Legal environment of business, 6th edition

THE LEGAL ENVIRONMENT BUSINESS OF This page intentionally left blank THE LEGAL ENVIRONMENT BUSINESS OF A Critical Thinking Approach SIXTH EDITION NANCY K KUBASEK BARTLEY A BRENNAN M NEIL BROWNE Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Assistant Vice President, Executive Editor: Stephanie Wall Editorial Senior Project Manager: Karen Kirincich Editorial Director: Sally Yagan Editor in Chief: Donna Battista Director of Editorial Services: Ashley Santora Editorial Assistant: Brian Reilly Director of Marketing: Patrice Jones Marketing Assistant: Ian Gold Senior Managing Editor: Cynthia Zonneveld Project Manager: Carol O’Rourke Senior Operations Specialist: Diane Peirano Art Director: Jonathon Boylan Cover Designer: Jonathon Boylan Manager, Cover Visual Research & Permissions: Karen Sanatar Cover Art: Ron Koeber/© Aurora Photos/Alamy Media Development Manager: Cathi Profitko Full-Service Project Management: S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Webcrafters Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 10.5/12 Garamond Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text Copyright © 2012, 2009, 2006, 2003, 1999 Pearson Education, Inc., Upper Saddle River, New Jersey 04758 All rights reserved Manufactured in the United States of America This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps Library of Congress Cataloging-in-Publication Data Kubasek, Nancy The legal environment of business : a critical thinking approach / Nancy K Kubasek, Bartley A Brennan, M Neil Brown — 6th ed p cm ISBN-13: 978-0-13-266484-4 ISBN-10: 0-13-266484-4 Industrial laws and legislation—United States Business law—United States Trade regulation—United States I Brennan, Bartley A II Brown, M Neil III Title KF1600.K83 2011 346.7307—dc22 2010054532 10 ISBN 10: 0-13-266484-4 ISBN 13: 978-0-13-266484-4 To the numerous students who appreciate the importance of developing their critical thinking skills for their personal growth and development NANCY K KUBASEK AND M NEIL BROWNE In memory of Professor Thomas Dunfee of the Wharton School of Finance BARTLEY A BRENNAN This page intentionally left blank Brief Contents P A R T O N E Introduction to the Law and the Legal Environment of Business 1 Critical Thinking and Legal Reasoning 2 Introduction to Law and the Legal Environment of Business 15 The American Legal System 33 Alternative Tools of Dispute Resolution 70 Constitutional Principles 99 Cyberlaw and Business 134 White-Collar Crime and the Business Community 160 Ethics, Social Responsibility, and the Business Manager 202 The International Legal Environment of Business 228 P A R T T W O Private Law and the Legal Environment of Business 261 10 11 12 13 14 15 16 17 18 The Law of Contracts and Sales—I 262 The Law of Contracts and Sales—II 289 The Law of Torts 309 Product and Service Liability Law 342 Law of Property: Real and Personal 372 Intellectual Property 394 Agency Law 413 Law and Business Associations—I 434 Law and Business Associations—II 453 P A R T T H R E E Public Law and the Legal Environment of Business 477 19 20 21 22 23 24 25 26 The Law of Administrative Agencies 478 The Employment Relationship 499 Laws Governing Labor–Management Relations 527 Employment Discrimination 557 Environmental Law 600 Rules Governing the Issuance and Trading of Securities 629 Antitrust Laws 680 Laws of Debtor–Creditor Relations and Consumer Protection 721 APPENDIX A The Constitution Of the United States 763 APPENDIX B Uniform Commercial Code (2000 Official Text), Article 769 GLOSSARY INDEX 783 797 vii This page intentionally left blank Contents PREFACE xxxi ACKNOWLEDGMENTS xxxv ABOUT THE AUTHORS xxxvii P A R T O N E Introduction to the Law and the Legal Environment of Business 1 Critical Thinking and Legal Reasoning The Importance of Critical Thinking A Critical Thinking Model United States of America v Martha Stewart and Peter Bacanovic The Critical Thinking Steps Facts Issue Reasons and Conclusion Rules of Law Ambiguity Ethical Norms Analogies Missing Information Using Critical Thinking to Make Legal Reasoning Come Alive Legal Reasoning 10 Applying the Critical Thinking Approach 13 Assignment on the Internet 14 On the Internet 14 For Future Reading 14 Introduction to Law and the Legal Environment of Business 15 Definition of the Legal Environment of Business 16 Definition of Law and Jurisprudence 17 Natural Law School 18 Positivist School 19 Sociological School 19 American Realist School 20 Critical Legal Studies School 20 Feminist School 20 Law and Economics School 21 Sources of Law 21 The Legislature as a Source of Statutory Law 21 The Judicial Branch as a Source of Case Law 23 The Executive Branch as a Source of Law 25 Administrative Agencies as a Source of Law 25 ix CHAPTER 20 around for the safety fork Realizing that the worker on the previous shift must have removed the fork, she reached her hand inside the machine to unjam it Before she could remove her hand, the machine cycled, catching her hand and injuring it severely She filed a worker’s compensation claim, which her employer contested because she caused the injury by her disobedience of the safety rules Evaluate the employer’s argument 20-9 Caroline Williams works for a firm that has a written policy prohibiting the use of company telephones for personal use Employees have been told that the company randomly monitors telephone conversations to enforce this policy Caroline uses a company telephone to call her doctor to find out the results of a blood test she had taken to determine whether she had contracted a sexually transmitted disease Her employer intercepted the phone call and, once he heard her question, stayed on the line to find out the results of her test Discuss why you believe the employer’s behavior is lawful or unlawful If unlawful, what penalty should he receive? ᭜ The Employment Relationship 523 20-10 Michael Meuter was an employee in a hospital emergency room He used an extension phone to call one of the workers in the pharmacy to order some drugs for the emergency room After placing his request, he started to complain to the pharmacy worker about his supervisor, calling the supervisor a number of offensive names Unknown to Michael, his supervisor was listening to the conversation Was the supervisor’s listening to the conversation lawful? 