NATIONAL LABOR RELATIONS BOARD, PETITIONER V. ACTION AUTOMOTIVE, INC. No. 83-1416 In the Supreme Court of the United States October Term, 1983 The Solicitor General, on behalf of the National Labor Relations Board, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Sixth Circuit in this case. Petition for a Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit TABLE OF CONTENTS Opinions below Jurisdiction Statutory provisions involved Statement Reasons for granting the petition Conclusion Appendix OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-5a) is reported at 717 F.2d 1033. The decision and order of the National Labor Relations Board (App., infra, 7a-20a) are reported at 262 N.L.R.B. 423. The decision, direction, and certification of representative of the NLRB (App., infra, 21a-23a) and the hearing officer's report and recommendations (App., infra, 24a-47a) are not reported. JURISDICTION The judgment of the court of appeals was entered on September 30, 1983 (App., infra, 6a). On December 15, 1983, Justice O'Connor extended the time for filing a petition for a writ of certiorari to and including January 28, 1984. On January 19, 1984, Justice O'Connor further extended the time for filing a petition for a writ of certiorari to and including February 27, 1984. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED Section 2(3) of the National Labor Relations Act, 29 U.S.C. 152(3), provides in pertinent part: The term "employee" * * * shall not include * * * any individual employed by his parent or spouse * * *. Section 9(b) of the National Labor Relations Act, 29 U.S.C. 159(b), provides in pertinent part: The Board shall decide in each case whether, in order to assure to employees the fullest freedom in exercising the rights guaranteed by this (Act), the unit appropriate for the purposes of collective bargaining shall be the employer unit, craft unit, plant unit, or subdivision thereof * * *. QUESTION PRESENTED Whether, under Section 9(b) of the National Labor Relations Act, 29 U.S.C. 159(b), the Board is prohibited from excluding from a collective bargaining unit employees who are close relatives of the owners of the closely held corporation that employs them, unless the employee-relatives receive special job-related privileges. STATEMENT 1. Respondent is an automobile parts and gasoline dealer with outlets in a number of cities in Michigan (App., infra, 2a). The dealership -- a closely held corporation -- is owned equally by three brothers, Richard, Robert and James Sabo, who are president, vice president and secretary, respectively. The three Sabo brothers are actively involved in respondent's daily operation and together they make all of its policy decisions (ibid.). On March 31, 1981, the Retail Store Employees Union, Local 40 (the Union), filed a petition with the Board requesting that a representation election be held among respondent's employees (App., infra, 24a). Respondent and the Union stipulated to elections in two bargaining units -- a unit of store and warehouse employees at respondent's nine retail stores (Unit A) and a unit of office clerical employees at the headquarters office (Unit B) (id. at 241-25a). Thb election was held on May 29, 1981, and the Union received a plurality of the votes in each unit, but a sufficient number of ballots was challenged to place the outcome of the election in doubt (id. at 25a). /1/ 2. The only challenged ballots of significance here were those of Diane and Mildred Sabo. Following a hearing, the Board's hearing officer recommended excluding both of them from their respective units and sustaining the challenges to their ballots because of their close family relationship with the three brothers who owned and operated respondent (App., infra, 29a-33a; 33a-37a). The hearing officer found that Diane Sabo is a regular, part-time general ledger clerk at respondent's headquarters office in Flint, Michigan (App., infra, 30a). Diane is also the wife of respondent's President, Richard Sabo. She resides with her husband and both work at the same office (ibid.). At work, Diane Sabo often goes to lunch with Richard and one or both of his brothers. She regularly takes her breaks in Richard's office. She is the only clerical employee who works part-time and she is the only one who receives a salary rather than hourly pay. In addition, she is allowed to take her breaks when she pleases, instead of according to the schedule established by the office manager (App., infra, 30a-31a). On the basis of these findings, the hearing officer declined to find that Diane Sabo enjoys any "special privileges," but nevertheless held that she "has a community of interest separate from that of the