Employer Payment Of Union Officials’ Salaries Deemed Unlawful

Seventh Circuit breaks with long-relied-upon precedent, holding that wage payments to former employees on leaves of absence for union business violate section 302 of the LMRA.

On November 1, the U.S. Court of Appeals for the Seventh Circuit issued its decision in Titan Tire,1 holding that Titan Tire could not lawfully pay the salaries of two former employees who were on leaves of absence from the company and working full time for the union. In so holding, the Seventh Circuit became only the third federal appeals court to consider the issue directly and the first to find such an arrangement unlawful. The Seventh Circuit explicitly disagreed with the rationale of the U.S. Court of Appeals for the Third Circuit in Caterpillar,2 long viewed as the prevailing law in this area. This decision is particularly significant because the paid, full-time union leave arrangements at issue in both Titan Tire and Caterpillar are not uncommon under mature collective bargaining relationships.

Background

The Titan Tire case arose after Titan unilaterally discontinued its practice of paying the union officials' salaries in 2008, believing that the practice violated section 302 of the Labor-Management Relations Act (LMRA). After Titan stopped paying the salaries, the union officials filed a complaint against Titan, claiming the company's actions violated various labor agreements. An arbitration award was subsequently issued in favor of the union, and Titan filed an action to vacate the award in federal court. The district court enforced the arbitration award and rejected Titan's section 302 defense. An appeal to the Seventh Circuit followed.

LMRA Section 302

Section 302(a) of the LMRA broadly prohibits an employer from paying any money or other thing of value to any representative of its employees. Section 302 is a criminal statute enforced by the U.S. Department of Justice. The maximum penalty for a "willful" violation of section 302 is imprisonment for five years and a $15,000 fine.

The statute does, however, contain a series of exceptions, including one that covers certain employer payments to employees and former employees who are serving as union representatives. Specifically, section 302(c)(1) exempts the following:

[A]ny money or other thing of value payable by an employer to . . . any representative of [its] employees, or to any officer or employee of a labor organization, who is also an employee or former employee of such employer, as compensation for...