The opinion of the court was delivered by: KNAPP
Petitioner Edward H. Bennett, Acting Director of Region 2 of the National Labor Relations Board ("the Board"), seeks a preliminary injunction under § 10(L ) of the National Labor Relations Act, 29 U.S.C. § 160(L ) ("the Act"),
to restrain the respondent, Local 456 of the Teamsters and Chauffeurs Union ("the Union") from picketing claimed to be "secondary" in violation of § 8(b)(4)(B) of the Act, 29 U.S.C. § 158(b)(4)(B). While the Union's primary dispute is with Carvel Corp. ("Carvel"), the picketing should the Union ultimately prevail
would be conducted on or near the premises of independently-owned Carvel franchise stores, whose business derives almost exclusively from the sale of Carvel products. The Union hopes that such picketing would influence the outcome of its dispute with Carvel. This case, one of first impression in this Circuit, poses two hard questions: (1) whether Carvel and the franchises are so intertwined that they may be considered a single employer for the purposes of § 8(b)(4)(B); and (2) whether picketing of the franchises is protected under the "struck product" doctrine of N.L.R.B. v. Fruit & Vegetable Packers (Tree Fruits) (1964) 377 U.S. 58, 84 S. Ct. 1063, 12 L. Ed. 2d 129. Having given the Board's interpretation of the relevant law the deference it is due in a § 10(L ) proceeding, Kaynard v. Local 282, Intern'l Brotherhood of Teamsters, etc. (2d Cir. 1978) 576 F.2d 471, at 477, Danielson v. Joint Board of Coat, Suit & Allied Garment Workers' Union (2d Cir. 1974) 494 F.2d 1230, 1245,
we find that the Board has reasonable cause to believe that the picketing in question would violate the Act and has demonstrated that equitable relief would be just and proper. We accordingly will issue the requested preliminary injunction.
Shortly prior to March 9, 1978, the Union requested that Carvel recognize it as the collective bargaining representative for employees at a Carvel warehouse located on Saw Mill Road in Yonkers, New York. Carvel denied the request and on March 9 the Union commenced lawful recognitional picketing at the warehouse and at four Carvel-owned retail outlets. The picketing at these five locations failed to attract public attention and was ineffective.
On or about March 25, 1978, the Union mailed letters to operators of independently-operated Carvel retail stores ("the franchisees") in Westchester County, enclosing copies of an article from a local newspaper, which stated that the Union planned to picket the Westchester County franchisees. It in fact commenced to picket the store of one such franchisee on April 1, 1978. The picketers carried signs reading: "LOCAL 456 INTERNATIONAL BROTHERHOOD OF TEAMSTERS TO THE PUBLIC: DO NOT BUY CARVEL PRODUCTS."
Carvel filed charges of unfair labor practices against the Union with Region 2 of the Board. After investigating the charges, the Acting Regional Director of the Board issued a complaint alleging violations by the Union of § 8(b)(4) and commenced this action for a preliminary injunction under § 10(L ) of the Act. A hearing was held before an administrative law judge, which by stipulation constitutes the entire record before us. We have also had the benefit of unusually able briefing and oral argument by counsel for both parties.
Since an understanding of the relationship between Carvel and the franchisees is essential to the issues before us, we will describe that relationship in some detail. Carvel is engaged in awarding retail ice cream store franchises to persons who distribute, under the Carvel name, various products Carvel supplies to them. The relationship between Carvel and each franchisee is governed by a standard agreement. Under the agreement, each franchisee agrees to pay Carvel a fixed sum (currently about $ 15,000) as an initial "trademark license fee." The franchisee further agrees to purchase from Carvel or another approved source almost all of the items that become part of products the franchisee ultimately sells to the public. These items include ice cream cones, toppings, flavorings, and most importantly, the "special formula" Carvel ice cream mix which may be obtained only from Carvel itself. In addition, franchisees are required under the agreement to buy commissary items, such as packaging supplies and spoons, from Carvel or another approved source. There is no evidence that any franchisee has in fact purchased such items from anyone other than Carvel.
Franchisees may, if they wish, sell some products other than those available from Carvel, such as coffee, milk for coffee,
and fruit, including the bananas used in banana splits. Such goods, however, do not represent any substantial part of the franchisees' total business, which consists almost entirely of the sale of Carvel products.
In addition to products and commissary items, franchisees are bound under the agreement to purchase from Carvel or another approved source certain machinery vital to their operation. Although a few franchisees do purchase some equipment from other approved sources, most rely upon Carvel. Indeed, the front gate assembly, a piece of equipment crucial to the franchisees' process, is patented by Carvel and can be obtained only from it.
The franchisees thus obtain almost all of their equipment, supplies, and commissary items from Carvel. Conversely, Carvel with the exception of the few retail outlets it owns and operates does not supply these items to anyone other than its franchisees.
The franchisees pay Carvel in addition to the purchase price on all items a royalty on each gallon of special formula mix as an ongoing payment for use of the Carvel trademark. Each franchisee is committed under the agreement to paying a specified minimum royalty annually.
In addition, each agrees to contribute a fixed sum per gallon of special formula mix towards Carvel's national advertising and promotional expenses.
These various sources of revenue bring Carvel an estimated forty-seven million dollars annually. Of this total, some forty million is generated by the sale of Carvel products, commissary items, and equipment. The remaining seven million is revenue from trademark license fees, royalties, and interest income.
Neither Carvel nor any franchisee appears to own the property on which retail stores are located. Rather, Carvel leases such property and assigns the lease to the franchisee.
If construction or renovation is necessary to make a location suitable for operation as a Carvel franchise, such work is arranged and paid for by the franchisee. Carvel, however, provides design specifications that the franchisee must follow unless it obtains Carvel's approval of a variance. Franchisees are responsible for obtaining the local, county, and state certificates necessary for operation, such as health and occupancy permits.
Franchisees initially participate in a fifteen-day training program in Yonkers, New York and apparently continue some training throughout the franchise relationship. They operate their stores, however, with a fair degree of autonomy. Each franchisee, for instance, determines what hours its store stays open. Carvel makes recommendations on the subject, but franchisees have ignored them without any pressure from Carvel. Similarly, franchisees are supposed to have their employees wear Carvel uniforms, but many have not without suffering any sanction from Carvel. More importantly, each franchisee determines which of the various Carvel products it will carry, the amount of each it will purchase from Carvel, and the price at which it will sell its product to the public. Carvel does not even recommend retail prices for most items, although it does do so for some special products. The franchisee decides what items to display and how each is to be packaged.
Finally, the franchisee controls its labor relations with its own employees. It selects and hires them and determines their wages, hours, and terms and conditions of employment, all independently of Carvel. Carvel likewise conducts its own labor relations with similar independence from the franchisees. There is little exchange of employees between Carvel and the franchise outlets.
Franchise agreements normally run for a period of ten years, with an option for renewal. During this period, transfer of the franchise is restricted. Should a franchisee decide to sell its business, Carvel has an option of first refusal. If Carvel decides not to buy back the ...