United States: Employer Claims Of Unprofitability And Competitive Disadvantage Enough To Trigger Audit Of Financials By Union, NLRB Majority Concludes

The end of another NLRB fiscal year is upon us.  Today, September 30, marks the last date of the fiscal year.  We can expect to see a number of decisions issue from the Board, and many determinations made at the regional level, as the agency attempts to pump up its case processing statistics.  We will of course report any interesting developments.

In the meantime, in early August the NLRB issued an interesting case which seems to extend the existing law about what employer negotiators say in negotiations that triggers an obligation on the employer to "open its financial books" to the union upon request to prove its stated justification.

Most people who have familiarity with labor negotiations know that claiming an "inability to pay" triggers an obligation to prove the claim by allowing the union access to financial records.  The line of demarcation used to be that a claim of inability to pay requires justification while a claim of "competitive disadvantage" does not.

But what happens if the employer affirmatively asserts it is not claiming an inability to pay but states that it is unprofitable and not competitive?  According to a majority of the NLRB, such claims may be sufficient to give rise to an obligation to allow a union to conduct a financial audit of the employer's books.

In Wayron, LLC, 364 NLRB No. 60 (August 2, 2016) the employer, a metal fabricator, was negotiating for a new contract with three trade unions.  The employer sought deep concessions from the unions, noting that it was not winning as many bids for jobs as it used because of competition with non-union firms.  In fact the employer had laid off most of its employees due to lack of work.

In discussing the need for concessions, the employer made the following statements.

  • the company "wasn't in jeopardy . . [but] that what we were not going to be able to provide was jobs" if the company wasn't competitive.
  • That the company "had come to an agreement with the bank and the landlord" and "it was important for [the unions] to get on board. . .so that they could go to the bank and say, hey, this is where we're at."
  • A union representative acknowledged in testimony that the company wasn't "crying poverty. . .They can't compete with that [collective bargaining agreement]. I don't believe they ever said they couldn't afford the contract."

The unions, for their part, stated that they were unwilling to take reductions. The parties bargained for a period of time and then met with a mediator.  The mediator ultimately concluded that the parties were so far apart there was nothing she could do to assist the situation.

The unions demanded an audit  by a union-selected auditor "to substantiate [the employer's] claim of inability to pay."  The employer rejected the request stating that it had not claimed an inability to pay only that it was "unable to remain competitive."

The employer ultimately terminated the employees and implemented its final offer, actions which were handled in through an injunction proceeding.

The issue regarding the employer's refusal to allow the audit was tried in an unfair labor practice proceeding.  The Administrative Law Judge dismissed the allegation noting that the employer never claimed that it could not pay.  Moreover, the ALJ noted that the unions did not request information to evaluate the claim of non-competitiveness by asking for examples of which bids had not been awarded.

On appeal, the Board majority reversed the ALJ and found the employer violated its duty to bargain by not allowing an audit of its financial records.  The two member majority sifted through the claims of the parties during negotiations and concluded that although the employer never specifically claimed inability to pay an obligation to provide an audit arose because

[The unions] would reasonably have understood that [the employer] was asserting its inability to continue compensating employees at the expiring contract's rates, let alone at the increased wages and benefits sought by the Unions [ ] we therefore conclude the Unions were within their rights to demand an audit of the [employer's] financial records in light of those statements.

This is a fairly novel conclusion, shifting the analysis from what was actually stated in negotiations to the much more subjective basis of how the union interpreted statements that do not on their face amount to a claim of inability to pay.

The Board, citing Nielsen Lithographing Co., 305 NLRB 697 (1991) aff'd. sub nom. GCIU Local 508 v. NLRB 977 F.2d 1168 (7th Cir. 1992) noted that "bargaining claims of an inability to pay differ from bargaining claims of competitive disadvantage:  the former require the party making the claim to provide substantiating financial information if requested, while the latter do not."

The Board stated this basic standard was not one of "magic words" that an employer utter "but only that its statements and actions be specific enough to convey an inability to pay."  Stella D'oro Biscuit Co, 355 NLRB 769, 770 (2010), enf. denied sub nom. SDBC Holdings, Inc. v. NLRB, 711 F.3d 281 (2nd Cir. 2013).  Applying this analysis, the Board majority concluded the employer "directly connected [the employer's] bargaining demand for concessions with its need to demonstrate to the bank that it had reduced expenses and increased income."  The Board majority explained:

It is, of course, an entirely unsurprising proposition that competitive disadvantage, if continued at length, may eventually lead to inability to pay — especially when the business is losing money and lacks financial resources to cover its losses.  Here we find the facts and circumstances establish that [the employer] despite its surface characterizations to the contrary, was asserting that it could not pay, during the life of the contract  being negotiated, the existing (or higher) levels of compensation that the Union sought.

Unsurprising perhaps to the Board majority; this notion certainly must have been surprising to the employer representatives who followed the then existing law to carefully present their proposals.  The fact is this represents a departure from the standard that is, like so many other areas of the NLRA these days, so murky as to be undefinable.  The NLRB majority cited two factors for its decision:  the fact the employer claimed it was not profitable and that the employer stated it needed further financing.

Member Miscimarra dissented in a lengthy opinion where he took a very detailed look at the record and would have found the evidence did not support a violation.  Member Miscimarra quoted at length the credited testimony of the union representatives noting, contrary to the majority, that "the record demonstrates the Unions understood that [the employer] was claiming competitive advantage, not inability to pay."  The dissent also noted the judge had discredited one union representative who testified that the employer stated in bargaining that it would go out of business.

The dissent also cited to distinguishing characteristics in the cases cited by the majority including Lakeland Bus Lines, 335 NLRB 322 (2001) where the Board concluded an employer who was claiming it was trying to become profitable triggered an obligation to provide information, a decision which was denied enforcement by the court of appeals on the ground the Board had not followed its own precedent.  Lakeland Bus Lines Inc. v. NLRB, 347 F.3d 955, 963 (D.C. Cir. 2003)

The upshot of all of this is that employers seeking concessions must be much more vigilant when presenting the reasons for the proposed cuts:  or risk triggering obligation to open itself to an audit of its financial records.  This new frontier appears to have moved beyond the clear cut "inability to pay" statement to claims of unprofitability tied to some urgency.

Employer Claims Of Unprofitability And Competitive Disadvantage Enough To Trigger Audit Of Financials By Union, NLRB Majority Concludes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions