SDBC Holdings, Inc. v. National Labor Relations Board
711 F.3d 281, 195 L.R.R.M. (BNA) 2397, 2013 WL 1235644 (2013)
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Rule of Law:
An employer is only obligated to provide a union with financial documentation during collective bargaining if it asserts a present or prospective inability to pay union demands, rather than merely an unwillingness to pay or general economic difficulties. Even if such an obligation arises, the employer may satisfy it by allowing the union adequate access to inspect and take notes on the documents, especially when legitimate confidentiality concerns exist and the documents are not overly complex.
Facts:
- In 2006, Brynwood Partners, a private equity investment firm, acquired Stella D'oro Biscuit Co. ("Stella D'oro") with a business model of purchasing and improving companies, then selling them for profit within five to ten years.
- At the time Brynwood acquired Stella D'oro, a collective bargaining agreement (CBA) existed between Stella D'oro and Local 50, Bakery, Confectionary, Tobacco Workers and Grain Millers International Union (the "Union"), which was set to expire on June 29, 2008.
- During the first formal bargaining session on May 30, 2008, Stella D'oro presented the Union with a May 2008 Report showing declining net sales and an operating loss of approximately $1.6 million in fiscal year 2007, emphasizing the need to reduce labor costs to stay in business and stating that Brynwood was not in the business of sustaining losses indefinitely.
- Union President Joyce Alston requested financial documentation to substantiate Stella D'oro's claimed losses, and Stella D'oro's counsel, Mark Jacoby, agreed to bring the 2007 audited financial statement (19 pages) to the next bargaining session.
- At the June 4, 2008, session, Stella D'oro proposed wage cuts, reduced sick days, and vacation caps. Jacoby presented the 2007 Financial Statement, allowing the Union to inspect and take notes but refusing to provide a copy due to concerns about competitors, vendors, or customers learning of Stella D'oro's poor financial condition.
- Jacoby subsequently brought the 2007 Financial Statement to multiple bargaining sessions, offering to permit Union Committee members to examine and take notes on it for as long as they desired, and also offered that the Union's attorney or accountant could examine it at his office.
- Alston initially agreed to visit Jacoby's office with an accountant or attorney but later changed her mind after consulting with the Union's attorney, stating at the July 8 session that the Union was entitled to its own copy of the document.
- On July 26, 2008, all Stella D'oro employees who were members of Local 50 met and voted to reject Stella D'oro's final proposed CBA, commencing a strike on August 13, 2008.
Procedural Posture:
- On September 11, 2008, Local 50 filed a charge against Stella D'oro with the National Labor Relations Board (NLRB), alleging, among other things, that Stella D'oro impermissibly denied the Union necessary information during bargaining.
- Local 50 filed amended charges on February 17, 2009, and again on May 7, 2009, with the latter adding an allegation that Stella D'oro's failure to reinstate Union members in May 2009 after an unconditional offer to return to work also violated the NLRA.
- The Regional Director of the NLRB for Region 2 issued a complaint against Stella D'oro on May 7, 2009, based on the Union's charges, to which Stella D'oro answered on May 11, 2009.
- Over four days in May 2009, a series of witnesses gave evidence before Administrative Law Judge (ALJ) Steven Davis.
- On June 30, 2009, the ALJ issued a decision finding that Stella D'oro committed unfair labor practices by pleading an inability to pay, failing to provide adequate access to the financial statement, substantially causing the strike, unilaterally implementing changes, and unlawfully refusing to reinstate employees.
- In a decision and order issued on August 27, 2010, the NLRB, through a divided three-member panel, affirmed the ALJ’s decision over several exceptions by Stella D’oro.
- Stella D'oro (SDBC Holdings, Inc.) petitioned the U.S. Court of Appeals for the Second Circuit for review of the NLRB's decision, and the NLRB cross-petitioned for enforcement of its order.
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Issue:
Does an employer's assertion of current financial losses and a parent company's unwillingness to continue funding those losses without concessions constitute an 'inability to pay' that obligates the employer to provide the union with a physical copy of its financial statements, even if the employer offers alternative means of access due to confidentiality concerns?
Opinions:
Majority - Livingston, Circuit Judge
No, an employer's assertion of current financial losses and a parent company's unwillingness to continue funding those losses without concessions does not constitute an "inability to pay" requiring the employer to provide a physical copy of its financial statements, especially when the employer offers reasonable alternative access due to legitimate confidentiality concerns. The court found that the NLRB's determination that Stella D'oro asserted an inability to pay was not supported by substantial evidence. Stella D'oro's parent company, Brynwood, had recently invested $3.1 million, was willing to spend an additional $6 million to exit the Union's pension plan, and explicitly stated its willingness to fund losses and invest to make the company profitable, rather than claiming it could not meet demands. The statements indicated an unwillingness to meet demands without restructuring costs to achieve profitability, consistent with Nielsen Lithographing Co. and Stroehmann Bakeries, Inc. The Board majority erred by disregarding Stroehmann, which involved analogous facts where a parent company subsidized a losing subsidiary but demanded concessions. The court also rejected the Board's reliance on United Stockyards, which predated Nielsen and did not address parent company capital. Furthermore, even assuming an obligation to provide the statement existed, Stella D'oro complied with that obligation by offering multiple opportunities for Union representatives to inspect and take notes on the 19-page document at bargaining sessions and at its attorney's office. The court found Stella D'oro's confidentiality concerns legitimate and determined that the financial statement was not so complex or lengthy as to require a photocopy, distinguishing it from cases involving lengthy or highly technical documents (e.g., American Telephone & Telegraph Co. and Union Switch & Signal, Inc.) and finding it more analogous to Abercrombie & Fitch Co. Therefore, Stella D'oro did not commit an unfair labor practice by refusing to provide a copy. Since no unfair labor practice occurred, a valid impasse arose, making Stella D'oro's unilateral implementation of changes lawful and the Union's conditional offer to return to work under the prior agreement ineffective.
Concurring - José A. Cabranes, Circuit Judge
Yes, in principle, an employer's assertion of unprofitability could support a conclusion of "inability to pay" within the meaning of Truitt, but the court is bound by Stroehmann Bakeries, which narrowly defined "inability to pay" as equating to insolvency, and the Board did not provide a reasoned explanation for departing from Stroehmann. Judge Cabranes agreed with the majority's application of Stroehmann but urged the NLRB to reconsider its interpretation of "inability to pay" in future cases. He argued that Nielsen Lithographing Co. and Truitt imply that an employer claims an "inability to pay" when its operations are unprofitable given current labor costs, rather than only when it is literally insolvent. He noted that the Board's use of "business losses" in Nielsen was confusing, as it meant "losses of business to competitors" rather than financial losses. The judge emphasized that the paramount concern of a business is generating profit, and claims of unprofitability can and generally should trigger a duty to substantiate if a union would seriously consider concessions based on such claims.
Analysis:
This case clarifies the narrow interpretation of "inability to pay" under the National Labor Relations Act, particularly in the Second Circuit, distinguishing it from an "unwillingness to pay" driven by a desire for greater profitability or an investment firm's financial benchmarks. It reinforces that an employer's access to parent company capital can negate an "inability to pay" claim. The decision also provides guidance on what constitutes adequate access to financial information when confidentiality is a legitimate concern, emphasizing the "totality of circumstances" rather than a blanket requirement for photocopies. Future NLRB decisions seeking to broaden the definition of "inability to pay" to include unprofitability will need to offer detailed, reasoned explanations to overcome existing circuit precedent, highlighting the ongoing tension between agency deference and judicial precedent in labor law disputes.
