It’s Not What You Say, It’s What a Union Hears That Can Allow a Union to Audit a Company’s Financial Records

Most people who have familiarity with labor negotiations know that claiming an “inability to pay” (or “pleading poverty”) 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, according to a recent NLRB case, a company that affirmatively asserts it is not claiming an inability to pay but stating that it is unprofitable and not competitive may be sufficient to give rise to an obligation to allow a union to conduct a financial audit of the employer’s books.

In that case, an employer sought concessions from the union since it was not winning as many bids for jobs as it used to because of competition with non-union firms. In fact the employer had laid off most of its employees due to lack of work. 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 union to get on board…so that they could go to the bank and say, hey, this is where we’re at.”
• A union representative testified 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.”

As negotiations broke down, the union demanded an audit by a union-selected auditor “to substantiate the employer’s claim of inability to pay.” The employer rejected the request.

The ALJ 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.

This conclusion shifts 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.

Now, an employer seeking concessions must be much more vigilant when presenting the reasons for the proposed cuts or risk triggering an obligation to open itself to an audit of its financial records. This new standard appears to have moved beyond the clear cut “inability to pay” statement to claims of unprofitability tied to some urgency.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.