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The Taft-Hartley Act on Paying Union Officials Revisited in 2013

January 8, 2014

The Taft-Hartley Act, at 29 U.S.C. § 186, makes it a crime for an employer that is under contract with a private sector union, or an organization target of such a union, to pay to the union or a union official any “money or other thing of value,” unless certain exceptions apply.  The most notable exceptions are compensation for work performed for the employer, validly authorized dues deductions, and contributions to jointly-administered employee benefit plans.  An employer who is convicted of making such a payment, or a union official who is convicted of demanding or receiving it, can face up to five years in prison and a $15,000 fine.  The statute is criminally enforced by the U.S. Department of Justice, through its U.S. Attorneys’ Offices across the country.

From time to time, employers or others have sought to invalidate certain negotiated arrangements with unions as constituting “things of value” given to a union outside of the statute’s exceptions.  2013 was a banner year for such challenges, with two important decisions being handed down.

The first comes from the Seventh Circuit covering Illinois, Indiana and Wisconsin, Titan Tire Corp. v. USW, 734 F.3d 708 (7th Cir. 2013).  In Titan Tire, a panel of the Seventh Circuit overturned an arbitrator’s decision upholding the payment of full-time salaries to two union officials that was negotiated in the parties’ collective bargaining agreements and ratified by the membership.  A majority of the Seventh Circuit judges also denied rehearing en banc, over a vigorous dissent by the Chief Judge and two other members.

The Titan Tire panel rejected the reasoning of what many consider the leading case in this area, Caterpillar, Inc. v. UAW, 107 F.3d 1052 (3rd Cir. 1997).  In Caterpillar, the Third Circuit upheld the payment of full-time salaries by the employer to certain union officials because it had gone through the negotiation and member ratification process.  Because of this transparency, the Caterpillar court did not believe the arrangement to be the type of corruption outlawed by the Taft-Hartley Act.

In contrast, the Titan Tire panel concluded that the payment of full-time salaries to the two union officials in question, at the top rate in the collective bargaining agreement for 60 and 48 hours per week respectively, was “so incommensurate with [their] former employment [at Titan] as not to qualify as payments ‘in compensation for or by reason of’ that employment.”  734 F.3d at 712 (citations omitted).  Chief among the panel’s rationale for this ruling was that the two union officials in question also performed work for other non-Titan bargaining units in a local school district, yet their salaries were paid by Titan and Titan alone.

The second case ended in a non-decision by the U.S. Supreme Court, but still could have a far-reaching impact on unions’ efforts to organize new members.  It began in 2012, when the Eleventh Circuit, covering Alabama, Florida and Georgia, heard a case brought by an individual employee who challenged a neutrality agreement between his employer and a union as a violation of the Taft-Hartley Act.  See Mulhall v. UNITE HERE Local 355, 667 F.3d 1211 (11th Cir. 2012). 

Like other neutrality agreements, the one in Mulhall provided that the employer would give the union certain access to its employees and not oppose efforts to organize them.  The union agreed not to engage in any job actions against the employer, and also to support a public initiative to allow casino gambling at the employer’s location. 

In a 2-1 decision, a panel of the Eleventh Circuit held that the neutrality agreement could be challenged by the individual employee as a “thing of value” given in violation of the Taft-Hartley Act, if there was evidence of intent to corrupt the union or to extort from the employer.  Perhaps most important to the court’s reasoning was the $100,000 spent by the union in support of the casino initiative.  This suggested, at least to the majority, that a jury could find the employer’s neutrality in the organizing drive was in fact a criminal “thing of value” given to the union in exchange for such support.  The court remanded the case to the trial court for further proceedings into whether there was criminal intent behind the agreement.        

Before those proceedings could take place, however, the U.S. Supreme Court agreed to review the matter, and heard extensive oral arguments from the parties.  Ultimately, however, a majority of the Court dismissed its review as improvidently granted, but without any further comment.  See UNITE HERE Local 355 v. Mulhall, 2013 US LEXIS 9018 (Dec. 10, 2013).  

A dissent authored by Justice Breyer and joined by Justices Sotomayor and Kagan surmised that the dismissal was because (1) the neutrality agreement appeared to have expired before the Eleventh Circuit even ruled on the matter, and (2) prior Supreme Court cases strongly suggested that there was no private cause of action under the Taft-Hartley Act that someone like the individual employee in this case could bring.  The dissent argued that these issues should be further briefed, and that the matter should be decided since other Circuit Courts had upheld similar neutrality agreements against Taft-Hartley challenges.  In light of the Supreme Court’s inaction, it is unclear whether the further proceedings on criminal intent ordered by the Eleventh Circuit will take place, or if its decision will be the last word on the matter for its region.    

Interestingly, there were no criminal charges involved in either Titan Tire or Mulhall.  Just as curious, and troubling, is that both the Seventh and Eleventh Circuit Courts gave little weight to the fact that the agreements in question were negotiated at arms-length, and in Titan Tire also ratified by the membership.  Nonetheless, now that two Circuit Courts recently have endorsed Taft-Hartley challenges to labor-management agreements, and the Supreme Court has refused to weigh in on the matter, labor unions and their allies can expect more mischief in the courts surrounding this criminal statute.

Last, for our clients in the Third Circuit, it remains good law that an employer can pay compensation to a full-time union official, provided that the arrangement is negotiated in a collective bargaining agreement and ratified by the membership.  See Caterpillar, supra.  Similarly, the Third Circuit has rejected a Taft-Hartley challenge to a neutrality agreement, on the grounds that an agreed-upon procedure to streamline the union recognition process simply cannot be said to violate a statute that protects employees’ rights to organize and bargain collectively in the first place.  See HERE Local 57 v. Sage Hospitality Res., LLC, 390 F.3d 206 (3rd Cir. 2004).

If you have any questions about these cases or the Taft-Hartley Act in general, please contact one of the Firm’s Labor Attorneys.   

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