NLRB Allows Employer to Change Past Practice on Wage Increases Without Bargaining to Impasse

The Bush Board handed employers a major victory by holding that an employer did not violate Section 8(a)(5) when it changed its system of granting wage increases without first bargaining to impasse with its newly-certified union. TXU Electric Co., 343 NLRB No. 132 (2004). In every year from 1978 to 1999, the employer performed a wage review in which it considered a number of factors (e.g., market condition and employee retention). Every December, the employer granted a wage increase based on that year's wage review. The amount of the wage increase was left to the employer's discretion - there was no objective formula for reaching it.

The union won an election in February 1999 to represent some of the employer's employees. During bargaining in May 1999, the employer notified the union that it planned to conduct its annual wage review, but that it would not apply the new review to unionized employees. The employer told the union that it planned to apply the new review to nonunion employees only. The union did not expressly object. Importantly, however, the parties did not bargain to impasse or agreement by December 1999. In December 1999, the employer granted wage increases to nonunion employees under the new 1999 review (resulting in a 3.6% wage increase). In contrast, the employer applied its old 1998 review to unionized employees and paid them accordingly (resulting in a lower wage increase).

The union filed an unfair labor practice charge, and the Board's General Counsel issued a complaint alleging that the employer bargained in bad faith by changing a term or condition of employment without first bargaining to impasse.

In a 2-1 decision, the Board majority (Chairman Battista and Member Schaumber) held that the employer acted lawfully when it departed from past practice by refusing to apply the new 1999 wage review to its unionized employees. The Board found that the employer satisfied its bargaining obligation by giving the union notice of its intended change and an opportunity to bargain about it. The Board explained that:

"We agree with the concurring opinion in Daily News of Los Angeles, 315 NLRB at 1244, that where, as here, a discrete event occurs every year at a given time, and negotiations for a first contract will be ongoing at that time, an employer can announce in advance that it plans to make changes as to that event. '[T]he employer's bargaining position may be to continue the practice for that year, to modify it, or to delete it for that year.' As long as the union is given advance notice and an opportunity to bargain as to those matters, the employer can carry out the changes even if there is no overall impasse at as of the time of the change."

TXU Electric, 343 NLRB No. 132, slip op. at 4.

The Board majority explained that the anniversary date for action was fast approaching and the employer had to do something with respect to wage increases without waiting for an impasse. The Board held that an employer facing such a dilemma satisfies its bargaining obligation by giving notice and an opportunity to bargain before proceeding with the change.

Member Walsh dissented vigorously, describing the majority's holding as "a radical and unjustifiable departure from the Board's overall impasse rule." He voted to find that the employer had violated Section 8(a)(5). Walsh described the employer's wage system as having fixed aspects (criteria and timing) and discretionary aspects (the amount of the increase). He would not allow the employer to change the fixed aspects of its past practice without first bargaining to impasse. He would, however, permit the employer to take action on the discretionary aspect after giving notice and an opportunity to bargain.

I think that the dissent has the better view here. The general rule is that an employer may not change terms or conditions of employment without first bargaining to impasse or agreement. The rationale behind the impasse rule is that unilateral action prior to impasse undermines the collective bargaining process by removing issues from the bargaining table and by painting the union as impotent.

In TXU Electric, the Board has recognized an exception to the impasse rule where the term or condition of employment is a discrete, recurrent event that involves some amount of employer discretion. The majority's justification for its exception is that an employer faces a dilemma when the annual time for action rolls around. It must take some action on that date even though impasse has not occurred. Thus, the majority relies on necessity as its justification for the exception to the general impasse rule in this situation.

Member Walsh is quite right, however, to point out that the employer faces a dilemma only with respect to the discretionary aspect of its annual wage review program. Its 22-year practice provided a clear guide as to what to do regarding the fixed aspects: conduct the annual wage review using the fixed criteria and adjust wages (leaving aside amount) at the fixed time, December. The employer faced the dilemma only with respect to the amount of the wage increase. When December rolled around it had to set an amount even though it had not yet bargained to impasse or agreement. The Board majority found that the employer's dilemma as to the amount of wages privileged it to change the entire program (both fixed and discretionary aspects). In fact, the majority opinion would have allowed the employer to have entirely eliminated its wage review program ("[T]he employer's bargaining position may be to continue the practice for that year, to modify it, or to delete it for that year.").

Member Walsh persuasively argues that the employer's dilemma regarding the amount of the increase necessitates an exception to the impasse rule only as to that subject. He suggested that the dilemma does not privilege the employer to unilaterally change the fixed aspects of the past practice. In short, the exception, justified as it is by necessity, should be narrowly tailored to allow the employer to escape its dilemma but otherwise bind it to its established past practice.

TXU Electric is a significant decision. Many, if not most, employers have a system of granting wage increases on an annual basis in some discretionary amount. TXU Electric holds that newly-unionized employers do not violate Section 8(a)(5) if they provide notice and an opportunity to bargain before departing from that past practice. The employer's action in TXU Electric can have two powerful effects: it places a considerable amount of bargaining pressure on the new union, and it has the potential to foment dissatisfaction with the new union.

I will note that there is another obstacle for employers who want to respond to unionization by discontinuing a past practice of granting annual wage increases that are discretionary in amount. Section 8(a)(3) prohibits employers from discriminating to discourage union membership. In its decision, the Board noted that the General Counsel failed to argue that the employer engaged in unlawful discrimination by maintaining its wage practice for nonunion employees while changing it for union employees.