How NLRB Guidance Supports Employer-Led Wage Hikes

When an employer unilaterally changes a collective bargaining agreement, this is typically an unfair labor practice. But what happens when those changes benefit the union and are rooted in exigent circumstances?

Pandemic-driven guidance from the National Labor Relations Board suggests that employer changes to the collective bargaining agreement, such as wage increases, may be lawful in reaction to current labor shortages. Here is why employers may be justified in this action, and how that might play out.

Exigent Circumstances Analysis

Midterm modifications to the terms of a collective bargaining agreement by an employer often invite unfair labor practice charges from employees. And absent a waiver argument or an agreement by the union to reopen the labor contract, those charges will often result in a board-issued complaint.

The Covid-19 pandemic, however, created situations where employers, dealing with a rapidly evolving workplace landscape, were forced to unilaterally modify collective bargaining agreements and existing terms and conditions of employment.

In response, the board’s Office of the General Counsel issued a memorandum in March 2020 that summarized an employer’s obligation to bargain during both public emergency situations and emergency situations specific to an individual employer.

The memorandum reinforced that, in exigent circumstances created by things such as a hurricane, mandatory evacuations, the events of 9/11, an ice storm, the termination of a company’s line of credit, or shortages of raw material, an employer may be relieved of its duty to bargain, at least to the extent that the emergencies forced the employer to act.

Labor Movement and Unilateral Wage Increases

Commentators have noted the large numbers of workers who have been quitting their jobs. Statistics vary, but they tell a similar story of employers struggling to fill jobs as workers leave.

For example, the 2022 Small Business Credit Survey, which is a collaborative effort of all 12 Federal Reserve banks, found that 60% of respondents identified hiring and retaining qualified employees as the top operational challenge. Roughly 44% of firms were finding it very difficult to hire. The lack of applicants was the primary reason for hiring difficulties of 78% of companies. About 59% of businesses reporting hiring challenges reacted by increasing wages.

Increasing wages may be easily implemented by non-union employers, but union employers face a higher hurdle if the need for such increases comes during the middle of a collective bargaining agreement’s term. Unions may argue that such changes must, at a minimum, be negotiated through unpredictable collective bargaining between the parties.

Justifying Wage Increases

The reflexive reaction to unilateral wage changes in the labor contract is that a unionized employer is prohibited from making changes without bargaining. The exigent circumstances analysis given voice by the March 2020 General Counsel Memorandum provides a basis for employers to lawfully act by themselves to respond to a paralyzing inability to hire.

One scenario is where the employer’s operations are threatened by its inability to hire. A shortage of workers has or will result in a curtailment of production or services being offered. Orders are backlogged for lengthy periods of time, and new orders may be rejected because of the lack of labor. The financial health of the business is threatened.

The memorandum noted that the board has explained in the past that “economic exigencies compel prompt action,” particularly where the events creating the exigency are unforeseen, have a major economic effect, or require immediate action. The inability to hire in the example above would seem to satisfy the board’s criteria.

The workforce churn has been an unexpected and highly notable consequence of recent economic conditions. It makes sense that being unable to operate fully because of worker shortages, for an indefinite period of time, would negatively impact a company’s business.

Moreover, an immediate improvement in the ability to hire is needed. A unilateral wage increase, without bargaining, should be seen as a lawful and proper response to the hiring difficulties employers face.

While the memorandum and the cases support unilateral action with respect to the decision to increase wages, they suggest bargaining over the effects of that decision may be necessary. But with respect to wage increases, the effects are beneficial, hopefully for the company as it seeks to jump-start hiring and certainly for the union membership as their paychecks get bigger. Without an adverse economic impact on the workers, effects bargaining seems superfluous.

In short, the General Counsel Memorandum is not an expansive permission of unilateral contract changes. It is, however, a foundation for floundering companies to make tough decisions to increase wages without bargaining to address economic exigencies that materially threaten the profitable functioning of their businesses.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Michael Pavlick is a partner in the Pittsburgh office of K&L Gates. He concentrates his practice in labor and employment law, including representation of clients before the National Labor Relations Board and the National Mediation Board, collective bargaining, arbitrations conducted pursuant to labor contracts, and union elections and campaigns.