United Rentals v. IN Constructors Inc ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-4367
UNITED RENTALS HIGHWAY TECHNOLOGIES, INC.,
Plaintiff-Appellant,
v.
INDIANA CONSTRUCTORS, INC., et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:05-CV-00571-SEB-VSS—Sarah Evans Barker, Judge.
____________
ARGUED SEPTEMBER 7, 2007—DECIDED MARCH 5, 2008
____________
Before BAUER, POSNER, and SYKES, Circuit Judges.
POSNER, Circuit Judge. Adam Smith believed that the
key to economic progress is specialization. The produc-
tion process is subdivided into narrow tasks, and workers
gain speed and accuracy from performing just one of
them. As markets expand, the opportunities for special-
ization expand too, because having a substantial market
for its output the specialized producer (and its specialized
subdivisions) can grow large enough to reap economies
of scale and thus minimize its costs. We can see the pro-
2 No. 06-4367
cess at work in the highway construction industry. The
creation of the interstate highway system in the 1950s
and 1960s, followed later by an enormous expansion in
its use that caused tremendous wear and tear and hence a
constant need for repair and rebuilding, enabled unprece-
dented specialization in the highway construction in-
dustry. Anyone who travels on the interstate system in
northern states understands the force of the dictum that
on the interstate highways in those states there are only
two seasons: winter and construction.
United Rentals is one of the specialized producers
enabled by the expansion of the highway construction
industry. It is a member of the “traffic control” submarket.
The firms in that market help to protect highway con-
struction workers from being hit by the vehicles using the
stretch of the highway that the workers are building,
repairing, or rebuilding. The firms try to do this in a way
that will minimize traffic delay, and traffic accidents not
limited to hitting workers. When construction activity is
about to begin, employees of the traffic control firm place
cones, barrels, concrete blocks, or other barricades in
position to block or alter traffic lanes. The workers also
paint stripes on the road to indicate the new lanes; install
warning signs to guide drivers using the highway; and
place guard rails to keep vehicles from veering off into
what may, as a result of the construction activity, be a
nonexistent shoulder. The barricades, signs, guard rails,
and other safety devices are owned and stored by the
traffic control firm and brought to the construction site as
needed. The firm installs its devices before the construc-
tion begins and removes them when it is finished. If
flagmen are required, they may be supplied either by
the traffic control firm or by the general contractor.
No. 06-4367 3
The traffic control firm is a subcontractor of the gen-
eral contractor. Before the emergence of traffic control as
a separate business, traffic control was done by the gen-
eral contractor or by a construction subcontractor not
specialized to traffic control.
Road work in Indiana is done almost entirely by con-
tractors who belong to a trade association called Indiana
Constructors, which has for many years negotiated col-
lective bargaining agreements for its members with the
Laborers International Union (actually with its locals,
but we can ignore that detail). In 2004, the collective
bargaining agreement then in force was modified to for-
bid the association’s members to subcontract work at a
construction site to a firm that had not signed a collective
bargaining agreement with the Laborers Union. The union
had pushed for the modification because it wanted as
much work at construction sites as possible to be done by
its members. This was a blow to United Rentals because
it had a collective bargaining agreement with another
union (also it didn’t want to bargain with the Laborers
Union when that agreement expired); and so it filed a
charge with the National Labor Relations Board that
Indiana Constructors and the Laborers Union were vio-
lating the National Labor Relations Act’s “hot cargo”
provision. NLRA § 8(e), 29 U.S.C. § 158(e). The provision
forbids a union and employer to agree that the employer
will refuse to deal with another employer (in this case
a subcontractor), as Indiana Constructors has agreed
with the Laborers Union to do with respect to United
Rentals and any other subcontractor that does not have
a collective bargaining agreement with that union.
But there is an exception to the hot cargo provision for
“an agreement between a labor organization and an
4 No. 06-4367
employer in the construction industry relating to the
contracting or subcontracting of work to be done at the
site of the construction, alteration, painting, or repair of
a building, structure, or other work,” id., including high-
ways. Spectacor Management Group v. NLRB, 320 F.3d
385, 395 (3d Cir. 2003); International Union of Operating
Engineers, Local Union No. 12, AFL-CIO, 131 N.L.R.B. 520,
526-27 (1961). On the basis of the exception, the Board’s
General Counsel declined to file a complaint against
Indiana Constructors or the Laborers Union.
