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15-year dues-checkoff battle ends in unions' favor

9th Circuit rules employers must continue deducting dues during negotiations of new contracts

Richard McCracken, international counsel for Unite Here, has been a union lawyer for 37 years. For nearly half of his career, he has been litigating Local Joint Executive Board of Las Vegas v. NLRB.The case, colloquially known as Hacienda Hotel, concerns whether an employer must continue deducting union dues from employee paychecks after the expiration of a collective bargaining agreement (CBA).

In September, McCracken finally got the answer he’s been seeking since 1995. The 9th Circuit ruled that an employer must continue deducting dues during the negotiation of a new contract. At this point, the lawsuit is a matter of principle rather than practicality—the hotels from which the case arose, Hacienda Hotel and Sahara Hotel, were both sold in 1996.

“Hacienda Hotel was knocked down and replaced by Mandalay Bay Hotel,” McCracken says. “The Sahara’s new owner promptly entered into a collective bargaining agreement, and the union has had no problems with the new owners.”

Still, the case will have far-reaching significance for employers with unionized workforces. Prior to the 9th Circuit decision in Hacienda Hotel, automatic deduction of union dues (commonly called “dues-checkoff”) had been one of the rare exceptions to the general rule that employers cannot unilaterally change any terms of employment after the expiration of a contract without first bargaining to an impasse with the union.

Twisted History

Hacienda Hotel began in 1995, when the Las Vegas Culinary Workers Union and Bartenders Union sued the Hacienda Hotel, alleging that its unilateral decision to stop deducting union dues from paychecks while the parties negotiated a new contract was an unfair labor practice.

Hacienda relied on a term of the CBA that stated the dues-checkoff would be in effect “during the term of the agreement.” The union pointed to the 1962 case of NLRB v. Katz, in which the U.S. Supreme Court held that employers have a duty to bargain with the union before unilaterally changing conditions of employment under negotiation.

In Hacienda I, the National Labor Relations Board (NLRB) ruled in favor of Hacienda, relying on its 1962 decision in Bethlehem Steel, in which it found that “an employer’s obligation to continue a dues-checkoff arrangement expires with the contract that created the obligation,” an exception to the Katz rule. On appeal, the 9th Circuit vacated and sent the case back to the board, instructing it to provide a clearer rationale.

In Hacienda II, the board abandoned its reliance on Bethlehem Steel but reached the same result, finding that “the CBAs contained an express waiver of the right to continued dues-checkoff past the expiration of the CBA.” The union appealed tothe 9th Circuit again. The court rejected the board’s second decision, finding that the contract did not contain a “clear and unmistakable” waiver. It remanded the case again, with specific instructions to explain the rationale for the Bethlehem Steel rule, or to adopt a different rule.

That mandate was complicated by the fact that one board member, Craig Becker, recused himself from consideration of Hacienda III because he had worked on the case as an attorney for the Service Employees International Union before his appointment by President Obama. To change a precedent, the board needs a three-member majority. Two members favored overturning Bethlehem Steel; two wanted to uphold it. All agreed that the board couldn’t change the rule without a three-vote majority, so it simply cited again to Bethlehem Steel. That bought the case a third trip to the 9th Circuit, which lost its patience. 

Judge Richard Paez, writing for the unanimous panel, wrote that “although we must show deference to the Board in its promulgation of labor policy, a third open remand is inappropriate in this case because the Board, after more than fifteen years ... continues to be unable to form a reasoned analysis in support of its ruling.” The court ruled on the merits of the case, finding that the employer violated the National Labor Relations Act.

“It’s highly unusual for the court to make a determination on the merits,” says Greg Kamer, a partner at Kamer Zucker Abbott and a former NLRB attorney. “This is the 9th Circuit saying, ‘NLRB, get your act together.’”

Now, the case will be remanded to the NLRB for a determination of damages only. McCracken estimates that there is only about $500,000 at stake, comprising less than a year’s worth of dues that were not deducted, plus interest.

Future Change

The new rule takes a bargaining chip away from employers and removes an incentive that might spur unions to keep negotiations going.

“If you have dues deduction, you can’t stop deducting until you’ve bargained to an impasse,” Kamer says. “It often takes a long time to get to impasse. Meanwhile the union can be confident that it will continue to receive dues while negotiations are ongoing.”

However, the rule announced in Hacienda III may not be permanent. “The 9th Circuit left this open and explicitly said that the board may adopt a different rule in the future if it provides a reasoned basis,” points out Susan Schaecher, a member at Stettner Miller. “The court decided to bring closure. With the current transition in board membership, that was not going to happen on remand” (see "Board in Flux").

NLRB attorneys declined to comment on the decision.

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