Hawaiian Dredging Construction Co. v. National Labor Relations Board

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 10, 2017 Decided May 26, 2017

No. 15-1039

HAWAIIAN DREDGING CONSTRUCTION COMPANY, INC.,
PETITIONER

v.

NATIONAL LABOR RELATIONS BOARD,
RESPONDENT

INTERNATIONAL BROTHERHOOD OF BOILERMAKERS LOCAL
627,
INTERVENOR

Consolidated with 15-1424

On Petition for Review and Cross-Application
for Enforcement of an Order of
the National Labor Relations Board

Barry W. Marr argued the cause for petitioner. With him
on the briefs was Megumi Sakae.

David Casserly, Attorney, National Labor Relations Board,
argued the cause for respondent. On the brief were Richard F.
Griffin, Jr., General Counsel, John H. Ferguson, Associate
General Counsel, Linda Dreeben, Deputy Associate General
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Counsel, Usha Dheenan, Supervisory Attorney, and Marci J.
Finkelstein, Attorney.

David A. Rosenfeld argued the cause and filed the brief for
intervenor International Brotherhood of Boilermakers Local 627
in support of respondent. Caren P. Sencer entered an
appearance.

Before: ROGERS and MILLETT, Circuit Judges, and
SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Section 8(f) of the National Labor
Relations Act, 29 U.S.C. § 158(f), allows employers in the
construction industry to enter into pre-hire agreements with
unions without a showing that a majority of their employees
support the union. M&M Backhoe Serv., Inc. v. NLRB, 469 F.3d
1047, 1048 (D.C. Cir. 2006); Nova Plumbing, Inc. v. NLRB, 330
F.3d 531, 534 (D.C. Cir. 2003). Absent the usual statutory
obligation of the parties to maintain the status quo upon
expiration of their collective bargaining agreement, until
impasse or a new agreement is reached, the Board had to
determine whether the Hawaiian Dredging Construction
Company’s discharge of its welders, after their Section 8(f)
agreement had expired, was motivated by an intent to
discriminate in violation of the employees’ statutory rights, or
reflected the company’s long-standing business practice to rely
on union hiring halls under Section 8(f) agreements for craft
employees. The Board ruled the company violated Sections
8(a)(3) and (1) of the Act by terminating the welders because of
their union membership. The company petitions for review,
contending that the Board’s analysis under its own precedent is
flawed and unsupported by substantial evidence. Because the
Board failed to adequately address record evidence regarding the
 3

company’s understanding of its twenty-year practice and
appears to have strayed from its precedent, we grant the petition
for review, deny the Board’s cross-application for enforcement
of its Order, and remand the case to the Board.

I.

In 1959, Congress amended the National Labor Relations
Act, to address specific needs of the construction industry. The
Act had been “developed without reference to the construction
industry,” NLRB v. Local Union No. 103, Int’l Ass’n of Bridge,
Structural and Ornamental Iron Workers, AFL-CIO, 434 U.S.
335, 348 (1978) (quoting H.R. Rep. No. 741, 86th Cong., 1st
Sess., at 19 (1959)), and yet “[r]epresentation elections in a large
segment of the industry [were] not feasible to demonstrate . . .
majority status due to the short periods of actual employment by
specific employers.” Id. at 349 (quoting S. Rep. No. 187, 86th
Cong., 1st Sess., at 55 (1959)). In order to allow an employer
primarily engaged in construction work to “know his labor costs
before making the estimate upon which his bid [for a project]
will be based,” and to ensure employers in the construction
industry “have available a supply of skilled craftsmen ready for
quick referral,” id. at 348 (quoting H.R. Rep. 741 at 19),
Congress provided, subject to exceptions not at issue here:

It shall not be an unfair labor practice . . . for an
employer engaged primarily in the building and
construction industry to make an agreement covering
employees engaged . . . in the building and
construction industry with a labor organization of
which building and construction employees are
members . . . because (1) the majority status of such
labor organization has not been established . . . or (2)
such agreement requires as a condition of employment,
membership in such labor organization . . . or (3) such
 4

agreement requires the employer to notify such labor
organization of opportunities for employment with
such employer, or gives such labor organization an
opportunity to refer qualified applicants for such
employment, or (4) such agreement specifies minimum
training or experience qualifications for employment[.]