The company then filed this suit, which charges the
contractors’ association and the union with conspiring to
exclude United Rentals from the traffic control market
in Indiana, in violation of section 1 of the Sherman Act,
15 U.S.C. § 1. There are other charges as well, but the
only one of the others that is pursued in this appeal is a
charge (against the union alone) of violation of section
303 of the Taft-Hartley Act, 29 U.S.C. § 187(a). That section,
by incorporating by reference 29 U.S.C. § 158(b)(4)(ii)(A),
forbids a union to “forc[e] or requir[e]” an employer
to “enter into any agreement which is prohibited by” the
hot cargo provision. Unlike the incorporated provision
of the National Labor Relations Act, which is enforce-
able only by the Labor Board, section 303 is enforceable
by suit in federal court.
The district court granted summary judgment in favor
of the defendants on all counts, and United Rentals ap-
peals. So we have an antitrust claim and a hot cargo
claim to consider. We’ll start with the latter because the
former is partly derivative from it.
Before Congress enacted the hot cargo provision, along
with its exception for the construction industry, in 1959,
hot cargo clauses had been pervasive in the industry, had
No. 06-4367 5
been upheld repeatedly as lawful, and had not caused the
problems associated with closed shops—though one
reason, inapplicable to this case, was that most construc-
tion workers are hired from hiring halls; the halls are
operated by unions but the unions are required to refer all
comers, and not just workers represented by a union, to
contractors and subcontractors. Woelke & Romero Framing,
Inc. v. NLRB, 456 U.S. 645, 664-65 (1982); Lucas v.
NLRB, 333 F.3d 927, 932 (9th Cir. 2003).
So one reason for the construction-industry exception
was just a desire to ratify an acceptable status quo. Milwau-
kee & Southeast Wisconsin District Council of Carpenters v.
Rowley-Schlimgen, Inc., 2 F.3d 765, 767 (7th Cir. 1993). But
another was to prevent friction at construction job sites.
Id.; Local 210, Laborers’ International Union of North America
v. Labor Relations Division Associated General Contractors
of America, N.Y.S. Chapter, Inc., 844 F.2d 69, 76 (2d Cir.
1988). More than just work stoppages were at stake. Much
construction work is dangerous, including road construc-
tion in the presence of highway traffic; and there
was concern that the frictions engendered by union work-
ers’ working side by side at a construction job site
with nonunion workers or workers belonging to another
union would reduce safety as well as efficiency. Woelke &
Romero Framing, Inc. v. NLRB, supra, 456 U.S. at 662.
Before there was a separate market in traffic control,
there was no impediment to the general contractor’s
requiring whatever subcontractor performed traffic
control for the contractor to bargain collectively with the
general contractor’s union. For a time after traffic con-
trol broke off and became a separate business, general
contractors and construction workers’ unions did not
insist that the employees of traffic control subcontractors
6 No. 06-4367
be represented by the general contractor’s union, though
even in that transitional period the collective bargaining
agreement between the Indiana Constructors and the
Laborers Union said that the union “encourages its mem-
bers to utilize sub-contractors who are signatory to col-
lective bargaining agreements with the Laborers Union.
Such sub-contractors help to promote peace and harmony
of the job-site and to avoid labor dispute interruption of
work.” The modification in the collective bargaining
agreement of which United Rentals complains restores
fully the practice that prevailed before traffic control
became a separate market.
United Rentals’ employees work at construction sites. But
the company argues that since they arrive at and depart
from the site before the construction workers appear,
and, later, arrive and leave (to pick up their barricades
and signs) after those workers have completed their
work and left the site, there is no danger of job-site friction.
That is wrong as a matter of fact, as is the suggestion that
the existence of such friction is a criterion for application
of the construction exception to the statutory hot cargo
provision rather than a reason for the exception.
The general contractor wants to minimize both the
interval between the departure of the traffic control
workers after they have set up the barricades and erected
the signs and the start of the actual construction, and
the interval between the departure of those workers
after the construction is complete and the arrival of the
traffic control workers to remove the barricades and signs.
