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Association of Westinghouse Salaried Employees v. Westinghouse Electric Corp.

decided: January 28, 1954.


Author: Staley

Before BIGGS, Chief Judge, and MARIS, GOODRICH, McLAUGHLIN, KALODNER, STALEY and HASTIE, Circuit Judges.

STALEY, Circuit Judge.

Plaintiff appeals from the district court's dismissal of its complaint. We assume the truth of all the factual allegations, which are as follows:

Plaintiff, an unincorporated labor organization, is the bargaining representative of a large group of defendant's salaried employees.Some four thousand of these employees did not work on a certain day in April of 1951, and, as a consequence, defendant did not pay them for that day. Asserting that defendant's failure to pay was violative of the collective bargaining agreement then in effect between it and defendant, plaintiff seeks, on its amended complaint, a declaratory judgment as to the rights of the parties under the agreement, an accounting to determine the amounts of the allegedly wrongfully withheld salaries, and a judgment running in favor of the individual employees found to be entitled thereto. Defendant presented three grounds for its motion to dismiss: lack of jurisdiction over the subject matter; wrong party plaintiff; and failure of the complaint to state a claim upon which relief could be granted. The district court decided the first two contentions in plaintiff's favor but dismissed the complaint on the basis of the third.*fn1 We agree with that result but think that the dismissal should be put upon the ground of lack of federal jurisdiction over the subject matter.

There is no diversity jurisdiction here. Plaintiff relies solely upon the grant of federal power in Section 301(a) of the Labor Management Relations Act:

"Suits by and against labor organizations - Venue, amount, and citizenship

"(a) Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce as defined in this chapter, or between any such labor organizations, may be brought in any district court of the United States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the parties." 61 Stat. 156 (1947), 29 U.S.C.A. § 185(a).

It is plaintiff's theory that the proper construction of the collective bargaining contract requires that defendant pay the salaried employees regardless of the fact that they did not work and that that provision, though it is in a contract to which only the union and the company were parties, runs to the benefit of each individual salaried employee in the bargaining unit. Since the union entered into the collective bargaining contract for the benefit of those whom it represents, the argument continues, it may sue in federal court by virtue of Rule 17(a)*fn2 of the Federal Rules of Civil Procedure, 28 U.S.C.A., or by virtue of Section 301(b)*fn3 of the Labor Management Relations Act.

Plaintiff goes too fast, however. Skipping rather lightly over the question of the power of the federal court to act in this case, it expends its strength on the issue of proper party plaintiff. Plaintiff might well be the proper party to assert the present claim (which we do not decide) but nevertheless be unable to find a federal forum with power to hear it. A correct solution of this problem, therefore, requires a construction of Section 301(a) and some fundamental probing into the reciprocal rights and duties, and the sources thereof, of the three groups concerned in a collective bargaining contract.

Section 301(a) is a grant of federal-question jurisdiction and thus creates a federal, substantive right. Shirley-Herman Co. v. International Hod Carriers, 2 Cir., 1950, 182 F.2d 806, 17 A.L.R.2d 609; 3 Moore's Federal Practice § 17.25 (2d ed. 1948). The contract allegedly violated, however, must be one between an employer and a labor organization. Shirley-Herman Co. v. International Hod Carriers, supra. That is, we construe the "between" clauses as modifying "contracts" rather than "suits."*fn4

We now turn to an analysis of what happens when a union enters into a collective bargaining contract with an employer and the latter then enters into a contract of hire with an individual employee, in order to determine whether the right here asserted arises from a violation of the collective contract, for if it does not, there is no jurisdiction to entertain this suit. Plaintiff admits that the rights in dispute are the claims of individual employees to their salaries. It argues, however, that these individual employees whom it represents are third party beneficiaries of the collective bargaining contract between it and the employer. Thus, though not parties to that contract, it would follow that their rights arise out of it, and the present claims would be based upon a violation of a contract between an employer and a labor organization. Hence, federal jurisdiction under Section 301(a).

We concede that the matter is not free from difficulty, but we think plaintiff's analysis is too superficial. The cases explaining the tripartite relations raised by a collective bargaining contract are quite conflicting, but examination reveals that four rather well defined theories emerge. At one time the view was accepted that a collective bargaining contract was binding only in morals.*fn5 No more need be said about that. A second and more generally accepted view is that the collective agreement establishes a usage in the plant or industry and that the individual hiring contracts are made with that usage in mind, thus incorporating within the latter the terms of the former.*fn6 Under this view whatever rights and duties arise are created by the individual contracts of hire. A third theory is that the union, in contracting with the employer, acts as agent for those whom it represents.*fn7 Thus, the rights and duties arise out of the collective bargaining contract. Another analysis holds that the union, in contracting with the employer does so for the benefit of those employees whom it represents and that they are thus third party beneficiaries of the terms of the collective bargaining contract.*fn8 This is the theory pressed upon us here.

