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Do employee participation programs violate U.S. labor laws?

As America enters the 21st Century, there can be little doubt that the globally competitive environment that U.S. industry finds themselves in will intensify. American companies will have to compete more efficiently for foreign as well as domestic customers. Perhaps the single most important ingredient for success and survival in this global economy is quality.

The concept of attaining and maintaining quality in products, processes, and services has, in recent years become ingrained in the American business psyche. Ask the majority of American business persons what will happen if they fail to produce a product/service that meets the quality expectations of their customers and they will tell you that someone else will. Quite often that someone else is a foreign competitor.

Since Ouchi introduced the so-called Japanese Management philosophy to the American business community, U.S. companies have readily adopted these so-called Japanese techniques. At the core of these quality enhancement efforts is a strong employee involvement and empowerment movement. For quality circles, work teams or other employee involvement groups to be effective, it is essential that employees become active and willing participants in the process. Employee participation programs (EPP) have become so widely accepted and used in U.S. industry that they are now included in virtually every principles of management and production textbook currently in use.

These highly regarded management practices are now threatened by a recent decision of the National Labor Relations board (NLRB) on December 16, 1992, in Electromation v. International Brotherhood of Teamsters (309 N.L.R.B- No. 163), the NLRB used the 58 year old National Labor Relations Act (NLRA) (29 U.S.C. S 151 et seq.) to declare the company's EPPs to be an unfair labor practice. Though the NLRB openly declared that this decision does not make all EPPs unlawful, the criteria that the Board must use in evaluating such allegations are likely to declare most of these programs unlawful. The purpose of this article, therefore, is to examine the Electromation decision and evaluate its effects on employee involvement programs.

The decision

Electromation is a small manufacturing company located in Elkhart, Ind. Due to poor financial performance, Electromation management had found it necessary to make reductions and alterations in wage and bonus increases. Naturally, this had resulted in a good deal of employee dissatisfaction. In an attempt to reduce this dissatisfaction, Electromation's management established an employee participation program. This program consisted of five action committees that focused on such issues as absenteeism, a no smoking policy, improving communications, pay progress for premium positions and attendance bonuses. In establishing the action committees, the company decided the size of each committee, selected the members from voluntary sign-up sheets, and established each committee's objective. To ensure established goals were pursued, members of management sat on each committee as the company's representative.

Shortly after initiating the EPP, Electromation had to suspend company participation in the action committees when the International Brotherhood of Teamsters (IBT) launched an organizing campaign of the company's employees. During the campaign, the IBT filed a complaint with the NLRB that the company's action committees violated the NLRA as an employer dominated labor organization.

Labor organizations covered under the NLRA

How did a voluntary employee participation program come to be judged as an "employer dominated labor organization," and as such constitutes an unfair labor practice by management? By the National Labor Relations Board's own admission, Electromation was not attempting to avoid or thwart the IBT organizing initiative through their action committees.

An unfair labor practice by management invariably centers on an employer interfering with employees' rights to organize and bargain collectively, a right protected under the NLRA since 1935. In the specific instance of Electromation, the action committees were alleged to be labor organizations, which were unlawfully dominated by the employer. In 1935, in an attempt to keep workers from forming unions that would actually represent employee interests in the workforce, employers often created their own company or captive unions. A captive union was totally controlled by the company and was intended to meet the letter of the law, but not the spirit. Under the captive union, the employees had no more representation in the company than they had before this "sham" union was formed. It was these labor organizations that the NLRA was attempting to eradicate. In order to do so, the 72nd Congress broadly defined both the labor organization and unlawful employer dominance in the NLRA. The reader will remember that in 1935, the economy was largely national rather than global, and the pressing concern at the time was protecting workers from those employers who were taking unfair advantage of the Great Depression's surplus labor.

In order to make a determination of unlawful employer dominance under the NLRA, the Board must first determine if the company organization constitutes a labor organization within the meaning of the act. The NLRA defines a "labor organization as any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work" (29 U.S.C. 2(5)). This is a very inclusive definition. In essence, if an EPP has employees who participate, a design for dealing with employers, and concern for grievances, labor disputes, wages or benefits, or working conditions, it is likely to satisfy the labor organization requirements of the statute.

This 58-year-old act is still being applied today in cases involving unfair labor practices. This was readily concluded in the Electromation case since employees did participate in the action committees. Further, the committees had been created to directly deal with the employer or its management. Finally, the committees were assigned missions that would hopefully alleviate some of the employee dissatisfaction over reductions in bonuses and wages (compensations issues) and to offer suggestions affecting working conditions.

