United Steelworkers of America v. Reliance Universal Inc. of Ohio, 335 F.2d 891, 3rd Cir. (1964)
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Scribd Government DocsUnited Steelworkers of America v. Reliance Universal Inc. of Ohio, 335 F.2d 891, 3rd Cir. (1964)
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Scribd Government Docs335 F.
2d 891
UNITED STEELWORKERS OF AMERICA, Appellant,
v.
RELIANCE UNIVERSAL INC. OF OHIO.
No. 14834.
United States Court of Appeals Third Circuit.
Argued June 4, 1964.
Decided July 8, 1964.
David E. Feller, Washington, D. C. (Elliot Bredhoff, Jerry D. Anker,
Michael H. Gottesman, Washington, D. C., Philip H. Scheiding, Emil E.
Narick, Pittsburgh, Pa., on the brief), for appellant.
Charles C. Hewitt, Pittsburgh, Pa. (Eli Krivoshia, Jr., Thorp, Reed &
Armstrong, Pittsburgh, Pa., on the brief), for appellee.
Before BIGGS, Chief Judge, and HASTIE and GANEY, Circuit Judges.
HASTIE, Circuit Judge.
The matter in dispute on this appeal is whether a purchaser of an industrial
plant who has continued the operation substantially unchanged is free to impose
terms and conditions of employment in disregard of the collective bargaining
agreement which was in force between the seller and the union representing the
plant's employees at the time of the sale.
Prior to September 1963, Martin Marietta Corporation owned and operated a
concrete pipe plant in Bridgeville, Pennsylvania. For many years the appellant
union, United Steelworkers of America, had been the exclusive bargaining
representative of the workers employed at the Bridgeville plant. Its most recent
collective bargaining agreement was made with Martin Marietta in September,
1962, to "continue in effect until Midnight, July 21, 1964."
In March, 1963, the Federal Trade Commission ordered Martin Marietta to
divest itself of the Bridgeville plant, specifying that the divestiture should
include "all machinery, equipment, raw material, reserves, trade names,
contract rights, trade marks, and good will, connected therewith or a part
thereof". The Commission also directed that the divestiture be accomplished in
such a way that the Bridgeville plant could function as a "going concern" and
"an effective competitor".
4
In September, 1963, in compliance with the Commission's mandate, Martin
Marietta sold the Bridgeville plant as a going concern to Reliance Universal,
Inc.1 Since the sale Reliance has continued the Bridgeville operation without
significant change, employing substantially all of the operating, supervisory and
managerial personnel who were formerly employed by Martin Marietta.
However, Martin Marietta and Reliance incorporated in the contract of sale a
provision that that "Buyer shall not assume any obligation of the * * * [seller]
under any collective bargaining agreement * * *."
Thereafter, the union demanded that Reliance honor the outstanding collective
bargaining agreement. Reliance refused and the union struck the plant. The
union then brought this suit under section 301 of the Labor-Management
Relations Act, 29 U.S.C. 185, for a declaratory judgment that the collective
bargaining agreement in controversy is binding upon Reliance and for an order
directing arbitration of claimed violations of that agreement. Admittedly, the
collective bargaining agreement provides for the arbitration of such a dispute
concerning terms and conditions of employment as is presented here.
On cross motions for summary judgment and for dismissal, the district court
dismissed the complaint. 2 This appeal followed.
The district court applied familiar and traditional common law principles to this
case. It reasoned that the collective bargaining contract merely created those
personal rights and obligations between the contracting parties to which they
had expressed their consent. Reliance was a stranger to the contract. Moreover,
it did not voluntarily assume its predecessor's labor obligations when it
acquired the business, since it included in the purchase agreement an explicit
disclaimer of any such responsibility. Therefore, in the district court's reasoned
view, to impose the old owner's labor contract upon the new owner would be
"such a complete innovation that it cannot be regarded as a feature of federal
common law under 29 U.S.C. 185 [section 301 of the Labor-Management
Relations Act], but must await adoption through the legislative sanction of
Congress".
