Since the 1950s, the National Labor Relations Board (“the Board”) has consistently held that employers who assert during collective bargaining negotiations that they “cannot afford” to meet a union’s economic demands are obligated to submit to a comprehensive financial audit at the union’s request, in order to prove the accuracy of employer “claims of poverty.” In contrast, for the past 20 years the Board has generally held that employers who only claim that meeting a union’s economic demands would put them at a “competitive disadvantage,” rather than flatly asserting that they “cannot afford” to meet a union’s economic demands, will not be required to submit to a union financial audit. Thus, management bargaining representatives have regularly cited “competitive pressures” when rejecting union economic demands, without concern that this rationale for rejecting union demands would subject the company to onerous disclosure obligations.

In KLB Industries, Inc. v. NLRB, No. 11-1280 (D.C. Cir.  Dec. 4, 2012), the U.S. Court of Appeals for the D.C. Circuit enforced a Board order imposing significant financial disclosure obligations on an employer that raised “competitive disadvantage” claims at the bargaining table.  In KLB Industries, the employer sought wage reductions and other economic concessions from the union, citing new competitive pressure from firms based in Asia. In response, the union presented an extensive laundry list of economic information it demanded the company disclose. The union requested: (1) a list of all current customers; (2) a copy of all price quotes that the company had provided over the past five years and an indication of which of those quotes had been awarded; (3) a list of all projects outsourced over the past five years that had been handled by bargaining unit employees; (4) a list of all customers who had ceased purchasing from KLB during the last five years; (5) a complete list of prices for KLB’s products; (6) market studies concerning the company’s products; and (7) a complete calculation of KLB’s projected savings from its concessionary wage proposal, including an estimate of overtime.” The company provided an estimate of the total savings it expected to achieve if its bargaining demands were met, but otherwise refused to provide the information the union requested. The company thereafter implemented portions of its final contract offer, asserting that the negotiations had reached a valid impasse. The union then filed unfair labor practice charges, asserting that the company had violated Section 8(a)(5) by failing to respond to the information request and by implementing its final offer in the absence of a valid impasse. 

The Board, in KLB Industries, 357 NLRB No. 8 (July 26, 2011), held that KLB violated Section 8(a)(5) by refusing to provide the requested information, and further held that the negotiations were not at a valid impasse because of the outstanding information request. Enforcing the Board’s order, the D.C. Circuit reasoned that the claim of “inability to pay” versus “competitive advantage” dichotomy was a false one. Certainly, the court acknowledged that if an employer asserts “inability to pay” at the bargaining table, it must submit to a comprehensive audit of its financial condition, should the union demand one. However, the court explained, the absence of a claim of poverty does not mean that the employer does not have to disclose any financial information. Rather, union requests for economic information during bargaining, in the absence of a claim of poverty, should be assessed under the Board’s broad discovery standard, which the court described as “a relevancy-based, pro-disclosure standard that allows a union to request specific information to verify a company’s stated position, including competitiveness claims.”  

Turning to the specific request in this case, the court – somewhat incredibly – described the union’s information request as “targeted” and “narrow.” The court further noted that the company had taken an “all-or-nothing litigation strategy,” declining to challenge the relevancy of any specific request. In light of the company’s specific competitive disadvantage claims and its assertion that it was not obligated to provide any of the requested economic data to the union, the court enforced the Board’s order in its entirety. The court cautioned however, that its decision should not be interpreted to permit unions to make an “end-run” around the rule that only a claim of poverty will subject the company to a financial audit obligation. In each case, “the specific information necessary to verify a competitiveness claim will vary depending on the circumstances of the case.”  

The most important point for employers to take from the KLB Industries decision is that employers now have an obligation to “prove” bargaining claims of competitive disadvantage. They will no longer be allowed to simply state that they are not claiming “inability to pay,” and therefore decline to provide further concrete financial data. Thus, employers may wish to avoid making claims of “competitive disadvantage” at all. However, given that employers must explain their reasons for rejecting union economic demands in order to satisfy their obligation to bargain in good faith, some sort of justification will be necessary. Employer explanations for economic bargaining positions, whether phrased in terms of competitive disadvantage or some other, more creative justification, will presumably open them to demands for financial data. 

Employers who receive onerous financial disclosure demands from unions during bargaining should respond promptly and specifically to each specific request. Where requested information is not truly “targeted” to test the employer’s claims at the bargaining table, the employer should object that the request is not relevant to the employer’s claims at the bargaining table. Where requested information is relevant but highly sensitive, the employer may wish to propose confidentiality obligations as a condition of disclosure, and seek to bargain over the means by which the information will be provided. If an employer’s claims at the bargaining table can potentially be substantiated with alternative and less sensitive information, the employer may wish to provide or offer that information as a substitute for highly sensitive data. Employers facing burdensome financial disclosure demands should work closely with experienced labor counsel to design an approach that provides enough information for the union to verify the employer’s claims at the bargaining table, while protecting the company’s most sensitive data, either by substituting alternative, valid information, or by limiting the method and scope of disclosure. Employers who genuinely seek to satisfy a union’s demand to test the employer’s bargaining assertions through access to objective data, while at the same time attempting to protect the company’s legitimate confidentiality interests, will be in a far better litigation position than those who seek to avoid disclosure altogether.