The Kroger Co.

National Labor Relations Board - Board Decisions

Dec 14, 1984

273 N.L.R.B. 462 (N.L.R.B. 1984)

462
DECISIONS OF NATIONAL LABOR RELATIONS BOARD
The' Kroger Company and Local 37, United Food
And Commercial Workers• Union, AFL-CIO
and CLC. Case 25-CA-14427
14 December 1984
DECISION AND ORDER,
BY CHAIRMAN DOTSON AND MEMBERS
ZIMMERMAN AND HUNTER'
On 15 November 1983 Administrative Law
Judge Benjamin Schlesinger issued the attached de-
cision. The General Counsel and the Charging
Party filed exceptions and supporting briefs, and
the Respondent filed cross-exceptions and a brief.
The National Labor Relations Board has , delegat-
ed its authority in this proceeding to a three-
member panel.
The Board has considered the decision and the
record in light of the exceptions and briefs and has
decided to affirm the judge's rulings, findings, 1 and
conclusions as modified and to adopt the recom-
mended Order.
The judge concluded that the Respondent did
not violate Section 8(a)(5) and (1) of the Act by
failing or refusing to bargain with the Union about
its decision to close its egg processing facility lo-
cated in Wabash, Indiana, and the effects of that
decision. We agree with the judge's conclusions,
but we do so for the following reasons.
The Board recently held in Otis Elevator Co.2
that management decisions which affect the scope,
direction, or nature of the enterprise are excluded
from the limited mandatory bargaining obligation
of Section 8(d). The Board stated that the 'critical
factor in determining whether a management deci-
sion is subject to mandatory bargaining is "the es-
sence of the decision itself, i.e., whether it turns
upon a change in the nature or direction of the
business, or turns upon labor costs; not its effect on
employees nor a union's ability to offer alterna-
tives." 3 Applying that analysis to the facts of the
instant case, we find that the Respondent's decision
to close its egg processing facility and to subcon-
tract its egg processing operation to others turned
not upon labor costs but upon a significant change
in the nature and direction of the business and
1 The General Counsel and the Charging Party have excepted to some
of the judge's credibility findings The Board's established policy is not to
overrule an administrative law judge's credibility resolutions unless the
clear preponderance of all the relevant evidence convinces us that they
are Incorrect Standard Dry Wall Products, 91 NLRB 544 (1950), enfd
188 F 2d 362 (3d Or 1951) We have carefully examined the record and
find no basis for reversing the findings
2 269 NLRB 891 (1984) Otis Elevator issued after the judge's decision
in this case
a 269 NLRB 891
therefore was not • subject to mandatory bargain-
ing. 4
The Respondent is one of the largest food chains
in the United States, operating retail food and gro-.,
,cery stores in 20 States. The Respondent also oper-
ates, through its agri-products division,, 30 manu-
facturing or food processing plants which supply
goods:for sale at its retail' stores. At issue in this
proceeding is an egg processing facility located in
Wabash, Indiana, which the Respondent began op-
erating some 25 years ago and which it closed on 9
April 1982;
The Respondent's Wabash plant was ,a "nest
run" facility, meaning that eggs were purchased
from others and then transported in flats to the
Wabash plant, where they were washed, inspected,
graded, boxed in egg cartons, and shipped to the
-Respondent's distribution warehouses. As found by
the judge, "nest run" egg processing operations are
distinguished from "integrated" egg processing op-
erations where the production and processing of
eggs are accomplished at the same location. Thus,
in an integrated operation, the laying hens are
owned by the processor and the eggs are immedi-
ately transported by a conveyor belt to the proc-
essing 'area when laid. The integrated operation
enjoys many advantages over the nest run, includ-
ing avoidance of double packing and transporta-
tion, 'less handling and processing time, and a
higher ,yield of fresh, good quality eggs. Because
an integrated operation has no expenses connected
with egg gathering, storage, and refrigeration prior
to . being transported to a grading plant, and no
loading and transportation costs related to bringing
the ungraded egg to the grading plant, it is also
generally less costly and more profitable than a
nest run operation.
The Wabash plant was the Respondent's last re-
maining nest run operation. A trend toward inte-
grated operations in the egg processing industry
had resulted in a growing scarcity of nest run eggs
and rapidly rising prices for nest run eggs that
were available. Although the Respondent had once
owned nine nest run plants, all except three had
been closed down by 1980. In 1980 the Respondent
closed its two other nest run plants because of the
lack of raw materials at competitive prices, leaving
only the Wabash plant in operation as a nest run
facility.