The district court's unwillingness to sanction the departure from traditional
common law analysis urged by the union is entirely understandable. However,
our situation is different. Less than two weeks after the decision below, the
Supreme Court decided John Wiley & Sons, Inc. v. Livingston, 1964, 376 U.S.
543, 84 S.Ct. 909, 11 L.Ed.2d 898. In that case the Court concluded that "in
appropriate circumstances" certain obligations may be imposed upon a new
owner of a business by reason of the collective bargaining contract of the
preceding owner. Our task is to determine in the light of the holding and the
rationale of the Wiley case, whether the circumstances here are such that
Reliance is bound to arbitrate issues covered by and arbitrable under the labor
contract of its predecessor in ownership and operation of the Bridgeville plant.
9
In the Wiley case, Interscience Publishers, Inc., a small publishing company,
had merged with a larger publisher, Wiley & Sons, Inc., which alone became
the surviving entity. Shortly thereafter Wiley closed the former Interscience
plant and transferred the activities and personnel of that enterprise to its own
larger plant. The union which represented the Interscience employees, under a
contract for a term which had not expired at the time of the merger, demanded
that Wiley respect seniority and pension rights, guarantees of vacation and
severance pay, and job security commitments set out in the Interscience labor
contract. Wiley refused and the union demanded arbitration of these issues, as
required by the terms of the Interscience contract. Wiley refused to arbitrate and
the union sued under section 301 to compel arbitration.
10
The Supreme Court held that the obligation to arbitrate claims of the type in
controversy, which clearly would have existed under the labor contract before
the merger, survived that event. So strong, in the Court's stated view, is the
federal policy in favor of amicable settlement of labor disputes by arbitration
that the emerging federal common law of labor relations requires a succeeding
proprietor of a business to take the business subject to a duty to arbitrate
grievances, the existence and scope of that duty being defined by whatever
unexpired labor contract governed labor relations there at the time of the
change in ownership. The Court avoided any expression of views upon any
possible effect of a transfer of ownership upon the merits of particular
substantive claims of workers, carefully restricting its ruling to the persistence
of a duty to arbitrate whatever issues were arbitrable before the transfer.
11
In one respect the union's case here is stronger than in Wiley. There the plant
was closed and its productive activity and some of its employees were absorbed
in a pre-existing larger plant. Obviously, difficulties might be experienced in
adapting plant wide commitments, which were appropriate for the closed plant
to the situation of employees transferred to and integrated into the work force in
another plant. Here, however, that problem does not exist because the original
operation remained intact. However, the two cases are different in another
detail which, in the new employer's view, should make the Wiley case
inapplicable here. Wiley was a merger case. In the present case the plant was
sold as a going concern. Appellee argues that a merger is a sort of succession in
which it is more reasonable to impose a carry over of obligations between labor
and management than in the case of an outright sale of a business. However, a
contrary view is clearly indicated by the following language of the Wiley
opinion:
12
"* * * It would derogate from `[t]he federal policy of settling labor disputes by
arbitration,' United Steelworkers of America v. Enterprise Wheel & Car Corp.,
363 U.S. 593, 596, 80 S.Ct. 1358, 1360, 4 L.Ed. 2d 1424, if a change in the
corporate structure or ownership of a business enterprise had the automatic
consequence of removing a duty to arbitrate previously established; this is so as
much in cases like the present, where the contracting employer disappears into
another by merger, as in those in which one owner replaces another but the
business entity remains the same." 376 U.S. at 549, 84 S.Ct. at 914.
13
Moreover, unless the original corporate operator and the corporation into which
it merges were already related before the merger, a fact which does not appear
in the Wiley opinion, the legal and equitable considerations involved in
imposing a predecessor's obligations upon an independent successor are no
different in a merger case than in a sale of business case. We have no doubt that
the result the court reached in the Wiley case would have been the same had
the transfer there been accomplished by a sale of the business instead of by
merger.
