A New Way Forward for VW-Tennessee

Published May 20th, 2014 -  - 05.20.143

Volkswagen has works councils in its factories across the globe.  But not at its plant in Chattanooga, TN.  And although the automaker would very much like to have a works council in Chattanooga, it has not implemented one because of the firm’s view that a works council, without a union, is illegal in the United States.  This is a reasonable view, one that I called “likely correct” in an earlier post.

But I am no longer convinced that this view is correct, and I believe there is a plausible argument that, under existing NLRB precedent, Volkswagen could implement a type of works council in the U.S. without violating the labor law.  The basis for this argument is an NLRB decision called Crown Cork & Seal, a decision that has not yet figured in the public debate about VW.

Crown Cork is a 2001 case involving a non-union manufacturing facility that had a plant governance structure called the “Socio-Tech System.”  The purpose of Socio-Tech was, in the Board’s words, “to delegate to employees substantial authority to operate the plant through their participation on numerous . . . teams, committees and boards.”  Most relevant to the VW analysis is a part of the Socio-Tech structure called the Organizational Review Board (or ORB).  The ORB was made up mostly of employees, but also had several managerial representatives.  The ORB’s responsibilities included “monitoring plant policies to insure that they are administered consistently,” and suggesting “modifications to plant norms, including hours, layoff procedures, smoking policies, vacations, and all terms and conditions of employment.”  The ORB could not implement changes itself but would instead make “recommendations” to the Management Team, or the plant manager, who had final authority to implement – or not -what the ORB recommended.  In practice, nearly all ORB recommendations were implemented, but the governance structure was one in which upper management had final authority.

The Socio-Tech system was challenged as a violation of §8(a)(2).  That section of the labor law makes it an unfair labor practice for an employer to “dominate or interfere with the formation or administration of any labor organization,” and it’s the section that poses the problem for VW’s Chattanooga works council.  The §8(a)(2) challenge in Crown Cork was predictable because Socio-Tech involved employee participation in a management-initiated plant governance structure that dealt with “all terms and conditions of employment.”

And yet the Crown Cork Board found no violation of §8(a)(2).  The Socio-Tech system, and the ORB, were allowed to continue.

Why?  As the Board explained, §8(a)(2) makes it illegal for an employer to dominate or support a “labor organization.”  So, to have a violation of §8(a)(2), the entity being challenged has to be a statutory labor organization.  And, to be a labor organization, the entity must be one in which “employees participate” and which “exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.”

The ORB would have appeared to fit this bill precisely: employees participated, and it existed entirely for the purpose of dealing with employers over terms and conditions of employment.  But the Board didn’t construe the ORB this way.  To the contrary, the Board decided that instead of dealing with management, the ORB was management.  The Board held, that is, that employees who participated in the ORB had been delegated managerial functions and had thereby become part of management.  Because the employees – through their participation in the ORB – had been integrated into the managerial structure of the plant, they couldn’t be said to be dealing with management.  And thus there was no §8(a)(2) violation.

Importantly, this was the holding despite the fact that ORB decisions were never self-implementing but always “recommendations” to upper-level management.  The Board’s general counsel had argued in Crown Cork that this fact meant the ORB was dealing with management.  The Board rejected the general counsel’s argument, reasoning as follows:

Few, if any, supervisors in a conventional plant possess authority that is final and absolute.  At the [Crown Cork] facility, just as in a more traditional plant, one level of management (e.g., the ORB), acting within its sphere of delegated authority, forwards for review its recommendations to a higher level of authority (e.g., the plant manager).  But it would not be accurate to characterize that exchange as ‘dealing’ within the meaning of . . . the Act.  Rather, what is occurring in the . . . facility is the familiar process of a managerial recommendation making its way up the chain of command.

As I’ve noted before, we don’t know precisely what type of works council VW would like to implement in Tennessee.  But Crown Cork provides leeway for the automaker to establish a structure of employee input and participation, even in the absence of a union.  The key, of course, is that any such works council must constitute a delegation of “managerial functions” to employees.  But such “managerial functions” would be defined by the Crown Cork decision.  And Crown Cork’s definition would seem plausibly to include a works council, populated by employees, that made recommendations to upper-level management regarding terms and conditions of employment.

Crucially, even were there back-and-forth between the works council and management over implementation of the works council’s recommendations, such negotiation would not be fatal to the council’s legality under §8(a)(2).  On the logic of Crown Cork, such back-and-forth would not constitute “dealing” between the works council and management because the works council ­– like the ORB – would be part of the managerial structure of the firm and thus could not be accused of “dealing with” itself.

In the ideal world, works councils in the United States would be established in unionized workplaces.  But there appears to be more room for works councils in non-union settings than has been recognized in the public debate over Chattanooga.

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