Trailways Lines, Inc., Appellee, v. Trailways, Inc. Joint Council of the Amalgamated Transitunion, Afl-cio, Clc, Appellant, 785 F.2d 101 (3d Cir. 1986)

Plaintiff-appellee, Trailways Lines, Inc. ("Trailways") brought this action against defendant-appellant Trailways, Inc., Joint Council of the Amalgamated Transit Union, AFL-CIO, CLC ("Union"), seeking a declaratory judgment that section 120(i) of the parties' collective bargaining agreement was in violation of the Labor Management Relations Act. Section 120(i) required Trailways to make contributions to a joint union-management pension trust fund on behalf of employees who take leaves of absence to accept full-time positions with the Union or its parent International. Trailways contends that provision violates Sec. 302(a) of the Labor Management Relations Act, 29 U.S.C. § 186(a), and relieves Trailways of the obligation imposed by the collective bargaining agreement.

The Union filed a counterclaim seeking declaratory and injunctive relief requiring Trailways to make pension fund contributions pursuant to section 120(i) of the agreement and directing Trailways to pay all past due contributions plus interest. Both parties filed cross motions for summary judgment and, on February 13, 1985, the district court granted Trailways' motion and denied the Union's motion. For the reasons set forth below, we affirm.

In 1983, Trailways and the Union entered into a nationwide collective bargaining agreement. Pursuant to that agreement, Trailways employees were permitted to take leaves of absence to accept full-time positions with the Union while at the same time accumulating seniority and retaining the right to return to active employment with Trailways following Union service. That agreement further required Trailways to make insurance and pension trust fund contributions on behalf of those employees during their leaves of absence to enter full-time Union service.¹  The Pension Trust Fund, administered jointly by Union and Trailways trustees, was designed to provide pensions for Trailways' employees and their families.

Five Trailways' employees took indefinite leaves of absence to hold full-time union positions during the period relevant to this action. Accordingly, their seniority and return rights and pension trust fund payments were governed by section 120 of the Collective Bargaining Agreement. From April 1983 until January 1984, Trailways made the required pension trust fund payments on behalf of these five employees. However, in January 1984, Trailways unilaterally stopped making such payments, and, as of the date of the filing of this action, owed the following sums to the Trust Fund pursuant to the Agreement:

Frank DeWolfe $1,002.00 Burl B. Scarborough 1,076.00 George R. Olson 968.00 R.B.Patterson 818.00 Edward W. Erkel 1,188.00

Section 302(a) of the Labor Management Relations Act, 29 U.S.C. § 186(a) provides in pertinent part:

It shall be unlawful for any employer ... to pay, lend, or deliver, or agree to pay, lend, or deliver, any money or other thing of value--

(1) to any representative of any of his employees who are employed in any industry affecting commerce; or

(2) to any labor organization, or any officer or employee thereof, which represents, seeks to represent, or would admit to membership, any of the employees of such employer who are employed in an industry affecting commerce ...

There is no dispute that Trailways' payments to the Pension Trust Fund would be prohibited by Sec. 302(a) unless they fall within one of the express statutory exemptions provided by Sec. 302(c), which is set out below. Payments to trustees administering a pension trust are payments to an "employee representative," and payments on behalf of the five union officials constitute "a thing of value" made to union officers.

The Union argues, however, that such payments are permitted by the exceptions established by Secs. 302(c) (1) and 302(c) (5).²  Section 302(c) (1) exempts the payment of:

money or other thing of value by an employer to any officer or employee of a labor organization, who is also an employee or former employee of such employer, as compensation for, or by reason of, his service as an employee of such employer.

Section 302(c) (5) exempts the payment of:

money ... to a [pension] trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer ...

The district court held that the issue of whether Trailways' payments to the Pension Fund were excepted by Sec. 302(c) (5) (and, presumably by Sec. 302(c) (1), as well) depends solely on "whether these union officials retain their status as Trailways' employees while on their leaves." Trailways Lines, Inc. v. Trailways, Inc. Joint Council of the Amalgamated Transit Union, AFL-CIO, No. 84-4703, slip op. at 3 (E.D. Pa. Feb. 13, 1985). The district court concluded that the five union officials on indefinite leave were solely employees of the Union and thus fell without the Sec. 302(c) exceptions. The Union, on the other hand, argues that the district court's analysis was faulty for three reasons: (1) the five union officials retained their status as Trailways' employees or former employees while on leave; (2) even if the employees were not Trailways' employees while on leave, the issue of whether the Sec. 302(c) (1) or (c) (5) exemptions applies does not depend on whether the union officials are or are not present employees of Trailways; and, (3) the legislative history and policy behind Sec. 302 support the Union's contention that such payments were not intended to be proscribed by Sec. 302.

