3 CIR 514 (1978)


Plaintiff, |
Defendant. |

Filed November 27, 1978.


For the Plaintiff:Robert E. O'Connor, Jr.

For the Defendant: Verne Moore, Jr.

Before: Judges Wall, Kratz, Green, McGinley & Gradwohl. (EN BANC).

Green concurring.


Service Employees International Union, Local Union #226 (Plaintiff), brings this action against School District #66 of Douglas County, Nebraska (Defendant), requesting the court to prohibit the Plaintiff from contracting out janitorial services at the Arbor Heights Junior High School. (1)

Defendant claims that a disagreement concerning subcontracting is not an industrial dispute and that this court, therefore, does not have jurisdiction. Defendant further contends that even though the court may have jurisdiction, if Defendant has a duty to bargain, it has fully discharged that duty in this instance.

The evidence in the case establishes the following:

1.The parties have negotiated collective bargaining agreements since 1966, when the Union became the bargaining agent. The bargaining unit has always included janitorial employees.

2. The 1976-1977 agreement between the parties expired on June 30, 1977. The new agreement was executed on September 6, 1977. (2)

3.For some time, Defendant had been considering using an outside employer for certain janitorial services. This possibility was discussed with at least one agent of the Plaintiff, prior to the negotiations. (3)

4.The Union knew of the Defendant's consideration of outside janitorial services when the 1977-1978 negotiations commenced. The subject was part of Plaintiff's original list of demands and was discussed at the first meeting between the parties. We find, despite Plaintiff's claim to the contrary, that it was an item for negotiation, rather than just an inquiry as to what was happening. The item was not raised or discussed at any of the subsequent bargaining sessions. (4)

5. On August 22, 1977, Defendant entered into a contract with Floor Brite to maintain certain janitorial services at the Arbor Heights Junior High School. The work to be performed by Floor Brite had previously been performed by three members of the bargaining unit. All three were given other assignments, so no janitor was terminated. (5)

6. The evidence shows that it cost less for Defendant to use Floor Brite than to perform the work with its own employees.

Defendant's argument that there is no industrial dispute is based on its claim that it has discussed and negotiated with the Union regarding its plan to contract out bargaining unit work and, consequently, there is no controversy over "terms, tenure, or conditions of employment" as required by the definition of industrial dispute in Section 48-801(7). Defendant also asserts that the Plaintiff is attempting to impose the duty of mandatory bargaining, pursuant to the National Labor Relations Act, when no such duty is imposed by Nebraska law. We reject Defendant's allegation that the case should be dismissed on the ground that no industrial dispute exists.

Section 48-801(7) R#.R.S. Neb. defines industrial dispute as follows:

"Industrial dispute shall include any controversy concerning terms, tenure, or conditions of employment, or concerning the association or representation of persons in negotiating, fixing, maintaining, changing, or seeking to arrange terms or conditions of employment, or refusal to discuss terms or conditions of employment."

The issue here includes whether there should have been, and whether or not there actually was, bargaining on the contracting out issue. It also may include a question of contract interpretation. Therefore, there is a "controversy concerning . . . conditions of employment", or "a controversy concerning . . . refusal to discuss terms or conditions of employment". We find that an industrial dispute exists and that this court has jurisdiction.

Plaintiff claims that Defendant had a duty to bargain with the union prior to contracting out work traditionally performed by the employees within the bargaining unit. In this regard, it relies on the language of Article I and Article X of the collective bargaining agreement, as applied in federal law under the holding in Fibreboard v. NLRB , 379 U.S. 203 (1964). Article I of the agreement states that Defendant recognizes Plaintiff as the sole and exclusive bargaining agent for all custodial employees, and Article X establishes a system of seniority for the employees covered by the agreement. Plaintiff relies on the rule that interpretations of the National Labor Relations Act are applicable by virtue of the Nebraska Supreme Court's determination that decisions under the National Labor Relations Act are helpful to, but not controlling on, this court. (6)

Defendant resists this argument and claims this is a circumstance where we should not apply the interpretations of the Federal law. The National Labor Relations Act (NLRA) provision relied upon by the Plaintiff is Section 8 (a) (5), which, so far as it is significant, says:

"It shall be an unfair labor practice for an employer to -refuse to bargain collectively with the representatives of his employees. . ."

