Employer Lawfully Refused to Provide a Copy of Audited Financial Statement Sought by Union During Collective Bargaining: Second Circuit | Practical Law

Employer Lawfully Refused to Provide a Copy of Audited Financial Statement Sought by Union During Collective Bargaining: Second Circuit | Practical Law

In SDBC Holdings, Inc. v. NLRB, the US Court of Appeals for the Second Circuit held that SDBC Holdings, Inc. acted lawfully when it refused to provide a union representing some of its employees with a copy of the company's 2007 audited financial statement that the union sought during collective bargaining.

Employer Lawfully Refused to Provide a Copy of Audited Financial Statement Sought by Union During Collective Bargaining: Second Circuit

by PLC Labor & Employment
Published on 29 Mar 2013 • USA (National/Federal)
In SDBC Holdings, Inc. v. NLRB, the US Court of Appeals for the Second Circuit held that SDBC Holdings, Inc. acted lawfully when it refused to provide a union representing some of its employees with a copy of the company's 2007 audited financial statement that the union sought during collective bargaining.

Key Litigated Issues

The key litigated issues in SDBC Holdings, Inc. v. NLRB were whether:
  • SDBC Holdings, Inc.'s (SDBC) representations about the employer's financial conditions created an obligation to provide the employer's audited financial statement at the union's requests.
  • If an obligation to provide the employer's audited financial statement existed, whether the employer satisfied the obligation by making the documents available to the union's inspection and note-taking at various times.

Background

Stella D'oro was a New York corporation that manufactured baked goods. It operated a single bakery plant in the Bronx. The union represented employees at this plant. In 2006, Brynwood Partners (Brynwood), a private equity investment firm, acquired Stella D'oro from Kraft Foods. Brynwood generally purchases and then holds a company for five to 10 years, improving its value before selling it at a profit. When Brynwood acquired Stella D'oro, it:
  • Introduced:
    • product and marketing innovations;
    • price increases; and
    • reductions in management staff.
  • Provided funding for automated packaging equipment.
When Brynwood acquired Stella D'oro, Stella D'oro and the Union had a collective bargaining agreement (CBA). The CBA governed the relationship between Stella D'oro and the union for three years, from June 29, 2005, through June 29, 2008. On 13 occasions between May 30, 2008 and July 23, 2008, Stella D'oro and the union representatives held bargaining sessions to negotiate a renewal CBA.
At the May 30 meeting, Stella D'oro’s representatives presented the union with a report (May 2008 Report) setting out information about Stella D'oro’s financial performance and expenses including that:
  • Over the past ten years, Stella D'oro’s net sales fell by over 50%.
  • Prices for ingredients Stella D'oro relied on for baking and prices for transporting products had risen steadily.
  • In fiscal year 2007, Stella D'oro had an operating loss of $1.6 million.
Stella D'oro's counsel discussed the May 2008 Report with the union, emphasizing Stella D'oro's financial difficulties. During that bargaining session and later sessions Stella D'oro and Brynwood representatives noted that:
  • Stella D'oro had to reduce the costs of the CBA in order to stay in business.
  • Brynwood:
    • had bought a troubled company;
    • raised the prices of the product twice;
    • intended to raise prices again in September;
    • had also invested in automation;
    • wanted to help the company grow and become profitable; and
    • would not continue to fund company losses if it could not reduce labor costs under the CBA;
Brynwood proposed:
  • wage cuts to reach market rates for unskilled work;
  • reductions in paid time off;
  • lengthening the work week;
  • ceasing contributions to the union's multiemployer pension plan, even though Stella D'oro would incur six million dollars in withdrawal liability (under the Multiemployer Pension Plan Amendment Act);
  • replacing the pension plan with a 401(K) plan that included an employer's 3% match; and
  • a five-year CBA to solidify labor costs for longer than the customary three-year CBA term.
A union representative requested financial documentation that would support Stella D'oro's claim that it was losing money before the union could consider agreeing to any concessions. Specifically a union representative requested to review financial materials relevant to the 2007 operating losses.
Stella D'oro's counsel provided Stella D'oro's 2007 Financial Statement which reflected the company's 2007 operating losses at the next bargaining session after the union agreed the production was acceptable to investigate the company's claim.
When Stella D'oro's counsel brought a copy of the 2007 Financial Statement to the next bargaining session, he:
  • Showed the union's counsel the document’s single page statement of operations, which contained the operating loss figure presented in the May 2008 Report.
  • Told the union representatives that they could inspect and take notes on the Statement at the bargaining site all day, but that he could not provide them with a copy to retain.
  • Explained that Stella D'oro did not want the Statement falling into the hands of competitors, vendors or customers in case they learned of Stella D'oro's poor financial condition.
Union counsel offered to sign a confidentiality agreement, but Stella D'oro's counsel refused to agree to that proposal, citing the difficulty in enforcing such agreements. However, Stella D'oro's counsel:
  • Brought the 2007 financial statement to later additional bargaining sessions.
  • Repeatedly invited union counsel to remain after the sessions concluded to examine the Statement and take notes.
  • Informed union counsel that:
    • the documentation was available at his office and the company's facility; and
    • that the union attorney or accountant could examine and take notes on it there.
The union's counsel agreed that these arrangements were acceptable and said that the union's accountants would audit the statement but later claimed that Stella D'oro was required to provide the union with its own copy of the financial statement.
Union counsel expressed her agreement with this arrangement at the June 4 session.
The union also later made a counterproposal demanding:
  • Wage increases.
  • Additional employer contributions to the union pension plan.
  • An increase in the number of paid personal days.
The parties agreed to extend the terms of the expiring CBA through July 31, 2008, recognizing that they were not near reaching an agreement. Approximately one week before the extension of the CBA would end, Stella D'oro's counsel:
  • Made Stella D'oro's final proposal.
  • Asked the union's counsel to take the offer to the union members for a vote.
On July 26, 2008, the bargaining unit voted to reject the proposed CBA and strike. The union commenced the strike on August 13, 2008. On August 27, Stella D'oro mailed the union's counsel a letter informing her that due to the continuing impasse in negotiations and the strike, Stella D'oro had decided to implement unilaterally the changes to the employment conditions proposed in its final offer. About eight months later, on May 1, 2009, union counsel sent a letter to Stella D'oro informing it of the union members’ unconditional willingness to return to work immediately under the terms of the June 29, 2005 through June 29, 2008 CBA. Stella D'oro, however, rejected the offer, asserting that, because Stella D'oro had already altered the conditions of employment, the employees' willingness to return to work under the prior agreement was a conditional offer not an unconditional one.
On September 11, 2008, about a month after the strike commencement, the union filed a NLRB ULP charge against Stella D'oro alleging that Stella D'oro unlawfully denied the union necessary information for bargaining. On February 17, 2009 and May 7, 2009, the union added the allegation that Stella D'oro's failure to reinstate the members of the union in May 2009, when they offered "unconditionally" to return to work, also violated the NLRA. On May 7, 2009, an NLRB Regional Director issued a complaint against Stella D'oro based on the union's charges. On June 30, 2009, an NLRB administrative law judge (ALJ) issued a decision finding that Stella D'oro committed ULPs in violation of the NLRA. The ALJ concluded that:
  • Stella D'oro had asserted an inability (as opposed to unwillingness) to pay the wages and benefits demanded by the members of the union during the bargaining sessions.
  • Under the NLRB's decision in Nielsen Lithographing Co., the union was entitled to access to the 2007 Financial Statement on which Stella D'oro's assertions of inability to pay were based.
  • Stella D'oro unlawfully failed to satisfy its obligation to provide the Statement to the union, permitting the union representatives or their agents to inspect the Statement and take notes, therefore giving rise to a ULP on the part of Stella D'oro.
  • Stella D'oro’s refusal to provide the Statement to the Union was a "substantial cause" of the union's strike.
  • Because Stella D'oro had unlawfully refused to provide the financial Statement to the union:
    • no valid impasse had arisen; and
    • Stella D'oro unlawfully implemented changes to the terms of employment in August 2008 unilaterally.
  • Stella D'oro committed a ULP by refusing to reinstate its employees because:
    • it did not have the power unilaterally to alter the conditions of employment; and
    • the union'’s May 2009 offer to return to work was indeed unconditional.
In a decision and order dated August 27, 2010, the panel (Board) heading the NLRB's judicial functions, affirmed the ALJ’s decision and required Stella D'oro to make bargaining unit employees whole, with interest, for any loss of earnings and other benefits resulting from its unlawful unilateral changes to the employees’ terms and conditions of employment.
Member Schaumber dissented, concluding that Stella D'oro:
  • Had not taken the bargaining position that it lacked funds to meet the union's CBA demands, but only that it was unwilling to do so.
  • Made clear that Brynwood was willing to invest substantial amounts in Stella D'oro, with an aim of achieving profitability within five to ten years.
  • Was not contending that it lacked funds to meet the union’s contract demands. In such circumstances, Stella D'oro had no obligation to provide the 2007 Financial Statement to the union.
  • Even assuming Stella D'oro was required to make the financial statement available, its offer to allow the union and its experts view and take notes on its audited 2007 financial statement satisfied any obligation it had to provide the union substantiating information.
Stella D'oro petitioned the Second Circuit for review of the NLRB's decision and the NLRB cross-petitioned for enforcement of the Board's order.

