Capehorn Industry

DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 364 Capehorn Industry, Inc.1 and Local 169 Union of Needletrades, Industrial and Textile Employees, AFL–CIO. Case 22–CA–22095 September 28, 2001 DECISION AND ORDER BY CHAIRMAN HURTGEN AND MEMBERS LIEBMAN AND TRUESDALE On October 30, 1998, Administrative Law Judge Raymond P. Green issued the attached decision. The Respondent, Capehorn Industry, Inc., filed exceptions and a supporting brief. The National Labor Relations Board has delegated its authority in this proceeding to a three-member panel. The Board has considered the decision and the record in light of the exceptions and brief and has decided to affirm the judge’s rulings, findings,2 and conclusions and to adopt the recommended Order as modified.3 I. FACTS The Respondent is engaged in the business of convert- ing vans into armored vehicles at its facility in Clifton, New Jersey. The work performed by the production em- ployees at the Respondent’s Clifton facility includes welding, mechanical work, and bodywork (i.e., sanding, finishing, and painting) performed following the installa- tion of armor and bulletproof glass. On March 25, 1997, the production employees at the Clifton facility com- menced an economic strike against the Respondent for the purpose of gaining the Respondent’s recognition of the Union as the employees’ bargaining representative. Shortly after the strike began, the Respondent hired em- ployee replacements to supplement its remaining work- force, which consisted of several employees who did not participate in the strike. Additionally, the Respondent executed an agreement with a contractor to perform the bodywork that previously had been performed by some of the striking employees. 1 In its brief in support of its exceptions to the judge’s decision, the Respondent effectively moved that the Board correct the caption in this case to reflect the true name of the Respondent, Capehorn Industry, Inc. There is no opposition to the Respondent’s motion. Accordingly, we have modified the caption to indicate the correct name of the Respon- dent. 2 The Respondent has excepted to some of the judge’s credibility findings. The Board’s established policy is not to overrule an adminis- trative law judge’s credibility resolutions unless the clear preponder- ance of all the relevant evidence convinces us that they are incorrect. Standard Dry Wall Products, 91 NLRB 544 (1950), enfd. 188 F.2d 362 (3d Cir. 1951). We have carefully examined the record and find no basis for reversing the findings. 3 We will modify the judge’s recommended Order in accordance with our recent decision in Ferguson Electric Co., 335 NLRB 142 (2001). On April 29, 1997, the Union sent and personally de- livered a letter to the Respondent setting forth an uncon- ditional offer by the striking employees to immediately return to work.4 Although the Respondent subsequently indicated that it accepted the strikers’ offer and would begin to recall the strikers in accordance with its produc- tion needs, the Respondent did not immediately reinstate all of the strikers. Rather, the Respondent offered rein- statement to some of the strikers over the course of the several months following the unconditional offer to re- turn to work. As of the date of the hearing in this case, however, many of the strikers had not yet been rein- stated. II. THE JUDGE’S DECISION The complaint alleges that the Respondent violated Section 8(a)(3) and (1) of the Act by failing to reinstate various economic strikers on their unconditional offer to return to work. In defense of its failure to reinstate the striking employees, the Respondent contended that some of the strikers had been permanently replaced by other employees, and that others had been replaced as a result of the Respondent’s execution of a permanent subcon- tract for the bodywork they previously had performed. The judge first found, contrary to the Respondent’s contention, that the replacement workers hired by the Respondent during the strike were temporary, rather than permanent, replacements. Specifically, the judge found that, absent any documentary evidence or testimony from the replacement employees or the managers who hired them, and given the vagueness of the testimony from the Respondent’s vice president that she had guaranteed jobs to some of the replacement workers, there was an insuf- ficient showing to satisfy the Respondent’s burden to prove the permanent status of the replacements. The judge further found that the Respondent’s en- gagement of a permanent subcontractor to perform cer- tain unit work did not serve as a justification for the Re- spondent’s failure to reinstate the striking workers whose jobs were assumed by the contractor. Relying on the Board’s decisions in Land Air Delivery, 286 NLRB 1131 (1987), review denied 862 F.2d 354 (D.C. Cir. 1988), cert. denied 493 U.S. 810 (1989), and American Cyana- mid Co., 235 NLRB 1316 (1978), enfd. 592 F.2d 356 (7th Cir. 1979), the judge found that the Respondent’s use of a permanent subcontractor during the strike consti- 4 Although the Respondent contended that the letter represented a conditional offer to return to work—as the letter asserted an entitlement to immediate reinstatement based on a characterization of the strike as an unfair labor practice strike—the judge found that the letter did not impose any conditions on the strikers’ return to work and, therefore, it represented an unconditional offer. We adopt the judge’s finding in that regard. 336 NLRB No. 29 CAPEHORN INDUSTRY 365 tuted conduct that was “inherently destructive” of the employees’ statutory rights. He reasoned that, in contrast to an employer’s use of permanent replacements, the use of a permanent subcontractor effectively would negate the strikers’ right to reinstatement and, therefore, their right to engage in protected concerted action. The judge additionally found that in the circumstances of this case, there was no evidence to support the Respondent’s claim that business reasons made it necessary to execute a permanent subcontract. Thus, having rejected the Respondent’s defenses, the judge concluded that the Respondent violated Section 8(a)(3) and (1) of the Act by failing to reinstate the strik- ers on their unconditional offer to return to work. III. ANALYSIS Section 8(a)(3) of the Act prohibits an employer from discriminating “in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization.” 