HOWARD JOHNSON CO. v. HOTEL EMPLOYEES

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Argument of Laurence Gold

Chief Justice Warren E. Burger: Mr. Gold, I think you have about 22 minutes remaining.

Mr. Laurence Gold: Thank you, Mr. Chief Justice.

To briefly put the matter back in focus, this is a Section 301 suit to compel arbitration.

The problem it raises is whether the duty to arbitrate survives over a change in the identity of owners, where that change takes place against the background of a collective agreement enforced and is brought about by negotiations between the first employer and the purchaser.

At the afternoon recess yesterday, I was endeavoring to respond to Mr. Justice White’s questions concerning the scope of Wiley versus Livingston which was also a Section 301 case presenting the same issue.

Naturally, Wiley like every other president leaves certain leeways in the law, but it is a recent decision and I hope we’ll be able to demonstrate that if rooted in basic precepts of the National Labor Policy, and is not simply a decision which can be read to settle the particular facts there before the Court.

To understand its lessons, we believe it’s necessary to analyze its basic rationale.

Firstly, --

Chief Justice Warren E. Burger: I think someone asked you yesterday, and I don’t have your answer precisely in mind, Mr. Gold.

What is the scope of the arbitration agreement assuming arbitration is compelled?

Mr. Laurence Gold: There are two aspects to that Mr. Chief Justice.

First, we look at the scope of the arbitration agreement if one means what are the subsequent obligations which the second employer is bound by to be essentially equivalent to the process of arbitration mapped out in the Steelworkers’ trilogy.

Namely that in the arbitration, the arbitrator is bound by the agreement, but he is to take into account changed circumstances and the different equities of the parties, and to fulfill his role as the expositor of the contractual law set out in the agreement.

Naturally, the assumption is that there will be more need for a creative and sensitive application of the agreement where there is a new employer, because he brings different insights, different presuppositions, and he may make certain changes within his permitted scope under the Managerial Prerogatives Clause which this agreement has, which may substantially change this situation.

Unknown Speaker: Mr. Gold, is that to subsume that the agreement itself then survives the sale?

Mr. Laurence Gold: It survives to the extent that the arbitrator finds it to be -- to comport with the changed situation.

It is the framework, the duty to arbitrate survives and the arbitrator is to determine the subsequent obligations that survive.

Unknown Speaker: Well that in other words, the obligations upon the successor to the business?

Mr. Laurence Gold: Yes sir.

Justice William H. Rehnquist: Well, if the arbitrator isn’t bound by the contract, what framework does he use to determine what obligations survive?

Mr. Laurence Gold: The answer that I was attempting to give is that my understanding is that he is bound by the framework of the contract.

He cannot toss it over his shoulder and act as a someone who is making law, but he can take into account reasoned arguments from the second employer that changed circumstances, or different equities makes specific provisions inapplicable.

It seems to us that that is the role that Wiley envisages and that’s what in essence the arbitrators have been doing in the --

Justice William H. Rehnquist: You mean Wiley then to say not only there’s a duty to arbitrate but the framework of the arbitration is the existing contract?

Mr. Laurence Gold: Yes, because if that were not true, then we would have to agree with the company that the task would not be a principled one, but we do think that the task is a principled one, and we do think that the flexibility is there in the sense that the arbitrator, just as he can under the Steelworkers trilogy, but to take into account changed situations and changed equities.

Chief Justice Warren E. Burger: Now, what are the clauses in the contract is a recognition of the Union, is it not?

Mr. Laurence Gold: But that is the type of clause depending on the situation which may not survive.

Obviously, if the clause is contrary to law, let’s take the Wiley situation.

In Wiley, the unit of Interscience employees, that was the entity that was merged into Wiley was 40 people, and if we take -- those 40 people were transferred into a unit which already had 300, then there would be no duty to recognize, and obviously to the extent that you have any other such clauses that don’t survive the change because of that type changed circumstances --

Unknown Speaker: Well, Mr. Gold, what about the steps that precede arbitration that the contract probably requires?

Mr. Laurence Gold: You mean grievance?

Unknown Speaker: Yes.

Mr. Laurence Gold: Filing grievances and so on?

Unknown Speaker: Yes.

