Seventh Circuit Holds Agreement Modifying CBA did not Create Indefinite Obligation for Employer to Keep Unionized Plant Open
George Patterson | Bloomberg Law
The Seventh Circuit held a “mid-term Agreement” that provided concessions from the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, and its Local 2343 (Union) in exchange for the employer, ZF Boge Elastmetall LLC’s (ZF Boge) decision to retain the unionized facility expired along with the parties’ collective bargaining agreement (CBA). Despite the mid-term Agreement’s express statement that ZF Boge would close a non-union facility rather than the union plant as part of a consolidation if the Union offered certain concessions, including a pension freeze, the court held that the mid-term Agreement did not prevent ZF Boge from closing the union plant once the CBA expired. In the court’s view, the mid-term Agreement was “a term-by-term modification of the existing CBA that leaves all unaltered terms — including the duration clause — of the CBA intact.”
Consolidation of Manufacturing Operations
ZF Boge operated two manufacturing facilities that produced rubber and metal brushings for the automotive industry. The employees at the Paris, Illinois facility were represented by the Union pursuant to a CBA that covered the period from April 2005, through April 2008. ZF Boge’s other facility in Hebron, Kentucky employed non-union workers.
In early 2007, ZF Boge began considering consolidating its two facilities due to “significant operating losses.” As a result, ZF Boge and the Union agreed to bargain over certain aspects of the CBA that the company deemed “non-competitive” in exchange for ZF Boge’s promise that the changes would not take effect unless the Paris plant was chosen to remain open.
In June 2007, the Union and ZF Boge signed an agreement (the mid-term Agreement), which was written in chart form and placed each previously negotiated provision from the still-effective 2005 CBA next to the newly negotiated terms, topic-by-topic. In addition to concessions that ZF Boge requested, such as a pension freeze and biweekly payroll, the Union negotiated more generous 401(k) provisions, as well as the addition of five employees to the bargaining unit. Notably, the midterm Agreement stated: “None of these items will be implemented unless Paris is the plant chosen to remain in operation after the consolidation. If Paris is NOT the chosen facility, it will continue to operate under the old UAW contract.”
Shortly after the parties had accepted the specifics of the mid-term Agreement, but before executing it, ZF Boge announced its decision to close the Hebron facility and to keep the Paris facility open. The company then began consolidating operations but did not completely close the Hebron facility.
During the consolidation process in February 2008, the Union and ZF Boge began having difficulty agreeing on the terms of a new CBA. In April 2008, the current CBA expired without a new agreement having been reached and the Union went on strike. In mid-to-late April, ZF Boge informed the Union that it was reconsidering its decision to keep the Paris facility open and that it would commence bargaining on this issue.
ZF Boge ultimately decided to close the Paris facility and keep the Hebron facility open. Although the Union agreed to end the strike and return to work, by the end of 2009, ZF Boge closed the Paris facility and continued operations in Hebron.
The Union filed suit against ZF Boge in the Central District of Illinois, alleging that the company breached the mid-term Agreement when it accepted and implemented the Union’s concessions but then allowed only the Hebron facility to survive consolidation. The district court granted summary judgment for ZF Boge on the ground that the mid-term Agreement was a modification to the CBA and expired with the CBA in April 2008. The Union appealed to the Seventh Circuit.
Mid-term Agreement did not Survive Expiration of the CBA
On appeal, the Seventh Circuit emphasized that the mid-term Agreement was silent about its duration. Although the Agreement provided implementation dates for its new terms, many of which depended on the date of “an official announcement regarding the consolidation plan,” it did not anywhere include a date of expiration. The only provision suggesting any duration was the final note, which indicated that the newly negotiated terms would “not be subject to change in the next contract negotiations.”
As the court explained, although the mid-term Agreement’s language did little to resolve the dispute, its structure demonstrated the parties’ intent to modify the existing CBA. The Agreement’s provisions, the court continued, were set forth topic-by-topic, with the “Present Language” under the existing CBA in one column and the “Proposed Language,” or newly negotiated terms, in the adjacent column. The court reasoned that in this context, “the new provisions are straightforward amendments to existing contractual terms; the clear intent of this structure was to alter specific provisions of the existing contract without doing violence to any of the unchanged terms of the then-existing CBA, including its expiration date.”
Moreover, the court noted, the mid-term Agreement explicitly provided that if Paris were not selected to remain open, the employees in Paris would “continue to operate under the old UAW contract.” Since the Paris workers could not continue to operate under an expired contract that no longer bound the parties, the court concluded that the mid-term Agreement could not have been intended to survive expiration of the CBA.
Alternatively, the Union contended that even if the mid-term Agreement was a modification of the CBA rather than an independently enforceable contract, it carried obligations that continued past the CBA’s expiration. In this regard, the Union claimed its right to have the Paris facility continue operations accrued when ZF Boge implemented the concessions, which were conditioned on the Paris plant remaining open following consolidation.
The court disagreed, explaining that the parties should have provided explicitly for an unlimited duration for the obligation to maintain the Paris plant if that was their intent. The court found support for this conclusion in the fact that the Union provided the specific concessions for a limited time beyond the expiration of the CBA. Consequently, the court considered it “illogical that the parties would intend the instrument to bind ZF Boge to the Paris facility for a much longer term — indeed, an indefinite one — by its silence when it had been explicit about the much shorter obligation regarding the concessions.”
Further, the court determined that the case differed from the example of an employee who accrued a right to payment during the term of a contract, but did not receive payment during that term. See Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993). In the case of ZF Boge, the court reasoned, the Union “provided ZF Boge with the concessions in exchange for the benefit of the bargain that they received within the mid-term Agreement’s term: The decision to close the Hebron facility and to leave the Paris facility open was made, and the execution of that decision was undertaken. The result was an additional year of survivability at the Paris facility.” In the court’s view, the record simply did not support the Union’s claim that limiting the duration of the mid-term Agreement to the term of the CBA required it to give concessions for ZF Boge’s “mere empty words.” The thus court affirmed summary judgment for ZF Boge.
This case reinforces the traditional view that courts should avoid deviating from the express terms of collective bargaining agreements, the controlling documents in labor-management disputes. Because CBA’s are typically the result of tough negotiating by powerful interests represented by sophisticated counsel, courts are generally reluctant to rely on other instruments or representations to alter the parties’ contractual arrangements.
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. Bloomberg Finance L.P. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
© 2011 Bloomberg Finance L.P. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of Bloomberg Finance L.P.