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  • Can a Union Request to See the Financial Records of a Company during Negotiations?

    Under Section 8(a)(5) of the NLRA employers must bargain in good faith with union representatives. This includes making reasonable accommodations for Unions who are in the process of negotiating a new contract, such as providing theUnionwith financial data in order to verify an employer’s claim that the company is in financial trouble and will be unable to continue business under the current agreement.  This principle is best illustrated by looking at the following two cases:

     Nielsen Lithography Co. and Graphic Communications International Union, Local 508 O-K-I, AFL-CIO, 305 NLRB 90 (November 22, 1991)

    In Nielsen, theUnion had a unit in the employer’s lithographic company, whose contract was negotiated on a three-year basis. During the negotiations, the company proposed reductions in the employee’s compensation and benefits.  Thereafter, the employer informed theUnion that the company was still “making a profit,” but stated that it needed “concessions to compete,” because increasing “costs in the [expiring] contract” were resulting in significant losses of business to competitors.  Consequently, they were “operating at a competitive disadvantage.” In response, the Union requested that company opened its books and records in order for theUnion to check if the claims made by the employer were true.

    When addressing the issue of whether the Unionshall be allowed to look at the employer’s financial statements, the Board first stated that every case in which economic inability is raised as an argument against increased wages, the determination as to whether the employer should be compelled to open their books must be looked at on a case-by-case basis. Relying on the 7th Circuit’s Harveststone[1]decision, the Board determined that because the employer never said “[we are] financially unable, as opposed to unwilling, to meet theUnion’s demands,” the employer’s statements were “nothing more than truisms”(states nothing beyond what it is implied) and in context “did not constitute a plea of inability to pay.”

    The Board noted, however, “although operating at a competitive disadvantage might ultimately force a company out of business, such predictions do not trigger an obligation to furnish financial information under Truitt.”[2] Moreover, the negotiations are for the current contract term, not any period beyond that. Therefore, “an employer’s obligation under Truitt to provide a union with information by which it may fulfill its representative function in bargaining does not extend to information concerning the employer’s projections of its future ability to compete.” Ultimately, the court refused to equate “inability to compete,” whether or not linked to job loss, with a present “inability to pay,” and dismissed the complaint in its entirety.

    Stella D’oro Biscuit Company, Inc., 355 NLRB No. 158 (Aug. 27, 2010).

    The issue of allowing a union to look at a company’s financial statement was once again raised in Stella D’oro Biscuit Company, Inc. The facts of this case surround an employer, Stella, who was owned by a private equity investment firm, Brynwood.  A three-year collective bargaining agreement ended in 2008, and during negotiations for a future contract, Stella made the claim that the company would not be able to survive under the current labor contract.  Consequently, theUnion asked for a complete financial statement in order to substantiate the employer’s claim.  In response to the request, during a negotiation meeting Stella presented the Union with an audited financial statement from 2007 and said theUnion could look at it, but not keep it.

    In determining whether to allow the union to obtain a copy of Stella’s financial statement, the Board first looked to the principle established in Nielsen Lithographing Co. That is: “this duty applies only where an employer asserts ‘a present inability to pay, or a prospective inability to pay during the life of the contract being negotiated,’ not where the employer ‘is simply saying that it does not want to pay.’”

    The Board first addressed the employer’s claim that they were unable to pay. Here, the Board affirmed an ALJ’s finding that Stella’s concessions were linked to its lack of profits, which would ultimately determine whether Stella’s parent company would “take its money elsewhere and close and sell Stella.” Thus, the need for concessions is linked to its survival, and thus it was a claim of inability to pay.  Moreover, the Board noted that it “does not require that the employer recite any ‘magic words,’ but only that its statements and actions be specific enough to convey an inability to pay.” Atlanta Hilton & Tower, 271 NLRB 1600 (1984).

    The Board then addressed Stella’s failure to provide the union with the company’s financial statement. Relying on the factors set forth in American Telephone & Telegraph Co., 250 NLRB 47 (1980), the Board determined that Stella’s failure to provide the Union with the financial statement was in violation of its obligations under Section 8(a)(5).  The factors considered included: (1) the volume and nature of the information; (2) whether furnishing a photocopy would give greater assurance of accuracy and completeness; and (3) the comparative cost and convenience to both parties of providing a photocopy. Because the “document was a complex financial statement that did not lend itself to ‘quick and easy comprehension;’ possession of the document would benefit the Union, as its professions could ‘examine it in detail’ for purposes of advising the Union on its bargaining posture; and the cost of photocopying the document was negligible,” the Board determined Stella should have provided the Union with the financial statement, which was a mere 19 pages long.

    So, to answer the question presented in the title of this post: it depends. If the employer claims that the need to change the collective bargaining agreement’s terms is based on the company’s failure to continue to operate, then the union will most likely be entitled to view the company’s financial statement in order to make sure the employer is not lying and is bargaining in good faith, as required under Section 8.

    A special thanks to Sean Gajewski for helping with this post.  Sean is a third-year law student at Hofstra University School of Law.  You can reach him by email at srgajewski [at] gmail dot com. Bio: www.sgajewski.com.

    1. [1] NLRB v. Harvestone Mfg. Corp., 785 F.2d 570 (7th Cir. 1986). – The “test of whether an employer’s statement that ‘it is operating at a competitive disadvantage’ triggers an obligation to disclose financial data is whether the employer said it ‘would not’ as opposed to ‘could not’ pay the employees’ proposed demands.” In other words, an employer’s obligation to open its books does not arise unless the employer has predicated its bargaining stance on assertions about its inability to pay during the term of the bargaining agreement under negotiation.
    2. [2] NLRB v. Truitt Mfg. Co., 351U.S. 149 (1956). – “an employer’s claims during bargaining that it is unable to pay a requested wage increase may require it to offer ‘proof of… [the] accuracy of the claim.’”