29 U.S.C. § 158(a)(3). It is well established that an em- ployer’s discouragement of employee participation in a legitimate strike constitutes discouragement of member- ship in a labor organization within the meaning of Sec- tion 8(a)(3). See NLRB v. Great Dane Trailers, 388 U.S. 26, 32 (1967) (citing NLRB v. Erie Resistor Corp., 373 U.S. 221, 233 (1963)). It is also evident that an em- ployer’s refusal to reinstate striking employees would tend to discourage employee participation in a strike ef- fort. Accordingly, well-settled precedent dictates that an employer will be held to violate Section 8(a)(3) and (1) of the Act if it fails to immediately reinstate striking workers on their unconditional offer to return to work, unless the employer can establish a “legitimate and sub- stantial business justification” for its failure to do so. See NLRB v. Fleetwood Trailer Co., 389 U.S. 375, 378 (1967). The employer bears the burden of proving the existence of such a legitimate and substantial business justification. Id. But, even if an employer does present sufficient evi- dence to demonstrate the requisite business justification, that is not the end of the inquiry. Thus, if the Board finds that an employer’s conduct is “inherently destruc- tive of employee rights,” no proof of antiunion motive is needed, and the Board may find an unfair labor practice notwithstanding that the employer was motivated by business considerations. In contrast, if the adverse effect of the employer’s conduct on employee rights is “com- paratively slight,” an antiunion motive must be proved to sustain an 8(a)(3) charge if the employer has presented evidence of a legitimate and substantial business justifi- cation. Great Dane Trailers, 388 U.S. at 33–34. Applying these principles to this case, we conclude that the Respondent did not establish a legitimate and substantial business justification for its failure to rein- state the striking employees following their uncondi- tional offer to return to work. Accordingly, we find it unnecessary to determine the precise extent to which the Respondent’s acts of replacing strikers and permanently subcontracting unit work adversely affected employee rights. See generally Great Dane Trailers, supra at 34. Therefore, we do not pass on the Respondent’s exception to the judge’s finding that the Respondent’s execution of a permanent subcontract during the strike was “inher- ently destructive” of employee rights, nor do we rely on the judge’s finding in that regard. Rather, we analyze the Respondent’s conduct under Great Dane Trailers as if it had a “comparatively slight” impact on employee rights. We turn then to the Respondent’s contention that its permanent replacement of certain striking employees justified its refusal to reinstate them. An employer’s permanent replacement of economic strikers as a means of continuing its business operations during a strike has long been recognized as a legitimate and substantial business justification for a refusal to immediately rein- state former strikers. See NLRB v. Mackay Radio & Telegraph Co., 304 U.S. 333, 345–346 (1938). How- ever, the employer bears the burden of proving the per- manent status of the hired replacements. See O. E. Butterfield, Inc., 319 NLRB 1004, 1006 (1995). Here, the Respondent relies solely on the statement by its vice president to some of the replacement workers that “as long as [she] had work in [her] company, [she] would give them work to do.” The judge, however, discredited the vice president’s testimony. Moreover, even if the judge had found the testimony reliable, the above state- ment would not suffice to establish the permanent status of the replacements. The term “permanent replacement,” as distinguished from “temporary,” connotes a replace- ment who will not be displaced by returning strikers when the strike is over.5 The Respondent’s statement here gives no such assurance, and there is nothing to es- tablish what the replacements understood the Respon- dent’s statement to mean. Without more, this ambiguous statement does not represent a “mutual understanding” between the Respondent and the replacements that they were hired on a permanent basis. See O. E. Butterfield, Inc., supra at 1006. Accordingly, we affirm the judge’s 5 Belknap, Inc. v. Hale, 463 U.S. 491, 501 and fn. 6 (1983). [T]he employer must reinstate strikers at the conclusion of even a purely economic strike unless it has hired “permanent’ replacements, that is, hired in a manner that would ‘show that the men [and women] who replaced the strikers were regarded by themselves and the [em- ployer] as having received their jobs on a permanent basis. DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 366 finding that the Respondent did not meet its burden to demonstrate that the replacements were hired on a per- manent basis.6 The Respondent also claims that its execution of a permanent subcontract for unit work previously per- formed by some of the striking employees justified its refusal to reinstate those employees. However, the judge credited the testimony of the permanent subcontractor who executed an agreement with the Respondent to per- form the bodywork,7 and rejected the Respondent’s claim that it had to enter into a permanent subcontracting ar- rangement because the subcontractor had insisted on a permanent subcontract as a condition of doing business with the Respondent. We adopt the judge’s finding. Since the Respondent has proffered no other justifica- tion for its utilization of a permanent subcontractor, we conclude that it has failed to present sufficient evidence to support a finding of a legitimate and substantial busi- ness justification. Accordingly, the cases cited by the Respondent are all clearly distinguishable. In Arthur Corp., 246 NLRB 1183 (1979), the Board found no 8(a)(3) violation where the employer failed to reinstate certain former strikers as a result of its perma- nent subcontracting of the mechanical work they previ- ously had performed. The Board’s conclusion, however, was premised on the fact that the employer had made the decision to close the mechanical division for economic reasons, and had taken concrete steps toward such clos- ing, prior to the employees’ strike, and even prior to the appearance of the union on the scene. Id. at 1185. Similarly, the Board in Elliott River Tours, 246 NLRB 935 (1979), concluded that the employer—faced with an imminent strike threat and a potential loss of business 6 Since we affirm the judge’s finding that the striker replacements were temporary, we need not pass on the Respondent’s exception to the judge’s finding that the Respondent hired three employees, and rehired two former employees, subsequent to the date on which the strikers unconditionally offered to return to work (April 29, 1997). Even ac- cepting the Respondent’s assertions that these individuals were hired prior to April 29, 1997, there is no contention or evidence to support a claim that they were hired as permanent employees. Accordingly, regardless of their exact date of hire, the Respondent would be required to dismiss these individuals, if necessary, to effectuate the reinstate- ment of the striking employees. 7 With regard to the Respondent’s exception that the judge errone- ously credited contractor Enrique Garcia’s allegedly unreliable prehear- ing affidavit over his testimony at the hearing, we find the Respon- dent’s claim unsubstantiated. The judge did not purport to rely on Garcia’s affidavit, and the excerpts of Garcia’s testimony cited by the Respondent are not inconsistent with the judge’s findings. Further, even if the judge had considered Garcia’s affidavit, under well- established Board precedent, a judge may properly credit a witness’s prehearing affidavit over his or her testimony at the hearing. See Yao- han U.S.A. Corp., 319 NLRB 424 (1995), enfd. 121 F.3d 720 (9th Cir. 1997); St. John Trucking, 303 NLRB 723 (1991); Alvin J. Bart & Co., 236 NLRB 242 (1978). and customer goodwill if it were to abruptly cancel vari- ous river tour vacations—did not commit an unfair labor practice by entering into a long-term subcontract of unit work, where the contractor conditioned its assumption of the immediate season’s work on its receipt of the work for the following season as well. Finally, in International Paper Co. v. NLRB, 