Starbucks’ Nonunion Worker Pay Bumps Raise Labor Law Red Flags

Federal labor board allegations that Starbucks Corp. illegally gave pay raises and benefits to nonunion workers and denied them to union workers illustrate the legal minefield employers must navigate when they have these types of mixed workforces.

The National Labor Relations Act generally prohibits employers from changing union workers’ job terms and conditions without bargaining, with some exceptions.

At the same time, the National Labor Relations Board can consider it unlawful discrimination if a company fails to provide union workers the benefits and wage bumps given to nonunion workers.

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“This is the classic Hobson’s choice,” said Steven Suflas, a management-side attorney with Ballard Spahr LLP. “If you give the benefit, it’s a unilateral change. If you don’t, it’s anti-union discrimination. It’s a lose-lose bet.”

The NLRB’s Seattle office recently hit Starbucks with a complaint accusing the coffee chain of suppressing organizing activity by withholding pay hikes and new benefits from workers at unionized and unionizing stores. The company increased wages and granted benefits at nonunion stores.

The allegations are part of the 24th complaint that NLRB prosecutors have issued against Starbucks since Starbucks Workers United, an affiliate of the Service Employees International Union, began winning elections at the coffee chain’s stores in December. The union has prevailed in more than 230 elections.

Starbucks’ unequal distribution of benefits flows from a basic legal right that dates back to the NLRB’s 1948 decision in Shell Oil Co.: Employers can treat union and nonunion workers differently, provided that disparate treatment isn’t driven by anti-union animus.

The board has used the analytical framework from its 1980 ruling in Wright Line to determine employer motivation. That test calls on the NLRB general counsel’s office to establish that union or other protected activity was a motivating factor for the employer’s decision. If the office meets that burden, the employer has the chance to show it would have taken the same action absent any discriminatory intent.

Starbucks has said publicly that federal labor law bars it from changing benefits at unionized stores outside of good faith collective bargaining. The NLRB complaint contains statements by CEO Howard Schultz to the same effect, which agency prosecutors alleged is unlawful interference, restraint, and coercion on its workers’ protected activities.

“Starbucks is going to have to justify why it did what it did,” said Michael Duff, a law professor at St. Louis University and a former NLRB lawyer. “And that justification can’t be ‘the law precluded us from unilaterally awarding increases in pay and benefits to union workers.’”

Union Waiver

There are exceptions to the bar against unilateral changes to job terms, Duff said. Employers can grant benefits without bargaining with a union if those alterations align with past practice or were planned before workers unionized, he said.

Unions can also waive objections and free the employer to act unilaterally, said David Rosenfeld, a union-side attorney with Weinberg Roger & Rosenfeld.

Workers United International President Lynne Fox sent a letter to Starbucks on behalf of union stores waiving their right to bargain over the pay and benefit changes, and calling for the company to provide them to union stores as well, the union told Bloomberg Law.

“Schultz’s stated reason for not affording wage increases and benefits to union stores was wiped out once the union presented its waiver,” said Robert Giolito, a lawyer who represents Starbucks Workers United in California and Arizona. “The minute the union gave the waiver, he can give those wages and benefits. But if he did that, it would undercut the entire motivation of this policy, which is to discourage unionization.”

Starbucks spokesman Reggie Borges confirmed that the union waived its right to negotiate over the new benefits. But federal law says mandatory subjects of bargaining include wages, hours, benefits, and other employment terms, he added.

“These subjects are to be negotiated as part of the collective bargaining process, with no single subject being ‘waived,’ or ‘agreed to’ in isolation and separate from other subjects,” Borges said in an email. “That’s the law.”

Bargaining Strategy

When a union waives its objection to unilaterally granting benefits, an employer like Starbucks can still have legitimate reasons related to bargaining strategy for withholding them, said Rebecca Leaf, an attorney with Miles & Stockbridge who represents management.

A company doesn’t know what a union will seek in negotiations, especially before it’s reached an initial contract with a newly formed union, said Leaf, a former NLRB attorney. An employer might hold back from giving a unilateral wage increase because it might need the money to pay for other benefits that the union demands in bargaining, she said.

The NLRB and the US Court of Appeals for the District of Columbia Circuit have said reasonable bargaining strategies are considered a valid, nondiscriminatory rationale for withholding benefits to union workers.

NLRB prosecutors likely will point to Starbucks’ actions in response to the union and the company’s public statements to back the allegation that the company was trying to stymie union activity, legal observers said. They’ll probably also subpoena company communications in search of evidence of motive.

But the NLRB general counsel’s allegations against Starbucks seem to be a reach, said Sabrina Beldner, an attorney who leads the labor and employment practice at the management-side firm McGuireWoods LLP.

“What this complaint shows is that there is a view at the NLRB that giving benefits to nonunionized workers when they work alongside union-represented workers is a violation of the law,” Beldner said. “I’d tell my clients that there’s a risk out there, but they have to make the decision on benefits that’s best to attract and retain talent.”