Can Labor Unions Threaten My Customers to Break their Contracts? - PhoenixCEOCFO.com

Can Labor Unions Threaten My Customers to Break their Contracts?

Can the labor unions use membership dues to subsidize my competition and threaten and picket to get my customers to break their contracts and replace my company with union contractors? Yes and no, such conduct by a union may violate both anti-trust and labor laws.

The Local Union No. 7 of the International Association of Bridge, Structural, Ornamental & Reinforcing Iron Workers ("the Union") was accused by five nonunion New England-based steel erectors of conspiring with union contractors to monopolize the structural steel industry in the Boston area and push nonunion steel erectors out of the market. The non-union steel erectors said the Union used mandatory union dues to subsidize bids by union contractors so that the union contractors could underbid the nonunion steel erectors on construction jobs. The Union was said to have told owners of projects that there would be "problems" on jobs if they did not hire union contractors. Those "problems" were said to include "project delays, increased financial costs, and property destruction." (The story behind American Steel Erectors, Inc. et al. v. Local Union No. 7, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Workers, 1st Cir. U.S. Ct. App., Aug. 1, 2008, would probably make a great novel or movie.)

According to the non-union steel erectors, the Union pressured owners, developers, general contractors and fabricators to break contracts with the non-union companies and replace them with union contractors. The Union would take amounts withheld from Union members' paychecks as dues and kick some of that money back to the union contractors to subsidize their bids on construction projects.

Labor accounts for about half of the cost of steel erection work and contractors who have entered into collective bargaining agreements to pay union-scale wages can be at a competitive disadvantage to nonunion contractors who are not bound to collective bargaining agreement minimum-wage scales. To counter the advantage of nonunion contractors being able to submit lower bids for steel erection contracts, the Union would target certain construction projects and offer subsidies to union contractors bidding on the projects so that the union employers could underbid the nonunion contractors.

The Union would also picket non-union steel erectors' jobsites and the non-union contractors' equipment was vandalized and stolen. The combination of threats, disruptive behavior and dues-financed subsidies caused several companies to break contracts with non-union steel erectors.

You may be thinking that there must be a law against manipulating the bidding on construction projects and conspiring to monopolize an industry. You may also be thinking that there must be a law against using union dues for such purposes. You may even think that using threats, vandalism and economic coercion to cause people to break contracts might be illegal. The non-union steel erectors in the Boston area thought so as well, which prompted the lawsuit against the Union and the union-shop contractors.
The non-union contractors alleged a conspiracy between the Union and the union contractors to pressure the steel fabricators to hire only union-shop steel erectors through threats, disruptive behavior, and the subsidies in violation of the Sherman Act. They also argued that the subsidies from the union dues constituted an unlawful restraint on trade because some of the union dues were from paychecks on public projects and the subsidies were used to allow underbidding of work on other public projects. They also alleged that the conduct by the Union was prohibited by the Labor Management Relations Act, which prohibits Unions from engaging in any unfair labor practices. The non-union contractors also alleged tortious interference with advantageous contractual and economic relations and violations of the Massachusetts Fair Business Practices Act.

The Federal District Court dismissed the state law claims as being preempted by federal law. The Court of Appeals agreed that the coercion alleged under state law was pre-empted by the "regulatory province" of the National Labor Relations Board.
The District Court also said that the subsidies by the Union with the union dues "was sheltered from antitrust liability by the statutory labor exemption . . . ." Moreover, the Union's use of subsidies with dues money to favor the union contractors was not coercive conduct prohibited by the Labor Management Relations Act. The Court of Appeals wasn't so sure about the District Court's rulings on the antitrust and labor law issues, however.

The Court of Appeals noted that there are both statutory and nonstatutory labor exemptions from antitrust laws, but stated: "Nonetheless, Unions, particularly when acting in concert with non-labor groups, are not given carte blanche to engage in anticompetitive activities." The Court quoted the U.S. Supreme Court saying:
It would be a surprising thing if Congress, in order to prevent a misapplication of [antitrust] legislation to labor unions, had bestowed upon such unions complete and unreviewable authority to aid business groups to frustrate its primary objective.
The Court's discussion of the labor exemptions from the antitrust laws goes on for pages and is mostly interesting to law professors and appellate lawyers. We won't bore you with it.

The Court noted that the non-union contractors had alleged a broad conspiracy between the Union, the union contractors, and the steel fabricators to shut open-shop nonunion contractors out of the steel erection market in the greater Boston area. The Court said that the nonunion contractors had alleged concerted union-employer action extending beyond the union dues subsidies. Because the allegations included collaboration in the identification of the target projects for the subsidies between both the Union and the union employers, a fact issue existed as to whether the labor exemption should apply. So the Court of Appeals remanded the case to the District Court for further fact-finding concerning the extent of the collaboration between the Union and the union contractors and construction companies and the alleged conspiracy to drive the nonunion employers out of the market.
With regard to the Labor Management Relations Act, the Court noted that "it is an unfair labor practice for a union to threaten, coerce, or restrain an employer with an object of forcing the employer (A) to join any labor or employer organization . . . , or (B) to cease doing business with another party." The Court again noted that the non-union contractors contended that the Union used coercive tactics, "including picketing, threats, and the lure of lucre to pressure fabricators and general contractors (i.e., "neutral employers" who do not themselves hire Local 7 members or have a collective bargaining relationship with Local 7) into agreements to hire only union erectors." Therefore, the Court of Appeals sent the Labor Management Relations Act claim back to the District Court for probable trial on the issues of the nature and extent of the Union's coercive tactics and whether those tactics pressured neutral employers into agreements to refrain from using nonunion contractors in violation of labor laws.

So while the nonunion contractors will not be able to pursue the state law claims against the Union and the contractors with union contracts, they will be able to pursue the antitrust and Labor Management Relations Act claims in hopes of being able to prove that the tactics allegedly being used to force them out of business are illegal.

While you may or may not care about the complexities of labor law, you should care a great deal about avoiding collusive anti-competitive behavior, bid-rigging, and improperly causing others to break their contractual relationships. If you need advice concerning what your company can and cannot do in the course of competing for business, please feel free to call me.

Michael R. King is a Partner with Gammage & Burnham which is a sponsor of the Phoenix CEO-CFO Group. Mike can be reached at (602) 256-4405 or mking@gblaw.com