Mr. Laurence Gold: We would assume that the process would continue --

Unknown Speaker: That is at the successor then has to negotiate, whatever the grievance may be, or attempt to negotiate that settlement with the Union representatives on exhaust type before the Government?

Mr. Laurence Gold: Yes, the Union representatives for the people --

Unknown Speaker: Well, isn’t that recognition?

Mr. Laurence Gold: No, because it seems to us that the very point of your decision in Lion Dry Goods was that there can be situations in which the employer treats on a “members only” representative basis, and in a situation in which the Union doesn’t have a majority, that would be the result of a Wiley holding.

Unknown Speaker: I mean, realistically what we’re talking about here, I gather, is the grievance of the separation of these, what is it, 41 employees.

Mr. Laurence Gold: Well --

Unknown Speaker: And that we say that the employer is free when he purchases this business, not to continue the employment of anybody in the unit, he did in this instance, employee 9, but the 41 say “Well you couldn’t have separated us.”

And that becomes a grievance and this all has to go through the grievance procedure before they get services?

Mr. Laurence Gold: Well, Your Honor, --

Justice Byron R. White: But, this in part of your submission is that if the arbitrator could decide to put all 41 back to work?.

Mr. Laurence Gold: Yes sir.

Justice Byron R. White: And which means that the successor does not have the right not to hire that he must perhaps take over the old employees?

Mr. Laurence Gold: Yes, Your Honor.

In Golden State --

Justice Byron R. White: And you say that’s because of successorship?

Mr. Laurence Gold: Yes, Your Honor.

In Golden State, Mr. Justice Brennan pointed out, that I’m reading the reproduction of this passage from the Golden State opinion which is the most recent successorship case.

Although, again one of arising of a different context since our view that each of these areas are discreet, but they throw a cross light on each other.

This is on page 28 of our brief, blue brief.

For example, because the purchaser is not obligated by the act to hire any of the predecessor’s employees C. Burns, the purchaser if it does not hire or any, or a majority of those employees will not be bound by an outstanding audit to bargain issued by the Board against the predecessor, nor by any order tied to the continuance of the bargaining agent in the unit involved, and that is a position which we understand and accept.

The Act does not require an employer to hire anyone, and that is what this says.

An employer, as long as he doesn’t act for any to Union reasons has the right to --

Unknown Speaker: Yes, but as a practical matter Mr. Gold, your submission is, but if there’s an arbitration clause under 301 well, he has no obligation to hire.

The arbitrator may order him to re-employ all 41.

Mr. Laurence Gold: Yes, Your Honor, what I’m trying to say is that there is no statutory obligation prior, but there maybe a contractual obligation to hire.

Contracts are -- the contractual obligations are not equal to statutory obligations.

There are different concepts of successorship here --

Unknown Speaker: One of the difficulties for me is that if it’s true that to this extent, the contract is binding on the successor.

Then I have a difficulty seeing why this in finding out a successor in all respects including recognition.

Mr. Laurence Gold: Well, it may or may not be.

There are situations in which --

Unknown Speaker: Well, if they put all 41 back to work, there certainly is going to be a duty to bargain, because there’s going to be all the employees in the unit.

Mr. Laurence Gold: Well, there’s no duty to bargain in the sense that there is -- under the scheme, the duty to bargain with sense to negotiate under the scheme, there is a negotiation during the term.

There maybe a duty to recognize depending on -- the situation depending on the composition of the work force, but to say that because in this case, if the employer has to hire the predecessor’s employees, there’s a duty to recognize, there will always be, is incorrect.

And I think the Wiley situation indicates it.

There maybe mergers which also merge a small unit in place into a larger one, in that case, there wouldn’t be the duty to recognize.

But way of it is a duty to hire, then the duty to recognize may follow with it as being a part of the agreement that still fits.

And --

Justice William H. Rehnquist: How about those newly employed by Howard Johnson, would they have any claim under the old contract?

Mr. Laurence Gold: I would not think so.

The very theory they may have, to the extent that they survived the first arbitration and choose to be represented by the employees, but at the present time, Howard Johnson has hired them under the common law system under which he can discharge him at will.

