Employer that Asserted Need to Remain Competitive During Collective Bargaining Must Furnish Business Information to Union: DC Circuit

The US Court of Appeals for the District of Columbia ruled in KLB Industries v. NLRB that an employer's claim of competitive disadvantage, invoked during the collective bargaining process to justify wage cuts for employees, triggered an obligation to respond to a union's request for specific information to verify that claim.

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On December 4, 2012, the US Court of Appeals for the District of Columbia ruled in KLB Industries v ...show full speedread

On December 4, 2012, the US Court of Appeals for the District of Columbia ruled in KLB Industries v. NLRB that an employer's claim of competitive disadvantage, invoked during the collective bargaining process to justify wage cuts for employees, triggered an obligation to respond to a union's request for customer, product, pricing, marketing and other information allegedly to verify that claim.

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Key Litigated Issues

The key litigated issue in KLB Industries v. NLRB was whether a company's competitive disadvantage claim, invoked during the collective bargaining process to justify proposed wage concessions, triggered an obligation to respond to a union's request for business and financial information, including information about customers and products.



On September 20, 2007, KLB Industries, Inc. (KLB) began negotiating a new collective bargaining agreement ( www.practicallaw.com/4-504-1300) (CBA) with a union. During negotiations, KLB demanded wage concessions based on its claims of increased competition from Asian manufacturers, rising production costs and decreased productivity. KLB also expressed concern about customer retention. The union, by contrast, sought wage increases.

On October 4, following KLB's presentation of a final offer that included wage reductions, the union sent KLB a letter requesting information relating to KLB's competitiveness claims, including:

  • A list of all current customers.

  • 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.

  • A list of all projects outsourced over the past five years that had been handled by bargaining unit employees.

  • A list of customers who ceased purchasing from KLB during the last five years.

  • A complete price list of KLB's products.

  • Market studies concerning KLB's products.

  • A complete calculation of KLB's projected savings from its wage reduction proposal, including overtime estimates.

The union explained in the letter that it needed the information to verify KLB's competitiveness claims. On October 18, KLB informed the union that it would not provide the information. However, KLB did disclose annual wage savings without providing its underlying calculations or predicted overtime. The union responded that the information was insufficient to address the proposed wage cuts.

On October 19, KLB informed the union that:

  • A lockout would begin on October 22.

  • Employees' health insurance would expire. Employees would need to apply for COBRA benefits to remain insured.

However, after the lockout began, KLB discovered that the cancellation of the employees' entire health plan meant that unit employees were ineligible for COBRA benefits. During the lockout, KLB also called the police to report that unionized employees had trespassed on its property when they placed picket signs on a public right of way.

The union filed unfair labor practice (ULP) charges against KLB, which were heard by an NLRB administrative law judge (ALJ). The ALJ concluded that KLB committed ULPs by:

  • Refusing to supply the requested information to the union, as the union was entitled to verify KLB's assertions of competitive disadvantage.

  • Locking out employees and cancelling their health insurance.

  • Calling the police in retaliation for the union's legal picketing.

However, the ALJ rejected a complaint allegation that KLB had bargained in bad faith.

The three-member panel heading the NLRB's judicial functions (Board) affirmed the ALJ's decision, with Member Hayes dissenting as to the disclosure and lockout rulings. KLB petitioned the US Court of Appeals for the District of Columbia Circuit for review. The Board cross-applied for enforcement of its order.



On December 4, 2012, the DC Circuit issued a 2-1 opinion affirming the Board's decision and granting its application for enforcement, with Judge Henderson dissenting.

The court noted that, in NLRB v. Truitt Manufacturing Co., the Supreme Court held that a company's failure to disclose information relevant to an argument against increasing wages can constitute a ULP under certain circumstances (see Practice Note, Collective Bargaining Under the National Labor Relations Act: Financial Information ( www.practicallaw.com/5-518-7132) ).

Following Truitt, the DC Circuit observed that two lines of cases had developed to interpret its holding, including:

  • Nielsen Lithographing Co., in which the NLRB held that a company is required to supply full financial records when it asserts a present inability to pay for terms demanded by a union, but not when it merely claims an unwillingness to pay them because of competitive forces.

  • A "discovery" line of cases endorsing a relevancy-based standard which favors disclosure, allowing a union to request information relevant in verifying a company's stated position, including claims about increased competitiveness.

In its decision, the NLRB applied the discovery line of cases, concluding that the union had properly requested information relevant to KLB's competitiveness claim. KLB challenged this conclusion, arguing that:

  • Generalized claims of competitive disadvantage are properly analyzed under the Nielsen framework, and that it had no disclosure obligation because it did not claim an inability to pay.

  • Its competitiveness claim lacked the specificity required to trigger disclosure obligations.

The DC Circuit rejected KLB's arguments, finding that:

  • Where an employer raises a competitiveness claim as its central justification for wage concessions, a union is entitled to information that can verify that claim.

  • KLB had made serious, specific and recurring assertions of its lack of competitiveness, rather than generalized statements, and had done so during the collective bargaining process.

  • KLB's competitiveness rationale was not exempt from the discovery line of analysis.

Further, the court held that the Board reasonably concluded that KLB's claims could have been substantiated by examining the types of information that the union had requested. Acknowledging that the specific information necessary to verify a claim will vary depending on the circumstances, the court approvingly cited to the NLRB's decision in Caldwell Manufacturing Co., which examined whether a particular information request is tailored to a company's factual assertions. However, the court noted that KLB had not argued that the union's information request was irrelevant.

The court rejected additional arguments raised by KLB that:

  • Its costs savings report was adequate, finding that a union is entitled to inspect the data relied on by a company in preparing its figures.

  • The union made its information request in bad faith.

The court also:

  • Affirmed the Board's other holdings, finding that the information withholding made the lockout unlawful despite the fact that KLB had otherwise engaged in good faith bargaining.

  • Granted the Board's petition to enforce its finding that KLB committed a ULP when it called the police in response to union picketing.

In dissent, Judge Henderson asserted that KLB's generalized statements regarding competitiveness did not trigger a duty of further disclosure to the union. Examining the evidence, Henderson found that KLB had made little more than generic competitive disadvantage claims during the bargaining process, and that these claims were properly analyzed under the Nielsen line of cases. Henderson found that under this framework, the union bears the burden of showing that its information is relevant to verifying the company's claim, and that without the requisite showing, KLB had no duty to divulge most of what the union had requested.


Practical Implications

Traditionally, based on Truitt and Nielsen, employers have referred to competitive market forces or needs to stay competitive as grounds for:

  • Rejecting union proposals that will increase labor costs.

  • Proposing CBA terms that might implicate labor costs.

In most circumstances, if the employer did not allege an inability to pay, the NLRB and federal courts have not required the employer to "open its books" for the union's inspection to test the employer's assertion. Asserted needs to "stay competitive" have typically been understood as a safe and polite way to reject a proposal that would increase labor costs (or to support a proposal that would decrease labor costs) without:

  • Inflaming negotiations.

  • Suggesting that the employer was not engaging in principled good faith bargaining.

  • Giving unions bases for propaganda to motivate employees to strike.

In light of this decision, employees that do not wish to make their financial and other business records discoverable through union information requests should:

  • Demand an explanation from the union about how information that does not concern bargaining unit employees' terms and conditions of employment is relevant.

  • Preserve arguments challenging the relevance of information not concerning bargaining unit employees' terms and conditions of employment.

  • Consider:

    • referring to competition only generally and not as the basis for disapproving or endorsing any particular bargaining proposal; and

    • stating that the employer is not willing or interested in paying for the proposal at issue, at least "at this time".


Court Documents

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