Employment Law Daily Employer that ‘laundered’ housekeepers to divest them of union rights loses appeal
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Monday, August 27, 2018

Employer that ‘laundered’ housekeepers to divest them of union rights loses appeal

By Brandi O. Brown, J.D.

When the employer in this appeal “laundered” workers by first moving them over to the payroll of a third party, and then bringing them back in as employees without contractual rights under the CBA, it violated the NLRA, the Second Circuit explained, denying the employer’s petition for review of an NLRB decision. In fact, the record supported the conclusion that the employer’s “dominant (if not sole) purpose” in using a subcontractor was to mask a “quasi alter-ego scheme.” The appeals court also agreed with the Board that the employer committed additional violations by unilaterally changing policies related to holiday pay and by refusing to “rehire” two senior housekeepers. The employer’s petition for review was denied and the Board’s application for enforcement was granted (HealthBridge Management, LLC v. NLRB, August 23, 2018, Jacobs, D.).

Supervision, then payroll handed over. HealthBridge, which operated six healthcare centers, subcontracted the supervision of its housekeeping workers to Healthcare Services Group (HSG) in 2006, although those employees continued to perform the same work and remained on HealthBridge’s payroll. In 2009 it entered into a full-service contract with HSG covering the workers at three of its centers. Those employees were told only that they were being transferred to HSG’s payroll; they were not told they were being terminated by HealthBridge and they were not required to apply to HSG.

The housekeepers were members of the New England Health Care Employees Union, and the centers operated under a CBA with the union that was effective until 2011. The CBA provided that no work could be subcontracted unless the subcontractor agreed to retain those employees and recognize their rights, including seniority. From 2006 to 2009 the terms of the CBAs were given full effect. In 2009, moreover, HealthBridge assured the union that the housekeepers’ accrued benefits, seniority, and job status would remain and that HSG would agree to the CBA’s terms.

‘Rehired’ without seniority. Fifteen months later, however, the subcontracting arrangement ended; the housekeepers were told by HSG, in individual letters, that they would “no longer be employed by” it and that “[p]ayroll services” would no longer “be provided” for the workers. They were also told they would need to attend meetings held at the centers to reapply for their jobs. At those meetings they were told by HealthBridge that they would need to apply for “rehire” and that they would be treated as “new hires” without accrued seniority.

“The upshot was that the rehired workers would lose up to a third of their hourly pay,” the court explained, “as well as other contractual benefits, including job security and health insurance.” When the employees at one of the centers protested this change, the administrator in charge threatened to call the police if they did not either fill out a rehire application or leave immediately. Within the next 24 hours, all but one employee applied for rehire. All but two were rehired, and most employees returned to work the same day doing the same work as before. Their union filed charges of unfair labor practices with the NLRB, which found HealthBridge liable for several violations, and the employer filed a petition for review.

Reasonable legal conclusion. On review, the appeals court agreed with the Board’s unanimous conclusion that the employer violated the NLRA because an employer may not use a short-duration operational change, such as a temporary shutdown, to circumvent union obligations and extinguish collectively bargained rights. The Board’s decision was reasonable under the NRA as interpreted by the Second Circuit because employers “may not ‘avoid the obligations of a collective bargaining agreement through a sham transaction or technical change in operations’ that amounts to a ‘disguised continuance.’”

The decision was also supported by the law in other circuits, some of which had addressed legal arrangements closely resembling the actions HealthBridge took. A case from the Tenth Circuit, for example, involved a similar scenario involving truckers, NLRB v. F&A Food Sale, Inc., and the NLRB had likewise found NLRA violations. Those decisions, the appeals court explained, acted to “supplement” the law of the Second Circuit supporting the Board’s legal conclusion.

Substantial evidence of scheme. And substantial evidence supported the Board’s factual determination that the employer had engaged in an unlawful scheme that was, in fact, even more “indicative” of conduct that was unlawful. “Insofar as there are distinctions,” the court explained, “they do not assist HealthBridge: the third-party transactions through which HealthBridge (as it were) laundered its employees had the chief practical effect of divesting those employees of their contractual rights.” In fact, the court explained, the record supported the conclusion that the employer’s “dominant (if not sole) purpose” in using the subcontractor was to cover up “what amounts to a quasi alter-ego scheme.” Statements made by HSG officials, such as telling the housekeepers that they would eventually go back on the payroll with HealthBridge, and the lack of evidence of any other legitimate business reason for the temporary arrangement, allowed the Board to draw the conclusion that it did—that the employer’s purpose was to “extinguish” entitlements.

The Board was also correct in finding that HealthBridge committed additional NLRA violations by failing to rehire two workers, who had seniority, and by threatening to call the police on workers, a threat that had “a reasonable tendency to coerce” the workers into relinquishing their rights. Finally, as to the employer discontinuing two of its policies—one providing for special holiday pay for part-time and per-diem employees who worked on those days, and another related to counting paid half-hour lunch periods for purposes of calculating overtime—the court also affirmed the Board’s finding that those unilateral actions violated the NLRA.

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