In No. 88-7065, the National Labor Relations Board ("NLRB" or "the Board") seeks enforcement of an order it issued against employer Litton Financial Printing Division ("Litton") on November 6, 1987. In No. 88-7079, Printing Specialties District Council Number 2 ("the Union"), petitions this court for review of the same Board order. The instant dispute arose in 1980 when Litton decided to close down the "cold-type" printing operation in its Santa Clara, California, plant, to expand its more efficient "hot-type" operation in the same plant, and to lay off ten employees who had worked primarily on "cold-type" equipment. At that time, the last of a series of collective bargaining agreements ("CBAs") had expired and Litton was refusing to recognize or bargain with the Union.

In the proceedings below, the Board found that Litton violated sections 8(a)(5) and 8(a)(1) of the National Labor Relations Act ("NLRA" or "the Act") by refusing to bargain over the layoffs, by directly dealing with the laid-off employees over severance pay, by refusing to accept or process grievances filed to protest the layoffs as violative of seniority rights, and by effectuating a wholesale repudiation of its obligations under the contractual grievance-arbitration provisions. To remedy these unfair labor practices, the Board issued a "cease and desist" and limited backpay order. The Board also ordered Litton to process the layoff grievances through the first two steps of the grievance-arbitration procedure, to bargain over the layoff decision, and to post appropriate notices. The Board declined, however, to order Litton to arbitrate the layoff grievances.

On appeal, Litton argues: (1) that the layoff was not a mandatory subject of bargaining, and that it had fulfilled its statutory obligation to bargain over the "effects" of the layoff decision; (2) that the grievance-arbitration provisions of the CBA expired in October of 1979 along with the contract or, at a minimum, had become ineffective by the time the grievances were filed almost a year later; (3) that the Board erred in finding a wholesale repudiation by Litton of its obligations under the grievance-arbitration process contained in the expired CBA.

In its appeal, the Union argues that the Board erred in its interpretation of section 8(a)(5) by relying on case law under section 301 of the Act, 29 U.S.C. Sec. 185, to hold that the layoff grievances in this case are not encompassed within Litton's duty to arbitrate post-expiration grievances that "arise under" the expired CBA. The Union further maintains that the correct legal framework for analyzing an employer's refusal to process and arbitrate post-expiration or hiatus grievances is under the case law holding that an employer violates section 8(a)(5) by imposing a unilateral change in a term or condition of employment, i.e., a "mandatory subject of bargaining," without bargaining to impasse. Accordingly, the Union seeks reversal of the Board's order insofar as it declined to compel arbitration of the layoff grievances.

* Most of the facts relevant to decision of this appeal are undisputed or were found by an administrative law judge ("ALJ") in a hearing held on March 19, 1981. The employer in this case, Litton Financial Printing Division, is a division of Litton Business Systems, Inc., in the business of printing bank checks. Printing Specialties District Council Number 2 is the successor to the exclusive bargaining representative for the production and maintenance employees at Litton's plant in Santa Clara, California, the only one of six Litton printing facilities involved in this case. Beginning in 1974, Litton and the Union were parties to successive CBAs. The last such contract expired on October 5, 1979.1

Prior to August 1980, Litton used both cold-type and hot-type printing processes at its Santa Clara plant; its other five plants used only the hot-type process. In July 1980, Litton decided to convert the Santa Clara facility to an entirely hot-type operation after one of its major customers, Wells Fargo Bank, canceled 30 per cent of its cold-type print orders. A Litton representative testified that this decision was based on four factors: (1) the loss of the Wells Fargo and other customer orders; (2) the greater economy of the hot-type process by which more checks could be printed on a single sheet of paper; (3) the increased flexibility to have other Litton plants take over the Santa Clara plant's work in emergencies; (4) the reduction in training, research and development, and equipment costs. To accomplish the planned conversion, Litton transferred some of its cold-type work to other plants, sold some of its cold-type equipment, and acquired additional hot-type equipment.