14
One important matter remains. The opposing parties here have argued for and
against the proposition that the collective bargaining agreement is unqualifiedly
binding upon Reliance, as would have been the case if there had been an
assignment or novation substituting Reliance as a party to the instrument. But,
in the Wiley case, the Supreme Court seems to have been careful to avoid so
broad a ruling.3 It merely reasoned and decided that federal labor law imposed
upon a succeeding proprietor a duty to arbitrate those questions which his
predecessor was bound to arbitrate under his labor contract. The fact that the
plant covered by the labor contract had been closed and its employees mingled
with other workers with independent and perhaps different rights at another
plant may well have influenced this careful limitation of the Wiley holding.
15
In any event, we find implicit in the guarded language of the Wiley opinion,
recognition and concern that new circumstances created by the acquisition of a
business by a new owner may make it unreasonable or inequitable to require
labor or management to adhere to particular terms of a collective bargaining
agreement previously negotiated by a different party in different circumstances.
Although the pre-existing labor contract indicates the structure of labor
relations and the established practice of the shop at the beginning of the new
proprietorship, an arbitrator of a subsequent complaint charging unwarranted
departure from that scheme may properly consider any relevant new
circumstances arising out of the change of ownership, as well as the provisions
of and practices under the old contract, in achieving a just and equitable
settlement of the grievance at hand. The requirements of the contract remain
basic guides to the law of the shop, but the arbitrator may find that equities
inherent in changed circumstances require an award in a particular controversy
at variance with some term or terms of that contract. We do not imply that any
departure from what was established under the old contract is justified by any
special circumstances of this case. We do not know. And, in any event, this is a
matter for the arbitrator's determination.
16
While this is not spelled out in the Wiley case, the power heretofore recognized
in arbitrators to achieve justice in situations not contemplated by or not
adequately covered in an existing collective bargaining agreement leads us to
believe that analogous power exists here. Cf. United Steelworkers of America
v. Warrior & Gulf Navigation Co., 1960, 363 U.S. 574, 80 S.Ct. 1347, 4
L.Ed.2d 1409; United Steelworkers of America v. Enterprise Wheel & Car
Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed. 2d 1424. And see Cox Reflections
on Labor Arbitration, 1959, 72 Harv.L.Rev. 1482, 1493-1498.
17
Our conclusion, therefore, is that the 1962 collective bargaining agreement, as
an embodiment of the law of the shop, remained the basic charter of labor
relations at the Bridgeville plant after the change of ownership. But, in the
arbitration of any grievance asserted thereunder, the arbitrator may properly
give weight to any change of circumstances created by the transfer of
ownership which may make adherence to any term or terms of that agreement
inequitable.
18
The judgment will be reversed and the cause remanded for further proceedings
consistent with this opinion.
Notes:
1
The appellee and present owner, Reliance Universal Inc. of Ohio, is a
subsidiary of Reliance Universal, Inc. For present purposes it is not important
that there has been a transfer of ownership between these corporations
2
3
A counterclaim by Reliance seeking damages for an illegal strike was also
dismissed. Reliance has not appealed
The Court of Appeals for the Ninth Circuit has viewed the Wiley case as
authority for making a pre-existing labor contract unqualifiedly binding upon a
new proprietor in a situation like ours. The Wackenhut Corp. v. International
Union, 332 F.2d 954, decided June 10, 1964
Common questions
Powered by AIAn arbitrator plays a crucial role in resolving grievances under a collective bargaining agreement after a change in business ownership. They evaluate any new circumstances resulting from the ownership change and consider the provisions and established practices of the previous agreement. The arbitrator is empowered to achieve equitable resolutions, bearing in mind both the old contract's terms and any significant changes in the business environment. This ensures justice in situations not fully contemplated by the initial agreement, with adjustments made when adherence to original terms is deemed inequitable .
