COAST PACKING CO v. CALIFORNIA UNEMPLOYMENT INSURANCE APPEALS BOARD

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District Court of Appeal, Second District, Division 1, California.

COAST PACKING CO., a corporation, et al., Plaintiffs and Appellants, v. CALIFORNIA UNEMPLOYMENT INSURANCE APPEALS BOARD et al., Defendants and Respondents.

Civ. 28334.

Decided: July 27, 1965

Munger, Tolles, Hills & Olson, Roderick M. Hills, Frederick B. Warder, J., and Christian E. Markey, Jr., Los Angeles, for appellants. Thomas C. Lynch, Atty. Gen., and Herschel T. Elkins, Deputy Atty. Gen., for respondents.

Coast Packing and other companies engaged in the meat packing and processing business appeal from a judgment denying a writ of mandate which would have compelled respondent board to set aside its decision awarding unemployment benefits to numerous of the companies's employees. At issue is the applicability of section 1262, Unemployment Insurance Code, which provides that ‘An individual is not eligible for unemployment compensation benefits, and no such benefit shall be payable to him, if he left his work because of a trade dispute. * * *’ It is conceded that when claimants ceased working, a trade dispute was in active progress between their union and appellant employers. During the course thereof, according to the employees, they were locked out; appellants, on the other hand, contend that the union's negotiating tactics, patterned after those successfully adopted on previous occasions, compelled a shutdown of their plants whereby a very substantial spoilage loss (approximately two million dollars) was averted. We are therefore required to determine whether the volitional test rule, enunciated in Bodinson Mfg. Co. v. Cal. E. Com., 17 Cal.2d 321, 327, 109 P.2d 935, and developed and applied in cases following (Bunny's Waffle Shop v. Cal. Emp. Com., 24 Cal.2d 735, 151 P.2d 224; McKinley v. Cal. Emp. etc. Com., 34 Cal.2d 239, 209 P.2d 602; and Chrysler Corp. v. Cal. Emp. etc. Com., 116 Cal.App.2d 8, 253 P.2d 68), governs the factual situation here presented. Under that rule, an employee is entitled to compensation if he is prevented from working through no act of his own. Subsequently, as noted in Gardner v. State Director of Employment, 53 Cal.2d 23, 29, 346 P.2d 193, 197, it was determined in McKinley that “the only sound and fair way to apply the subjective volitional test stated in Bodinson' * * * was to enforce it in the circumstances there shown (where there was a trade dispute between parties to a master collective bargaining contract, each acting through authorized representatives) against the party who strikes the first blow with the drastic economic weapon of strike or lockout.'

In 1956 a three-year contract was entered into between the appellants and claimants-employees. During the course of the negotiations culminating in such agreement appellants were represented by their bargaining agent, a non-profit association named Meat Packers, Incorporated; the employees, in turn, by authorized representatives of a local butchers' union. Certain conditions in the industry, it seems without conflict, were known to the negotiators; in that connection the court expressly found ‘That petitioners ordinarily maintain large quantities of animals in pens awaiting slaughter and large quantities of freshly slaughtered meat in their coolers; that said commodities are highly perishable; that to stop the flow of animals to the pens and to clear the pens and coolers requires about five days and it requires several days to resume production after the pens and coolers are empty; that if there is a work stoppage while the pens and coolers are full the petitioners stand to lose approximately two million dollars from deaths and spoilage.’

A two-year contract was thereafter negotiated in 1959. Unlike the 1956 agreement, however, it apparently contained no specific no-strike or no-lockout clause. Although its expiration date was fixed at October 1, 1961, the 1959 contract provided that it would continue from year to year unless terminated by written notice of termination sent by registered mail not less than 60 days prior to October 1 of 1961 or the same date of any years subsequent.

