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National Labor Relations Board v. Fugazy Continental Corp.

decided: April 30, 1987.


Application by the National Labor Relations Board for enforcement of a supplemental back-pay order.

Feinberg, Chief Judge, Mansfield*fn* and Winter, Circuit Judges.

Author: Winter

WINTER, Circuit Judge:

The National Labor Relations Board ("NLRB") applies for enforcement of its Supplemental Decision and Order ("Supplemental Order") requiring Fugazy Continental Corp. ("Fugazy") to reimburse discharged franchise limousine operators for their franchise fees. Fugazy Continental Corp., 276 N.L.R.B. No. 152 (Sept. 30, 1985). Fugazy argues that this remedy is beyond the NLRB's authority because it creates rights that would not have existed absent the unfair labor practices and exceeds the scope of the initial order concerning Fugazy's liability. We enforce the Supplemental Order.


On September 14, 1977, the NLRB found that Fugazy had committed unfair labor practices by unlawfully threatening, discharging, refusing to reinstate, and withholding moneys from its employees, in violation of Section 8(a)(1), (3), and (4) of the National Labor Relations Act ("Act"), 29 U.S.C. ยง 158(a)(1), (3), (4). The NLRB accordingly issued an appropriate cease and desist order and required Fugazy to take various affirmative steps to remedy its violations. Fugazy Continental Corp., 231 N.L.R.B. 1344 (1977) ("1977 Order"). We enforced the NLRB's order in its entirety in NLRB v. Fugazy Continental Corp., 603 F.2d 214 (2d Cir. 1979) (enforced without published opinion).

We briefly summarize the facts pertinent to our review. Fugazy provided limousine service to the public through limousine operators who had purchased franchises from Fugazy. In November 1975, Division 1181-1061 of the Amalgamated Transit Union, AFL-CIO ("Union") began to organize these franchise operators. Fugazy responded with a number of unfair labor practices that included: terminating the franchise of an operator active in the Union's organizational campaign, terminating the franchises of thirty-nine operators who participated in a strike, failing to pay strikers moneys due them for work performed before the strike, insisting that some operators release Fugazy from unfair labor practice claims as a condition of their reinstatement or purchase of a limousine from Fugazy, refusing to reinstate other striking operators, and threatening to terminate operators who signed union cards. See 1977 Order, 231 N.L.R.B. at 1353-58.

Central to the NLRB's ruling was the conclusion that the franchise limousine operators were "employees" rather than "independent contractors" within the meaning of the Act. The NLRB thus found that although the franchise agreements between Fugazy and its operators purported to treat the operators as independent contractors, the "parties' conduct in the performance of their respective obligations" under the agreements and other relevant facts contradicted the formal terms of the agreements. Id. at 1349. Because the operators had "only minimal discretion in the management of [their] business affairs and [Fugazy] exercise[d] extensive control over the most significant aspects of the franchise drivers' work," the NLRB considered the operators to be employees. Id. at 1353.

This conclusion was bolstered by a finding that operators had only a limited possibility of sale with regard to their franchises. Although the franchise agreements formally allowed the operators to sell their franchises, the franchise was only for two years, and renewal was subject to the terms "then being offered" by Fugazy. Moreover, Fugazy had a unilateral and virtually unlimited right to cancel a franchise without refunding the franchise fee. The NLRB concluded that the operators' ability to sell their franchises was too limited as a practical matter to be compatible with an independent contractor relationship. Id. at 1352-53.

The 1977 Order required Fugazy, inter alia, to offer the discharged operators reinstatement to their former jobs or equivalent positions if those jobs did not exist. Fugazy was also ordered to make each operator "whole for any loss of earnings and other losses he may have suffered by reason of [Fugazy's] unlawful discrimination," id. at 1360, including back pay, interest, and "the difference between the value of his franchise as of the date on which [Fugazy] should have offered that driver reinstatement to his former position and the date on which [Fugazy] does offer him reinstatement." Id. at 1359. Many of the operators did not accept Fugazy's offers of reinstatement.

The parties failed to reach agreement on the amount of back pay owed to the operators. After a fifteen-day hearing, the administrative law judge ("ALJ") issued his findings, which were subsequently adopted in relevant part by the NLRB's Supplemental Order. See 276 N.L.R.B. No. 152 (Sept. 30, 1985). This application for enforcement followed.

The Supplemental Order again requires Fugazy to make whole its discharged operators by reimbursing them, inter alia, for loss pay and benefits. However, the Supplemental Order also requires Fugazy to reimburse each operator who did not accept reinstatement "to the full extent of his investment in his franchise." In contrast, the 1977 Order specified reimbursement only for any decrease in the value of a franchise while the operator was unlawfully discharged.

The ALJ found that the reimbursement of the franchise fees was necessary to make such operators whole. he specifically noted that most of the discharged operators had been replaced and many had been "spurned" by Fugazy when they asked the company to repurchase their franchises or assist them in finding buyers for their franchises. He also found that reinstatement was no longer feasible in most cases. The ALJ concluded, therefore, that Fugazy's retention of the franchise fees would fail to make operators who had not accepted reinstatement whole and would unjustly enrich Fugazy. The amounts awarded totaled $468,868.

Fugazy challenges the Supplemental Order solely with respect to its requirement that the operators' franchise fees be reimbursed. Fugazy argues that this remedy gives to the operators rights to which they would not have been entitled in the absence of a violation, and is thus an impermissible punitive award. Fugazy also claims that reimbursement of franchise fees is arbitrary and capricious because the operators in question refused reinstatement. Rather, it claims that ...

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