The Supreme Court's decision in John Wiley & Sons, Inc. v. Livingston established that in appropriate circumstances, obligations may be imposed upon a new owner of a business due to the predecessor's collective bargaining contract. The appeals court used this precedent to determine whether Reliance was obligated to arbitrate the issues covered by the labor contract of the plant's previous owner. The Wiley case signaled a strong federal policy favoring arbitration to settle labor disputes, influencing the appeals court to consider the duty to arbitrate as surviving an ownership change in a business .
In the Wiley case, the Supreme Court did not distinguish between mergers and sales in terms of a new owner’s obligation to adhere to a predecessor’s collective bargaining agreement. The court indicated that a transfer of ownership should not automatically negate existing arbitration duties. Both mergers and sales involve changes in ownership where the duty to arbitrate as established in existing labor contracts should persist, stressing the federal policy favoring arbitration irrespective of whether the transaction is a sale or a merger. Therefore, the principles applied in Wiley are relevant to both scenarios, as the economic continuity and labor relations need to be preserved .
The Supreme Court emphasized a federal policy favoring arbitration in labor disputes to promote amicable settlement and reduce legal contention over labor issues. This approach is aimed at ensuring continuity and stability in labor relations even after changes in business ownership, such as mergers or sales. The court recognized that arbitration is a more efficient and practical method for resolving disputes compared to litigation, which aligns with the federal policy to encourage peaceful and collaborative negotiation frameworks within labor environments .
Enforcing certain terms of a pre-existing labor contract may become inequitable due to changes in operational circumstances, financial constraints, or workforce dynamics resulting from a business ownership change. For instance, if the new owner adopts different management practices, economic conditions shift, or the integration of new employees occurs, these factors could significantly alter the landscape within which the original contract was negotiated. In such cases, rigid adherence to the previous terms might be unfair to either party, and therefore, adjustments may be warranted by the arbitrator to reflect the new reality and preserve fair labor practices .
The district court relied on traditional common law principles, reasoning that the collective bargaining contract created personal rights and obligations only between the original contracting parties, to which they had consented. Since Reliance was a stranger to the contract and did not voluntarily assume the prior owner's labor obligations, the court decided it was not bound by the agreement. This decision was based on the notion that imposing the seller's labor contract on the buyer without legislative sanction would be a complete innovation rather than a feature of federal common law under 29 U.S.C. § 185 .
The 'law of the shop' refers to the established labor practices and principles contained within a collective bargaining agreement at a given workplace. This concept influences arbitration outcomes after a business ownership transfer by providing a foundational framework that guides dispute resolution. Despite new ownership, the existing agreement reflects the long-standing labor relations and practices that should be respected. However, arbitrators can consider new circumstances following a transfer and make decisions that ensure fairness and equity, offering flexibility within this structure to accommodate changes while maintaining labor stability .
The court believes that arbitration should include consideration of new circumstances following a business transfer to maintain fairness and accurately reflect the current operational environment. Arbitration structured only around pre-existing contracts may not account for significant changes brought by the new owner, such as reorganization, new practices, or altered business goals. By considering such changes, arbitration can ensure decisions are contextually relevant and equitable, maintaining balanced labor relations and upholding the spirit of collective bargaining .
The appellate court's decision reinforces the principle that labor protections, including the duty to arbitrate, can persist through changes in business ownership. This precedent upholds the significance of arbitration in resolving labor disputes, emphasizing that new owners may still inherit arbitration obligations under unexpired collective bargaining agreements. As a result, labor dispute resolution processes in similar ownership change cases might focus more on the continuity of labor terms and the equitable consideration of changes, promoting stability and predictability in industrial relations .
The explicit disclaimer in the purchase agreement, stating that Reliance would not assume any obligations under the seller’s collective bargaining agreement, was significant because it established Reliance’s intention not to be bound by prior labor agreements. Yet, this was challenged by the union because federal labor law, as interpreted by recent case law like Wiley, might override such disclaimers when considering the continuity of business operations and federal policy favoring arbitration. The union argued that the broader legal context imposes a duty to arbitrate unexpired contracts despite disclaimers, highlighting a legal tension between contract stipulations and federal labor policies ensuring stable labor relations .