The effort to minimize delays, to the extent successful,
makes it inevitable that sometimes both sets of workers
will be present at the job site at the same time—often there
will be traffic control workers at one end of the construc-
No. 06-4367 7
tion project and construction workers at the other. The
traffic control workers are responsible for the safety of
the other workers at the site. Should tensions between the
two groups of worker lead the traffic control workers to
relax their concern for the safety of the construction
workers, the probability of an accident would increase.
United Rentals points out that its employees are not
engaged in construction, but rather in a preparatory or
ancillary activity. But the statutory exception is not for
construction workers as such; it is for workers at a con-
struction site; and traffic control workers work at high-
way construction sites. The distinction drawn by the
exception is between workers at a construction site and
workers who supply or deliver the building materials to
the site but do not work there. NLRB v. International
Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers
of America, Local No. 294, 342 F.2d 18, 21-22 (2d Cir. 1965);
General Truck Drivers, Chauffeurs, Warehousemen & Helpers
of America, Local No. 957 v. NLRB, 934 F.2d 732, 737-38
(6th Cir. 1991); International Union of Operating Engineers,
Local 12, 314 N.L.R.B. 874, 876-77 (1994); Teamsters Local
291 (Lone Star Industries), 291 N.L.R.B. 581, 584 (1988);
Ohio Valley Carpenters District Council (Cardinal Industries,
Inc.), 136 N.L.R.B. 977, 988-89 (1962). Placing traffic con-
trol workers within the exception maintains this distinc-
tion and creates a clear rule. March down the road of
attempting to distinguish “real” construction workers
from other workers at the construction site and you will
quickly find yourself in a trackless wilderness. Is a sub-
contractor who supplies the flagmen within or without
the exemption, since flagmen do not do construction
work? What about a subcontractor who provides canteen
workers to serve food to the workers at the site? Or who
8 No. 06-4367
landscapes the site when the construction is finished? Or
who maintains the construction equipment at the site but
does not operate it? Our approach enables us to avoid
having to try to answer these questions.
But a complication is introduced by the fact that the
hot cargo clause in the collective bargaining agreement
between the Indiana Constructors and the Laborers Union
is not identical to the construction-industry exception
to the statutory prohibition against hot cargo clauses. The
clause in the agreement forbids employers to “contract any
work covered by this Agreement to be done at the site of
construction, alterations, repairs, or any new construc-
tion or any other work to any person, firm or company
that does not have an existing labor agreement or will
not sign an agreement, with the Union covering such
work within the scope of this Agreement” (emphasis
added). The corresponding phrase in the statute is “work
to be done at the site” (emphasis added). United Rentals
argues that “any other work” includes work off-site,
such as the preparation of signs and barricades at the
company’s workshop. It claims that three contractors
refused to allow United Rentals to bid on equipment
rentals, which are not an on-site activity.
The parties to the agreement, however, disclaim the
broad interpretation (which is anyway hardly com-
pelled by its language—“at the site” is there, just earlier
than it is in the statute), and having disclaimed it they
would be estopped to enforce it against a contractor
that allowed United Rentals to bid on off-site work.
Moreover, they had disclaimed it in a memorandum of
understanding signed before the three contractors re-
fused to let United Rentals bid on equipment rentals.
Those contractors’ refusal to do business with United
No. 06-4367 9
Rentals could not have been premised on the clause in the
collective bargaining agreement.
So there is no merit to the section 303 claim, and we
turn to the antitrust claim. It might seem that since the
hot cargo clause in the collective bargaining agreement
is lawful under the National Labor Relations Act, it
cannot violate the Sherman Act. But that is not correct, or
at least not quite correct (a qualification that will become
clearer as discussion proceeds). Section 8(e) does not say
that hot cargo provisions in collective bargaining agree-
ments in the construction industry are the cat’s meow.