In early 1982, the Respondent made a decision to
close the Wabash facility as well. Its supply of nest
4 The Respondent contends in its exceptions that its action was not a
subcontracting, but a closing of its egg grading business, and a partial
closing of its agn-products division As we noted in Otis Elevator, the ap-
pellation of the decision is not important, particularly where, as here, the
decision Involves elements of several types of actions
273 NLRB No. 70
KROGER Co 463
run eggs was dwindling, and the outmoded nest
run operation could no longer compete with inte-
grated egg producers and operators. In recent
years the Respondent - had made efforts to salvage
the Wabash plant. It had purchased its own flock
of laying hens which it contracted out to farmers
in the Wabash area in an attempt to keep the plant
supplied with eggs, and it spent substantial amounts
on new equipment. It also had negotiated with the
Union 5 productivity agreements whereby employ-
ees received increases in wages only in relationship
to increased productivifY. Despite all this, the Re-
spondent had reached a point where it could pur-
chase cartoned eggs from integrated operators for
less than it could produce them at the Wabash
plant. This was the case not because of labor costs
arising under its collective-bargaining agreement
with the Union, which constituted a relatively in-
significant amount of the production costs, 6 but
rather because of the lack of raw materials at a
competitive price. 7 As noted by the judge, the fun-
damental basis for the Respondent's action in clos-
ing the plant was that its nest run .operation was
outmoded.
Following the plant's closure, the Respondent no
longer operated any facility at which it simply
graded and cartoned nest run eggs. 5 It is thus ap-
parent that the Respondent's closure of the Wabash
plant constituted a significant change in the scope,
nature, and direction of the business.
Otis Elevator, as stated, now provides the method
of analysis for determining whether management
decisions are subject to mandatory bargaining. We
find here that the essence of the Respondent's deci-
sion to close the Wabash plant did not turn upon
labor costs. It centered, rather, upon the scarcity of
raw materials and the inability of the Respondent
to operate this outmoded grading facility to com-
pete with integrated egg producers. These facts es-
tablish that the Respondent's decision to close the
operation, no matter what it is labeled, clearly
turned on a fundamental change in the nature and
direction of the Respondent's business. See Colum-
bia City Freight Lines: 271 NLRB 12 (1984). Ac-
cordingly, since we conclude that under Otis Eleva-
Local 37, or as predecessor, has represented a unit of production and
maintenance employees at the Wabash plant since the late 1950's or early
1960's The Respondent and Union have been parties to a series of collec-
tive-bargaining agreements, with the most recent agreement being effec-
tive from 27 July 1980 to 30 July 1983
The Respondent's direct labor costs comprised only approximately
$ 0381 of ii, S 7396 cost of producing each dozen eggs in 1982
In addition, the Respondent was presented at this time with an op-
portunity to sell its laying flock The Respondent's flock alone did not
keep the plant supplied with nest run eggs
8 It sold its flock of laying hens for $812,000, sold the plant and realty
for $525,000, sold machinery, equipment, and other personalty for
$300,545, transferred assets valued at $113,736 to other locations, and
scrapped various items worth $27,522
tor the Respondent had no duty to bargain about
its decision to close its Wabash plant, we affirm the
judge's dismissal of this portion of the complaint.
We also agree, for the reasons stated by the
judge, that the Respondent met it obligation of no-
tifying the Union of its intention to close the plant
and that it offered the Union an opportunity to bar-
gain regarding the effects of that decision upon the
Respondent's employees. Accordingly, we affirm
the judge's dismissal of the complaint in its entire-
ty.
ORDER
The recommended Order of the administrative
law judge is adopted and the complaint is dis-
missed.
MEMBER ZIMMERMAN, Concurring.
I agree with my colleagues that the management
decision in issue here was not a mandatory subject
of bargaining. Several factors influenced the Re-
spondent's decision, but the fundamental basis for
that decision was the fact that the Respondent's
nest run operation was simply outmoded. This 'was
a factor over which the Union had little or no con-
trol. I therefore conclude that the Respondent's de-
cision to alter its operation was not amenable to
resolution through collective bargaining and agree
that this portion of the complaint should be dis-
missed. See my dissent in Milwaukee Spring, 268
NLRB 601 (1984), and my concurrence in Otis Ele-
vator, 269 NLRB 891 (1984). I also agree with my
colleagues, for the reasons stated by the judge, that
the Respondent satisfied its obligation to bargain
about the effects of its decision, and that the com-
plaint should be dismissed in its entirety.