115 F.3d 1045 (D.C. Cir. 1997), also cited by the Respondent, the court of appeals concluded that the employer did not violate the Act by permanently subcontracting unit work during the course of a lawful lockout. The court rea- soned that, even though the employer’s act of executing a permanent subcontract did have some (i.e., a “compara- tively slight”) impact on employee rights,8 the employer proffered evidence of substantial economic benefits as a result of the subcontracting, thereby establishing a le- gitimate and substantial business justification for its ac- tion. Id. at 1052. Thus, in each of these cases, the employer was able to sustain its defense that legitimate business reasons justi- fied its subcontracting arrangements. No such justifica- tion has been established here. We additionally reject the Respondent’s suggestion that permanent subcontracting is equivalent to other, le- gitimate measures that an employer can take during a strike and for which no business justification need be shown—such as using permanent replacements (see Mackay Radio, 304 U.S. at 345–346), or temporarily subcontracting work ordinarily performed by striking workers (see Land Air Delivery, 286 NLRB at 1132). There are important policy reasons for distinguishing between these measures, intended to allow an employer to maintain operations while a strike is ongoing, and permanent subcontracting during a strike.9 The Board emphasized the distinction in American Cyanamid: per- manently subcontracting work during a strike has the effect of removing jobs permanently from the bargaining unit, whereas hiring permanent replacements substitutes one employee for another, but leaves the bargaining unit work intact. 235 NLRB at 1323. As recognized by the judge in this case, this distinction is significant because 8 The court rejected the Board’s conclusion that the employer’s use of a permanent subcontractor was “inherently destructive” of employee rights. That, however, does not alter the fact that the court required the employer to present a legitimate and substantial justification for its use of the permanent subcontractor. 9 See, e.g., Land Air Delivery, 286 NLRB at 1132, and 862 F.2d at 357; American Cyanamid Co., 235 NLRB 1316 (1978), enfd. 592 F.2d 356 (7th Cir. 1979). These cases are not directly dispositive of the issue presented by this case, as they involved alleged violations of Sec. 8(a)(5) resulting from the employers’ failure to bargain prior to perma- nently subcontracting unit work during a strike. Nevertheless, we find, contrary to the Respondent’s contention, that the general principles articulated in the cases apply with equal force to this case. CAPEHORN INDUSTRY 367 permanently replaced economic strikers retain their rights to reinstatement as jobs become available, whereas striking employees whose jobs have been permanently subcontracted lose any potential for reinstatement. Similarly, an employer’s use of temporary measures— such as temporary subcontracting or the use of temporary replacements—does not result in the same detrimental loss of striker reinstatement rights as does permanent subcontracting. See Land Air Delivery, supra at 1132. Thus, permanent subcontracting cannot be treated as the equivalent of these other measures. We find that an em- ployer must establish a legitimate and substantial busi- ness reason for implementing the permanent subcontract during a strike.10 Having rejected the Respondent’s claim that the re- placement workers it hired were permanent, and that the Respondent’s execution of a permanent subcontract was supported by any business justification, we find that the Respondent has failed to demonstrate a legitimate and substantial justification for its failure to reinstate all of the former strikers—those who had been temporarily replaced, and those whose jobs have been permanently subcontracted. Consequently, we affirm the judge’s con- clusion that the Respondent violated Section 8(a)(3) and (1) by failing to immediately reinstate the striking em- ployees on their unconditional offer to return to work. ORDER The National Labor Relations Board adopts the rec- ommended Order of the administrative law judge as modified below and orders that the Respondent, Cape- horn Industry, Inc., Clifton, New Jersey, its officers, agents, successors, assigns, and/or representatives, shall take the action set forth in the Order as modified. Substitute the following for paragraph 2(c) and reletter the subsequent unlettered paragraph as 2(e). “(c) Preserve and, within 14 days of a request, or such additional time as the Regional Director may allow for good cause shown, provide at a reasonable place desig- nated by the Board or its agents, all payroll records, so- cial security payment records, timecards, personnel re- cords and reports, and all other records, including an electronic copy of such records if stored in electronic form, necessary to analyze the amount of backpay due under the terms of this Order. “(d) Within 14 days after service by the Region, post at its facility in Clifton, New Jersey, copies of the attached notice marked “Appendix.”7 Copies of the notice, on 10 See International Paper v. NLRB, supra, 115 F.3d at 1052 (em- ployer had burden of showing that its implementation of the permanent subcontract during the lockout was based on legitimate and substantial business reasons). forms provided by the Regional Director for Region 22, after being signed by the Respondent’s authorized repre- sentative, shall be posted by the Respondent and main- tained for 60 consecutive days in conspicuous places including all places where notices to employees are cus- tomarily posted. Reasonable steps shall be taken to en- sure that the notices are not altered, defaced, or covered by any other material. In the event that, during the pend- ency of these proceedings, the Respondent has gone out of business or closed the facility involved in these pro- ceedings, the Respondent shall duplicate and mail, at its own expense, a copy of the notice to all current employ- ees and former employees employed by the Respondent at any time since April 29, 1997.” Patrick E. Daley, Esq., for the General Counsel. Murray W. Portnoy, for the Respondent. Arthur Z. Schwartz, Esq., for the Union. DECISION STATEMENT OF THE CASE RAYMOND P. GREEN, Administrative Law Judge. This case was tried in Newark, New Jersey, on July 20, 21, and Au- gust 27, 1998. The charge was filed on June 13, 1997, and the complaint was issued on January 30, 1998. In substance, the complaint alleges that the Respondent has failed and refused to recall economic strikers, upon their unconditional offer to re- turn to work. On the entire record, including my observation of the de- meanor of the witnesses, and after considering the briefs filed, I make the following FINDINGS OF FACT I. JURISDICTION The parties agree and I find that the Company is an employer engaged in commerce within the meaning of Section 2(2), (6), and (7) of the Act and that the Union is a labor organization within the meaning of Section 2(5) of the Act. II. ALLEGED UNFAIR LABOR PRACTICES The Company converts vans to armored vehicles. On March 25, 1997, the Respondent’s employees commenced an eco- nomic strike at the Company’s Clifton, New Jersey facility.1 At the time of the strike and for the preceding 3 weeks, the payroll records show that there were between 