Defendant argues that Nebraska has no similar statutory language and, therefore, no similar statutory requirement. While our law in this regard may not be literally identical to the Federal law, it nevertheless requires "good faith bargaining."

In Norfolk Education Association v. the School District of Norfolk , 1 CIR 40-1 (1971), this court related Section 8 (a) (5) to the Nebraska law in the following manner:

"Section 8 (a) (5) of the National Labor Relations Act (29 U.S.C. 158 (A) (5)) requires unions "to bargain collectively" under certain circumstances and Section 8 (b) (3) (29 U.S.C. 158 (b) (3)) makes the same requirement of employers. Section 8 (d) (29 U.S.C.158 (d)) defines "bargain collectively" and provides, inter alia, that the representatives of employer and employees shall "meet at a reasonable time and confer in good faith with respect to wages, hours, and other terms and conditions of employment. . ." The National Labor Relations Act, however, does not further define "wages, hours, and other terms and conditions of employment," and, thus, the scope and application of this language has been developed by the National Labor Relations Board and the court decisions.

"Since it seems apparent that the Nebraska legislature had the same purpose in mind as the federal Congress in determining what should be considered mandatory subjects for collective bargaining, the court and Board interpretations of "wages" and "conditions of employment" under the National Labor Relations Act can serve as a guide for our interpretation of what constitutes negotiable subjects under the Nebraska law. In City of Grand Island v. American Federation of State, County, and Municipal Employees , 186 Neb. 711, 185 N.W. 2d 860 (1971), the Nebraska Supreme Court gave "consideration to . . . decisions under the federal law" in resolving an appropriate bargaining unit issue."

Additionally, City of Grand Island v. AFSCME , 184 Neb. 711, 185 N.W. 2d 860 (1971) applied a definition of "supervisor" contained in the federal law, to achieve a similar purpose under the Nebraska Court of Industrial Relations Act.

Fibreboard is a case which resembles this one, though it, of course, involves an interpretation of the NLRA and not the CIRA. In that case, the U.S. Supreme Court held that an employer was under a statutory duty to notify and bargain with a union concerning its proposed decision to contract out maintenance work. The maintenance contract involved the replacement of employees in the existing bargaining unit with those of an independent contractor, who would perform the same work under similar conditions of employment.

The holding in Fibreboard is very narrow, as is illustrated by the following comment from the concurring opinion of Justice Stewart:

"The question posed is whether the particular decision sought to be made unilaterally by the employer in this case is a subject of mandatory collective bargaining within the statutory phrase 'terms and conditions of employment'. That is all the court decides . . . . The court holds no more than that this employer's decision to subcontract this work, involved 'the replacement of employees in the existing bargaining unit with those of an independent contractor to do the same work under similar conditions of employment' is subject to the duty to bargain collectively. Within the narrow limitations implicit in the specific facts of this case, I agree with the court's decision."

Despite some differences between public sector bargaining and collective bargaining under the National Labor Relations Act, the Wisconsin Supreme Court concluded that contracting out a school district's food service program was subject to bargaining under the Wisconsin statute. Unified School District No. 1 of Racine County v. Wisconsin Employment Relations Commission, 81 Wis. 2d 89, 259 N.W. 2d 724 (1977). The Court Stated:

"The question is whether a particular decision is primarily related to the wages, hours and conditions of employment of the employees, or whether it is primarily related to the formulation or management of public policy. Where the governmental or policy dimensions of a decision predominate, the matter is properly reserved to decision by the representatives of the people. This test can only be applied on a case-by-case basis, and is not susceptible to 'broad and sweeping rules that are to apply across the board to all situations. . . ' Beloit, supra, 73 Wis. 2d at 55, 242 N.W. 2d at 236.

"Although the Commission was incorrect in applying private sector standards of collective bargaining in the instant case, the choice of standard does not affect the result. The decision to subcontract the district's food service program did not represent a choice among alternative social or political goals or values.

