Eleventh-Hour Twinkie Reprieve?

by Ivan Osorio on November 20, 2012 · 1 comment

in Economy, Employment, Labor

Today, representatives from Hostess Brands and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) undertake an 11th-hour effort to negotiate a new labor agreement to allow striking BCTGM members to return to their jobs at Hostess. For the union, this is really a last-ditch effort to save not only its Hostess employee members’ jobs, but probably to save face as well.

Last Friday, November 16, the union found itself in a bad situation, when Hostess announced that it would shut down operations, blaming the Bakers union’s decision to call a strike rather than accept major concessions which the company argued were necessary to keep it afloat.

For BCTGM, which represents at least 5,000 members at Hostess, the optics were not good. They were so bad, in fact, that the union had no immediate public response. When asked for comment, a BCTGM spokeswoman told the Huffington Post that the union was not talking to the press about the situation at Hostess — an unusual reaction to thousands of its members losing their jobs.

While no one outside the union knows the real reasons for the Bakers union rejecting Hostess’ final offer in the face of an imminent shutdown, the union’s lack of response at the news of Hostess’ planned closure suggests a costly miscalculation on the union’s part. As Fortune‘s David Kaplan, who has covered the labor situation at Hostess, speculated:

It may well be that the bakers union decided that its soon-to-be-unemployed workers will be better off in the long run in other jobs that that are more secure and better paying than the ones Hostess was offering. Rayburn speculates as much, suggesting to Fortune that the leadership of the bakers union “would rather forfeit these [Hostess] jobs than face demands for future concessions” from other companies. But it also may be that the bakers union miscalculated and didn’t believe Hostess would liquidate. After all, Hostess had seemingly backed down from that threat at different points this summer.

Also caught blindsided were members of the Hostess’ Teamster union employees, who on September 14 agreed to Hostess’ contract offer in the hope of saving their jobs, albeit reluctantly and after initial opposition to such concessions. However, the Bakers union rejected the proposal, putting the Teamsters, as well as Hostess, in an extremely difficult position. To make matters worse, Hostess gave BCTGM reason to think it may have been bluffing. As Fortune‘s Kaplan explains:

But shortly thereafter, word came that the 7,000 employees of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union had rejected Hostess’ proposal. (No details of the vote were announced, though some press reports suggested there were only voice votes at locals rather than a written mail tally.) Though the leader of the bakers’ union in recent weeks had excoriated the proposal, the rejection was nonetheless curious. That’s because the bakers’ union had been quiescent for months in bankruptcy court, letting the Teamsters engage Hostess management and the hedge funds over the company’s demands to restructure by scuttling existing labor agreements.

The dispute got even messier when [Hostess CEO Greg] Rayburn didn’t follow through on his promise to liquidate the company after the bakers’ union rejection. Instead, as he explained to Fortune late Friday, Hostess would return to court this week [of September 17] in suburban New York City and renew its request under bankruptcy law that the unions be forced to accept the new collective bargaining agreement. Had Rayburn blinked? He said no. “I’m hesitant to shut the company down under these circumstances,” Rayburn told Fortune. “Obviously the bakers were misled.” Rayburn says those workers were led to believe both that Hostess would make a secret better offer and that there was a “white knight” ready to swoop in to buy the company. Rayburn says neither is true.

The proposed new labor deal consists of an immediate 8% wage cut and work rules more favorable to the company. Employer contributions for health insurance would decrease 17%. Hostess contributions to multi-employer pension plans would cease until 2015, at which point the current required level of funding would plummet from $100 million to $25 million. According to Rayburn, the proposal has been endorsed by Hostess’s key secured lenders, which are led by hedge funds Silver Point Capital and Monarch Alternative Capital. One estimate put cost savings for Hostess in the neighborhood of $200 million.

The Teamsters then urged BCTGM to revisit Hostess’ offer, by holding a secret ballot vote on it, suggesting that union members had been misinformed (the insistence on a secret ballot is ironic, given that the Teamster union supports undermining it in organizing elections through card check):

BCTGM members were told there were better solutions than the final offer, although Judge [Robert] Drain stated in his decision in bankruptcy court that no such solutions exist. Without complete information, BCTGM members voted by voice votes in union halls.

Under this kind of criticism from a fellow union, is it any wonder the Bakers union had no response?

The AFL-CIO then sprung to BCTGM’s defense, blaming “vulture” investment funds for the company’s pending liquidation. Oddly, on its official Twitter account, it posted a link to a piece by CNBC’s John Carney, stating, ”the forces most responsible” for Hostess bankruptcy “were two hedge funds,” per http://CNBC.com Senior Editor” — yet the poster apparently didn’t read beyond the first paragraph (as one respondent noted).

As Carney notes, while the two hedge funds that own Hostess may be ultimately responsible since they’re … well, the owners, he doesn’t let the Bakers union off the hook: “Without large union concessions—what some would say, total union capitulation—the hedge funds decided Hostess would have to die.” While such “capitulation” may be anathema to most unions, it is a much less bad option than the outright destruction of their members’ jobs — a possibility the Teamsters recognized but which the Bakers union seemed to dismiss.

Moreover, many union concessions would entail shedding costly and burdensome work rules and unsustainable legacy costs that can threaten a firm’s very existence.  In the case of Hostess, its troubles extended beyond labor costs, but labor-related costs were nonetheless significant. In a must-read, highly detailed account of Hostess’ bankruptcy (to which Carney links), Fortune‘s Kaplan explains:

The critical issue in the bankruptcy is legacy pensions. Hostess has roughly $2 billion in unfunded pension liabilities to its various unions’ workers.

There’s more.

Labor had successfully negotiated generous pensions and health care benefits, but they were out of line with shifts in the marketplace.

And then we come to the downright absurd.

Hostess still had ludicrous work rules: The Teamsters had separate drivers for deliveries of such goodies as Yankee Doodles and Nature’s Pride Nutty Oat. (Of course this jobs-preserving work rule was agreed to by Hostess in the last labor negotiation.)

Equally absurd is to try to absolve the unions for any of the blame for Hostess’ current debacle — though, yes, its management’s performance has been hardly stellar. So can Hostess’ current management unbundle this mess — and get all of its unions to go along? We’ll probably know soon.

For more on labor, see CEI’s labor policy website, workplacechoice.org.

Comments on this entry are closed.

{ 1 trackback }

Previous post:

Next post: