NATIONAL LABOR RELATIONS BOARD, PETITIONER V. ACTION AUTOMOTIVE, INC. No. 83-1416 In the Supreme Court of the United States October Term, 1984 On Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit Brief for the National Labor Relations Board TABLE OF CONTENTS Opinions below Jurisdiction Statute involved Statement Summary of argument Argument: The Board has authority under Section 9(b) of the National Labor Relations Act to exclude from a bargaining unit employees who are close relatives of the owners of a closely held corporation that employs them without a showing that the employee-relatives receive special job-related privileges. A. In exercising its authority under Section 9(b) to select units appropriate for collective bargaining, the Board generally has found that employees with close family ties to owners or managers of the employer lack a "community of interest" with their fellow employees. B. The Board's policy of excluding close family members fosters efficient collective bargaining relationships, protects the Section 7 rights of employees and maintains a proper line between management and labor. C. The decision below is inconsistent with the holdings of all other courts of appeals on this issue and its reliance on Section 2(3) to restrict the Board's discretion to exclude employees from bargaining units on the basis of close family relationship is misplaced. D. The Board properly determined that the two employees at issue should be excluded from the bargaining unit based on their close family ties to respondent's owner-managers. Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a-5a) is reported at 717 F.2d 1033. The decision and order of the National Labor Relations Board (Pet. App. 7a-20a) are reported at 262 N.L.R.B. 423. The Board's decision, direction, and certification of representative (Pet. App. 21a-23a) and the hearing officer's report and recommendations (Pet. App. 24a-47a) are unreported. JURISDICTION The judgment of the court of appeals was entered on September 30, 1983 (Pet. App. 6a). On December 15, 1983, Justice O'Connor extended the time for filing a petition for a writ of certiorari to and including January 28, 1984. On January 19, 1984, Justice O'Connor further extended the time for filing a petition to and including February 27, 1984. The petition for a writ of certiorari was filed on February 24, 1984, and granted on May 14, 1984 (J.A. 76). The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTE INVOLVED Section 2(3) of the National Labor Relations Act, 29 U.S.C. 152(3), provides in pertinent part: The term "employee" * * * shall not include * * * any individual employed by his parent or spouse * * *. Section 9(b) of the National Labor Relations Act, 29 U.S.C. 159(b), provides in pertinent part: The Board shall decide in each case whether, in order to assure to employees the fullest freedom in exercising the rights guaranteed by this (Act), the unit appropriate for the purposes of collective bargaining shall be the employer unit, craft unit, plant unit, or subdivision thereof * * *. QUESTION PRESENTED Whether, under Section 9(b) of the National Labor Relations Act, 29 U.S.C. 159(b), the Board may exclude from a collective bargaining unit employees who are close relatives of the owner-managers of a closely held corporation that employs them, without finding that the employee-relatives receive special job-related privileges. STATEMENT 1. Respondent is an automobile parts and gasoline dealer with outlets in a number of cities in Michigan (Pet. App. 2a). The dealership -- a closely held corporation -- is owned equally by three brothers, Richard, Robert and James Sabo, who are president, vice president and secretary-treasurer, respectively (J.A. 9-10). The three Sabo brothers are actively involved in respondent's daily operation; together they make all of its policy decisions and retain ultimate responsibility for the supervision of all of its departments (Pet. App. 2a; J.A. 31-33). On March 31, 1981, the Retail Store Employees Union, Local 40 (the Union) filed a petition with the Board requesting that a representation election be held among respondent's employees (Pet. App. 24a). Respondent and the Union stipulated to elections in two bargaining units -- a unit of store and warehouse employees at respondent's nine retail stores (Unit A) and a unit of office clerical employees at the headquarters office (Unit B) (id. at 24a-25a). The election was held on May 29, 1981, and the Union received a plurality of the votes in each unit, but a sufficient number of ballots was challenged to place the outcome of the election in doubt (id. at 25a). /1/ 2. The only challenged ballots of significance here were those of Diane and Mildred Sabo. Following a hearing, the Board's hearing officer recommended excluding both of them from their respective units and sustaining the challenges to their ballots because of their close family relationship with the three brothers who own and operate respondent (Pet. App. 29a-33a, 34a-37a). The hearing officer found that Diane Sabo is the wife of respondent's president, Richard Sabo. She is a regular, part-time general ledger clerk at respondent's headquarters office in Flint, Michigan (Pet. App. 30a; J.A. 9, 11-12). She resides with her husband and both work at the same office (Pet. App. 30a). At work, Diane Sabo often goes to lunch with Richard and one or both of his brothers. She regularly takes her breaks in Richard's office (id. at 31a; J.A. 50-51). It is undisputed that she is the only clerical employee who works part-time, receives a salary rather than hourly pay and does not punch a time clock. She is paid $100 a week and is expected to work 20 to 25 hours per week (id. at 12-13, 20-21). In addition, she is allowed to take her breaks when she pleases, instead of according to the schedule established by the office manager (Pet. App. 30a-31a; J.A. 51). On the basis of these findings, the hearing officer declined to conclude that Diane Sabo enjoys any "special privileges," but nevertheless held that she "has a community of interest separate from that of the office clerical employees in unit B" and therefore recommended that the challenge to her ballot be sustained (Pet. App. 