other clerical employees in unit B" and therefore recommended that the challenge to her ballot be sustained (App., infra, 33a). Mildred Sabo was found by the hearing officer to be a full-time cashier at one of respondent's retail stores in Barton, Michigan. She is the mother of the three Sabo brothers who own and operate the Company. She lives with Secretary-Treasurer James Sabo and sees her other sons and their families regularly. She makes almost daily telephone calls to the main office in order to talk to her sons (App., infra, 33a, 35a). At work, Mildred Sabo is not required to punch a time clock; she records her time on a card. She earns 25 cents per hour more than any other cashier, but she is also one of respondent's most experienced cashiers (id. at 34a). Based on these findings, the hearing officer found that Mildred Sabo does not receive any "special privileges" on the job (App., infra, 36a). Nevertheless, he concluded that, "in view of her relationship" with her three sons who own and operate respondent, "Mildred Sabo's interests are more closely aligned with management than with (respondent's) employees" (ibid.). The Board adopted the hearing officer's findings and recommendations, but noted that Diane Sabo should be excluded from the unit not only because of her relationship to respondent's owners, but also because she enjoyed special job-related privileges, viz., "her irregular work schedule, her breaks and lunches with corporate officers in corporate offices, her being paid a salary rather than hourly pay, and not being required to punch a time clock" (App., infra, 21a-22a n.2). The Board certified the Union as the exclusive representative in Unit A, /2/ and directed the Regional Director to count two of the other challenged ballots in Unit B, which resulted in a tally of 5-4 for the Union and the Union's certification in that unit as well (App., infra, 15a, 22a). Respondent then refused to bargain with the Union, contending that the certifications were not valid. The Union filed charges with the Board, and the Board, declining to reconsider its earlier certification determination, found that respondent had violated Section 8(a)(1) and (5) of the Act, 29 U.S.C. 158(a)(1) and (5), and ordered it to bargain with the Union (App., infra, 7a-18a). 3. The court of appeals denied enforcement of the Board's order (App., infra, 1a-5a). Relying on its decisions in NLRB v. Hubbard Co., 702 F.2d 634 (6th Cir. 1983), and NLRB v. Sexton, 203 F.2d 940 (6th Cir. 1953), the court held that the Board had no authority under Section 9(b) of the Act, 29 U.S.C. 159(b), to exclude individuals from bargaining units solely because of their close family relationship with those who own and operate the business (App., infra, 3a). Instead, the court concluded that "familial ties can only be considered as evidence of a special status when the employee receive(s) job-related benefits or other favorable working conditions which flow from the relationship" (ibid.). Applying this standard to the two employees at issue, the court of appeals fround that "(t)he only factor of Mildred's special status is her family ties to the Company * * * (and) such family ties alone are insufficient to establish 'special status'" (App., infra, 5a). With regard to Diane Sabo, the court acknowledged that her "work schedule differed significantly from that of her fellow employees," but concluded that such a "single instance of a special treatment is insufficient evidence of a 'special status'" to support the Board's order (id. at 4a-5a). REASONS FOR GRANTING THE PETITION The holding of the court of appeals, that the Board lacks authority under Section 9(b) of the Act, 29 U.S.C. 159(b), to exclude from a bargaining unit close relatives of someone who owns and operates a business, unless the Board can make a substantial showing that the employee enjoys special job-related benefits, conflicts squarely with the decisions of three other courts of appeals on a recurring issue in the administration of the Act. In addition, the court of appeals' attempt to delimit the factors the Board may consider in determining what is an appropriate collective bargaining unit is contrary to repeated holdings of this Court that Congress invested the Board and not the courts with the authority to define appropriate units for bargaining. Finally, the decision below is inconsistent with important policies embodied in the Act; it not only directly alters the outcome of representation elections in disregard of the employees' Section 7 (29 U.S.C. 157) right to choose their agents, but it more generally "tends to obliterate the line between management and labor." Packard Motor Car Co. v. NLRB, 330 U.S. 485, 494 (1947) (Douglas, J., dissenting). 