On March 28, 2013, the United States Court of Appeals for the Second Circuit issued a decision in SDBC Holdings Inc. f/k/a Stella D’oro Biscuit Co., Inc. v. NLRB which held that an employer is not obligated to provide a union with copies of a financial statement unless it takes the position during bargaining that it is unable to pay any increased wages. This ruling is highly critical of the reasoning used by the National Labor Relations Board (NLRB). It is an important decision for employers in this circuit on the subject of an employer’s duty to provide financial information and on the subject of impasse and implementation of the final offer.

The case arose from negotiations between Stella D’oro and Local 50, Bakery, Confectionary, 15 Tobacco Workers, and Grain Millers International Union, in which Stella D’oro sought cost saving concessions. Stella D’oro explained during negotiations that its parent company would stop investing in developing Stella D’oro if the employer did not offset the drop in sales and increased costs of production with a reduction in the cost of the labor agreement. During negotiations, the employer also asserted that it would be at a competitive disadvantage if it paid increased wages.

The union requested that Stella D’oro provide a copy of its most recent audited financial statement to substantiate the claims that it made during bargaining. In response to that request, Stella D’oro did allow representatives of the union to view its financial statement; however, it would not provide the union with a copy of the financial statement to keep as it was concerned that the financial statements might fall into the hands of a competitor. The union had offered to enter into a confidentiality agreement, but the employer had declined, citing its concerns that such agreements are very difficult to enforce. Stella D’oro did invite the union to view the financial statement at Stella D’oro’s office, but after initially agreeing to inspect the statement, the union ultimately declined the invitation and filed an Unfair Labor Practice (ULP) charge at the NLRB.  

Stella D’oro never reached agreement with the union and the employer’s final offer was rejected by the membership, who then voted to go on strike. Stella D’oro declared that negotiations had reached an impasse and unilaterally implemented the terms of its final offer. The membership ultimately offered to return to work under the terms of the prior collective bargaining agreement, and Stella D’oro took the position that it had lawfully implement its final offer as the parties were at impasse.

The NLRB ruled that Stella D’oro made a claim of inability to pay; therefore, the employer had an obligation to substantiate its claim and provide the union with financial statements showing the inability to pay. By failing to provide the copy of the statement to the union, the NLRB found that Stella D’oro had violated the National Labor Relations Act. The NLRB also found that since Stella D’oro had committed a ULP by failing to provide the financial statement, Stella D’oro also committed an ULP when it refused the union’s offer to return to work and ordered that the employer to make whole the employee’s for lost pay and benefits from the date that the employees offered to return to work

The Second Circuit reversed the NLRB, ruling that a statement advising the union that a parent company might withdraw funding in the future if it don’t get labor costs under control or taking the position in bargaining that the employer would be at a competitive disadvantage if it increased labor costs are not the same as claiming an inability to pay. Therefore, the Circuit Court held that the employer was under no obligation to provide the requested financial statements to the union.

Further, while the NLRB asserted that Stella D’oro had engaged in unfair labor practices by refusing to provide a photocopy of the 19-page relevant financial statement as demanded by the union, the Circuit Court held that even if the employer had an obligation to provide the financial statement, it did not act in bad faith since it offered the union several opportunities to inspect the financial statement at various venues during the negotiation process. The court found that, under these circumstances, there was no substantial evidence that the employer was failing to act in good faith. Moreover, the Circuit Court noted that despite the employer’s repeated offers of opportunity to inspect the financial statement, the union, in first agreeing to inspect and then changing its mind, seemed to be using its demand for financial statements as a bargaining chip in its negotiations rather than as a legitimate attempt to gain relevant information in good faith.

Most importantly for Stella D’oro, the Second Circuit Court found that since Stella D’oro did not commit a ULP by refusing to provide a copy of the financial statement, it did not commit a ULP when it declared an impasse, and it lawfully implemented the terms of its final offer. Therefore, the Second Circuit ruled that Stella D’oro was not obligated to make the striking workers whole.

This ruling highlights the contrast between the NLRB and the Second Circuit on the employer’s duty to provide financial information. The NLRB will continue to find that employers have a broad duty to provide financial information to substantiate its claims or rationale in negotiations, while in the Second Circuit, employers may lawfully refuse to provide financial information unless it makes a claim of inability to pay during bargaining. This case is also a rare example of a decision in which an employer’s declaration of impasse was ultimately upheld. Unfortunately, given the composition of the NLRB, it is likely that employers will need to take their case all the way to the United States Court of Appeals for the Second Circuit in order to prevail.

If you have questions about how this may impact your business, please contact:

• Latha Raghavan (518.935.4250; lraghavan@goldbergsegalla.com)
• Sean P. Beiter (716.566.5409; sbeiter@goldbergsegalla.com)
• Caroline J. Berdzik (609.986.1314; cberdzik@goldbergsegalla.com)
• Matthew C. Van Vessem (716.566.5476; mvanvessem@goldbergsegalla.com)
• Or another member of the Goldberg Segalla Labor and Employment Practice Group.