Garwood--Detroit Truck Equipment, Inc.

GARWOOD-DETROIT TRUCK EQUIPMENT Garwood-Detroit Truck Equipment, Inc. and Inter- national Union, United Automobile , Aerospace and Agricultural Implement Workers of Amer- ica and Local Union No 189, UAW. Case 7- CA-20528 19 February 1985 DECISION AND ORDER BY CHAIRMAN DOTSON AND MEMBERS HUNTER AND DENNIS On 11 July 1983 Administrative Law Judge Thomas E. Bracken issued the attached decision. The Respondent filed exceptions and a supporting brief. 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, and conclusions only to the extent consistent with this Decision and Order. 1. The judge found that the Respondent violated Section 8(a)(1) and (5) and Section 8(d) of the Act by unilaterally subcontracting its mounting and service work without prior notice to the Union and without affording the Union an opportunity to bar- gain about the subcontracting decision. The Re- spondent has excepted to this finding, contending that it had no duty to bargain about the subcon- tracting decision. We find merit in the Respond- ent's exceptions. The facts, as more fully set forth by the judge, are as follows. Until January 1982 the Respondent was in the business of mounting (or installing) and servicing equipment on trucks and also selling parts. Since the 1950s the Respondent's employees, who were classified as mechanic-welders, painters, and utility men, were covered by successive collec- tive-bargaining agreements with the Union.' It is undisputed that the Respondent's business was losing money steadily since 1979, and by December 1981, three of the four remaining unit employees were on layoff status.2 In early December 1981, the Respondent was ap- proached by two individuals, Essig and Childress, who previously had performed some subcontract- ing work for the Respondent, about the possibility of their taking over the Respondent's mounting and service work. After several meetings, an agreement was worked out whereby the Respondent agreed to retain Essig and Childress as an "independent contractor" for the providing of mounting and 1 The most recent agreement was entered into on 17 August 1981 as a 1-year addendum to the prior 3-year agreement which contained an auto- matic renewal clause 2 As of 1 September 1978, there had been eight employees on the se- niority list 113 service work to the Respondent's customers, and to lease its facilities and equipment to them. Essig and'' Childress agreed to pay a specified percentage of the Respondent's rent and utility bills and to pro- cure various kinds of liability and other insurance for the benefit of the, Respondent. The agreement also specified that the Respondent reserved the right to hire other subcontractors but that it re- served no right to exercise control over the em- ployees of Essig and Childress. The agreement was to be effective 4 January 19823 and could be termi- nated by either party on 60 days', written, notice. By letters dated 5 January, the Respondent noti- fied its employees and the Union about the subcon- tracting agreement with Essig and Childress. The letter to the Union stated as follows: By reason of the present dire economic condi- tions presently prevailing in the, Metropolitan Detroit area and throughout the State of Michigan, we have been required to enter into an agreement with an independent contractor to perform the service and mounting required by our customers. We are eliminating our service and mounting departments in order to prevent economic chaos. We contemplate within the very near future of divesting ourselves of our shop equipment in order to recapitalize the company apd intend to sub-lease a large portion of our building in order to enable us to pay exhorbitant [sic] rental requirements provided for in our present lease. Our losses this year have been astronomical and we are unable to continue our normal op- erations which ultimately could lead to bank- ruptcy proceedings. We are this day advising our employees, me- chanics-welders-painters, to pick up their tools and personal effects. As to the utility man, we will make every effort to utilize him depending upon economic conditions.4 After receiving the letter on 11 January, the Union's president Terry called the Respondent's vice president and general manager Connor and protested that the Respondent was violating the collective-bargaining agreement. Terry also told employee Schroeder, who was the Union's chair- person, to file a grievance. Schroeder immediately a All dates hereinafter are in 1982 unless otherwise indicated 4 The letter to the employees was virtually identical except that the last paragraph requested them to pick up their tools by 15 January 274 NLRB No. 23 114 DECISIONS OF NATIONAL LABOR RELATIONS BOARD filed a grievance protesting that "outside employ- ees are performing work normally done by mem- bers of the bargaining unit." Connor, in denying the grievance that same day, wrote, "This griev- ance has no basis in fact. . . . Past procedure has been to contract out work as necessary." About 2 weeks later, Schroeder, who formerly had worked as a mechanic-welder, was recalled to work as a utility man, which was a lower paid clas- sification. As such, his duties included picking up truck parts from vendors as well as doing janitorial work. No other laid-off employee was recalled by the Respondent, although one other employee later went to work for Essig and Childress as a mechan- ic-welder. Meanwhile, in February the Union conducted an audit of the Respondent's books and confirmed that the Respondent's financial condition was poor. In March, the parties met at the Union's request to discuss the subcontracting in the context of the grievance procedure. The Union stated it would consider concessions in order to get the laid-off employees back to work, but the Respondent viewed such concessions as insufficient to solve its cash flow problems. There also was some discus- sion about the possibility of employees buying into the corporation or working on a piece rate basis. Nothing was resolved at that meeting, however, or at a subsequent meeting in April, which also was called by the Union to discuss ways to get the em- ployees back to work. In December, at a meeting called by the Respondent, the parties continued to discuss different ways to get the employees back to work, but again the discussion was to no avail. The judge, finding that the instant case was con- trolled by Fibreboard Corp. v. NLRB,5 concluded that the Respondent was obligated to bargain with the Union about the decision to subcontract the service work. The judge found that, as in Fibre- board, which involved "the replacement