Bargaining about Decisions to Subcontract

Bargaining about Decisions to Subcontract

N. Peter Lareau uses O.G.S. Technologies, Inc., as a vehicle for examining Board and judicial precedent about an employer's obligation to bargain over a decision to subcontract work currently performed by employees represented by a labor organization. He concludes that the Board majority erred in rejecting the OGS's defense that bargaining would have been futile.


Confronted with the opportunity to reduce the time required to produce new dies by 90 percent, an employer decided to seize it and subcontracted the work to a vendor that possessed advanced technology not available to the employer. Two jobs were eliminated in the process and an employee was laid off. In O.G.S. Technologies, Inc., the National Labor Relations Board, split 2-1, concluded that the employer was required to bargain with the Union representing the employees formerly employed as die cutters before subcontracting their work. Accordingly, it ordered the employer to restore the status quo ante, provide the Union with notice and an opportunity to bargain regarding any future proposed changes and their effects, reinstate the laid off employee and pay him backpay for any wages lost since his layoff over ten years ago.

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When the Union challenged OGS' actions by filing charges with the National Labor Relations Board ("Board"), the two primary questions were whether OGS violated the National Labor Relations Act ("Act") by: (1) excluding the newly created die engineers classification from the existing collective-bargaining unit; and (2) unilaterally subcontracting to other firms the work of cutting dies performed by its die engineers, eliminating the die engineer classification, and laying off one of the two employees holding that position while changing the duties of the other. The Board, split 2-1, held that the answer to both questions was "yes."

Exclusion of Die Engineer Classification from the Bargaining Unit

With respect to OGS removal of the die engineer position from the bargaining unit, the Board recognized that a "successor employer . . . ordinarily is free to establish employees' initial terms and conditions of employment unilaterally." However, citing, inter alia, SFX Target Center Arena Management, LLC, the Board in O.G.S. Technologies held that an employer "may not remove job classifications from an existing bargaining unit absent reaching agreement with the unit employees' collective-bargaining representative or satisfying the conditions set by the Board."

"Satisfying the conditions set by the Board," requires that the employer establish either:

in a unit clarification proceeding or in its defense to an 8(a)(5) allegation, that the employees in the position no longer share a community of interest with the employees comprising the rest of the unit. In sum, to justify the unilateral removal of a position from a bargaining unit, the employer bears the heavy burden of demonstrating that the failure to remove the classification would have rendered the unit inappropriate.

Applying that standard, the Board in O.G.S. Technologies concluded "that the changes in the die engineers' duties did not sever their community of interest with the unit[.]" Accordingly, it held that OGS violated the Act by removing the die engineers from the bargaining unit.

Subcontracting of the Die-Cutting Work and the Elimination of the Die Engineer Classification

The Board also held that OGS violated the Act by unilaterally subcontracting its remaining die-cutting work and by making the other unilateral changes that followed from that action. It started its analysis of this issue by noting that, although the Supreme Court, in Fibreboard Corp. v. N.L.R.B., held that the subcontracting of unit work is a mandatory subject of bargaining, Justice Stewart had expressed reservations about the scope of that obligation. In a concurring opinion, justice Stewart observed that management decisions "concerning the commitment of investment capital and the basic scope of the enterprise" that "lie at the core of entrepreneurial control[]" are not subject to collective bargaining. Subsequent to the decision in Fibreboard, the Board held, in Torrington Industries, that:

     a decision to subcontract the work of employees unaccompanied by any substantial commitment of capital or change in the scope of the business was not the type of decision that Justice Stewart had identified as being at the core of entrepreneurial control, and was, therefore, subject to bargaining.

OGS argued that in First National Maintenance Corp. v. N.L.R.B. [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law], the Supreme Court had identified three types of managerial decisions, one of which - a decision that has '"a direct impact on employment,' because it leads to job loss, but has 'as its focus only the economic profitability' of the enterprise[]" - may or may not require bargaining. In First National Maintenance, the employer, a provider of cleaning and maintenance services, decided to terminate a contract with a nursing home (and to layoff all employees working under that contract) when the nursing home refused to accede to a price increase proposed by the employer. The First National Maintenance Court held that the decision to terminate the contract was not a mandatory subject of bargaining because, according to the Board in O.G.S. Technologies, it involved "a change in the scope and direction of the enterprise[.]" and therefore that the employer had no duty to bargain over it. [footnotes omitted]

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