20-11 Ginny Morris applied for a job as an executive assistant to the president of a software firm She received high evaluations from those on the hiring committee and was told that she looked like an excellent candidate for the job, but before a final decision could be made, she would have to take a drug test so that the firm could be confident that she did not use any illegal drugs and a lie-detector test to ensure that she would be someone who could be entrusted with trade secrets Discuss whether you believe there are any problems with the firm’s requests CASE PROBLEMS 20-12 Clarence Trosper worked for Armstrong Wood Products, Inc For the first four years of his employment, Trosper operated sanding and sawing equipment inside the plant Eventually, he was assigned to work outdoors, removing heavy boards by hand rapidly and continuously from a conveyor belt After removing them from the belt, Trosper would sort the boards and then stack them according to grade After being reassigned, Trosper began to experience an intense pain in the base of his hands near his thumbs He reported the pain to his supervisor and received an injection The pain worsened Trosper asked to be moved back inside the plant and the employer agreed Several years passed during which Trosper experienced little to no pain Then, in 2001, Trosper began working in a position that required him to lift 45- to 70-pound buckets to shoulder level in order to pour chemicals into a hopper The pain returned Trosper reported the pain to a supervisor and eventually went to see a doctor Trosper was diagnosed with carpometacarpal osteoarthritis The diagnosis ultimately led to surgery on both of Trosper’s hands A doctor later determined that given the nature of the injury, it was likely that Trosper’s injuries were preexisting and had been aggravated by the type of work he was assigned At trial, numerous doctors testified but disagreed about whether the injury was preexisting The trial court awarded partial worker’s compensation benefits The Special Worker’s Compensation Appeals Panel concluded that the injury was not caused or aggravated by the work performed for the defendant Trosper filed a request for a full court review that was later heard by the Supreme Court of Tennessee How you believe the court ruled? What reasons you think the court used to justify its decision? Trosper v Armstrong Wood Products, Inc., 273 S.W.3d 598 (Tenn 2008) 20-13 Julie Krenzke worked as a financial services manager for Lindsay Lexus from March 2002 until October 2004 Krenzke was very good at her job when she was present, but she was often absent due to miscellaneous vague health concerns On September 29, 2004, Krenzke awoke to symptoms commonly associated with extreme stress and anxiety, including heart palpitations, nausea, shaking, clamminess, and dizziness Krenzke did not go to work on September 29, 2004 Instead, she went to see Dr Michael Greene, who placed her on a heart monitor and wrote her a prescription At this visit, the doctor also faxed a note to Krenzke’s direct supervisor indicating that Krenzke could not work for two days The supervisor granted leave for those two days 524 PART THREE ᭜ Public Law and the Legal Environment of Business When Krenzke returned to work, she met with the general manager at Lindsay Lexus to inform him that Dr Greene had indicated that she needed to take a leave of absence from work Her request for leave was denied Krenzke proposed that she work part time This subsequent proposal was also denied Five days later, Dr Green faxed a note to Lindsay Lexus indicating that Krenzke needed to take two weeks off work due to illness That same day, Krenzke submitted a letter to the general manager indicating that she was leaving her job because the company had failed to grant her a leave of absence After leaving, Krenzke visited Dr Greene several times and was referred to a cardiologist and pulmonary specialist Krenzke filed this action alleging that Lindsay Lexus had violated her rights under the FMLA The district court granted summary judgment in favor of Lindsay Lexus, holding that Krenzke did not provide adequate notice that she was entitled to leave under FMLA or that she was suffering from a serious health condition Was Krenzke successful in her FMLA claim? Why or why not? Krenzke v Alexandria Motor Cars, Inc., 289 Fed Appx 629 (4th Cir 2008) 20-14 Sabrina Polkey worked for Transtecs Corporation, a military contractor that operated a mailroom at a navel base Polkey noticed opened, undelivered mail in a trash can at the front desk at the end of the day Polkey reported the incident to her supervisor, Carl Kirtley, who then asked all of the employees to consent to a polygraph test The employee suspected of tampering with the mail took his test first, and his results came back suggesting deception when he denied tampering with the mail Kirtley then encouraged the other employees to take the polygraph test to clear their names Polkey and the other employees expressed doubts about the accuracy of the polygraph and declined to take the test Polkey was fired a week later for officially accepting deliveries through the back door, in violation of regulations Polkey brought action against Transtecs, alleging a violation of the Employee Polygraph Protection Act (EPPA) Transtecs argued that it fell under two exceptions of the EPPA: first, it was a military contractor, so it fell under the national defense exception; second, it fell under the ongoing investigation exception The district court granted summary judgment for Polkey, and Transtecs appealed to the Eleventh Circuit How you think the appeals court ruled and why? Polkey v Transtecs Corp., 404 F.3d 1264 (11th Cir 2005) 20-15 Yatram Indergit worked for Rite Aid as a store manager from 1979 to 2007 Indergit’s duties at Rite Aid included disciplining employees, interviewing employees, training employees, scheduling employee hours, performing various office duties, running cash registers, stocking shelves, and so on When Indergit’s employment was terminated in 2007, he filed suit against Rite Aid for, among other things, failure to pay overtime as required by the FLSA The defendants contended that Indergit’s employment fell within the executive exemption to the overtime requirement Indergit contended that the majority of his job responsibilities were the same as those performed by nonexempt employees Moreover, Indergit argued that his job duties were primarily nonexempt, as shown by evidence that nonexempt employees previously performed his duties Rite Aid moved for summary judgment, arguing that there was no genuine issue of material fact that could be heard by the trier of fact Is there an issue of material fact? What evidence would be necessary to decide whether Indergit’s job responsibilities made him exempt from the overtime requirements? Indergit v Rite Aid Corp., 2010 U.S Dist LEXIS 32322 (2010) 20-16 Robert Krieg worked for the Streets and Sanitation Department of Marion, Indiana In 2002, the city entered into a collective bargaining agreement (CBA) that allowed random and unnotified drug tests for “safety-sensitive” employees A “safety-sensitive” position was a position that required the employee to hold a commercial driver’s license (CDL) Krieg’s position required a valid CDL for any new hires, but he was grandfathered in and was not required to obtain a CDL He still operated pieces of large machinery, such as snowplows