31 and 33 production workers employed at the Company. (Excluding Managers Lung Hwa Wei and Peter Wen-Pi Tsai, and office workers Joan Beskin and Mary Ann DeCosta.) In addition to these people, the Company subcontracted out certain work such as electrical and plate glass work which it continued to do after the strike started. During the strike, some of the workers remained at work and the company hired some new people as well. During the period 1 This was a strike called by the Union for the purpose of gaining recognition. When this was not accomplished, the Union filed a repre- sentation petition and won an election that was held on May 30, 1997. DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 368 prior to the Union’s offer to return to work, the number of non- supervisory, nonoffice workers listed on the payroll went from 4 (the first week of the strike) to a maximum of 12. In addition, the work of finishing and painting the vans (after being ar- mored), was at first done by a subcontractor named Classic Auto Body and then by a company called EMG Auto Shop. The record indicates that in either case, the “subcontractor” used five people to do the work that otherwise had previously been done by strikers. A more complete discussion of the sub- contracting relationship with EMG will be discussed below. On April 29, 1997, Local 169, Union of Needletrades, Indus- trial and Textile Employees, AFL–CIO, sent and delivered a letter stating as follows: On behalf of all the striking employees of Capehorn Industry, Inc., Local 169, UNITE, AFL–CIO hereby of- fers, unconditionally and immediately, to return to work at Capehorn Industry Inc. As you know, it is the position of the strikers and the Union that the strike is an unfair labor practice strike and the strikers are unfair labor practice strikers, and therefore that the company is obligated to re- turn them to work immediately. A typed alphabetical list of strikers is attached. Please notify us at once of your willingness to return all striking workers to their jobs. The letter characterized the strike as an unfair labor practice strike and stated the Union’s position that the Employer was thereby obligated to reinstate all of the strikers immediately. Nevertheless, nothing contained in this letter conditioned the return of any strikers on the return of all, and there is no asser- tion of any other type of condition which had to be met before any of the strikers would go back to work. Accordingly, the assertion by the Respondent that the Union’s April 29 letter was a conditional, as opposed to unconditional offer to return to work, is without merit and the cases cited by Respondent in its brief, are inapposite. The letter with its attached list of 27 striking employees, was sent to the Respondent by regular mail and fax. Further, a copy of the letter was personally delivered to the Respondent’s place of business by Union Representative Rejil Solis at about 3 p.m. on April 29. The Respondent’s advisor, Murray Portnoy, re- sponded by fax on the same day and stated: Pursuant to your letter of April 29, 1997, the company accepts your unconditional offer and will call the people back to work in accordance with the classifications that are needed for cur- rent production requirements. Notwithstanding the receipt of the Union’s unconditional of- fer, the Respondent did not immediately reinstate the strikers. Some have been offered reinstatement on or after April 29, 1997, and others have not.2 The Respondent makes two related 2 The Respondent put into evidence reinstatement offers that it claims it sent to various of the strikers. Some of these had signed re- turn receipts and some did not. These were as follows: Ramon Berroa—April 29, 1997 Jesus Ulerio—April 29, 1997 Francisco Sierra—April 29, 1997 Confessor Hichez—May 6 , 1997 arguments. First it contends that some of the strikers were permanently replaced by other employees. Second it contends that certain other striking employees have been replaced by a permanent subcontractor. In converting vans, the Company installs steel plating and bulletproof glass. Before the strike, the Company used its own employees and a number of contractors. Work done by the Company’s own employees included welding, mechanical work, as well as sanding, finishing, and painting after armor and glass have been installed. In the latter instance, the body- work of sanding, finishing and painting had been done in a separate area of the employer’s Clifton, New Jersey shop. After the strike commenced, the Company hired some strike replacements. Also, it made a contract with a company called Classic Auto Body to do the bodywork. However, Classic terminated its arrangement with the Respondent and the Re- spondent engaged EMG Auto Body to do the bodywork previ- ously done by Classic. In this case, however, the work was to be done by EMG at Respondent’s facility as EMG did not have a shop of its own. The Respondent asserts that its arrangement with EMG was for this company to provide services on a per- manent basis and that this arrangement was necessary in order to obtain bodywork services and to remain in business. A. Employee Replacements Soon after the strike commenced the Company hired some employee replacements to supplement the work force that re- mained at work. These people were interviewed and hired by Managers Lung Hwa Wei and Peter Wen-Pi. As neither they nor any of the replacement employees were called to testify, and as there is no documentary evidence to show what if any agreements were made as to their employment, there is no credible evidence as to the conditions of their hire. While Lydia Li, Respondent’s vice president, asserts that at some time she told some of the replacements that as long as she had work in her Company, she would give them work to do, I do not credit her testimony. In short, there was no credible evidence produced by the Company to show that employee strike re- lacements were hired on the understanding that they were to be permanent employees. Li also testified that the Company did not hire any new em- ployees after receiving the Union’s offer to return to work. This also was not true and the Company’s payroll records show that Aigu Wang, Yong Zhou, and Yong Hul Fang were hired either during the weeks commencing on May 5 or 12, 1997. In addition, the payroll records show that two other people, Blas Roberto Moreta—May 23, 1997 Leanardo Figueroa—June 16, 1997 Freddy Fermin—June 16, 1997 Jose Marte—June 27, 1997 Feliz Samboy—July 3, 1997 In addition to the above, the Respondent sent reinstatement offers to some of the strikers (Jose R. Encarnacion, Christian Soriano, Melanio Cuevas, and Julio Andino) while the strike was still in progress and before there was an unconditional offer to return to work. Such letters are clearly not relevant; being simply attempts during a strike to induce these people to abandon the strike. They are not, nor can they be con- sidered to be valid offers of reinstatement made in response to the unconditional offer by strikers to return to work. CAPEHORN INDUSTRY 369 Oscar Rodriguez and Lei Shao Veneris, who had previously left the Company, were rehired in June 1997.3 Thus, in five cases the Company, after the Union had offered to return to work, either hired new employees or rehired people who had previ- ously left its employ, before reinstating some of the