RANDOLPH, Senior Circuit Judge.
Arc Bridges, Inc. petitions for review of a National Labor Relations Board order finding it in violation of § 8(a)(1) and (3) of the National Labor Relations Act, 29 U.S.C. § 158(a)(1) & (3). The Board cross-petitions for enforcement. The question presented is whether Arc Bridges established annual wage increases as a term of employment and then unlawfully refused to implement a wage increase after its employees became unionized.
Arc Bridges is a non-profit Indiana corporation, exempt from federal taxation under § 501(c)(3) of the Internal Revenue Code. The company runs assisted living programs, employment counseling, and related support services for individuals with developmental disabilities. It relies heavily on state and federal funding. The American Federation of Professionals, a labor union, conducted an organizing campaign at Arc Bridges in late 2006 and early 2007. The campaign culminated in two contested representation elections: one for Arc Bridges' Day Services employee unit, the other for its Residential and Supported Living employee unit. A majority in both units voted in favor of the union.
Bargaining sessions held after the elections yielded little progress. The union demanded a fifty percent wage increase over three years, significant increases in benefits, and a variety of other changes. Management calculated that the wage and benefits increases would consume more than a quarter of Arc Bridges' operating revenues in the first year, and an even greater share in later years. In light of those figures and the fact that Arc Bridges had a sizeable operating loss in the preceding fiscal year, management informed the union that its proposal was a financial impossibility. Management also urged the union to identify "one or two areas" of economic improvements that were "most important" to its members. The union responded by calling a strike authorization vote. The parties continued to meet after the vote, but were unable to come to an agreement.
Kris Prohl, Arc Bridges' Executive Director, had planned on granting all Arc Bridges employees a three percent wage increase in July 2007, just as she had in each of the two preceding years. But the ongoing labor negotiations caused her to shelve this plan. Prohl feared that the significant disparity between the three percent increase and the union's much larger demand would provoke a strike. She was also concerned that implementing the increase would leave Arc Bridges without any funds to meet the union's remaining demands. And she believed that a unilateral wage increase would expose Arc Bridges to a refusal to bargain charge. See 29 U.S.C. § 158(a)(5); NLRB v. Katz, 369 U.S. 736, 743-44, 82 S.Ct. 1107, 8 L.Ed.2d 230 (1962).
At the time, Arc Bridges had 260 employees represented by the union and 121 non-union employees. Turnover among
The union filed a charge with the Board claiming that Arc Bridges had violated § 8(a)(1), (3), and (5) of the Act by granting the wage increase only to non-union employees. The Regional Director issued a corresponding complaint focusing exclusively on the theory that Arc Bridges had violated § 8(a)(3), which prohibits employers from "discriminat[ing] in regard to ... any term or condition of employment to... discourage membership in any labor organization." 29 U.S.C. § 158(a)(3).
An Administrative Law Judge dismissed the complaint after a two-day hearing. The ALJ's finding regarding Arc Bridges' wage review process played a critical role in the decision. The finding read:
Recognizing that employers may withhold wage increases from unionized employees as a bargaining tactic, provided that the decision is not a product of anti-union animus, see Shell Oil Co., 77 N.L.R.B. 1306, 1310 (1948), the ALJ proceeded to evaluate Prohl's wage decision under the Wright Line standard, see NLRB v. Transp. Mgmt. Corp., 462 U.S. 393, 399-404, 103 S.Ct. 2469, 76 L.Ed.2d 667 (1983) (approving the burden-shifting test adopted in Wright Line v. Lamoureux, 251 N.L.R.B. 1083 (1980)). On this analysis, the ALJ found that there were two plausible explanations for the decision: Prohl may have withheld the increase to punish the employees for joining the union, or she may have done so to conserve limited resources and maximize Arc Bridges' leverage in the negotiations. Because the evidence did not clearly rule out the latter theory, the ALJ concluded that Arc Bridges had carried its burden of establishing that it would have taken the same action even in the absence of any discriminatory motive. See Wright Line, 251 N.L.R.B. at 1089.