1. The Board has long held the view that "employees of a company who are in an intimate (,family) relationship with officers of the company" should be "excluded from an appropriate (bargaining) unit." Jerry and Edythe Belanger, 32 N.L.R.B. 1276, 1279 n.4 (1941). See also NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. 170, 194 (1981) (Powell, J., dissenting); Burke Brewery, Inc., 54 N.L.R.B. 1061, 1062 n.2 (1944); Standard Magazines, Inc., 31 N.L.R.B. 285, 289 (1941); Louis Weinberg Associates, Inc., 13 N.L.R.B. 66, 69 (1939). In its early decisions, the Board did not cite the statutory basis for its determination to exclude such employee-relatives, but eventually it took the position that it was empowered to exclude them under Section 2(3) of the Act, 29 U.S.C. 152(3), which provides that individuals who are employed by their parents or spouse are not "employees" under the Act. See Foam Rubber City #2, 167 N.L.R.B. 623 (1967). In NLRB v. Caravelle Wood Products, Inc. (Caravelle I), 466 F.2d 675, 678-679 (7th Cir. 1972), the court of appeals rejected the Board's reliance on Section 2(3) to support its order excluding employee-relatives who had received no special job-related privileges. /3/ The court, however, remanded the case to the Board so that it could consider, based on a "case-by-case analysis," whether exclusion was warranted under Section 9(b) of the Act. The court identified the following factors that the Board should consider in deciding whether to exclude an employee from a unit because of family relationship (466 F.2d at 679): (H)ow high a percentage of stock the parent or spouse owns, how many of the shareholders are related to one another, whether the shareholder is actively engaged in management or holds a supervisory position, how many relatives are employed as compared with the total number of employees, (and) whether the relative lives in the same household or is partially dependent on the shareholder. On remand, the Board applied the criteria articulated by the court and reaffirmed its exclusion of the spouses and children of key stockholders and officers of the corporation. 200 N.L.R.B. 855, 856 (1972). In enforcing the Board's supplemental decision, the Seventh Circuit emphasized that "none of the guidelines suggested by the court (in Caravelle I) is job-related." NLRB v. Caravelle Wood Products, Inc. (Caravelle II), 504 F.2d 1181, 1186-1187 (1974). Rather, the Board had the authority "to exclude employees on the basis of family relationship -- without regard to job-related factors -- provided the factual finding implicitly required by the (Caravelle I) guidelines is made in each case." Id. at 1187. /4/ The Ninth Circuit in Linn Gear Co. v. NLRB, 608 F.2d 791, 796 (1979), and the Fifth Circuit in NLRB v. Patterson & Son, Inc., 636 F.2d 1014, 1017 (1981), have expressly approved the holdings of the Seventh Circuit in Caravelle I and II and "follow a 'community of interest' test in determining the appropriateness of a bargaining unit." 636 F.2d at 1017; 608 F.2d 796. In those circuits, the Board can exclude an employee if he is more closely aligned with management than with other employees, regardless of whether the reason is job-related or family-related or both. /5/ The Board's findings in the present case plainly meet the standards for exclusion adopted in the foregoing cases by the Fifth, Seventh, and Ninth Circuits, and those courts of appeals accordingly would have enforced the Board's order that was denied enforcement here. 2. Moreover, the decision below is fundamentally inconsistent with this Court's decisions upholding the Board's broad discretion under Section 9(b) to determine appropriate bargaining units. See, e.g., South Prairie Construction Co. v. Operating Engineers, 425 U.S. 800, 805 (1976); Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 171 (1971); Packard Motor Car Co. v. NLRB, 330 U.S. 485, 491 (1947). The Sixth Circuit's attempt to restrict the Board's discretion is based on the rationale in NLRB v. Sexton, supra. Noting that Section 2(3) of the Act "specifically excludes a spouse or child of an individual employer * * * but provides for no other exclusion on the basis of family relationship," the court there concluded (203 F.2d at 940): The Act, therefore, having expressly set forth the individuals who are excluded from the term "employee" on the basis of family relationship, we find no justification for the exercise of discretion on the part of the Board, by virtue of Section 9 of the Act, to exclude from the appropriate bargaining unit and from participation in the election * * * any persons on the basis of