of employ- ees in the existing bargaining unit with those of an independent contractor to do the same work under similar circumstances," the Respondent merely re- placed its own employees with those of Essig and Childress to do the same work, using the same tools and equipment, and in the same working area. Thus finding that the Respondent did not engage in a major shift in the direction of the Company and that the nature of its business was not substantially altered by the subcontracting, the judge rejected the Respondent's contention that the Essig and Childress agreement amounted to a "partial clos- ing" which was not subject to mandatory bargain- ing under the Court's holding in First National 5 379 U S 203 (1964) Maintenance Corp. v. NLRB.6 In this regard, he also relied on his findings that the subcontracting decision did not require any restructuring or invest- ment of capital and that the shop area leased to Essig and Childress still was subject to the Re- spondent's control as the primary lessee of the premises. Moreover, the judge found that the Union could have engaged in "significant bargain- ing" to alleviate the Respondent 's financial situa- tion before the Essig and Childress agreement was executed . Finally, because the Respondent's unilat- eral subcontracting occurred during the term of an existing collective -bargaining agreement , the judge concluded that the Respondent modified the terms and conditions of that agreement in violation of Section 8(a)(1) and (5) and Section 8(d) under Mil- waukee Spring Division , 265 NLRB 206 ( 1982). At the outset, we note that the Board recently reversed its original Decision and Order in Milwau- kee Spring 7 on which the judge relied . In its sup- plemental decision the Board stated that, before it may conclude that an employer has violated Sec- tion 8(d), it first must identify a specific term "con- tained in" the contract which the employer's deci- sion modified . In the instant case, the record does not reveal any term contained in the collective-bar- gaining agreement that restricts the Respondent's decision making regarding subcontracting . There- fore, contrary to the judge, we find that the Re- spondent 's decision to contract out the service work did not modify the collective -bargaining agreement in violation of Section 8(d) Further, the Board recently held in Otis Elevator Co.8 that management decisions which affect the scope, direction, or nature of the enterprise are not subject to mandatory bargaining under Section 8(d). As stated in Otis Elevator, the critical factor in determining whether a specific management deci- sion is subject to mandatory bargaining is "the es- sence of the decision itself, i.e., whether it turns upon a change in the nature or direction of the business or turns upon labor costs; not its effect on employees nor a union 's ability to offer alterna- tives." Further, in Otis Elevator, the Board specifi- cally stated that Fibreboard "subcontracting" is sub- ject to mandatory bargaining not because the deci- sion is labeled subcontracting but because the deci- sion turns on a reduction of labor costs. Applying that analysis to the facts of the instant case, we find for the reasons set forth below that the Respond- ent's decision to contract out its service work to Essig and Childress turned not on labor costs but 6452US 666(1981) 7 268 NLRB 601 (1984) 8 269 NLRB 891 (1984) GARWOOD-DETROIT TRUCK EQUIPMENT on a significant change in the nature and direction of the Respondent's business and that, therefore, the Respondent had no duty to bargain about the subcontracting decision. It is clear from the record that the Respondent's essential purpose in executing the agreement with Essig and Childress was to reduce its overhead costs across-the-board so as to be able to remain in business. Looking at the agreement itself, the pre- amble states that the Respondent "is desirous of eliminating its service and mounting departments in order to reduce costs." Towards that end, Essig and Childress agreed to pay a specified percentage of the rent paid by the Respondent for use of the premises plus a monthly fee for the rental of the Respondent's equipment. In addition, Essig and Childress agreed to pay a specified percentage of the Respondent's monthly gas, electric, and water bills; to procure various types of liability insurance for the Respondent's benefit; and to maintain any workmen's compensation insurance required by state law. Thus, aside from the obvious savings in payroll costs resulting from the layoff of unit em- ployees, the terms of the Respondent's agreement with Essig and Childress covered the gamut of overhead costs and afforded the Respondent a wide variety of financial relief. Moreover, as indi- cated above, the Respondent reserved the right to hire other subcontractors if necessary. Thus, al- though the agreement could be terminated by either party on 60 days' notice, it is evident from all these arrangements that the Respondent had no intention, at least in the foreseeable future, of per- forming the service work with its own employees. The Respondent's cost-reduction objectives in contracting out the service work are spelled out even more clearly in its 5 January letter to the Union, set forth above. Thus, in that letter, the Re- spondent stated, "We are eliminating our service and mounting departments in order to prevent eco- nomic chaos," and "Our losses this year have been astronomical and we are unable to continue our normal operations . . . ." The letter also indicated that the Respondent was contemplating divesting itself of its shop equipment and that it intended to sublease a large portion of the premises in order to facilitate payment of the rent. Aside from the documentary evidence, it is clear from the testimony at the hearing that the Re- spondent's decision to contract out the service work contemplated a major shift in the nature and direction of its business in conjunction with the re- duction of costs. Union President Terry, testifying about the meeting in March 1982, stated there was some discussion about how long the Respondent anticipated staying in business, with Connor indi- 115 cating "that he really wanted to get out of the garage business, per se, and more or less, go to- wards a parts distribution type situation." Terry continued: One of the reasons he cited was the high cost of the rent that they had to pay for the facili- ties they have there and that he would prob- ably when the lease came up, and I believe it was in August, he said they probably wouldn't be renewing it . . [t]hat he would probably go into business just with the parts, get a