Local 730 v. Commonwealth, Unemployment Compensation Board of Review

OPINION

NIX, Chief Justice.

We are again faced with a question of whether employees involved in a work stoppage are ineligible for unemploy *482 ment compensation benefits under the terms of section 402(d) of the Pennsylvania Unemployment Compensation Law, Act of December 5, 1936, P.L. 2897, as amended, 43 P.S. § 802(d) (1964). The specific issue is whether our test for ineligibility as set forth in our decision in Vrotney Unemployment Compensation Case, 400 Pa. 440 , 163 A.2d 91 (1960) is to be modified where the employer’s unilateral action altering the status quo represented a “benefit” to the employees.

The instant dispute arose when 258 employees, 1 represented by Local 730 of the United Association of Journeymen and Apprentices of the Plumbing and Pipe-Fitting Industry (“Union”), who had been employed by appellant Trane Company (“Employer”) prior to a work stoppage, were denied unemployment compensation benefits by the Office of Employment Security on the ground that their unemployment was the result of a labor dispute other than a lockout. 43 P.S. § 802(d) (1964). That decision, affirmed by the Unemployment Compensation Board of Review (“Board”), was appealed to the Commonwealth Court. A three-judge panel of that court, one judge dissenting, reversed and remanded to the Board for the computation of benefits. Local 730, United Association of Journeymen and Apprentices of Plumbing and Pipe-Fitting Industry v. Commonwealth, Unemployment Compensation Board of Review, 63 Pa.Commw. 195, 437 A.2d 1055 (1981). We granted allocatur and now affirm.

I.

The relevant facts, as determined by the Board’s referee, may be summarized as follows. Shortly before the expiration of an existing collective bargaining agreement (“Agreement”), the Employer and the Union began negotiations on a new contract. Although the parties were unable to reach *483 a new agreement prior to expiration, the Union offered to continue working for a reasonable period of time under the terms and conditions of the expired Agreement pending the outcome of the ongoing negotiations. The Employer permitted the employees to continue to work under the terms and conditions of the Agreement until June 15, 1979. On that date, during a meeting with Union representatives, the Employer presented a list of changes in economic terms and conditions of employment, including an across-the-board hourly wage increase and enhanced fringe benefits, which it intended to implement the following Monday (June 18). The Union refused to present the list to its membership for a vote, and the Employer implemented its proposals as scheduled. The employees continued to work under these changed terms and conditions until July 20, 1979. On the following day, the Union membership, having been apprised of the Employer’s economic proposals, voted to reject them and to stop work. The parties ultimately arrived at a new collective bargaining agreement on October 9, and work resumed on October 10, 1979.

The dispute, during the negotiations, centered on wages and fringe benefits. It appears that the parties were tentatively in agreement as to the non-economic items prior to the April 2 expiration date. The altered status unilaterally imposed by the Employer, effective June 18, represented the wage and fringe benefit increases which were part of the package offered by the Employer and rejected by the Union at that point in the negotiations. 2 Between June 18 and July 21 the employees remained at work under the improved wage and fringe levels. This change in status was placed before the Union membership on July 21, at which time the Union membership rejected the offer and the work stoppage began.

II.

Section 402(d) of the Pennsylvania Unemployment Compensation Law provides in pertinent part as follows:

*484 An employe shall be ineligible for compensation for any week—

(d) In which his unemployment is due to a stoppage of work, which exists because of a labor dispute (other than a lock-out) at the factory, establishment or other premises at which he is or was last employed: ____ 43 P.S. § 802(d) (1964) (emphasis supplied).

The test for determining whether a work stoppage is the result of a lockout or a strike is well-established:

Have the employees offered to continue working for a reasonable time under the preexisting terms and conditions of employment so as to avert a work stoppage pending the final settlement of the contract negotiations; and has the employer agreed to permit work to continue for a reasonable time under the preexisting terms and conditions of employment pending further negotiations? If the employer refuses to so extend the expiring contract and maintain the status quo, then the resulting work stoppage constitutes a ‘lockout’____

Vrotney Unemployment Compensation Case, supra 400 Pa. at 444-445 , 163 A.2d at 93-94 (1960).

