Hawaiian Dredging Construction Co. v. National Labor Relations Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 10, 2017 Decided May 26, 2017

No. 15-1039

HAWAIIAN DREDGING CONSTRUCTION COMPANY, INC.,

PETITIONER

v.

NATIONAL LABOR RELATIONS BOARD,

RESPONDENT

INTERNATIONAL BROTHERHOOD OF BOILERMAKERS LOCAL

627,

INTERVENOR

Consolidated with 15-1424

On Petition for Review and Cross-Application

for Enforcement of an Order of

the National Labor Relations Board

Barry W. Marr argued the cause for petitioner. With him

on the briefs was Megumi Sakae.

David Casserly, Attorney, National Labor Relations Board,

argued the cause for respondent. On the brief were Richard F.

Griffin, Jr., General Counsel, John H. Ferguson, Associate

General Counsel, Linda Dreeben, Deputy Associate General

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Counsel, Usha Dheenan, Supervisory Attorney, and Marci J.

Finkelstein, Attorney.

David A. Rosenfeld argued the cause and filed the brief for

intervenor International Brotherhood of Boilermakers Local 627

in support of respondent. Caren P. Sencer entered an

appearance.

Before: ROGERS and MILLETT, Circuit Judges, and

SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Section 8(f) of the National Labor

Relations Act, 29 U.S.C. § 158(f), allows employers in the

construction industry to enter into pre-hire agreements with

unions without a showing that a majority of their employees

support the union. M&M Backhoe Serv., Inc. v. NLRB, 469 F.3d

1047, 1048 (D.C. Cir. 2006); Nova Plumbing, Inc. v. NLRB, 330

F.3d 531, 534 (D.C. Cir. 2003). Absent the usual statutory

obligation of the parties to maintain the status quo upon

expiration of their collective bargaining agreement, until

impasse or a new agreement is reached, the Board had to

determine whether the Hawaiian Dredging Construction

Company’s discharge of its welders, after their Section 8(f)

agreement had expired, was motivated by an intent to

discriminate in violation of the employees’ statutory rights, or

reflected the company’s long-standing business practice to rely

on union hiring halls under Section 8(f) agreements for craft

employees. The Board ruled the company violated Sections

8(a)(3) and (1) of the Act by terminating the welders because of

their union membership. The company petitions for review,

contending that the Board’s analysis under its own precedent is

flawed and unsupported by substantial evidence. Because the

Board failed to adequately address record evidence regarding the

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company’s understanding of its twenty-year practice and

appears to have strayed from its precedent, we grant the petition

for review, deny the Board’s cross-application for enforcement

of its Order, and remand the case to the Board.

I.

In 1959, Congress amended the National Labor Relations

Act, to address specific needs of the construction industry. The

Act had been “developed without reference to the construction

industry,” NLRB v. Local Union No. 103, Int’l Ass’n of Bridge,

Structural and Ornamental Iron Workers, AFL-CIO, 434 U.S.

335, 348 (1978) (quoting H.R. Rep. No. 741, 86th Cong., 1st

Sess., at 19 (1959)), and yet “[r]epresentation elections in a large

segment of the industry [were] not feasible to demonstrate . . .

majority status due to the short periods of actual employment by

specific employers.” Id. at 349 (quoting S. Rep. No. 187, 86th

Cong., 1st Sess., at 55 (1959)). In order to allow an employer

primarily engaged in construction work to “know his labor costs

before making the estimate upon which his bid [for a project]

will be based,” and to ensure employers in the construction

industry “have available a supply of skilled craftsmen ready for

quick referral,” id. at 348 (quoting H.R. Rep. 741 at 19),

Congress provided, subject to exceptions not at issue here:

It shall not be an unfair labor practice . . . for an

employer engaged primarily in the building and

construction industry to make an agreement covering

employees engaged . . . in the building and

construction industry with a labor organization of

which building and construction employees are

members . . . because (1) the majority status of such

labor organization has not been established . . . or (2)

such agreement requires as a condition of employment,

membership in such labor organization . . . or (3) such

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agreement requires the employer to notify such labor

organization of opportunities for employment with

such employer, or gives such labor organization an

opportunity to refer qualified applicants for such

employment, or (4) such agreement specifies minimum

training or experience qualifications for employment[.]