family relationship other than those specifically excluded under Section 2(3). Accord: NLRB v. Hubbard Co., 702 F.2d 634, 636 (6th Cir. 1983). But this is not a valid basis for limiting the Board's Section 9(b) authority to determine "the unit appropriate for the purposes of collective bargaining." If an individual is excluded under Section 2(3), he is denied all protection under Section 7 of the Act; he may be discharged for union activity and he has no right to representation in any unit. Simply because an individual is an "employee," notwithstanding a family tie to the employer, and therefore is protected by Section 7, is not determinative of whether the individual should properly be included in a bargaining unit /6/ -- as the court below itself implicitly recognizes by permitting such persons to be excluded if they enjoy special job-related privileges. /7/ The court of appeals' reliance on Section 2(3) as an implied restriction on Section 9(b) is thus misplaced. 3. Not only is the Sixth Circuit's "special job status" requirement for exclusion from a bargaining unit not compelled by Section 2(3) of the Act, it also significantly undermines the Board's attempt to respect and effectuate important policies underlying other provisions in the Act. Thus, in deciding to exclude close relatives of an owner who is active in the day-to-day management of a business, the Board has concluded that employee-relatives are likely to "get a more attentive and sensitive ear to their day-to-day and long-range work concerns than would other employees. While this accessibility to management may not always result in easily identifiable special privileges or favorable working conditions, the fact that they have this peculiar access gives them a status and area of interest not shared by the rest of the employees." Parisoff, 201 N.L.R.B. at 814. This "access" lessens the likelihood that they would vote in favor of union representation; since they have an effective avenue of access to management, their perceived need for a collective representation to provide such access is limited. In addition, an employee-relative who is financially dependent on the owner, who in turn is financially dependent on his company, will be motivated by very different factors than other employees in deciding whether to vote for a union. In a small family-held business, allowing close relatives to participate in the decision to select or reject a union may result, as in this case, in depriving other employees of representation by the bargaining agent of their choice. See Pargas of Crescent City, Inc., 194 N.L.R.B. 616, 617 (1971) (dissenting opinion of Member Jenkins), quoted in Caravelle II, 504 F.2d at 1187-1188. Thus, unlike the court's decision, the Board's rule fully respects the Section 7 rights of the employees. See Pittsburgh Plate Glass Co. v. NLRB, 313 U.S. 146, 165 (1941). The importance of the issue in this case, however, goes far beyond the instances where the employee-relative may be the swing vote in the representation election. Whenever the union wins, if a close relative has been included in the bargaining unit, "her future participation in union matters would necessarily be suspect and possibly divisive." Pargas of Crescent City, Inc., 194 N.L.R.B. at 617 (Member Jenkins, dissenting). /8/ Nor is this a trifling concern; "(i)n the adversary system which our labor laws envision, neither management nor labor should be forced to accept a potential fifth column into its ranks." NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 193 (Powell, J., dissenting). /9/ Since the Board's "community of interest" rule fully effectuates the statutory policy favoring "efficient collective bargaining" by maintaining the line between labor and management, it should have been upheld by the court below. See Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. at 172. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted, REX E. LEE Solicitor General CARTER G. PHILLIPS Assistant to the Solicitor General WILLIAM A. LUBBERS General Counsel JOHN E. HIGGINS, JR. Deputy General Counsel ROBERT E. ALLEN Associate General Counsel NORTON J. COME Deputy Associate General Counsel LINDA SHER Assistant General Counsel PATRICK J. SZYMANSKI Attorney National Labor Relations Board FEBRUARY 1984 /1/ The vote in Unit A was 20-18 with one challenged ballot -- Mildred Sabo's. The vote in Unit B was 4-3 with five challenged ballots, including that of Diane Sabo. The challenged ballots were determinative in both units because respondent alleged and the hearing officer found that one of the challenged ballots cast in Unit B (Fred Britton's) should have been counted in Unit A (App., infra, 27a, 44a-45a). /2/ The Board found it unnecessary to decide whether the ballot of Fred Britton who voted in Unit B should be transferred to Unit A, noting that because of the exclusion of Mildred Sabo, Britton's ballot was not determinative in that unit (App., infra, 22a n.2). /3/ The Seventh Circuit agreed with the view of the Sixth Circuit in NLRB v. Sexton, 203 F.2d 940 (1953), that Section 2(3) covers only cases where the parent or spouse of an employee is the sole owner of the business -- not cases where he is a substantial stockholder of a closely held corporation. 