strikers. B. Subcontractor Replacements As previously noted, the Company used subcontracting be- fore and after the strike to do certain functions. That subcon- tracting is not an issue in this case. What is at issue is only the subcontracting done by EMG Auto Body as this was work that had been done by the Respondent’s own employees before the strike started. There is no question but that a deal was made between the Respondent and Enrique Garcia before the Union made the offer to return to work. There is also no question but that EMG used approximately five people, including Garcia, to do the work. If that contract had been discontinued after April 29, there would have been openings for five strikers. After the strike began, the bodywork was initially subcon- tracted to Classic Auto Body but that company stopped doing the work after the Union sent a letter to it requesting that it cease doing business with Capehorn. Li contends that the Re- spondent entered into a permanent subcontracting arrangement with Enrique Garcia of EMG because Garcia insisted that he would only do the work on that condition. Her testimony was that she had no choice but to make it a permanent contracting arrangement because this was what Garcia insisted on and she had no choice. This is patently not true. Enrique Garcia had been laid off in March 1997 by his em- ployer, Dicari Auto Body. While unemployed, he managed to do some odd jobs including some auto painting and bodywork. At some point, he heard about Capehorn from his friend Jose Ramirez and in mid-April they both went to the Respondent to ask for jobs as employees. When they got to Capehorn they spoke to two Chinese men who apparently were Wei and Tsai. They told Garcia and Ramirez that the Company was not look- ing to hire any employees but that they could work if they were contractors. According to Garcia, he agreed to this idea but that Ramirez turned this offer down. Subsequent to his meeting with Wei and Tsai, Garcia talked to Li and she confirmed the offer that he work as a subcontrac- tor. She had a document prepared but Garcia rejected it as being too onerous to him in terms of liability for accidents, etc. Another contract was prepared by Capehorn and this was exe- cuted by Garcia and dated April 15, 1997. The arrangement was that Garcia would hire his own em- ployees and do the work on Capehorn’s premises. Garcia there- after hired three to four people to do this work, including Rami- rez who had earlier accompanied him to Capehorn to look for a job as a Capehorn employee. On May 9, 1997, Garcia regis- tered EMG as a new business enterprise in the State of New 3 In the case of Blas Oscar Rodriguez, he first appeared on the Com- pany’s records during the week of March 24, 1997. The records indi- cate that he left during the week of April 21, 1997, and he next appears during the week commencing June 16, 1997. As to Veneris, the re- cords show that he worked for 1 week in January 1997. The next time his name appears in the payroll records is during the week June 9 to 13, 1997. Jersey. EMG had not existed before the contract with Cape- horn and has since performed work exclusively for Capehorn at Capehorn’s premises until work ran out about 7 or 8 months later. The contract between Capehorn and EMG reads as fol- lows: The Contractor agrees to perform the following ser- vices on the company’s behalf. Prep vans for painting Plastic and sanding and primer Inspecting vans before painting Painting vans Inspecting vans for painting quality Repaint if necessary to ensure quality control The contractor shall be entitled to use the premises of the body shop facility of the company and shall carry all liability insurance, workman’s compensation and shall comply with all federal and state laws. The Contractor shall also be responsible for all cost prep material, paint and expenses incurred in performing the services and shall not be entitled to reimbursement of expenses of any kind. The contractor shall utilize his own tools and helpers and shall reimburse the company for any services and material provided to the contractor other than the use of premises of body shop. The contractor shall always comply/follow the com- pany’s production schedule (with minimum of 2 vans per weeks and a maximum of 4 vans per week). The case job is $1600 each van. The company will get credit of $100.00 for the first 2 vans and $50.00 for another 6 vans, which payment of the first 89 vans will be paid to “Martha Garcia” SSN: 581– 43–3634. Payment shall be made after the completion of service of each van. III. ANALYSIS Employees who engage in an economic strike are engaged in protected concerted activity as defined by Section 7 of the Act and may not be discharged or disciplined for such activity by their employer. NLRB v. U.S. Cold Storage Corp., 203 F.2d 924 (5th Cir. 1953), cert. denied 346 U.S. 818 (1953). At the same time, an employer faced with an economic strike is enti- tled to attempt to continue its business and therefore the Board and the courts have held that it is entitled to hire replacements for the striking employees. In reaching a balance between em- ployee and employer rights, the Board and the courts have, since at least NLRB v. Mackay Radio & Telegraph Co., 304 U.S. 333 (1938), allowed employers to hire permanent re- placements for strikers. While it is not clear from the decision in Mackay Radio, or subsequent cases why this is so, its seems likely that it was based on the assumption that replacements might not be willing to cross a picket line unless they were guaranteed permanent employment status.4 4 In 304 U.S. 333 (1938), the court found that the employer had vio- lated Sec. 8(a)(3) of the Act when it refused to reinstate certain of the strikers, not because they had been replaced but because they were the DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 370 In NLRB v. Fleetwood Trailer Co., 389 U.S. 375 (1967), the Court held that an employer having received a unconditional offer to return to work by or on behalf of economic strikers, must reinstate such strikers unless the employer can demon- strate a “legitimate and substantial” business justification for refusing to do so. In Laidlaw Corp., 171 NLRB 1366 (1968), enfd. 414 F.2d 99 (7th Cir. 1969), the Board stated: [E]conomic strikers who unconditionally apply for reinstate- ment at a time when their positions are filled by permanent replacements: (1) remain employees; and (2) are entitled to full reinstatement upon the departure of replacements unless they have in the meantime acquired regular and substantially equivalent employment, or the employer can sustain his bur- den of proof that the failure to offer full reinstatement was for legitimate and substantial business reasons. When an employer asserts that there have been replacements which thereby justifies if from not reinstating some or all eco- nomic strikers, the Company has the burden of proving that the replacements are in fact permanent replacements. NLRB v. Murray Products, 584 F.2d 934 (9th Cir. 1978). In Zapex Corp., 235 NLRB l237, l240 (1978), the Board held that the burden of proof is on the employer to show that strikers had been permanently replaced and that the hiring of temporary replacements does not excuse the employer’s refusal to rein- state economic strikers who made an unconditional offer to return to work. See also Montauk