dif- ferent office and so on. Connor, in his testimony, confirmed that the Re- spondent entered into the agreement with Essig and Childress because the Respondent was unable to meet its financial obligations and that the result- ing reduction in costs had kept the Respondent in business to date. Regarding the Respondent's cur- rent business operations, Connor testified that the Respondent had "become basically a manufactur- er's representative-type of organization" which sells truck equipment parts and uses various ven- dors to perform the labor. Based on the foregoing, we find that the Re- spondent's decision to contract out the mounting and service work did not turn on labor costs-al- though labor costs were one component of the overhead costs the Respondent intended to reduce by the subcontracting-but rather turned on a sig- nificant change in the nature and direction of its business, i.e., a decision to abandon its service and mounting operations. We therefore conclude, under Otis Elevator, that the Respondent had no duty to bargain with the Union about its subcontracting de- cision. Accordingly, we shall dismiss this portion of the complaint. 2. The judge further found, and we agree, that the Respondent unlawfully failed to bargain with the Union about the effects of the subcontracting decision on unit employees. In agreeing with the judge's finding, we rely on the fact that the Re- spondent informed the Union of its decision to enter into the subcontracting agreement only after that agreement had been executed. Moreover, in its 5 January letter to the Union, the Respondent made no offer to bargain about the effects of sub- contracting on unit employees. In this regard, we also note that the meetings in March and April, which were held at the request of the Union, oc- curred more than 2 months after the employees were permanently laid off. In these circumstances, we conclude that the Respondent violated Section 8(a)(5) and (1) by its failure to afford the Union adequate timely notice and a meaningful opportuni- 116 DECISIONS OF NATIONAL LABOR RELATIONS BOARD ty to bargain about the effects of the subcontract- ingon.unit employees Accordingly, we shall in our amended remedy provide for the payment of limited backpay as is customary in cases where the Board has found only an "effects-bargaining" violation. See, e.g., Contris Packing Co., 268 NLRB 193 (1983); Inter- state Tool Co., 177 NLRB 686 (1969); Transmarine Corp., 170 NLRB 389 (1968). AMENDED REMEDY Having found that the Respondent, by failing to bargain with the Union over the effects of its deci- sion to subcontract, has engaged in unfair labor practices within the meaning of Section 8(a)'(5) and (1) of the Act, we shall order that the Respondent cease and desist therefrom, and take certain affirm- ative action designed to effectuate the policies of the Act. As a result of the Respondent's unlawful failure to bargain about the effects, of the subcontracting, the laid-off employees have been denied an oppor- tunity to bargain through their collective-bargain- ing representative at. a time when the Respondent might still have been in need of their services and a measure of balanced bargaining power existed. Meaningful bargaining cannot be assured until some measure of economic strength is restored to the Union: A bargaining order alone, therefore, cannot serve as an adequate remedy for the unfair labor practices committed. Accordingly, we deem it necessary, in order to effectuate the purposes of the Act, to require the Respondent to bargain with the Union concerning -the effects of the subcontracting on its employees, and shall accompany our order with a limited backpay requirement designed both to make whole the, employees for losses suffered as a result of the violation , and to recreate in some practicable manner a situation in which the parties' bargaining position is not entirely devoid of economic conse- quences for the Respondent. We shall do so in this case by requiring the Respondent to pay backpay ,to* its employees in a manner similar to that re- quired in Transmarine, supra. Thus the Respondent shall pay employees backpay at the rate of their normal wages when last in the Respondent's employ from 5'days after the date of this Decision and Order until the occurrence of the earliest of the following conditions: (1) the date the Respond- ent bargains to agreement with the Union on those subjects pertaining to the effects of the subcon- tracting on its employees; (2) a bona fide impasse in bargaining; (3) the failure of the Union to request bargaining within 5 days of this decision, or to commence negotiations within 5 days of the Re- spondent's notice of its desire to bargain with the Union; or (4) the subsequent failure of the Union to bargain in good faith; but in no event shall the sum paid to any of these employees exceed the amount the employee would have earned as wages from 4 January 1982, the date on which the Respondent subcontracted the work, to the time the employee secured equivalent employment elsewhere, or the date on which the Respondent shall have offered to bargain, whichever occurs sooner; provided, however, that in no event shall this sum be less than these employees would have earned for a 2- week period at the rate of their normal wages when last in the Respondent's employ. ORDER The National Labor Relations Board orders that the Respondent, Garwood-Detroit Truck Equip- ment, Inc., Warren, Michigan, its officers, agents, successors, and assigns, shall 1. Cease and desist from (a) Refusing to bargain in good faith with the Union about the effects on unit employees of the decision to subcontract the service and mounting work. (b) In any like or related manner interfering with, restraining, or coercing employees in the ex- ercise of the rights guaranteed them by Section 7 of the Act. 2. Take the following affirmative action neces- sary to effectuate the policies of the Act. (a) On request, bargain collectively with the Union with regard to the effects on employees of subcontracting the service and mounting work and, if an understanding is reached, embody such under- standing in a signed agreement. (b) Pay the employees laid off on 4 January 1982 their normal wages for the period set forth in the section of this Decision and Order entitled "Amended Remedy." (c) Preserve and, on request, make available to the Board or its agents for examination and copy- ing, all payroll records, social security payment records, timecards, personnel records and reports, and all other records necessary to analyze the amount of backpay due under the terms of this Order. (d) Post at its facility in