DECISION
FINDINGS OF FACT AND CONCLUSIONS OF LAW
BENJAMIN SCHLESINGER, Adminstrative Law Judge.
Since the late 1950s or early 1960s, Local 119, United
Food and Commercial Workers Union, AFL-CIO and
CLC, the predecessor to Local 37 (the Union), 1 has rep-
resented the production and maintenance employees at
the egg processing facility of Respondent The Kroger
Co in Wabash, Indiana. On April 9, 1982, Respondent
terminated its egg processing operations and discharged
its 70-75 employees. The General Counsel and the Union
allege that Respondent did not merely close its facility; it
subcontracted its work to others, without bargaining
with the Union either as to the decision to subcontract
or the effects thereof, all in violation of Section 8(a)(5)
Effective January 1, 1983, Local 119, the Charging Party herein, and
Local 10 merged Into the Union The caption of the proceeding was
amended at the heanng
464 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
and (1) of the National Labor Relations Act. 2 They rely
on Fibreboard v. NLRB, 379 U.S. 203 (1964). Respond-
ent, however, contends that it did not engage in subcon-
tracting; rather, it partially closed its business and had no
duty to bargain about its decision to close, citing First
National Corp. v. NLRB, 452 U.S. 666 (1981). Further, it
contends that it bargained both about the decision to
close and the effects of the closing.
As of the end of 1981, Respondent, an Ohio corpora-
tion, operated 1258 retail food and grocery stores in 20
States—the second largest food chain in the United
States. 3 In addition to selling name-brand items at its
stores, it also operates, through its agri-products division,
30 manufacturing or food processing plants which supply
goods for sale at its retail establishments, such as cheese,
delicacies, catfish and trout, pet food, and eggs, the
source of the instant controversy.
Until April 9, 1982, Respondent operated a "nest run"
facility in Wabash, Indiana, so-called because eggs were
purchased from others and then shipped in flats to the
Wabash facility, where they were graded, inspected (or
candled), boxed in egg cartons, and shipped to Respond-
ent's distribution warehouses: The nest run operation is
distinguished from an integrated egg operation, where
the laying hens are owned by the processor, so that the
production and processing of eggs are accomplished at
the same location. Because the integrated operation _in-
volves no additional costs of placing the eggs on flats
and then transporting them from where they are laid to
the place of processing, 4 the nest run operation was
claimed by Respondent to be more costly. Furthermore,
because additional transportation involves more handling
and time, there is a lower yield of good, fresh, 3 and un-
damaged eggs, which result adversely effects the profit-
ability of nest run eggs.
In 1980, when Respondent and the Union were negoti-
ating for a new collective-bargaining agreement, Ken
Gordon, Respondent's director of labor relations, stated
that the future of the Wabash plant might depend on the
result of negotiations because integrated operations were
continuing to grow and Respondent's labor costs were
no longer competitive. As a result, in the agreement exe-
cuted by the parties for the period from July 27, 1980, to
July 30, 1983, there was included, for the first time, a
produCtivity clause, which was further amended and re-
fined in 1981 when Respondent's plant manager, Gary
Florent, convinced the Union of Wabash's continuing
2 The relevant docket entries are as folloWs Local 119's charge was
filed on April 14, 1982, and complaint Issued on November 29, 1982 The
hearing was held in Wabash, Indiana, February 14-16, 1983
3 Respondent was the fifth largest retailing chain in the United States
on the basis of sales, which in 1981 were in excess of $11 2 billion I con-
clude,.as Respondent admits, that it is an employer within the meaning of
Sec 2(2), (6), and (7) of the Act I also conclude, as Respondent admits,
that the Union is a labor organization within the meaning of Sec 2(5) of
the Act
4 In the integrated operation, the eggs, when laid, go onto a conveyor
belt where they are immediately transported to the processing area Re-
spondent also employed at its Wabash facility clerical employees who are
Involved in the purchase of integrated eggs
5 Nest rtin eggs are normally refrigerated prior to shipment to the
processors and, because days might pass until delivery, dirt becomes im-
bedded into the shells
need to compete with the economically less costly inte-
grated egg operations.
Florent also raised the spectre of a further problem of
the Wabash facility, the increasing difficulty obtaining
ungraded eggs for processing because more egg produc-
ers were changing to integrated operations. Apparently,
rumors about the continuing viability of the plant began
to take hold but in January 1982 General Foreman Gary
Stull informed the employees that he desired to squelch
rumors that the plant was going to close, that it was not,
and that, while Respondent would be losing a source of
nest run eggs in February or March, Respondent had
some new contracts and 1982 would be a good year.