33a). Mildred Sabo was found by the hearing officer to be a full-time cashier at one of respondent's retail stores in Barton, Michigan (Pet. App. 33a-34a). She is the mother of the three Sabo brothers who own and operate respondent (J.A. 10). She lives with Secretary-Treasurer James Sabo in a house that he owns; she sees or has contact with her other sons and their families regularly (Pet. App. 33a, 35a; J.A. 50, 60-61). At work, Mildred Sabo, unlike other employees, is not required to punch a time clock; she records her time on a card (J.A. 21-22). She earns 25 cents per hour more than any other cashier, but she is also one of respondent's most experienced cashiers (Pet. App. 34a; J.A. 26). Based on these findings, the hearing officer concluded that Mildred Sabo does not receive any "special privileges" with respect to her job (Pet. App. 36a). Nevertheless, he concluded that, "in view of her relationship" with her three sons, "Mildred Sabo's interests are more closely aligned with management than with (respondent's) employees" (ibid.). The Board adopted the hearing officer's findings and recommendations, but noted that Diane Sabo should be excluded from the unit not only because of her relationship to respondent's owners, but also because she enjoyed special job-related privileges, viz., "her irregular work schedule, her breaks and lunches with corporate officers in corporate offices, her being paid a salary rather than hourly pay, and not being required to punch a time clock" (Pet. App. 21a-22a n.2). The Board certified the Union as the exclusive representative in Unit A, and directed the Regional Director to count two of the other challenged ballots in Unit B, which resulted in a tally of 5-4 for the Union and the Union's certification in that unit as well (Pet. App. 15a, 22a; J.A. 3-4). Respondent then refused to bargain with the Union, contending that the certifications were not valid. The Union filed charges with the Board, and the Board, declining to reconsider its earlier certification determination, found that respondent had violated Section 8(a)(1) and (5) of the Act, 29 U.S.C. 158(a)(1) and (5), and ordered respondent to bargain with the Union (Pet. App. 7a-18a). 3. The court of appeals denied enforcement of the Board's order (Pet. App. 1a-5a). Relying on its decisions in NLRB v. Hubbard Co., 702 F.2d 634 (6th Cir. 1983); Cherrin Corp. v. NLRB, 349 F.2d 1001 (6th Cir. 1965), cert. denied, 382 U.S. 981 (1966), and NLRB v. Sexton, 203 F.2d 940 (6th Cir. 1953), the court held that the Board had no authority under Section 9(b) of the Act, 29 U.S.C. 159(b), to exclude individuals from bargaining units solely because of their close family relationship with those who own and operate the business (Pet. App. 3a). Instead, the court concluded that "familial ties can only be considered as evidence of a special status when the employee receive(s) job-related benefits or other favorable working conditions which flow from the relationship" (ibid.). Applying this standard to the two employees at issue, the court of appeals found that "(t)he only factor of Mildred's special status is her family ties to the Company * * * (and) such family ties alone are insufficient to establish 'special status'" (Pet. App. 5a). With regard to Diane Sabo, the court acknowledged that her "work schedule differed significantly from that of her fellow employees," but concluded that such a "single instance of a special treatment is insufficient evidence of a 'special status'" to support the Board's order (id. at 4a-5a). SUMMARY OF ARGUMENT A. Section 9(b) of the National Labor Relations Act, 29 U.S.C. 159(b), authorizes the Board to determine "in each case * * * in order to assure to employees the fullest freedom in exercising the rights guaranteed by (the Act), the unit appropriate for the purposes of collective bargaining * * *." In the exercise of its discretion under Section 9(b), the Board has long held, as it did in this case, that close relatives of owners of closely held corporations, although employees within the meaning of Section 2(3) of the Act, 29 U.S.C. 152(3), should nonetheless be excluded from bargaining units where the family relationship is such as to remove the employee-relative from a "community of interest" with the other employees. See NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. 170, 194 (1981) (Powell, J., dissenting). In denying enforcement of the Board's order, the court of appeals disregarded the Board's broad authority to shape bargaining units in order to foster efficient collective bargaining and to protect the rights of employees to organize and bargain collectively through representatives of their choosing. See, e.g., South Prairie Construction Co. v. Operating Engineers, 425 U.S. 800 (1976). B. The Board's longstanding practice of excluding employees who are closely related to management ensures the cohesiveness among employees necessary for effective collective bargaining and protects the Section 7, 29 U.S.C. 157, right of employees to bargain free of undue influence by those aligned with management. Employee-relatives, particularly those who reside with owners or active managers of the business, have an access to management not shared by other employees. Parisoff Drive-In Market, Inc., 201 N.L.R.B. 813 (1973). Moreover, an employee-relative who is financially dependent on the owner is likely to be motivated by considerations very different from those that affect other employees performing similar jobs. Because of these divergent interests, the Board, relying upon its expertise in labor-management relations, has concluded that to include such relatives in the same bargaining unit with other employees may result not only in depriving those employees of representation by the bargaining agent of their choice, but, if an agent is selected, in creating conflicts among employees that may significantly impair the bargaining process long after the union is elected. In addition, the Board's policy of excluding close family members protects both employers and unions in bargaining by minimizing the risk that the deliberations or confidential information of one side will be influenced by or disclosed to the other. Employees who are