Once the NLRB determined, under the authority of the NLRA, that Electromation's action committees were actually labor organizations, it had to then ascertain whether or not these organizations were unlawfully dominated by the employer.

Unlawful domination determinations

The NLRA's 8(a)(2) declares it to be an unfair labor practice for an employer to dominate or interfere with the formation or administration of any labor organization or contribute financial or other support to it.

An employer violates this provision of the act when it can be shown that one of the following three elements is violated:

* The employer interferes with the labor organization's formation;

* The employer interferes with its administration; or

* The employer provides the labor organization with financial or other support (29 U.S.C. 8(a)(2)). Electromation was found to have violated 8(a)(2) because it had duly constituted each committee. The action committees were not formed spontaneously by the will of the majority of the workers, but at the direction of the employer. Additionally, the purpose of each committee was delineated and assigned by the company's management.

From the Board's perspective, even membership was controlled by the employer. The employer further ensured that it had representation on each action committee (309 N.L.R.B. No. 168, 18). To compound matters, the NLRB also concluded that the employer may have unlawfully supported the action committee by providing them with a location to conduct their meetings, providing them with supplies, and allowing them to perform their committee duties on company time.

The disturbing aspect of the Electromation ruling is that though it does not make all EPPs illegal, it does however, establish the criteria against which all EPPs must be judged when an unlawful employer domination charge is filed. It would be difficult to imagine an EPP that could easily withstand this test.

It is also important to note that the purpose of the EPP is not insulation against litigation. As the Board pointed out in its decision, there is nothing in 8(a)(2) that requires the NLRB to find an anti union animus behind the labor organization (NLRB v. Newport News Shipbuilding Co., 308 U.S. 241). The relevant issue is only whether the employer interferes or dominates the organization, not its motivation.

In fairness to the NLRB, the Board is not afforded much latitude in interpreting the NLRA and the Board makes this clear in the Electromation decision. Citing Lechmere Inc. v. NLRB (112 S.Ct. 841), the Supreme Court reminded the NLRB that it is entitled to judicial deference so long as its interpretation is not contrary to the "statute's clear meaning" (309 N.L.R.B. No. 163, 7 n. 9). This is consistent with the Supreme Court's ruling in Maislin Industries, U.S. v. Primary Steel, in which the Court ruled that federal agencies do not have the power to adopt a policy that directly conflicts with its governing statute (497 U.S. 116, 135). A method used in determining a statute's clear meaning is interpreting Congressional intent. In other words, the interpretation is based upon what Congress had intended the statute to accomplish when it was enacted. This is the burden that the NLRB feels has been placed on it (309 N.L.R.B. No. 163). Consequently, the board feels compelled to apply a 1935 law when analyzing 1993 employee participation programs. This may very well be a formula for disaster, and yet it is the model under which the NLRB has decreed we must presently operate.

How the ruling may affect employee participation

The Electromation decision will have its greatest impact on nonunion companies. Employee participation programs are discretionary bargaining issues under collective bargaining in unionized firms and can be negotiated within the framework of the NLRA. In the absence of a union to represent the majority of employees' interest, an EPP could be analyzed as follows.

Assume a company is operating a fairly common type of EPP, a quality circle. Typically, a quality circle is a group of seven or eight personnel who meet to discuss a number of work place issues. Members are selected from the same area of operation and often include the employee's supervisor as the team leader. After attending a training program designed to enhance their problem-solving and decision-making skills, members begin to develop solutions to quality and efficiency problems confronting their departments. Solutions usually focus on such issues as error reduction, job involvement, improved communication, better control methods, changes in job structure, development of control mechanisms, or modification of work.

These solutions are normally presented to management as proposals. Management then reviews the quality circle's proposal and decides whether to adopt it, send it back for further study, or to not implement it at all. If the quality circle's recommendation is approved, then both management and the circle are responsible for evaluating its effectiveness.

The quality circle described above would be evaluated under the two part inquiry provided by the Electromation ruling. First, does the quality circle qualify as a "labor organization" covered under the NLRA?

Do employees participate in the circle? Obviously the answer is yes. Without employee participation you could not have a quality circle. Employees are the essential component to the success of such programs.

Does the quality circle exist for the purpose of dealing with the employer? By making recommendations to management, the circle is clearly dealing with the employer.

Does the quality circle's dealings with the employer concern grievances, labor disputes, wages, rates of pay, hours of employment, or, the nebulous term, conditions of work? Any recommendation that affects the modification of work methods or procedures would easily satisfy the "conditions of work" criterion. One Board member, Member Raudabaugh, noted that even such innocuous proposals as improving poor lighting or inadequate ventilation in a work area would fit the "conditions of work" standard (309 N.L.R.B. No 163, 40). It can, therefore, be assumed that our quality circle easily (and clearly) would be a labor organization within the meaning of NLRA 2 (5).