On March 2, however, Gordon informed Local 119
President Thomas McCall that they should meet soon
because Kroger was considering closing the Wabash
plant 6 Florent was also advised by Gordon the same
day, and both he and McCall relayed to the employees,
in separate meetings, what each had been told. On
March 3, McCall met with Gordon and George "Wes"
Archiable, Respondent's personnel manager for the agri-
products division and manufacturing. What was said is
somewhat at issue, but I find that Gordon mentioned
that the Wabash plant was obsolete, that the nest run op-
eration involved double transportation costs, that the
Wabash facility could not compete with integrated oper-
ations, 7 and that increasingly farmers were converting to
integrated operations. He reminded McCall that earlier
shortages of nest run eggs had prompted Respondent to
buy its own flock of approximately 900,000 laying hens8
to keep the Wabash plant supplied with eggs and that the
productivity agreements had been entered into with the
Union to meet the competition of the integrated opera-
tors McCall left the meeting believing that Gordon had
asked him for concessions that the members would give
in order to keep the plant in operation. Gordon testified,
however, that he:inerely wanted to give McCall the op-
portunity to suggest any thoughts or ideas that might
have some impact on Respondent's decision. The differ-
ent implications of the testimony indicates that McCall
thought he could give back some previously won bene-
fits, but Gordon was looking for some suggestions as to
how to compete with an inherently more effective
method of producing marketable eggs.
In any event, McCall met with employees on March 5
and represented to them that Respondent was looking
for concessions, but that Respondent would not commit
itself to stating what concessions would be helpful. The
employees were responsive in suggesting that they might
be willing to accept a four 10-hour day workweek and a
reduction of certain wages, benefits, and contributions,
but they expressed unwillingness to go too far before
knowing what was Respondent's position. On March 7,
6 By letter dated March 1, Gordon wrote to McCall that Harold Wall,
vice president of Respondent's agri-products division, which included the
Wabash plant, was giving "serious consideration" to closing the plant
"due to business reasons"
McCall did not recall this specifically, but testified that Gordon men-
tioned it at a later meeting on March 31 I find it likely that Gordon also
made the same statement on March 3, as he testified
8 This flock was contracted out to various farmers in the Wabash area
and is referred to as the NK flock
KROGER CO 465
McCall telephone Gordon and told him of some of the
items the employees had discussed but explained their
problem of wanting to know what Respondent Wanted.
Gordon agreed to contact McCall after he had discussed
the matter with his people.
On March 15, Gordon telephoned McCall but, McCall
not being in his office, left a message stating that he had
not heard from top management about the Wabash plant;
that he was leaving for California; that, if McCall needed
to contact him, he should call Gordon's office and leave
a message, and that, if Gordon heard anything from top
management, he would contact McCall. On March 23,
McCall received a letter from Gordon, dated t 1 ie previ-
ous day, stating that Respondent had decided to close
the Wabash egg processing plant on April 10, for the
reasons previously discussed with McCall. On the same
day or the next, McCall called Gordon to try to work
out something to keep the plant open, but Gordon said
that the decision had been made and that he wanted to
meet for impact bargaining.
The Union and Respondent met on March 31. Gordon
proposed that Respondent would maintain coverage for
employees for health and welfare benefits and would
make various payments for severance, holidays, and va-
cations. The Union would have to agree that an agree-
ment on these offers would encompass the Union's for-
going of any legal action in connection with the clos-
ing. 9 McCall tried to negotiate concessions to keep the
Wabash facility open, but Gordon refused to do so, in-
sisting that bargaining commence on the effects of the
closing and that, if the Union did not 'agree to bargain
over the impact of the closing, the employees might lose
some benefits. The Union refused to reply to Respond-
ent's offer Some time thereafter a meeting was set up for
April 7, but McCall canceled the meeting at the very last
moment., No further meetings were requested by either
party; the plant closed on April 9 and the employees
-were terminated; and the unfair labor practice charge
followed a week later.
In First National Corp., supra, the Supreme Court con-
cluded that a decision by an employer to terminate part
of its business is not a mandatory subject of bargaining
under Section 8(d) of the Act and, thus, it was unneces-
sary for the employer to give notice of the partial clos-
ing to the union prior to effectuating it or to bargain
with the union about the decision. 452 U.S. at 686. It left
untouched Fibreboard, supra, in which it had held that
subcontracting of bargaining unit work is a mandatory
subject of bargaining, but it noted, at footnote 22, that
each case must be considered on its particular facts
Since First National Corp., 264 NLRB 1369, 1370 (1982).