closely related to the owner of a business are likely to have a divisive effect on the union, which could undermine the union's ability to participate effectively in the bargaining process. Similarly, the exclusion of such employee-relatives protects management by minimizing the risk that a union, in the event of a family squabble or change in loyalties, would obtain from employee-relatives confidential employer information to which they may have access solely by virtue of their family relationship. Finally, the Board's policy is consistent with the clearly expressed intent of Congress, in enacting the Taft-Hartley amendments of 1947, that all individuals allied with management be excluded from collective bargaining in order to protect the adversary system contemplated by the Act. Congress expressly excluded supervisory employees from the Act's coverage and also intended that managerial employees be excluded from the Act. In addition, Congress did not disturb the Board's longstanding practice of excluding from bargaining units employees who have access to their employer's confidential, labor relations information. The Board's policy of excluding close family members, which also was not disturbed by Congress, helps to preserve the proper dividing line between management and labor that is fundamental to the statutory scheme. Every court of appeals that has considered this issue, except for the Sixth Circuit, has held that the Board's reliance on Section 9(b) to exclude close family members from collective bargaining units is supported by the Act. See NLRB v. Caravelle Wood Products, Inc. (Caravelle I), 466 F.2d 675 (7th Cir. 1972) and NLRB v. Caravelle Wood Products, Inc. (Caravelle II), 504 F.2d 1181 (1974); Linn Gear Co. v. NLRB, 608 F.2d 791 (9th Cir. 1979); NLRB v. H.M. Patterson & Son, Inc., 636 F.2d 1014 (5th Cir. 1981). The court of appeals here, however, relied upon Section 2(3)'s definition of employee, which excludes children and spouses of employers from coverage of the Act, to restrict the Board's discretion in determining appropriate bargaining units under Section 9(b). This reasoning is erroneous. Simply because an individual is an "employee" within the meaning of the Act does not require that he be included in a bargaining unit if he does not share interests in common with other employees in the unit. See NLRB v. Hendricks County Rural Electric Membership Corp., supra. The Sixth Circuit's reasoning is thus not a valid basis for restricting the Board's broad authority to determine appropriate bargaining units. D. The employees at issue here are the wife of one of three brothers who co-own and manage respondent and the mother of all three. The wife lives with her husband and the mother lives with another of the three brothers. The brothers each own one-third of the business and are active in its management. Both employees have daily contact with the owners. In these circumstances, the Board reasonably concluded that the two employees' interests differed substantially from those of other employees, and therefore properly excluded them from the collective bargaining unit. ARGUMENT THE BOARD HAS AUTHORITY UNDER SECTION 9(b) OF THE NATIONAL LABOR RELATIONS ACT TO EXCLUDE FROM A BARGAINING UNIT EMPLOYEES WHO ARE CLOSE RELATIVES OF THE OWNERS OF A CLOSELY HELD CORPORATION THAT EMPLOYS THEM WITHOUT A SHOWING THAT THE EMPLOYEE-RELATIVES RECEIVE SPECIAL JOB-RELATED PRIVILEGES. A. In Exercising Its Authority Under Section 9(b) To Select Units Appropriate For Collective Bargaining, The Board Generally Has Found That Employees With Close Family Ties To Owners Or Managers Of The Employer Lack A "Community Of Interest" With Their Fellow Employees. Section 9(b) of the National Labor Relations Act, 29 U.S.C. 159(b), broadly delegates to the Board the authority to determine "the unit appropriate for the purposes of collective bargaining * * *." Applying Section 9(b), the Board has long held the view that "employees of a company who are in an intimate (family) relationship with officers of the company" should be "excluded from an appropriate (bargaining) unit." Jerry & Edythe Belanger, 32 N.L.R.B. 1276, 1279 n.4 (1941). See all NLRB v Hendricks County Rural Electric Membership Corp., 454 U.S. 170, 194 (1981) (Powell, J., dissenting); Burke Brewery, Inc., 54 N.L.R.B. 1061, 1062 n.2 (1944); Louis Weinberg Associates, Inc., 13 N.L.R.B. 66, 69 (1939). /2/ Just as with any other unit determination, the Board's decisions in this area reflect the basic purpose of assuring that employees in a unit all share a "community of interest." See 15 NLRB Ann. Rep. 39 (1950). See also Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 172-173 (1971). Accordingly, the Board since the earliest days of the Wagner Act, ch. 372, 49 Stat. 449 et seq., has excluded certain relatives of managerial personnel because "by virtue of the relationship * * * their interests are sufficiently distinguished from those of the other employees to warrant their exclusion from the unit." Louis Weinberg Associates, Inc., 13 N.L.R.B. at 69. As the Board more fully explained in P.A. Mueller & Sons, Inc., 105 N.L.R.B. 552, 553 (1953) (footnotes omitted): The Board's policy of excluding such near relatives is based on Section 9(b) of the Act, under which the Board must in every case determine the unit appropriate for bargaining purposes. * * * The Board Board early decided in this connection that the familial bond between an employer and employee is in certain cases so close as to remove the near relative from the "community of interest" share by the other employees. The interests of such near relatives are identified not with their fellow-workers, but with management itself. See Stanislaus Implement & Hardware Co., 92 N.L.R.B. 897, 898 (1950). In its early decisions, the Board automatically excluded employees from bargaining units based on family relationship when it found that they were closely related to a manager or owner of a closely held company. /3/ For a period thereafter, the Board modified its policy to exclude employee-relatives from units only upon a showing that they enjoyed special job privileges. See, e.g., International Metal Products Co., 107 N.L.R.B. 65, 67 (1953). /4/ Since 1967, the Board has returned to and maintained its original view that employee-relatives may be excluded from units even in the absence of special job privileges. See Foam Rubber City #2 of Florida, Inc., 167 N.L.R.B. 623, 624. /5/ Prompted initially by decisions of the Seventh Circuit, NLRB v. Caravelle Wood Products, Inc. (Caravelle I), 466 F.2d 675 (1972) and NLRB v. Caravelle Wood Products, Inc. (Caravelle II), 504 F.2d 1181 (1974), the Board has adopted a more comprehensive approach to the family exclusion issue and now looks at a variety of circumstances in determining whether the family relationship with someone in management is sufficient to align the employee-relative with management and thus warrant his or her exclusion from the unit. See Parisoff Drive-In Market, Inc., 201 N.L.R.B. 813, 814 n.2 (1973). /6/ The primary factors the Board considers are (Caravelle I, 466 F.2d at 679): (H)ow high a percentage of stock the parent or spouse owns, how many of the shareholders are related to one another, whether the shareholder is actively engaged in management or holds a supervisory position, how many relatives are employed as compared with the total number of employees, (and) whether the relative lives in the same household or is partially dependent on the shareholder. /7/ Typically, as in this case, the Board excludes employees who live with or are otherwise financially dependent on a relative who owns or actively manages the business, particularly where other owners of the business are related to each other and to the employee-relative whose status is at issue. See, e.g., Pandick Press Midwest, Inc., 251 N.L.R.B. 473, 473-474 (1980); Parisoff Drive-In Market, Inc., supra; Economy Cash Stores, Inc., supra; Viele & Sons, Inc., supra. Of course, whether the employee enjoys special job-related privileges, in addition to a family relationship with an owner or manager of the business, remains relevant to determining the unit inclusion issue. See, e.g., Wilkes-Barre Wholesale Service, Inc., 246 N.L.R.B. 491, 497 (1979); Holthouse Furniture Corp., 242 N.L.R.B. 414, 415-416 (1979); Wesco Electric Co., 232 N.L.R.B. 479, 483 (1977); Groehn Spotting Fixtures Co., 224 N.L.R.B. 842, 842-844 (1976); Modern Mfg. Co., supra. Where application of the Caravelle criteria shows that an employee-relative is not aligned with management by virtue of the family relationship, the existence of a special job status is necessary to exclude the employee from the unit. See, e.g., Swanson-Nunn Electric Co., 256 N.L.R.B. 840, 847 (1981); Toyota Midtown, Inc., 233 N.L.R.B. 797, 797 n.3 (1977); American Chemical Corp., 215 N.L.R.B. 94, 94-95 (1974). /8/ The court of appeals' opinion, without even discussing the Board's authority under Section 9(b), requires the Board to make its unit determinations solely on the basis of whether the employee-relative receives any special job-related privileges. What that decision erroneously disregards is that the Board's practice of considering all facets of the "employer-employee" relationship -- including close family ties -- effectuates the important policy of the National Labor Relations Act of promoting effective collective bargaining by maintaining a distinct line between labor and management. B. The Board's Policy of Excluding Close Family Members Fosters Efficient Collective Bargaining Relationships, Protects the Section 7 Rights of Employees and Maintains a Proper Line Between Management and Labor. 1. The decision below, which restricts the Board's discretion to exclude employee-relatives from bargaining units to situations where the employees enjoy special job-related privileges, is fundamentally inconsistent with this Court's decisions upholding the Board's broad discretion under Section 9(b) to determine appropriate bargaining units. Under those decisions, Board unit determinations are rarely to be disturbed and must be sustained if they have a reasonable basis in law. See, e.g., South Prairie Construction Co. v. Operating Engineers, 425 U.S. 800, 805 (1976); Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 171 (1971); Packard Motor Car Co. v. NLRB, 330 U.S. 485, 491 (1947). Here, as in NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 190, "the NLRB's longstanding practice of excluding from bargaining units * * * (close relatives aligned with management), rooted firmly in the Board's understanding of the nature of the collective-bargaining process * * * fairly demonstrates that the Board's treatment of (such employees) does indeed have 'a reasonable basis in law.'" Thus, the Board's order should have been sustained by the court of appeals. The broad standard in Section 9(b) of the Act governing the Board's unit determinations requires that they further the Act's primary policies to promote "efficient collective bargaining" and protect the rights of employees to self-organization and freedom of choice. Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. at 172; Pittsburgh Plate Glass Co. v. NLRB, 313 U.S. 146, 165 (1941). The Board's community of interest requirement as applied in the close family relationship situation, which groups employees sharing substantial mutual interests in a unit and excludes those employees whose interests are more closely identified with management, directly serves those fundamental policies in three important ways. /9/ It assures the cohesiveness among employees necessary for effective collective bargaining; it protects the Section 7 right of employees "to bargain collectively through representatives of their own choosing(,)" free from undue influence by those aligned with management; and it protects employers and unions by ensuring that the deliberations and confidences of each are not disclosed to the other. Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. at 172-173; see NLRB v. Yeshiva University, 444 U.S. 672, 694-695 (1980) (Brennan, J., dissenting). 