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Lindsay v. Mike-Sell's Potato Chip Company

United States District Court, S.D. Ohio, Western Division

May 26, 2017

GAREY E. LINDSAY, Regional Director of the Ninth Region of the National Labor Relations Board, for and on Behalf of the National Labor Relations Board, Petitioner,



         This case is before the Court on the Petition for Preliminary Injunction (“Petition”) (Doc. 1) under Section 10(j) of the National Labor Relations Act (the “Act”), 29 U.S.C. § 151-169, filed by Petitioner Garey E. Lindsay, Regional Director of the Ninth Region of the National Labor Relations Board (“Petitioner”), on behalf of the National Labor Relations Board (the “Board”). Petitioner seeks a preliminary injunction against Respondent Mike-sell's Potato Chip Company (“Mike-sell's”) pending the final disposition of administrative proceedings before the Board. (Doc. 1)

         Petitioner alleges that Mike-sell's sold four distribution routes for its products to independent contractors in violation of Sections 8(a)(1) and (5) of the Act. Specifically, Petitioner argues that Mike-sell's did not comply with an obligation to bargain with the International Brotherhood of Teamsters, General Truck Drivers, Warehousemen, Helpers, Sales and Service, and Casino Employees, Teamsters Local Union No. 957 (the “Union”) before selling the routes. Petitioner also argues that Mike-sell's refused to provide the Union with information relevant to the sale of the routes. Pending the Board's determination of whether these actions violated the Act, Petitioner asks the Court to enter a preliminary injunction that would require Mike-sell's to rescind its sale of the four routes, provide information relevant to the sale to the Union, and bargain with the Union regarding the sale in good faith. (Doc. 1 at 1.)

         Pursuant to an expedited briefing schedule, Mike-sell's filed an Answer (Doc. 3) and Memorandum in Opposition (Doc. 5) to the Petition. The Union filed a Motion to Intervene in this matter, which motion the Board opposed. (Docs. 4, 9.) The Court denied the Union's Motion to Intervene, but granted the Union leave to file an amicus curiae brief. (Doc. 13.) On May 12, 2017, the Court held a hearing, at which the parties presented evidence and argument. At the hearing, the Union notified the Court that it decided not to submit an amicus curiae brief. This matter is therefore fully briefed and ripe for the Court's determination.

         I. BACKGROUND

         A. The History of Mike-sell's Distribution of its Products

         Mike-sell's is a privately-held manufacturer of snack foods headquartered in Dayton, Ohio. (Doc. 5-1 at ¶ 3.) Mike-sell's manufactures and packages snack products at its Dayton plant and then distributes them to retailers in Ohio, Indiana, Kentucky, Illinois, Michigan, and Pennsylvania through the help of route sales drivers (“drivers”) and independent distributors (“distributors”). (Id. at ¶ 4.) Drivers are employed as part of the Company route sales division. (Id. at ¶ 5.) They are commissioned employees of Mike-sell's whose duties include loading trucks, traveling to customer locations, stocking shelves, taking retail inventories and replenishing product, performing point-of-sale marketing, and rotating and removing unsold or expired product. (Id. at ¶ 5.) In contrast, distributors are independently-owned businesses that take on the entire risk of loss by choosing the type and amount of product to market, buying that product outright from Mike-sell's, preparing merchandise displays, delivering, and re-selling the product to customers in order to recoup their own costs and make a profit. (Id. at ¶ 6.)

         For sales territories or “routes” serviced by distributors, Mike-sell's sells the right to market its product within a specified geographic area, and the distributors purchase Company product up-front and are thereafter the owners of that inventory and all the liability that comes with it. (Id.) Historically, distributors have been responsible for servicing a far greater sales territory-and distributing far more Company product-than drivers. (Id. at ¶ 7.) Unlike Mike-sell's drivers, however, distributors are not required to follow any particular route or schedule, or to service any particular customer, within their individual sales territory. (Id.)

         Company drivers are represented by the Union. (Doc. 1 at 4.) From November 17, 2008 to November 17, 2012, their employment was governed by a labor agreement. (Doc. 5-1 at ¶ 8.) From November 18, 2012 to June 12, 2013, drivers worked under a last, best, and final offer (the “Original Offer”) unilaterally implemented by Mike-sell's. (Id. at ¶ 9.) Under well-established labor law, an employer is entitled to institute its last, best and final offer of employment terms after reaching an impasse in negotiations with its employees. Mike-Sell's Potato Chip Co. v. NLRB, 807 F.3d 318, 323 (D.C. Cir. 2015). Although Mike-sell's believed that it had reached an impasse with the Union, the Board later determined that its unilateral implementation of the Original Offer was unlawful. Id. Since June 13, 2013, drivers have worked under a revised last, best and final offer (the “Revised Offer”) implemented by Mike-sell's. The lawfulness of the Revised Offer, which the Union disputes, has not been determined by the Board. (Doc. 5 at 8 n. 3.)

