UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
decided: November 27, 1967.
NATIONAL LABOR RELATIONS BOARD, PETITIONER
LOCAL 138, INTERNATIONAL UNION OF OPERATING ENGINEERS, AFL-CIO, RESPONDENT
Moore, Smith and Kaufman, Circuit Judges.
The National Labor Relations Board petitions for enforcement of its supplemental order which issued after proceedings held pursuant to a remand by this court.*fn1 The Board ordered Local 138, International Union of Operating Engineers, to reimburse nonmembers for a portion of permit fees collected from them as a condition of referral or employment between June 9, 1958 and July 1, 1963.*fn2 We grant enforcement.
In its original decision in this case, the Board found, inter alia, that Local 138 had violated the National Labor Relations Act, 29 U.S.C. § 141 et seq., by operating a discriminatory hiring and job referral system and by exacting an unlawful fee of nonmembers for use of the system.*fn3 The Board ordered the union to cease and desist from maintaining any practice or enforcing any agreement with employers which unlawfully gives members preference over nonmembers in job referrals, or which conditions referrals on good standing in the union. Local 138 was also ordered to "reimburse all individual nonmembers for permit or service fees unlawfully exacted from them as a condition of referral or employment with interest thereon at six percent . . .", on the ground that the union could not lawfully exact a fee for the use of a discriminatorily operated hiring and referral system.*fn4
On petition to review and cross-petition to enforce this original order, we did not find substantial evidence to support a finding of blanket discrimination against nonmembers in the operation of the union's hiring hall, but held that there was evidence of some discrimination, sufficient to justify the cease and desist portion of the order. We thought that the Board had gone too far, however, in ordering that the permit fees be returned in toto, since there were indications that the nonmembers received some value from their use of the hiring hall. Enforcement of that portion of the order was therefore denied.*fn5
Although we thought that the union should be allowed to keep some part of the permit fees collected, we agreed with the Board that the fees, which were in an amount equal to the monthly dues paid by the union's members, were excessive.*fn6 We noted that
The fees were charged solely for the use of the hiring hall. Yet of each $10.00 monthly payment, $2.00 was remitted by the local union to the International. While a union might under proper accounting procedures include in the cost of operating a hiring hall some reasonable percentage of the union's general expenses, the union has not argued before us that its charges to nonmembers were based on anything except an intention to exact from them the amount paid by members. This the union could not do under the guise of charging for its services as an employment agency.*fn7
We remanded the case to the Board for further findings, stating that
The Board should consider on remand what proportion of the fees which were paid were reasonably related to the value of the services provided by the union, having in mind also the cost to the union of performing such services. Any excess over that amount could properly be ordered returned to the men who paid it.*fn**fn8
After proceedings held pursuant to the remand, the Trial Examiner issued a supplemental decision recommending that the union be ordered to refund $3.50 of every $10.00 permit fee received during the pertinent period, with interest at six percent. He reached the $3.50 figure by adopting and applying the formula suggested by the General Counsel for determining what proportion of the fees was reasonably related to the value of the services. The General Counsel's formula permitted the union to claim as allocable to the hiring hall all union expenses except those which are "institutional" in character. The union was allowed to claim, for example, all of its office expenses, but assessments imposed by the International, litigation expenses, and other expenses unrelated to the union's bargaining agent and hiring hall activities, such as expenses of dinners, meetings, and conventions, were not allowed.
The Board adopted the findings, conclusions, and recommendations of the Trial Examiner, finding the cost allocation formula acceptable. It concluded that the permit fee was "excessive," stating that in making its determination, it had been mindful of our rejection of its earlier finding of blanket discrimination against permit men.*fn9
The General Counsel submitted detailed calculations before the Trial Examiner showing the union's various expenses and explaining what amounts might, in his view, fairly be allocated to the running of the hiring hall. His calculations went virtually unchallenged, for the union refused to discuss the accounting issues involved.*fn10
The union's position before the Trial Examiner, the Board, and this court has been that under our mandate on remand the permit men could be charged the fair value of all services received from the union. The union urges upon us that hiring hall costs cannot reasonably be separated from other expenses, and that permit men receive all benefits received by union members except the right to attend union meetings. It follows, the union contends, that permit men may be charged fees equal to the dues paid by union members.