Bus Co., 324 NLRB 1128 (1997), and O. E. Butterfield, Inc., 319 NLRB 1004 (1995) (holding strike replacements are presumed to be temporary employees and not eligible voters in a decertification election, unless the employer proves they are permanent replacements). In the present case, although the Employer did offer rein- statement to some of the strikers shortly after they offered to return to work, it did not do so with respect to others. At the same time, it retained the services of replacement employees it had hired during the strike. Further, in at least three instances, it hired new employees after the Union had made the offer to return to work. And in two cases, instead of recalling strikers, the Company rehired, after April 29, two former employees who had previously left the Company. Moreover, it is my conclusion that the Respondent has not proven that the strike replacements were permanent replace- ments. These people were hired by Managers Wei and Tsai and neither the replacements nor the people who hired them testified as to the conditions of their employment. Li testified vaguely that at some time she told some of these replacements that they had guaranteed jobs but she could not say to whom she made these alleged remarks. As I find her testimony to be unreliable in this and other respects, and as there is no docu- mentary evidence of any kind to substantiate the Company’s claim that the strikers were hired on a permanent basis, I con- clude that they were hired as temporary replacements. most active union supporters. The court’s opinion assumes without explication, that an employer may hire permanent replacements, finding however that this was not the reason for the employer’s refusal to rein- state some of the strikers. Insofar as the Respondent asserts that it was justified in not recalling some strikers because it had hired permanent re- placements, I conclude that this defense is without merit. I therefore find that the company violated Section 8(a)(1) and (3) by not reinstating strikers to the extent that that their jobs were filled with employee replacements. The Company also contends that it was justified in refusing to reinstate certain of the strikers to the extent that their jobs were replaced by a permanent subcontractor. Put another way, the Respondent argues that it may refuse to reinstate strikers so long as it maintains an arrangement with a permanent subcon- tractor whose employees replace the striking workers, irrespec- tive of any turnover of the contractor’s employees. Thus, if an employee of the contractor leaves his employment, the contrac- tor could hire a new employee who would do the striker’s work and no striker would be entitled to recall as they otherwise would under Laidlaw if permanent replacements had been hired by the struck employer. An employer need not bargain with a Union and may engage temporary subcontractors if necessitated by a strike so long as the subcontracting does not transcend reasonable measures necessary to maintain its operations during the strike. Shell Oil Co., 149 NLRB 283 (1964). In my opinion, the use of a permanent subcontractor to do struck work is substantially different from temporary subcon- tracting as it would, of necessity, significantly undercut the rights of strikers to obtain reinstatement. Under Laidlaw, su- pra, economic strikers are entitled to immediate recall unless their employer has hired permanent replacements. But even then, when the replacements leave their jobs, the employer is required to recall strikers as jobs open up. Thus, even if not recalled immediately, a striking employee nevertheless has a reasonable probability, by virtue of normal turnover, that at some point in the future he or she will be able to obtain his or her job back. If however, an employer was entitled to use a contractor to permanently replace strikers, this would negate the strikers’ rights to recall as replacement workers left, This is because the contractor would continue to be engaged by the struck employer and the contractor could replace, at will, any of his employees who functionally stand in the same shoes as replacement employees if hired by the struck employer. Thus, the use of a permanent subcontractor to do struck work, would in my opinion upset the historically set balance between the rights of employees to engage in economic strikes without los- ing their jobs as opposed to the rights of employers to maintain their business operations during the course of a strike.5 5 The balance set between the right of employees to engage in eco- nomic strikes without loss of their employment status and the em- ployer’s contrary right to continue operating its business by using per- manent replacements is based, I believe, on a number assumptions about which there is little empirical evidence and which might be a suitable subject for some graduate students. For example: To what extent, if any, are potential workers reluctant to work as temporary strike replacements as opposed to taking such jobs on a permanent basis? With the growth of contingent workers and temporary employment companies, and the lessening of any social stigma for crossing picket lines, is it true that employers CAPEHORN INDUSTRY 371 The Respondent cites International Paper Co. v. NLRB, 115 F.3d 1045 (D.C. Cir. 1997), for the proposition that utilizing a permanent subcontractor would not be inherently destructive of employee Section 7 rights and therefore not illegal under the Act. But that case involved the use of a permanent subcontrac- tor during a lockout and after the employer had bargained about the use of such subcontracting. The court rejected the Board’s conclusion that the use of permanent, as opposed to temporary subcontracting during a lockout, was inherently destructive. The court reasoned that inasmuch as the lockout itself was le- gal, and inasmuch as the employer had met its obligation to bargain about the subcontracting, the Board could not find that these two legal actions made the implementation of the perma- nent subcontracting arrangement to be illegal. Therefore, argu- ing that a lockout is the equivalent of an economic strike, the Respondent argues that if a company can use a permanent sub- contractor during a lockout, it may, a fortiori, do the same where it is faced with an economic strike. The Respondent also cites Hawaii Meat Co. v. NLRB, 321 F.2d 397 (9th Cir. 1963). But that case dealt with the narrow issue of whether the employer’s decision to subcontract, taken at the time of an economic strike and made for the purpose of keeping the plant operating, constituted an illegal refusal to bargain under Section 8(a)(5) of the Act. At this point, it would be appropriate to talk a little about subcontracting and the National Labor Relations Act. In Fibre- board Corp. v. NLRB, 379 U.S. 203 (1964), the Supreme Court held that where an employer has a collective-bargaining rela- tionship with a union, nondiscriminatory subcontracting consti- tutes a mandatory subject of bargaining and therefore, an em- ployer violates its bargaining obligation under Section 8(a)(5) when it unilaterally subcontracts bargaining unit work without first giving the union an opportunity to bargain about the deci- sion. The Board has reaffirmed this principle in cases such as Torrington Industries, 307 NLRB 809 (1992); and Dorsey Trailers, Inc., 321 NLRB 616 (1996), enfd. denied 134 F.3d 125 (3d Cir. 1998). Notwithstanding the above, if the employer’s motivation for subcontracting is to retaliate against employees because they join or support a union or because they engage in concerted activity as defined in Section 7 of the Act, that subcontracting would be illegal under Section 8(a)(1) and (3) of the Act (not 8(a)(5)), even if the employer offered to bargain and did bar- gain in good faith with a union which represented its employ- ees. See for example, Delta Carbonate, Inc., 307 NLRB 118, 121 (1992), and Girardi Distributors, 307 NLRB 1497, 1516 (1992). oard stated: faced with an economic strike cannot find temporary replace- ments without offering permanent positions? When permanent replacements are hired, what is the average time that strikers are reinstated after making an unconditional of- fer to return to work? To what extent, if any, are economic strik- ers never reinstated after permanent replacements are hired? Is there any rational and empirical justification for changing the present rules so that economic strikers, even if replaced, are guaranteed reinstatement, if not immediately, then within some specifically defined period of time after an offer to return has been made? (Perhaps 6 months or a year.) Where as here, subcontracting is undertaken solely for the purpose of replacing strikers, and the employer thereafter re- fuses to reinstate employees when they offer to return to work, the inevitable consequence of those actions, and therefore their intent, is to deny employment (on either a temporary or perma- nent basis) to employees because they engaged in Section 7 protected activity. In my opinion, an employer’s use of a per- manent subcontractor as a justification for refusing to reinstate economic strikers constitutes, presumptively, discriminatorily, motivated conduct, unless it can show compelling justification, establishing a business necessity for using permanent subcon- tracting as a means of operating its business. And as noted above, the use of a permanent contractor, instead of hiring re- placement employees or a temporary subcontractor, tends to shift the balance of rights away from employees and substan- tially negates their right to engage in concerted action as pro- tected by Section 7 of the Act. In Land Air Delivery, 286 NLRB 1131 (1987), the employ- ees engaged in an economic strike and the employer admitted that it subcontracted all unit work after the strike commenced. The company acknowledged that it did not give notice to or bargain with the union about the decision to subcontract. Thereafter, the strikers made unconditional offers to return to work and the company failed to reinstate them. The administrative law judge found that the company violated Section 8(a)(5) by permanently contracting out all unit work without any prior notice to the union and without affording it an opportunity to bargain. The judge further found that the Respondent violated 8(a)(3) by failing to reinstate the strikers upon their unconditional offers to return to work. The B The Respondent urges that it was within its rights to permanently replace the strikers by contracting out the bargaining unit work without notice to or bargaining with the Union. The flaw in the Respondent’s argument is that permanently contracting out the work of unit employees is not equivalent to replacement of one employee by another . . . . With regard to replacing the strikers, the Respondent had two options to assure its continued operations: the Re- spondent had the right to hire permanent employee re- placements, the strikers thereby retaining reinstatement rights in accordance with Laidlaw Corp. . . . or the Re- spondent’s admitted course of action—unilateral perma- nent contracting out of the work—is, absent proof that the options set forth above were unavailable to it, not permis- sible under the Act. Thus, we agree with the judge that the Respondent’ permanent contracting out of the work previ- ously performed by bargaining unit employees without no- tifying and bargaining with the Union constituted an unfair labor practice even though done in the course of a strike. Refusing to afford the strikers their reinstatement rights, in reliance on the unlawful contacting, further violated the Act as found by the Judge. [286 NLRB 1131, 1131–1132.] In American Cyanamid Co., 592 F.2d 356, 360, 361 (7th Cir. 1979), the facts involved an economic strike where the em- ployer permanently subcontracted the work of the entire bar- gaining unit without notifying or bargaining with the union. The General Counsel argued that this refusal to bargain consti- DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 372 tuted an 8(a)(5) violation which then converted the strike into an unfair labor practice strike, and thereby required the em- ployer to reinstate the employees immediately on their uncondi- tional offer to return to work. The court, in enforcing the Board’s Order, stated: [The Union] objects only to the Company’s unilateral de- cision to make the arrangement permanent in the absence of an emergency. This company did not need to effectuate permanent contracting out to remain in business because the plant had been operational since the inception of the strike through temporary arrangements . . . nor was that contractor requiring the relations with the Company re- main permanent as a condition of continuing to work for the Company. There has been no showing that this com- pany would have been harmed by negotiating with the Un- ion prior to contracting out the . . . work permanently. Therefore no justification has been shown for the com- pany’s failure to observe the bargaining obligation set forth in the Act. In the present case, the complaint does not allege that the Respondent violated Section 8(a)(5) by failing to bargain about its decision to utilize a permanent subcontractor. And indeed as of April 15, 1997, there was no duty to notify or bargain with the Union inasmuch as the Union was not either the recognized or the certified bargaining agent. Nevertheless, the Board’s conclusion in Land Air Delivery, supra, and American Cyana- mid, supra, strongly suggest that the Board recognized that a decision by an employer to permanently subcontract out bar- gaining unit work during a strike (as opposed to temporary subcontracting) is inherently destructive of employee rights under Laidlaw. I reject any suggestion by the employer that it was necessary to make a permanent subcontract with EMG. Such an assertion is based on the testimony of Li to the effect that EMG would not accept this contract unless it was made on a permanent basis. This is simply not supported by the evidence which shows that it was the Respondent’s idea to have Enrique Garcia do this work as a subcontractor even though Garcia and his friend and first employee, Jose Ramirez, were perfectly willing to work as replacement employees of Capehorn. There was no indication in Garcia’s testimony to support any assertion that he would not have been willing to do this work unless he was given this work as a permanent subcontractor. Indeed, the im- port of his testimony was the opposite. Based on the above, it is my opinion that the Employer vio- lated Section 8(a)(3) of the Act by failing to reinstate economic strikers immediately on their unconditional offer to return to work and further violated the Act