Warren, Michigan, copies of the attached notice marked "Appendix."9 9 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 Laobr Relations Board " GARWOOD-DETROIT TRUCK EQUIPMENT Copies of the notice, on forms provided by the Re- gional Director for Region 7, after being signed by the Respondent's authorized representative, shall be posted by the Respondent immediately upon re- ceipt and maintained for 60 consecutive days in conspicuous places including all places where no- tices to employees are customarily posted. Reason- able steps shall be taken by the Respondent to ensure that the notices are not altered, defaced, or covered by any other material. (e) Notify the Regional Director in writing within 20 days from the date of this Order what steps the Respondent has taken to comply. MEMBER DENNIS, dissenting in part. I agree with the majority that the Respondent unlawfully failed to bargain with the Union about the effects of its decision to subcontract unit work. For the following reasons, however, I disagree with my colleagues' conclusion that the Respond- ent was not obligated to bargain with the Union about the decision itself. In my view, the Respond- ent's decision was a mandatory subject of bargain- ing, and the Respondent's refusal to bargain about the decision violated Section 8(a)(5). The Union and the Respondent have been parties to collective-bargaining agreements since the 1950s. The Respondent, until 1982, operated a truck equipment service and sales business. In 1982, in order to "cut their [financial] losses," the Respond- ent's officers decided to subcontract the servicing part of the business, thereby reducing labor costs, rent, heating, and electricity bills, and insurance premiums. To maintain good customer relations and provide customers readily available servicing, the Respond- ent subcontracted the service business to two former employees. The subcontractor performs the same service work on customers' trucks that the Respondent's employees previously performed, and uses the same tools and equipment in the same work area that the Respondent's employees former- ly used. In a letter to the Union, the Respondent acknowledged that the subcontracted work contin- ued to be "required by our customers." Applying the two-step test set forth in my con- curring opinion in Otis Elevator Co., 269 NLRB 891 at 897 (1984), I find first that the Respondent's sub- contracting decision was "amenable to resolution through the bargaining process." The Union could have made offers that reasonably could have affect- ed management's decision, for as even my col- leagues in the majority concede, "labor costs were one component of the overhead costs the Respond- ent intended to reduce by the subcontracting." Turning to the second part of my Otis test, I cannot agree with the majority that the Respond- 117 ent's decision constituted "a significant change in the nature and direction of its business." Where, as here, the same work is still being provided at the same location to the same customers, I find that the benefit achieved by subjecting the Respondent's de- cision to the bargaining process outweighs any bur- dens placed on management that are apparent from the record. Cf. First National Maintenance Corp. v. NLRB, 452 U.S. 666, 679-680 (1981), explaining Fi- breboard Corp. v. NLRB, 379 U.S. 203 (1964) (con- duct of the business not significantly burdened by requiring bargaining about subcontracting decision where decision did not alter company's basic oper- ation and involved only replacement of company's employees with subcontractor's employees to do same work under similar employment conditions). 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. WE WILL NOT refuse to bargain in good faith with International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, and Local Union No. 189, UAW, about the effects on unit employees of the decision to subcontract our service and mounting work. WE WILL NOT in any like or related manner interfere with, restrain, or coerce our employees in the exercise of the rights guaranteed them by Sec- tion 7 of the Act. WE WILL, on request, bargain collectively with the Union with respect to the effects of subcon- tracting our service and mounting work on unit employees and reduce to writing any agreement reached as a result of such bargaining. WE WILL pay the employees laid off on 4 Janu- ary 1982 their normal wages for a period required by the National Labor Relations Board. GARWOOD-DETROIT TRUCK EQUIP- MENT, INC. DECISION STATEMENT OF THE CASE THOMAS E. BRACKEN, Administrative Law Judqe. This case was tried in Detroit, Michigan, on February 14 and 15, 1983. The charge was filed by the Union on 118 DECISIONS OF NATIONAL LABOR RELATIONS BOARD April 12, 1982,1 and the complaint was issued on May 26. The primary issue is whether the Respondent, in sub- contractinq out service and mountinq work, and laying off unit employees who had previously been performing the work, without notifying or bargaining with the Union, violated Section 8(a)(1) and (5) of the National Labor Relations Act. On the entire record including my observations of the demeanor of the witnesses and after due consideration of the brief filed by the Respondent and oral argument of the General Counsel, I make the following FINDINGS OF FACT 1. JURISDICTION The Company, a Michigan corporation, installs and sells truck equipment, parts, and related products. During the fiscal year ending July 31, 1981, Respondent purchased and received at its Warren place of business, truck equipment and parts and other goods valued in excess of $100,000, of which goods and materials in excess of $50,000 were transported to its Warren, Michi- gan place of business, directly from points located out- side the State of Michigan. The Company admits, and I find, that it is an employer engaged in commerce and in operations affecting commerce within the meaning of Section 2(2), (6), and (7) of the Act. II. THE LABOR ORGANIZATION INVOLVED The Union is a labor organization within the meaning of Section 2(5) of the Act. III. ALLEGED UNFAIR LABOR PRACTICES A. Background2 For some years the Respondent had been in the truck equipment service and sales business. A small company, its business consisted of installing major pieces of special- ized equipment and accessories onto trucks owned by various customers, such as municipalities and contrac- tors. The customer would bring to the Respondent's shop its stripped down truck, consisting chiefly of a frame and a chassis. Here the Garwood employees would install such major components as dump bodies, snowplows, salt spreaders, scrapers, lights, and horns. At