaded that this case can be forced into that exception. I

am  especially  struck  by  the  breadth  of  the  panel’s  phrasing

of  the  question  presented,  as  it  appears  on  page  3  of  the

opinion: “This appeal presents an issue of first impression in

this circuit, namely whether a company may legally pay the

full‐time salaries of the President and Benefit Representative

of the union representing the company’s employees.” Op. at

3.  The  Third  Circuit’s  decision  in  Caterpillar,  Inc.  v.  Int’l

Union, United Auto. Aerospace & Agric. Implements Workers of

Am., 107 F.3d 1052 (3d Cir. 1997), held that the answer to this

question  is  yes.  The  panel,  with  the  acquiescence  of  a

majority of the active judges, has decided to follow the views

of one of the dissenting judges in that case. This is a mistake,

in my view.

In  order  to  explain  why  that  step  is  unwarranted  and

why the Third Circuit’s majority had the better of the argu‐

ment, I begin with the language of section 302 of the LMRA,

No. 12‐1152  45

29  U.S.C.  §  186.  Section  302(a)  opens  with  a  broad  prohibi‐

tion:

It shall be unlawful for any employer or as‐

sociation of employers or any person who acts

as a labor relations expert, adviser, or consult‐

ant  to  an  employer  or  who  acts  in  the  interest

of  an  employer  to  pay,  lend,  or  deliver,  or

agree  to  pay,  lend,  or  deliver,  any  money  or

other thing of value—

(1) to any representative of any of his employ‐

ees who are employed in an industry affect‐

ing commerce; …

Subsection  (c)  of  the  statute  then  sets  out  a  long  list  of

exceptions to that general prohibition. The exception that is

applicable  here  is  found  in  section  302(c)(1)  (emphasis

added):

The  provisions  of  this  section  shall  not  be

applicable (1) in respect to any money or other

thing  of  value  payable  by  an  employer  to  any

of  his  employees  whose  established  duties  in‐

clude acting openly for such employer in mat‐

ters of labor relations or personnel administra‐

tion or to any representative of his employees,

or to any officer or employee of a labor organi‐

zation,  who  is  also  an  employee  or  former  em‐

ployee of such employer, as compensation for,

or  by  reason  of,  his  service  as  an  employee  of

such employer; …

The  arbitrator  in  the  present  case  found  as  a  fact  that

Union  President  Steve  Vanderheyden  and  Union  Benefit

46  No. 12‐1152

Representative Kevin Kirk were former full‐time employees

of  Titan,  that  they  were  receiving  money  from  Titan  in  the

amount  of  their  full  salaries  (as  specified  in  the  CBA),  and

that  they  were  receiving  those  salaries  by  reason  of  their

service  as  former  employees  of  Titan.  They  were  also

receiving  an  array  of  fringe  benefits,  including  health  care

and  pension  contributions.  Oddly,  the  majority  either  does

not seem to think that those fringe benefits were a “thing of

value,”  or  perhaps  it  thinks  that  former  employees  who  do

not  become  union  representatives  nonetheless  retain  sick

leave and comparable fringe benefits (though I do not know

why  this  would  be  so).  Alternatively,  the  majority  tries  to

characterize  benefits  as  something  different  “in  degree”

from  salary,  but  nothing  in  the  statutory  language  shaves

things so finely. One way or the other, the majority appears

willing to  allow the employer to cover those costs. See, e.g.,

op.  at  26–27.  It  seems  to  me  that  if  these  benefits  are

permissible under sections 302(a) and (c), then salary is too.

It  would  come  as  news  to  most  people  that  fringe  benefits

like health care are not a “thing of value.”

I recognize the concern that there is an embedded conflict

of  interest  when  an  employer  pays  the  salary  of  a  union

representative—or  indeed,  as  section  302(a)  says,  when  an

employer  gives  a  union  member  any  “thing  of  value.”  But

Congress  was  well  aware  of  this  conflict  and  resolved  it

expressly through the combination of the general prohibition

of section 302(a) and the exceptions of 302(c). It is not up to

us  to  decide  whether  Congress  struck  the  right  balance;  we

have only to apply the law as it is written.

Because it is undisputed that Vanderheyden and Kirk are

both former employees of Titan, the question boils down to

No. 12‐1152  47

this:  was  Titan  paying  their  salaries  “by  reason  of”  their

service as former employees? The majority first endorses the

position  taken  in  Judge  Mansmann’s  dissent  in  the  Third

Circuit’s decision in Caterpillar, in which she argued that the

“by  reason  of”  exception  simply  does  not  apply  to  salaries.