It just says they don’t violate the National Labor Rela-
tions Act. Of course it would not make any sense
to say that they violate federal labor policy, because that
policy, so far as bears on hot cargo clauses, is stated in
section 8(e). But they could violate something else, such
as the Sherman Act—though not just by virtue of limiting
competition in labor markets. The Clayton Act expressly
exempts from federal antitrust law agreements among
workers or their representatives not to compete with
each other regarding wages or other terms and conditions
of employment. 15 U.S.C. § 17; see also 29 U.S.C. § 52. And
in conformity with the policy that informs the exemption,
collective bargaining agreements (agreements of the
workers’ representative with an employer rather than
agreements among workers, so not within the statutory
exemption) are held not to violate the Sherman Act, to
avert too sharp a clash between antitrust and labor
policies, e.g., Clarett v. National Football League, 369 F.3d
124, 130-31 (2d Cir. 2004), even though such agreements
affect the prices and output of goods and services, just as
sellers’ cartels do, by driving wages above competitive
levels. “[I]t would be difficult, if not impossible, to re-
10 No. 06-4367
quire groups of employers and employees to bargain
together, but at the same time to forbid them to make
among themselves or with each other any of the com-
petition-restricting agreements potentially necessary to
make the process work or its results mutually
acceptable . . . . [T]o give effect to federal labor laws and
policies and to allow meaningful collective bargaining to
take place, some restraints on competition imposed
through the bargaining process must be shielded from
antitrust sanctions.” Brown v. Pro Football, Inc., 518 U.S. 231,
237 (1996) (emphasis in original).
But unlike a collective bargaining agreement that just
specifies wages and other terms and conditions of work,
the enforcement of a hot cargo clause looks like an
exclusionary practice: a firm gangs up with a union against
another firm and perhaps drives it from the market,
reducing competition between firms. Exclusionary prac-
tices can be challenged under the Sherman Act. Suppose
the, or one, purpose of the hot cargo clause in this case is
to squeeze United Rentals out of the traffic control
market because it pays its workers less than its com-
petitors are required to pay their workers by virtue of
being bound by a collective bargaining agreement with
the Laborers Union. Suppose, in other words, continuing
the feline analogy, that the Indiana Constructors associa-
tion is a cat’s paw of traffic control subcontractors
who, under the union’s prodding, want to boycott a low-
cost competitor. That could violate the Sherman Act.
Connell Construction Co. v. Plumbers & Steamfitters Local
Union No. 100, 421 U.S. 616, 624-26 (1975); United Mine
Workers of America v. Pennington, 381 U.S. 657, 663 (1965);
Phoenix Electric Co. v. National Electrical Contractors Ass’n,
81 F.3d 858, 860-61 (9th Cir. 1996).
No. 06-4367 11
It might seem to make no sense for contractors to agree
with a union to squeeze a low-cost subcontractor out of
the market. The subcontractors are suppliers of services
to the contractors, and a rational businessman wants to
minimize the cost of his inputs. And an antitrust claim
“that simply makes no economic sense” cannot “by itself
support a finding of antitrust liability.” Matsushita Electric
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
But there are cases in which a firm is induced to enforce
a cartel. It has been argued, for example, that the Stand-
ard Oil Trust acted as an agent of a railroads’ cartel,
receiving, in exchange for helping the railroads charge
monopolistic rates, railroad rebates that gave it a cost
advantage over its competitors. Elizabeth Granitz &
Benjamin Klein, “Monopolization by ‘Raising Rivals Costs’:
The Standard Oil Case,” 39 J. Law & Econ. 1 (1996). In
Eastern States Retail Lumber Dealers’ Ass’n v. United States,
234 U.S. 600 (1914), retail lumber dealers boycotted whole-
salers who sold to the dealers’ customers; by knuckling
under to the dealers’ demand not to make such sales,
a wholesaler would be helping to maintain a cartel (that
of the retail dealers) that by keeping lumber prices up
reduced the wholesalers’ sales. And then there is the
Connell case. Connell was a general building contractor
and Local 100 was the bargaining representative for
mechanics. After the union struck and picketed, Connell
caved in to its demand that mechanical work be sub-
contracted only to firms whose mechanics were repre-
sented by the union. Maybe the Laborers Union, like
Local 100 in Connell, has enough economic muscle to
force the contractors to boycott subcontractors whose
workers are not represented by the union. If that were not
a possibility, it would be difficult to understand why,
before they were prohibited (outside the construction
12 No. 06-4367
industry), hot cargo clauses were common provisions of
collective bargaining agreements.