times Respondent also performed repairs on such auxilia- ry equipment. It also sold truck equipment parts at wholesale and retail as a minor part of its business. The Company's shop was essentially a one-story rec- tangular building about 40 feet wide by 100 to 120 feet long. On the north end of the building was the office, a room about 20 feet by 20 feet. To the rear of the office was a parts room of about the same size. There was a partial second floor over the office space, used as a locker room and for the storage of records. The remain- ing ground floor area was divided into three service bays and one paint shop bay. The shop contained various All dates are in 1982 unless otherwise indicated The factfindmgs contained herein are based on a composite of the testimonial and documentary evidence received at the hearing The perti- nent facts are not in dispute items of equipment, the major ones being eight 2-ton electric overhead cranes, two 5-ton manual overhead cranes, one 2-ton air operated overhead crane, one gas and oxygen manifold system, one oil storage manifold system, one paint blower, and one compressor. Donald E Connor was the president of the Company and had been for a number of years The rest of the off- fice force consisted of his son, Bruce R. Connor, the vice president and general manager, and one outside salesman. B Bargaining History Since some time in the 1950s, the Respondent and the Union have been parties to collective-bargaining agree- ments. On August 14, 1978, the parties had executed a formal 27-page sophisticated and comprehensive agree- ment that was to terminate on August 4, 1981.3 The agreement also contained an automatic renewal clause, unless either party gave a 60-day notice of termination to the other party. No such notice was given in 1981, and on August 17, 1981, the parties executed a one-page memorandum agreement as an addendum to the prior formal agree- ment. This memorandum agreement established the ter- mination date as August 4, 1982. This agreement did contain a 10-cent-per-hour-wage increase, and an in- crease of 10 cents per hour for the pension fund, and in- creased the life insurance policy per employee to $13,000 Bruce Connor testified that during the negotiations the Company had requested monetary concesions from the Union, but these were refused by the Union. Kenneth Terry, the president of Local 189, and its full-time em- ployee, admitted that during these negotiations the Com- pany had asked for concessions but he did not remember what they were. Donald Schroeder, a full-time employee of Garwood and its union committeeman in the shop, participated in the 1981 negotiations. He admitted that he knew that the Company was having "a terrible financial problem at the time," and that the Company asked for additional concessions from the Union during negotia- tions. C. The Subcontracting of Work In the fall months following the signing of the 1-year agreement with the Union, the Respondent's business was suffering a "general downturn" and was losing money.4 The officers had previously tried to sell the business without success, so they decided to "cut their losses," and get out of the installation and service part of their business. To cut its losses the Company sought to reduce its labor costs, its rent, its heating and electricity bills, and its insurance premiums. At this time the bargaining unit employees consisted of apparently four employees, Donald Schroeder, Howard 3 This agreement contained a seniority list that set forth the names of eight employees as of September 1, 1978 4 The Respondent's accountant, an independent certified public ac- countant, testified credibly that for the fiscal year, which ended on July 31, 1981, the Company had a net operating loss of approximately $33,000, and that for the first 3 months of the new fiscal year, as of October 31, 1981, the loss was approximately $16,000 GARWOOD-DETROIT TRUCK EQUIPMENT Sherfey, Timothy Beltowski , and Larry Bettencourt.5 Bettencourt, a utility man, had been laid off in October or November 1981. Beltowski, a mechanic-welder, in November 1981, and Sherfey, another mechanic-welder, in December 1981 Schroeder, who was the top seniortiy employee, was on voluntary layoff in December and had notified the Company that he was going to bump Sher- fey after the Christmas holidays In early December 1981, Arnold Essig and Adron Childress, who had previously done some work for the Respondent, approached the Connors about the possibili- ty of taking over the Company's service function. There were several conferences between the Respondent and Essig and Childress, and in the last week of December the Respondent decided to subcontract its service work to Essig and Childress. An attorney was called in who proceeded to draft an agreement based on prearranged terms. On January 4, 1982, on the first working day after New Year's Day the two Connors signed the agreement on behalf of the Respondent and Essig and Childress signed as the president and vice president of Essig and Childress, Inc (R. Exh 3) The prefatory clauses of the agreement plainly set forth the purposes of the agreement. (1) Garwood was desirous of eliminating its service and mounting depart- ment in order to reduce costs, (2) to maintain good rela- tions with its customers and to provide its customers with readily available service and mounting it was "hiring an independent contractor to perform such serv- ices," and (3) Essig and Childress would rent space and equipment from Garwood and provide "services as an independent contractor as requested bay GARWOOD for customers of GARWOOD." The agreement set forth that the Respondent leased to Essig and Childress the shop, paint shop, and all of the equipment set forth in III, A, above. It also provided that Respondent was retaining Essig and Childress to provide products and services for Garwood and its cus- tomers, and that Garwood had no right to exercise any control over the employees of the subcontractor. Com- pensation for the subcontractor "for any work performed by them on behalf of GARWOOD shall be in amount as can be agreed upon by the parties for each job per- formed " D. Union Knowledge of the Subcontracting On January 11, Schroeder received from the Respond- ent at his home a letter dated January 5 , 1982. (G.C. Exh. 3.) This letter informed Schroeder that the Compa- ny had entered into an agreement with an independent contractor to perform the service and mounting work re- quired by its customers and was, therefore, eliminating its service and mounting department . The final paragraph requested that he pick up his tools by January 15. This was the first notice that any employee in the bargaining unit, or the Union itself, had received from the Company that it was going to subcontract work , or that it was going to eliminate that department. 