[lit is incumbent on the Board to review the par-
ticular facts presented in each case to determine
whether the employer's action involves an aspect of
the employer/employee relationship that is amena-
ble to resolution through bargaining with the union
since it involves issues "particularly suitable for res-
9 Respondent's offer was essentially the same arrangement Respondent
had agreed to with another labor organization when It earlier closed its
nest egg processing plant in Jackson, Missouri
olution within the collective bargaining frame-
work. 9 If so, Respondent will be required to bar-
gain over its decision. If, however, the employer
action is one that is not suitable for resolution
through collective bargaining because it represents
"a significant change in operation,"" or a decision
lying at "the very core of entrepreneurial con-
trol" 11 the decision will not fall within the scope of
the employer's mandatory bargaining Obligation. A
determination of the suitability to such factors as
the nature of the employer's business before and
after the action taken, the extent of capital expendi-
tures, the bases for the action and, in general, the
ability of the union to engage in meaningful bar-
gaining in view of the employer's situation and ob-
jectives
9 Fibreboard Paper Products Corporation v .IV L R B, 379 U S
203, 213-214 [1964], First National Maintenance [supra], 452 U S at
679
10 Id at 688
" General Motors Corporation [191 NLRB 951 (1971)], supra at
952
The nature of the business before and after the action
taken. In order to determine whether the business closed
or was subcontracted in Bob's Big Boy, the Board first
examined the scope of the employer's business. There,
the employer operated a commissary composed of five
departments—shrimp preparation, meat, salad dressing,
produce, and bakery—at which food was prepared and
thereafter distributed to the employer's restaurants. In
particular, the processing of shrimp had been the work
of 12 of its employees, who were terminated when the
employer contracted with an outside firm to supply it
with package shrimp. The administrative law judge char-
acterized the employer's business as packaging and
breading shrimp and concluded that, when the employer
contracted with another to supply the shrimp and then
dismantled its own shrimp processing operation, the em-
ployer ceased its business of preparing shrimp.
The Board disagreed," finding that the judge too nar-
owly construed the employer's business, which it charac-
terized as providing prepared foodstuffs to its individual
restaurants. The Board stated (264 NLRB at 1371)
More accurately, Respondent is in the business of
providing prepared foodstuffs to its individual res-
taurants. Thus, shrimp preparation existed as a com-
ponent part of Respondent's business along with the
preparation of meats, salad dressing, produce, and
bakery goods and did not constitute a separate and
distinct business enterprise.
To the same effect, Respondent's agn-products divi-
sion provides foods to Respondent's individual retail
stores and, thus, egg processing is a component part of
its business along with the preparation of other foods at
its 30 manufacturing facilities. Its Wabash facility did not
constitute a distinct and .separate business enterprise. But
Then Chairman Van de Water and Member Hunter dissented on
this point
466 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
even this is a restricted application of what Respondent
does One does not look at The Kroger Co. as egg proc-
essor or as a producer of foodstuffs. More properly, it is
the second largest grocery food ,chain in the country.
When the Wabash facility was open, Respondent was a
food chain; and when the facility was closed, Respond-
ent was still a food chain." Of equal significance, both
before and after April 10, 1982, Respondent's stores sold
eggs—earlier, some were processed at its Wabash facili-
ty; later they were produced at other facilities.
The distinction between partial closing of a business
and subcontracting is not a fine one. When an employer
closes its business, it ceases to transact that business.
When it subcontracts its business, it does not directly
conduct that business but, instead, has someone else do
it. Whether the subcontractor sells the employer normal
stock or has an item produced on specifications supplied
by the employer makes no difference. The ultimate fact
is that the employer is having work performed not its
own facility by its own employees, but in the facility of
its subcontractor and by employees of the subcontractor.
One example of Respondent's subcontracting was its sale
of its NK flock, from which Respondent obtained about
41, percent of its nest run eggs, to Croton Egg Company,
a sale which was orally agreed on several months before
March .10, 1982, when a written agreement was executed
by the parties. Commencing in April, Respondent pur-
chased from Croton each month approximately a million
dozen cartoned eggs in excess of what it had purchased
before. These purchases of integrated eggs replaced the
nest run eggs which Respondent had earlier processed.
Similarly, Respondent also had committed itself to buy
cartoneci eggs from an affiliate of Midwest Poultry Serv-
ices, Inc., from whom it had previously purchased nest
run eggs.
