Labor Pains

Employees focus groups may seem like a good idea, but they could land you in court.
Magazine Contributor
6 min read

This story appears in the December 1997 issue of Entrepreneur. Subscribe »

In the 1990s workplace, business owners and their employees often sit at the same table to swap ideas and hammer out ways to improve quality and efficiency. Instead of maintaining an us/them mentality, employers try to foster teamwork through employee focus groups and involvement committees, working together to find solutions to daily business problems. The approach tends to work well. In fact, the Employment Policy Foundation, a research and education organization in Washington, DC, credits quality circles and employee involvement committees with as much as 70 percent of the productivity increase and growth in the U.S. economy in the early 1990s.

That's the good news. The bad news is the National Labor Relations Board (NLRB) deems some employee focus groups illegal employer-dominated unions. To the dismay of many human resources experts, federal courts have backed the NLRB's position. Indeed, in a 1996 case, the U.S. Supreme Court ruled that courts must defer to the NLRB's interpretation of the law in this area. Accordingly, employers who sponsor committees that cross the line into topics and strategies traditionally reserved for unions may have to answer for their actions in court--and be forced to disband their committees.

While business owners are trying to build teamwork and draw diverse managers and employees together, labor unions are generally opposed to blurring the distinction. Across the board, union leaders envision employees being dominated by their employers and losing ground gained through decades of collective bargaining. Accordingly, unions turn to the NLRB and, eventually, to the courts to enforce Section 8(a)(2) of the 1937 National Labor Relations Act (NLRA), which prohibits employer-dominated labor organizations.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

Making A Case

Consider a case decided in July by the U.S. Court of Appeals for the Sixth Circuit. Webcor Packaging Inc., a Flint, Michigan, manufacturer of corrugated packaging products, hired a new vice president of operations who aimed for increased cooperation between workers and management. The vice president established an employee involvement steering committee composed of three workers and two managers to investigate ways to improve safety, productivity and quality. When the committee's discussions kept veering into the area of employer-employee relations, the vice president formed a "plant council" to address work rules, wages and benefits. Consisting of five employees elected by their peers and three appointed managers, the council made proposals to management based on suggestions solicited from all employees.

Perhaps prompted by an industrial workers union attempting to organize at the plant, the NLRB investigated, declared the plant council an illegal company-dominated labor organization and demanded it be disbanded. Webcor contended that the council was an example of worker-management cooperation, which deserved praise rather than legal attack.

The court found that the council was indeed a labor organization as defined by the NLRA because 1) employees participate; 2) they deal with employers; 3) those dealings concern grievances, labor disputes, work hours, wages, rates of pay or conditions of work; and 4) the committee in some way represents other employees. The court noted that Webcor employees elected some of their peers to sit on the council and that proposed changes were circulated among employees with instructions to respond to the plant council. By making proposals for management to consider, the council was "dealing with" management.

The question remained whether the company dominated the plant council. The court noted that under NLRB definition, the company dominates an organization when its structure and function are essentially determined by management, and management can dissolve it at any time. Accordingly, the court ordered Webcor's plant council disbanded.

This decision closely follows the landmark case in this area, Electromation v. NLRB. The opening pages of the opinion in Electromation read like a who's who of labor and business, given the avalanche of amicus curiae briefs filed on the company's side by a host of business groups and trade associations, and on the NLRB's side by various labor unions. The case, decided by the U.S. Court of Appeals for the Seventh Circuit in 1994, concerned a nonunionized Indiana manufacturer of small electrical components. When employees objected to a plan to revise the attendance bonus, the company met with randomly selected employees and decided to form action committees to seek solutions to various problems. The company expressed its intention to implement solutions acceptable to most employees if their cost was reasonable. As in the Webcor case, the company asked members of the action committees to talk with other employees--thus setting them up as representatives.

The court upheld the NLRB's ruling that the action committees comprised an employer-dominated labor organization because the company created the committees; presented them to employees as the only viable way to remedy their grievances; determined each committee's goals, jurisdiction and number of members; placed management representatives on each committee; and permitted employees to attend the meetings on company time. The court noted that the NLRA might need to be updated to allow mutually agreeable employee participation committees but that it was up to Congress to do so.

Last year, Congress passed a bill, the Teamwork for Employees and Management (TEAM) Act, designed to overturn the Electromation case and allow nonunion employee participation groups to improve communication and productivity. However, President Clinton vetoed the bill, claiming it would "undermine the system of collective bargaining that has served this country so well for many decades."

Lawful Assembly

Don't let these court decisions keep you from instituting quality circles or employee participation committees because these groups can increase productivity, efficiency and morale. The key is to make sure they don't fit the NLRB definition of an employer-dominated labor organization:

  • Don't have employees who serve in the quality circle act as representatives for other employees, soliciting ideas and surveying opinions. Restrict their role to brainstorming their own ideas.
  • Limit discussion to issues of work quality, efficiency, productivity or customer service, rather than terms of employment such as wages, hours and benefits.
  • Don't have the groups make proposals for management to consider, implement or reject because that looks too much like collective bargaining. Courts have ruled that an occasional instance of the group "dealing with" management is not a violation, but a consistent pattern or practice is.
  • Don't let management dominate the group. While an agenda helps keep the group focused on legitimate areas for discussion, let the employees create their own agenda and structure their own meetings. Simply being aware of the issues here will likely help you create quality circles that won't bring the NLRB to circle around your business.
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