LAX Caterer May Owe Workers $17.5 Million For Giving Them What The Union Wanted, Because Labor Law Says They’re An Airline

An LAX caterer may owe $17.5 million for giving workers what their unon wanted, because it’s in limbo over whether or not it’s an airline under labor law. One of the interesting things for me about this blog is that it’s really a space for working out obscure areas of my own interest. Sometimes that winds up interesting to read about. Other times, it’s entirely self-indulgent. I wind up seeing something and going down a rabbit hole to understand it better, and write about it because I came across surprising or new-to-me facts. I suspect this will be interesting to exactly seven of you, and while airline caterer labor relations issues aren’t exactly new to me they hadn’t really been top of mind but it’s a lot more fascinating than I’d given credit for. Sky Chefs was created by American Airlines It was owned Lufthansa And partly because of that history, it’s governed by the Railway Labor Act rather than the National Labor Relations Act. Even though it’s now owned by private equity Sky Chefs is treated as an airline. And this treatment that first started with Sky Chefs was extended to all airline caterers, but that’s changing. Sky Chefs Servicing American Airlines Plane at New York JFK Why this matters now is because they lost a case before the U.S. Court of Appeals for the Ninth Circuit on Tuesday that could require significant back pay to workers because they’ve been in open contract negotiations for 8 years and substituted the way they meet a local ordinance at LAX for providing additional hourly pay or health care. The LAX Living Wage Ordinance requires employers to provide either health benefits or an additional $5.67 per hour. The base airport wage was $17, so the all-cash requirement is $22.67 per hour. Employees used to get a choice between a Sky Chefs-paid plan with employees covering 35% of the cost or cash. On April 1, 2022 Sky Chefs replaced this with a new plan where they paid 100% of the premium (but workers could opt out with proof of alternative coverage). Sky Chefs met the ordinance. They just changed how they did it. And they did what the union wanted, the union’s position was fairly paternalistic – they preferred health coverage over cash because workers might spend the cash and then not be able to afford health care. However, since Sky Chefs was in contract negotiations (a ‘major dispute’ under the Railway Labor Act) they cannot unilaterally change wages without being released to ‘self help’ by the National Mediation Board. The union had asked for self-help back in 2019. This rarely granted since Presidents don’t want strikes that interrupt aviation. So the union sued, and the net effect is Sky Chefs has to pay both the wages that would have covered health care and the health care itself. That was never required by the union contract or the local ordinance. It’s because Sky Chefs made a unilateral change that the law doesn’t permit. The district court judge characterized this as a minor dispute under the Railway Labor Act, but the appeals court disagreed. Then the district court required Sky Chefs to restore the earlier health care offerings and cash alternatives while contract negotiations were underway – but not to order backpay for employees who also got the health care. The argument was this is literally what the union had wanted, the union didn’t object elsewhere that Sky Chefs had done this, and it furthered the purpose of the LAX ordinance. But the court of appeals said they had to come up with back pay also, saying the status quo has to be maintained (and restored) during contract negotiations under the Railway Labor Act. When a contract becomes amendable, it remains in force during negotiations. And netiher side can alter the status quo (such as changing wages) while that’s taking place, unless the government specific grants leave to the parties to unilaterally alter the arrangement. The court ruled that it did not matter that: Sky Chefs acted in good faith. Its advanced access to health insurance. The union was willing to make the trade. Calculating the award is complicated. Roughly speaking for four years at issue 600 employees could each be owed up to $29,000 (if they were continuously working full-time) for total exposure of approximately $17.5 million. What’s most interesting to me in this is why Sky Chefs is covered by the Railway Labor Act at all. They aren’t an airline. The Railway Labor Act nominally covers rail (enacted in 1926) and extended to airlines (in 1936). The National Mediation Board, rather than Congress, extended its jurisdiction to cover airline catering as a ‘derivative carrier.’ The contractor’s employees performed work traditionally performed by airline employees airlines sufficiently owned, controlled or supervised the contractor’s operations. The NMB applied that specifically to Sky Chefs in Sky Chefs, Inc., 15 NMB 397 (1988). American Airlines had sold Sky Chefs to a non-airline owner, the NMB found extensive continuing airline control over meal preparation; influenced work assignments, discipline and termination; requiring particular training before employees used equipment. At the time of the health plan change in 2022, Sky Chefs was part of Lufthansa’s LSG Group. Two things have happened since then: Lufthansa sold LSG Group in 2023, and the National Mediation Board discarded the derivative-carrier doctrine for airline contractors in Swissport Cargo Services, saying that the law covers common carriers by air and their employees and not independent contractors simply because airlines closely control their work. Since Swissport doesn’t operate aircraft, it’s not covered by the Railway Labor Act. That seems to apply to privately-owned Sky Chefs also, but the Swissport decision was advisory (covering their employees at Newark) and doesn’t automatically cancel every existing NMB determination. That’s weird: some ‘derivative carriers’ remained in Railway Labor Act mediation or negotiations, even though the National Mediation Board says they have no jurisdiction just like the Railway Labor Act doesn’t cover buses, subways, trucking, ships, airports, aircraft manufacturers, or other independent airline contractors. Topics on this page