None of the above theories, however, presents an adequate explanation of the collective bargaining picture,*fn9 although certain features of each are valid. We prefer an eclectic theory. It is perfectly obvious that the collective contract between the union and the employer is not a contract of hire.*fn10 "* * * [No] one has a job by reason of it and no obligation to any individual ordinarily comes into existence from it alone." J. I. Case Co. v. National Labor Relations Board, 1944, 321 U.S. 332, 335, 64 S. Ct. 576, 579, 88 L. Ed. 762. The collective contract between the union and the employer establishes the rates of pay, wages, hours, and conditions to which the employer must adhere in concluding contracts of hire with individual employees. Indeed, Mr. Justice Jackson, in theJ. I. Case case, supra, likens the collective contract to tariffs established by a carrier, standard provisions prescribed for insurance policies, or utility schedules of rates and rules for service. These do not of themselves create rights or duties between carrier, insurer, or utility and shipper, insured, or customer. Such rights and duties arise only when carrier and shipper, insurer and insured, utility and customer enter into contracts with each other. So it is in the shop. The collective contract plus the National Labor Relations Act binds the employer to include in the contract of hire which he may conclude with each individual employee in the bargaining unit the precise terms and conditions that have been set up by it. By this we do not mean to follow the usage theory of the collective bargain. Under familiar principles of contract law, the parties must know or have reason to know of the usage and deal with reference to it in order that its terms may become part of their contract. Restatement, Contracts § 247, comment b (1932). Such a requirement has little place in the elaborate statutory scheme which presently rules labor relations. The bargaining representative is made the sole agent for the unit and represents not only its members but all employees in that unit whether members of the union or not. The terms of the collective contract thus become part of the individual contract of employment, not because of consensual acts of the employer and employee, but because the law says so no matter how those parties may feel about the matter J. I. Case Co. v. National Labor Relations Board, supra 331 U.S. at page 336, 64 S. Ct. 576. Applying those principles to our case and assuming that plaintiff's construction of the collective contract is correct, we see that by that contract and the labor relations Act defendant became bound to the plaintiff to include as a term of each individual contract of hire a promise to pay the salaried employee for the type of absence involved here. But not until an individual entered into a contract of hire with defendant did the latter become bound to pay that individual under such circumstances, and, if defendant failed to so pay, it breached, not its collective contract with the union, but its contract of hire with that individual employee. Joint Council Dining Car Employees v. New York Central R.R., D.C.N.D.Ill.1946, 7 F.R.D. 376; Milk Wagon Drivers Union v. Associated Milk Dealers, D.C.N.D.Ill.1941, 42 F.Supp. 584. See also Knudsen v. Chicago & N.W. Ry., D.C.N.D.Ill.1952, 106 F.Supp. 48, 52. Consequently, we think that, if there was a violation of contract here, it was a violation of the individual employment contract and, thus, there is no federal jurisdiction since Section 301(a) cannot be invoked.

Plaintiff tells us that the third party beneficiary theory is the modern one, citing the J. I. Case case, supra, among others. It is true that the Court wrote at 321 U.S. 332, 336, 64 S. Ct. 576, 579, "But, however engaged, an employee becomes entitled by virtue of the Labor Relations Act somewhat as a third party beneficiary to all benefits of the collective trade agreement, even if on his own he would yield to less favorable terms." However, Mr. Justice Jackson there also pointed out very clearly that there are two contracts involved, the collective one between union and employer and the individual one between employer and employee, and that there is an obvious difference between them in both concept and function. We think the J. I. Case case means that the individual employee is a third party beneficiary of the collective bargaining contract only in the sense that the collective force of all employees in the unit has been brought to bear upon the employer to hammer out a bargain with him, the terms of which, by virtue of the statutory mandate, must be included in the employee's contract of hire, but that that provision of the collective contract specifying rates of pay ripens into a legal right only under the individual contract of hire and only because of the individual employee's labor. We think that this recognizes the functional difference between a collective bargaining contract and a contract to buy and sell a horse, and yet remains reasonably consistent with accepted doctrine. Indeed, it could hardly be seriously contended that the collective contract can be fitted into traditional third party beneficiary standards.To begin ...

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