On September 28, 2023, an administrative law judge (ALJ) at the National Labor Relations Board found that Starbucks violated the National Labor Relations Act (NLRA) by improving wages and benefits for nonunion employees while withholding the increases from employees who had unionized or were in the process of organizing.
Of course, the Board has long held that an employer may not unilaterally change the terms or conditions of employment for unionized employees, nor can an employer make such changes during a pre-election period. Caught in a "catch-22," Starbucks chose not to implement wage increases for unionized and organizing employees. Board General Counsel Jennifer Abruzzo ultimately filed a complaint, alleging that Starbucks' motive in withholding the increases for unionized and organizing employees was unlawful and that the company engaged in further unlawful conduct by communicating its decision and reasoning to employees.
The ALJ sided with Abruzzo. Though the ALJ did not go so far as to find that the company had a legal obligation to offer the same increases to union employees, she applied the well-known Wright Line standard and determined that the company's legitimate business justifications were pretext for discrimination. Starbucks has already indicated its intent to appeal the decision to the Board.
Background
As covered extensively by the media over the past several years, Starbucks has experienced a significant wave of union organizing at its stores across the country. Simultaneously, the job market became more competitive as the COVID-19 pandemic subsided and inflation rose steeply. For Starbucks, these timelines coincided in a way that necessitated difficult company decisions.
In October 2021, just a couple months after the first set of stores unionized in Buffalo, New York, Starbucks announced nationwide wage and benefit increases to nearly its entire workforce. These increases, which were to go into effect the following summer on August 29, 2022, included wage increases to the greater of either $15 per hour or 2 percent, as well as a seniority-based raise of 3 percent for partners with two or more years' tenure. Starbucks widely announced its plan to increase wages, including through direct messages to employees and shareholders. Starbucks typically implemented annual wage increases mid-January, but diverged from that prior practice with its plan instead to increase wages the following August.
Meanwhile, union-organizing drives accelerated across the country, and by April 2022, hundreds of elections were in progress, with union victories rolling in. As most employers do, Starbucks campaigned against the union in these organizing drives. The company engaged in various communication strategies as part of its campaign. (Note: Employers have the right under Section 8(c) of the NLRA to express their views, arguments or opinions so long as such expression contains no threat of reprisal or force or promise of benefit.)
On May 3, 2022—while its workforce waited to receive the prior-announced increase on August 29—Starbucks announced that it would, effective August 1, raise pay to the greater of $15 per hour or 3 percent and grant an enhanced seniority-based increase of 5 percent for two-to-five years' experience and 7 percent for more than five years. In various announcements, Starbucks explained that this new set of raises would apply only to nonunion stores, because the law prohibited Starbucks from making unilateral changes at stores that had unionized. It similarly explained that it could not promise new wages and benefits for stores in the process of organizing, because federal law prohibited the company from doing so.
Starbucks did tell employees that they would still receive the increases that the company had announced back in October and that would go into effect August 29, 2022. Starbucks also communicated to employees:
Where Starbucks is required to engage in collective bargaining, we will negotiate in good faith. Starbucks will not favor or discriminate against any partner based on union issues. And we will respect the right of Starbucks partners to make their own decisions when exercising these rights.
As announced, Starbucks moved forward with implementing various increases and improvements for nonunion stores on August 1, 2022. The union filed multiple charges relating to the company's actions over the course of the union's organizing campaign, and General Counsel Abruzzo soon after issued a consolidated complaint alleging that Starbucks violated the NLRA in various ways, including by giving wage increases to nonunion stores while withholding the same increases from stores that had unionized.
Ruling
Historically, to assess whether an employer has violated the NLRA by increasing wages for nonunion employees, the Board has applied Shell Oil, 77 NLRB 1306, 1310 (1948), wherein it held:
Absent an unlawful motive, an employer is privileged to give wage increases to his unorganized employees, at a time when his other employees are seeking to bargain collectively through a statutory representative. Likewise, an employer is under no obligation under the [NLRA] to make such wage increases applicable to union members, in the face of collective bargaining negotiations on their behalf involving much higher stakes.
Since the issuance of Shell Oil nearly 60 years ago, the Board has increasingly focused on the phrase "absent unlawful motive" when assessing whether differential treatment may have violated the NLRA. When motive is at issue, the Board applies a burden-shifting standard to determine whether an employer acted with "union animus." See Wright Line, 251 NLRB 1083 (1980) which the Board recently "clarified," see our Alert. Under Wright Line, the general counsel must first show: (1) the existence of union or other protected activity by employees; (2) employer knowledge of that activity; and (3) antiunion animus on the part of the employer. Id. Once the general counsel makes this showing, the burden shifts to the employer to demonstrate that the same action would have occurred independent the employee action. Id. In other words, the Board analyzes employer intent when assessing whether alleged differential treatment between union and nonunion employees (or between employees actively organizing and those not organizing) violated the NLRA.