The instant dispute arose on August 29 and September 2, 1980, when Litton laid off ten of the 42 workers in the Santa Clara plant bargaining unit. Seven of the laid-off employees had worked exclusively on cold-type equipment; the other three had worked primarily, but not exclusively, on cold-type equipment. The layoffs were uncontrovertedly effectuated without notice to the Union, and were not in accordance with seniority. In fact, six of the eleven most senior employees in the Santa Clara bargaining unit were among those laid off. Litton dealt directly with the individual laid-off employees to give them severance pay without giving notice to or bargaining with the Union over that issue.2

The affected employees notified the Union of the layoffs; the Union, in turn, filed separate but identical grievances for each one alleging "unjust layoff ... out of seniority." By letter dated September 24, 1980, the Union's business agent notified Litton that the grievances had been filed by the shop steward, and requested that the employer meet with Union representatives to discuss the layoff and its impact on the senior employees who were dismissed. The Union also requested that the laid-off employees be reinstated pending resolution of the grievances. In a letter dated November 10, 1980, the Union reiterated its demands to utilize the grievance-arbitration procedures and bargain about "both the decision to layoff the workers and the effects upon those employees," and requested relevant information.

Litton refused to process the layoff grievances, maintaining that it had no obligation to do so because the CBA containing the grievance and arbitration procedures had expired. Although it expressed a willingness to bargain over the "effects" of the layoffs, Litton has consistently refused to bargain over the "decision" to lay off the ten employees.

On these facts, a majority of the Board panel found, in agreement with the ALJ, that Litton was obligated to continue processing grievances during the hiatus period under its expired agreement. The Board also ruled that Litton's refusal to do so constituted a wholesale repudiation of its contractual obligations under the grievance and arbitration provisions of the expired contract and was, therefore, a violation of sections 8(a)(5) and 8(a)(1) of the Act.

The Board also decided, contrary to the ALJ, that Litton's obligation to bargain about the effects on unit employees of its decision to convert its Santa Clara operation from cold-type to hot-type processes included a duty to bargain about its decision to lay off the ten employees. The Board, therefore, concluded that Litton's refusal to bargain upon demand by the Union over these mandatory subjects of bargaining was a further violation of sections 8(a)(5) and 8(a)(1) of the Act.

In its order, the NLRB required Litton to cease and desist from engaging in the unfair labor practices found. The Board also ordered Litton, upon the Union's request, to: (1) process the layoff grievances under the first two steps of the grievance procedure found in the expired CBA; (2) bargain with the Union over the layoffs as effects of its decision to convert to a hot-type operation; (3) pay backpay to the ten laid-off employees in accordance with Transmarine Navigation Corp., 170 N.L.R.B. 389 (1968), on remand from 380 F.2d 933 (9th Cir.1967); and (4) post appropriate notices. The Board and the Union jointly seek enforcement of the Board's order as heretofore described.

In the portion of its order challenged by the Union, the Board declined to order Litton to arbitrate the layoff grievances. The Board asserted that these grievances, which were based on conduct occurring after the CBA expired, did not "arise under" the contract and that Litton, therefore, had no legal or contractual obligation to arbitrate them.

In general, an order of the National Labor Relations Board must be enforced if the Board correctly applied the law, and if the Board's findings of fact are supported by substantial evidence on the record viewed as a whole. Oil, Chemical & Atomic Workers Int'l Union, Local 1-547 v. NLRB, 842 F.2d 1141, 1143 n. 1 (9th Cir.1988); Whisper Soft Mills, Inc. v. NLRB, 754 F.2d 1381, 1384-85 (9th Cir.1984).