2. Employees engaged in collective bargaining have a mutual interest in achieving access to their employer on matters of concern that they do not otherwise have as individuals. Relying upon its expertise in employment matters, the Board has concluded that certain employee-relatives, particularly those who reside with owners or active managers of the business, are very likely to "get a more attentive and sensitive ear to their day-to-day and long-range work concerns than would other employees. While this accessibility to management may not always result in easily identifiable special privileges or favorable working conditions, the fact that they have this peculiar access gives them a status and area of interest not shared by the rest of the employees." Parisoff Drive-In Market, Inc., 201 N.L.R.B. at 814. Because such employee-relatives have an effective avenue of access to management, their perceived need for collective representation to provide such access differs substantially from that of other employees. An employee-relative who is financially dependent on the owner, who in turn is financially dependent on the profitability of his company, is likely to be motivated by very different factors than other employees, not only in deciding whether to vote for a union, but in evaluating the proper course of the bargaining process (should a union representative be selected). Particularly where all of the owners are related to each other as well as to the employee, the business interests of the corporation are likely to be synonymous with the interests of the family. The employee-relative's "interests as a member of the governing family may well outweigh his interests as an employee of the corporation and, to that extent his interests may be entirely different from the interests of the other employees whose sole stake in the corporation is that they work there." Parisoff Drive-In Market, Inc., 201 N.L.R.B. at 814. Thus, allowing close relatives to be included in the same bargaining unit with other employees may result, not only in depriving those employees of representation by the bargaining agent of their choice, but, if an agent is selected, in creating such conflicts in the bargaining process that the effectiveness of the agent is impaired. See Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. at 173. /10/ Moreover, an employee who is closely related to the owner of a business is likely to be viewed with concern by other employees, and his "participation in union matters would necessarily be suspect and possibly divisive." Pargas of Crescent City, Inc., 194 N.L.R.B. 616, 617 (1971) (Member Jenkins, dissenting); see P.A. Mueller & Sons, Inc., 105 N.L.R.B. at 554. The presence of a close relative at union meetings, for example, "would, considering the likelihood of (his) conveying information to the Employer * * * inhibit adequate and accurate expression of views and freedom of action on the part of the membership; and even if it did not, communication of such internal matters could effectively undermine or impair the ability of the Union to achieve its legitimate goals" and to reach agreement with an employer. Pargas of Crescent City, Inc., 194 N.L.R.B. at 617-618 (Member Jenkins, dissenting). As the Board explained in P.A. Mueller & Sons, Inc., 105 N.L.R.B. at 553-554: The inclusion of a close relative of the employer in a bargaining unit with the other employees in a particular plant may as effectively hinder the employees in organizing themselves and bargaining collectively as would the intrusion of any representative of management * * *. The exclusion of close relatives of company owners or managers from a bargaining unit also protects management. Particularly where the employee-relative lives with the owner, the relative can reasonably be expected to be exposed to information about labor relations or even corporate profitability. /11/ By excluding family members who have unusual access to the employer's confidential information, the Board avoids placing those individuals in a conflict-of-interest situation and makes it less likely that the union, in the event of a family squabble or a change in loyalties, would obtain from the employee-relative information or materials to which it ordinarily is not privy. The Board's practice of excluding some close relatives of company owners from bargaining units is thus consistent with the fundamental policy of the Act that "neither management nor labor should be forced to accept a potential fifth column into its ranks." NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. 170, 193 (1981) (Powell, J., concurring in part and dissenting in part). 3. These considerations underlying the Board's policy of excluding dependent family members are completely consistent with the intention of Congress in enacting the Taft-Hartley amendments of 1947 to assure that all individuals "allied with management" be excluded from collective bargaining in order to protect "the adversary system" contemplated by the Act. NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 193 (Powell, J., concurring in part and dissenting in part). Accord: NLRB v. Yeshiva University, 444 U.S. at 682; see Packard Motor Car Co. v. NLRB, 330 U.S. 485, 494-495 (1947) (Douglas, J., dissenting). Thus, Congress amended Section 2(3) expressly to exclude supervisory employees from the Act's coverage, see NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 181-185, and also manifested its intent that managerial employees be excluded from the Act. NLRB v. Bell Aerospace Co., 416 U.S. 267, 283-284 (1974). Congress also considered and did not disturb the Board's longstanding practice of excluding from bargaining units under Section 9(b) employees who have access to confidential, labor relations information of their employer. NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 185. The Board's policy of excluding certain close relatives of company owners from bargaining units, which likewise was not disturbed by Congress, similarly attempts to preserve the practical, realistic line between management and labor which Congress intended to maintain under the Act. C. The Decision Below Is Inconsistent With The Holdings Of All Other Courts Of Appeals On This Issue And Its Reliance On Section 2(3) To Restrict The Board's Discretion To Exclude Employeees From Bargaining Units On The Basis Of Close Family Relationship Is Misplaced. The reasonableness under the National Labor Relations Act of the Board's multi-faceted criteria for excluding close family