So might this case actually be governed by Connell, where
the Supreme Court said that immunizing Local 100’s hot
cargo provision from the Sherman Act “would give
construction unions an almost unlimited organizational
weapon,” 421 U.S. at 631 (footnote omitted)? Then United
Rentals would be home free. But there are critical differ-
ences between the cases. There was no collective bargain-
ing agreement in Connell, as there is here, and no con-
tention that contractor or union was trying to protect
employees at the construction sites from working cheek by
jowl with nonunion workers—the hot cargo clause was
not limited to sites on which there were any union
workers. In the words of the Court, “Local 100 does not
suggest that its subcontracting agreement is related to
any of these policies [the policies that animate the excep-
tion to the hot cargo clause for the construction industry].
It does not claim to be protecting Connell’s employees
from having to work alongside nonunion men. The agree-
ment apparently was not designed to protect Local 100’s
members in that regard, since it was not limited to
jobsites on which they were working. Moreover, the
subcontracting restriction applied only to the work Local
100’s members would perform themselves and allowed
free subcontracting of all other work, thus leaving open
a possibility that they would be employed alongside
nonunion subcontractors. Nor was Local 100 trying
to organize a nonunion subcontractor on the building
project it picketed.” Id. It was just trying, in cahoots
with an employer, to eliminate nonunion subcontractors
so that the workers it represented would have more work
and, not having to compete with nonunion labor,
higher wages.
No. 06-4367 13
Because there was no collective bargaining agreement
in Connell (an omission deemed in A.L. Adams Construc-
tion Co. v. Georgia Power Co., 733 F.2d 853, 856-57 (11th Cir.
1984), to be fatal to invoking section 8(e) in defense against
an antitrust claim), no concern with reducing job-site
friction between union and nonunion workers, and no
effort by the union to represent more workers, there was
no applicable labor-law policy, rooted in the construction-
industry exception to the statutory prohibition of hot
cargo clauses, to offset the anticompetitive consequences
of the clause. In our case, in contrast, the hot cargo
clause is in the heartland of the construction exception
to the statutory prohibition. United Rentals presents no
evidence that the consequences of the clause are any more
dire from an antitrust standpoint than those of any other
hot cargo clause in the construction industry. It does not
advance the cat’s paw theory, present evidence of an
exclusionary motive, or (what is the same point, really)
deny that the union is trying to increase its representa-
tion of workers; instead it argues that the union is trying
to represent traffic control workers without their having
to elect the union as their collective bargaining repre-
sentative. Section 8(f) of the National Labor Relations
Act complements section 8(e) by allowing employers
“engaged primarily in the building and construction
industry,” such as the members of the Indiana Constructors
association, to enter into collective bargaining agree-
ments covering their subcontractors’ employees with
unions that have not been voted in as those employees’
exclusive bargaining representatives. But that is not a
goal to trouble the Sherman Act.
Given the absence of traditional antitrust concerns, a
decision in United Rentals’ favor would be tantamount
14 No. 06-4367
to holding that all hot cargo clauses in the construction
industry violate the Sherman Act. A type of agreement
affirmatively sanctioned by Congress cannot be deemed
a per se violation of the Sherman Act. So we intimated,
with specific reference to the construction exception, in
Suburban Tile Center, Inc. v. Rockford Building & Construction
Trades Council, 354 F.2d 1, 3 (7th Cir. 1965), and so the
Second Circuit held in Local 210, Laborers’ International
Union of North America v. Labor Relations Division, supra,844 F.2d at 79-81, and the Ninth Circuit in Sun-Land
Nurseries, Inc. v. Southern California District Council of
Laborers, 793 F.2d 1110, 1117 (9th Cir. 1986) (en banc);
compare A.L. Adams Construction Co. v. Georgia Power Co.,
supra, 733 F.2d at 856-57. To rule otherwise would be to
make the Sherman Act, enacted in 1890, repeal a statu-
tory provision enacted in 1959, reversing the arrow of time.
AFFIRMED.
USCA-02-C-0072—3-5-08