"The policies and functions of the district are unaffected by the decision. The decision merely substituted private employees for public employees. The same work will be performed in the same places and in the same manner. The services provided by the district will not be affected. The decision would presumably be felt in only two ways; it is argued that it would result in a financial saving to the district, and the district's food service personnel will have to bargain with ARA for benefits which they enjoyed before the decision, including the loss of some 2,304accumulated sick-leave days and participation in the Wisconsin Retirement Fund.

"The primary impact of this decision is on the conditions of employment'; the decision is essentially concerned with wages and benefits, and this aspect dominates any element of policy formulation. The Commission and the circuit court were therefore correct in holding that bargaining was mandatory with respect to the decision." (259 N.W.2d at 731-732)

Similarly, the issue of subcontracting janitor work which has previously been done by employees within the bargaining unit is primarily related to wages and conditions of employment rather than to the formulation or management of public policy. We hold that such subcontracting is a subject for bargaining under the Court of Industrial Relations Act.

In the instant case, the possibility of the Defendant contracting out certain bargaining unit work first came to the attention of the Union during the term of the previous collective bargaining agreement, but the Union did nothing about it. It claims it had no official notice of the proposed subcontracting, but the record shows that it did. The Union reacted to this information regarding the possibility of the contracting out of bargaining unit work by including this subject as one of its demands when negotiations commenced on a new contract. (8) The defendant's representatives apparently responded that contracting out was the District's prerogative. Both parties dropped the issue and there was no further discussion of this subject at any of the subsequent negotiations. By the time the new collective bargaining agreement was executed, Floor Brite was on the job performing bargaining unit work. The Union signed the agreement without reservation. Additionally, the Union did not there after submit the dispute to the grievance clause of the collective bargaining agreement," but, instead, brought it to this court.

The primary purpose of the Court of Industrial Relations Act is to encourage public employers and employees to arrive at voluntary agreements with respect to wages and conditions of employment. To do so, it is necessary that there be full and open negotiations conducted in good faith by both parties. The obligation of good faith bargaining is required equally of employers and employees.

The duty to bargain in good faith does not require either party to make concessions or to reach an agreement. It does mean that a subject for bargaining must be considered in good faith through out the course of negotiations between the parties.

In the present case, the Union was informed by the District of the District's plans to subcontract janitorial work. The union raised this as an issue at the first bargaining session, but dropped the subject when the District stated that it considered subcontracting to be within the District's prerogatives. The Union did not present the issue in any form during the remainder of the negotiations and did not seek to clarify the language of any of several relevant provisions of the Agreement then being negotiated. lt did not contest the District's interpretation of the Management provision (Article II) (10) of the Agreement, nor did it specifically reserve the matter under the Recognition (Article I), Seniority (Article X), or Grievance (Article VIII) articles of the Agreement. It voluntarily signed the agreement with knowledge of the District's actually having sub contracted the janitor work. It, additionally, did not follow the dispute resolution provisions of the Grievance Article of the Agreement which it signed, but chose, instead, to initiate this suit in this court.

Section 48-810, R.R.S. Neb., grants this Court Authority to settle industrial disputes. That authority calls for the exercise of discretion to carry out the purposes of the Court of Industrial Relations Act. It does not carry out the purposes of the Act to allow the parties to fail to present bargaining subjects openly and fully for negotiation. In fact, for this Court to order bargaining of an issue raised but abandoned during negotiations would impede full and open negotiations and encourage a concealment of issues at the bargaining table for possible future litigation in this Court. The Union in this matter did not fully present the matter throughout the course of the negotiations, did not seek to clarify or reserve the issue in the Agreement it voluntarily signed, and did not follow the grievance provisions of the Agreement.

The issue of contracting out bargaining unit work was a proper subject for bargaining between the parties under the Court of Industrial Relations Act. The obligation of good faith bargaining rests equally on both parties. From the evidence in the record of this case, the Union did not fulfill its obligation of good faith bargaining on the subcontracting subject. Where a party has not fulfilled its duty of bargaining in good faith with respect to a bargainable issue and has thereafter signed an Agreement with the other party, the Court of Industrial Relations will not order negotiations to be resumed on such issue.

For the foregoing reasons, the Court finds that the Petition herein should be, and it hereby is, dismissed.