Sections 8(a)(5) and 8(d) of the National Labor Relations Act require an employer to bargain with its employees' exclusive bargaining representative over "terms or conditions of employment." 29 U.S.C. Secs. 158(a)(5) and 158(d). Congress has assigned to the NLRB the primary task of interpreting these provisions. Ford Motor Co. v. NLRB, 441 U.S. 488, 495, 99 S. Ct. 1842, 1848, 60 L. Ed. 2d 420 (1979). Because the classification of bargaining subjects for purposes of section 8(d) of the Act is " 'a matter concerning which the Board has special expertise,' " an NLRB conclusion that a matter is a mandatory subject of bargaining within the meaning of section 8(d) is entitled to considerable deference. Id. (quoting Meat Cutters v. Jewel Tea Co., 381 U.S. 676, 685-86, 85 S. Ct. 1596, 1599-1600, 14 L. Ed. 2d 640 (1965)); see also NLRB v. Financial Institution Employees of America Local 112, 475 U.S. 192, 202, 106 S. Ct. 1007, 1012, 89 L. Ed. 2d 151 (1986) (recognizing the Board's broad authority to interpret provisions of the Act and the courts' traditional deference to Board constructions that are not irrational or inconsistent with the Act).

This court should not, moreover, reject a reasonably defensible construction by the Board of section 8(d) merely because we would prefer a different view of the statutory provision. Ford Motor Co., 441 U.S. at 497, 99 S.Ct. at 1849. Such a construction must be upheld unless the proper legal standard was not applied, or the Board failed to give the plain language of the standard its ordinary meaning, or the Board's interpretation is fundamentally inconsistent with the structure of the Act and an attempt to usurp major policy decisions properly made by Congress, or the Board has moved into a new area of regulation which Congress has not committed to it. Id.

The Supreme Court has held that the language of section 8(d) "plainly cover[s] termination of employment." Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203, 210, 85 S. Ct. 398, 402, 13 L. Ed. 2d 233 (1964). In particular, layoffs have consistently been held to be a mandatory subject of bargaining, and unilateral layoffs by employers violate section 8(a)(5). Local 512, Warehouse and Office Workers' Union v. NLRB, 795 F.2d 705, 710-11 (9th Cir.1986). See also NLRB v. Carbonex Coal Co., 679 F.2d 200, 204 (10th Cir.1982); Gulf States Manufacturers, Inc., 261 N.L.R.B. 852, 853, 864 (1982), enf'd in pertinent part, 704 F.2d 1390, 1395-99 (5th Cir.1983). Litton argues, however, that there is no duty to bargain about layoffs that are "closely related to" or "naturally follow" from a management decision that is not itself a mandatory bargaining subject. Litton acknowledges only a duty to bargain over the "effects" of such layoffs, and contends that it has always been and remains willing to meet with the Union to discuss that issue.

Litton was not required to bargain with the Union about its economically-motivated decision to convert from cold-type printing to a hot-type process in its Santa Clara plant. First National Maintenance Corp. v. NLRB, 452 U.S. 666, 686, 101 S. Ct. 2573, 2584, 69 L. Ed. 2d 318 (1981). The Court in First National Maintenance squarely faced and rejected an argument that such a management decision to shut down part of a business was a mandatory subject of bargaining. It reasoned that the harm that was likely to the employer's need of freedom to decide whether to shut down part of its business, purely for economic reasons, outweighed the incremental benefit that might have been gained through the union's participation in making the decision. Id. Cf., Fibreboard Paper Products Corp. v. NLRB, 379 U.S. at 215, 85 S.Ct. at 405 (management decision to replace employees in existing bargaining unit with those of independent contractor to do the same work under similar conditions is a mandatory subject of bargaining).

Just as clearly, however, Litton was required to bargain with the Union in this case over the "effects" of its decision to discontinue its cold-type printing operation. The Court in First National Maintenance repeatedly emphasized that it was not disturbing case law embodying the well-established principle that employers are required, as part of the "effects" bargaining mandated by section 8(a)(5), to bargain in a meaningful manner and at a meaningful time about "matters of job security" that arise in connection with a partial closing. 452 U.S. at 677-78 n. 15, 101 S. Ct. at 2580 n. 15; id. at 681-82, 101 S.Ct. at 2582 (citing NLRB v. Royal Plating & Polishing Co., 350 F.2d 191, 196 (3d Cir.1965), and NLRB v. Adams Dairy, Inc., 350 F.2d 108 (8th Cir.1965), cert. denied, 382 U.S. 1011, 86 S. Ct. 619, 15 L. Ed. 2d 526 (1966)).3 In fact, the Court declared in a footnote, "There is no doubt that petitioner [First National Maintenance] was under a duty to bargain about the results or effects of its decision [to close down part of its business], or that it violated that duty." 452 U.S. at 679 n. 15, 101 S. Ct. at 2580-81 n. 15.

