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.
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.
This appeal presents an issue of first impression in this circuit, namely whether a company may legally pay the fulltime 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. Implement Workers of Am., 107 F.3d 1052 (3d Cir.1997), held that paying the full-time 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).
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
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, 103 S.Ct. 2177, 76 L.Ed.2d 298 (1983). Accordingly, we reverse the district court's decision and vacate the arbitrator's award.
Titan Tire Corporation of Freeport, Inc. ("Titan"), purchased 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 Agreement ("CBA"); (2) a Benefits Agreement; and (3) an Understandings Outside the Agreement. (Collectively "labor agreements"). 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
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 employees
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 responsible 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.
Local 745 filed a grievance challenging Titan's discontinuation of payments to Vanderheyden and Balsamo. The grievance 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:
Second, Local 745 relied on the Benefits Agreement, which detailed the Benefit Representative's duties
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 Outside the Agreement's provision discussing the Benefit Representative provided that Titan "will provide compensation 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 Agreement 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 agreements 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 pay the President and the Benefit Representative, the agreements 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.
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 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 technicians; 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 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 sustaining 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
Titan filed suit in federal district court to vacate the arbitrator'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 summary 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 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.
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 judgment, 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, 121 S.Ct. 1724, 149 L.Ed.2d 740 (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).
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 agreement was "contrary to public policy." E. Associated Coal Corp. v. United Mine Workers of Am., 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (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, 103 S.Ct. 2177. 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, 65 S.Ct. 442, 89 L.Ed. 744 (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
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, 103 S.Ct. 2177.
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 employed 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.2d at 1300. It also seeks to prevent those representing employees from operating under conflicted 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 Representative's salaries because they "represent[] ... employees who are employed in an industry affecting commerce." 29 U.S.C. § 186(a)(1).
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 employees 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 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).
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 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." Id.
Based on Caterpillar's analysis, the union maintains that Titan's payment of the full-time salaries to Local 745's President 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.
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.").
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:
Id. at 1058-59 (Mansmann, J., dissenting) (citations omitted).
Judge Mansmann stressed that the key "is that the employee 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 payments 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 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.
So too here. But for the President's and Benefit Representative's prior service as Titan employees, they would not be entitled to Titan paying their full-time union salaries. However, that merely establishes their "eligibility" for such payments, 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 Representative, 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 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,
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 employees for performing their past job with paying former employees 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, 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.
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.
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, 74 S.Ct. 323, 98 L.Ed. 455 (1954), where the union is the "exclusive bargaining agent for both member and nonmember employees, the employer could not, without violating § 8(a)(3), discriminate 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, 74 S.Ct. 323. 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, 74 S.Ct. 323 (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."
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, paying 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
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. 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 Trailways
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 "fulltime 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.
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 representative, 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." (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)." Caterpillar, 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 incommensurate with that former employment." Accordingly, it is not "by reason of" that former employment.
Our conclusion above that Titan's agreement with the union to pay Local 745's President's and Benefit Representative'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 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.2d 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
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 whether Titan's agreement to pay the union salaries came at the expense of lower salaries or benefits for plant
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,
Id.
The Third Circuit in Caterpillar believed the legality of no-docking clauses meant that a CBA provision providing for fulltime 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 argument 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
In addressing this argument, the Ninth Circuit in BF Goodrich first noted that harmonizing the seemingly contradictory 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 explained 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 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.
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 reasonably decided to treat part-time no-docking provisions differently than full-time pay to union employees, namely the desire 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
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 representing 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 Representative 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 short, as in BF Goodrich, "[t]he legality of no-docking provisions is not before us." Id.
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 employment 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 Representative 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.
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 employer 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 certiorari in Caterpillar, Inc. v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am., et al., 521 U.S. 1152, 118 S.Ct. 31, 138 L.Ed.2d 1060 (1997). Although that case was settled before the Court issued an opinion, that happenstance says nothing about the significance 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 overturn an arbitral award. Despite the fact that arbitral awards must be upheld even if a court disagrees with
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, 103 S.Ct. 2177, 76 L.Ed.2d 298 (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 711. The Third Circuit's decision in Caterpillar, Inc. v. Int'l Union, United Auto., Aerospace & Agric. Implement 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 argument, I begin with the language of section 302 of the LMRA, 29 U.S.C. § 186. Section 302(a) opens with a broad prohibition:
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 arbitrator in the present case found as a fact that Union President Steve Vanderheyden
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 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 720. 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 representative who knows nothing about the particular employer, the particular workplace, and applicable industry norms might work,
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 defeating 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 illustrates 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 problem 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 overturned.
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, ___ U.S. ___, 133 S.Ct. 2064, 2068, 186 L.Ed.2d 113 (2013); Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010); E. Associated Coal Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000); United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 98 L.Ed.2d 286 (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.