29 U.S.C. § 158(f). By contrast, under typical collective

bargaining agreements, the parties have an obligation, upon

expiration of their agreement, to bargain in good faith and to

maintain the status quo as to all mandatory subjects of

bargaining until they reach a new agreement or an impasse. See

Oak Harbor Freight Lines, Inc. v. NLRB, No. 14-1226, 2017

WL 1556126, at *1 (D.C. Cir. May 2, 2017) (citing, inter alia,

NLRB v. Katz, 369 U.S. 736, 743 (1962)); see also M&M

Backhoe Serv., 469 F.3d at 1048.

Hawaiian Dredging is the largest general contractor in the

State of Hawaii, employing around 375 craft labor employees to

work on renovation, foundation, power, and industrial projects.

As a member of the Association of Boilermakers Employers of

Hawaii, the company has performed its craft work pursuant to

Section 8(f) pre-hire collective bargaining agreements. As of

2010, such agreements had existed for at least twenty years with

the International Brotherhood of Boilermakers, Iron Ship

Builders, Blacksmiths, Forgers, and Helpers, Local 627

(“Boilermakers”). The parties’ latest agreement expired on

September 30, 2010.

On October 1, the Boilermakers notified the company of

availability to continue negotiation, attaching a letter from

counsel that because the parties’ Section 8(f) agreement had

expired its members were free to cease working without notice.

Some members of the Boilermakers refused to work that day,

but resumed work on Monday, October 4. On October 8, the

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parties reached an interim agreement to extend the terms of the

expired agreement through October 29 and to make the new

collective bargaining agreement retroactive to September 30,

2010. Negotiations for a new collective bargaining agreement

continued after October 29, however, with the parties

disagreeing over inclusion of certain benefits. On November 1,

2010, the Boilermakers sent the company the terms of a new

collective bargaining agreement. Tom Valentine, the company’s

senior manager, responded that the parties had not agreed to two

provisions included by the Boilermakers. Further negotiations

ensued.

On November 12, Valentine sent the Boilermakers what he

understood was their final agreement but the Boilermakers

refused to sign it, requesting changes that the company thought

had already been negotiated. The company filed an unfair labor

charge with the National Labor Relations Board based on the

Boilermakers’ refusal to sign the November 12 collective

bargaining agreement as a failure to bargain in good faith by

attempting to add employee benefits without negotiation. The

same day, December 6, 2010, the Boilermakers refused to honor

a dispatch request for members to work on the company

projects. Valentine emailed the Boilermakers business

representative: “I do not understand the reason for this failure to

honor the dispatch. We have a disputed contract and our

position has always been that upon resolution the contract would

be retroactive to October 1, 2010.” Email from Tom Valentine

to Gary Aycock (Dec. 6, 2010). As of six days later, Valentine

reported to company management, the Boilermakers had timely

responded to only one of the company’s thirteen requests for

workers, and that the delays were “impacting our ability to

respond to customer needs and plan upcoming work.” By

December 16, the company determined that the Boilermakers

had failed to dispatch workers for 24 twelve-hour shifts.

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On February 14, 2011, the Board’s Regional Director in

Honolulu dismissed the company’s charge against the

Boilermakers, finding that there was no complete agreement on

the terms of the successor collective bargaining agreement, and

therefore the Boilermakers’ refusal to sign the November 12

agreement was not an unfair labor practice. The company did

not appeal. Instead, by letter of February 17, 2011, the company

terminated its relationship with the Boilermakers, stating that

“based upon [the] Regional Director’s finding” that no current

agreement exists, and since their prior agreement had terminated

September 30, 2010, the company “does not intend to utilize

members of the Boilermaker’s Union for future work.” The

letter, signed by Valentine, as Chairman of the Association of

Boilermaker Employers of Hawaii, also stated the company had

previously hoped to reach a new agreement but that the

Boilermakers did “not appear to be genuinely interested in

continuing a partnership between its members and Hawaii

contractors.” The same day the company temporarily ceased

performing all welding work.