and dump trucks, but not commercial vehicles On October 28, 2004, it was announced that every employee would have to submit to a drug test or face termination of employment Krieg refused to take the drug test and called his attorney He was subsequently fired and filed suit against the city, alleging that a forced drug test for non-CDL employees was an illegal search under the Fourth Amendment The city argued that the union had agreed to the random, unannounced drug testing in its CBA, and also that Krieg was a “safety-sensitive” employee, which allowed the city to require the drug test; based on these contentions, the city moved for summary judgment The district court granted summary judgment to the city On appeal, the city’s argument that the union had agreed to the drug tests for non-CDL employees was rejected, but the appeals court still affirmed that the city was legally allowed to require a drug test from Krieg What was the court of appeals’ reasoning in allowing Krieg to be randomly tested for drugs? Krieg v Seybold, 481 F.3d 512 (7th Cir 2007) 20-17 Douglas Schultz, Anthony Phiniezy, Melissa Lopes, Steven Rowe, and Jared Baker worked as personal protection specialists (PPS agents) for Prince Faisal bin Turki bin Nasser Al-Saud (the Prince), a diplomat and member of the Saudi royal family who had a residence in Virginia The plaintiffs worked through Capital International Security, Inc (CIS), CHAPTER 20 which was engaged by the Prince to provide his personal security detail The agents worked on an hourly basis, based on the Prince’s protection needs, and performed a variety of services, such as sorting mail and vehicle care, as well as their main duty of protecting the Prince and his family CIS and the Prince provided all of the agents’ equipment and weapons, unless the agents owned and wished to use their own handguns Toward the end of their employment, Sammy Hebri, the founder of CIS, instructed all of the agents to get private security licenses and personal liability insurance so that they could be classified as independent contractors None of the agents obtained private security licenses or liability insurance ᭜ The Employment Relationship 525 Shultz, Phiniezy, Lopes, Rowe, and Baker filed an action against CIS and Hebri, claiming unpaid overtime CIS and Hebri argued that the agents were independent contractors and therefore were not covered by the FLSA The agents argued that they were employees because they lacked the control over their duties and hours that an independent contractor would have and therefore were entitled to overtime compensation The district court found for Hebri and CIS The agents appealed How you think the appeals court ruled, and why? Schultz v Capital International Security, Inc., 466 F.3d 298 (4th Cir 2006) THINKING CRITICALLY ABOUT RELEVANT LEGAL ISSUES For years, courts, employers, and employees have struggled with the issue of employee drug testing Employers want their employees to be drug free, whereas employees not want to submit to an invasive and embarrassing procedure Courts want to uphold employees’ right to privacy while allowing employers to run a safe, drug-free workplace This issue may finally have a solution Recently, a new drug test has been developed that uses a swab of saliva rather than urine or blood It is being implemented in several states already, including Georgia and Hawaii This new test gives much faster results than urine and blood tests, and some experts believe that it might be more effective than urine or blood tests The results of negative or nonnegative can be returned within 10 minutes, and employees who test negative can begin or return to work immediately This faster process alleviates the stress and anxiety of employees who must be tested for drugs The major benefit of the new saliva test is that it is a noninvasive test Employees not have to suffer the embarrassment of having to “pee in a cup”or the painful experience of having blood drawn Giving a swab of saliva is easy This drug test protects employees from having to undergo an invasive or embarrassing test, while allowing employers to keep their workplaces drug free Allowing employers to drug-test their employees is very important to keeping the workplace safe and ethical Employees who use drugs while on the job are a danger to themselves and to others and could be responsible for lawsuits against an employer Also, employees who break the law by taking illegal drugs might engage in other illegal activity, which could also be damaging to the employer Allowing drug testing is the best way for an employer to keep the workplace drug free Random drug testing has been legally questionable because of the employees’ right to privacy The saliva drug test eliminates the concerns with the right to privacy and is a major step in helping keep the workplace safe and drug free How would you express the issue and conclusion? Are any of the terms the author uses to make her point ambiguous? Clue: How is the new drug test better than the old drug tests? What missing information would help your evaluation of this argument? Write a short essay that someone with a different opinion about this topic might write Clue: How could different definitions of ambiguous words in this essay change the conclusion? ASSIGNMENT ON THE INTERNET Laws that govern employment relationships indicate the ethical norms a particular country or state wishes to advance This can be seen no more clearly than in cases of family or medical leave Visit the Web site for the Clearing House in International Development in Child, Youth, and Family Policies (www.childpolicyintl.org) 526 PART THREE ᭜ Public Law and the Legal Environment of Business and compare the family and medical leave policies of the United States with those of other industrialized countries around the world Write a paper in which you address the following questions: How does the United States compare on a world scale when it comes to employee benefits for family leave? What does this comparison say about the ethical norms of the United States in areas of employment relationships? ON THE INTERNET www.benefitnews.com This site provides news about employee benefits for employers, employees, and advisors The site also offers an e-mail newsletter www.dol.gov At this site, the home page of the Department of Labor, you can find all the information you would need as an employer to make sure that you are in compliance with the FLSA www.osha.gov The Web page of OSHA provides information about worker health and safety, including how to file a complaint It also provides the text of the Occupational Safety and Health Act of 1970, as well as OSHA standards, regulations, and directives www.hr.ucdavis.edu/Pubs/All/Fmla_booklet This site contains a document entitled “Family and Medical Leave What Every Supervisor Should Know,” which provides a good overview of the FMLA