The opinion
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 6, 2011 Decided December 9, 2011
No. 10-1330
ARC BRIDGES, INC.,
PETITIONER
v.
NATIONAL LABOR RELATIONS BOARD,
RESPONDENT
Consolidated with 10-1360
On Petition for Review and Cross-Application for
Enforcement
of an Order of the National Labor Relations Board
Raymond C. Haley III argued the cause for petitioner. With
him on the briefs was William C. Vail, Jr.
Nicole Lancia, Attorney, National Labor Relations Board,
argued the cause for respondent. With her on the brief were
John H. Ferguson, Associate General Counsel, Linda Dreeben,
Deputy Associate General Counsel, and Usha Dheenan,
2
Supervisory Attorney. Amy H. Ginn and Jill A. Griffin,
Attorneys, entered appearances.
Before: SENTELLE, Chief Judge, WILLIAMS and RANDOLPH,
Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
RANDOLPH.
RANDOLPH, Senior Circuit Judge: Arc Bridges, Inc.
petitions for review of a National Labor Relations Board order
finding it in violation of § 8(a)(1) and (3) of the National Labor
Relations Act, 29 U.S.C. § 158(a)(1) & (3). The Board cross-
petitions for enforcement. The question presented is whether
Arc Bridges established annual wage increases as a term of
employment and then unlawfully refused to implement a wage
increase after its employees became unionized.
Arc Bridges is a non-profit Indiana corporation, exempt
from federal taxation under § 501(c)(3) of the Internal Revenue
Code. The company runs assisted living programs, employment
counseling, and related support services for individuals with
developmental disabilities. It relies heavily on state and federal
funding. The American Federation of Professionals, a labor
union, conducted an organizing campaign at Arc Bridges in late
2006 and early 2007. The campaign culminated in two
contested representation elections: one for Arc Bridges’ Day
Services employee unit, the other for its Residential and
Supported Living employee unit. A majority in both units voted
in favor of the union.
Bargaining sessions held after the elections yielded little
progress. The union demanded a fifty percent wage increase
over three years, significant increases in benefits, and a variety
of other changes. Management calculated that the wage and
3
benefits increases would consume more than a quarter of Arc
Bridges’ operating revenues in the first year, and an even greater
share in later years. In light of those figures and the fact that
Arc Bridges had a sizeable operating loss in the preceding fiscal
year, management informed the union that its proposal was a
financial impossibility. Management also urged the union to
identify “one or two areas” of economic improvements that were
“most important” to its members. The union responded by
calling a strike authorization vote. The parties continued to
meet after the vote, but were unable to come to an agreement.
Kris Prohl, Arc Bridges’ Executive Director, had planned
on granting all Arc Bridges employees a three percent wage
increase in July 2007, just as she had in each of the two
preceding years. But the ongoing labor negotiations caused her
to shelve this plan. Prohl feared that the significant disparity
between the three percent increase and the union’s much larger
demand would provoke a strike. She was also concerned that
implementing the increase would leave Arc Bridges without any
funds to meet the union’s remaining demands. And she believed
that a unilateral wage increase would expose Arc Bridges to a
refusal to bargain charge. See 29 U.S.C. § 158(a)(5); NLRB v.
Katz, 369 U.S. 736, 743-44 (1962).
At the time, Arc Bridges had 260 employees represented by
the union and 121 non-union employees. Turnover among the
non-union employees had recently been unusually high. In an
effort to stem that trend, Prohl decided to grant the non-union
employees the planned three percent wage increase in October
2007, retroactive to July of that year. She explained that the
increase was to be kept confidential, and that union employees
would “have to wait to see what increase, if any [would] be
negotiated by the AFP.” Union officials learned of Prohl’s
decision in March 2008 and immediately asserted that Arc
Bridges “owed” an identical increase to represented employees.
4
Management refused, stating that it preferred to address the
issue through Board adjudication.1
The union filed a charge with the Board claiming that Arc
Bridges had violated § 8(a)(1), (3), and (5) of the Act by
granting the wage increase only to non-union employees. The
Regional Director issued a corresponding complaint focusing
exclusively on the theory that Arc Bridges had violated §
8(a)(3), which prohibits employers from “discriminat[ing] in
regard to . . . any term or condition of employment to . . .
discourage membership in any labor organization.” 29 U.S.C.
§ 158(a)(3).
An Administrative Law Judge dismissed the complaint after
a two-day hearing. The ALJ’s finding regarding Arc Bridges’
wage review process played a critical role in the decision. The
finding read:
[Arc Bridges’] fiscal year extends from July 1 to June
30. For many years it has been the practice of [Arc
Bridges] to review wages in June of each year as a
component of the budget process, and to budget for
wage increases, if financially feasible. Customarily,
such wage increases are granted in July of each year.
Following this pattern, in July of each of the prior 2
years, 2005 and 2006, before the Union became the
employees’ bargaining representative, [Arc Bridges]
granted across-the-board wage increases of 3 percent
to all staff, including managers and supervisors.
1
Even so, Arc Bridges later offered union employees a
retroactive two percent wage increase. It justified the reduced amount
on the ground that revenues had declined and costs had increased since
October 2007.
