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.