29 U.S.C. § 158(f). By contrast, under typical collective
bargaining agreements, the parties have an obligation, upon
expiration of their agreement, to bargain in good faith and to
maintain the status quo as to all mandatory subjects of
bargaining until they reach a new agreement or an impasse. See
Oak Harbor Freight Lines, Inc. v. NLRB, No. 14-1226, 2017
WL 1556126, at *1 (D.C. Cir. May 2, 2017) (citing, inter alia,
NLRB v. Katz, 369 U.S. 736, 743 (1962)); see also M&M
Backhoe Serv., 469 F.3d at 1048.

Hawaiian Dredging is the largest general contractor in the
State of Hawaii, employing around 375 craft labor employees to
work on renovation, foundation, power, and industrial projects.
As a member of the Association of Boilermakers Employers of
Hawaii, the company has performed its craft work pursuant to
Section 8(f) pre-hire collective bargaining agreements. As of
2010, such agreements had existed for at least twenty years with
the International Brotherhood of Boilermakers, Iron Ship
Builders, Blacksmiths, Forgers, and Helpers, Local 627
(“Boilermakers”). The parties’ latest agreement expired on
September 30, 2010.

On October 1, the Boilermakers notified the company of
availability to continue negotiation, attaching a letter from
counsel that because the parties’ Section 8(f) agreement had
expired its members were free to cease working without notice.
Some members of the Boilermakers refused to work that day,
but resumed work on Monday, October 4. On October 8, the
 5

parties reached an interim agreement to extend the terms of the
expired agreement through October 29 and to make the new
collective bargaining agreement retroactive to September 30,
2010. Negotiations for a new collective bargaining agreement
continued after October 29, however, with the parties
disagreeing over inclusion of certain benefits. On November 1,
2010, the Boilermakers sent the company the terms of a new
collective bargaining agreement. Tom Valentine, the company’s
senior manager, responded that the parties had not agreed to two
provisions included by the Boilermakers. Further negotiations
ensued.

On November 12, Valentine sent the Boilermakers what he
understood was their final agreement but the Boilermakers
refused to sign it, requesting changes that the company thought
had already been negotiated. The company filed an unfair labor
charge with the National Labor Relations Board based on the
Boilermakers’ refusal to sign the November 12 collective
bargaining agreement as a failure to bargain in good faith by
attempting to add employee benefits without negotiation. The
same day, December 6, 2010, the Boilermakers refused to honor
a dispatch request for members to work on the company
projects. Valentine emailed the Boilermakers business
representative: “I do not understand the reason for this failure to
honor the dispatch. We have a disputed contract and our
position has always been that upon resolution the contract would
be retroactive to October 1, 2010.” Email from Tom Valentine
to Gary Aycock (Dec. 6, 2010). As of six days later, Valentine
reported to company management, the Boilermakers had timely
responded to only one of the company’s thirteen requests for
workers, and that the delays were “impacting our ability to
respond to customer needs and plan upcoming work.” By
December 16, the company determined that the Boilermakers
had failed to dispatch workers for 24 twelve-hour shifts.
 6

On February 14, 2011, the Board’s Regional Director in
Honolulu dismissed the company’s charge against the
Boilermakers, finding that there was no complete agreement on
the terms of the successor collective bargaining agreement, and
therefore the Boilermakers’ refusal to sign the November 12
agreement was not an unfair labor practice. The company did
not appeal. Instead, by letter of February 17, 2011, the company
terminated its relationship with the Boilermakers, stating that
“based upon [the] Regional Director’s finding” that no current
agreement exists, and since their prior agreement had terminated
September 30, 2010, the company “does not intend to utilize
members of the Boilermaker’s Union for future work.” The
letter, signed by Valentine, as Chairman of the Association of
Boilermaker Employers of Hawaii, also stated the company had
previously hoped to reach a new agreement but that the
Boilermakers did “not appear to be genuinely interested in
continuing a partnership between its members and Hawaii
contractors.” The same day the company temporarily ceased
performing all welding work.