The only people who the Union is seeking to represent and those who have authorized to represent them, namely the predecessor’s employees and the policy of Wiley is to cushion the shock of the change on most predecessor’s employees, and to carry forward the contractual obligations.

If the employer discharged them wrongly, then they deserve to be protected.

Justice William H. Rehnquist: So, that if the arbitrator declined to require the rehiring of the 41, basically it’s only the nine that would have the right to --

Mr. Laurence Gold: The nine or any others who chose to ask the Union to represent them.

Justice William H. Rehnquist: Any new people.

Mr. Laurence Gold: Right, any new people would choose to represent them, because then you would be in a situation where you have members on the agreement.

But the point that I was trying to make in terms of the statutory obligation, the contractual obligation, I think is simply illustrated by the case where you have only one employer, and an employe is discharged because he gets on the wrong side of his foreman.

If he goes to the National Labor Relations Board, he doesn’t get any relief because the Board has no plenary authority to readdress unjust discharges.

On the other hand, if he’s under an agreement and he goes to an arbitrator, he can get relief.

So, the fact that there isn’t a statutory obligation on an employer, which is what Burns holds.

There is no statutory obligation which we can extrapolate.

From 8 (a) 5 to recognize an agreement or to hire employees doesn’t mean that there is no contractual obligation.

Justice Potter Stewart: Well, yes but the access if some says that an employer isn’t obligated to honor a contract that he hasn’t agreed to, but the Act doesn’t impose a contract him and he must agree to it.

Now, you’re saying that a Union and an employer act by signing an agreement that says that “this contract binds successors.”

Mr. Laurence Gold: Well, that’s right.

Justice Potter Stewart: Automatically will bind successors in spite of the fact that the successor rights learn say “I’m not going to bound, and does not tend to be bound,” and relies on the Act’s provision that “I’m not bound unless I agree.”

Mr. Laurence Gold: Well, that helps me get back to where I was starting from, because I think that that’s really the question of what Wiley says.

And what Wiley says in the theory of it is that he point of collective agreements, and here I quote the House Report, or paraphrase the House Report on the Wagner Act “The plaintiff collected bargaining is not to start a process which is a means in itself, but it’s a means to an end.”

And the end is collective agreements which stabilize the terms and conditions of employment for certain period of time.

And the practice of collective bargaining, as this Court has recognized in Warrior and Gulf, is to attempt to elect a system of self -- industrial self government which controls a specific business enterprise.

It sets the terms on which the employees deals with each other, and which they deal with the employer, and it binds employees who come into the unit after the fact.

It binds those who would not have supported the Union in the first place, and indeed to push for stability is so great, that if the employees change their mind during the term, they can’t get a Board election in which to express that, that’s the contract by rules.

And because of all that in one of the early leading cases this Court said, that the collective agreement is analogous to a tariff, or to a Government utility rates which bind all those who come within its terms.

The theory upon which the parties operate is that so long as the business enterprise continues, these rules which has setup will continue, and what Mr. Justice Powell said for the Court --

Unknown Speaker: Well, that maybe that the rules continue, but the basic question here is to what employees do they apply?

Mr. Laurence Gold: Well, it’s beyond that.

Unknown Speaker: And that maybe --

Mr. Laurence Gold: It seems to me it’s when does it change in the identity of the employer change those rules.

Unknown Speaker: Well, they don’t want to be changing the rules, it just that even if you said that the same rules apply to the successor, you could still say that he may bring his own employees along.

Mr. Laurence Gold: Well, no, one of the rules is that the just cause and seniority provisions of the agreement apply.

That is probably the most important aspect of the bargain from the union and the employees' standpoint.

And if --

Unknown Speaker: You certainly are taking quite a bite out of Burns, I suppose, in these cases, in that argument.

Mr. Laurence Gold: I do not believe so.

It’s our theory that the cases stand together, after all in your opinion, you distinguished Wiley.

Our view is that there is a difference between the statutory obligations which can be drawn from Section 8 (a) (5) and the contractual obligations which can be implied as a matter of law just as the basic duty of arbitrators imply, and just as a no strike agreement can be implied, as this Court did in Lucas Flower.

The very theory of contractual enforcement is that these duties can be implied by the Court.

And what Burns says is that the Board has a more limited authority, but that doesn’t seem to us to undercut the Board’s authority.