In mid-April of 1961, the association through Mr. Moses wrote the union's executive secretary, requesting that negotiations be commenced immediately on the contract due to expire in October of that year. Moses made the same request orally on several occasions thereafter to the union's president, Mr. Rodriguez, stating that the association did not want to be caught with ‘a gun at their head’ as it had in 1956 and 1959.1 Moses' apprehension in the above regard is supported by the following finding of the trial court: ‘That in 1956 and 1959 the petitioners and the Union were negotiating for new contracts; that in each year negotiations were undertaken for a new contract shortly before the expiration of the old contract; that after the old contract expired and prior to the new contract the Union obtained strike sanction, presented bargaining demands and at the same time threatened an immediate strike if their demands were not met; that no prior strike threat had been made during the 1956 or 1959 negotiations; that in each of these years petitioners faced with heavy loses [sic] in the event of a sudden strike acceded to the demands of the Union.’ On July 17, a reply to Moses' letter was forthcoming from Mr. Rodriguez. Therein written notice was given of the union's demand to bargain and negotiate for a new contract; this was followed by authority given the union's negotiating committee to ‘negotiate the best terms possible.’

Negotiations began on September 14. Through Mr. Moses, the association requested an extension of the contract to October 31, 1961, with the understanding that any new contract would be retroactive to October 1. This request was rejected on the grounds that there was a possibility, negotiations having just commenced, that a new agreement could be negotiated within the 16 days still remaining before the current contract expired. At the next meeting, on September 25, the association again asked for assurances that no strike would be called without first giving appellants an opportunity to clear their pens and coolers.2 This request was likewise refused. On the same date (September 25) and following such refusal, most of the appellants commenced taking steps to clear their pens and coolers. Negotiations nonetheless continued until September 30 on which date the union offered to extend the contract for 10 more days. Appellants rejected this proposal; their pens and coolers were then substantially empty, and they knew [as did the union's negotiators] that it would require a number of days to refill them in order to resume production. On the next working day, October 2, the claimants reported for work; by that time, however, the pens and coolers were almost bare. Claimants were either informed that there was no work or they were offered other jobs at reduced wages—these offers were declined. Subsequently they sought unemployment benefits, thus precipitating the instant litigation.

Appellants now contend that claimants are disqualified from unemployment benefits because the loss of work in the instant case was a foreseeable result of deliberate economic action by their union which, it is asserted, made use of the ‘packing house technique’ as a bargaining weapon. The union's tactics were so labeled by the Kansas Board of Review in a 1960 appeal (In re Archie Coe, 45 L.R.R.M. 110); thereunder it became the practice of the union to reserve the right to call the strike at a time when it would hurt the employers most. After the employer, fearing excessive loss from a sudden strike, had shut down his operations, the union would claim unemployment benefits. Appellants argue that the past history of negotiations with claimants' union warranted their fear of a strike ultimatum on or immediately after October 1, 1961. There appears to be no dispute as to what transpired during the 1956 and 1959 negotiations—as mentioned earlier, the trial court made a rather extensive finding in that regard. Although both sides cite the leading California cases assertedly governing the circumstances at bar, if only by analogy, none appears to hold that in the absence of a strike or the giving of a strike notice will an employee be disqualified from benefits under the subject statute. In none of those cases, however, was the court confronted (as here) with the presence of economic and operational problems sufficiently within view to warrant an employer's voluntary curtailment or shutdown of production. We assume, of course, that the above problems were not purposefully created simply and solely to exert economic pressure on the bargaining position of the union.

The foregoing assumption is proper in light of the trial court's determination that the shutdown of appellants' plants was purely voluntary; specifically, ‘that [appellants] did not want to take the risk of a two million dollar loss * * * [and] in the exercise of their judgment * * * decided to shut down their operations.’ Furthermore, the findings are devoid of any declaration that appellants made use of the shutdown as an economic weapon to strengthen their bargaining position. The above notwithstanding, the trial court nevertheless found that claimants ‘through no fault of their own were unemployed’ and concluded that ‘they did not leave their work because of a trade dispute.’ The net result of this ‘standoff’ determination is that appellants' reserve accounts are held properly charged with insurance benefits paid even though the court refrained from holding that appellants struck the first blow with the economic weapon of lockout available to them. This, in our opinion, is not the impartial application of the volitional test rule which courts in this jurisdiction are enjoined to maintain; as stated in Gardner v. State Director of Employment, 53 Cal.2d 23, 30, 346 P.2d 193, 197; ‘* * * the rule works impartially as to both employees and employers and puts each group on notice that the one which creates and first applies the economic weapon in a trade dispute * * * may have to bear responsibility for foreseeable reprisals.’