and illustrates its implementation by a public employer www2.ohchr.org/english/law/cescr.htm At this page, you can find the International Covenant on Economic, Social, and Cultural Rights www.privacyfoundation.org To learn more about privacy issues related to employment, go to this site www.dol.gov/esa/minwage/america.htm This Web site provides an interactive map detailing the minimum wage laws in U.S states and territories www.law.cornell.edu/topics/Table_Labor.htm This Web site, run by Cornell Law School, provides links to the employment and labor laws in each state Use this site to look up the employment laws in your state FOR FUTURE READING Davis, Donald Carrington “MySpace Isn’t Your Space: Expanding the Fair Credit Reporting Act to Ensure Accountability and Fairness in Employer Searches of Online Social Networking Services.” Kansas Journal of Law & Public Policy 16 (2006): 237 Helleck, Adam M., Amy Rohde Leslie, and Sharla J Frost “Welding Fumes: A Review of the History, Workplace Standards, Research, and Litigation from the 1920s to Present for Welding Fumes in General and Manganese Dust/Fumes.”South Texas Law Review 48 (2006): 527 Hornung, Meir S “Think Before You Type: A Look at Email Privacy in the Workplace.” Fordham Journal of Corporate & Financial Law 11 (2005): 115 Stanton, Jeffrey M., and Kathryn R Stam The Visible Employee: Using Workplace Monitoring and Surveillance to Protect Information Assets—Without Compromising Employee Privacy or Trust Medford, NJ: Cyberage Books, 2006 Williams, Nikita “HIV as an Occupational Disease: Expanding Traditional Worker’s Compensation Coverage.” Vanderbilt Law Review 59 (2006): 937 21 Laws Governing Labor–Management Relations ᭿ STRUCTURE OF THE PRIMARY U.S LABOR LEGISLATION AND THE MECHANISMS FOR ITS ENFORCEMENT ᭿ LABOR ORGANIZING ᭿ THE COLLECTIVE BARGAINING PROCESS ᭿ STRIKES, BOYCOTTS, AND PICKETING ᭿ GLOBAL DIMENSIONS OF LABOR–MANAGEMENT RELATIONS n the early 1800s, labor unions were very rare Despite the mistreatment of workers during the Industrial Revolution, most attempts to organize workers during the nineteenth and early twentieth centuries were treated by the courts as criminal conspiracies Finally, in the economic chaos of the Great Depression, Congress enacted laws giving employees the right to organize and to bargain collectively over wages and terms and conditions of employment Union strength has fluctuated in the years since unions were legalized More than a third of U.S workers were organized in the post–World War II period By 1983, however, only 20.1 percent of workers were unionized, and, by 2006, the percentage had fallen to 12.0 percent, or 15.4 million workers However, in 2007, union membership increased to 12.1 percent, the first time union “density” had increased in several years In 2008, the rate was 12.4, and it fell slightly to 12.3 in 2009.1 Moreover, in 2008, the median weekly earnings of workers who were represented by unions was $908, compared with $710 per week for those not represented by unions.2 Not all occupations are equally organized Exhibit 21-1 shows the percentages of workers organized by occupational group in 2009 Although organized workers are still not in as powerful a position as their employers, they are distinctly better off than they were during most of our I U.S Dept of Labor, Union Members Summary retrieved January 2, 2011, from, http://www.bls gov/news.release/union2.nr0.htm Ibid 527 528 PART THREE ᭜ Public Law and the Legal Environment of Business PERCENTAGE OF EMPLOYED UNION–REPRESENTED WAGE AND SALARY WORKERS, BY OCCUPATION, 2009 20 18 16 14 12 10 15.2 Managerial and Professional 8.1 Technical, Sales, and Administrative Support 12.7 Service 17.7 Production, Transportation, and Material Moving 18.6 Natural Resources, Construction, and Maintenance 2.9 Farming, Forestry, and Fishing EXHIBIT 21-1 PERCENTAGES OF WORKERS ORGANIZED BY OCCUPATIONAL GROUP IN 2009 nation’s existence The primary basis for their improved status is the National Labor Relations Act (NLRA), which was passed in 1935 and is the focus of this chapter The first section outlines the structure and enforcement of the NLRA and the Landrum–Griffin Act The next three sections discuss areas of labor– management relations governed by the NLRA: organizing, collective bargaining, and the collective activities of striking, picketing, and boycotting This chapter concludes with a consideration of the international dimensions of labor law Before you read about our system of labor laws, examine Table 21-1, which summarizes the two conflicting views of the role of unions in economics and society Whether one thinks labor laws should strengthen or restrain labor organizations depends largely on which of the two “faces” of unions one thinks is “prettier.” CRITICAL THINKING ABOUT THE LAW Many people hold strong feelings about unions Workers who belong to unions often view unions as positive forces that work to their benefit In contrast, employers are often suspicious of the activity of unions As you consider the aspects of labor law in this chapter, be aware of the role of biases in complex legal issues The following critical thinking questions will help you consider the role of biases and ethical norms in labor legislation In the language of ethical norms, what function unions serve for workers? Clue: Remember the list of ethical norms and reread the beginning paragraphs of this chapter How labor unions help workers? Can you match this answer to an ethical norm? What role you think personal ethical norms should play in thinking about labor legislation? Clue: Could paying attention to these ethical norms benefit workers or employers in any manner? Your coworkers have been excitedly talking for days about plans to unionize You are unsure if you will join the union One of your coworkers argues that joining the union will help you get a raise What questions you have for your coworker about missing information? Clue: Think about any possible costs associated with getting a raise CHAPTER 21 ᭜ Laws Governing Labor–Management Relations 529 TABLE 21-1 THE TWO FACES OF UNIONS Collective Face Monopoly Face Unions primarily provide a collective voice through which workers can express their job-related concerns Unions increase efficiency because unionized firms have lower employee turnover rates, so the employer spends less money and time training new employees Because unions usually negotiate contracts that base wage increases primarily on seniority, older workers are more likely to help newer ones and a more cooperative workplace will exist, thereby increasing efficiency Unions decrease inequality of wage distribution within the firm because they will try to raise the wages of the belowaverage workers up to those of the average; for solidarity purposes, they have to try to make the wages of those in the bargaining unit more equal Unions are democratic