The question for decision here then is whether the Board could reasonably conclude, after First National Maintenance, that a layoff following a conversion or partial-closing decision, such as the one involved in this case, is a mandatory subject of bargaining as an "effect" of the nonbargainable management decision. In this case, unlike First National Maintenance, the termination of employees by layoff was not the inevitable consequence of the underlying management decision. Litton had numerous, and admittedly feasible, alternatives4 that it could have explored with the Union to avoid or reduce the scope of the layoff without having to reconsider its conversion decision. Litton suggests no reason other than labor costs for preferring the layoff over any of the suggested alternative courses of action; to the extent the layoff was motivated by a desire to reduce labor costs, it was amenable to bargaining. First National Maintenance, 452 U.S. at 680, 101 S.Ct. at 2581. While not dispositive, these facts distinguish the instant case from the situation in First National Maintenance and support the Board's conclusion.

There was, moreover, no evidence that Litton's decision was, or had to be, made with any extraordinary speed, flexibility, or secrecy, or that bargaining about the layoff would have impeded any other important business interest recognized by the Court in First National Maintenance. 452 U.S. at 682-83, 101 S.Ct. at 2582-83. In these circumstances, the benefit to labor-management relations of such bargaining almost certainly outweighed the burden it would have imposed on the conduct of Litton's business.

The Board reasonably concluded that the layoff at issue in this appeal was a mandatory subject of bargaining as an "effect" of the nonbargainable decision to convert from cold-type to exclusively hot-type printing. Accordingly, we will enforce the Board's order to the extent it found Litton's refusal to bargain about the layoff decision to be a violation of sections 8(a)(5) and 8(a)(1), and sought to remedy this unfair labor practice.

In addition to asserting both a "due process"5 and a "waiver"6 defense to the charge that its refusal to bargain over the layoffs violated sections 8(a)(5) and 8(a)(1), Litton argues that it in fact fulfilled any bargaining obligations by offering to discuss "the effects of the layoff." Despite two requests by the Union to meet and discuss both the layoffs and their effects, Litton offered in its letter of November 3, 1980, only to bargain over the "effects of the layoffs." The evidence in the record supports the Board's finding that Litton "was not willing to bargain over the layoff as such."

We turn next to the question whether the Board reasonably concluded that an employer's general repudiation of its obligation to arbitrate post-expiration grievances that "arise under" the expired CBA constitutes a violation of sections 8(a)(5). The NLRB has held, in reliance on Nolde Bros. v. Local No. 358, Bakery & Confectionary Workers Union, 430 U.S. 243, 97 S. Ct. 1067, 51 L. Ed. 2d 300 (1977),7 that a general repudiation of a binding contractual obligation to arbitrate grievances arising after expiration of a collective bargaining agreement violates an employer's duty to bargain under section 8(a)(5) of the NLRA, 29 U.S.C. Sec. 158(a)(5). Indiana & Michigan Electric Co., 284 NLRB No. 7, 1986-87 NLRB Dec. (CCH) p 18,748 (May 29, 1987).

Under Indiana & Michigan, an employer must approach hiatus grievances on an ad hoc basis, distinguishing those that are arbitrable under Nolde from those that are not. UPPCO, Inc., 288 NLRB No. 98, 1987-88 NLRB Dec. (CCH) p 19,405 (May 12, 1988). Only those grievances that "arise under" the CBA are presumptively arbitrable. Indiana & Michigan, 1986-87 NLRB Dec. (CCH) at p 32,054. A dispute based on post-expiration events "arises under" the CBA, under the Board's view, only if it "concerns contract rights capable of accruing or vesting to some degree during the life of the contract and ripening or remaining enforceable after the contract expires." Id.