The Board sustained the ALJ's factual findings, but disagreed with his conclusion. Arc Bridges, Inc., 355 N.L.R.B. No. 199, 2010 WL 3813244, at *1, 2010 NLRB LEXIS 379, at *2-3 (Sept. 29, 2010). The Board began by purporting to summarize the finding quoted above: "For 8 consecutive years, [Arc Bridges] annually reviewed its finances in June and, if sufficient funds existed, implemented an
From this the Board concluded that Arc Bridges' budget review each June and across-the-board wage increase each July—"if sufficient funds existed"— amounted to "an established condition of employment." Id. at *3, 2010 NLRB LEXIS 379 at *10 (citing Eastern Me. Med. Ctr., 253 N.L.R.B. 224, 242 (1980), enforced 658 F.2d 1 (1st Cir. 1981)). Arc Bridges' refusal to maintain that condition in 2007 was, the Board held, "inherently destructive" of the employees' rights, id. at *4-6, 2010 NLRB LEXIS 379 at *12-16 (quoting NLRB v. Great Dane Trailers, Inc., 388 U.S. 26, 34, 87 S.Ct. 1792, 18 L.Ed.2d 1027 (1967)), and thus a violation of § 8(a)(1) and (3) of the Act, id. at *6, 2010 NLRB LEXIS 379 at *17.
In reviewing the decision, we assume the Board did not mean that Arc Bridges' preparation of a budget each June had itself become a term or condition of employment. Union or no union, prudent companies plan for the future and prepare budgets based on forecasts of revenues and expenditures. In doing so they are performing an internal management function beyond the Board's competence. See First Nat'l Maint. Corp. v. NLRB, 452 U.S. 666, 676-77, 101 S.Ct. 2573, 69 L.Ed.2d 318 (1981); contrast 29 U.S.C. § 158(d) (listing "wages" and "hours" as examples of "terms and conditions of employment"). The Board did not say otherwise. It said instead that a condition of employment resulted from the annual budget review plus the custom of Arc Bridges giving an across-the-board wage increase "if feasible" or "if sufficient funds existed." 2010 WL 3813244, at *1-2, 3, 2010 NLRB LEXIS 379, at *4, 10. This decision, we believe, is arbitrary and unsupported by substantial evidence. 29 U.S.C. § 160(e); see also Jackson Hosp. Corp. v. NLRB, 647 F.3d 1137, 1138 (D.C.Cir. 2011); E.I. du Pont de Nemours & Co. v. NLRB, 489 F.3d 1310, 1314 (D.C.Cir. 2007); BB & L, Inc. v. NLRB, 52 F.3d 366, 372 (D.C.Cir. 1995).
Arc Bridges points out an obvious problem with the Board's formulation. So far as we can tell, Arc Bridges did not use any particular criteria to determine when to give an increase, or the amount of the increase when it did give one. Even under the Board's formulation, there were no objective criteria for determining whether there would be any wage increase at all. The Board wrote that Arc Bridges gave wage increases when "sufficient" funds were available or when it was "feasible" to do so. 2010 WL 3813244, at *3-4, 2010 NLRB LEXIS 379, at *10-11. But this seems highly discretionary, depending on management's budget forecasting, its assessment of the economic climate, its plans for the upcoming fiscal year, and so forth.
In any event, the Board's decision contains a rather large evidentiary hole. Arc Bridges granted no wage increases in July 2002, July 2003, or July 2004—three of the five years immediately preceding the 2007 wage decision at issue here. How then could the Board derive any established pattern or practice of the company granting annual wage increases? The Board tried to fill the gap with this explanation: "Presumably, [Arc Bridges'] annual review indicated that no across-the-board increase was warranted in those years." 2010 WL 3813244, at *4, 2010 NLRB LEXIS 379, at *11. By not "warranted" the Board must have meant, as it said earlier in its opinion, not "financially feasible" or that "sufficient funds" did not (or would not) exist. Id. at *3-4, 2010 NLRB LEXIS 379 at *10-11. The trouble is that there is no substantial evidence—indeed, there is no evidence at all—to support the Board's "presumably." It comes out of thin air.