Green, J. , concurring:

I agree with the result Judge Kratz reaches in this case, the dismissal of the plaintiff's petition. However, I reach that result by a somewhat different route.

The question whether or not contracting out of work is an appropriate subject of bargaining involves a construction of the phrase "terms and conditions of employment, including wages and hours" in Section 48-816 of our statute authorizing collective bargaining. The phrase is similar to the phrase "wages, hours and other terms and conditions of employment" contained in Section 8

(d) of the National labor Relations Act. Hence, the argument in favor of recognizing the subject of contracting out as an appropriate subject of bargaining is the argument that since it comes within the scope of Section 8 (d) as interpreted in Fibreboard Paper Products Corp. v. N.L.R.B. , 379 U.S. 203 (1964), and since the language of our statute is similar, a similar result should be reach under 48-816.

I regard this argument as too simplistic. While like words in a like statute should generally be given the same construction, a distinction has to be drawn between those cases that clearly come within the ambit of the language used and debatable or peripheral cases. Words have a core of meaning, which may be invariant with regard to context, but outside this core of meaning, context must be examined in order to determine appropriate construction.

In Fibreboard , the majority opinion was careful to emphasize that requiring the employer to bargain about the subject of contracting out "would not significantly abridge his freedom to manage the business." 374 US. 213. The concurring justices were careful to emphasize that "decisions, which lie at the corner of the entrepreneurial control" did not come within the scope of bargaining. 379 U.S. 223. The cases following Fibreboard have emphasized that in determining whether or not a subject comes within the scope of mandatory bargaining, the inquiry is whether or not it lies at the core of the management function. If it does, bargaining is inappropriate. See, International Union, United Automobile Workers v. N.L.R.B. , 470 F. 2d 422 (D.C. Cir. 1972); N.L.R.B. v. Drapery Manufacturers Co., 425 F. 2d 1026 (8th Cir. 1970); Rabin, Fibreboard and the Termination of Bargaining Unit Work: The Search for Standards in Defining the Scope of the Duty to Bargain, 71 Colum. L. Rev. 803, 810-814 (1971).

The essential teachings of Fibreboard then are two. The first teaching is that subjects which lie at the core of the function of managing a profit making enterprise are not appropriate subjects for bargaining. The second teaching is that contracting out is not generally one of these subjects.

I believe that Fibreboard's teaching that essential functions of management are not appropriate subjects for bargaining has an important role to play in the public sector. However, we must be cognizant of the fact that the managerial functions with which we deal are those of managing a public body, not those of managing a profit making concern. Matters which are not essential in the private sector may be essential to the performance of the political function of managers in the public sector. See, Wellington and Winter, The Union and the Cities, pages 146-148; Summers, Public Employee Bargaining: A Political Prospective, 83 Yale L.J. 1156, 1193 (1974).

The context of public employee bargaining varies significantly from bargaining in the private sector. In the private sector there is no medium to compel agreement, unless the parties have agreed to such a medium. H. K. Porter Co. v N.L.R.B., 397 U.S. 99, 103 (1907). Where the parties disagree, they are allowed to fight the matter out. N.L.R.B. v. Burns Security Services, Inc., 406 U.S. 272, 288 (1972);

N.L.R.B. v. Insurance Agents International Union, 361 U.S. 477, 489 (1960). A party, so long as he is proceeding in good faith, may insist upon his own position to impasse and leave the resolution of the controversy to the test of comparative economic power. N.L.R.B. v. American National Insurance Company, 343 U.S. 395 (1952). Under the statute which we administer, however, as we noted in 0maha Association of Fire Fighters, v. The City of Omaha, Case No. 117,

"...The Legislature decided that the services provided by employees subject to our jurisdiction were too vital to allow interruption while employer and employees tested the merits of their claim by trial by battle. When discussion is barren, employers and employees in the public sector are routed here. Judicial mandate replaces economic power as the determinant of wages.

In deciding then whether contracting out is an appropriate subject. for bargaining, we must also decide whether it is an appropriate subject to judicial resolution. In my view it is not.