Respondent, therefore, ceased production of eggs for
sale in its retail stores only in Wabash, where it laid off
its employees. Otherwise, its hens were producing eggs
for an integrated operator who then sold eggs to Re-
spondent, and eggs previously supplied to it as nest eggs
were being supplied in cartons Unlike First National
Corp, where the employer terminated its contract with a
nursing home to provide maintenance Work, here Re-
spondent has not ceased doing business, but Merely fos-
tered the production and processing of the very same
item by others. I conclude, therefore, that based on Re-
spondent's continuation of its business of retail food mar-
kets, where it sells eggs, Respondent has subcontracted
its egg processing,operation.
The extent of capital expenditures In Bob's Big Boy, the
Board noted that, when the employer began to subcon-
tract shrimp processing, the employer was not required
to engage in any substantial capital restructuring or in-
vestment. Some 5 months later, however, the employer
sold some of its machinery to the subcontractor for
$30,000, but other machines were returned to a lessor.
The plant area where the employer formerly processed
the shrimp . remained part of its facility, as did certain
" The decision to close the Wabash facility was made by Wall, with
the approval of John Cornett, one of Respondent's senior vice presidents
and a member of Respondent's board of directors
other equipment. The Board found (264 NLRB at 1371)
that: "[N]o immediate restructuring of capital was neces-
sitated by the decisions to subcontract and the subse-
quent capital transactions, while not de minimus, oc-
curred at a leisurely pace with Respondent retaining pos-
session of the basic facility and certain of the equipment
used in shrimp processing." Accordingly, it held that
"the capital transactions undertaken . . . are not substan-
tial enough to remove the decision from the scope of Re-
spondent's mandatory bargaining obligation," adding in
the Board's footnote 14 in Bob's Big Boy, "We note that
in First National Maintenance, supra, the Court indicated
that the extent of investment or withdrawal of capital
was not crucial. 452 U.S. at 688."
There can be no question that the capital transactions
involved in the subcontracting herein were substantial on
their face. Respondent sold its NK flock hens, feed, and
flats for more than $812,000. It sold its Wabash realty for
$525,000. It sold its machinery, equipment, and other
personalty for $300,545.44. In addition, it transferred , to
its other locations various assets valued at $113,736.35
and scrapped various items worth $27,521.75 Many of
these sales were of assets originally purchased by Re-
spondent over a period of years in an attempt to keep its
Wabash facility in operation, including the purchase of
its own flock of hens to make up for the unavailability of
nest run eggs elsewhere and the installation of new grad-
ing machines and other equipment.
The General Counsel and the Union contend, howev-
er, that, when the amounts cited above are compared
with Respondent's 1981 sales of $11 billion; investments
in property, plant, and equipment of over $1 billion; and
capital expenditures of $260 million, the amounts are de
minimus. , The General Counsel argues, for example, that
the sale of the NK flock amounted to only .08 percent of
Respondent's total assets However, if- the scope of Re-
spondent's business is limited to its agri-products divi-
sion, as both the General Counsel and the Union have
contended, the percentage is greater; but the record is
barren of the worth, investments, and sales of that divi-
sion, and so it is impossible to state what comparative
amounts are involved.
Although I recognize the Board's footnote 14 in Bob's
Big Boy about expenditures not being crucial, it would
appear that the extent of capital expenditures must have
at least some significance. If it does, it leans in the direc-
tion of a finding that Respondent need not bargain fur-
ther over the dosing of the Wabash facility, which clear-
ly affected the scope of Respondent's enterprise and in-
volved substantial divestitures. General Motors Corp, 191
NLRB 951 (1971), petition to set aside denied 470 F.2d
422 (D.C. Cir. 1972).
The basis for the action and, in general, the ability of the
Union to engage in meaningful bargaining in view of the
Employer's situation and objectives: Before reaching the
issue of whether prior notice of and bargaining about the
closure is required, I conclude, as a matter of law, that
there was no bargaining in good faith about Respond-
KROGER CO 467
,
ent's decision to close its Wabash facility." Gordon's
notice to the Union on March 2, 1982, that Respondent
was considering the closing of that facility and the subse-
quent discussions were merely ruses, because the decision
to close was a foregone conclusion. The contract to sell
the NK flock to Croton Egg Company had been dis-
cussed in late January 1982, Croton made a formal pro-
posal on February 26 and a contract was signed on
March 10. In June 1981 Respondent agreed to purchase
processed and cartoned eggs from Midwest Poultry
Services, Inc. Based on that agreement, Midwest formed
a partnership, Hi-Grade Egg Producers and Processors,
which sought economic development revenue bonds to
build an egg processing plant in North Manchester, Indi-
ana, obtained financing and began construction of its egg
facility in October 1981; and executed a formal agree-
ment with Respondent on February 6, 1982, to sell its
cartoned eggs to Respondent and withdrew its supply of
nest run eggs.