institutions, representing the interests of workers in general in the political process Unions are institutions that primarily serve to raise wages above competitive levels Unions decrease efficiency by securing unmerited wage increases for their workers, thereby causing a misallocation of resources Unions decrease efficiency by causing strikes that result in lost production and obtaining special contract provisions that reduce productivity Unions increase the existing inequality of wage distribution by providing higher wages for unionized workers at the expense of nonunionized workers Unions gain their power through coercion and the threat of physical violence, and use that power to lobby for legislation to restrict competition in their respective industries Source: Adapted from R B Freeman and J L Medoff, What Do Unions Do? (New York: Basic Books), 1994 Structure of the Primary U.S Labor Legislation and the Mechanisms for Its Enforcement Three major pieces of legislation govern labor–management relations in the United States today: the Wagner Act of 1935, the Taft–Hartley Act of 1947, and the Landrum–Griffith Act of 1959 (the last is also cited as the Labor–Management Reporting and Disclosure Act or LMRDA) The Taft–Hartley Act amended the Wagner Act, and they are jointly referred to as the NLRA In this section, we briefly describe the primary features of each of these acts and discuss the situations in which the business manager is most likely to need an understanding of these laws THE WAGNER ACT OF 1935 The Wagner Act (also called the National Labor Relations Act or NLRA) was the first major piece of federal legislation adopted explicitly to encourage the formation of labor unions Many supporters of this act recognized that a number of labor problems were caused by gross inequality of bargaining power between employers and employees They hoped that the Wagner Act would bring about industrial peace and raise the standard of living of U.S workers The act was to accomplish those goals by facilitating the formation of labor unions as a powerful collective voice for employees and by providing for collective bargaining between employers and unions as a means of obtaining the peaceful settlement of labor disputes The key section of the Wagner Act is Section This section provides that: [e]mployees shall have the right to self-organization, to join, form or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in concerted activities for the purpose of collective bargaining or other mutual aid and protection Wagner Act Guarantees the rights of workers to organize and bargain collectively and forbids employers from engaging in specified unfair labor practices Also called the National Labor Relations Act (NLRA) collective bargaining Negotiations between an employer and a union over, primarily, wages, hours, and terms and conditions of employment 530 PART THREE ᭜ TABLE 21-2 EMPLOYER UNFAIR LABOR PRACTICES Public Law and the Legal Environment of Business Section Prohibited Practice 8(a)(1) 8(a)(2) 8(a)(3) Interference with employees’ Section rights Employer-dominated unions Discrimination by employers in hiring, firing, and other employment matters because of union activity Retaliation against an employee who testifies or makes charges before the National Labor Relations Board Failure to engage in good-faith collective bargaining with duly certified unions 8(a)(4) 8(a)(5) Employees’ Section rights are protected through Section 8(a) of the act, which prohibits specific “employer unfair labor practices.” These practices are delineated in Table 21-2 Section of the act sets forth the procedures, including the secret ballot election, by which the exclusive employee-bargaining-unit representative (union representative) is to be chosen The final important portion of the Wagner Act authorized an administrative agency, the National Labor Relations Board (NLRB), to interpret and enforce the act It also provided for judicial review in designated federal courts of appeal THE TAFT–HARTLEY ACT OF 1947 Taft–Hartley Act Bars unions from engaging in specified unfair labor practices, makes collective bargaining agreements enforceable in U.S district courts, and provides a civil damages remedy for parties injured by certain prohibited union activities The passage of the Wagner Act led to a growth in unionization and an increase in workers’ power Given that they had had almost no power before, any power workers obtained was bound to look like a dramatic increase Thus, the public’s perception of union power may have been greater than the actual power of unions At any rate, this perception led to the passage of the Taft–Hartley Act, designed to curtail the powers unions appeared to have acquired under the Wagner Act Section 8(b) of the Taft–Hartley Act, titled “Union Unfair Labor Practices,” bars unions from engaging in certain specified activities (see Table 21-3) The act also (1) amended Section of the Wagner Act to include the right of employees to refrain from engaging in collective activity, (2) made collective bargaining agreements enforceable in federal district courts, and (3) provided a civil damages remedy for parties injured by certain prohibited union activities THE LANDRUM–GRIFFITH ACT OF 1959 Landrum–Griffith Act Governs the internal operation of labor unions TABLE 21-3 UNION UNFAIR LABOR PRACTICES The final major piece of labor legislation is the Landrum–Griffith Act, which primarily governs the internal operations of labor unions Passage of this act was prompted by congressional hearings that uncovered evidence of looting of union treasuries by some powerful union officials and of corrupt, undemocratic practices in some labor unions The act requires certain financial disclosures by unions and establishes civil and criminal penalties for financial abuses by union Section Prohibited Practice 8(b)(1) 8(b)(2) Restraining or coercing employees’ exercise of their Section rights Forcing the employer to discriminate against employees on the basis of union or antiunion activity Failing to engage in good-faith collective bargaining with the employer Striking, picketing, and engaging in secondary boycotts for illegal purposes Charging excessive union dues or initiation fees in a union shop Featherbedding (charging employers for services not performed) Picketing for recognition or to force collective bargaining under certain circumstances 8(b)(3) 8(b)(4) 8(b)(5) 8(b)(6) 8(b)(7) CHAPTER 21 ᭜ Laws Governing Labor–Management Relations Section Right 101(A)(1) Equal Rights Every union member has an equal right to nominate candidates, to vote in elections, and to attend and fully participate in membership meetings, subject to the organization’s reasonable constitution and bylaws Freedom of Speech and Assembly Members have the right to meet freely with one another at any time and to express any views about the labor organization, candidates