Indeed, in the AFL-CIO brief, the (Inaudible) brief.

We quoted from C&C Plywood decision by Mr. Justice Stewart, in which he draws the point that when Congress made its decision to give the Courts the authority to enforce agreements, it rejected giving that authority to the Board, this is on page 6, because that would be Government compulsion of the terms and conditions of employment.

But that authority given to the Courts isn’t the same, because the Courts are not deriving the obligations they state from the statute.

They are deriving them from the contract.

The contract is interpreted in the normal way Courts interpret contracts.

And I just want to conclude by saying that there are three basic choices open in Wiley, either the continuity with business enterprise the test drawn from the understanding of collective agreements would apply, or else the employer would be able to choose or not choose whether to be bound, and if he were able to choose or not choose whether to be bound, that would create an extraordinary disparity, because the employees would be at the second employer’s mercy.

The value of their bargain would depend on whether or not he thought it was a good bargain.

If he thinks it’s a good bargain, he can say “I accept it.”

But if he thinks it’s a bad bargain, he can say “I reject it.”

On the other hand, the employees have to take whichever way he jumps.

And that seems to us to be completely inconsistent --

Unknown Speaker: Well, here on your approach, the successor employer, whether he thinks it’s bad or good is bound by the contract.

Mr. Laurence Gold: Yes, Your Honor, if he is a successor --

Unknown Speaker: In a contract that he never negotiated.

Mr. Laurence Gold: But Wiley says that by buying the business, knowing of the agreement and continuing the business so that it is of continuity, he steps into the shoes of his predecessor.

Justice Thurgood Marshall: The contract runs with the business --

Mr. Laurence Gold: That’s right.

Justice Thurgood Marshall: -- it’s like something else runs with the land.

Mr. Laurence Gold: Exactly.

Justice Thurgood Marshall: There’s a lot of difference.

There’s a lot of difference.

Normally contracts don’t run with the business.

Mr. Laurence Gold: Well, some contracts do.

I mean, the common law rule is not the only rule as Mr. Justice Rehnquist pointed out in his opinion in Burns.

There are obligations which are imposed on successors, or people who take over business as a matter of law.

And I want to make --

Justice Thurgood Marshall: My own problem is it doesn’t do it in and of itself.

I thought you said the contract in and of itself work with the business despite what the land said. It’s not just in and of itself.

Mr. Laurence Gold: No, it’s the contract right in terms of National Labor Policy in the presumptions and its meaning, and I just want to note that in this case, there is a Successorship Clause.

If the predecessor -- if the only remedy is against the predecessor, we have a situation which we think is -- which is analogous to that in Boeing’s markets.

All you can get is damages, but that isn’t the purpose of the Labor Law.

The Labor Law is opposed to the Law of Commercial Contracts.

Specific performance is what is sought when you have an arbitration or its common law and no strike provision, and the only way you can have that is the method employed by Wiley, which is to say that this situation is not the same as one in which there is no contract.

There is a contract and the successor steps into it.

And I want to point out how close the continuity is in this case.

How Johnson had a voice in this business before the change.

There was its franchisee.

Before and after the change, there was a Howard Johnson’s Motel selling basically the same things to the same class of costumers.

Before and after the change, there was a discreet unit of 55 people who were working for that employer.

There was a one minute hiatus as both Mr. Justice Stewart and the Chief Justice pointed out yesterday.

If this employer is in the successor, we don’t’ know who he is.

And if he is a successor, then there was never a break in the contractual obligations, and those contractual obligations were his just as there were his predecessor’s.

Justice William H. Rehnquist: But that’s sound defining almost.

You say the man is a successor, and therefore, there never was a break in his contractual obligations.

You’ve still got to make the case for the successorship.

Mr. Laurence Gold: Well, that’s right.

I think our first duty is to show that there is a continuity of the business enterprise which makes it proper to say the second employer is a successor.

Where there isn’t a continuity, then he is not a successor and he is not bound by the arbitration clause, or any of the other potential obligations which are in the agreement.

And --

Justice Byron R. White: But in deciding successorship, I take it you put aside the fact that he may not have hired any of the old employees.