Accord, Fairview School District v. Commonwealth, Unemployment Compensation Board of Review, 499 Pa. 539 , 454 A.2d 517 (1982); Borello v. Unemployment Compensation Board of Review, 490 Pa. 607 , 417 A.2d 205 (1980); Unemployment Compensation Board of Review v. Sun Oil Co., 476 Pa. 589 , 383 A.2d 519 (1978); Philco Corporation v. Unemployment Compensation Board of Review, 430 Pa. 101 , 242 A.2d 454 (1968).

The rationale for employing this test to determine eligibility for benefits under section 402(d) was explained by the Vrotney Court as follows:

In the very delicate and sensitive negotiations which are involved in the development of a new collective bargaining agreement to replace one that is nearing its expiration, all parties must be sincere in their desire to maintain the continued operation of the employer’s enterprise. The law contemplates that collective bargaining *485 will be conducted in good faith, with a sincere purpose to find a basis for agreement. Neither an adamant attitude of “no contract, no work” on the part of the employees, nor an ultimatum laid down by the employer that work will be available only on his (employer’s) terms, are serious manifestations of a desire to continue the operation of the enterprise.

Id. 400 Pa. at 443-444 , 163 A.2d at 93 .

As this Court stated in Philco Corporation v. Unemployment Compensation Board of Review, supra:

Since the purpose of our unemployment compensation system is to compensate an individual when work has been denied him through no fault of his own, logically the test of whether a work stoppage resulted from a strike or a lock-out requires us to determine which side, union or management, first refused to continue operations under the status quo after the contract had technically expired, but while negotiations were continuing.

Id. 430 Pa. at 103 , 242 A.2d at 455 (1968).

When “the work stoppage takes the form of a strike, the burden is upon the union to show that it made the initial ‘peace’ move by offering to continue the status quo.” Id., 430 Pa. at 104 , 242 A.2d at 456 (emphasis in original; citations omitted). Here it is asserted that the Employer’s unilateral action of June 18 did in fact disturb the status quo and, therefore, the burden upon the Union has been satisfied. The challenge raised by the Employer questions the premise of this argument, to wit, whether the company’s action did constitute a disruption of the status quo.

In the instant case, the evidence establishes that the Union employees offered to continue and did continue to work under the expired Agreement pending contract negotiations. It is clear that the first change in this status resulted from the Employer’s unilateral decision to change the wage and fringe benefits on June 18. Thus, a question is raised as to whether a disturbance of the status quo envisioned under the Vrotney test necessarily requires a detriment to the other party. The Employer vigorously *486 argues that the change that resulted in increases in wages and fringe benefits should not be construed as disturbing the status quo.

Moreover, we are urged to distinguish this situation from the traditional setting where an employer unilaterally institutes detrimental wage changes. The Employer contends that its motive was not insidious or coercive, but rather emanated from a “desire to benefit the employees by taking advantage of the window in the wage guidelines which otherwise would have barred increases of that magnitude.” 3

The effect of the latter argument is to interject a good faith element in the Vrotney formula. The initial acceptance of the Vrotney standard was based on its easy application on the administrative level and at the same time it served the basic policy concerns involved. Vrotney was designed to encourage the continuation of the work relationship under terms previously agreed to by the parties during that difficult period between the expiration of the old agreement and before the new terms of employment had been agreed upon. Fairview School District v. Commonwealth of Pennsylvania, Unemployment Compensation Board of Review, supra 499 Pa. at 546, 547 , 454 A.2d at 521 ; Unem *487 ployment Compensation Board of Review v. Sun Oil Co., supra 476 Pa. at 595 , 383 A.2d at 522 ; cf. Borello v. Unemployment Compensation Board of Review, supra 490 Pa. at 612 , 417 A.2d at 208 (1980). Moreover, the administrative units involved in the compensation eligibility decision would have little difficulty in resolving the simple factual question of who first departed from the terms of the expired agreement. Unemployment Compensation Board of Review v. Sun Oil Co., supra 476 Pa. at 598 , 383 A.2d at 522 . Once we complicate that decision with requirements of ascertaining the good faith or the justification of a party altering the former terms, we create a standard infinitely more difficult to administer, without a corresponding benefit being derived for such a modification. 4

