Appeal from a judgment entered in the United States District Court for the Western District of New York, Elfvin, J., holding that a restrictive subcontracting clause in a collective bargaining agreement was protected by the construction industry proviso to section 8(e) of the National Labor Relations Act, 29 U.S.C. § 158(e), and ordering arbitration Pursuant to the terms of the agreement.
Timbers, Meskill and Kearse, Circuit Judges.
The policies inherent in federal labor and antitrust law have long been a source of conflict. Whereas antitrust law seeks to promote open and unfettered competition, labor law encourages collective activity by workers seeking to enhance their power in the marketplace. See Allen Bradley Co. v. Local Union No. 3, Int'l Brotherhood of Electrical Workers, 325 U.S. 797, 806, 89 L. Ed. 1939, 65 S. Ct. 1533 (1945). Indeed, the two areas of law embody "policies that often appear irreconcilable." Hoffman, Labor and Antitrust Policy: Drawing a Line of Demarcation, 50 Brooklyn L. Rev.1, 3 (1983). See also Winter, Collective Bargaining and Competition: The Application of Antitrust Standards to Union Activities, 73 Yale L.J. 14, 16-17 (1963).
This appeal presents questions that once again bring this conflict into sharp focus. We must decide whether a clause in a collective bargaining agreement that prohibits an employer from subcontracting work either to or from other employers that are not bound by the agreement is an unlawful restraint on trade, in violation of the Sherman Act, 15 U.S.C. § 1, et seq. (1982). As a necessary corollary to this inquiry, we also must decide whether the same clause is protected by the so-called construction industry proviso to section 8(e) of the National Labor Relations Act (NLRA), 29 U.S.C. § 158(e) (1982). Despite the anticompetitive effect that this clause could have on commerce among affected employers, the United States District Court for the Western District of New York, Elfvin, J., held that it was protected by the construction industry proviso and thus exempt from antitrust scrutiny. For the following reasons, we affirm.
In 1981, plaintiff-appellee Local 210 of the Laborers' International Union of North America (the union) entered into a collective bargaining agreement with defendant-appellant Associated General Contractors of America, New York State Chapter, Inc. (AGC). AGC is a multiple-employer bargaining agent representing general contractors throughout New York State. Its Labor Relations Division negotiates and executes collective bargaining agreements with unions on behalf of AGC's members. One of AGC's members at the time of the 1981 agreement was defendant-appellant F.A. Wellington Corp. (Wellington).
The collective bargaining agreement provided grievance and arbitration procedures to be followed in the event of "any controversy, dispute or misunderstanding arising as to the meaning, application or observances of any provisions of this Agreement." If a grievance or dispute could not be resolved by on-site job supervisors, it was then to be submitted to a Joint Committee composed of three representatives each from the union and the employers. If that body was unable to resolve the matter, then the agreement provided for arbitration before an impartial arbitrator chosen by the parties.
Section 3 of Article XV of the collective bargaining agreement provided that:
An employer, who is a party to and/or is bound by the terms of this Agreement, shall not accept a contract from or subcontract work covered by this Agreement to a firm, person or group where such firm, person or group is not a party to or bound by this Agreement when the subcontracted work begins. This provision does not apply to private, commercial, and residential work, and rented equipment.
AGC claims to have objected to this restrictive subcontracting clause at the time the agreement was negotiated, asserting that it represented an unlawful restraint on trade. AGC nonetheless agreed to the inclusion of the clause in the parties' collective bargaining agreement.
In late 1981, Wellington entered into a subcontracting agreement with Bhandari Constructors & Consultants, Inc. (Bhandari). Wellington agreed to act as a subcontractor and to perform certain work for Bhandari, which was acting as the general contractor at a construction project located within the geographical jurisdiction of the union. Bhandari, however, was not a signatory to or bound by the terms of AGC's collective bargaining agreement with the union. The union filed a grievance pursuant to the terms of the agreement, charging that Wellington's subcontract with Bhandari was in violation of section 3 of Article XV. The grievance was referred to the Joint Committee. The employer representatives on the committee refused to participate in the grievance process, however, arguing that the restrictive subcontracting clause was illegal under federal antitrust law and therefore unenforceable. For similar reasons, AGC refused to participate in the selection of an arbitrator when the union insisted that the grievance be submitted for binding arbitration pursuant to the collective bargaining agreement.
The union subsequently initiated this action in the district court seeking to compel arbitration pursuant to the terms of the agreement. The union relied for jurisdiction upon section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185 (1982). AGC and Wellington counterclaimed, alleging that the clause at issue was an unlawful restraint on trade, in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The union thereafter moved for summary judgment, arguing that the subcontracting clause was expressly protected by the construction industry proviso to section 8(e) of the NLRA and was therefore exempt from antitrust scrutiny. The employers responded that the clause was uniquely and impermissibly broad and fell outside the intended scope of the proviso. They argued that typical restrictive subcontracting clauses in the construction industry only prohibited employers from subcontracting to non-signatories. This clause also prohibited Wellington from accepting subcontracted work from other employers who were not bound by the collective bargaining agreement -- a result that the employers said was never intended by Congress when it enacted section 8(e).
Judge Elfvin granted summary judgment for the union. He first addressed the "threshold issue" of whether or not AGC and Wellington could raise "illegality as a defense" to an action to compel arbitration. Relying on Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 70 L. Ed. 2d 833, 102 S. Ct. 851 (1982), Judge Elfvin concluded that he "must reach the merits of an illegality defense in order to determine whether the contract clause at issue has any legal effect in the first place." See J App. at 11-12. He therefore decided that the issue of the clause's legality was not solely within the jurisdiction of an arbitrator. Next, the district court considered whether the clause was indeed protected by the construction industry proviso. Citing Woelke & Romero Framing, Inc. v. NLRB, 456 U.S. 645, 72 L. Ed. 2d 398, 102 S. Ct. 2071 (1982), Judge Elfvin held that Congress enacted the proviso in 1959 to preserve the status quo regarding collective bargaining practices in the construction industry. He then noted several pieces of evidence indicating that clauses such as the one at issue here -- prohibiting subcontracting both to and from non-signatories-- were used in 1959. He concluded that the clause was protected by the proviso and was therefore exempt from the antitrust laws. Having concluded that the clause was valid and enforceable, Judge Elfvin granted the union's request for arbitration in accordance with the terms of the collective bargaining agreement, ordering AGC and Wellington to participate in that process.
Section 8(e) was added to the National Labor Relations Act in 1959 by the Labor-Management Reporting and Disclosure Act, also known as the Landrum-Griffin Act. See Pub. L. No. 86-257, § 704(b), 73 Stat. ...