Mr. Laurence Gold: Yes, Your Honor, because we think that the background of the law is different that if that is the test, then the very issue to be are he can control whether or not there’s to be an arbitration by disregarding a potential obligation, and therefore, that the situation is different from the situation under 8 (a) (5).

Under Section 8 (a) (5), first of all, there’s no obligation, and secondly you look to the employee complement because you’re asking whether or not there should be negotiations for new agreement whether there’s a duty to recognize.

And the duty to recognize stands from the employee free choice.

Employee free choice is subordinated to stability during the term of the agreement, and that’s why you don’t look to the employer-employee complement in a contract case, but rather as Mr. Justice Rehnquist pointed out, and certainly what he said is applicable in this case, you look to continuity on the employer side, continuity in the business enterprise.

And if that is there, then the duty to arbitrate does follow.

That is the theory which we are arguing.

We’re saying that we have to show the successorship.

We have to show a lack of discontinuity.

We think we have all sorts of continuity here, and once we have that, then the duty to arbitration does flows to conclusion.

That is our position.

Justice William H. Rehnquist: Well, you would agree then that by your test of successorship, there wasn’t successorship between Wackenhut and Burns.

Mr. Laurence Gold: In the contractual sense.

Justice William H. Rehnquist: In the contractual sense.

Mr. Laurence Gold: I don’t think that that’s a different case.

Now, there have been developments since you wrote your opinion which may have some effect on that case, the Service Contract Act Amendments which are quoted in the AFL-CIO brief.

But as a matter of basic first impression in the contract law, if there is not continuity on the employer’s side, we do agree that there isn’t a 301 obligation.

Chief Justice Warren E. Burger: You have anything further Mr. Tracy?

Argument of James D. Tracy

Mr. James D. Tracy: Yes, thank you, Mr. Chief Justice.

Justice Byron R. White: May I just ask Mr. Tracy, I gather in your submission, had Howard Johnson taken on all of predecessor’s employees, Howard Johnson still would not be bound by the contract?

Mr. James D. Tracy: Your Honor, we believe that is what this Court said in Burns.

Justice Byron R. White: But you might have had a duty to argue?

Mr. James D. Tracy: No doubt, Your Honor, no question whatever.

Justice Byron R. White: But you would not be bound at all by the agreement?

Mr. James D. Tracy: Your Honor, it so happens that I was the attorney for an employer in a case which was a companion to the Burns case at the Board, and my client desired that the contract continue in effect.

The Union did not.

The company had been bought by a larger company.

The Union saw an opportunity to negotiate a better contract.

The Board, as you know in Burns, said the contract did continue.

The case in which I was involved was never appealed.

I submit that it had been appealed with Burns, The result would’ve been the same as Burns.

The continuation of the contract is a two-party affair.

The contract does not run with the business, as Mr. Justice Marshall says.

It is something which is a matter of consent, and both the company and the Union must consent for the contract to continue in effect, and this Court pointed out in Burns the policy considerations which require that.

Court pointed out that there could be considerations on both sides of the bargain.

Now, the duty -- the contractual, consensual duty to be bound by that contract and to arbitrate in accordance with the contract is inevitably intertwined with the status of successor.

And the questions which the Court has put to Mr. Gold demonstrate the difference this case and Wiley, and indeed the difference between this case and the case like Lion Dry Goods.

In Wiley, the plaintiffs who brought grievances had attained employment status with the employer, and thereafter, had grievances arise, differences with their employer.

And this Court in Wiley held that those grievances which arose after the employment’s relationship existed rose subject arbitration under their contract of the prior employer.

There is certainly a serious question whether even that can stand today in view of the Court’s unanimous ruling that the contract does not survive.

The question becomes, what is parameters for the arbitrator?

What is the basis in which he can make a decision?

But, in any event the contract cannot be a vehicle with which the persons who claim grievances under this contract can attain employment status with the new employer.

Justice Byron R. White: Mr. Tracy, in most situations where someone buys a company, buys the assets and succeeds and continues to run the business.

Surely, that purchaser must take account of other kinds of contracts, other kinds of obligations that the buyer has.

In my state, if you bought a business, it didn’t take account of some of the debts that your seller owed and if he didn’t go through certain procedures and give them a chance to come in and make a claim, you’re going to be in trouble.

