Second Circuit Approves National Labor Relations Board Contract Coverage Test

In International Brotherhood of Electrical Workers, Local Union 43 v. National Labor Relations Board, the U.S. Court of Appeals for the Second Circuit became the first court to explicitly approve the National Labor Relations Board's (NLRB) adoption of the "contract coverage test" for assessing when a party to a collective bargaining agreement has waived its right to bargain over a subject matter arguably covered by the agreement. Generally, neither party to a collective bargaining agreement has any obligation to negotiate during the term of the agreement over a subject matter covered by the agreement. The NLRB's contract coverage test is expected to provide employers with greater flexibility in dealing with situations not specifically addressed by a collective bargaining agreement, even though the subject matter might have been generally touched upon.

A Closer Look at the Contract Coverage Test

For 70 years, the NLRB employed a "clear and unmistakable waiver" test (waiver test) in deciding whether a party had waived its right to bargain over a subject matter arguably covered by its collective bargaining agreement. Although eventually approved more than three decades after initially adopted in 1949 by the U.S. Supreme Court, the waiver test had been under increasing attack in the courts of appeals ever since. Finally, in 2019, the NLRB abandoned the waiver test in favor of the "contract coverage test" in MV Transportation.

Generally, the waiver test required a finding that negotiations over the specific subject matter in dispute had been clearly waived. This required that the language at issue was "sufficiently specific" to establish a waiver, which the U.S. Court of Appeals for the District of Columbia Circuit criticized as "impossible to meet" in practice and went as far as to sanction the NLRB for continuing to seek enforcement of its waiver test after the D.C. Circuit rejected it. Under the waiver test, even though the parties might have addressed a subject in their collective bargaining agreement without restricting an employer's actions with respect to the subject, the NLRB required a finding that the agreement specifically and unequivocally authorized the employer to take unilateral action with respect to such matter before finding that a union had waived negotiations over it.

In contrast, in describing its newly adopted contract coverage test, the NLRB said it would

determine whether the parties' collective-bargaining agreement covers the disputed unilateral change . . . . [and] will give effect to the plain meaning of the relevant contractual language, applying ordinary principles of contract interpretation; and the Board will find that the agreement covers the challenged unilateral act if the act falls within the compass or scope of contract language that grants the employer the right to act unilaterally. In applying this standard, the Board will be cognizant of the fact that "a collective bargaining agreement establishes principles to govern a myriad of fact patterns," and that "bargaining parties [cannot] anticipate every hypothetical grievance and . . . address it in their contract." Accordingly, we will not require that the agreement specifically mention, refer to or address the employer decision at issue.

The practical outcome of the contract coverage test will be to give effect to broad reservations of management rights and other contract provisions where there is an absence of any explicit circumscription in the agreement on an employer's ability to take unilateral action with respect to a subject matter that is covered by the collective bargaining agreement. Thus, whereas the waiver test required finding explicit, unequivocal language authorizing an employer to take unilateral action before it would be found that a union had waived its right to bargain over the disputed action, the contract coverage test requires that objection to a unilateral change made by the employer be based upon specific restrictions placed on the employer in the contract at issue. Only where the disputed action does not come within the "compass or scope" of a contract provision authorizing unilateral action by the employer does the NLRB continue to use the waiver test.

The contract coverage test gives greater flexibility to employers to address circumstances that were unforeseen at the time the collective bargaining agreement was negotiated. As long as the parties have negotiated over a subject and the matter at issue can be said to fall within the "compass or scope" of the agreement without any restriction on the employer to act unilaterally, the employer will be able to assure that such circumstances will be addressed in a timely manner. This does not necessarily mean that employers will address such circumstances unilaterally even though they may have the right to do so under the contract coverage test. Relieved of the burden of having "near-supernatural prescience … to have foreseen … what … issues would arise" after negotiating a collective bargaining agreement, as the D.C. Circuit has criticized the waiver test, an employer is free to seek the union's input to address such circumstances, knowing that ultimately it can act unilaterally in the absence of agreement. Knowledge of such reality might motivate a more serious attempt by unions to reach an accommodation in addressing such circumstances.

Conclusion

There remains the question whether this favorable development for employers, originating under the prior NLRB, will survive under the current NLRB. One hopeful fact that should militate against a return to the preceding waiver test is the D.C. Circuit's having sanctioned the NLRB for having continually sought enforcement of its remedial orders based on the waiver test, as well as the rejection of the waiver test by several other circuits, especially given the Second Circuit's acknowledgment that the NLRB's adoption of the contract coverage test is supported by a thorough and carefully reasoned opinion.

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