Within a week, the company entered into a Section 8(f)

agreement with the United Association of Journeymen and

Apprentice Plumbers & Pipefitters of the U.S. & Canada, Local

675 (“Pipefitters”). Under the collective bargaining agreement,

Boilermakers members could continue to work for the company

only if they became members of the Pipefitters. The company

offered assistance to the discharged employees in the form of

tools, equipment, and coaching to assist their efforts to pass the

Pipefitters test; eight of the thirteen discharged employees

ultimately resumed work for the company as members of the

Pipefitters.

On May 12, 2011, the Boilermakers filed a charge with the

Board, alleging that the company had violated Sections 8(a)(3)

and (1) of the Act by terminating the thirteen welders because

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they were members of the Boilermakers, and sought

reimbursement for the wages they would have earned absent the

company’s unlawful discrimination. An Administrative Law

Judge (“ALJ”), after an evidentiary hearing, found no statutory

violation in “the unique factual circumstances present in this

case.” ALJ Dec. 25 (Feb. 4, 2013). The Board reversed, with

one member dissenting. A majority of the Board found the

discharges were unlawful under both Wright Line, 251 NLRB

1083 (1980), and NLRB v. Great Dane Trailers, Inc., 388 U.S.

26 (1967). Critical to its analysis was rejection of the ALJ’s

finding that company officials believed the company only hired

craft workers under collective bargaining agreements. As the

Board stated: “Upon examination of the full record, . . . we are

not persuaded that the [company] so strictly adheres to that

practice [of having current craft contracts] that it would have

discharged the discriminatees on that basis alone.” Dec. 3 (Feb.

9, 2015). It identified two periods when the company

“knowingly operated without an agreement in place:” (1) from

October 1, 2010, when the parties’ agreement expired, until

October 8, 2010, when they agreed to extend the expired

contract’s terms to October 29 and the company “continued to

perform craft work during that week-long period;” and (2) from

October 30, 2010, to November 12, 2010, when the company

thought the parties had negotiated a successor agreement. Id. at

3–4. As for Great Dane, the Board concluded that the company

had failed to show that it was necessary to discharge rather than

lay off the discriminatees when it temporarily ceased welding

operations. Id. at 7 n.14.

Member Miscimarra dissented. He viewed the two “gaps”

to be less compelling than his colleagues. Not only were there

continuing agreements between the parties “by tacit agreement,”

Dis. Op. 15, he concluded that “[e]ven assuming there was a

brief gap of less than a week in [the company’s] decades-long

practice of performing all craft work under collective bargaining

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agreements,” this did not defeat its defense because, as the ALJ

found, the discharges were permissible under Great Dane and

Wright Line. Id. at 15 n.33. The Board responded that the

dissent had overlooked the parties’ disagreement about the

existence of an agreement during the first gap and the absence

of corroboration for a tacit agreement during the second gap.

See Dec. 3–4.

II.

The company petitions for review of the Board’s decision

and order, contending that the Board’s decision that it violated

Sections 8(a)(3) and (1) of the Act is not supported by

substantial evidence of an unlawfully motivated discharge under

Wright Line or “inherently destructive” conduct under Great

Dane.

The court’s “role in reviewing an NLRB decision is

limited,” Wayneview Care Ctr. v. NLRB, 664 F.3d 341, 348

(D.C. Cir. 2011), and “a decision of the NLRB will be

overturned only if the Board’s factual findings are not supported

by substantial evidence, or the Board acted arbitrarily or

otherwise erred in applying established law to the facts of the

case,” Pirlott v. NLRB, 522 F.3d 423, 432 (D.C. Cir. 2008)

(internal quotations omitted). See also Consol. Edison Co. of

N.Y. v. NLRB, 305 U.S. 197, 217 (1938); Universal Camera

Corp. v. NLRB, 340 U.S. 474, 477 (1951). An agency decision

is arbitrary when it “entirely failed to consider an important

aspect of the problem” or “offered an explanation for its

decision that runs counter to the evidence before the agency.”

Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins.

Co., 463 U.S. 29, 43 (1983). The Board’s decision, therefore,

must “enable [the court] to conclude that [its action] was the

product of reasoned decisionmaking,” id. at 52, in part because

the Board “engage[d] the arguments raised before it,” Del. Dep’t

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of Natural Res. & Envtl. Control v. EPA, 785 F.3d 1, 11 (D.C.