Within a week, the company entered into a Section 8(f)
agreement with the United Association of Journeymen and
Apprentice Plumbers & Pipefitters of the U.S. & Canada, Local
675 (“Pipefitters”). Under the collective bargaining agreement,
Boilermakers members could continue to work for the company
only if they became members of the Pipefitters. The company
offered assistance to the discharged employees in the form of
tools, equipment, and coaching to assist their efforts to pass the
Pipefitters test; eight of the thirteen discharged employees
ultimately resumed work for the company as members of the
Pipefitters.

On May 12, 2011, the Boilermakers filed a charge with the
Board, alleging that the company had violated Sections 8(a)(3)
and (1) of the Act by terminating the thirteen welders because
 7

they were members of the Boilermakers, and sought
reimbursement for the wages they would have earned absent the
company’s unlawful discrimination. An Administrative Law
Judge (“ALJ”), after an evidentiary hearing, found no statutory
violation in “the unique factual circumstances present in this
case.” ALJ Dec. 25 (Feb. 4, 2013). The Board reversed, with
one member dissenting. A majority of the Board found the
discharges were unlawful under both Wright Line, 251 NLRB
1083 (1980), and NLRB v. Great Dane Trailers, Inc., 388 U.S.
26 (1967). Critical to its analysis was rejection of the ALJ’s
finding that company officials believed the company only hired
craft workers under collective bargaining agreements. As the
Board stated: “Upon examination of the full record, . . . we are
not persuaded that the [company] so strictly adheres to that
practice [of having current craft contracts] that it would have
discharged the discriminatees on that basis alone.” Dec. 3 (Feb.
9, 2015). It identified two periods when the company
“knowingly operated without an agreement in place:” (1) from
October 1, 2010, when the parties’ agreement expired, until
October 8, 2010, when they agreed to extend the expired
contract’s terms to October 29 and the company “continued to
perform craft work during that week-long period;” and (2) from
October 30, 2010, to November 12, 2010, when the company
thought the parties had negotiated a successor agreement. Id. at
3–4. As for Great Dane, the Board concluded that the company
had failed to show that it was necessary to discharge rather than
lay off the discriminatees when it temporarily ceased welding
operations. Id. at 7 n.14.

Member Miscimarra dissented. He viewed the two “gaps”
to be less compelling than his colleagues. Not only were there
continuing agreements between the parties “by tacit agreement,”
Dis. Op. 15, he concluded that “[e]ven assuming there was a
brief gap of less than a week in [the company’s] decades-long
practice of performing all craft work under collective bargaining
 8

agreements,” this did not defeat its defense because, as the ALJ
found, the discharges were permissible under Great Dane and
Wright Line. Id. at 15 n.33. The Board responded that the
dissent had overlooked the parties’ disagreement about the
existence of an agreement during the first gap and the absence
of corroboration for a tacit agreement during the second gap.
See Dec. 3–4.

II.

The company petitions for review of the Board’s decision
and order, contending that the Board’s decision that it violated
Sections 8(a)(3) and (1) of the Act is not supported by
substantial evidence of an unlawfully motivated discharge under
Wright Line or “inherently destructive” conduct under Great
Dane.

The court’s “role in reviewing an NLRB decision is
limited,” Wayneview Care Ctr. v. NLRB, 664 F.3d 341, 348
(D.C. Cir. 2011), and “a decision of the NLRB will be
overturned only if the Board’s factual findings are not supported
by substantial evidence, or the Board acted arbitrarily or
otherwise erred in applying established law to the facts of the
case,” Pirlott v. NLRB, 522 F.3d 423, 432 (D.C. Cir. 2008)
(internal quotations omitted). See also Consol. Edison Co. of
N.Y. v. NLRB, 305 U.S. 197, 217 (1938); Universal Camera
Corp. v. NLRB, 340 U.S. 474, 477 (1951). An agency decision
is arbitrary when it “entirely failed to consider an important
aspect of the problem” or “offered an explanation for its
decision that runs counter to the evidence before the agency.”
Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983). The Board’s decision, therefore,
must “enable [the court] to conclude that [its action] was the
product of reasoned decisionmaking,” id. at 52, in part because
the Board “engage[d] the arguments raised before it,” Del. Dep’t
 9

of Natural Res. & Envtl. Control v. EPA, 785 F.3d 1, 11 (D.C.
Cir. 2015) (internal quotations omitted), including those of a
dissenting member, see Chamber of Commerce of U.S. v. SEC,
412 F.3d 133, 144–45 (D.C. Cir. 2005); Contractors’ Labor
Pool, Inc. v. NLRB, 323 F.3d 1051, 1061 n.6 (D.C. Cir. 2003).