members from bargaining units has been recognized by every court of appeals that has considered the issue, except for the Sixth Circuit. Indeed, the original basis for the standards employed by the Board in these cases comes from the Seventh Circuit's decision in Caravelle I, supra. /12/ In that case, the court of appeals affirmed the Board's traditional authority under Section 9(b) to exclude, based on a "case-by-case analysis," employees whose relationship with owners removes them from the community of interest shared by other employees. It held that the Board could do so, however, only after examining the various factors quoted previously (see page 14, supra), in order to determine whether the employee-relative objectively lacked a community of interest with other employees by virtue of the relationship (466 F.2d at 679). On remand, the Board applied the criteria articulated by the court and excluded the spouses and children of key stockholders and officers of the corporation. 200 N.L.R.B. 855, 856 (1972). In enforcing the Board's supplemental decision, the Seventh Circuit emphasized that "none of the guidelines suggested by the court (in Caravelle I) is job-related." NLRB v. Caravelle Wood Products, Inc. (Caravelle II), 504 F.2d 1181, 1186-1187 (7th Cir. 1974). The court thus reaffirmed the Board's longstanding authority "to exclude employees on the basis of family relationship -- without regard to job-related factors -- provided the factual finding implicitly required by the (Caravelle I) guidelines is made in each case" (id. at 1187). Both the Ninth Circuit in Linn Gear Co. v. NLRB, 608 F.2d 791, 796 (1979), and the Fifth Circuit in NLRB v. H.M. Patterson & Son, Inc., 636 F.2d 1014, 1017 (1981), recognizing the Board's broad discretion under Section 9(b) of the Act, have expressly upheld the Board's use of the "'community of interest' test" (636 F.2d at 1017; 608 F.2d at 796) to exclude an employee if he or she is more closely aligned with management than with other employees, regardless whether the reason is job-related or family-related or both. /13/ These decisions stand in stark contrast to the decision below with respect to the scope of Board authority to make unit determinations under Section 9(b) and are clearly correct. Although the court below acknowledged (Pet. App. 3a) the Board's longstanding authority to exclude from bargaining units employees whose interests are "allied * * * with those of management(,)" the court relied on its earlier decision in NLRB v. Sexton, supra, in concluding that the family exclusion in Section 2(3) of the Act precludes the Board from excluding employees under Section 9(b) on the basis of family relationship. /14/ But the court's reasoning is not a valid ground for limiting the Board's Section 9(b) authority to determine "the unit appropriate for the purposes of collective bargaining." Section 2(3) defines "employees" who are entitled to the basic protections of the Act. When an individual is excluded under Section 2(3), he is wholly outside the ambit of the statute. Thus, an "individual employed by his parent or spouse" within the meaning of Section 2(3) is denied all protection under Section 7 of the Act; he may, for example, be discharged for union activity. See Campbell-Harris Electric, Inc., 263 N.L.R.B. 1143, 1143-1144, enforced, 719 F.2d 292 (8th Cir. 1983). But simply because an individual is an "employee," notwithstanding a family tie to the employer, and therefore is protected by Section 7, is not determinative of whether the individual should properly be included in a bargaining unit -- as the court below itself implicitly recognizes by permitting such persons to be excluded if they enjoy job-related privileges (see note 14, supra). This Court recognized as much in NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. at 178, where it held that, "in fulfilling its statutory obligation to determine appropriate bargaining units under Section 9 of the Act, 29 U.S.C. Section 159, for which broad discretion has been vested in the Board," the Board, for policy reasons, properly has excluded from bargaining units employees otherwise protected by Section 7 who have access to confidential, labor relations information. The court of appeals' reliance on Section 2(3) as an implied restriction on Section 9(b) is thus wholly misplaced. /15/ D. The Board Properly Determined That The Two Employees At Issue Should Be Excluded From The Bargaining Unit Based On Their Close Family Ties To Respondent's Owner-Managers. As we have shown, the Board's decision whether to exclude a family member from a bargaining unit is based on a number of factors: the percentage of stock held by the owner; whether co-owners are related to one another; whether the owner is active in management; the number of relatives compared with the total number of employees; and whether the employed relatives live in the same household with or are partially dependent on the owner. Caravelle I, 466 F.2d at 679; Parisoff Drive-In Market, Inc., 201 N.L.R.B. at 814 & n.2. There can be no doubt that the Board reasonably applied those standards to exclude both employees at issue here. Diane Sabo is the wife of respondent's president, and Mildred Sabo is the mother of all three owners. Diane lives with her husband and Mildred lives with one of the sons. Each of the owners owns one-third of the business; all are related and all are active in formulating policy and running the business. In addition to living with a substantial owner of the business, Diane Sabo works at the same office with her husband, eats lunch with him and takes her breaks in his office, and Mildred Sabo has daily contact with her sons. Under these circumstances, the Board reasonably concluded that both Diane and Mildred Sabo enjoy an access to management not shared by other employees, and that their financial interests are more likely to be identified with the Sabo family as owner of the corporation than with their fellow employees. Their participation in union affairs would likely be viewed with suspicion by the other employees, and could chill the exercise of the rights of unit employees freely to engage in the bargaining process. In addition, given their close and frequent