Sotomayor’s Second Circuit Decisions on Traditional Labor Matters

Three opinions authored by Judge Sonia Sotomayor fall into this general category of traditional labor matters. Because of these decisions and the ones she decided as a district court judge, she may actually have more traditional labor experience than any of the current justices on the U. S. Supreme Court.

Clarett v. National Football League, 369 F.3d 124 (2004)
You may recall that perhaps Sotomayor’s most famous case as a district court judge involved professional baseball (Silverman case). The Clarett case isn’t as well known, but it too deals with professional sports.

A college football star sued the National Football League (NFL), challenging the rule limiting eligibility for entry into the NFL draft to players who are three college football seasons removed from high school graduation. The player’s lawsuit claimed that the NFL’s draft eligibility rules constituted an unreasonable restraint of trade in violation of the Sherman Act and the Clayton Act. The lower court ruled against the NFL.

On appeal, Sotomayor found that federal labor law favoring and governing the collective bargaining process precludes the application of the antitrust laws to its eligibility rules. Though the eligibility rules didn’t appear in the collective bargaining agreement between the NFL and its players union, they were part of the NFL Constitution and Bylaws, which were mentioned in three separate provisions in the collective bargaining agreement. When the collective bargaining agreement was last negotiated, the NFL Constitution and Bylaws were well known to the union, and a copy was given to the union. The union chose not to bargain over the eligibility rules, even though the rules were a mandatory bargaining subject, permitting either the NFL or the union to force the other to bargain over these rules.

In ruling for the NFL and reversing the lower court’s decision, Sotomayor upheld the long-recognized doctrine that to accommodate the collective bargaining process, certain concerted activity among and between labor unions and employers are beyond the reach of the antitrust laws. She also determined the disruptions to federal labor policy that would occur if the NFL lost this case wouldn’t vindicate any of the antitrust policies sparingly found by the Supreme Court to fall outside the the federal labor exemption.

White v. White Rose Food, 237 F.3d 174 (2d Cir. 2001)
Union members and former employees brought a hybrid action against the employer and the local union. They alleged that the employer had violated Section 301 of the Labor Management Relations Act by failing to honor a settlement agreement it had entered into with the union and that the union had violated its duty of fair representation by entering into an amendment to the settlement agreement.

After a lengthy strike, the employer and the union entered into a settlement agreement to resolve the dispute. Under the terms of the settlement agreement, the employer would place $1.5 million in an escrow account to be distributed to eligible former employees. The agreement contained a binding arbitration clause and required that eligible union members ratify the agreement. After the members voted to ratify the settlement agreement, the entity to serve as the escrow agent and distributor of the $1.5 million (a division of the local union’s national organization) informed the employer and the local union that it wouldn’t serve in that capacity.

The employer and the union then entered into an amendment to the settlement agreement which named the employer as the new escrow agent and distributor and which stated the amendment wouldn’t increase the cost of the settlement agreement to the employer and that the $1.5 millions was inclusive of all employment tax liability. The original settlement agreement was silent on how payroll taxes would be handled and who would pay them. The amendment wasn’t submitted to union members for ratification and the hybrid lawsuit was then filed.

The lower court ruled that the employer violated Section 301 of the LMRA by approving the amendment because the original settlement agreement provided that the $1.5 million was a net amount, not inclusive of payroll taxes in the approximate amount of $193,000. The lower court also ruled that the local union had violated its duty of fair representation by acting arbitrarily and in bad faith when it approved the amendment which harmed union members to the tune of $193,000.

On appeal, Sotomayor determined that the lower court was wrong on all counts. The original settlement agreement said nothing about the $1.5 million being a net amount. At best, the agreement was ambiguous on this point, and no evidence had been presented to clear up the ambiguity. Only the amendment eliminated the ambiguity.

Sotomayor also determined that the union hadn’t violated its duty of fair representation by approving the amendment. The reason the initial escrow designee backed out of this role was that it didn’t want to incur the expense of administering the fund. If the employer hadn’t agreed to serve in that role per the amendment another escrow agent would have been retained for a fee, and there was nothing to show that this expense would have been any less than the $193,000 in payroll taxes.

It wasn’t unreasonable for the union to decide against arbitrating or litigating the question of who owed the payroll taxes. There was no guarantee of winning on this issue in light of the original settlement agreement’s silence about payroll taxes. Even if an arbitrator had ruled against the employer on the payroll taxes issue, it was reasonable for the union to decide to settle the matter for a slightly reduced amount ($1.5 million minus $193,000) so that the funds could be administered quickly instead of waiting for months, perhaps years of costly arbitration or litigation.

Sotomayor finally ruled that the union hadn’t acted in bad faith by approving the amendment without submitting it to the union members for ratification. Federal labor law doesn’t require ratification of employer-union agreements. That’s determined by the union’s constitution and bylaws or by a provision in the collective bargaining agreement itself. There was nothing requiring that all contracts must be ratified by union members. Thus, the original settlement agreement could have been entered into without member ratification. Ratification occurred only because the settlement agreement required it. The amendment, on the other hand, said nothing about ratification, so the local union’s failure to submit the amendment to a vote of the members didn’t constitute bad faith in any respect.

Sotomayor held that the original settlement agreement and the amendment were binding and should be enforced according to their terms.

Todd v. Exxon Corporation, 275 F.3d 191 (2d Cir. 2001)
This case really falls into the antitrust area as opposed to the traditional labor. It is worth noting, however, as it indicates Sotomayor’s recognition of the sometimes disproportionate bargaining power between big corporations and their employees.

A former employee of Exxon filed suit on behalf of herself and all other similarly situated current and former Exxon employees against 14 major companies in the integrated oil and petrochemical industry, which accounts for 80%-90% of the industry’s revenues and employs about the same percentage of the industry’s workforce. The lawsuit claimed that the 14 companies violated Section 1 of the Sherman Act by regularly sharing detailed information regarding compensation paid to nonunion managerial, professional, and technical employees and using this information in setting the salaries of these employees at artificially low levels. The lower court dismissed the case without a trial.

There was no question that the companies shared various survey information with each other. According to Sotomayor, even if there is no smoking gun evidence (like a written agreement) of a conspiracy to restrain trade, it’s still possible to find a Sherman Act violation if there is interdependent conduct among companies in an industry accompanied by circumstantial evidence showing the use of practices, like sharing information, that have a restraint of trade impact.

Sotomayor didn’t rule in the employees’ and former employees’ favor but said that there was enough evidence (the 14 companies sharing salary information contained in a “Job Match Survey,” “Grade Average Update,” “Job Family Survey,” and “Advancement Guides”) to prevent the dismissal of the case without a trial. She emphasized that the employees and former employees would “have to make a substantial presentation of evidence to support [the] claim that salaries would have been higher without the information exchange.” Enough evidence had been presented to provide a chance to make this substantial presentation. The case was, therefore, returned to the lower court.

Analysis of Sotomayor’s Labor Law Decisions on the Second Circuit
When it comes to labor law cases, it’s fair to say that Sotomayor has a neutral record of sorts. There are a couple of principles to be discerned from the few labor cases covered in this series. She takes a hard look at what a statute actually says. She is especially interested in existing case law precedent on an issue, particularly that established by the U.S. Supreme Court. Her opinions in this area make it impossible to label her pro-union or pro-business.

Next, we’ll survey a Sotomayor decision invollving the explosive issue of privacy in the workplace