         Since about 2006, Mike-sell's has incurred significant losses. (Doc. 5-1 at ¶ 11.) As a result, it decided to change its business plan to focus more on manufacturing and branding quality products, which it believes are its biggest strengths and most promising areas for growth and profitability. (Id. at ¶ 12.) In addition, because its route sales division has lost considerable money for more than a decade, Mike-sell's reduced the size of that division by selling certain routes to distributors. (Id. at ¶ 13-14.)

         Since as early as 2002, Mike-sell's has sold over 36 routes to independent distributors. (5/12/17 Transcript at 74-75.) When selling routes, Mike-sell's practice was to notify the Union of its decision and then offer to bargain over the effects of the closure. The Union typically did not object to the sale or file any grievance challenging the sale. (Doc. 5-2 at ¶ 4-8.) In November 2011, however, Mike-sell's decided to sell a driver-serviced route in Marion, Ohio that was losing approximately $1, 100.00 per week. (Id., Attachment 1 at 9.) As per Mike-sell's practice and the Union's prior labor agreement, the driver who serviced the route was permitted to “bump” into another route based on her seniority. (Id. at 10.) The driver selected a route, but ultimately was unhappy with her choice because of the increased commute required to pick up product. (Id.) The driver filed a grievance with the company claiming that the failure to bargain over the sale of the Marion route violated the Union's labor agreement. (Id.)

         The driver's grievance resulted in an arbitration between Mike-sell's and the Union regarding the propriety of Mike-sell's decision to sell the Marion route. (Id.) A threshold issue at the arbitration was whether the sale should be characterized as either the subcontracting or the transfer of the work to an independent distributor. The Union argued that Mike-sell's was not permitted to subcontract without complying with the Union's bargaining rights under the labor agreement. (Id. at 10-11.) Mike-sell's argued that the Union's rights were not implicated because selling the route transferred both the revenue and the risk of loss to the distributor. (Id. at 13.) The arbitrator rejected the Union's position. He noted that the company's action did not resemble a typical subcontracting scenario where “the exact work that had been done by bargaining unit personnel is hired out to a third party.” (Id. at 16.) Instead, Mike-sell's had “transferred the entire business enterprise to a third party.” (Id. at 17.) The arbitrator further found that Mike-sell's did not sell the route solely to reduce costs, which would lend itself to a simple comparison of Union labor costs against those of a subcontractor. (Id.) Rather, by selling the complete business represented by the route, Mike-sell's had “reduced its involvement to that of a supplier.” (Id.) The upside and downside belonged to the independent distributor, therefore analysis of the sale simply in terms of a reduction of Mike-sell's costs would not be appropriate. (Id.)

         Having determined that sale of the route did not constitute subcontracting, the arbitrator considered whether Mike-sell's violated its agreement with the Union. (Id. at 21.) The arbitrator found that the agreement contemplated situations in which a route may be eliminated because (a) the company withdraws from the market, (b) routes are merged with each other, and (c) a route is sold to a third party. (Id. at 20.) In each instance, the agreement provided that the displaced driver would have certain rights, including the right to bump another driver with lower seniority. The arbitrator found that Mike-sell's provided notice to the Union and honored the driver's rights. The arbitrator observed that if the agreement were construed to prohibit Mike-sell's action, “the Company would have a situation where it would be forced, by contract, to continue a business activity that loses money every day.” (Id. at 18.) “Absent clear contract language, ” the arbitrator concluded, “it must be found that the management right to control distribution, and determine profitability allows the action of the Company.” (Id. at 20.)

         After the arbitrator's decision, Mike-sell's driver-serviced routes continued to lose money. (Doc. 5-1 at ¶ 16.) Mike-sell's relied on the arbitrator's decision and its own understanding of it legal obligations to eliminate over three dozen more routes. (Id. at ¶ 17.) It notified the Union of each sale and offered to bargain regarding any effects on Union drivers. (Id.) The Union neither requested to bargain nor filed a grievance or unfair labor practice charge to challenge the route eliminations. (Id.)

         B. The Events Leading to the Petition

         In April 2016, Mike-sell's notified the Union that it was considering selling more routes to distributors. (Id. at ΒΆ 20.) The Union filed a grievance to challenge the possible sale of additional routes, ...

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