5 Union President Terry testified that he believed there had been five employees , but he did not cite names 119 Schroeder thereupon telephoned the union president and informed him of the letter he had just received. Upon Terry advising him to file a grievance, Schroeder went to the plant of the Respondent. When he entered the shop he saw two men working on an International truck that unit employees had previously worked on.6 Schroeder then talked to Bruce Connor as to why he had been laid off, and was informed that it was because of financial difficulties. Following this conversation Schroeder went to the union office arriving about 2 or 3 p.m. By this time, Terry had received a letter from the Respondent also dated January 5, which was virtually identical to the letter sent to Schroeder. Schroeder and Sherfey then filled out a formal grievance which stated that the griev- ance was being filed "because outside employees are per- forming work normally done by members of the bargain- ing unit." Schroeder delivered the grievance to Bruce Connor, who proceeded to write on the reverse side thereof under foreman's Disposition , "This grievance has no basis in fact Please refer to grievance form #2855 dated July 24, 1978. This issue was settled at that time. Past procedure has been to contract out work as neces- sary."' E. Postsubcontracting Events Subsequent to January 11, Terry advised Bruce Connor that the Company was violating their collective- bargaining agreement by its use of subcontractors to do bargaining unit work. The company vice president con- tended that their attorney had advised them that they had a legal right to do so. Terry then contracted the Union's legal counsel who suggested that the Union ex- amine the books of the Company so as to determine its economic situation. In the middle of February, the Union 's representatives audited the books of the Respondent As a result of the audit, it was concluded by the Union that the Company was in very bad financial condition and that it had lost thousands of dollars. About January 23, Schroeder returned to work for the Respondent as a utility man. In this classification he did not perform mechanic-welder work as he had formerly done, but chased parts and performed maintenance work in the building . While this was an easier job than his former one, it also carried a lower rate of pay At some subsequent undisclosed time, Sherfey apparently became an employee of Essig and Childress, as Schroeder ob- served him working in the shop on service work In March, Terry requested a meeting with the Compa- ny as the next step of the grievance procedure. A meet- ing was held in late March, at which Terry, Schroeder, and Sherfey were present for the Union Donald and Bruce Connor represented the Company . Terry informed the company representatives that he wanted to settle the issue of subcontracting as they were in violation of their labor agreement . He stated that the Union would consid- 6 Schroeder subsequently learned that the two workers were Essig and Childress ' Grievance form 2855 was not produced, nor otherwise further identi- fied 120 DECISIONS OF NATIONAL LABOR RELATIONS BOARD er concessions so as to work out a compromise that would get the laid-off employees back to work. Bruce Connor stated that the Company's problem was a short- age of money and that concessions would not help He did suggest the possibility of the employees buying the corporation or buying into the corporation. The vice President also suggested that the employees do piece work These suggestions were turned down by the Union. At the Union's request, the parties met again in mid- April with same people present who attended the March meeting. As President Connor testified, the parties went over the same ground as in the March meeting. The Union wanted their members put back to work and re- quested that the matter be arbitrated. The Company re- fused to submit the issue to arbitration, and under the terms of the collective-bargaining agreement, no griev- ance could be arbitrated unless mutually agreed to. As the months went on, Essig and Childress continued to handle the service work assigned to them by the Re- spondent as a subcontractor Also, that firm could solicit work from sources other than Garwood, and perform such work on the leased premises The Respondent sold no more truck equipment parts at wholesale as it had done prior to January 4, but only sold such parts at retail. Schroeder was the only employee in the bargain- ing unit working for the Respondent after January 24. One more meeting was held by the parties, and this occurred in December, when the Company requested it. This time each side was represented by counsel, but no more progress was made toward settlement than had been achieved in the March and April meetings. Again, the Company's financial situation was discussed. The only new matter revealed by the record was that the Company raised the possibility of the employees becom- ing subcontractors like Essig and Childress in which case they would be self-employed. This was rejected by the Union The General Counsel contends that, even though the Respondent was in a serious financial position, its deci- sion to subcontract out the service work to a subcontrac- tor, and lay off unit employees as a consequence, during the terms of a collective-bargaining agreement, consti- tutes a midterm repudiation of the agreement in violation of Section 8(a)(1) and (5) and Section 8(d) of the Act In addition, the General Counsel contends that the Re- spondent had a duty to bargain about the effects of the subcontracting prior to the effective date and that the Company failed to do so. He further argues that there was no past practice that would constitute a waiver of the Union's statutory right to challenge the subcontract- ing of work by the Respondent. The Respondent asserts that it had the legal right to subcontract the work and layoff the employees as this decision was not based on union animus but was, in fact, a partial closing motivated solely by the precarious finan- cial condition of the Company. The Respondent also denies that it had a duty to bargain with the Union con- cerning the effects of its decision to subcontract but, in any event, it did so bargain with the Union. G. Analysis and Conclusions The Respondent's contention that there was no union animus involved in its decision to subcontract the service work is well supported by the