The union clearly misinterprets our earlier opinion. When this case was first before us, we assumed that the permit fees were charged solely for the use of the hiring hall, because that was the only service for which the union had a right to charge the permit men.*fn11 Thus when we remanded for further findings, ordering the Board to consider what proportion of the fees was reasonably related to the "value of the services provided by the union," we were referring to the value of the hiring hall services. The Board's interpretation of our mandate was correct. Furthermore, we have no reason to doubt that we were correct in limiting the permit fees to an amount reflecting the value of the hiring hall services only.*fn12
We do not question the union's claim that permit men receive benefits not only from the hiring hall, but from the union's other activities as well. The difficulty with the union's contention that permit men should pay through their fees for any additional benefits received is that Congress has provided a different way for unions to meet this problem. The proviso to § 8(a)(3) of the National Labor Relations Act*fn13 authorizes unions and employers to enter into union security agreements for the limited purpose of compelling employees to pay union dues and fees.*fn14 Moreover, the Supreme Court has made it clear that employers cannot refuse to bargain over any union security proposal which is confined to this purpose, whether the proposal be for a "closed shop," "agency shop," or some other arrangement designed to meet the "free rider" problem which Congress recognized in the proviso to § 8(a)(3) of the Act. NLRB v. General Motors Corp., 373 U.S. 734, 10 L. Ed. 2d 670, 83 S. Ct. 1453 (1963).*fn15
Local 138 has obtained, through bargaining, the right to run an exclusive hiring hall for the employers involved in this case. Such an arrangement is clearly lawful.*fn16 But the union may not use the exclusive hiring hall to restrain or coerce employees in the exercise of their rights under § 157 of Title 29, United States Code,*fn17 or to cause an employer to discriminate against an employee so as to encourage or discourage membership in any labor organization.*fn18 We think it is clear that charging permit men a fee for the use of the hiring hall which is equivalent to the dues paid by union members on the theory that permit men receive all of the benefits of union membership will necessarily encourage union membership in violation of the permit men's § 157 rights; likewise, it will encourage employers to discriminate against employees so as to encourage union membership.*fn19 Unless the union can find some justification in the statute for its practice, then, it has committed an unfair labor practice. No such justification is available. We have just discussed how Congress has provided unions with a specific means for meeting the problem of "free riders" which Local 138 has here tried to meet through the exclusive hiring hall. If the union wants union security, it may bargain for it. It may not short -circuit the system Congress has established by attempting to gain union security through an exclusive hiring hall. The union's interpretation of the Act would render purposeless the proviso to § 8(a)(3).*fn20
The union argues that even if its practice of charging permit fees equal to union dues was unlawful, the Board's order is in the nature of a penalty, and it was improper to impose interest on the amount to be reimbursed. We think that the union is wrong on both of these points. Since the union was committing an unfair labor practice to the extent it charged the permit men a fee not reasonably related to the cost of providing the job referral service, the Board was amply justified in ordering the union to reimburse the permit men in the amount of fees paid in excess of the value of the hiring hall services. Such an order clearly meets the requirement that a reimbursement order be remedial.*fn21
The order is clearly remedial because it reimburses the permit men for fees illegally charged them; and of course in such a situation the permit men have lost the use of their monies. It is appropriate, therefore, that the union be required to pay interest to compensate them for this loss. The Board adopted the policy of imposing interest on remedial back pay orders in Isis Plumbing and Heating Co., 138 NLRB 716, and first applied the policy to the reimbursement of unlawfully exacted initiation fees, dues and assessments in Seafarers' International Union of No. America, 138 NLRB 1142. The Courts of Appeals in at least seven circuits, including this one, have upheld this policy with respect to back pay orders.*fn22 Here, as in the back pay cases, the employees have lost the use of their monies, and it is only equitable to award them interest.