In Alaris Health at Boulevard East v. National Labor Relations Board, Case Nos. 23-1946 and 23-1976 (3d Cir. Dec. 9, 2024), the U.S. Court of Appeals for the Third Circuit enforced the National Labor Relation Board’s decision that an employer’s stopping COVID-19 bonuses for unionized workers violated the law.

The court held that a New Jersey nursing home was legally required to bargain over its decision to end bonus pay tied to the COVID-19 pandemic. It further held that the bonus payment constituted hazard pay, which constitutes a mandatory subject of bargaining under the National Labor Relations Act (“Act”). In so holding, the court discussed whether it was required to defer to the Board’s decision despite the U.S. Supreme Court decision in Loper Bright Enterprises v. Raimondo. The Third Circuit decision in Alaris creates a potential circuit split following the Sixth Circuit’s August 29, 2024 decision in National Labor Relations Board v. Metro Man IV, LLC, which held a Michigan nursing home was not obligated to bargain over its decision to end COVID-19-related hazard pay.

Background

Alaris Health owned and operated six nursing home/rehabilitation centers including one located in Guttenberg, New Jersey. In April 2020, Alaris Health began paying bonuses to Guttenberg employees as recognition for their efforts at the beginning of the COVID-19 pandemic. Alaris distributed a memorandum announcing that it would issue a “special COVID-19 hourly rate bonus” to all staff equivalent to 25% of each employee’s current hourly rate at least through the end of April. A week later Alaris published a second memorandum increasing the bonus payment for nursing staff to 100% of their current hourly rate.

After each memorandum was distributed, the union contacted Alaris to accept the increases but also reminding the company that the union was entitled to notice and an opportunity to bargain over changes to bargaining unit employees’ compensation. Alaris did not respond to these reminders.

Beginning April 29, 2020, Alaris issued a series of communications that gradually scaled back the bonus rates. The extent of reduction varied by position. At each stage, the union contacted Alaris objecting to the reduction and demanding the opportunity to bargain. Alaris never responded to the union’s objections.

The Guttenberg center was closed in November 2020.

On August 30, 2021, the NLRB general counsel issued a complaint alleging that Alaris violated Sections 8(a)(1) and (5) of the Act by failing to first notify and provide the union with an opportunity to bargain over the COVID-19 bonus payments.

On January 26, 2022, after a three-day hearing, Administrative Law Judge Kenneth W. Chu (“ALJ”) issued a decision in favor of the company. The ALJ determined that because the bonuses were for a discrete period of time and not conditioned on any employment-related factors, they were gifts rather than wage increases, and thus were not subject to mandatory bargaining. The ALJ also found that the management rights clause in the parties’ collective bargaining agreement (“CBA”) authorized Alaris to issue such bonuses. The ALJ noted that the CBA required bargaining over “wage increase[s] and minimum rate,” but did not bar Alaris from giving merit increases, bonuses or other similar payments.

The general counsel filed exceptions to the ALJ’s decision, and the Board reversed that decision on November 23, 2022. The Board found that the bonuses were tied to employment-related factors given that they depended upon attendance and time worked. The Board also found that since the bonuses reflected the harsh realities of the risks of working in the early days of the COVID-19 pandemic, they were a form of hazard pay – not a gift – and were therefore a mandatory subject of bargaining. After the Board rejected its request for reconsideration, Alaris petitioned the Third Circuit for review of the Board’s decision.

Third Circuit Decision

The Third Circuit first addressed Alaris’ argument that the COVID-19 bonuses were gifts rather than wage increases. The court sided with the Board on this argument, finding that there was substantial evidence supporting its decision that the COVID-19 bonuses were tied to relevant employment-related factors. For instance, the court agreed that attendance was a prerequisite for receiving the hourly rate bonus and that the bonuses were calculated based on job type and current hourly rate.

The court then grappled with the Board’s determination that the bonuses were a form of hazard pay. The court wrote that since no prior Board decision appeared to have recognized hazard pay as a term and condition of employment under the Act, in this case it would ordinarily defer to the Board’s reasonable interpretation of the Act. The court raised the question, however, of whether such deference was still appropriate in light of the Supreme Court’s decision in Loper Bright Enterprises overruling the Chevron deference doctrine. The court posited that Loper Bright Enterprises would not impact its deference to the Board, reasoning that judicial deference to the Board’s application of the Act was distinct from Chevron deference. The court opted not to commit to this stance on the deference question, however, finding instead that even on a de novo review, it reached the same conclusion as the Board – that hazard pay constitutes a term and condition of employment and is thus a mandatory subject of bargaining.

Agreeing that the COVID-19 bonuses were properly considered hazard pay, the court quoted from testimony of Alaris’ former vice president who described the situation during the beginning of the pandemic as “chaotic” and “frightening.” The court also noted that Alaris acknowledged the difficult nature of the situation in its communications to staff regarding the bonuses.

Alaris tried to argue that it had the right to rescind the COVID-19 bonuses under the management rights provision of the CBA. Inasmuch as the CBA had expired in 2014, however, the court questioned whether the management rights clause survived the expiration of the agreement to form part of the post-expiration status quo. Because the management rights clause was silent as to its duration, the court suggested it did not survive the CBA’s expiration.

Apparent Conflict with Metro Man

The Third Circuit’s decision in Alaris seemingly creates a split with the Sixth Circuit decision in Metro Man IV. In that case, the Sixth Circuit held that an employer can generally make unilateral decisions to address unforeseen circumstances having a major impact on its operations. More specifically, the Sixth Circuit held that the employer did not have a duty to bargain over decisions to issue – or later rescind – hazard pay prompted by exigent or emergency circumstances.

The Third Circuit attempted to distinguish the facts in Alaris from those in Metro Man IV. It noted that Alaris never raised the question of economic exigency before the Board or the ALJ, nor present evidence that the pandemic created exigent economic circumstances such as a mass staffing shortage or a COVID-19 outbreak at the facility. The Third Circuit also attempted to draw distinctions between the hazard pay in Metro Man IV and Alaris, finding that while Metro Man placed express time limits on its temporary hazard pay policy, Alaris did not. Ultimately, the Third Circuit deemed Metro Man IV sufficiently distinct to justify reaching a different conclusion about the employer’s duty to bargain over the forms of hazard pay at issue.

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The Third Circuit’s decision should serve as a cautionary tale for employers still dealing with COVID-19-related benefits or who might face situations warranting temporary hazard pay in the future. It highlights a potential need to provide notice and an opportunity to bargain over temporary wage increases if the employer does not carefully link them to exigent economic circumstances as was the case in Metro Man IV.

Practical Considerations and Lessons Learned

• An employer may be obligated to bargain over temporary hazard pay if it cannot properly establish those payments to be gifts or show them to be necessitated by exigent economic circumstances.
• Where an employer decides to proceed with such payments unilaterally, it should consider providing advance notice of its decision to union. Further, requests by the union to bargain about the decision should not be ignored.
• If a management rights clause is not carefully crafted with durational language, the provision may expire with the CBA. The Board’s recent decision in Endurance Environmental Solutions, LLC, Case No. 09-CA-273873, moreover, overruled MV Transportation, Inc., 368 NLRB No. 66 (2019) and returned to requiring “clear and unmistakable” waiver by the union to justify an employer’s unilateral action. This will make it more difficult for employers to defend such actions based upon a management rights clause even when the CBA is still in force. 

As this case presents an apparent circuit split, there may be the possibility for Supreme Court review. We will continue to monitor critical developments in this area.