record Union President Terry described their relationship as extremely good and committeeman Schroeder described it as excellent. How- ever, this of itself is immaterial as to the General Coun- sel's case against the Respondent ACF Industries, 231 NLRB 83 (1977), enfd. 592 F.2d 422 (8th Cir 1979). The record also establishes that Garwood was faced with severe financial problems in August 1981, when it negotiated the 1-year agreement, and that this condition was known to the union negotiators. The union repre- sentatives also knew that the work force had disminished from seven employees to four in the 3 years since the execution of the 1978 bargaining agreement. However, the Company did negotiate a collective-bar- gaining agreement in the summer of 1981 with the Union, and it was bound by the terms of this agreement, and the applicable provisions of the National Labor Re- lations Act. Section 8(d) provides that an employer and a union are required to bargain, among other things, over "terms and conditions of employment." The General Counsel argues that the facts in this case fall squarely within the holding of the Supreme Court in Fibreboard Corp. v. NLRB, 379 U.S. 203 (1964). The Re- spondent contends that Fibreboard is not applicable to the facts of this case, and argues that its case falls within the Court's holdings in First National Corp. v. NLRB, 452 U.S. 666 (1981). I find merit in the General Counsel's position. It is true that in Fibreboard the Court did not decide that all subcontracting was a matter of mandatory collec- tive bargaining . However, the Court did decide that on the facts of that case the employer was obligated to bar- gain with its union before it subcontracted the work to an outside contractor I find that the subcontracting facts in Fibreboard are on all fours with the facts in the instant case. The Court in Fibreboard succinctly described the type of subcontracting involved therein as "the replace- ment of employees in the existing bargaining unit with those of an independent contractor to do the same work under similar conditions of employment " This is exactly what Garwood did in the instant case. It replaced its own employees with those of Essig and Childress, to do the same service and mounting work on customers' trucks, using the same tools, equipment, cranes, bays, and plant working area formerly used by its own employees. The Court held that under such facts, the Act requires the employer to bargain collectively with the representatives of its employees about the plan to subcontract such work The Respondent contends that its agreement with Essig and Childress constituted "a partial closing" and, therefore, under the holdings of First National Corp., it was not required to bargain with Local 189 over its agreement with Essig and Childress. While the Board has concisely stated that "the distinction between sub- contracting and partial closing is not always readily ap- GARWOOD-DETROIT TRUCK EQUIPMENT parent," I find such statement inapplicable to the instant case. There was no closing of Garwood's service depart- ment, partial, limited, or otherwise. On January 4, when Essig and Childress started working in the Respondent's shop, they merely picked up right from where Gar- wood's employees left off in December, with one of their earliest jobs being the transfer of a body on an Interna- tional truck, a truck which unit employees had previous- ly worked on. Both before and after the subcontract, Garwood engaged in the identical business of servicing and mounting equipment on trucks at its shop in Warren, Michigan, and billing these customers for the parts in- stalled and the works done. The only difference is that the service work is now performed by Essig and Chil- dress employees pursuant to the subcontracting agree- ment, rather than by the Respondent's employees. Thus, it is clear that the Respondent did not engage in a major shift in the direction of the Company, and the nature of its business was not substantially altered by the subcon- tract. Other factors are to be considered in determining the suitability of the matter of subcontracting to the collec- tive-bargaining process. They are the extent of capital expenditures, and the ability of the Union to engage in meaningful bargaining in view of the employer's situation and objectives. Fibreboard Corp., supra. Garwood was not required to engage in any capital restructuring or in- vestment. The shop area subleased to Essig and Childress still is subject to Garwood's dominion and control, as it is the primary lessee of these premises and Essig and Childress, its tenant, can be removed by a 60-day written notice. In short, there was no immediate or subsequent restructuring of capital required by Garwood's decision to subcontract service work and, therefore, such element could not remove the decision to subcontract from the scope of the Respondent's mandatory bargaining obliga- tion. As to the last factor to be considered, the ability of the Union to engage in meaningful bargaining, it is readily apparent that in December 1981, the Union could have engaged in significant bargaining to alleviate the financial situation of the Company. If the Company had broached its desire to subcontract the work and lay off its employ- ees, the Union would have been faced with a hard choice, a position in which many unions have found themselves during the last few years. But it would have been a choice that the Union could do something about if it wanted to, such as, an offer to cut its members' wages substantially, and thus reduce the Respondent's cost. The Union could have agreed to cut or waive over- time rates, cut or waive fringe benefits, cut the vacation period, or cut the number of paid holidays. It was also possible for the Union to offer that its members work at piece rates. Certainly, in today's industrial market, con- cessions are being made every day by employees when they are faced with hard economic facts on the possible survival of their employer, and the survival of their jobs. Thus, it is clear that the bases and objectives in the Respondent's decision to subcontract were precisely suit- able for resolution through the collective-bargaining e Bob's Big Boy Family Restaurants, 264 NLRB 1369 (1982) 121 process This the Respondent did not allow the Union to do I, therefore, find and conclude that the Respondent violated Section 8(a)(1) and (5) and Section 8(d) of the Act by subcontracting its service work and laying off its unit employees without notice to the Union and without giving the Union an opportunity to bargain concerning the subcontracting. Milwaukee Spring Division, 265 NLRB 206 (1982) [reversed and dismissed 268 NLRB 601]; Los Angeles Marine Hardware Co., 235 NLRB 720 (1978), enfd. 602 F.2d 1302 (9th Cir. 1979). While the Respondent contends it did bargain over the effects of its decision to subcontract, I do not find that it did. Obviously Respondent did not bargain before the layoff of its employees as it gave the Union no advance notice whatsoever prior to Essig and Childress' com- mencing work on January 4 Thus, the Union, during the most critical period of December, at the very time that bargaining would have been most productive, was kept completely unaware of Respondent's intention to subcon- tract the work and lay off the shop employees. This it may not do. Ozarks Trailers, 161 NLRB 561, 564, (1966). Since the Respondent does not state in its brief how it bargained about the effects of its decision, it apparently relies on the meetings held between the Respondent and Local 189 in March and April. Both of these meetings were requested by the Union and held many weeks after the subcontracting commenced. They were actually an exercise in futility as the genie was long out of the bottle. In the context of the facts in this case, the Re- spondent had the duty to afford the Union opportunity to bargain over the effects of its decision to subcontract and lay off its employees, once the decision was made. This it did not do. Accordingly, I find that the Respond- ent's failure to afford the Union an opportunity to bar- gain over the effects of its subcontracting was a violation of Section 8(a)(1) and (5) of the Act. Stagg Zipper Corp., 222 NLRB 1249 (1976); Summit Tooling Co, 195 NLRB 479 (1972). The Respondent also relies on the case of NLRB Y. Adams Dairy, 350 F.2d 108 (8th Cir. 1965). However, I find this case to be inapposite. In Adams, the Eighth Cir- cuit held that the decision of the dairy to terminate a phase of its business by ceasing to distribute milk by its own employees in company trucks and to distribute its products through independent contractors was not a re- quired subject of collective bargaining The court found that there was more than just the substitution of one set of employees for another, that, in addition, there was "a change in the capital structure of Adams which resulted in a partial liquidation and a recoup of capital invest- ment " But Garwood liquidated no equipment and re- couped no capital investment. Essig and Childress used the identical equipment that the Respondent's employees had used, and the depreciation of such equipment would be the same whether used by the subcontractor's em- ployees or Garwood's employees. While Adams re- couped its trucks, Garwood recouped nothing, as its shop and equipment kept being used as if there had been no change. Finally, we have the Respondent's claim made during the course of the hearing that there had been a past prac- 122 DECISIONS OF NATIONAL LABOR RELATIONS BOARD tice in which the Company had subcontracted out work and that the Union had accepted such practices, thus barring its current contesting of contracting out. Little specific testimony was offered by either side on this sub- ject. Schroeder admitted that there had been some work contracted out to other companies when the Respond- ent's employees were backed up with a whole lot of work. Bruce Connor testified that the Company had con- tracted out work in the past to meet production sched- ules. He also admitted that, in 5 years he had worked for the Company, there had never been a time when Gar- wood employees had to be laid off because of the sub- contracting of work. Since the record shows that there had been no subcon- tracting out of work that caused any employee to be laid off, it is clear that there was no past practice that could in anyway constitute a waiver of the Union's right to challenge the subcontracting of work, which caused em- ployees to be laid off. A CF Industries, supra. CONCLUSIONS OF LAW 1. The Respondent is an employer engaged in com- merce within the meaning of Section 2(2), (6), and (7) of the Act. 2. The Respondent, by unilaterally subcontracting its service and mounting work without prior notice to the Union, and without affording the Union an opportunity to bargain over the subcontracting decision during the term of the collective-bargaining agreement between the Respondent and the Union, has unlawfully modified the terms and conditions of that agreement in violation of Section 8(a)(1) and (5) and Section 8(d) of the Act. 3. The Respondent, by failing and refusing to bargain with the Union concerning the effects upon the employ- ees of subcontracting the work, has engaged in unfair labor practices within the meaning of Section 8(a)(1) and (5) of the Act. 4. The aforesaid unfair labor practices affect commerce within the meaning of the Act THE REMEDY Having found that the Respondent has engaged in cer- tain unfair labor practices, I shall order it to cease and desist therefrom and to take certain affirmative action de- signed to effectuate the policies of the Act. Having found that the Respondent violated Section 8(a)(1) and (5), I shall order it to rescind its decision to subcontract its service and mounting work, and to re- store the status quo ante by having its service and mounting work performed by the employees in the bar- gaining unit. In order to further restore the status quo ante the Respondent will be required to recall any em- ployees so laid off and offer to reinstate them to the posi- tions they held before their unlawful layoff or, if those positions no longer exist, to substantially equivalent posi- tions without prejudice to their seniority and other rights and privileges. I shall further order the Respondent to make these employees whole for any loss of earnings they may have suffered by reason of the illegal actions against them Backpay shall be based on earnings which each such employee would have earned from the Janu- ary 4, 1982 layoff until one of the following conditions is met: (a) Mutual agreement is reached with the Union relating to subjects about which Respondent is re- quired to bargain (b) Good faith bargaining results in a bona fide impasse (c) The failure of the Union to commence negoti- ations within five days of the receipt of Respond- ent's notice of desire to bargain (d) The failure of the Union to bargain in good faith The backpay will be less net earnings during such period and shall be computed on a quarterly basis, with interest, in the manner prescribed in F. W. Woolworth Co., 90 NLRB 289 (1950), and Florida Steel Corp, 231 NLRB 651 (1977). See generally Isis Plumbing Co., 138 NLRB 716 (1962). [Recommended Order omitted from publication.]