Accordingly, by the time Gordon notified McCall of
Respondent's "consideration" of closing the Wabash fa-
cility, the loss of approximately 15-16 percent of Re-
spondent's supply of nest run eggs previously sold by
Midwest" and the soon-to-be loss of 41 percent of its
nest run eggs from the NK flock was a fait accompli,
which may give at least some insight as to why negotia-
tions in March lacked meaning. However, it is also ap-
parent that by March Respondent had exhausted its
imagination in devising new methods to salvage the
Wabash plant and its request of the Union was merely to
come up with something that the Respondent had not
thought of, thus presenting squarely the issue of whether
the Union was able in these circumstances to engage in
meaningful bargaining.
In this connection, First National Corp., a partial clo-
sure case, recognizes that an employer "may have no
feasible alternative to the closing, and even good-faith
bargaining over it may both be futile and cause the em-
ployer additional loss." 452 U.S. at 683. Although the
Supreme Court rejected the Second Circuit's test that
Section 8(d) of the Act creates a presumption in favor of
mandatory bargaining over a decision to partially close a
business and that the presumption is "rebuttable 'by
showing that the purpose of the statute would not be
furthered by imposition of a duty to bargain,' for exam-
ple, by demonstrating that 'bargaining over the decision
would be futile," the defense of futility appears to be im-
bedded into the court's decision in determining whether
the issue is peculiarly suitable for resolution within the
collective-bargaining framework.' 4
" I also reject Respondent's contention that It was relieved of any
duty to bargain because it had engaged in a longstanding unchallenged
practice of purchasing cartoned eggs from others with the tacit approval
of the Union It cannot be said that the subcontracting of all its work, the
closure of the Wabash facility, and the layoff of all the production and
maintenance employees were agreed on past practices, excusing or justi-
fying Respondent's unilateral action Westinghouse Electric Corp, 150
NLRB 1574, 1576 (1965)
13 The loss of the Midwest nest run eggs caused the layoff of eight of
Respondent's employees
14 The dissenting opinion of Justice Brennan, although disagreeing
with the majonty as to the result of First National Corp, agreed that "a
The General Counsel notes that Wall had stated early
in his testimony that Respondent's labor cost was not sig-
nificant enough to make much difference in his decision
and that Wall had contended that Respondent had lost
$220,000 in its Wabash operation." Thus, the General
Counsel contends, labor costs could have made some dif-
ference and, once Respondent stated as one of its reasons
for closing the Wabash facility its profitability compared
with buying eggs from integrated operators, Respondent
made production costs an issue, which creates a duty to
bargain over wages, fringe benefits, and other employ-
ment costs, over which the Union can exercise substan-
tial control, citing Bob's Big Boy, supra.
In the abstract, this is clearly true. Indeed, in both
1980 and 1981, the Union and Respondent had bargained
for and negotiated provisions intended to relieve Re-
spondent from the excess costs involved in the nest run
operation; but those provisions, intended to increase pro-
ductivity, were not effective in making the operation
competitive. By the time Respondent made its first
moves toward subcontracting, labor costs constituted a
minimal portion of its total costs, 16 and it has been ade-
quately demonstrated that the Union no longer could
give back sufficient reductions to.make up for the differ-
ence that it cost Respondent to produce cartoned eggs
above its cost of purchasing -them. Thus, in 1980, Re-
spondent purchased cartoned eggs for $.5998 per dozen,
but produced them for $.6123, $ 0125 more. Yet its direct
labor cost was $.0279,. a little more than double the
amount of the difference. In 1981, its labor cost of $ 0322
was less than the $ 0394 difference between purchased
and self-produced eggs; and, in 1982, its labor cost of
$.0381 only slightly exceeded the purchase price differ-
ence of $.0325. McCall's attempt to "give back" nominal
benefits could not be of any aid, a fact recognized on
March 31 by Gordon who, when asked whether there
was anything that the Union could do to keep the facili-
ty open, replied with amusement—only if the employees
wanted to work below minimum wages and .that was
against the law." -
showing that bargaining would be futile" can relieve an employer of Its
duty to bargain Id at 691
15 Wall later testified, however, that labor costs had nothing to do
with his decision to close the Wabash facility and that the unprofitability
of the facility related to the costs of the entire operation, Including the