In the private sector, an employer can always go out of business if wage rates become too high. Textile Workers Union v. Darlington Manufacturing Co., 380 U.S. 263 (1965). A public employer cannot go out of business. A private employer is free to relocate his business, so long as his motivation is an economic one, and is not required to bargain about his decision, though he may be required to bargain about impact. See, N.L.R.B. v. B. Lasing, 284 F. 2d 781 (6th Cir. 1960); N.L.R.B. v. Rapid Bindery, Inc., 293 F. 2d 170 (2d Cir. 1961). A public employer cannot relocate his operations. A private employer may terminate a part of his operation, so long as the termination does not have an anti-union motivation, and need only bargain about the impact of his decision. N.L.R.B. v. Adkins Transfer Co., 226 F. 2d 324 (6th Cir. 1955); N.L.R.B. v. Drapery Manufacturing Co., supra. It is much more difficult for a public body to shed a part of its operations once they have been commenced. Political realities make the termination of services once provided extremely difficult. Fibreboard, itself, teaches that a private employer can generally implement new technology and is usually only required to bargain about impact. While this option is theoretically open to public employers, it is not generally a realistic option in the public sector, which involves services that can generally only be performed by individuals and cannot be performed by mechanical contrivances.

Thus, where wage rates become too high, the only practical options open to a public employer is contracting out. I believe that this types of decisions is an essentially political decision to be made by those who manage public entities.

The essential thrust of the Court of Industrial Relations Act is a decision that public employees have generally been paid less than those with comparable skills because their wages have been set by the political process rather than by the market forces that operate in collective bargaining. The statute takes two steps to remedy this perceived abuse. Firstly, it allows collective bargaining. Secondly, where bargaining cannot resolve a dispute, it authorizes a judicial settlement.However, that judicial settlement has as its governing standard a requirement that the wages set be those which would have occurred through the operation of market forces. This standard is embodied in the requirement that wages ordered be "comparable to the prevalent wage rates paid and conditions of employment maintained for the same or similar work of workers exhibiting like or similar skills under the same or similar working conditions."

The statute, however, was not intended to transfer the essential function of managing public bodies to this Court. The underlying premise of the statute is that the Court will tell the public employer what units of labor would cost him in a free market, leaving to the public employer the decision as to how many of the units to purchase. In other words, labor becomes like any other service or commodity, which a public employer purchases. It has a price. The public employer has a budget. The public employer must decide how much of that budget to devote to the purchase of any commodity or service. The public body is not allowed to set wages below market rates, just as it cannot set the price of police cars, ambulances, paper clips, or anything else that it buys. It is, however, free to buy as much or as little of any commodity or service as it desires.

I believe that the decision to contract out is as much a part of the essential managerial service of the public body as is its decision as to how many employees to have. Contracting out is an alternative to reducing services. It is an option that public officials should have available, unfettered by judicial review, when they believe that wage rates have risen above the ability of the community to pay.

Separate from the argument that control over contracting out is an essential managerial function in the public sector, I believe that there are practical difficulties with making contracting out a compulsory subject of bargaining and judicial determination. In the private sector, the facts that an employer can go out of business, can move, can implement new technology, or can reduce the level of service provided, all serve as a deterrent to unreasonable wage demands by employees. These deterrents, however, are not present in the public sector. While a reduction in the level of service is always a possibility, public employee unions recognize that it is often not politically feasible. Their wage demands are not, therefore, subject to the usual restraints of the market. If a public employee union is given some say in the process of contracting out, particularly where it knows that the public employer will not have the final word on this subject, the last practical market restraint on its wage demands will be gone.

More generally, unions in the private sector are disciplined by the market in a way that public sector unions are not. As Wellington and Winter note, op. cit., p. 11,

"...At some point the market disciplines or delimits union power. . . Union power is frequently constrained by the fact that consumers react to a relative increase in price of a product by purchasing less of it. As a result any significant real financial benefit, beyond that justified by an increase in productivity, that accrues to workers through collective bargaining may well cause significant unemployment among union members. Because of this employment-benefit relationship, the economic Costs imposed by collective bargaining as it presently exists in the private sector seem inherently limited. "

The situation in the public sector is very different. As Wellington and Winter again note, op. cit., pp. 18-19:

Because much government activity is and must be a monopoly, product competition, non-union or otherwise, does not exert a downward pressure on prices and wages. Nor will the existence of a pool of labor ready to work for a wage below union scale attract new capital and create a new, and competitively less expensive, governmental enterprise. "

Even when the price of labor becomes an important consideration for governmental officials, the ability of government to respond is significantly limited by political considerations. These may assure "either no reduction in employment or services, or a reduction in an area other than that in which the union members work..." Wellington and Winter, op. cit.

