NLRB Sues Boeing, and Why South Carolina's Loss May Be America's Too

Carl Horowitz
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Posted: May 07, 2011 12:01 AM
The National Labor Relations Board – these days known by many of its critics as the National Organized Labor Relations Board – must have a pretty broad definition of the words “coercion” and “retaliation.” And should it prevail in court, the result will be less freedom for employers and employees across the nation.

On April 20, the board filed a 10-page complaint against Boeing alleging the company’s decision in 2009 to locate its second assembly plant in South Carolina represented illegal retaliation against employees belonging to the International Association of Machinists & Aerospace Workers (IAM). As a remedy, the NLRB is seeking a judicial order for the company to shift all production of its planned 787 Dreamliner commercial jet to its main facility in Washington State. The IAM, predictably, is delighted. Equally to the point, Boeing and South Carolina officials are furious. That South Carolina, unlike Washington, is a Right to Work state has more than a little to do with the unfolding drama.

Back on March 26, 2010, the Machinists filed a complaint against Boeing with the National Labor Relations Board. The union claimed the Chicago-based company, in moving its final assembly plant for its 787 Dreamliner wide-body, twin-engine jet aircraft to a facility near Charleston, South Carolina, illegally had “retaliated” against the IAM for four separate strikes the union conducted over the course of 1989-2008. Instead of expanding its existing production facility in Everett, Washington, located about 25 miles north of Seattle, Boeing instead chose a site at Charleston Airport near Charleston, S.C.

After conducting an investigation, NLRB Acting General Counsel Lafe Solomon found “reasonable cause” to believe that the company violated two sections of the National Labor Relations Act. First, Solomon concluded, the move was motivated by a desire “to retaliate for past strikes and chill future strike activity.” Second, Boeing officials had made “coercive statements” to union employees relating to the move.

NLRB located apparently incriminating internal documents and news interviews, the latter category including a statement given by Jim Albaugh, CEO of Boeing Commercial Airplanes, to the Seattle Times (March 2, 2010) in which he stated that while Washington State remained his “preferred location” for building commercial aircraft, he would view South Carolina as a better alternative unless the union “moderates its future wage demands and avoids strikes.” Albaugh stated: “The overriding factor was not the business climate. And it was not the wages we are paying today. It was that we can’t afford to have a work stoppage every three years. And we can’t afford to continue the rate of escalation of wages.”

Boeing, in fact, had good reason to fear strikes. The most recent, in 2008, lasted almost two months and cost the company nearly $2 billion in lost revenue. To compensate, management wanted workers to contribute more toward health insurance, forgo defined-benefit pension plans and agree to more outsourcing. Albaugh would seem to be guilty of nothing more than exercising sound business judgment.

Also exercising sound judgment was Boeing Chairman and CEO Jim McNerney, in referring in a quarterly earnings conference appearing on the Boeing website to “diversifying [Respondent’s] labor pool and labor relationship” and moving 787 Dreamliner production to South Carolina due to “strikes happening every three to four years in Puget Sound.” To the International Association of Machinists and the NLRB, this is called “retaliation.”

Meanwhile, South Carolina already had beckoned. As a Right to Work state, workers there don’t have to worry about losing their jobs if they don’t join the union or pay “agency fees” in lieu of joining. The company specifically had its eyes on a site in North Charleston previously occupied by Vought Aircraft Industries Inc. In 2009, Boeing paid $750 million for the complex, which it planned to retrofit for production of its 787s at the rate of three planes a month. With orders rolling in since 2004, the State of South Carolina sweetened the deal, adding nearly $900 million in tax relief and other incentives. Test flights began in December 2009; commercial production is expected to begin this summer – the company hopes anyway.

Reluctant to leave its Everett work force, Boeing made a final contract offer that included a “no-strike” clause. The move, management emphasized, would not replace Washington State operations. Indeed, it would lead to more hiring in Washington as well as South Carolina. The Machinists, unimpressed, responded with a proposed 11-year agreement that would require the company to place all future commercial aircraft production in the Puget Sound area; remain neutral in all union organizing campaigns; and reserve a seat on the its executive board for a union representative. Boeing said “no.” Soon after, in October 2009, it signed an agreement with South Carolina.

The International Association of Machinists, which represents some 35,000 Boeing workers around the U.S., 25,000 of them in Washington State, felt double-crossed. Several months later, the Seattle-based IAM District Lodge 751 filed an Unfair Labor Practices charge against the company, claiming senior Boeing executives had used coercion against lawful union activity. “Boeing’s decision to build a 787 assembly line in South Carolina sent a message that Boeing workers would suffer financial harm for exercising their collective bargaining rights,” exulted IAM Vice President Rich Michalski upon hearing the news of the NLRB action. “Federal labor law is clear: It’s illegal to threaten or penalize workers who engage in concerted activity.” District 751 President Tom Wroblewski likewise stated: “Had we allowed Boeing to break the law and go unchecked in their actions, it would have given the green light for corporate America to discriminate against union members and would have become management’s new strategic template to attack employees.”