In this appeal, the Union has launched a broad-based attack on the fundamentals of the Board's Indiana & Michigan decision.8 Basically, the Union contends that the Board, in Indiana & Michigan, has perpetuated a long-standing error in its analysis of unfair labor practice charges brought to remedy an employer's refusal to arbitrate post-expiration grievances. Rather than relying on section 301 precedent such as Nolde, the Union maintains that the Board should be analyzing such charges under the "unilateral change doctrine" of NLRB v. Katz, 369 U.S. 736, 82 S. Ct. 1107, 8 L. Ed. 2d 230 (1962). See also Stone Boatyard v. NLRB, 715 F.2d 441, 444 (9th Cir.1983), cert. denied, 466 U.S. 937, 104 S. Ct. 1910, 80 L. Ed. 2d 459 (1984); NLRB v. Carilli, 648 F.2d 1206, 1214 (9th Cir.1981).

In essence, the Katz doctrine is that an employer who fails to maintain the status quo with respect to "terms and conditions of employment" after a CBA expires, and imposes unilateral changes in a mandatory subject of bargaining before bargaining to agreement or impasse over the relevant term or condition of employment, commits an unfair labor practice--a refusal to bargain--in violation of section 8(a)(5). Because an arbitration procedure is incontrovertibly a mandatory subject of bargaining, see Indiana & Michigan, 1986-87 NLRB Dec. (CCH) at p 32,051, the Union maintains that an employer who unilaterally abandons a pre-existing arbitration procedure during the post-expiration or hiatus period is guilty of a refusal to bargain under Katz.

The parties have vigorously debated the soundness of the Indiana & Michigan approach to the duty to arbitrate post-expiration grievances. However, because the Board erred in concluding that the layoff grievances in this case were not arbitrable, on the ground that they did not "arise under" the expired CBA, we decline the parties' invitation to resolve their dispute over Indiana & Michigan. For purposes of this appeal, we assume without deciding that the Board's Indiana & Michigan decision is a reasonably defensible construction of the section 8(a)(5) duty to bargain.

The Board concluded that the grievances in this case, which alleged unjust layoff in violation of seniority rights, did not "arise under" the collective bargaining agreement. The Board found that the particular grievances at issue in this case did not involve "a right worked for or accumulated over time," and that there was no indication that "the parties contemplated that such rights could ripen or remain enforceable even after the contract expired." The Board, accordingly, declined to order Litton to arbitrate the layoff grievances.

The Board contends that this decision was an exercise of its remedial discretion. We believe, however, that the Board's determination that Litton had no obligation to arbitrate the layoff grievances is a matter of statutory or contractual interpretation, rather than a remedial decision. Therefore, its decision must be upheld if "reasonably defensible," Ford Motor Co., 441 U.S. at 497, 99 S.Ct. at 1849 (statutory interpretation), or if it is reasonable and not inconsistent with the Act's policies. NLRB v. Southern California Edison Co., 646 F.2d 1352 (9th Cir.1981) (contract interpretation). We find that the Board's decision was unreasonable and inconsistent both with its own decisions and with the Act's policies as interpreted by this Circuit and the Supreme Court.

The Board and the courts have had considerable difficulty trying to develop a coherent set of principles for determining when a grievance "arises under" the CBA such that an employer has a duty--under Nolde for purposes of section 301 actions, and now under Indiana & Michigan for purposes of unfair labor practice proceedings--to arbitrate a post-expiration grievance. The Board's current view is that an employer has no obligation to arbitrate a particular grievance based on post-expiration events unless it involves contract rights "capable of accruing or vesting to some degree during the life of the contract and ripening or remaining enforceable after the contract expires." Indiana & Michigan, 1986-87 NLRB Dec. (CCH) at p 32,054.

Somewhat surprisingly, the Board concluded that the grievances in this case, which alleged that Litton laid off ten employees in violation of seniority rights guaranteed by a particular provision in the CBA, did not "arise under" the contract. The Board must have been looking only at the event (the layoff) that sparked the dispute, and not at the substantive contract-based rights (seniority protection against layoff) that were allegedly violated.