In this case, General Counsel Abruzzo took the position that Starbucks discriminated against union employees by giving new wage increases to nonunion stores, even though the Board has long held that employers may not unilaterally change the terms or conditions of employment (i.e., without bargaining). She argued that the company had an unlawful motive, which tainted the employer's right to make changes to the terms and conditions of employment for nonunion employees. She further argued that the way Starbucks announced the increases violated the NLRA, putting Starbucks' motive at the center of the case. And she advocated for the Board to overturn Shell Oil and to create new precedent whereby withholding any new benefit from union employees would be considered "inherently destructive" of employee statutory rights, essentially creating a new requirement that an employer offer any "new benefit" to union employees.
Ultimately, the ALJ determined that the company's motive for increasing wages and benefits for nonunion employees was to interfere with employee organizing. Even though Starbucks put forth evidence of its legitimate business justifications for the increases and briefed in detail the various legal prohibitions against unilateral changes to employee terms and conditions, the ALJ found little merit in the company's positions. Instead, the ALJ explained that if the company had actually wanted to give the increases to union employees, it could have asked the union for permission. The fact that the company had not done so was evidence that its reliance on prior Board law prohibiting unilateral changes was pretext.
At essentially every turn, the ALJ found that how the company went about announcing and implementing the increases evidenced an unlawful motive. Among other findings, she determined that the way the company messaged the increases to employees (such as through statements about comparing union benefits to the company's offered benefits) and the timing of the new increases showed that the company was using the increases to convince employees not to unionize. Further, the October 2021 timing of the announced wages, which went unexplained by Starbucks' sole witness, suggested an unlawful motive. The ALJ cited Mercy Southwest Hospital, 338 NLRB 545, (2002), wherein the employer failed to show a legitimate basis for a wage increase when its only witness on the subject had no knowledge of or participation in the timing of the wage increase announcement. Poignantly, the ALJ wrote, "There is no evidence that either market forces or sheer altruism motivated [the company] to disrupt its already-disrupted normal pattern of wage increases to reward its nonunion partners."
As a remedy, the ALJ recommended make-whole relief that would include monetary compensation for all "losses" (i.e., back pay), as well as compensation for any other direct or foreseeable pecuniary harms, as set forth in the Board's recent decision in Thryv Inc., 372 NLRB No. 22 (2022) (see our Alert). Given the number of stores and employees at issue, should the Board ultimately uphold the ALJ's remedy recommendation, alleged damages are likely to be significant.
What This Means for Employers
This long-awaited decision, while not binding Board precedent, is a landmark ruling in the battle that has been brewing over the inherent legal conflicts that employers face when they have mixed workforces (union and nonunion). On the one hand, the NLRA prohibits employers from making unilateral changes to the terms and conditions of employment for union workers. In fact, the Board recently tightened the already limited exceptions to this prohibition in the Wendt case, decided on August 26, 2023 (holding that an employer may only act unilaterally during bargaining if the employer has demonstrated a regular and consistent past practice that is not informed by a large measure of discretion). On the other hand, however, if an employer adheres to this prohibition and withholds new benefits from union employees, it also risks violating the NLRA because the differential treatment may be interpreted as unlawful discrimination and/or interference.
Not only does this put employers in a "damned if you do, damned if you don't" position, but it also forces employers to choose between being prosecuted by the Board for allegedly violating the NLRA and bargaining against itself by creating an artificial wage and benefits floor (which can hurt an employer's bargaining power).
Employers who find themselves in a similar situation should carefully consider all legal risks and options when determining how to proceed with a mixed union/nonunion workforce. Diverging from past practices, such as the existence and/or timing of annual wage increases, for either union or nonunion employees, can be considered evidence of ill intent. For example, changing the timing of annual wage increases, or announcing wage increase far in advance while union organizing is ongoing, can be seen as a form of interference. Employers must also be careful about how they communicate any improvements that would apply to nonunion employees but not union employees. Notifying union employees that they will not receive an improvement that nonunion employees are receiving hurts the employer's argument that the improvement was unrelated to union organizing. Employers must likewise be prudent with internal communications, as the Board's subpoena power allows it to require production of relevant nonprivileged documents.
Overall, as this case shows, the primary factor at issue is alleged intent. Employers with a mixed workforce that increase wages and/or benefits for nonunion employees need to be cognizant of how employees, the union and the Board may interpret such actions. Employers should anticipate that unions will use this case as a strategic playbook to push for increased wages and benefits for union employees outside typical contract negotiations and/or as fuel to file unfair labor practice charges.
As this case is on its way to the Board for consideration, it is entirely possible that we could soon see a complete change in Board precedent relating to differential treatment of union and nonunion employees. Duane Morris will continue to monitor and analyze developments in this and related cases to keep employers informed.
For More Information
If you have any questions about this Alert, please contact Eve I. Klein, Elizabeth Mincer, Zachary McCormack, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