Counsel for the Board admitted as much at oral argument. See Oral Arg. at 19:41-20:25; 21:55-23:04, 23:45-57. The Board's brief was not as forthcoming. It cites Prohl's statement that another, credentials-based type of increase was given between 2002 and 2004 "regardless of any other increases." This supposedly served as evidence that Arc Bridges granted across-the-board increases in July when it had available funds, and did not when money was short. The testimony established no such thing. To the contrary, it indicated that Arc Bridges did have funds available to award increases in 2002, 2003, and 2004, but chose to use the funds for other purposes. The brief's other citations to the record are of no help to the Board.
Nor is it true that Arc Bridges consistently granted across-the-board pay increases, as opposed to other types of adjustments. The Board focused solely on July wage decisions made between 1999 and 2006. In July of each of those years, Arc Bridges gave either an across-the-board increase or no increase at all. But the company's history of granting July wage increases dates back further, to 1992. Between 1992 and 1998, Arc Bridges provided an across-the-board wage increase only once, in July 1997. It granted individual, merit-based increases or an increase to specific groups of employees (sometimes in addition to other increases) in each of the remaining six years. The upshot of this additional data is that Arc Bridges granted an across-the-board increase in six of fifteen years—less than half the time.
The Act requires the Board to base its factual findings "on the record considered as a whole." 29 U.S.C. § 160(e). Had the Board done so here, it could not possibly have concluded that annual across-the-board wage increases were an established condition of employment. Citing Kurdziel Iron of Wauseon, Inc., 327 N.L.R.B. 155, 155 & n. 3 (1998), enforced 208 F.3d 214
In Kurdziel, the employer operated two facilities, Britt and Wauseon, and granted an identical wage increase to employees at each in 1994 and 1995. 327 N.L.R.B. at 155. The employer discontinued this practice in 1996, when employees at the Wauseon facility voted to unionize. Id. Instead, it granted an increase only to employees at the Britt facility, which remained non-union. Id. The Board held that the two-year history of matching wage increases established a term of employment, and that the employer's failure to honor that term at the Wauseon plant violated § 8(a)(1) and (5) of the Act. Id. Here, of course, there is no evidence that Arc Bridges followed anything like the dual-facility approach at issue in Kurdziel. More importantly, the evidence of past wage increases in Kurdziel was limited to the preceding two years, in part because the Britt facility began operation in "1991 or 1992" and the Wauseon facility opened in 1993. See id. at 155 & n. 3 (highlighting "the absence of evidence" from years "prior to 1994"). Thus, while two consecutive years of wage increases might be enough to establish a term of employment when that span constitutes 100 percent of the record evidence, it will not suffice when the employer's history dates back further. As statisticians know, a sample must be representative for inferences drawn from it to be valid. And we know that one way to reduce errors is to increase the size of the sample. In determining whether an established practice existed at Arc Bridges, the Board was not free to discount evidence contradicting the practice. See 29 U.S.C. § 160(e); Universal Camera Corp. v. NLRB, 340 U.S. 474, 488, 71 S.Ct. 456, 95 L.Ed. 456 (1951) ("The substantiality of evidence must take into account whatever in the record fairly detracts from its weight."). To do so in the face of a record such as this one was nothing short of arbitrary.
We therefore grant the petition for review, deny the cross-petition for enforcement, and set aside the Board's order. We also remand the case for further proceedings, in light of the Board's decision to reserve judgment on the Wright Line theory. See Micro Pac. Dev., Inc. v. NLRB, 178 F.3d 1325, 1336 (D.C.Cir. 1999).
So ordered.