contact with the owners, their inclusion in the bargaining units would create a risk to both the union and respondent that privileged information would not be secure, thereby compromising both parties' ability to bargain. The Board therefore properly excluded them from the bargaining units on the basis of the circumstances surrounding their family relationship with the owners. /16/ Parisoff Drive-In Market, Inc., supra; Economy Cash Stores, Inc., supra; Viele & Sons, Inc., supra. CONCLUSION The judgment of the court of appeals should be reversed. Respectfully submitted. REX E. LEE Solicitor General LAWRENCE G. WALLACE Deputy Solicitor General CARTER G. PHILLIPS Assistant to the Solicitor General WILFORD W. JOHANSEN Acting General Counsel JOHN E. HIGGINS, JR. Deputy General Counsel ROBERT E. ALLEN Associate General Counsel NORTON J. COME Deputy Associate General Counsel LINDA SHER Assistant General Counsel ROBERT C. BELL, JR. Attorney National Labor Relations Board JULY 1984 /1/ The vote in Unit A was 20-18 with one challenged ballot -- Mildred Sabo's. The vote in Unit B was 4-3 with five challenged ballots, including that of Diane Sabo. The challenged ballots were determinative in both units because respondent alleged and the hearing officer found that one of the challenged ballots cast in Unit B (Fred Britton's) should have been counted in Unit A (Pet. App. 27a, 44a-45a). /2/ Where the relative is the child or spouse of the employer, he or she is expressly excluded from the definition of "employee" under Section 2(3) and therefore is entirely outside the Act's protection. Early in its administration of the Act, the Board limited the Section 2(3) exclusion to the child or spouse of a sole proprietor or partner. See Parkers' Brass Foundry, 63 N.L.R.B. 1238, 1239-1240 (1945); O.U. Hofmann & Sons, 55 N.L.R.B. 683, 684 (1944), enforced, 147 F.2d 679, 681 (3d Cir. 1945); Cason & Tierney Co., 69 N.L.R.B. 523, 525 n.5(1946). Later, the Board extended the exclusion to the child or spouse of a sole owner of a corporation. See P.A. Mueller & Sons, Inc., 105 N.L.R.B. 552, 553 (1953); The Colonial Craft, Inc., 118 N.L.R.B. 913, 914 (1957); Bridgeton Transit, 123 N.L.R.B. 1196, 1197 (1959); Printing Industry of Delaware, 131 N.L.R.B. 1100, 1103 (1961). See note 12, infra. /3/ See, e.g., Jerry & Edythe Belanger, 32 N.L.R.B. at 1279 & n.4 (brother of partner); Northwestern Auto Parts Co., 36 N.L.R.B. 484, 488 (1941) (son and brother of partners); Burke Brewery, Inc., 54 N.L.R.B. at 1062 n.2 (in-law of company president); Carolina Box & Lumber Co., 57 N.L.R.B. 1355, 1357 (1944) (son of secretary-treasurer); Casper Lowenstein, Inc., 58 N.L.R.B. 1531, 1533 (1944) (son of superintendent); The Myers-Sherman Co., 71 N.L.R.B. 910, 912-913 (1946) (sons of vice-president); Troy Refining Corp., 70 N.L.R.B. 1191, 1193 (1946) (son and brother of general manager and secretary-treasurer); Association Canado-Americaine, 72 N.L.R.B. 520, 523 (1947) (son of president); Superior Bakery, 78 N.L.R.B. 1172, 1173 (1948) (brothers and uncle of owner); Peter Pan Bus Lines, 82 N.L.R.B. 830, 831 (1949) (son and nephew of owner); Rosedale Passenger Lines, Inc., 85 N.L.R.B. 527, 531 (1949) (brothers and nephews of president and vice president); Stanislaus Implement & Hardware Co., supra (nephew of president and vice president); Ashland Body Works, 95 N.L.R.B. 1520, 1521 (1951) (brothers of partners); International Metal Products Co., 104 N.L.R.B. 1076, 1079 (1953) (son, brothers, brother-in-law and nephews of partners); P.A. Mueller & Sons, Inc., supra (son and nephew of owner). /4/ See American Steel Buck Corp., 107 N.L.R.B. 554, 555-556 (1953) (general manager's nephew who assigned work and solicited grievances excluded, but son of the company president included because he did not have special job privileges or status); KERO Radio-TV, 116 N.L.R.B. 194, 195 (1956) (brother of president included where evidence showed his higher salary was due to experience and ability, not his family relationship). See also Research Craft Mfg. Corp., 129 N.L.R.B. 723, 726 (1960); Big Ben's Dep't Store, Inc., 160 N.L.R.B. 1925, 1938 (1966), enforced, 396 F.2d 78 (2d Cir. 1968); Cherrin Corp. v. NLRB, 349 F.2d 1001, 1004 (6th Cir. 1965), cert. denied, 382 U.S. 981 (1966). /5/ In Foam Rubber City #2 of Florida, Inc., the Board expressly overruled International Metal Products Co. insofar as that case had required a finding of special job privileges. 167 N.L.R.B. at 624 n.10. /6/ See, e.g., Modern Mfg. Co., 261 N.L.R.B. 534, 551-552 (1982), enforced, 115 L.R.R.M. (BNA) 2360 (4th Cir. 1983); Dunn Bros., 235 N.L.R.B. 1032, 1043 (1978), enforced, 87 Lab. Cas. (CCH) Paragraph 11593 (4th Cir. 1979); Marvin Witherow Trucking, 229 N.L.R.B. 412, 412-413 (1977). See also Sertafilm, Inc., 267 N.L.R.B. No. 114, JD 16 (1983); Ellis Funeral Homes, Inc., 255 N.L.R.B. 891, 891-892 (1981); Viele & Sons, Inc., 227 N.L.R.B. 1940, 1948 (1977); Economy Cash Stores, Inc., 202 N.L.R.B. 930, 930-931 (1973). /7/ Subsequent judicial decisions have added the following factors to those listed in Caravelle I which the Board also applies: "'(1) the activity, if any, of the employee in the Union (2) the total number of employees as against the number of blood related employees and (3) the overall ties and social activities of the family involved.'" Linn Gear Co. v. NLRB, 608 F.2d 791, 794 (9th Cir. 1979); NLRB v. H.M. Patterson & Son, Inc., 636 F.2d 1014, 1017 (5th Cir. 1981). /8/ Thus, the Board excludes relatives of low-level managers with no ownership interest in the business only where special job status is shown. See, e.g., Pargas of Crescent City, Inc., 194 N.L.R.B. 616, 616 (1971) (wife of local manager with no ownership interest included); Weyerhaeuser Co., 211 N.L.R.B. 1012, 1012-1013 (1974) (daughter of branch manager, no special priveleges, included in the unit); Novi American, Inc., Atlanta, 234 N.L.R.B. 421, 421-422 (1978) (son of regional manager excluded only on basis of special privileges); Queen City Paving Co., 243 N.L.R.B. 71, 72 (1979) (son of general manager with no ownership interest included absent special job privileges); T.L.C. Lines, Inc., 265 N.L.R.B. 1200, 1210 (1982), enforced, 717 F.2d 461 (8th