Because of the distinct features of Section 8(f) pre-hire
agreements, employer-union disputes in the construction
industry do not necessarily track similar disputes in other
industries. Here, the Board was confronted with deciding
whether the company’s discharge of members of the
Boilermakers constituted unlawful discrimination or reflected
adherence to its business model of requiring all craft work to be
performed under Section 8(f) agreements. Recognizing that the
answer turned on the company’s motive, the Board applied its
two-stage analysis under Wright Line. The General Counsel
“bears the initial burden” to make a prima facie showing
sufficient to support the inference that protected conduct was a
motivating factor in the employer’s decision to take the adverse
employment action; the employer may then rebut the inference
by showing that it would have taken the same action absent the
protected conduct. Laro Maint. Corp. v. NLRB, 56 F.3d 224,
228 (D.C. Cir. 1994). See also Earthgrains Co., 338 NLRB
845, 849 (2003); Wright Line, 251 NLRB at 1089. The Board
concluded that the existence of protected activity and the
employer’s knowledge of that activity were undisputed, and a
majority of the Board concluded that animus and nexus were
“readily established” by the company’s “summary discharge of
all of its Boilermakers-represented employees, and only its
Boilermakers-represented employees.” Dec. 3. While
acknowledging the company’s position that its business model
for all craft work was the reason for the discharges, and not the
welders’ union affiliation, the majority concluded, in view of the
periods when the company continued to perform craft work
without a Section 8(f) agreement, that the company failed to
 10

rebut the inference of discriminatory intent. Id. at 4.

The company challenges the Board’s application of the first
two elements of its Wright Line standard, see Earthgrains, 338
NLRB at 849, on the ground that the Boilermakers were not
engaged in protected activity. In the company’s view, the Board
erred in making an “assumption . . . based on its unsupported
belief that the welders’ union affiliation was itself protected
union activity,” when such a rule does not exist and would
render the first two elements of the Wright Line test “illusory
elements that the General Counsel essentially never has to
prove.” Pet’r/Cross-Resp’t Br. 29–30. There is little precedent
on whether union membership alone is protected activity under
Wright Line. The company relies on Midwest Television, Inc.,
343 NLRB 748 (2004). But in that case the discharge of the
union member was not based on his involvement in protected
activity, id. at 751, whereas here the welders’ Boilermakers
membership was referenced in Valentine’s February 17 letter
regarding their discharge.

The court need not resolve whether union membership per
se is protected activity under Wright Line because, in light of the
company’s challenge to the remaining elements of the Wright
Line standard — animus and nexus, see Earthgrains, 338 NLRB
at 849 — the Board’s consideration of the evidence in finding
Section 8(a)(3) and (1) violations is, at this point, problematic.
Section 8(a)(3) provides, in relevant part:

It shall be an unfair labor practice for an employer . . .
by discrimination in regard to hire or tenure of
employment or any term or condition of employment
to encourage or discourage membership in any labor
organization[.]
 11

29 U.S.C. § 158(a)(3). Subsection (1) provides it shall be an
unfair labor practice for an employer to interfere with
employees’ Section 7 rights, including to join or assist a union.
Id. at § 158(a)(1). In American Ship Building Company v.
NLRB, 380 U.S. 300 (1965), the Supreme Court emphasized that
it has “consistently construed [Section 8(a)(3)] to leave
unscathed a wide range of employer actions . . . even though the
act committed may tend to discourage union membership.” Id.
at 311. The Court explained “[s]uch a construction of § 8(a)(3)
is essential if due protection is to be accorded the employer’s
right to manage his enterprise.” Id. Although both
discrimination and a resulting discouragement of union
membership must be shown under Section 8(a)(3), the Court
observed that “[i]t has long been established that a finding of
violation . . . will normally turn on the employer’s motivation.”
Id.

