By: Brian M. Stolzenbach, Esq.

The Decision

The U.S. Court of Appeals for the Seventh Circuit (covering Illinois, Indiana, and Wisconsin) has declared it illegal for employers to pay the full salary of certain union officials who spend all their time representing employees and not working for the employer. See Titan Tire v. USW, Case No. 12-1152 (Nov. 1, 2013). In Titan Tire, the employer paid the full salaries of certain Steelworkers officials, even though the union officials worked full-time on typical union representation matters, spending most of their time outside the employer’s plant altogether.  They even spent time on matters relating to their representation of another employer’s employees. Titan decided that these payments were a violation of Section 302 of the Labor Management Relations Act (which prohibits employer payments to union officials, absent certain exceptions) and therefore stopped paying the salaries. This led to a union grievance. An arbitrator held that the cessation of payments violated the parties’ collective bargaining agreement and determined that the payments themselves were not actually in violation of Section 302 (holding that one of the statutory exceptions applied). Titan sued to vacate the arbitration award, contending that the arbitrator got it wrong and was requiring the company to violate the law. The district court refused to vacate the award, but the Seventh Circuit reversed – holding that, yes, Titan’s payment of the union officers’ salaries would be illegal (indeed, criminal) under Section 302. 

Potential Further Developments

In so holding, the court disagreed with the Third Circuit’s opinion in Caterpillar v. UAW, 107 F.3d 1052 (3d Cir. 1997), and all the surrounding circumstances suggest that the Titan Tire case may well be reviewed by the U.S. Supreme Court if the Steelworkers request it. To begin with, the Supreme Court initially was set to review the Caterpillar case before the parties to that case settled their dispute. Moreover, three judges on the Seventh Circuit thought that the Titan Tire case itself should have been heard en banc (i.e., considered by all the judges on the court, rather than the standard panel of three) because they disagreed with the decision. And even Caterpillar was a split decision, with then-judge (now Justice) Alito among the dissenters. Furthermore, Chief Judge Wood of the Seventh Circuit – who argued for en banc review in Titan Tire – stressed in her opinion that the decision “is . . . important . . . for what it does to labor law.”

What Does This Mean for Employers?

Meanwhile, unless and until the Supreme Court steps in and clarifies the law in this area, the Titan Tire decision is the law of the land in the Seventh Circuit and potentially persuasive authority in other areas of the country. So what does this mean for employers? In the near term, it means that employers should review with counsel any current arrangements under which they are paying the salaries of union officials. Employers will want to determine the potential legal risk and the practical avenues for addressing it. As noted above, Section 302 is a statute whose violation carries potential criminal liability. Are we on the verge of a massive influx into the federal penitentiaries in Illinois, Indiana and Wisconsin – and possibly elsewhere? Maybe not.  But the legal risk here is certainly somewhat different – and potentially more serious – than that presented in most labor relations scenarios. Accordingly, employers would be wise to give the issue their serious attention.