In theory our wage decisions meet the statutory requirement. In practice, however, we know how difficult it is to meet that statutory requirement. The statutory standard, therefore, does not serve as an appropriate limitation upon demands that will be made. The existence of this Court and the continual hope that a better result can be achieved in this Court than at the bargaining table exercises a considerable force toward deadlocks in public employee bargaining. The union seeks to obtain the most it can from the employer, and it knows that what it obtains from the employer at the bargaining table sets a practical floor upon what it will obtain in this Court. If the public employer is left without techniques for responding to what it regards as excessive wage orders of this Court, then there will be no real inducement to public employee unions to settle at the bargaining table with the employer. The fact that the employer has a potential response to a wage decision of this Court like contracting out serves to force the parties to agree among themselves. This inducement to collectively arrived at decision is important to the smooth working of the bargaining process in the public sector. I do not believe that it should be diminished by also making the employer's decision to contract out subject to our review.

1The contract for janitorial services is presently in effect and work is being performed thereunder. This fact, of course, has no effect on this decision, even though an adverse ruling to Defendant would likely require it to rescind or violate that agreement.

2There is a dispute as to whether the Floor Brite contract, which was executed on August 22, 1977, was entered into before or after the collective bargaining agreement. We need not resolve that dispute, however, inasmuch as we have concluded it is not significant to the determination of the case. There is no dispute regarding the execution date of the collective bargaining agreement (September 6, 1977), as distinguished from the date of actual agreement.

3Defendant claims there was no discussion, but the record clearly shows that Dr. Hansen communicated this to Terry Mikulicz, an officer and steward of the Plaintiff.

4Plaintiff seems to be claiming that since this subject was only discussed at the first meeting, it was really not negotiated, but whether a bargainable condition is negotiated or not is not determined by the length of the discussion.

5Defendant's claim that no employees were eliminated from the unit, since all three employees whose jobs were replaced received other employment from the Defendant, is not valid. The bargaining unit was clearly damaged. It lost three jobs, which ordinarily would have been filled by the members of the unit.

6 City of Grand Island v. American Federation of State, County, and Municipal Employees, 186 Neb. 711, 185 N. W. 2d 860 (1971).

7Dr. Kenneth Hansen testified that in April, 1977, after a study of the cost of contracting out had been made in March, he advised Mikulicz that contracting out was being investigated. Later on, Hansen told Mikulicz the reasons for this possible change were economic, and still later on, Hansen advised Mikulicz that the Defendant was taking bids on this work. Mikulicz is a Union Stewart and was on the Negotiating Committee. Furthermore, Union agent Darrell Poe testified that the matter of contracting out was discussed at a Union meeting, probably by the Union Stewards.

8Item 4 of the Union's negotiation demands, according to Darrell Poe, was "agree not to hire, contract out work that can be done by our work force."

9"The requirement of exhaustion of contractually provided dispute mechanisms before resort to this tribunal is a policy question and not jurisdictional, where an industrial dispute exists." Transport Workers of America, Local 223, AFL-CIO, v. Transit Authority of the City of Omaha, d/b/a Metro Area Transit, Case No. 220.

10We do not decide the issue of whether the Management Rights clause, particularly the language which allows the District to "increase and decrease the work force", constitutes a contractual basis for subcontracting bargaining unit work without first bargaining on this subject with the union, nor do we determine whether or not this contractual language would, under the Federal law, be considered a "clear and unmistakable" waiver of the statutory right to bargain. California Portland Cement Co. , 101 NLRB 1436; Hoekman Furniture Co. , 101 NLRB 631; Tide Water Associated Oil Co. , 85 NLRB 1096; and UAW v. National Labor Relations Board, 381 F. 2d 265 (where the District of Columbia Court of Appeals approved the "clear and unmistakable" waiver but refused to apply it to the particular facts of that case).