By:  Kenneth R. Dolin, Esq.

Labor negotiations are, as the name suggests, a series of negotiations that historically are conducted in an adversarial manner during which both parties often defend their proposals with, among other things, a mixture of rhetoric, logical appeals, and argument.  The Board has long recognized that during this process the employer must be given some leeway (as is the union regarding other types of claims) to be able to argue that particular union proposals are not in the company’s best economic interest because it would harm the company’s ability to compete.  The employer has historically been able to make these sorts of statements during negotiations without running the risk that union will be then entitled to review some or all of the company’s finances–as long as the company never claimed “it could not pay” for the union’s proposals. 

To review briefly the law, in NLRB v. Truitt Mfg. Co., 351 U.S. 149 (1956), the Supreme Court endorsed Board precedent holding that an employer claiming an inability to pay may be required to disclose financial information to the union to substantiate that claim.  As the court put it, “[g]ood faith bargaining necessarily requires that claims made by either bargainer should be honest claims, and if such claim is important enough to present in the give and take of bargaining, it is important enough to require some sort of proof of its accuracy.”  Id. at 152-153.

Two lines of Board cases have applied the Truitt “honest claim” principles: (1) one where the issue is simply whether the employer claimed an inability to pay, entitling the union to full access to the employer’s financial records, and (2) one where the employer makes claims that are short of an asserted inability to pay, but which nonetheless are relevant to the parties’ bargaining proposals and thus subject to verification by the union.  See, e.g., National Extrusion Mfg. Co., 357 NLRB No. 8 (2011), enf’d sub. nom. KLB Industries, Inc. v. NLRB, 700 F.3d 551 (D.C. Cir 2012).  However, an employer’s assertion of competitive disadvantage does not, in and of itself, constitute a claim of inability to pay.  See e.g., Nielson Lithographing Co., 305 NLRB 697 (1991) enf’d sub. nom. Graphic Communications Local 508 v. NLRB, 977 F.2d 1168 (7th Cir. 1992).

The Obama Board, however, is apparently unhappy with this line of  cases, and has recently noted that “in an appropriate case,” it would revisit the historical distinction between “inability to pay” and “competitive disadvantage” claims. 

In particular, in Coupled Products, LLC, 359 NLRB No. 152 (July 10, 2013), the Board held that the employer did not unlawfully deny the union’s request to audit its financial books during negotiations in which the employer demanded steep reductions in wages and benefits.  In agreeing with the ALJ, the Board found (1) no violation because the employer did not claim an “inability to pay the union’s demands,” but rather claimed only a competitive disadvantage from paying more for labor and benefits than other area manufacturers; (2) the parties’ impasse in negotiations was valid and the employer therefore lawfully implemented the terms of its final proposal; and (3) a strike that began after the employer’s refusal to provide information was found to be an economic, not an unfair labor practice, strike.

The employer in Coupled Products had notified the union that it was shutting down its unionized plant in Columbia City, Indiana and moving the bargaining unit work to its other plant in Mexico in order to save $2 million in labor costs.  The employer offered to engage in effects bargaining and thereafter explained that the unionized plant was “too expensive to maintain.”

During discussions in 2010 and 2011 with the union, the employer told the union that the employer as a whole made a profit but that the Columbia City plant had lost money.  The union asked if there was any way the Columbia City plant could continue to operate.  The employer responded that it would be willing to continue operating this plant at break-even or even a small loss.  At the union’s request, the employer produced a one-page unaudited profit-and-loss statement and indicated that it would consider any proposals from the union to keep the plant open. 

Thereafter, negotiations for a renewal agreement commenced; the union sought wage increases and the employer sought to reduce certain wages and benefits.  The employer based its proposal in part on research into area wages and labor statistics, which revealed that it paid significantly higher wages for non-skilled labor than the market rate.

The union thereafter formally requested to review the employer’s books for proof of the employer’s finances to substantiate its concessionary proposal.  The employer produced a one-page unaudited financial statement to the union for the unionized plant only showing a loss and stated this plant was losing customers and money and was uncompetitive.  The union thereafter offered to freeze current wages, but the employer insisted on its proposed wage reductions. 