5
Recognizing that employers may withhold wage increases from
unionized employees as a bargaining tactic, provided that the
decision is not a product of anti-union animus, see Shell Oil Co.,
77 N.L.R.B. 1306, 1310 (1948), the ALJ proceeded to evaluate
Prohl’s wage decision under the Wright Line standard, see NLRB
v. Transp. Mgmt. Corp., 462 U.S. 393, 399-404 (1983)
(approving the burden-shifting test adopted in Wright Line, 251
N.L.R.B. 1083 (1980)). On this analysis, the ALJ found that
there were two plausible explanations for the decision: Prohl
may have withheld the increase to punish the employees for
joining the union, or she may have done so to conserve limited
resources and maximize Arc Bridges’ leverage in the
negotiations. Because the evidence did not clearly rule out the
latter theory, the ALJ concluded that Arc Bridges had carried its
burden of establishing that it would have taken the same action
even in the absence of any discriminatory motive. See Wright
Line, 251 N.L.R.B. at 1089.
The Board sustained the ALJ’s factual findings, but
disagreed with his conclusion. Arc Bridges, Inc., 355 N.L.R.B.
No. 199, 2010 NLRB LEXIS 379, at *2-3 (Sept. 29, 2010). The
Board began by purporting to summarize the finding quoted
above: “For 8 consecutive years, [Arc Bridges] annually
reviewed its finances in June and, if sufficient funds existed,
implemented an across-the-board wage increase in July.” 2010
NLRB LEXIS 379, at *2. According to the Board, Arc Bridges’
budget review process dictated that increases were “feasible” in
1999, 2000, 2001, 2005, and 2006, but not in 2002, 2003, and
2004. Id. at *4.
From this the Board concluded that Arc Bridges’ budget
review each June and across-the-board wage increase each July
– “if sufficient funds existed” – amounted to “an established
condition of employment.” Id. at *10 (citing Eastern Me. Med.
Ctr., 253 N.L.R.B. 224, 242 (1980), enforced 658 F.2d 1 (1st
6
Cir. 1981)). Arc Bridges’ refusal to maintain that condition in
2007 was, the Board held, “inherently destructive” of the
employees’ rights, id. at *12-16 (quoting NLRB v. Great Dane
Trailers, Inc., 388 U.S. 26, 34 (1967)), and thus a violation of §
8(a)(1) and (3) of the Act, id. at *17.2 To remedy this violation,
the Board ordered Arc Bridges to reimburse, with interest, each
of the union employees “for the increases they would have
received on October 12, 2007, retroactive to July 2007” – an
amount equal to “the difference between their actual wages and
the wages they would have received had the increases been
granted to them” in the same manner as the non-union
employees. Id. at *17.
In reviewing the decision, we assume the Board did not
mean that Arc Bridges’ preparation of a budget each June had
itself become a term or condition of employment. Union or no
union, prudent companies plan for the future and prepare
budgets based on forecasts of revenues and expenditures. In
doing so they are performing an internal management function
beyond the Board’s competence. See First Nat’l Maint. Corp.
v. NLRB, 452 U.S. 666, 676-77 (1981); contrast 29 U.S.C. §
158(d) (listing “wages” and “hours” as examples of “terms and
conditions of employment”). The Board did not say otherwise.
It said instead that a condition of employment resulted from the
annual budget review plus the custom of Arc Bridges giving an
across-the-board wage increase “if feasible” or “if sufficient
funds existed.” 2010 NLRB LEXIS 379, at *4, 10. This
decision, we believe, is arbitrary and unsupported by substantial
evidence. 29 U.S.C. § 160(e); see also Jackson Hosp. Corp. v.
NLRB, 647 F.3d 1137, 1138 (D.C. Cir. 2011); E.I. du Pont de
2
Although the Board hinted that Arc Bridges would also be
liable under the Wright Line test, it declined to reach the issue. 2010
NLRB LEXIS 379, at *3, 16 & n.9.
7
Nemours & Co. v. NLRB, 489 F.3d 1310, 1314 (D.C. Cir. 2007);
BB&L, Inc. v. NLRB, 52 F.3d 366, 372 (D.C. Cir. 1995).
Arc Bridges points out an obvious problem with the Board’s
formulation. So far as we can tell, Arc Bridges did not use any
particular criteria to determine when to give an increase, or the
amount of the increase when it did give one. Even under the
Board’s formulation, there were no objective criteria for
determining whether there would be any wage increase at all.
The Board wrote that Arc Bridges gave wage increases when
“sufficient” funds were available or when it was “feasible” to do
so. 2010 NLRB LEXIS 379, at *10-11. But this seems highly
discretionary, depending on management’s budget forecasting,
its assessment of the economic climate, its plans for the
upcoming fiscal year, and so forth. The situation is thus unlike
Daily News of Los Angeles v. NLRB, 73 F.3d 406, 411-13 (D.C.
Cir. 1996), in which the amount of an annual raise was
discretionary but the merit-based criteria for determining if there
would be any raise were fixed. The only common theme linking
Arc Bridges’ wage increases is timing – a characteristic found
insufficient to create a term or condition of employment in Daily
News. See id. at 412 n.3.