by failing to reinstate strikers to the extent that business conditions made jobs available. In this regard, I reject the Respondent’s contentions that (a) any replacements hired after the strike commenced were hired as permanent replacements and (b) that it was justified in refusing to reinstate strikers whose work was replaced by EMG as a permanent subcontractor. To the extent that strikers were sent offers to return to work, I shall leave for compliance such issues as to whether a valid offer was tendered and/or received and if so, to what extent a striker, who otherwise would be entitled to reinstatement, may have his backpay tolled by such an offer. (Clearly, as of April 29, 1997, and thereafter, there was not enough work available for all 27 people listed as strikers on the attachment to the Un- ion’s April 29 letter.) CONCLUSIONS OF LAW 1. By refusing to reinstate employees who engaged in a strike upon their unconditional offer to return to work, the Re- spondent has violated Section 8(a)(1) and (3) of the Act. 2. By the aforesaid conduct, the Respondent has engaged in unfair labor practices affecting commerce within the meaning of Section 2(2), (6), and (7) of the Act. REMEDY Having found that the Respondent has engaged in certain un- fair labor practices, I find that it must be ordered to cease and desist and to take certain affirmative action designed to effectu- ate the policies of the Act. As the evidence shows that the Respondent illegally refused to reinstate some of the strikers, it must offer them reinstate- ment and make them whole for any loss of earnings and other benefits, computed on a quarterly basis from the date of such refusal, less any net interim earnings, as prescribed in F. W. Woolworth Co., 90 NLRB 289 (1950), plus interest as com- puted in New Horizons for the Retarded, 283 NLRB 1173 (1987). To the extent that there are issues regarding the identify of those striking employees who would be entitled to reinstate- ment based on the availability of work after the offer to return was made, that can be left for resolution at the compliance stage of the proceeding. Similarly, to the extent that there are issues as to whether or not valid offers of reinstatement were made and/or received by strikers and what if any effect that would have on limiting any individual’s backpay, that can also be left to compliance. (As noted above, Respondent’s rein- statement offers made before the Union made the April 29, 1997 offer to return to work, are not considered to be valid offers of reinstatement.) On these findings of fact and conclusions of law and on the entire record, I issue the following recommended6 ORDER The Respondent, Capehorn Industries, Inc., Clifton, New Jersey, its officers, agents, successors, and assigns, shall 1. Cease and desist from (a) Refusing to reinstate economic strikers to existing vacan- cies upon their unconditional offer to return to work. (b) In any like or related manner restraining or coercing em- ployees in the exercise of the rights guaranteed to them by Sec- tion 7 of the Act. 2. Take the following affirmative action necessary to effec- tuate the policies of the Act. 6 If no exceptions are filed as provided by Sec. 102.46 of the Board’s Rules and Regulations, the findings, conclusions, and recommended Order shall, as provided in Sec. 102.48 of the Rules, be adopted by the Board and all objections to them shall be deemed waived for all pur- poses. CAPEHORN INDUSTRY 373 (a) Upon application, offer to those strikers who have not yet returned and for whom work is available, immediate and full reinstatement to their former or substantially equivalent posi- tions, without prejudice to their seniority or other rights and privileges, dismissing if necessary all persons hired as striker replacements or engaged as replacement subcontractors after March 25, 1997. (b) Make whole any of the strikers for any loss of earnings and other benefits suffered as a result of the refusal to reinstate them to their former jobs in the manner described in the remedy section of this decision. (c) Preserve and, within 14 days of a request, make available to the Board or its agents for examination and copying, all pay- roll records, social security payment records, timecards, per- sonnel records and reports, and all other records necessary to analyze the amount of backpay due under the terms of this Or- der. (d) Within 14 days after service by the Region, post at its fa- cility in Clifton, New Jersey, copies of the attached notice marked “Appendix.”7 Copies of the notice, on forms provided by the Regional Director for Region 22, after being signed by the Respondent’s authorized representative, shall be posted by the Respondent immediately upon receipt and maintained for 60 consecutive days in conspicuous places including all places where notices to employees are customarily posted. Reasonable steps shall be taken by the Respondent to ensure that the notices are not altered, defaced, or covered by any other material. In the event that, during the pendency of these proceedings, the Respondent has gone out of business or closed the facility in- volved in these proceedings, the Respondent shall duplicate and mail, at its own expense, a copy of the notice to all current em- ployees and former employees employed by the Respondent at any time since April 29, 1997. (e) Within 21 days after service by the Region, file with the Regional Director a sworn certification of a responsible official 7 If this Order is enforced by a judgment of a United States court of appeals, the words in the notice reading “Posted by Order of the Na- tional Labor Relations Board” shall read “Posted Pursuant to a Judg- ment of the United States Court of Appeals Enforcing an Order of the National Labor Relations Board.” on a form provided by the Region attesting to the steps that the Respondent has taken to comply. APPENDIX NOTICE TO EMPLOYEES POSTED BY ORDER OF THE NATIONAL LABOR RELATIONS BOARD An Agency of the United States Government The National Labor Relations Board has found that we violated the National Labor Relations Act and has ordered us to post and abide by this notice. Section 7 of the Act gives employees these rights. To organize To form, join, or assist any union To bargain collectively through representatives of their own choice To act together for other mutual aid or protection To choose not to engage in any of these protected con- certed activities. WE WILL NOT refuse to reinstate economic strikers to ex- isting vacancies on their unconditional offer to return to work. WE WILL NOT in any like or related manner restrain or co- erce employees in the exercise of the rights guaranteed them by Section 7 of the Act. WE WILL, on application, offer to those strikers who have not yet returned, immediate and full reinstatement to their for- mer or substantially equivalent positions to the extent that work is available for them, without prejudice to their seniority or other rights and privileges, dismissing if necessary, all persons hired as striker replacements and place on a preferential hiring list those striker applicants for whom positions are not immedi- ately available. WE WILL make whole any of the strikers for any loss of earnings and other benefits suffered as a result of, and to the extent that we have illegally refused to reinstate them to their former jobs. CAPEHORN INDUSTRIES, INC.