Equally as cumbersome is the addition of a requirement that the unilateral change by one of the parties must inure to the detriment of the other. The determination of what is a “benefit” is a much more complex one than it may appear at first blush. The coercive effect of well-timed unilateral increases in benefits by an employer has been aptly described by the United States Supreme Court as “the suggestion of a fist inside the velvet glove.” N.L.R.B. v. Exchange Parts Company, 375 U.S. 405, 409 , 84 S.Ct. 457, 460 , 11 L.Ed.2d 435 (1964). The potential of such a “carrot on the stick” approach as a device to erode the resolve of the employees during negotiations is readily apparent. See, e.g., J.P. Stevens & Co., Inc. v. N.L.R.B., 623 F.2d 322, 326 (4th Cir.), cert. denied, 449 U.S. 1077 , 101 S.Ct. 856 , 66 L.Ed.2d 800 (1980); N.L.R.B. v. J.H. Bonck Co., 424 F.2d 634, 638 (5th Cir.1970); N.L.R.B. v. Stafford Trucking, Inc., 371 F.2d 244, 250 (7th Cir.1966); cf. N.L.R.B. v. Katz, 369 U.S. 736 , 82 S.Ct. 1107 , 8 L.Ed.2d 230 (1962).

*488 In spite of the fact that the Employer was unquestionably the party which “first refused to continue operations under the status quo after the contract had technically expired, but while negotiations were continuing[,]” Philco Corporation v. Unemployment Compensation Board of Review, supra 430 Pa. at 103 , 242 A.2d at 455 , the Employer attempts to shift the onus of the Vrotney standard to the Union. The Employer argues that the continuation of work by the Union membership for a thirty-three day period after the Employer’s unilateral implementation of wage and benefit increases and the employees’ failure to protest those changes evidences the Union’s acquiescence in a “new status quo.” Under this theory the Union’s ultimate work stoppage is to be viewed as a refusal to maintain this “new status quo” for a reasonable time. While a modification by mutual agreement of terms and conditions of employment pending the outcome of on-going negotiations would not be inconsistent with the objectives of Vrotney, the instant record does not support the existence of such an agreement. The Union’s negotiators explicitly rejected the Employer’s proposals prior to implementation and declined to present them to the Union membership. The employees’ tacit acceptance of paychecks which reflected an hourly wage increase does not in itself support the conclusion that the Union agreed to or that the employees were even aware of the numerous changes in annual insurance, vacation and pension benefits implemented by the Employer. Moreover, the time elapsed between the implementation of those changes and the Union’s work stoppage is insufficient to establish an agreement. The Union’s representatives clearly required sufficient time in which to ascertain the consensus of the membership regarding the difficult decision whether or not to stop work. Further, the Employer’s implementation of its changes did not signal an end to pre-strike contract negotiations. Toward the close of the thirty-three day period in question, the parties conducted a negotiation meeting at which the Union representatives agreed to submit the Employer’s proposals to the membership. The possibility that a settlement might still be *489 reached would further justify the Union’s slowness to declare a work stoppage. The evidence supports the conclusion that the parties’ positions were not so far apart that such an expectation would have been unreasonable. On these facts, acceptance of the Employer’s “acquiescence” theory would encourage a union to call a work stoppage upon the implementation of any unilateral change by an employer in order to protect its membership’s right to unemployment compensation. Such a rule would defeat Vrotney’s crucial objective of encouraging the continuation of the employment situation during good faith negotiations. 5

The mire that will result from a deviation of the well defined Vrotney standard argues most strongly against the suggested modifications. In Unemployment Compensation Board of Review v. Sun Oil Company of Pennsylvania, supra, we rejected a modification of the rule which would require a finding that the Union work stoppage was motivated solely by the employer’s failure to maintain the status quo.

Such a rule would compel the Unemployment Compensation Board of Review and the Commonwealth Court to fathom underlying, subjective motivations for a work stoppage and would thus undermine the clarity and relative predictability embodied in the standard set forth in our Vrotney and Philco Corp. decisions. Additionally, the rule of Vrotney and Philco Corp. tends to encourage employers and employees alike to maintain the status quo while negotiating a new agreement. The departure from *490 this rule, urged by Sun Oil, would weaken this salutary effect.