For the reasons discussed below, we hold that the payments required by the collective bargaining agreement do not fall within any of the Sec. 302(c) exceptions, and thus are prohibited by Sec. 302(a) of the LMRA.

Dealing first with the Union's second argument, the plain language of the Act, as construed by the courts, supports the district court's finding that the status of the five individuals while on leave as either employees of Trailways or the Union is dispositive of this case. The cases clearly hold that the Act permits payments to trust funds by employers only if they are made on behalf of present employees of the employer. As then Judge Blackmun stated in Blassie v. Kroger Co., 345 F.2d 58, 68-69 (8th Cir. 1965):

The section [302(c) (5) ] also requires that there be payment [to a trust fund] effected during an employee's active employment.... An employee ordinarily is a person presently engaged in employment. He is "One employed by another; one who works for wages or salary in the service of an employer...."However, the presence of these two requirements--payment by the employer and current employment--does not mean that benefits which flow from these contributions of the employer (and from any other receipts of the Trust) are to be confined in their enjoyment to the period of the employee's active employment. (Emphasis added) (Citations omitted)

From the above, it is plain that employer's payments to a pension trust fund must be on behalf of "current" and "active" employees of the employer.³ 

The Union argues that payments on behalf of individuals "who are at some time employees of the employer" are permissible under the Sec. 302(c) exceptions. Decisional law does not support this contention. In Walsh v. Schlecht, 429 U.S. 401, 97 S. Ct. 679, 50 L. Ed. 2d 641 (1977), in holding that payments by an employer on behalf, or for the benefit, of employees of a subcontractor who was not a signatory to the collective bargaining agreement would violate Sec. 302(a) (1), the Supreme Court stated that only payments made solely for the benefit of actual employees of the signatory employers are permissible under Sec. 302(c) (5). 429 U.S. at 407, 409, 97 S. Ct. at 684, 685.⁴ 

Similarly, the Sixth Circuit in Reinforcing Iron Workers Local Union 426 v. Bechtel Power Corp., 634 F.2d 258, 261 (6th Cir. 1981), held that payments made by an employer to a fund established by a collective bargaining agreement to compensate a full-time steward hired by the union to investigate the employer's compliance with that agreement violated Sec. 302(a) since the "steward cannot be characterized as an employee of Bechtel."

The Union contends that Reinforcing Iron Workers and Walsh are distinguishable from the case at bar since in those cases the individuals for whom the disputed payments were made were never employees of the employer, whereas here the individuals on leave are former and possible future employees of Trailways. This distinction, however, is not relevant. In both Reinforcing Iron Workers and Walsh, it is clear that the determinative factor was that the employees involved--the union steward in Iron Workers and the subcontractor's employees in Walsh--were not, nor could they be considered--current employees of the employer. Neither court stated that had the disputed individuals been either former or future employees of the employer the outcome would have been different. Neither case dispels the Blassie requirement of current employment to qualify for the Sec. 302(c) (5) exemption. See also Todd v. Benal Concrete Construction Co., 710 F.2d 581 (9th Cir. 1983) (Sec. 302(c) (5) permitted contributions only on behalf of a contractor's own employees, not for the benefit of employees of independent contractor).

The Union also argues that Sec. 302(c) (1) does not require that individuals for whom pension fund payments are made be current employees of the employer. According to that section, payments to "former" employees are permissible so long as they are in "compensation for, or by reason of, his service as an employee of such employer." To the Union, the pension fund contributions made on behalf of former employees currently on leave to serve as union officials were earned solely "by reason" of their past service to Trailways. But for their past employment by Trailways, the Union contends, these officials would not be eligible for pension fund contributions; therefore, these payments are "by reason of their service as an employee of" Trailways.