In view of the absence of California precedents, we go to other jurisdictions where the decisions involve situations more akin to those at bar; too, in at least one such jurisdiction (Pennsylvania), the law is the same as California's and provides that claims for benefits must be denied unless the employees are unemployed through no fault of their own. (43 P.S. § 802.) In Climax Fire Brick Co. v. Unemployment Comp. Bd. of Rev., 166 Pa.Super. 481, 72 A.2d 300, the employer was the manufacturer of brick and other clay products. The subject wage agreement was due to expire on April 30; on April 26, on which date the last meeting of the negotiators convened, no agreement for a new contract was reached. When the union's representative stated that the union men would cease work on May 4, on May 1 the foreman at the mine posted a notice that there would be no work until further notice. Claimants were denied benefits in the face of findings by the board that the cessation of production was based upon the belief that a strike would occur on May 4 and was taken ‘in connection with a gradual curtailment of productive activities in anticipation of a strike.’ Also, the employer was not animated by a ‘desire to discourage the claims of its employees or to strengthen its position in the labor dispute, but rather to avoid any accumulation of exposed clay.’ All of such findings, according to the court, indicated that Climax ‘acted in good faith.’ Continuing: ‘Of course, an employer may not use a strike notice as a mere pretext for closing his plant and discharging his employes. He cannot secure a bargaining advantage by such means. Borrowing counsel's penetrative phrase, ‘he cannot jump the gun on his employes.’ But when a strike is imminent, when an employer has been officially notified that a strike will occur, and has reasonable grounds for a belief that the strike will actually take place, he may, prior to and in anticipation thereof, take reasonable necessary measures to protect his property during the pendency of the strike.' (72 A.2d 300, 302.)

In Erie Forge & S. Corp. v. Unemployment Comp. B. of R., 188 Pa.Super. 405, 146 A.2d 751, the employer operated a steel plant; one to seven days were required to complete an orderly shutdown of its operations—to ‘properly condition steel’ and thus avoid ‘a total waste.’ When the union called a strike to begin at the expiration of the old contract, the company commenced to curtail production. Therepon (on the last day before the contract expired) the union proposed that the employees continue working for an indefinite period under the existing agreement with a five day cancellation clause by either party to permit more time to negotiate. The court held that under the circumstances this was an unreasonable condition: ‘By the time the employer could put the plant into full production, the union could call the employees out on another strike without giving the employer an opportunity to ‘properly condition all the steel.” (146 A.2d 751, 754.)

The Erie case supports appellants' claim that they were not obliged to accept the almost last-minute offer of the union to extend the contract for ten more days. Therefore it likewise sustains the determination, implicit in the findings below, that they acted in good faith. In this connection, we agree with the declaration in still another Pennsylvania case that ‘The actions of the employer and the employe must be subjected to the test of a reasonable desire to maintain the employment status.’ (Westinghouse El. Corp. v. Unemployment Comp. B. of R.; Hughes Unemployment Compensation Case, 187 Pa.Super. 252, 144 A.2d 685, 691.) Continuing, ‘If the fault is attributable to only one, the result is either a lockout or a strike; if the fault is attributable to both, compensation must be denied because the Law was enacted for the benefit of persons ‘unemployed through no fault of their own.’' In our case, however, the court has actually found that neither was responsible for the unemployment—a legal impasse or standoff, but one which in effect works a disadvantage to the employer by the depletion of its reserve account.