What these and other union officials conveniently overlook, however, is that after the purchase of the North Charleston facility, union workers there voted 199-68 to decertify the IAM as their bargaining representative shortly after the announcement of the move. Apparently, that sort of “concerted activity” isn’t acceptable to Machinist chieftains. Following the vote, the union filed a lawsuit against South Carolina Republican Governor Nikki Haley, claiming she had “violated U.S. labor laws and the Constitution.” IAM Southern Territory Vice President Bob Martinez explained the union’s position: “Gov. Haley placed her hand on a Bible and swore to defend the Constitution of the United States. [B]ut her stated intention is to actively oppose workers in South Carolina who wish to exercise their legal right to join a union.” Martinez can’t seem to get over the fact that workers in South Carolina already have spoken.

The National Labor Relations Board, and not for the first time, appears eager to become a union mouthpiece. “A worker’s right to strike is a fundamental right guaranteed by the National Labor Relations Act,” noted the NLRB’s Solomon in a statement released in conjunction with the filing of the April 20 complaint. “We also recognize the rights of employers to make business decisions based on their economic interests, but they must do so within the law.” But how has Boeing, by trying to avoid strikes, broken the law? If unions have the right to organize or pressure an employer into making concessions, the employer surely has the right to take this into account when making decisions that affect long-term company health. The U.S. Supreme Court affirmed this principle long ago in a trio of 1965 rulings: Textile Workers Union v. Darlington Manufacturing Co.; NLRB v. Brown; and American Ship Building v. NLRB. Only in the former did the High Court rule in favor of the union – and that qualified decision involved the closing of an existing plant, not the opening of a new one.

If the NLRB, currently with four members – three Democrats and one Republican (the nominee for the fifth slot, Republican Terence Flynn, awaits Senate approval) – is so exercised by Boeing’s alleged union-busting tactics, why did it wait a year and a half to file its complaint against Boeing? It could be that until March 2010, the board for 27 months had operated with only two members, Wilma Liebman and Peter Schaumber, respectively, a Democrat and a Republican. Victory for the IAM under such a condition, in other words, was unlikely. With a pro-union majority in place, however, Acting General Counsel Solomon saw an opportunity to take action.

Boeing is anything but happy about the NLRB lawsuit. “This claim is legally frivolous and represents a radical departure from both NLRB and Supreme Court precedent,” said the company’s general counsel, J. Michael Luttig.

South Carolina officials are especially incensed. Attorney General Alan Wilson recently noted that the complaint against Boeing will hurt the ability of his and other states to create jobs, a statement seconded by eight other state attorneys general. “This is nothing more than a political favor for the unions who are supporting President Obama’s re-election campaign,” remarked Sen. Jim DeMint, R-S.C. “Unfortunately, it comes at the expense of hundreds of jobs in South Carolina and thousands of jobs nationwide.” Fellow South Carolina Republican Senator Lindsey Graham stated: “If successful, the NLRB complaint would allow unions to hold a virtual ‘veto’ over business decisions. Left to their own devices, the NLRB would routinely punish Right to Work states that value and promote their pro-business climates.”

Governor Haley may be the most outspoken of all. Laying out her position in a guest editorial, “Obama’s Silence on Boeing Is Unacceptable,” appearing in the April 29 Wall Street Journal, she wrote:

South Carolina is a right-to-work state, and we’re proud that within our borders workers cannot be required to join a labor union as a condition of employment. We don’t need unions playing middleman between our companies and our employees. We don’t want them forcefully inserted into our promising business climate. And we will not stand for them intimidating South Carolinians.

That is apparently too much for President Obama and his union-beholden appointees at the National Labor Relations Board, who have asked the courts to intervene and force Boeing to stop production in South Carolina. The NLRB wants Boeing to produce the planes only in Washington State, where its workers must belong to the International Association of Machinists and Aerospace Workers.

Haley went on to call the actions by the NLRB “nothing less than a direct assault on the 22 right-to-work states across America.”

Advocates for each side will get to square off starting this June 14 in the James C. Sand Hearing Room in the Jackson Federal Building in Seattle before an NLRB Administrative Law Judge. Boeing no doubt will give its all; pulling out of South Carolina at this point would incur serious losses. By March of this year, fully 835 orders for its 787 Dreamliner from a combined 56 customers had poured in, despite various project delays. The Dreamliner is the aircraft builder’s marquee commercial product, a logical successor to its less fuel-efficient 747-400 and 767 models. The Japanese are deeply enmeshed in the project as well, providing a 35-percent work share and a first-time-ever participation in wing production. A union victory, even without the accompanying wage and benefit package, might raise costs dramatically.

There is an unfortunate measure of justice in all this. Boeing unwittingly has become an IAM target due to its prior capitulation to union power. A strike against Boeing by the Society of Professional Engineering Employees in Aerospace back in early 2000, for example, resulted in management giving in on key issues in order to settle after 40 days; the walkout caused Boeing to miss at least 15 aircraft deliveries and some government contracts. And the company succumbed on major issues during a four-week strike by the Machinists in 2005, which resulted in overwhelming union approval of a three-year contract – and another IAM strike in 2008. Management also has enshrined racial, ethnic and gender diversity as an operating principle. And CEO Jim McNerney is tight with the Obama White House.

The union-driven NLRB complaint against Boeing, in other words, is the result of repeated fecklessness, or at least appearance of it, on the part of the company. However the case turns out, it should stand as a lesson to all companies that unions and their political allies don’t become “nicer” after they cause a corporate target to buckle. To the contrary, they get nastier.