for office, or business affairs at organization meetings, subject to reasonable rules pertinent to conduct of meetings Dues, Initiation Fees, and Assessments Increases in local union dues, initiation fees, or assessments must be voted on by a majority of the members through secret ballot Protection of Right to Sue Labor organizations cannot prohibit members from bringing any legal actions, including those against the organization Organizations may require that members first exhaust reasonable hearing procedures established by the organization Safeguards against Improper Discipline No member may be fined or otherwise disciplined except for nonpayment of dues without being (1) served with written notice of specific charges, (2) given a reasonable time to prepare a defense, and (3) afforded a full and fair hearing 101(A)(2) 101(A)(3) 101(A)(4) 101(A)(5) 531 TABLE 21-4 EMPLOYEE RIGHTS UNDER THE LANDRUM– GRIFFITH ACT officials It also includes a section, known as “labor’s bill of rights,” that gives employees protection against their own unions The rights established by the Landrum–Griffith Act are summarized in Table 21-4 THE NATIONAL LABOR RELATIONS BOARD Structure The National Labor Relations Board (NLRB), as stated earlier, is the administrative agency responsible for the interpretation and enforcement of the NLRA Its structure is diagrammed in Exhibit 21-2 The NLRB’s three primary functions are Monitoring the conduct of the employer and the union during an election to determine whether workers want to be represented by a union Preventing and remedying unfair labor practices by employers or unions Establishing rules and regulations interpreting the act The NLRB is composed of five members, each appointed by the president with the advice and consent of the Senate Members serve staggered five-year terms The board meets in Washington, D.C Three-member panels decide routine cases involving disputes between employees, union, and employer, but the entire board may hear significant cases The general counsel of the NLRB, also appointed by the president with the advice and consent of the Senate, oversees the investigation and prosecution of unfair practice charges before the board If a board decision is subsequently challenged in court, it is the general counsel who represents the board before the appellate court There are too many cases for the board and general counsel to handle each one personally, so most cases are handled by 34 regional offices, located in major cities across the country These regional offices are headed by a regional director, who is appointed and overseen by the general counsel The regional director and his or her staff are directly responsible for investigating charges of unfair labor practices, which they prosecute before administrative law judges (ALJs) They are also responsible for conducting representation elections, in which employees of a firm decide whether they wish to be represented by a union Jurisdiction Just as a civil court must have jurisdiction over the parties before it, the NLRB must have jurisdiction over the parties before it in both representation National Labor Relations Board (NLRB) The administrative agency set up to interpret and enforce the Wagner Act (NLRA) 532 PART THREE ᭜ Public Law and the Legal Environment of Business EXHIBIT 21-2 Division of Management Operations Five-Member Board THE NATIONAL LABOR RELATIONS BOARD Solicitor’s Office Advice Division General Counsel Deputy General Counsel Division of Enforcement Litigation Board Members’ Staffs Division of Administrative Law Judges Division of Information 34 Regional Offices and unfair labor practice cases The basis for NLRB jurisdiction is found in the NLRA, under which Congress granted jurisdiction to the NLRB over any business “affecting commerce,” with certain specific exceptions Any employer or employee not covered by the NLRA need not abide by its provisions (Noncovered employees and employers, however, may be covered by state labor laws.) Employees specifically omitted from NLRA coverage are those who work in federal, state, and local government; employees in the transportation industry and those covered by the Railway Labor Act; independent contractors; agricultural workers; household domestics; and persons employed by a spouse or parent Also excluded from NLRB jurisdiction are supervisors, managerial employees, and confidential employees Much litigation has arisen over disputed definitions of managerial employee and supervisor One of the employee groups that is facing the greatest difficulty today over the issue of whether or not they are supervisors is nurses Thus far, the NLRB and the courts have been carefully examining the duties of the nurses in each individual case, with the nurse’s eligibility depending on the circumstances It was thought for a while that the NLRB had finally come up with a workable test for what constituted “independent judgment,” which characterizes an employee as a supervisor The board had said that employees not exercise “independent judgment” when they exercise “ordinary professional or technical judgment in directing less skilled employees to deliver services in accordance with employer-specified standards.” The U.S Supreme Court, however, rejected that test in 2001,3 in a decision many commentators believe may make it more difficult for health care personnel and other professionals to organize Just because Congress has granted the NLRB the authority to act in a given case does not mean that the board will act The board does not have unlimited funds Consequently, the NLRB has established its own set of guidelines, which it uses to determine whether it will exercise jurisdiction over an employer These guidelines are basically designed to determine whether a firm does a significant amount of business and, thus, has enough employees to justify the expenditure of NLRB resources The guidelines are established industry by industry (e.g., a transit system must have a total annual business volume of at least $250,000) NLRB v Kentucky River Community Care, Inc., 532 U.S 706 (2001) CHAPTER 21 ᭜ Laws Governing Labor–Management Relations Procedures in Representation Cases An important function of the NLRB and the general counsel is to ensure that employees will be uncoerced in their choice of a bargaining representative or in choosing not to be represented by a union Under NLRB procedures, set out in Exhibit 21-3, a petition for a representation election is initially filed with the regional director (1) by the union, when it can demonstrate that it has the support of more than 30 percent of the employees it seeks to represent (known as “majority support”); (2) by the employer, when two or more unions are claiming to be the exclusive representative of the employees or when one union claims to have majority support; or (3) by the employees themselves The union