On January 26, 2001 the U.S. DC Circuit Court of Appeals decided against an appeal by Petrochem Insulation, Inc. and upheld an NLRB ruling that the construction company had committed an unfair labor practice.

This case was a battle between the non-union employer (Petrochem) and particular unions that escalated into having the NLRB file a complaint alleging that Petrochem had committed an unfair labor practice. It was an "unfair labor practice" because the non-union company sued some unions alleging violations of the RICO and Sherman Act. The initial suit brought by Petrochem was in response to unions filing environmental objections to zoning and construction permits sought by non-union developers and contractors.

The NLRB was supported in its claims of an unfair labor practice and Petrochem was ordered to pay the legal fees the unions had incurred in defense of the suit.

In the 1980's, construction unions in Northern California began filing environmental objections to zoning and construction permits sought by non-union developers and contractors. Among other things, the unions objected to inconsistencies between construction proposals and regional development plans, to the failure to prepare required environmental impact reports, and to use permits for facilities that the unions predicted would cause surrounding areas to exceed air pollution limits under the Clean Air Act. An internal union report explained: "we have seen irresponsible companies build projects which have caused more pollution than should be permitted. We are now threatened with construction moratoriums in many counties in California."

According to Petrochem, several contractors, seeking to avoid union permit protests, informed Petrochem that it could neither bid for nor perform subcontract work on their Northern California construction projects. In response, Petrochem filed suit in the United States District Court for the Northern District of California, charging that twenty-one named unions, by filing environmental objections, were delaying and "threatening to delay" construction projects "unless and until the project developers and/or general contractors agreed to boycott open-shop contractors such as Petrochem."

Instead of seeking relief under the NLRA, however, the complaint claimed that the union permit objections amounted to criminal extortion under both state and federal law and charged that the extortion in turn constituted a predicate act under the Racketeering and Corrupt Organization Act. 18 U.S.C. §§ 1961-1968. Alleging that the unions had injured Petrochem both by preventing it from obtaining contracts and by damaging its goodwill and business reputation, the complaint sought treble damages pursuant to RICO section 1964(c).

The NLRB General Counsel then filed a complaint alleging that by bringing a suit "without merit ... to retaliate" against the unions for engaging in concerted activity protected by NLRA section 7, Petrochem committed an unfair labor practice in violation of NLRA section 8(a)(1). 29 U.S.C. § 158(a)(1). The Board ordered Petrochem to cease filing such lawsuits or otherwise interfering with employees in the exercise of their section 7 rights. The Board also ordered the company to reimburse the unions for the legal expenses they had incurred.

The reason that Petrochem lost its bid to sue the unions was as follows:

(1) The unions' objections to zoning and construction permits constituted protected activity under Section 7. Unions enjoy Section 7 rights. Such rights are not limited to their constituent members.

(2) The unions' objections did not violate NLRA Section 8(b)(4)(ii), which makes it unlawful for labor organizations to "threaten, coerce, or restrain" any person engaged in commerce, where "an object thereof" is "forcing or requiring any person ... to cease doing business with any other person, or forcing or requiring any other employer to recognize or bargain with a labor organization as the representative of his employees. Petrochem argued that the unions' objections violated this section since they coerced developers to cease doing business with it and other non-union employers. The court, relying on Board precedent, rejected that argument on 1st Amendment grounds.

(3) Since the unions' activities were protected, the construction company's suit was an unfair labor practice if it lacked merit and was brought in retaliation against the unions' exercise of its Section 7 rights. Under Bill Johnson's Restaurants v. NLRB, 461 US 731 (1983), a suit is meritless if it loses at trial.

There is an interesting issue in this case: Did Petrochem file its lawsuit to retaliate against the unions for engaging in section 7 protected activities? Saying YES, the Board relied on three factors: (1) Petrochem filed the lawsuit "in direct response" to the unions' participation in the permit proceedings; (2) the lawsuit had no merit; and (3) Petrochem sought RICO and antitrust treble damages instead of pursuing only compensatory damages under the NLRA.

The Court agreed with Petrochem that the first factor (1) cannot support the Board's retaliatory motive finding. Every lawsuit seeking to recover damages caused by union activity is, by definition, filed "in direct response" to that activity. Yet not all meritless suits against unions or employees amount to unfair labor practices.

Challenging the second basis (2) for the Board's finding, Petrochem argued that considering the loss of its suit as evidence of retaliatory motive collapses the first prong of the unfair labor practice analysis (lack of merit) into the second (retaliation). The court has several pages of response to this claim. (To read the complete text of the ruling click here) (link to full text page, unfair2.html)

Petrochem also challenges the Board's third basis (3) for inferring retaliatory motive: the company's effort to obtain treble damages by trying to convert labor law claims into RICO and antitrust actions. As the Board saw it, seeking treble damages undermined Petrochem's claim that it filed suit not to retaliate, but to "recover the economic losses caused by the Unions' illegal conduct."

And finally Petrochem challenged the requirement that it "reimburse the Unions for all legal and other expenses incurred in defending against [Petrochem's] lawsuit." The court rejected this by citing Gibson Greetings, Inc. v. NLRB, 53 F.3d 385, 394 (D.C. Cir. 1995) ("The NLRB can award a union the costs and fees it incurs in defending against an employer's baseless, retaliatory lawsuit ... if it determines that the filing or maintenance of the lawsuit was an unfair labor practice.").

The court denied Petrochem's petition for review and granted the Board's crossapplication for enforcement.

So ordered.

What this case demonstrates is that before you can apply normal "business" law concepts you need an understanding of Labor Law whenever a union is involved. Unions are not invincible and their exemption to Anti-Trust is limited. Braun Consulting Group has been successful in achieving Anti-Trust claims against unions when they cross the line.