Cir. 2015) (internal quotations omitted), including those of a

dissenting member, see Chamber of Commerce of U.S. v. SEC,

412 F.3d 133, 144–45 (D.C. Cir. 2005); Contractors’ Labor

Pool, Inc. v. NLRB, 323 F.3d 1051, 1061 n.6 (D.C. Cir. 2003).

Because of the distinct features of Section 8(f) pre-hire

agreements, employer-union disputes in the construction

industry do not necessarily track similar disputes in other

industries. Here, the Board was confronted with deciding

whether the company’s discharge of members of the

Boilermakers constituted unlawful discrimination or reflected

adherence to its business model of requiring all craft work to be

performed under Section 8(f) agreements. Recognizing that the

answer turned on the company’s motive, the Board applied its

two-stage analysis under Wright Line. The General Counsel

“bears the initial burden” to make a prima facie showing

sufficient to support the inference that protected conduct was a

motivating factor in the employer’s decision to take the adverse

employment action; the employer may then rebut the inference

by showing that it would have taken the same action absent the

protected conduct. Laro Maint. Corp. v. NLRB, 56 F.3d 224,

228 (D.C. Cir. 1994). See also Earthgrains Co., 338 NLRB

845, 849 (2003); Wright Line, 251 NLRB at 1089. The Board

concluded that the existence of protected activity and the

employer’s knowledge of that activity were undisputed, and a

majority of the Board concluded that animus and nexus were

“readily established” by the company’s “summary discharge of

all of its Boilermakers-represented employees, and only its

Boilermakers-represented employees.” Dec. 3. While

acknowledging the company’s position that its business model

for all craft work was the reason for the discharges, and not the

welders’ union affiliation, the majority concluded, in view of the

periods when the company continued to perform craft work

without a Section 8(f) agreement, that the company failed to

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rebut the inference of discriminatory intent. Id. at 4.

The company challenges the Board’s application of the first

two elements of its Wright Line standard, see Earthgrains, 338

NLRB at 849, on the ground that the Boilermakers were not

engaged in protected activity. In the company’s view, the Board

erred in making an “assumption . . . based on its unsupported

belief that the welders’ union affiliation was itself protected

union activity,” when such a rule does not exist and would

render the first two elements of the Wright Line test “illusory

elements that the General Counsel essentially never has to

prove.” Pet’r/Cross-Resp’t Br. 29–30. There is little precedent

on whether union membership alone is protected activity under

Wright Line. The company relies on Midwest Television, Inc.,

343 NLRB 748 (2004). But in that case the discharge of the

union member was not based on his involvement in protected

activity, id. at 751, whereas here the welders’ Boilermakers

membership was referenced in Valentine’s February 17 letter

regarding their discharge.

The court need not resolve whether union membership per

se is protected activity under Wright Line because, in light of the

company’s challenge to the remaining elements of the Wright

Line standard — animus and nexus, see Earthgrains, 338 NLRB

at 849 — the Board’s consideration of the evidence in finding

Section 8(a)(3) and (1) violations is, at this point, problematic.

Section 8(a)(3) provides, in relevant part:

It shall be an unfair labor practice for an employer . . .

by discrimination in regard to hire or tenure of

employment or any term or condition of employment

to encourage or discourage membership in any labor

organization[.]

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29 U.S.C. § 158(a)(3). Subsection (1) provides it shall be an

unfair labor practice for an employer to interfere with

employees’ Section 7 rights, including to join or assist a union.

Id. at § 158(a)(1). In American Ship Building Company v.

NLRB, 380 U.S. 300 (1965), the Supreme Court emphasized that

it has “consistently construed [Section 8(a)(3)] to leave

unscathed a wide range of employer actions . . . even though the

act committed may tend to discourage union membership.” Id.

at 311. The Court explained “[s]uch a construction of § 8(a)(3)

is essential if due protection is to be accorded the employer’s

right to manage his enterprise.” Id. Although both

discrimination and a resulting discouragement of union

membership must be shown under Section 8(a)(3), the Court

observed that “[i]t has long been established that a finding of

violation . . . will normally turn on the employer’s motivation.”

Id.