Mr. James D. Tracy: Your Honor, that is true.

That is a matter of statute.

Justice Byron R. White: Yes, I agree with that.

I agree with that.

Bought Sales Acts and things like that.

Now, I take it the Union, the employees are saying “We’re the only obligees of the seller that aren’t going to be taken care of” in some way.

Mr. James D. Tracy: Your Honor, I agree.

Justice Byron R. White: Now, your client bought the business.

He knew he had a contract that says it bound the successor.

And you wrote a letter and said remotely bound, but I will buy them ever the less.

Now, the suggestion is, it’s a National Labor Law, says that you can’t avoid that successorship clause like that.

Mr. James D. Tracy: Well, Your Honor, I submit that there certainly is a statutory requirement that we honor the contract, I understand when you asked that question yesterday and you didn’t get a very clear answer, but we know that successorship is not a statutory doctrine.

It’s a Board and Court doctrine.

Justice Byron R. White: I see.

Mr. James D. Tracy: Now, there are some contracts which perhaps by Bought Sales Act or other statutory enactment, maybe become an obligation of a purchaser, but there are many others who do not.

Justice Byron R. White: You think Congress would enact legislation which would make this contract binding on successors such as your client?

Mr. James D. Tracy: Yes, Your Honor, I believe that Congress could --

Justice Byron R. White: That’s the approach in this new service contract.

Mr. James D. Tracy: Exactly.

Exactly, Your Honor, I believe that the fact that they enacted that kind indicates that if they had dared to go further and cover the kind of situation that is here today, they could well have done so by legislation.

Justice Byron R. White: So far the most relevant provision is a provision that says that an employer isn’t bound to agree with the contract.

That you can’t impose a provision of a contract on an Employer through the process of collective bargaining.

Mr. James D. Tracy: Your Honor, that is Section 9 (d) of the Act.

That’s the holding of this Court in H.K. Porter, and the argument that somehow in other -- it might be different that 9 (d) which is a statement in the National Labor Relations Act somehow doesn’t apply in an enforcement of contract situation just cannot stand.

This Court has recognized there must be one body of law.

I referred yesterday to the Lincoln Mills decision.

Counsel this morning referred to the Lucas Flower decision of this Court.

And in Lucas Flower, this Court said “The possibility that individual contract terms might have different meanings under State and Federal Law would inevitably exert a disruptive influence upon both the negotiation and administration of collective agreements.”

If it can’t have different meanings, under State and Federal Law, cannot have different meanings in a Board case as compared with a Court case.

We submit that clearly, it cannot, and returning Mr. Chief Justice to the question you raised yesterday relative to the short hiatus, is certainly that is an aspect to be considered in determining whether there is a continuity of the business, but there are many factors.

Again, going to Mr. Justice White’s questions, there are many factors which determine the successorship status, and this Court has carefully considered them.

Mr. Justice Rehnquist was concerned with them in the Burns case.

Unknown Speaker: Mr. Tracy, listen, why as he point out yesterday, the Court did not go on and discuss what the scope of the arbitration was?

Now, I assume that you would concede that some successors might express they want to assume the contract.

As your client -- as you know your client did.

And that maybe, that nothing was said in the purchase of the sale about it.

And there maybe an issue especially if the successor takes over a majority employees.

There maybe an issue as to whether there was an assumption or not, or whether what the agreement was, and that kind of an issue submitted to an arbitrator, I would think would be wholly proper.

Mr. James D. Tracy: I agree with you, Your Honor, and I believe that is the real meaning of the Wiley decision, and that’s the full meaning of the Wiley decision.

You cannot boot scrap the successorship doctrine without retention of employees, or hiring of employees by the new employer into a requirement that he must take the employees, and therefore must recognize the Union, unless you are really going to say as Mr. Justice White said that you’re going to take a very large bite out of Burns.

There is in Burns a decision which was unanimous as to the effect of the contract.

And that decision is not consistent with the position of respondent in this case, or the position of the court below.

It is consistent with the petitioner’s position.

We request therefore, that the Court reverse the decision below.

Chief Justice Warren E. Burger: Thank you, Mr. Tracy.

Thank you, Mr. Gold.

The case is submitted.