So too here, in the Section 8(f) context, as the Board
acknowledged in viewing Wright Line to provide the relevant
analysis. Although conduct by the employer can “carr[y] with
it an inference of unlawful intention so compelling that it is
justifiable to disbelieve the employer’s protestations of innocent
purpose,” id. at 311–12, the Board’s conclusion fails adequately
to address the evidence before it and the unique legal framework
of a Section 8(f) pre-hire agreement. The ALJ’s decision appears
to present a classic analysis of how Section 8(f) agreements
work in the construction industry. Emphasizing the unique
context in which the Boilermakers’ charge arose, the ALJ
distinguished the usual circumstances in which Great Dane and
its progeny had been applied, namely, in “strikes, lockouts, and
other actions where the parties have some sort of continuing
obligation to each other.” ALJ Dec. 23. “This case occurs in a
very different context that derives from the unique nature of the
construction industry.” Id. The ALJ observed that “consistent
with its longstanding practice, the [company] refused to go
 12

‘open shop’ and would only employ craft workers who were
affiliated with a union and were operating under a [collective
bargaining agreement], regardless of any particular union
affiliation.” Id. “Against this unusual factual backdrop,” the
ALJ found the company’s conduct was not “inherently
destructive” of important employee rights because there was no
future bargaining going on at the time of the discharges, which
therefore did not hinder future bargaining. Id. The ALJ also
found the company did not distinguish between employees
based on their protected activity, but instead laid off the welders
“because they were no longer working under a contract, not
because they were members of the Boilermakers.” Id. The ALJ
recognized, however, that “the transition was not seamless.”
Nonetheless, the company had acted quickly “and its managers
clearly prioritized the continued employment of the alleged
discriminatees without regard to whether they were still
members of the Boilermakers.” Id. at 24. The ALJ further
recognized that being a member of the Boilermakers and the
lack of a contract went “hand in hand.” Id. Under the
circumstances, however, the company’s action was not Section
8(a)(3) discrimination. Id. That “employees suffered economic
disadvantage because of their union’s insistence on demands
unacceptable to the [company]” was par for the course in
bargaining disputes and not Section 8(a)(3) discrimination
“absent some unlawful intention.” Id.

Further, the ALJ found, even assuming the company’s
conduct was inherently destructive of employees’ statutory
rights, that the adverse effect on those rights was “comparatively
slight” because no welding work was done between February 17
and March 1, 2011, when the first employee was sent under the
Pipefitters’ Section 8(f) agreement; once that agreement was in
place, the company had “facilitated returning the employees to
work . . . on a nondiscriminatory basis.” Id. at 23. See also id.
at 24. Crediting testimony from the company’s president and
 13

Valentine, the ALJ concluded that “[n]either the Acting General
Counsel nor the Union has refuted the [company’s] evidence
that, for at least the past 20 years, it has exclusively relied on the
union hiring halls to provide labor to it under [collective
bargaining agreements] governed by Section 8(f).” Id. at 24.
And rejecting the General Counsel’s other arguments, the ALJ
observed that “there is no hint that the [company] was
discouraging union activity or any rights protected under the
Act.” Id. at 25. Additionally, the ALJ concluded that the
Boilermakers’ case would fail under Wright Line (which was not
argued by the parties), because even assuming protected conduct
was a motivating factor, the company’s “requirement to have its
craft work performed pursuant to [Section 8(f) collective
bargaining agreements] is a legitimate nondiscriminatory reason
for its actions, and the Acting General Counsel has not presented
evidence to show this was pretext.” Id. at 24 n.9.

The Board does not appear to have rejected the ALJ’s view
that the construction industry presents unique circumstances for
purposes of determining Section 8(a)(3) and (1) violations. Yet
the Board never confronted the evidence relied on by the ALJ as
to nexus and animus, namely that the company’s Section 8(f)
agreements contemplated implied agreements during gap
periods and overwhelmingly showed that the company’s
conduct was inconsistent with discouraging union membership,
much less Boilermakers membership. Given the evidence on the
nature of the company’s twenty-year practice under its business
model, as found by the ALJ and discussed by the dissenting
member, and the evidence credited by the ALJ relevant to the
company’s motive, the Board failed adequately to explain its
conclusion that the gap periods defeated the company’s defense
and the company would not discharge craft employees where no
current Section 8(f) agreement existed and the company had no
expectation of a new agreement with the Boilermakers.
 14