So too here, in the Section 8(f) context, as the Board

acknowledged in viewing Wright Line to provide the relevant

analysis. Although conduct by the employer can “carr[y] with

it an inference of unlawful intention so compelling that it is

justifiable to disbelieve the employer’s protestations of innocent

purpose,” id. at 311–12, the Board’s conclusion fails adequately

to address the evidence before it and the unique legal framework

of a Section 8(f) pre-hire agreement. The ALJ’s decision appears

to present a classic analysis of how Section 8(f) agreements

work in the construction industry. Emphasizing the unique

context in which the Boilermakers’ charge arose, the ALJ

distinguished the usual circumstances in which Great Dane and

its progeny had been applied, namely, in “strikes, lockouts, and

other actions where the parties have some sort of continuing

obligation to each other.” ALJ Dec. 23. “This case occurs in a

very different context that derives from the unique nature of the

construction industry.” Id. The ALJ observed that “consistent

with its longstanding practice, the [company] refused to go

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‘open shop’ and would only employ craft workers who were

affiliated with a union and were operating under a [collective

bargaining agreement], regardless of any particular union

affiliation.” Id. “Against this unusual factual backdrop,” the

ALJ found the company’s conduct was not “inherently

destructive” of important employee rights because there was no

future bargaining going on at the time of the discharges, which

therefore did not hinder future bargaining. Id. The ALJ also

found the company did not distinguish between employees

based on their protected activity, but instead laid off the welders

“because they were no longer working under a contract, not

because they were members of the Boilermakers.” Id. The ALJ

recognized, however, that “the transition was not seamless.”

Nonetheless, the company had acted quickly “and its managers

clearly prioritized the continued employment of the alleged

discriminatees without regard to whether they were still

members of the Boilermakers.” Id. at 24. The ALJ further

recognized that being a member of the Boilermakers and the

lack of a contract went “hand in hand.” Id. Under the

circumstances, however, the company’s action was not Section

8(a)(3) discrimination. Id. That “employees suffered economic

disadvantage because of their union’s insistence on demands

unacceptable to the [company]” was par for the course in

bargaining disputes and not Section 8(a)(3) discrimination

“absent some unlawful intention.” Id.

Further, the ALJ found, even assuming the company’s

conduct was inherently destructive of employees’ statutory

rights, that the adverse effect on those rights was “comparatively

slight” because no welding work was done between February 17

and March 1, 2011, when the first employee was sent under the

Pipefitters’ Section 8(f) agreement; once that agreement was in

place, the company had “facilitated returning the employees to

work . . . on a nondiscriminatory basis.” Id. at 23. See also id.

at 24. Crediting testimony from the company’s president and

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Valentine, the ALJ concluded that “[n]either the Acting General

Counsel nor the Union has refuted the [company’s] evidence

that, for at least the past 20 years, it has exclusively relied on the

union hiring halls to provide labor to it under [collective

bargaining agreements] governed by Section 8(f).” Id. at 24.

And rejecting the General Counsel’s other arguments, the ALJ

observed that “there is no hint that the [company] was

discouraging union activity or any rights protected under the

Act.” Id. at 25. Additionally, the ALJ concluded that the

Boilermakers’ case would fail under Wright Line (which was not

argued by the parties), because even assuming protected conduct

was a motivating factor, the company’s “requirement to have its

craft work performed pursuant to [Section 8(f) collective

bargaining agreements] is a legitimate nondiscriminatory reason

for its actions, and the Acting General Counsel has not presented

evidence to show this was pretext.” Id. at 24 n.9.

The Board does not appear to have rejected the ALJ’s view

that the construction industry presents unique circumstances for

purposes of determining Section 8(a)(3) and (1) violations. Yet

the Board never confronted the evidence relied on by the ALJ as

to nexus and animus, namely that the company’s Section 8(f)

agreements contemplated implied agreements during gap

periods and overwhelmingly showed that the company’s

conduct was inconsistent with discouraging union membership,

much less Boilermakers membership. Given the evidence on the

nature of the company’s twenty-year practice under its business

model, as found by the ALJ and discussed by the dissenting

member, and the evidence credited by the ALJ relevant to the

company’s motive, the Board failed adequately to explain its

conclusion that the gap periods defeated the company’s defense

and the company would not discharge craft employees where no

current Section 8(f) agreement existed and the company had no

expectation of a new agreement with the Boilermakers.