In the second state, the inquiry attempts to determine whether this labor organization (the quality circle) is unlawfully dominated by the employer. First, did the employer dominate or interfere with its formation? Since the employer created the circles to make improvements in quality and efficiency, these circles would not have existed otherwise. Since the quality circle is the employer's creation, it can be effectively argued that the employer dominated its formation. After all, who decided its size, composition, and purpose, but the employer!

Does the employer interfere, dominate, or intervene in the labor organization's administration? It can be argued that if the team leaders are supervisors, or even if supervisors are merely members of the circle, that management interferes with its operation. An even stronger argument can be made for domination; the final implementation of the circle's recommendations is solely in the hands of management--adoption is a unilateral company decision. It can be further argued that the company can control membership. For example, a seven member circle could have one supervisor and six employee-members. If twelve employees volunteered to participate in the circle, the employer would have to decide which six would become members and which six would not. Any of the aforementioned situations should be sufficient to demonstrate interference in the labor organization's administration.

Finally, does the employer unlawfully contribute financial and other support to the labor organization? If the members are paid for their time at quality circle meetings, the meetings are held on company property, and the company provides supplies and clerical support, the answer may very well be yes. Based upon the guidance provided in Electromation, the quality circle described above would be unlawfully dominated by the employer.

In the event that an employer's EPP is found to be unlawfully dominated, the employer will be required to disband that program, and to cease and desist from all such actions. However, employers are cautioned not to immediately abandon their employee involvement programs to avoid possible litigation. For one, there are currently over 30,000 EPPs operating in the nation (Salwen, 1992). With the NLRB's meager resources it would take an inordinate amount of time to investigate them all. Additionally, the current legal environment could be affected by a change in statutory law or by a federal court's interpretation of the current statute.

A possible solution to the present dilemma is an amendment to the NLRA exempting certain employee involvement programs from the act's present proscriptions. Even Labor Secretary-designee, Robert Reich, has recognized that the Electromation decision threatens to dull labor-management relations and stated to the Senate Labor Committee that he would seek legislation if the NLRB takes a hard stand against EPPs. The last major revision to the NLRA occurred in 1959. The Electromation decision is perhaps a warning signal that the act is overdue for revision. It would be ludicrous to attempt to govern the dynamic business environment of the 1990s with a statute designed to alleviate a problem of 1930s.

For further reading

Dewar, D.L., (1980). Quality Circle Leader Manual and Instructional Guide for Financial Administration. Office and Sales and Service, Red Bluff, CA: Quality Circle Institute.

Dobyns, L. and Crawford-Mason, C. (1991). Quality or Else: The Revolution in World Business. Boston: Houghton Mifflin.

Electromation Inc. v. International Brotherhood of Teamsters, 309 N.L.R.B. No. 163 (December 16, 1992).

Feigenbaum, A. V., (1983). Total Quality Control, (3rd ed.), New York: McGraw-Hill.

Hellriegel, D., and Slocum, J.W., Jr., (1992). Management, (6th ed.), Reading, MA: Addison-Wesley Pub. Co.

Lechmere Inc. v. NLRB, 112 S.Ct. 841 (1992).

Maislin Industries U.S. v. Primary Steel, 497 U.S. 116 (1990).

National Labor Relations Act, 29 U.S.C. 151 et. seq. (1988).

NLRB v. Newport News Shipbuildinq Co., 308 U.S. 241

Ouchi, W.G., (1981). Theory Z: How American Business Can Meet the Japanese Challenge, New York: Avon Books.

Salwen, K.G. (December 18, 1992). NLRB says labor-management teams at firm violated company-union rule. Wall Street Journal

Salwen, K.G., and McGinley, L. (January 8, 1993). Labor designee Reich urges more input by workers to aid job quality, safety. Wall Street Journal

Robert K. Robinson is an assistant professor of management at the University of Mississippi. He earned his Ph.D. in personnel administration and industrial relations from the University of North Texas. Ross L. Fink is an assistant professor of operations management at Bradley University. He received his Ph.D. in management science from the University of Alabama. Edward L. Gillenwater is an assistant professor of production and operations management at the University of Mississippi. He earned his Ph.D. in management science from the University of Kentucky.
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Author:Robinson, Robert K.; Fink, Ross L.; Gillenwater, Edward L.
Publication:Industrial Management
Date:May 1, 1993
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