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Weil Secures Second Circuit Victory Reversing Significant NLRB Decision

Appellate Court Holds Client Acted Lawfully During Labor Negotiations
Weil obtained a major appellate victory for our private equity client Brynwood Partners, and one of its portfolio companies, when the U.S. Court of Appeals for the Second Circuit reversed the National Labor Relations Board (NLRB) in SDBC Holdings, Inc., f/k/a/ Stella D’oro Biscuit Co., Inc. v. National Labor Relations Board. The Second Circuit granted SDBC’s petition for review of an NLRB decision holding that SDBC (formerly Stella D’oro Biscuit Co., Inc.) had engaged in unfair labor practices during the course of collective bargaining negotiations with the Local 50, Bakery, Confectionary, and Tobacco Workers and Grain Millers International Union.

Stella D’oro, a manufacturer of baked goods, and Local 50 began negotiating the renewal of the parties’ collective bargaining agreement in May 2008, which was undertaken after Stella D’oro proposed wage and benefit reductions to the union following a 2007 operating loss. Local 50 requested financial documentation reflecting the 2007 loss, and Stella D’oro complied by bringing its 2007 Financial Statement to multiple bargaining sessions and making the document available for the union’s review at the bakery and at Weil’s offices. Though a Local 50 representative initially agreed to Stella D’oro’s offer to make the document available for review, after speaking with its counsel, Local 50 changed its mind about the arrangement. Instead, Local 50 requested a photocopy of the document, which Stella D’oro did not provide due to confidentiality concerns.

During negotiations, Stella D’oro explained that while its owner, Brynwood Partners, was prepared to make significant investments in the company, Stella D’oro needed to lower its cost structure. The parties were unable to come to an agreement, and on August 13, 2008, Local 50 went on strike. In response, Stella D’oro unilaterally changed the conditions of employment. When the Local 50 workers expressed their willingness to return to work under the terms of the old collective bargaining agreement, Stella D’oro refused.

Local 50 filed unfair labor practice charges against Stella D’oro on September 11, 2008, alleging that the bakery had violated the National Labor Relations Act in refusing to provide a photocopy of the 2007 Financial Statement, and later amended the charge to include the Company's conduct in failing to reinstate the Local 50 union workers. The administrative law judge (ALJ) ruled in Local 50’s favor. The ALJ determined Stella D’oro sought to cut labor costs due to its "inability" to pay the Local 50 members’ then-current wages, not because of the bakery’s "unwillingness" to do so. Accordingly, the ALJ held that Local 50 was entitled to the 2007 Financial Statement as evidence of the bakery’s inability to increase wages. The ALJ further held that providing Local 50 access to that financial document did not satisfy Stella D’oro duty to prove its inability to pay, but that it was required to provide the union with a photocopy of the document. In addition, the ALJ ruled that Stella D’oro’s unilateral changes to the terms of employment and its refusal to reinstate the Local 50 workers were each separate unfair labor practices.

In a complete victory for our clients, the Second Circuit reversed on all counts. The Second Circuit determined that the evidence demonstrated Stella D’oro was unwilling, rather than unable, to increase the Local 50 union members’ wages. The court stressed that the record was replete with evidence that Stella D’oro’s parent, Brynwood, was willing to invest money in the bakery and was prepared to fund losses. Moreover, because an employer is only required to provide financial information where that information is reasonably related to “the rationalization of bargaining,” Stella D’oro was not obligated to present its 2007 Financial Statement to the union. In addition, the Court ruled that even if the Company had an obligation to make the document available to the union, it had done so in a reasonable manner. The Second Circuit determined that Local 50’s decision not to review the financial document at Stella D’oro’s offices (after consulting with counsel) was “‘a tactic to strengthen the union’s hand in negotiations’ and an attempt to bolster a possible unfair-labor practices charge, rather than a good faith effort to obtain information relevant to bargaining.” In addition, because Stella D’oro had acted lawfully in refusing to provide the union with a copy of its 2007 Financial Statement, the Second Circuit determined that a valid dispute existed between the parties. As such, Stella D’oro was entitled to unilaterally change the conditions of employment and to refuse to reinstate the Local 50 workers.

Weil Employment Litigation partner Mark Jacoby and counsel Lawrence Baer led the Weil team advising Brynwood Partners and Stella D'oro and litigating the NLRB hearing and Second Circuit appeal. As stated by Mr. Baer: “Our client is thrilled that its consistently-held position throughout the collective bargaining process and legal proceedings has been unambiguously vindicated. We are particularly gratified that the Court’s exhaustive review of the extensive record evidence presented during our week-long administrative hearing, when finally considered in its proper legal framework, ultimately led to this excellent result for our client.”

This news was reported in the following outlets (may require registration/subscription):

  • Law360: 2nd Circ. Overturns NLRB In Union Fight With Stella D'oro (March 28, 2013)
  • Employment Law Daily: Substantial evidence did not support NLRB finding that employer asserted inability to pay union contract demands, or failed to provide adequate access to financial statement (march 28, 2013
  • Thomson Reuters News & Insight: Appeals court says no unfair labor practices at Stella D'oro (April 1, 2013)

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