Instead,  she  suggested,  that  exception  does  no  more  than

“recognize[] that current and former employees might have

a  right  to  receive  payments  from  their  employers  that  arise

from  their  services  for  their  employers  but  that  are  not

properly  classified  as  ‘compensation.’”  Op.  at  22.  The  only,

but  fatal,  problem  with  that  position  is  that  neither  section

302(a)  nor section  302(c)(1)  contains  any  such  limitation.  To

the  contrary,  both  sections  use  the  broadest  possible

language; they speak identically of “any money or other thing

of  value.”  If  Congress  had  wanted  to  draw  the  line  Judge

Mansmann proposed, it easily could have done so. But it did

not.

Judge  Mansmann’s  conclusion  that  the  employer’s

decision  in  Caterpillar  to  cover  the  union  representatives’

salaries must have been unrelated to (that  is, not  “by  reason

of”)  their  former  work  for  the  employer  is  doubly  flawed.

Not  only  does  that  position  rest  on  a  limitation  that  the

statute  does not recognize;  it also fails to  recognize that the

coverage  of  the  salaries  of  certain  union  members  can  be

explained  only  by  the  former  relationship  with  the

employer.  When  a  collective  bargaining  agreement  is  in

place,  that  agreement  helps  to  keep  labor  peace,  through

mechanisms  such  as  a  smoothly  functioning  seniority

system,  well  understood  responsibilities  in  each  job,  and,

most  importantly,  a  grievance  procedure.  Union

representatives play a critical role in the smooth functioning

of the workplace. Although it is possible that having a union

48  No. 12‐1152

representative  who  knows  nothing  about  the  particular

employer, the particular workplace, and applicable industry

norms might work, it is normally preferable to have a union

representative  with  a  thorough  understanding  of  the

employer’s  business—in  other  words,  to  use  a  former  (and

potentially  future)  employee.  That  is  undoubtedly  why

Congress chose to include this exception in section 302(c)(1).

Not  a  word  in  the  statute  indicates  that  this  exception  is

available only to part‐time union representatives.

Then‐Judge Alito’s dissent similarly inserts language into

the statute that is not there. He divined that the phrase “by

reason of” must imply that the identified characteristic (here,

former employee status) can only be a major cause, not just a

motivating  factor.  As  support,  he  notes  that  the  Green  Bay

Packers  could  not  have  won  Super  Bowl  XXXI  without  de‐

feating  the  San  Francisco  49ers  in  the  first  round  of  the

playoffs,  but  that  it  would  be  odd  to  say  that  the  Packers

won the Super Bowl “by reason of” defeating the 49ers. 107

F.3d  at  1069.  At  one  level,  however,  his  example  simply  il‐

lustrates  one  of  thousands  of  possible  instances  of  the  post

hoc,  ergo  propter  hoc  fallacy;  at  another  level,  what  is  really

worrying him is not the causal chain, which certainly exists,

but remoteness: one necessary (but not sufficient) step along

the way to the Packers’ Super Bowl victory was to eliminate

the 49ers. Neither the logical fallacy nor the causation prob‐

lem  exists  here.  The  arbitrator  found  that  Titan  was  paying

Vanderheyden and Kirk precisely because they were the two

former employees with responsibility to make the collective

bargaining  agreement  work.  There  is  a  clear  line  of  logic,

motivation, and causation. At a minimum, the point is not so

unclear  that  the  arbitrator’s  factual  finding  should  be  over‐

turned.

No. 12‐1152  49

I  would  set  this  case  for  en  banc  consideration  for  two

reasons.  First,  and  most  importantly,  I  believe  that  the

majority has taken an action that is inconsistent with a long

line of Supreme Court decisions instructing courts to accept

the  results  of  consensual  arbitration,  even  if  we  think  those

results  are  mistaken  or  ill‐advised.  See  Oxford  Health  Plans

LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013); Stolt‐Nielsen S.A. v.

AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010); E. Associated

Coal Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S. 57,

62  (2000);  United  Paperworks  Int’l  Union,  AFL‐CIO  v.  Misco,

Inc.,  484  U.S.  29,  38  (1987)  (“[A]s  long  as  the  arbitrator  is

even  arguably  construing  or  applying  the  contract  and

acting  within  the  scope  of  his  authority,  that  a  court  is

convinced  he  committed  serious  error  does  not  suffice  to

overturn  his  decision.”).  Second,  looking  particularly  to

labor  law,  I  see  nothing  in  this  arbitral  result  that  is  either

inconsistent with section 302 of the LMRA or that commands

the  parties  to  take  an  illegal  action.  To  the  contrary,  the

majority has upset the balance that Congress wrote into the

statute,  by  engrafting  its  own  limitations  onto  the  existing

structure. The case is thus important both for what it does to

arbitration,  and  for  what  it  does  to  labor  law.  I  respectfully

dissent.