A logical reading of the statute makes clear that the "payments to former employees' exemption" of Sec. 302(c) (1) applies solely to payments made as "compensation or by reason of" the former employees past service to the employer. While the Union is correct in asserting that had these individuals never been Trailways' employees they would not be eligible for pension contributions made on their behalf, it does not therefore follow that the pension fund contributions made by Trailways pursuant to the collective bargaining agreement were made "in compensation for, or by reason of," their former service to Trailways so as to fall within the Sec. 302(c) (1) exception. Clearly, the statute contemplates payments to former employees for past services actually rendered by those former employees while they were employees of the company. Just as clearly, however, the pension fund benefits paid on behalf of former employees serving as union officials while on leave from Trailways are not compensation for their past service to Trailways.⁵ 

Thus, the sole issue remaining is whether the Sec. 302(c) (5) exemption, either by its express terms or by implication, renders Sec. 302(a) inapplicable to these payments. This in turn depends on the status of the five union officials while on leave of absence.

By its terms, Sec. 302(c) (5) exempts payments made to a pension trust fund "for the sole and exclusive benefit of the employees of such employer" from the Sec. 302(a) (1) prohibition. The statute clearly states that such pension fund payments by an employer are permitted so long as they are made for the benefit of "employees of such employer." The district court correctly concluded, and it is undisputed on appeal, that the five employees here while on leave were "employees of the defendant union and representatives of the employees" of Trailways. Trailways, No. 84-4703, slip op. at 6. However, the precise issue before us is whether these persons, while undeniably union employees, may also be at the same time employees of Trailways for purposes of Sec. 302(c) (5).⁶ 

The Union, pointing to arbitration decisions interpreting various collective bargaining agreements, argues that the question of the status of an individual as employee is purely a matter of contract. These decisions, the Union argues, make clear that an individual remains an employee of an employer so long as he "retains seniority and return rights" while absent from the employ of the employer, even if such individual is employed by another. Thus, the Union argues, an individual may properly be considered the employee of both the Union and Trailways while on leave of absence, thereby rendering payments made on behalf of these individuals permissible under Sec. 302(c) (5) of the Act.

However, the issue of the status of employees is not solely a question of contract. Rather, it is a question of law turning also on the degree of control exercised by the employer over the employee, and on a determination of for whose benefit the employee is performing his services. See Todd v. Benal Concrete Construction, Co., 710 F.2d 581, 584 (9th Cir. 1983) (" [c]ontractual language alone cannot transform a contractor/independent contractor relationship into an employer/employee relationship.")⁷  Under either of these tests, the individuals here cannot be considered Trailways' employees while on leave, since they are in no way controlled by Trailways, nor do they perform any services for the benefit of Trailways.

The Union points to no case supporting its position that a full-time union official on leave retains his status as an employee of his employer.⁸  The fact that courts have held that direct payments made to company employees for time spent conducting union business during working hours pursuant to "no-docking" provisions contained in collective bargaining agreements do not violate Sec. 302(a) (1), does not mean that payments made on behalf of full time union officials who perform no work for the employer do not violate the Act. See, e.g., BASF Wyandotte Corp. v. Local 227, International Chemical Workers Union, 591 F. Supp. 339 (N.D.N.Y.1984); Employees' Independent Union v. Wyman Gordon Co., 314 F. Supp. 458 (N.D. Ill. 1970). There is a sound distinction between payments made to a union official who goes on temporary leave to conduct union business and then returns to active employment, and payments on behalf of union officials who are on full-time leave but who may never return to full-time employment of his employer. Thus, there is no basis in the case law for concluding that an individual may be considered an employee of both the Union and the employer for Sec. 302(c) (5) purposes.⁹ 

This view furthers the public policy goals intended by Congress to be served by Sec. 302. Section 302 was designed to prohibit payments from employers to unions and union officials to prevent bribery of employee representatives, extortion by employee representatives, and abuse of welfare funds by union officials when such funds were left solely to union control. See Arroyo v. United States, 359 U.S. 419, 425-26, 79 S. Ct. 864, 868, 3 L. Ed. 2d 915 (1959).¹⁰  As the Supreme Court stated in Arroyo, "To remove these dangers, specific standards were established to assure that welfare funds would be established only for purposes which Congress considered proper and expended only for the purposes for which they were established." Id. at 426, 79 S. Ct. at 868.

Pension fund contributions made on behalf of Union officials on leave from Trailways are tantamount to direct compensation paid to its employees or payments made to the union. See Knauss v. Gorman, 583 F.2d 82, 89 (3d Cir. 1978) (contributions to a welfare fund constitute payments in lieu of wages to the fund's beneficiaries). While payments made on behalf of Union officials who were once active employees of the employer but who may never return to his employ may not at first blush be the kinds of payments thought to lead to corruption of union officials, the potential for such corruption, or at least the appearance of it, nevertheless remains. The inherently adversarial relationship between employers and unions argues strongly against considering such individuals as being both employees of Trailways while at the same time they are serving as full-time union officials. See General Building Contractors Association v. Pennsylvania, 458 U.S. 375, 393-394, 102 S. Ct. 3141, 3151-3152, 73 L. Ed. 2d 835 (1982).

Accordingly, we hold that since the former Trailways' employees who have taken leaves of absence to pursue full-time Union service may not be considered employees of Trailways while on such leave for purposes of Sec. 302(c) (5), payments made on behalf of those employees to a pension trust fund violate Sec. 302(a) (1) of the Labor Management Relations Act.¹¹ 

The February 13, 1985 order of the district court which: (1) declared section 120(i) of the parties' collective bargaining agreement unenforceable; (2) stayed the Union from taking action to require Trailways to make contributions; and, (3) which granted Trailway's motion for summary judgment, will be affirmed.

BECKER, Circuit Judge, dissenting.

I agree with the majority that employees on leave of absence are not present employees of Trailways and that the challenged contributions are therefore not permissible under Sec. 302(c) (5). However, I disagree with the majority with respect to Sec. 302(c) (1); I believe that that section exempts the contributions at issue from the prohibition of Sec. 302(a) because they were made "as compensation for, or by reason of" the absent employees' services to Trailways while they were active employees. Accordingly, I respectfully dissent.

Section 302(a) of the Labor Management Relations Act, 29 U.S.C. § 186(a) provides in pertinent part:

It shall be unlawful for any employer ... to pay, lend, or deliver, or agree to pay, lend, or deliver, any money or other thing of value--

(1) to any representative of any of his employees who are employed in any industry affecting commerce; ...

As the majority correctly states, there is no dispute that Trailways' payments to the Pension Trust Fund are prohibited by Sec. 302(a) unless they fall within one of the express statutory exemptions provided by Sec. 302(c).¹  Section 302(c) (1) exempts the payment of:money or other thing of value payable by an employer to any officer or employee ... of a labor organization, who is also an employee or former employee of such employer, as compensation for, or by reason of, his service as an employee of such employer. (Emphasis added)

Unlike Sec. 302(c) (5), which refers to current employees only, Sec. 302(c) (1) covers former employees of Trailways and thus applies to the plaintiffs in this case.²  The central question, therefore, is whether the trust fund contributions are made "as compensation for, or by reason of," services rendered by the persons now on leave when they were employees of Trailways.³ 

The majority summarily rejects the argument that Sec. 302(c) (1) is applicable:

Clearly, the statute contemplates payments to former employees for past services actually rendered by those former employees while they were employees of the company. Just as clearly, however, the pension fund benefits paid on behalf of former employees serving as union officials while on leave from Trailways are not compensation for their past service to Trailways. (Emphasis in original)

Maj.Op. at 106. I take issue with the majority because I believe that the contributions in question are compensation for services rendered to Trailways prior to the commencement of the leaves of absence.

The collective bargaining agreement contains the terms of workers' employment with Trailways; each of the benefits the workers receive under that collective bargaining agreement are part of the consideration for their services at Trailways. In addition to the standard terms for wages, overtime pay, and insurance, the collective bargaining agreement provides that persons who take a leave of absence to work as union officials have a right to reinstatement at Trailways after their union service and retain their seniority during their absence. The collective bargaining agreement also provides that the employer will make payments into the union's pension fund while the employee is on leave. Although these contributions are made during the leaves of absence, the employer's promise to pay them is nonetheless a term of the collective bargaining agreement and therefore a part of the consideration for work performed as a Trailways employee. There is no reason for distinguishing the pension fund payments from any of the other terms of the collective bargaining agreement. Like wages, overtime, insurance, or accrued seniority, the pension fund payments are consideration for services rendered and, as such, are permissible under Sec. 302(c) (1).

The majority ignores this point. Noting that the contributions are measured by the former employees' union salaries, the majority concludes that the pension fund contributions are "geared to their contemporaneous services for the Union." Maj.Op. at 106 n. 5. While the majority's observation is correct, it does not support the majority's conclusion. Contributions that are geared to contemporaneous union services are not necessarily paid as compensation for that union service. Obviously, Trailways needs a standard by which to measure seniority advances and pension contributions during employees' leaves of absence. The most reasonable standard is that provided by the terms of the absentees' employment by the Union. Just as seniority advances during leaves of absence are measured by the amount of time that the persons spend on leave, pension contributions are measured by the amount of money that these persons earn during their leave.

This conclusion is supported by analogy to the decision in Walsh v. Schlecht, 429 U.S. 401, 97 S. Ct. 679, 50 L. Ed. 2d 641 (1977), in which the Supreme Court upheld the legality under Sec. 302(a) (1) of contributions measured by the hours worked by a subcontractor's employees that were nevertheless made on behalf of the contributor contractors own employees. In Walsh, the use of other employees' salaries as a yardstick for determining amount of contributions was permissible under Sec. 302(c) (5). Similarly, the use of salaries earned in another capacity--as Union employees--as a standard of measurement for contributions made as compensation for work at Trailways should be permissible under Sec. 302(c) (1).

To bolster its conclusion that the challenged contributions are impermissible, the majority argues that the policies underlying Sec. 302--the prevention of the use of funds administered by unions as "war chests," and of bribery of union officials by employers, see Arroyo v. United States, 359 U.S. 419, 425-26, 79 S. Ct. 864, 868, 3 L. Ed. 2d 915 (1959)--would be threatened by a decision upholding the contributions here. The majority also relies for its decision on the fact that courts have established a rule of strict compliance with the provisions of Sec. 302. See e.g., Arroyo, 359 U.S. at 424, 79 S. Ct. at 867; Costella v. Lipsitz, 547 F.2d 1267, 1273 (5th Cir. 1977); Bricklayers, Masons and Plasterers International Union of America, Local Union No. 15 v. Stuart Plastering Co., 512 F.2d 1017, 1024 (5th Cir. 1975). However, upholding the contributions in this case neither offends the policy of the act nor entails a waiver of strict compliance with the language of Sec. 302.

Contributions made as compensation for services rendered to Trailways simply do not constitute bribery of the Union or any other kind of support of the Union by Trailways. The majority's position that the contributions "are tantamount to direct compensation paid to [the Union's] employees or payments to the Union" relies upon the premise that the contributions are made as compensation for service rendered to the Union, rather than service rendered to Trailways. For the reasons stated above, I disagree with this premise. For the same reasons, I believe that the contributions fall directly within the Sec. 302(c) (1) exemption and that my position is therefore perfectly consistent with a strict construction of Sec. 302.

The cases upholding the legality of "no-docking" provisions under Sec. 302(c) (1) strongly support the conclusion that the payment of pension contributions in this case is legal. Under a "no-docking" provision, union officers are entitled to take time off from work, without loss of pay, to conduct union business. In upholding a "no-docking" provision under which the union officials were entitled to take four hours off from work on a given day, the court in BASF Wyandotte Corp. v. Local 227, International Chemical Workers' Union, 591 F. Supp. 339 (N.D.N.Y.1984), stated that such an agreement "is a cooperative effort representing the product of arms-length bargaining and does not present the type of opportunity for employer interference in union affairs which Sec. 302 is designed to prevent." Id. at 342.⁴  The same is true here, for the provisions of the collective bargaining agreement in this case, like the no-docking clause in BSAF Wyandotte, are simply bargained-for terms of the employees' employment with their companies.

Trailways and the majority attempt to distinguish the "no-docking" cases on the ground that the union officials were active employees who used only part of their day for union business. The distinction does not work, however. During the hours that these persons spent on union activities, they were not rendering services to their employer, and they were not under their employer's control. The distinction between using part of the day for union business and taking leaves of absence to become full-time union officials is only one of degree: the nature of the absences and the payments made by the employer during them (or measured by them) is the same.⁵ 

Consideration of the widespread business practices of companies and unions provides further reason to believe that the pension contributions at issue here are not illegal and that the dangers the majority alleges are more ficticious than real. It was conceded at oral argument that similar arrangements are common in collective bargaining agreements and have never before been challenged on the grounds relied upon by the majority. While this fact is certainly not dispositive of the legality of such schemes, it surely suggests that they are legal. This Court should be reluctant to overturn so widespread a practice, which represents a practical accommodation agreed upon by both businesses and unions.

It is also relevant that Trailways at no point suggested that it was coerced into making the contributions. It entered the agreement it now challenges with its eyes wide open. The collective bargaining agreement is thus undeniably the product of arms-length negotiation. We should endeavor to uphold such agreements, not to substitute for them others that we might prefer.

For the foregoing reasons, I would reverse the judgment of the district court.