Since the Board handed down its Decision and Order in the instant case, it has decided at least two other cases that conflict with its "arising under" conclusion in the instant case. United Chrome Products, Inc., 288 NLRB No. 130, 1987-88 NLRB Dec. (CCH) p 19,436 (May 1, 1988) (dispute arising out of the application of seniority arises under the expired agreement, and is subject to mandatory arbitration, because seniority rights were worked for and accumulated over time and arguably remained enforceable after the contract expired); UPPCO, Inc., 288 NLRB No. 98 (1988) (employer required to arbitrate request concerning seniority because it arose under the contract and contract did not expressly provide for expiration of the seniority provisions upon expiration of the CBA).9 Both of these cases militate in favor of reversing the Board's decision not to compel Litton to arbitrate the grievances at issue in this case.

There is a further conflict between the Board's standard in Indiana & Michigan, and the standard applied in this Circuit in section 301 actions to determine when a grievance "arises under" the expired CBA so as to create a duty to arbitrate. Recently this court rejected an argument that only grievances based on " 'rights undeniably accruing under [the] contract prior to termination' are covered by the post-termination duty to arbitrate." Local Jt. Exec. Bd. of Las Vegas Culinary Workers Union, Local 226 v. Royal Center, Inc., 796 F.2d 1159, 1163 (9th Cir.1986) (emphasis in original), cert. denied, 479 U.S. 1033, 107 S. Ct. 881, 93 L. Ed. 2d 835 (1987).10 In Royal Center we construed much more expansively the Nolde presumption of arbitrability of post-expiration grievances; rather than focusing on a narrow concept such as "accrual," the court centered its analysis on "preserving the original intent of the parties" as to whether a particular type of grievance would have been arbitrable if circumstances unanticipated by the parties when the agreement was drafted had not arisen. 796 F.2d at 1163 (emphasis in original).

The Royal Center approach is consistent with that of other Ninth Circuit cases. See George Day Construction Co. v. United Bhd. of Carpenters and Joiners of America, Local 354, 722 F.2d 1471, 1478 (9th Cir.1984) (observing, in dicta, that post-expiration grievances are arbitrable if union can point clearly to a contractual provision that it claims was violated by the employer); O'Connor v. Carpenters Local Union No. 1408, 702 F.2d 824, 825 (9th Cir.1983) (employer had no duty to arbitrate post-termination grievance because parties had not agreed that it would be subject to arbitration after expiration of the CBA, and because the dispute "was not covered by [the] contract").

The Royal Center analysis is also consistent with that of Nolde itself. In Nolde, the Supreme Court did not directly rely on the accruability of the right asserted in concluding that the severance pay grievance at issue in that case was arbitrable. Instead, the Court viewed the grievance as "arising under" the expired contract because it "hinge[d] on the interpretation ultimately given the contract clause." 430 U.S. at 249, 97 S.Ct. at 1070. Indeed, the Nolde Court held that "where the dispute is over a provision of the expired agreement, the presumptions favoring arbitrability must be negated expressly or by clear implication." Id. at 255, 97 S.Ct. at 1074 (emphasis added).

Because of the conflicts within the Board's own cases in applying its test for determining when a post-expiration grievance "arises under" the CBA so as to give rise to a duty to arbitrate, and between the Board and Ninth Circuit precedent on the same issue, we hold that the Board's conclusion that the layoff grievance in this case did not "arise under" the CBA is unreasonable and must be reversed.

The Board reasonably concluded that the layoff was a mandatory subject of bargaining and that Litton, therefore, violated sections 8(a)(5) and 8(a)(1) by refusing to bargain about the layoff decision. To this extent, the Board's order will be ENFORCED.

The Board's conclusion that Litton had neither a statutory nor a contractual obligation to arbitrate post-expiration grievances alleging unjust layoffs "out of seniority," however, is inconsistent with Supreme Court, Ninth Circuit, and its own recent case law. Accordingly, the portion of the Board's order by which it declined to order arbitration of the layoff grievances is REVERSED, and the cause REMANDED for further proceedings in accordance with this opinion.