The union asked whether the employer was unable to pay wages and the employer replied only that it was “not willing to pay” what the union proposed.  The union rejected the employer’s proposal and asked several more times to audit the employer’s finances.  The employer’s final proposal reduced wages for certain employees and eliminated certain benefits.  The union membership rejected the proposal and the employer rejected the union’s final counterproposal.  The union made another request for the employer to open its books, but the employer refused, denying that it claimed an “inability to pay” and repeated its claim that it was uncompetitive in the marketplace.

The union began its strike and shortly thereafter, the employer implemented the terms of its final proposal and hired replacement employees.

The Board found that the employer did not violate Section 8(a)(5) by refusing to open its books to the union because the employer did not claim an inability to pay, but rather only claimed that it wished to overcome its competitive disadvantage.  The Board found that the ALJ reasonably concluded that the employer’s statements and conduct both before and during the negotiations were consistent with its position that it was unwilling, but not unable, to meet the union’s demands based on (1) the employer’s statement to the union that its recent inquiries and results indicated that the employer was overpaying for non-skilled labor; and (2) the employer’s discussions with the union about the then-planned closure where it told the union many times that the employer as a whole was profitable in 2010 and 2011.

The Board rejected the argument that the focus should be just on the unionized plant because the employer never insisted that the unionized plant had to stand on its own.  To the contrary, the employer suggested that it was willing to keep the unionized plant open if the plant could come close to breaking even.  Moreover, the union did not limit its request to financial information pertaining to the Columbia City facility only; rather, it had requested that the employer open its books in their entirety.

The Board also rejected the argument that an employer’s assertion that it will close a facility if economic concessions are not made is necessarily a claim of inability to pay because the employer’s decision-making was driven primarily by its desire to minimize losses at Columbia City, rather than by a risk of insolvency during the term of the proposed agreement.

Finally, the Board rejected the argument that where a union demands only the sort of financial information disclosures triggered by an “inability to pay” claim, and no such claim was actually made, the employer still must provide other information relevant to the claim it has made, even if the union has not requested such information.  Rather, the Board found that a union must first request such information.

In sum, the Board found that the employer did not violate the Act by denying the union’s information request for unfettered access to the employer’s financial books because the employer did not claim an inability to meet the union’s contractual demands.  The Board left undisturbed its precedent emphasizing that the “inability to pay” doctrine does not mean that “a union faced with something less than an inability-to-pay claim is not entitled to any information.  Thus, even where a union is not entitled to broad access of an employer’s financial records, the union may still be entitled to specific assertion about its business and competitiveness – provided, of course, that it requests such information.  See National Extrusion Mfg. Co., 357 NLRB No. 8 (2011), enf’d sub. nom. KLB Industries, Inc. v. NLRB, 700 F.3d 551 (D.C. Cir. 2012)(disccused here).

The Aftermath

The Board expressly noted that neither party asked it to override the Board’s inability-to-pay decisions.  However, it then stated that this case illustrated that the post-Truitt analytical distinction between inability-to-pay cases and less than inability-to-pay cases often leads parties to become preoccupied with magic words, “distracting them from genuine dialogue and information sharing that can lead to productive collective bargaining.”  The Board then concluded that “in an appropriate case,” it would consider how the Board has distinguished between “inability to pay” and “competitive disadvantage” claims in post-Nielsen cases and whether these distinctions best promote good-faith bargaining.  359 NLRB No. 152 sl. op. at 2-3 fn. 6.

It appears that the Board will consider following the test then-Member Wilma Liebman noted in her dissent in Richmond Times-Dispatch, 345 NLRB 195, 202 fn. 5 (2005).  There, she suggested revisiting the Nielsen ruling because it permits inconsistencies and often sanctions “hide-the-ball” conduct at the bargaining table contrary to the obligation to bargain in good faith as explicated by the Supreme Court in Truitt.  Then-Member Liebman contended that a “better” rule would pace on employers “the obligation to supply the union, upon request, with financial information necessary to substantiate the employers’ objectively verifiable claims concerning their financial condition.”

Indeed, Judge Cabrares, in a concurring opinion, also suggested that the Board might wish to reconsider whether the Board’s “inability to pay” standard is consistent with Truitt and that it may be able to provide a more “precise” ruling in the future by explaining that an employer claiming during bargaining that it is unprofitable due to labor costs is “effectively” claiming an inability to pay for such costs.  See SDBC Holdings, Inc. v. NLRB, 711 F.3d 281, 295 (2d Cir. 2013).