Hunton Employment & Labor Perspectives

The National Labor Relations Board issued a decision that serves as a reminder to employers of their bargaining obligations upon implementing changes to their business.  Rigid Pak Corp., 366 NLRB No. 137 (2018) involves a unionized company (“Rigid”) that manufactured and sold plastic products.  Rigid maintained an injection-molding division and a blow-molding division housed on different sides of its facility.  The injection-molding division manufactured open-head containers, lids, and crates while the blow-molding division manufactured plastic bottles.  In 2014, Rigid encountered various financial difficulties, and to address them, the company entered into a supply agreement to outsource its work to a third-party manufacturer.

The agreement affected Rigid’s two divisions differently.  First, Rigid decided to shut down its blow-molding division, with the third-party manufacturer producing blow-molded products with its own  facilities, materials, machines, and workforce.  The products would be sold to Rigid on an as-needed basis.  Second, Rigid decided to maintain some involvement in its injection-molding operations, with the agreement calling for the third-party manufacturer to produce Rigid’s injection-molded products, but with Rigid providing the following: supply of raw materials, molds, and machines; payment for spare parts; reimbursement for taxes and other charges; and arrangement for packaging and delivery of products.  Further, the injection-molded products would bear Rigid’s name and logo, unlike the blow-molded products.

Rigid did not inform the union until a month after the supply agreement was signed and laid off all of its employees approximately two weeks after it notified the union.  The union filed an unfair labor practice charge claiming that Rigid should have bargained over the decisions related to the two divisions impacted by the supply agreement.

The Board held that Rigid had a duty to bargain over the decision to transfer work from its injection-molding division, but had no similar duty to bargain over the decision to shut down its blow-molding division.  Referring to its precedent on mandatory subjects of bargaining, the Board stated that with regards to the injection-molding division, there has not been so significant a change in the scope and direction of Rigid’s injection-molding business as to free the company of its bargaining obligation to subcontract the work.  Specifically, although the third party manufacturer’s employees are used to manufacture the injection-molded products, Rigid “remains largely responsible for the other aspects of their production, and it is completely responsible for the sales of those products, all of which bear its name and logo.”

In contrast, the Board held that Rigid’s decision to outsource its blow-molding operation involved a significant change in the scope and direction of its enterprise, making the decision not subject to mandatory bargaining.  Specifically, Rigid abandoned its involvement in the blow-molding business by selling its related machinery and contracting with the third-party manufacturer to purchase blow-molded products on an as-needed basis.

Although this case does not offer a novel principle, it is an important reminder that bargaining obligations can be triggered by decisions to curtail a business operation, particularly when multiple decisions are being made within a short period of time.  It also demonstrates that the line between business decisions that must be bargained over and those that do not is often blurry, and that employers should ensure that any decision to forego bargaining with a union is supported by the relevant facts.  A unionized employer must also comply with any requirements in its collective bargaining agreement that may apply in such situations.