Federal courts and the National Labor Relations Board have likewise recognized that there may be justification for the taking of defensive action by the employer when confronted with the imminent probability of economic loss. Thus, in Duluth Bottling Association, 48 N.L.R.B. 1335, 1336, 1359–1360, the Board held that where a threatened strike against employers would result in a spoilage of their materials, the employers were entitled to guard against such loss by locking out their employees in anticipation of the strike. In Betts-Cadillac-Olds., Inc., 96 N.L.R.B. 46; 28 L.R.R.M. 1509, the Board determined that the union's refusal to tell employers when the threatened strike would occur warranted the employers in refusing to accept further orders and locking out their employees. Approvingly quoted in American Brake Shoe Co. v. National Labor Rel. Bd. (7th Cir.), 244 F.2d 489, 493, is the following statement of the Board in Betts-Cadillac-Olds., Inc.: “An employer is not prohibited from taking reasonable measures, including closing down his plant, where such measures are, under the circumstances, necessary for the avoidance of economic loss or business disruption attendant upon a strike. This right may, under some circumstances, embrace the curtailment of operations before the precise moment the strike has occurred. The pedestrian need not wait to be struck before leaping for the curb. The nature of the measures taken, the objective, the timing, the reality of the strike threat, the nature and extent of the anticipated disruption, and the degree of resultant restriction on the effectiveness of the concerted activity, are all matters to be weighed in determining the reasonableness under the circumstances, and the ultimate legality, of the employer's action.' (Emphasis supplied.)'

In the American Brake Shoe case, it was made clear that in reaching a decision as to the right of an employer to reduce the effectiveness of a real or threatened strike, ‘the determination involves the striking of a balance between the employees' guaranteed right to strike and the employer's right to prevent resulting economic hardship.’ (244 F.2d at 494.) In the case at bar, it seems to us, this balance was not struck; nor does cognizance seem to have been taken thereof. As already mentioned (more than once), the trial court found that appellants were faced with a two million dollar loss unless defensive action was resorted to; nevertheless it was also determined that claimants were unemployed through no fault of their own. In a memorandum opinion, upon which the court's subsequent findings were substantially based, the court took note of appellants' complaint that ‘they shut down because they feared a sudden strike which would cause them serious losses. The court believes petitioners. But does it make any difference?’ For reasons previously stated, we think it does make a difference.

Finally, the trial court was authorized to exercise its independent judgment on the facts; and ordinarily the province of an appellate tribunal thereafter is to determine whether there is any substantial evidence which will support the exercise of that judgment. (Ashdown v. State of California, 135 Cal.App.2d 291, 299, 287 P.2d 176.) Significantly, respondents do not emphasize this aspect of the case, possibly because the applicability of the volitional test rule to the facts in question appears to be one of law. (Gardner v. State Director of Employment, 53 Cal.2d 23, 29, 346 P.2d 193.) Too, findings should not be sustained where they ‘rest on erroneous legal foundations.’ National Labor Rel.Bd. v. Babcock & Wilcox Co., 351 U.S. 105, 112, 76 S.Ct. 679, 100 L.Ed. 975, 983.

The judgment is reversed for further proceedings in conformity with the views herein expressed.

FOOTNOTES

1.  A witness for the union admitted to the possible use of the quoted language on prior occasions. ‘Q. At any time; '56, '57, '58, 1960, did you ever hear any discontent from the Meat Packers that they didn't like the way you guys negotiated; you always kept a gun at their head? A. Yes, they may say things like that. Q. What did they mean by ‘a gun at their head’? What do you think they meant? A. I guess they meant that Mr. Graham [a deceased executive secretary of the union] used to tell them, that he wanted to catch them with their pants down. Q. What did that mean—with their lockers full? A. I guess that's what he meant.'

2.  The trial court made an express finding to the above effect, further finding that appellants were then ‘apprehensive that the history of the 1956 and 1959 negotiations would be repeated.’

LILLIE, Justice.

WOOD, P. J., and FOURT, J., concur.

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