Cir. 1983) (son of former manager included). /9/ While differences in compensation, hours of work, skills and other job-related factors often are relevant to determining whether employees share a sufficient community of interest to be grouped in the same bargaining unit (see Kalamazoo Paper Box Corp., 136 N.L.R.B. 134, 137 (1962)), contrary to respondent's contention (Br. in Opp.4-5), these are not the only relevant factors. As we have shown, the Board has long held that a lack of community of interest can also be demonstrated by the fact that an employee is more closely allied with management than with his fellow employees, and that such alignment may flow from a close family relationship. /10/ Contrary to respondent's contention (Br. in Opp. 8), the Board's practice of excluding relatives in certain circumstances does not violate the Act's requirement that the Board remain "wholly neutral" in union elections with respect to those who oppose as well as those who favor a union. Compare NLRB v. Savair Mfg. Co., 414 U.S. 270, 278 (1973). Savair requires neutrality with respect to those employees otherwise eligible to vote in an election conducted in an appropriate unit; it has never been held to affect the Board's authority to exclude from a unit employees who do not share with other employees a community of interest in their relationship with the employer. Caravelle II, 504 F.2d at 1188. Indeed, whenever the Board excludes individuals from an appropriate bargaining unit, it necessarily precludes them from voting in the election for that unit without violating the principle of Savair. Although employees who lack a community of interest with others may well oppose a union when others favor it, particularly where the lack of commonality stems from an employee's family relationship with an owner of the business, the opposition is merely a consequence of the divergent interests; it is not the basis for the employee's exclusion from the unit. /11/ In Parisoff Drive-In Market, Inc., 201 N.L.R.B. at 814, the Board expressly compared such employee-relatives to confidential employees whom the Board historically has excluded from bargaining units generally at the request of employers. 201 N.L.R.B. at 814; see NLRB v. Hendricks County Rural Electric Membership Corp., supra. Indeed, in some cases it is the employer who seeks or agrees to the exclusion of employee-relatives from a bargaining unit. See, e.g., NLRB v. Warner, 587 F.2d 896, 901 (8th Cir. 1978); McMahon Transportation Co., 124 N.L.R.B. 1092, 1093 (1959). /12/ In Caravelle Wood Products, Inc., 185 N.L.R.B. 800 (1970), the Board had relied upon the Section 2(3) definition of "employee" in excluding from the unit the wives and children of several 10% owners of a closely held corporation. The Seventh Circuit rejected the Board's reliance on Section 2(3). In refusing to uphold the Board's expansion of the Section 2(3) exclusion to cover children or spouses of "'substantial' shareholders" of corporations, the court held that the Board's standard "has proved so elastic that it virtually repeals the statutory language." 466 F.2d at 678. Following the court's decision in Caravelle I, the Board expressly limited the Section 2(3) exclusion as applied to corporations to the children or spouses of an individual with a minimum of 50% ownership interest. Cerni Motor Sales, Inc., 201 N.L.R.B. 918 (1973). No issue concerning the validity of that Board position is presented in this case. Diane Sabo's spouse owns less than 50% of the corporation, and Mildred Sabo is the mother, not the child or spouse, of the owners (see page 27, infra). The Board's decision here, accordingly, is not based on any premise that Diane and Mildred Sabo are not "employees" within the meaning of Section 2(3). /13/ Contrary to respondent's contention (Br. in Opp. 4 n.2), no other court of appeals follows the Sixth Circuit's rule prohibiting exclusions from bargaining units under Section 9(b) on the basis of family relationship. Each of the cases cited by respondent merely approved a Board exclusion or inclusion based on job privileges, but none held that such a finding is required. See NLRB v. Connecticut Foundry Co., 688 F.2d 871, 879 (2d Cir. 1982); NLRB v. Warner, 587 F.2d 896, 901-902 (8th Cir. 1978); NLRB v. Jackson Farmers, Inc., 432 F.2d 1042, 1044-1045 (10th Cir. 1970 , cert. denied, 401 U.S. 955 (1971). Moreover, the Second Circuit, in Connecticut Foundry, cited with approval the decisions in Caravelle I and II, and Linn Gear Co. (688 F.2d at 879); see also Mercy Hospital v. NLRB, 668 F.2d 661, 666 (2d Cir. 1982). /14/ In decisions following Sexton, the Sixth Circuit approved the exclusion of family members from bargaining units only where special job-related privileges were shown to exist. See Cherrin Corp. v. NLRB, 349 F.2d 1001, 1004-1007 (1965), cert. denied, 382 U.S. 981 (1966); Uyeda v. Brooks, 365 F.2d 326, 329 (1966); see also NLRB v. Hubbard Co., 702 F.2d 634, 636-637 (1983). /15/ Nothing in the legislative history of Section 2(3) indicates that Congress intended that Section to preclude the Board from exercising its otherwise broad authority under Section 9(b) to exclude from appropriate bargaining units, for policy reasons, employee-relatives not within the Section 2(3) exclusion. The Senate Report on the bill that became the Wagner Act states only (S. Rep. 573, 74th Cong., 1st Sess. 7 (1935) ): For administrative reasons, the committee deemed it wise not to include under the bill agricultural laborers, persons in domestic service of any family or person in his home, or any individual employed by his parent or spouse. The House Report merely states that the definitions in Section 2, 29 U.S.C. 152 "are for the most part self-explanatory." H.R. Rep. 972, 74th Cong., 1st Sess. 8 (1935). /16/ Indeed, although no longer an issue in this case, the Board was warranted in finding that Diane Sabo should be excluded from the unit for the additional reason that she enjoyed special job-related privileges, viz., "her irregular work schedule, her breaks and lunches with corporate officers in corporate offices, her being paid a salary rather than hourly pay, and not being required to punch a time clock" (Pet. App. 21a-22a n.2).