demonstrates its support by submitting authorization cards Each card is signed by an employee and states that the employee gives the union the authority to act as the employee’s exclusive bargaining representative Once the petition is filed, the regional director conducts an investigation to determine whether the employer is under the jurisdiction of the NLRB, whether the group of employees the union is seeking to represent is covered by the NLRA, whether the group of employees seeking representation is an appropriate bargaining unit, and whether there is sufficient support (30 percent) for the union If these findings are affirmative, the director will see whether all parties will consent to an election If not, the regional office holds a hearing to receive evidence on whether an election should be held and, if so, which employees are entitled to vote The transcript of the hearing is given to the regional director, who decides whether a question of representation exists and an election should be held An affirmative decision results in an election by secret ballot, conducted by a representative of the EXHIBIT 21-3 Petition for election filed • by employer, • by union, or • by employees STEPS IN A REPRESENTATION PROCEEDING Investigation by regional director OR Secret ballot election by consent Hearing Decision by regional director Secret ballot election Objections to election filed with regional director Appeal to NLRB Petition dismissed 533 534 PART THREE ᭜ Public Law and the Legal Environment of Business regional office In fiscal year 2009, the NLRB conducted 1,619 representation elections, and workers chose union representation in 63.8 percent of the elections.4 After the election, the losing party may file objections to the outcome of the election with the regional director, who either orders a new election or certifies the results The decision may be appealed to the board Procedures in Unfair Labor Practice Cases A second important function of the NLRB is to prevent and remedy unfair labor practices by both employers and employees An unfair labor practice charge is initiated when an aggrieved employee, union, or employer files an unfair labor practice charge with the appropriate regional office (A sample charge is pictured in Exhibit 21-4.) In EXHIBIT 21-4 UNITED STATES OF AMERICA NATIONAL LABOR RELATIONS BOARD CHARGE AGAINST EMPLOYER FORM FOR FILING AN UNFAIR LABOR PRACTICE CHARGE DO NOT WRITE IN THIS SPACE Date Filed Case INSTRUCTIONS File an original and copies of this charge with NLRB Regional Director for the region in which the alleged unfair labor practice occurred or is occurring EMPLOYER AGAINST WHOM CHARGE IS BROUGHT b Number of workers employed a Name of Employer c Address, street, city, state, zip code d Employer Representative e Telephone No f Type of Establishment: factory, mine, wholesaler, etc g Identify principal product or service h The above-named employer has engaged in and is engaging in unfair labor practices within the meaning of section (a) subsections (1) and first subsections of the National Labor Relations Act and these unfair labor practices are unfair practices affecting commerce within the meaning of the Act Basis of the Charge (set forth a clear and concise statement of the facts constituting the alleged unfair labor practices) By the above and other acts, the above-named employer has interfered with, restrained, and coerced employees in the exercise of the rights guaranteed in Section of the Act Full name of the party filing charge (labor organization: give full name including local name and number) 4a Address (street and number, city, state and ZIP code) 4b Telephone No Full name of national or international labor organization which is an affiliate or constituent unit (to be filled in when charge is filed by a labor organization) DECLARATION I declare that I have read the above charge and that the statements are true to the best of my knowledge and belief B (title if any) Signature of representative making charge Address Telephone No (date) WILLFUL FALSE STATEMENTS ON THIS CHARGE CAN BE PUNISHED BY FINE AND IMPRISONMENT (U.S CODE, TITLE 18, SECTION 1001) NLRB, Seventy-Fourth Annual Report of the NLRB for Fiscal Year Ended September 30, 2009, 1; retrieved June 4, 2010, from http://www.nlrb.gov/shared_files/Annual_Reports/NLRB2009.pdf CHAPTER 21 ᭜ Laws Governing Labor–Management Relations 535 fiscal year 2009, 22,943 unfair labor charges were filed with the NLRB.5 After regional office employees, called field examiners, investigate the charge, the regional director decides whether to issue a complaint If a complaint is issued, an attorney from the regional office tries to resolve the complaint informally If informal negotiations are unsuccessful, the regional office attorney prosecutes the case before an ALJ In fiscal year 2009, NLRB administrative law judges issued 190 decisions.6 The ALJ issues an order recommending a remedy or suggesting a dismissal, in either case stating the rationale and evidence for the decision If no party objects to the decision within 20 days, it automatically becomes a final order of the NLRB If an order is issued and any party fails to abide by it, the board must petition a U.S court of appeals for an enforcement order The procedure in unfair labor practice cases is diagrammed in Exhibit 21-5 Appeal to the board is available at times If the regional director refuses to issue a complaint, the charging party may appeal to the general counsel in EXHIBIT 21-5 Unfair labor practice charge filed with the appropriate regional office by aggrieved employee, union, or employer PROCEDURES IN UNFAIR LABOR PRACTICE CASE Field examiner investigates charge Regional director decides whether to issue a complaint No complaint OR Case settled informally Complaint issued Informal resolution attempted by regional office attorney OR Dismissal, stating rationale and evidence Regional office attorney prosecutes case before administrative law judge OR No objections in 20 days, recommendation becomes final order of the NLRB Order issued but party fails to comply, board petitions U.S Court of Appeals for enforcement order Id., at Id., at Remedy suggested, stating rationale and evidence OR Exceptions to order filed with NLRB general counsel Final order of NLRB issued Appeal to U.S Court of Appeals 536 PART THREE ᭜ Public Law and the Legal Environment of Business Washington, D.C Such appeals are almost always denied Alternatively, a party dissatisfied with the ALJ’s decision may file an appeal, called an exception to the recommended order, with the board in Washington, D.C Briefs are then filed and, in rare instances, oral arguments are heard The board then issues its final order In fiscal year 2009, the board issued 195 decisions in unfair labor practice cases.7 No one is actually required to honor an NLRB order, because the board has no contempt-of-court powers