Outcome

On March 28, 2013, the US Court of Appeals for the Second Circuit issued an opinion holding that:
  • The evidence did not sufficiently support the Board's determination that Stella D'oro asserted an inability to pay. This triggered a duty to substantiate those assertions. Accordingly, under Nielsen and Stroehmann Bakeries, Stella D'oro had no obligation to provide the statement.
  • The Board erred by disregarding settled law in failing to properly apply or distinguish through reasoned decision-making Stroehmann Bakeries.
  • Even if Stella D'oro had an obligation to provide the union with the 2007 Financial Statement, the Board's finding that Stella D'oro failed to satisfy this obligation is also insufficiently supported by the evidence. Stella D'oro's repeated offers to make the information available would satisfy any obligation to provide the information.
Accordingly, the Second Circuit:
  • Granted SDBC's petition for review of the Board's decision.
  • Denied the NLRB’s cross-petition for enforcement of its order.
The Second Circuit reasoned that:
  • Stella D'oro's bargaining position was based on its unwillingness and not its inability to meet the union's contract demands.
  • Stella D'oro never expressly asserted an inability to pay, but its parent:
    • was unwilling to continue operating at a loss;
    • was willing to make substantial investments in the company if the company succeeded in reducing costs;
    • was willing to incur substantial withdrawal liability to escape future pension plan liabilities; and
    • wished to achieve profitability within five to ten years.
  • The Board failed to explain how this case differs from Stroehmann, or why it disagrees with the outcome of Stroehmann.
  • Even if Stella D'oro had an obligation to provide the 2007 Financial Statement to the union, it fully complied with that obligation by affording the union multiple opportunities to examine and take notes on it.
  • Because Stella D'oro did not commit a ULP by not providing the financial statement, Stella D'oro lawfully imposed the terms and conditions stated in its final offer after the parties reached the collective bargaining impasse.

Practical Implications

This decision highlights how employers must clearly differentiate an unwillingness to agree to increases in wages and other labor costs from an inability to pay for those proposed increases. The decision also supports a line of cases finding that an employer is not required to provide information in the exact form that a union demands, especially when it offers to produce confidential information in a different way to accommodate the union's interests in the information. A concurring opinion by the court lays out a blueprint for the NLRB to modify its Nielsen analysis to make any assertion of unprofitably equivalent to an inability to pay, which must, at a union's request, be supported by documentation.

Court Documents