In any event, the Board’s decision contains a rather large
evidentiary hole. Arc Bridges granted no wage increases in July
2002, July 2003, or July 2004 – three of the five years
immediately preceding the 2007 wage decision at issue here.
How then could the Board derive any established pattern or
practice of the company granting annual wage increases? The
Board tried to fill the gap with this explanation: “Presumably,
[Arc Bridges’] annual review indicated that no across-the-board
increase was warranted in those years.” 2010 NLRB LEXIS
379, at *11. By not “warranted” the Board must have meant, as
it said earlier in its opinion, not “financially feasible” or that
“sufficient funds” did not (or would not) exist. Id. at *10-11.
8
The trouble is that there is no substantial evidence – indeed,
there is no evidence at all – to support the Board’s
“presumably.” It comes out of thin air.
Counsel for the Board admitted as much at oral argument.
See Oral Arg. at 19:41-20:25; 21:55-23:04, 23:45-57. The
Board’s brief was not as forthcoming. It cites Prohl’s statement
that another, credentials-based type of increase was given
between 2002 and 2004 “regardless of any other increases.”
This supposedly served as evidence that Arc Bridges granted
across-the-board increases in July when it had available funds,
and did not when money was short. The testimony established
no such thing. To the contrary, it indicated that Arc Bridges did
have funds available to award increases in 2002, 2003, and
2004, but chose to use the funds for other purposes. The brief’s
other citations to the record are of no help to the Board.3
Nor is it true that Arc Bridges consistently granted across-
the-board pay increases, as opposed to other types of
adjustments. The Board focused solely on July wage decisions
made between 1999 and 2006. In July of each of those years,
Arc Bridges gave either an across-the-board increase or no
increase at all. But the company’s history of granting July wage
increases dates back further, to 1992. Between 1992 and 1998,
Arc Bridges provided an across-the-board wage increase only
once, in July 1997. It granted individual, merit-based increases
or an increase to specific groups of employees (sometimes in
3
See, e.g., J.A. 119 (undated document indicating that Arc
Bridges’ predecessor entity based salary decisions on a variety of
factors, including the “[c]ost of living,” “appropriate[ness],” “annual
resources available to the corporation,” the “performance of the
corporation as a whole,” and “market studies”); id. at 249-50 (Prohl’s
testimony that she chose not to grant increases in 2002, 2003 and 2004
“for whatever reason”).
9
addition to other increases) in each of the remaining six years.
The upshot of this additional data is that Arc Bridges granted an
across-the-board increase in six of fifteen years – less than half
the time.
The Act requires the Board to base its factual findings “on
the record considered as a whole.” 29 U.S.C. § 160(e). Had the
Board done so here, it could not possibly have concluded that
annual across-the-board wage increases were an established
condition of employment. Citing Kurdziel Iron of Wauseon,
Inc., 327 N.L.R.B. 155, 155 & n.3 (1998), enforced 208 F.3d
214 (6th Cir. 2000) (per curiam), counsel for the Board claims
that the company’s granting of across-the-board increases in
2005 and 2006 was itself enough to establish a term or condition
of employment. We think not.
In Kurdziel, the employer operated two facilities, Britt and
Wauseon, and granted an identical wage increase to employees
at each in 1994 and 1995. 327 N.L.R.B. at 155. The employer
discontinued this practice in 1996, when employees at the
Wauseon facility voted to unionize. Id. Instead, it granted an
increase only to employees at the Britt facility, which remained
non-union. Id. The Board held that the two-year history of
matching wage increases established a term of employment, and
that the employer’s failure to honor that term at the Wauseon
plant violated § 8(a)(1) and (5) of the Act. Id. Here, of course,
there is no evidence that Arc Bridges followed anything like the
dual-facility approach at issue in Kurdziel. More importantly,
the evidence of past wage increases in Kurdziel was limited to
the preceding two years, in part because the Britt facility began
operation in “1991 or 1992” and the Wauseon facility opened in
1993. See id. at 155 & n.3 (highlighting “the absence of
evidence” from years “prior to 1994”). Thus, while two
consecutive years of wage increases might be enough to
establish a term of employment when that span constitutes 100
10
percent of the record evidence, it will not suffice when the
employer’s history dates back further. As statisticians know, a
sample must be representative for inferences drawn from it to be
valid. And we know that one way to reduce errors is to increase
the size of the sample. In determining whether an established
practice existed at Arc Bridges, the Board was not free to
discount evidence contradicting the practice. See 29 U.S.C. §
160(e); Universal Camera Corp. v. NLRB, 340 U.S. 474, 488
(1951) (“The substantiality of evidence must take into account
whatever in the record fairly detracts from its weight.”). To do
so in the face of a record such as this one was nothing short of
arbitrary.
We therefore grant the petition for review, deny the cross-
petition for enforcement, and set aside the Board’s order. We
also remand the case for further proceedings, in light of the
Board’s decision to reserve judgment on the Wright Line theory.
See Micro Pac. Dev., Inc. v. NLRB, 178 F.3d 1325, 1336 (D.C.
Cir. 1999).
So ordered.