Id. 476 Pa. at 595 , 383 A.2d at 522 .

More recently we rejected a Union’s claim that the extention of the terms and conditions of the expired collective bargaining contract should include a step-up in pay based upon an additional year of service beyond the salary rate established for the last year of the expired contract. Fairview School District v. Commonwealth of Pennsylvania, Unemployment Compensation Board of Review, supra.

It must be emphasized that Vrotney attempts to maintain the employment relationship during the difficult and delicate period following the expiration of the prior collective bargaining agreement and during the negotiations for one to replace it. In encouraging the continuation of employment during this period, the Vrotney standard avoids the economic insecurity due to unemployment which is the fundamental objective of the Unemployment Compensation Law.

Economic insecurity due to unemployment is a serious menace to the health, morals, and welfare of the people of the Commonwealth____

43 P.S. § 752 (1964).

In addition, the rule is designed to foster a climate, during the period between contracts, conducive to good faith negotiations on an equal basis. Fairview School District v. Commonwealth of Pennsylvania Unemployment Compensation Board of Review, supra 499 Pa. at 547 , 454 A.2d at 521 . This objective also serves to foster the continued maintenance of the employment relationship. The Employer’s suggested modifications of the Vrotney rule in no way further these objectives, but rather pose a serious threat to its present efficacy.

We must therefore conclude that there was a disruption of the status quo as a result of the Employer’s actions on June 18. We also are satisfied that this disruption was of the type envisioned by the Vrotney rule. Moreover, the unilateral character of the Employer’s action of June 18 *491 was not transformed into a mutual agreement simply because the Union waited thirty-three days before the work stoppage.

Accordingly, the order of the Commonwealth Court is affirmed.

McDERMOTT, J., concurs in the result.

HUTCHINSON, J., filed a dissenting opinion in which FLAHERTY, J., joined.

. Over 550 employees actually participated in the work stoppage. Claims for unemployment compensation were initiated by 258 claimants and a mass appeal was taken from the action of the Office of Employment Security. The case of one of the strikers, Robert Semi-an, was treated as representative of the cases of all of the claimants.

. These benefits consisted of a 55 cent per hour across-the-board wage increase, and increases in insurance, vacation and pension benefits.

. The attempt to explain its reasons for taking the June 18 action is as follows:

The Company and Union were negotiating at a time when President Carter’s wage and price guidelines, limiting wage increases to seven (7) percent, were in effect. The Company, which was a very large Federal contractor, ran the risk of severe sanctions it if [sic] exceeded the wage guidelines. However, shortly before June 15 the guidelines had been deemed unenforceable by the United States District Court for the District of Columbia, AFL-CIO v. Kahn, 472 F.Supp. 88 (1979), and the matter was pending review by the Court of Appeals. The Company offered its proposal when it did because it believed that it would have to exceed the guidelines in order to obtain a contract with the Union, and it had the opportunity to do in light of the hiatus created by the Court’s decision.

Appellant’s brief at 8, n. 7.

Indeed, had the Company delayed even a week, that window would have been shut. On June 22, four days after the increases were implemented, the Court of Appeals for the District of Columbia reversed the District Court’s decision, AFL-CIO v. Kahn, supra. Id. at 20, n. 10.

. Appellant’s protestations of taking its unilateral action of June 18 because of its concern for the interests of the employees ring hollow under the facts of this case. Once the employees representative was aware of the possible consequences of the wage and price guidelines upon their negotiation posture and then rejected the offer, it stretches credulity to believe that appellant’s insistence was motivated solely by its concern for the bargaining position of the employee.

. Nor can it legitimately be argued that the Vrotney rule is unfair to the Employer in that it could conceivably require the employer to continue under the terms of the preexisting contract into perpetuity. Vrotney by its express language qualified the length of time during which this status quo must be maintained by stating: "has the employer agreed to permit work to continue for a reasonable time under the preexisting terms and conditions of employment____” Vrotney Unemployment Compensation Case, 400 Pa. 440, 444 , 163 A.2d 91, 93 (1960). Where it is evident that an impasse has been reached or good faith bargaining is impossible, Vrotney by its own terms is inapplicable.