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Second Circuit Reminds NLRB of Difference Between “Inability” to Pay and “Unwillingness” to Pay

An employer that during union contract negotiations denies a union contract demand, based on an “inability to pay” the cost of the demand, must produce its financial records if so requested by the union.  The Second Circuit Court reversed the National Labor Relations Board’s (“Board”) recent decision and held that an employer’s statements that increased labor costs could cause its owner to withdraw funding and put the company at a disadvantage, did not constitute a claim of “inability to pay.”  SDBC Holdings Inc. f/k/a Stella D’oro Biscuit Co., Inc. v. NLRB.  Without a specific claim of “inability” to pay, the employer had no duty to provide the financial statements the union requested.

In this case, a manufacturer of baked goods, Stella D’oro, which operated a bakery in the Bronx, was acquired by a private equity investment firm (the “Firm”).  The Firm set about improving products and innovations, changing pricing strategies, and implementing other changes to make the bakery profitable.  When the Firm acquired the bakery, there was a three year collective bargaining agreement (“CBA”) in place.

Throughout contract negotiations, the Firm explained that Stella D’oro “had to reduce the costs of the labor agreement in order for them to stay in business” and that “[t]hey could not go on with the business unless they were able to further reduce costs.”  The Firm called for wage cuts, a two-thirds reduction on sick days, a cap on the amount of vacation available to employees, among other things.  Throughout the sessions, the Firm brought the financial statements with them and offered to show the union the statements so the union could see that the corporation was in financial trouble.  The Firm offered to make the statements available for the union’s review, an offer which the union initially accepted and subsequently rejected.  When an agreement could not be reached, the union went on strike.  The Firm stated that due to the impasse in negotiations, they would unilaterally implement the proposed changes to the agreement.  The workers refused to return to work.  As a result, the union filed an unfair labor practice charge (“ULP”) with the Board stating that the Firm impermissibly denied them necessary information during negotiations, meaning a photocopy of the financial statements, and amended the ULP to include a failure to reinstate the striking workers.

When the case was appealed to the Second Circuit, the Court found that the Firm had not expressed an inability to pay and even if they had, there was no unfair labor practice committed because the Firm had made the financial statements available to the union multiple times.  The Court reiterated existing case law explaining that there is a difference between an employer who “claims a ‘present’ or prospective inability to pay during the life of the contract being negotiated’” and an employer who “claims only economic difficulties or business losses or the prospect of layoffs.”  The Court found the Firm’s bargaining position was based on an “unwillingness” and not an “inability” to grant the union’s demands.  The Court took note of the fact that the Firm plainly told the union that it “purchases companies with the aim of improving their financial condition and then sell[s] them at a profit in 5 to 10 years,” that it was “prepared to fund losses,” and that the Firm’s desire was to “invest in the operations and make it profitable.”  These comments showed that the Firm was clearly not stating that it simply could not afford the union’s demands but that it was unwilling to do so.  The Court was persuaded that the union’s accepting and then rejecting the Firm’s offer to review the financial statements, was a strategy to strengthen the ULP rather than good faith bargaining.

Although this case is a strong case for management, employers should be aware that this kind of result will likely only be reached if a case is appealed from the Board to the Second Circuit given the current composition of the Board.

Brody and Associates regularly advises its clients on union-related matters and provides union-free training.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.