Davis v. National Labor Relations Board
617 F.2d 1264, 103 L.R.R.M. (BNA) 2965 (1980)
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Rule of Law:
An employer has a mandatory duty to bargain with a union over an economically motivated decision to change business operations if the change does not involve a major capital investment, does not fundamentally alter the nature of the enterprise, and directly concerns the terms and conditions of employment, such as the elimination of jobs.
Facts:
- L. E. Davis operated a Holiday Inn motel and its full-service restaurant in Benton, Illinois.
- The restaurant's six waitresses were represented by the Hotel and Restaurant Employees and Bartenders Union, Local 258.
- Faced with declining food sales, Davis closed the restaurant on September 18, 1976, without notifying the union of his plan.
- Davis intended to convert the facility to a self-service cafeteria to compete with local fast-food operators, and he laid off all kitchen and dining room employees.
- On September 24, 1976, the facility reopened as a cafeteria, eliminating the need for waitresses, who were formally notified of their layoff.
- Due to continued declining sales, in November 1976 Davis decided to lease the restaurant to Kent Hortin, the motel's Innkeeper.
- Hortin and his wife formed K-P Associates, hired new employees instead of the laid-off waitresses, and on January 3, 1977, reopened the facility as a full-service restaurant again.
Procedural Posture:
- The union filed an unfair labor practice charge against Davis with the National Labor Relations Board (NLRB).
- The NLRB's General Counsel issued a consolidated complaint alleging that Davis and the subsequent lessee, K-P Associates, violated the National Labor Relations Act.
- An Administrative Law Judge (ALJ) held a hearing and issued a decision, finding in favor of Davis on the duty to bargain issue.
- The NLRB, on review, disagreed with the ALJ's conclusion regarding the duty to bargain, finding that Davis had violated the Act.
- The NLRB also found that Davis and K-P Associates were 'joint employers' and had unlawfully refused to rehire the former employees.
- The NLRB issued an order requiring Davis and K-P Associates to cease and desist, reinstate the discharged employees, and provide back pay.
- Davis petitioned the U.S. Court of Appeals for review of the NLRB's order, and the NLRB cross-applied for enforcement of its order.
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Issue:
Does an employer's economically motivated decision to convert a full-service restaurant into a self-service cafeteria, which results in the termination of employees, constitute a mandatory subject of collective bargaining under the National Labor Relations Act?
Opinions:
Majority - Swygert, J.
Yes. An employer’s economically motivated decision to convert a full-service restaurant into a self-service cafeteria is a mandatory subject of collective bargaining. Applying the framework from Fibreboard Paper Products v. NLRB, the court found that the decision directly concerned a 'condition of employment' because it resulted in the termination of the waitresses. The court reasoned that bargaining would promote the Act's purpose of peaceful dispute resolution, particularly since the decision was based in part on labor costs, a matter 'peculiarly suitable for resolution within the collective bargaining framework.' Crucially, the conversion did not involve a significant capital investment or fundamentally alter the 'basic operation' of the restaurant; Davis operated in the same location with the same menu, merely replacing waitresses with customers to carry trays. Therefore, requiring Davis to bargain would not 'significantly abridge his freedom to manage the business.' The court also found that Davis and K-P Associates were not joint employers, as there was insufficient evidence of centralized control over labor relations.
Dissenting - Pell, J.
No. An employer’s decision to convert a restaurant's method of operation is a managerial decision at the 'core of entrepreneurial control' and not a mandatory subject of bargaining. The dissent argues that this decision was not a mere substitution of workers as in Fibreboard, but a fundamental change to the 'basic direction' of the enterprise made out of economic necessity. Citing Justice Stewart's concurrence in Fibreboard, the dissent contends that management decisions fundamental to the enterprise's direction, even if they result in job loss, are excluded from mandatory bargaining. The dissent also points to NLRB precedent, such as Vegas Vic, Inc., where the Board held that changing a bar's method of operation was a management prerogative. Finally, the dissent notes that even if bargaining were required over the effects of the decision, the union never made a proper demand to do so.
Analysis:
This decision refines the application of the Fibreboard doctrine to operational changes that fall short of a full or partial plant closure. It establishes that economically motivated managerial decisions are subject to mandatory bargaining if they do not entail significant capital investment or fundamentally alter the business's scope. The ruling narrows the scope of 'managerial prerogative' and strengthens a union's ability to negotiate over decisions that directly affect job security, especially when labor costs are a motivating factor and the core nature of the business remains unchanged. Future cases involving similar operational adjustments will likely balance the employer's capital investment and change in business scope against the impact on employment conditions.