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The Board did not ignore entirely the company’s arguments

or the dissenting member’s views. See, e.g., Dec. 4, 6. But it

never confronted the critical point that, in view of the evidence

regarding the company’s twenty-year practice, and the

company’s credited evidence, the Board was giving

inappropriate emphasis to the gap periods. For instance,

Member Miscimarra, echoing the company’s arguments,

concluded as to animus and nexus that the Board had “fail[ed]

to appreciate the nature of the [company’s] collective-bargaining

relationships, which historically had been ‘very cooperative,’”

and the fact that “[t]he evidence shows that in practice, the

[company] and the unions with which it partners have treated

hiatus periods between 8(f) contracts as contract extensions.”

Dis. Op. 14. He explained,

even assuming there was a brief gap of less than a

week in [the company’s] decades-long practice of

performing all craft work under collective bargaining

agreements . . . this cannot reasonably be regarded as

defeating [the company’s] Wright Line defense. Under

the majority’s view, the only way the [company] could

establish a valid Wright Line defense would have been

to immediately cease all welding work the very

moment the 2005–2010 [Section 8(f) collective

bargaining agreement] expired, but this would have

been contrary to [the company’s] long history of

bridging such hiatus periods cooperatively.

Id. at 15 n.33. The Board has no response to this contradiction

in its analysis. Its response was limited to the gap periods. Dec.

3–4.

Under Wright Line, evidence of a good faith belief suffices

to establish a defense, even if the belief is erroneous. See, e.g.,

Sutter East Bay Hosps. v. NLRB, 687 F.3d 424, 435–36 (D.C.

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Cir. 2012). The Board’s current analysis under Wright Line

offers no adequate reason to conclude that even if company

officials were mistaken factually about their history, their belief

was insufficient to rebut the inference of discriminatory motive.

See id. The ALJ credited the company’s testimony that they had

— or at least they believed that they had — performed all craft

work in the last twenty years under Section 8(f) agreements.

The ALJ concluded therefore that the company had presented in

rebuttal legitimate and substantial business justifications for its

action, distinguishing Board precedent on which the General

Counsel and the Boilermakers relied. See ALJ Dec. 24–25. The

Board, of course, was not required to reach the same conclusion

as the ALJ, but so far it has not adequately engaged the record

evidence, and by not doing so it had failed to “exercise[] its

judgment in a reasoned way.” U.S. Sugar Corp. v. EPA, 830

F.3d 579, 652 (D.C. Cir. 2016).

The Board’s alternative analysis under Great Dane also

provides no basis for denying the company’s petition. The

Board found that the company’s conduct “was inherently

destructive of [Boilermakers members’] right to membership in

the union of their choosing, unencumbered by the threat of

adverse employment action.” Dec. 5. The company’s February

17 letter terminating its relationship with the Boilermakers does

include a sentence referencing Boilermakers membership but

that supports the Board’s view only if it is extracted from what

else was stated in the letter and record evidence, including the

company’s twenty-year practice with Section 8(f) agreements.

The Board did state “[e]ven assuming . . . that the [company]

discharged the alleged discriminatees because there was no

collective-bargaining agreement in place,” that it “would still

find that this justification did not outweigh the harm done to the

employees on account of their union affiliation.” Id. at 6. But

no exception was filed to the ALJ’s finding that the discharges

had only a comparatively slight adverse impact. Id. at 7 n.14.

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Neither did the Board find that the company’s business model

was designed to, nor in fact operated to, single out particular

unions for discriminatory treatment without regard to the

absence of a current collective bargaining agreement. Other

than referencing the two gaps and the parties’ disagreement

during their negotiations, the Board appears to have offered no

reason for rejecting evidence that the company’s conduct was

only plausibly “inherently destructive” if the welders were

separated because of their union membership, rather than — as

the ALJ found — because of the expiration of their contract.

Accordingly, because the Board’s analysis failed to engage

with evidence credited by the ALJ in the context of Section 8(f)

for purposes of determining whether the company violated

Sections 8(a)(3) and (1), we grant the petition for review, deny

the Board’s cross-application for enforcement of its order, and

remand the case to the Board for further consideration.