The Board did not ignore entirely the company’s arguments
or the dissenting member’s views. See, e.g., Dec. 4, 6. But it
never confronted the critical point that, in view of the evidence
regarding the company’s twenty-year practice, and the
company’s credited evidence, the Board was giving
inappropriate emphasis to the gap periods. For instance,
Member Miscimarra, echoing the company’s arguments,
concluded as to animus and nexus that the Board had “fail[ed]
to appreciate the nature of the [company’s] collective-bargaining
relationships, which historically had been ‘very cooperative,’”
and the fact that “[t]he evidence shows that in practice, the
[company] and the unions with which it partners have treated
hiatus periods between 8(f) contracts as contract extensions.”
Dis. Op. 14. He explained,

even assuming there was a brief gap of less than a
week in [the company’s] decades-long practice of
performing all craft work under collective bargaining
agreements . . . this cannot reasonably be regarded as
defeating [the company’s] Wright Line defense. Under
the majority’s view, the only way the [company] could
establish a valid Wright Line defense would have been
to immediately cease all welding work the very
moment the 2005–2010 [Section 8(f) collective
bargaining agreement] expired, but this would have
been contrary to [the company’s] long history of
bridging such hiatus periods cooperatively.

Id. at 15 n.33. The Board has no response to this contradiction
in its analysis. Its response was limited to the gap periods. Dec.
3–4.

Under Wright Line, evidence of a good faith belief suffices
to establish a defense, even if the belief is erroneous. See, e.g.,
Sutter East Bay Hosps. v. NLRB, 687 F.3d 424, 435–36 (D.C.
 15

Cir. 2012). The Board’s current analysis under Wright Line
offers no adequate reason to conclude that even if company
officials were mistaken factually about their history, their belief
was insufficient to rebut the inference of discriminatory motive.
See id. The ALJ credited the company’s testimony that they had
— or at least they believed that they had — performed all craft
work in the last twenty years under Section 8(f) agreements.
The ALJ concluded therefore that the company had presented in
rebuttal legitimate and substantial business justifications for its
action, distinguishing Board precedent on which the General
Counsel and the Boilermakers relied. See ALJ Dec. 24–25. The
Board, of course, was not required to reach the same conclusion
as the ALJ, but so far it has not adequately engaged the record
evidence, and by not doing so it had failed to “exercise[] its
judgment in a reasoned way.” U.S. Sugar Corp. v. EPA, 830
F.3d 579, 652 (D.C. Cir. 2016).

The Board’s alternative analysis under Great Dane also
provides no basis for denying the company’s petition. The
Board found that the company’s conduct “was inherently
destructive of [Boilermakers members’] right to membership in
the union of their choosing, unencumbered by the threat of
adverse employment action.” Dec. 5. The company’s February
17 letter terminating its relationship with the Boilermakers does
include a sentence referencing Boilermakers membership but
that supports the Board’s view only if it is extracted from what
else was stated in the letter and record evidence, including the
company’s twenty-year practice with Section 8(f) agreements.
The Board did state “[e]ven assuming . . . that the [company]
discharged the alleged discriminatees because there was no
collective-bargaining agreement in place,” that it “would still
find that this justification did not outweigh the harm done to the
employees on account of their union affiliation.” Id. at 6. But
no exception was filed to the ALJ’s finding that the discharges
had only a comparatively slight adverse impact. Id. at 7 n.14.
 16

Neither did the Board find that the company’s business model
was designed to, nor in fact operated to, single out particular
unions for discriminatory treatment without regard to the
absence of a current collective bargaining agreement. Other
than referencing the two gaps and the parties’ disagreement
during their negotiations, the Board appears to have offered no
reason for rejecting evidence that the company’s conduct was
only plausibly “inherently destructive” if the welders were
separated because of their union membership, rather than — as
the ALJ found — because of the expiration of their contract.

Accordingly, because the Board’s analysis failed to engage
with evidence credited by the ALJ in the context of Section 8(f)
for purposes of determining whether the company violated
Sections 8(a)(3) and (1), we grant the petition for review, deny
the Board’s cross-application for enforcement of its order, and
remand the case to the Board for further consideration.