466 F.2d at 678-679. /4/ The Board expressly adopted the Caravelle criteria in Parisoff Drive-In Market, Inc., 201 N.L.R.B. 813, 814 n.2 (1973), and since that time has utilized them in determining whether employees should be excluded from collective bargaining units because of their family relationship with those who own and operate a business organization. See, e.g., Modern Mfg. Co., 261 N.L.R.B. 534, 551-552 (1982); Dunn Bros., Inc., 235 N.L.R.B. 1032, 1043 (1978); Marvin Witherow Trucking, 229 N.L.R.B. 412, 412-413 (1977). Typically, as in this case, the Board excludes employees who live with or are otherwise financially dependent on a relative who owns or manages the business. See, e.g., Pandick Press Midwest, Inc., 251 N.L.R.B. 473 (1980). Of course, whether the employee enjoys special job-related privileges, in addition to a family relationship with an owner of the business, remains relevant to determining the unit inclusion issue. See, e.g., Holthouse Furniture Corp., 242 N.L.R.B. 414, 415-416 (1979); Modern Mfg. Co., 261 N.L.R.B. 534, 551-552 (1982). Thus, where application of the Caravelle criteria shows that an employee-relative is not aligned with management by virtue of the family relationship, the existence of a special job status is necessary to exclude the employee from the unit. See, e.g., Toyota Midtown, Inc., 233 N.L.R.B. 797 n.3 (1977) (married, financially independent son of vice-president, no special privileges, included in the unit). Similarly, the Board excludes relatives of managers with no ownership interest in the business only where special job status is shown. See, e.g., Weyerhaeuser Co., 211 N.L.R.B. 1012, 1012-1013 (1974); Novi American, Inc.-Atlanta, 234 N.L.R.B. 421, 421-422 (1978). /5/ These courts have added the following factors to those listed in Caravelle I: "'(1) the activity, if any, of the employees in the Union (2) the total number of employees as against the number of blood related employees and (3) the overall ties and social activities of the family involved.'" Linn Gear, 608 F.2d at 794; Patterson, 636 F.2d at 1017. /6/ Thus, in NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 178, this Court held that, "in fulfilling its statutory obligation to determine appropriate bargaining units under Section 9 of the Act, 29 U.S.C. Section 159, for which broad discretion has been vested in the Board," the Board, for policy reasons, properly excluded from bargaining units employees with access to confidential, labor relations information. /7/ The court's rejection of the Board's finding that Diane Sabo enjoys a special job-related status with respondent, however, strongly suggests that it will be particularly difficult for the Board to exclude employee-relatives from bargaining units within the Sixth Circuit. The decision below therefore stands as a substantial obstacle to the Board's proper effectuation of its duties under Section 9(b). /8/ Member Jenkins further elaborated the point in ways that seem strikingly relevant to Diane Sabo's situation, if the union were elected (194 N.L.R.B. at 617-618): Her presence at union meetings would, considering the likelihood of her conveying information to the Employer (her husband, the only employer official at this facility), inhibit adequate and accurate expression of views and freedom of action on the part of the membership; and even if it did not, communication of such internal matters could effectively undermine or impair the ability of the Union to achieve its legitimate goals. /9/ The Board's rule also protects management. By excluding family members who have unusual access to the employer's confidential information, the Board makes it less likely that the union, in the event of a family squabble or a change in loyalties, would obtain from an employee-relative, materials or information to which the union is ordinarily not privy. The problem of such a potentiality for conflicting loyalties is especially pronounced in a case such as this one, in which both employees in question reside with owner-managers of the business. APPENDIX APPENDIX MATERIAL IS NOT AVAILABLE ON JURIS.