If its order is not followed, the NLRB brings an enforcement proceeding in a circuit court of appeals, asking the court to order the parties to abide by its order A dissatisfied party may appeal to a circuit court of appeals Labor Organizing In a 1936 novel, In Dubious Battle, John Steinbeck graphically described the extreme hardships faced by union organizers just after the passage of the Wagner Act Derided as communist sympathizers, they were often run out of town by company representatives and sometimes even by the workers they were trying to help Many small-town law enforcement officers were indebted to business during this era The most protection they were willing to offer organizers was to advise them to get out of town Many labor organizers lost their lives or were severely injured in these early unionization battles, and victories were often not clear-cut Gradually, the violence directed against labor organizers subsided as companies realized that the NLRA would not be repealed and the courts were going to enforce employees’ right to organize Today, dissatisfied employees can contact a national union representing other employees engaged in the same type of work For example, employees of a shop that manufactures parts for auto engines would contact the United Auto Workers (UAW) union The union then sends a representative to meet with interested employees and explain what unionization would for them If the employees want to pursue unionization, the organizer helps them run a campaign to convince a majority of the workers to accept the union as their exclusive representative Table 21-5 lists some of the largest unions in the United States BOARD RULES 24-hour rule Prohibits both union representatives and employers from making speeches to “captive audiences” of employees within 24 hours of a representative election During the course of this organizing campaign, certain activities of both employers and employees are prohibited by the NLRA and by “board rules,” that is, rules of conduct developed over the years by the NLRB in a number of cases The constraints on employers’ behavior under the NLRA are found primarily in Section 8(a)(1), which prohibits interference with employees’ exercise of their Section rights It is important to distinguish conduct that constitutes an unfair labor practice from violations of board rules, because a violation of board rules may result in the NLRB’s setting aside the results of an election and ordering a new one, whereas the commission of an unfair labor practice by the employer may cause the board to ignore the election results altogether and order the employer to bargain with the union without a new election The latter remedy occurs only in cases in which the employer’s conduct was so egregious as to make it impossible to hold a fair election and the union had previously collected authorization cards signed by a majority of the employees Board rules are designed to guarantee a fair election One very important rule, the 24-hour rule, prohibits both union representatives and employers from making speeches to “captive audiences” of employees within 24 hours of a Id., at 11 CHAPTER 21 ᭜ Laws Governing Labor–Management Relations TABLE 21-5 SOME OF THE LARGEST UNIONS IN THE UNITED STATES AS OF 2010 Union Name National Education Association (NEA) Service Employees International Union (SEIU) American Federation of State, County, and Municipal Employees (AFSCME) International Brotherhood of Teamsters (IBT) United Food and Commercial Workers International Union (UFCW) American Federation of Teachers (AFT) The United Steel Workers of America Communication Workers of America International Brotherhood of Electrical Workers (IBEW) Laborers’ International Union of North America (LIUNA) International Association of Machinists and Aerospace Workers (IAM) International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) United Brotherhood of Carpenters and Joiners of America UNITE HERE International Union of Operating Engineers Plumbers and Pipefitters National Association of Letter Carriers National Postal Mail Handlers Union Source: Compiled from http://www.unionfacts.com/unions/ (accessed June 3, 2010) representation election A captive audience exists when the employees have no choice but to listen to the speech Another important board rule requires employers to file with the regional director, within seven days after an election order is issued, a list of the names and addresses of all employees eligible to vote This list, known as the Excelsior list (after the case that created it), is then made available to the union or union organizers by the regional director It is essential that employers be aware of these and other board rules, because a violation of the rules may result in the setting-aside of an election, even when the behavior does not constitute an unfair labor practice All unfair labor practices, whether by employers or employees, are also considered violations of the board’s election rules UNFAIR LABOR PRACTICES BY EMPLOYERS In fiscal year 2009, the majority of claims of unfair labor practices by employers (8,723 claims) alleged that the employer refused to bargain.8 The second largest category of unfair labor practices alleged illegal discharge of workers or that the employer engaged in other illegal discrimination against employees (6,411 charges) Interference with Organizing Section 8(a)(1) of the NLRA prohibits employer interference with, restraint of, or coercion of employees in the exercise of their Section rights It is sometimes difficult for a businessperson to know when her or his speech or conduct rises to the level of coercion, restraint, or interference To make the issue even more complicated, Section 8(c) expressly provides that the expression of a view, argument, or opinion is not evidence of an unfair labor practice as long as it does not contain any threats of reprisals or promises of benefits NLRB, Seventy-Fourth Annual Report of the NLRB for Fiscal Year Ended September 30, 2009, 1; retrieved June 4, 2010, from http://www.nlrb.gov/shared_files/Annual_Reports/NLRB2009.pdf Number of Members 2,767,696 1,505,100 1,470,095 1,396,174 1,311,548 822,504 754,978 720,534 699,053 657,197 646,933 557,099 523,126 455,346 392,584 324,043 289,119 269,204 537 ... and the Legal Environment of Business 1 Critical Thinking and Legal Reasoning 2 Introduction to Law and the Legal Environment of Business 15 The American Legal System 33 Alternative Tools of Dispute... University of San Francisco About the Authors NANCY KUBASEK is a Professor of Legal Studies at Bowling Green State University, where she teaches the Legal Environment of Business, Environmental... associations, Professor Kubasek has served as president of the TriState Regional Academy of Legal Studies in Business, and president of the national professional association, the Academy of Legal Studies