purchase of cartoned eggs, and not just the processing of eggs
16 I recognize that vacation pay, unemployment taxes, and workmen's
compensation were omitted from Respondent's calculations of its labor
costs On the assumption that the omissions increase its costs by 20 per-
cent, which may be quite Inflated, my conclusions would be no different
17 This testimony was related by one of Respondent's laid-off employ-
ees and is fully credited By so crediting, I find it incredible that Gordon
would have used the word "concession" in his March 3 meeting with
McCall, although the words Gordon used could have conveyed the idea
to McCall that he was being asked for concessions In discrediting
McCall, I rely, among other things on his denial of a later conversation
with Gordon concerning McCall's letter to Respondent's president and,
specifically, to his averment that he alone wrote the letter From
McCall's speech and use of words on the witness stand, I find the lan-
guage of the letter was prepared by union counsel, just as Gordon testi-
fied that McCall had claimed in a conversation with Gordon I further do
not believe McCall's denial that Gordon specifically stated that wage
costs were not a reascn for the closing of the Wabash facility Gordon's
credited statement on March 31 demonstrates the truth of Gordon's testi-
mony
468 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
Accordingly, "I 'find': that labor costs were not the
source of Respondent's decision nor was there any mean-
ingful proposal which could have been made by the
Union. The supply of nest run eggs was diminishing;"
and it was simply a fact that Respondent could purchase
cartoned eggs for less than it could have produced eggs
in Wabash, paying its employees nothing. Respondent
made efforts, to salvage its Wabash plant: faced with a
shortage of nest run eggs, it bought its own flock of
hens; it spent over $300,000 on new equipment; it negoti-
ated new productivity agreements—all to no avail.
The fundamental basis for Respondent's actions was
that its nest run operation was outmoded. Its doubled
transportion costs and lower yield of quality eggs could
not have been resolved within the framework of 8(a)(5)
obligations because Respondent could purchase integrat-
ed eggs for less than it could process them. Indeed,, in
1980, Respondent closed its last two (except for Wabash)
nest run facilities, which were located in Coldwater,
Michigan, and Jackson, , Missouri, because Respondent's
supply of nest eggs dwindled or it could purchase inte-
grated eggs for less than it could process them. If there
were any remote possibility that the Union could have
influenced the final decision, I would find a bargaining
obligation, but the facts and circumstances herein con-
vince me that the Union was powerless to offer any rea-
sonable alternative to Respondent's action Brooks-Scan-
lon, Inc., 246 NLRB 476 (1979). Accordingly, I conclude
that the Union could not engage in meaningful bargain-
ing about the decision and that Respondent was under no
obligation to engage in bargaining under the Act
I further conclude 'that Respondent did not refuse to
bargain about the effects of the closure or subcontracting
of its egg processing operation. Rather, it initiated nego-
tiations and made an offer It did not condition its offer
on the Union's agreement not to file unfair' labor practice
charges and did not insist to impasse that the Union must
18 In 1980, Respondent was unable to renegotiate a favorable price to
purchase nest run eggs from Triangle Feed, a supplier of 20 percent of
the eggs to the Wabash facility in 1979 and 1980, as a consequence, 10 of
Respondent's employees were laid off However, I acknowledge that part
of the reason for the diminishing supply was Respondent's sale of the NK
flock
give up its right to file such charges." Rather, Respond-
ent made an offer to pay certain benefits to the affected
employees, an offer which the Union elected not to reply
to at the meeting of March 31. Later, McCall arranged
for a meeting to be held on April 1 in South Bend, Indi-
ana, to make it convenient for International Union repre-
sentative Sam Delfino to attend. 2 ° While Respondent
was present for that meeting (Gordon driving 6 hours
from Cincinnati, Ohio), McCall refused to discuss the ef-
fects of the closing because Delfino could not be present,
and only Delfino had the authority to bargain. McCall
told Gordon that Delfino would call Gordon the follow-
ing day. Delfino did call and asked about setting up an-
other meeting Gordon agreed to do so, with the sole
qualification that he was not going to drive to South
Bend again. Delfino then told Gordon that unfair labor
practice charges against Respondent would be filed that
'day, and the request for another meeting apparently was
not pursued. The Union thereafter made no further at-
tempts to negotiate the effects of the:closing. Respondent
was utterly blameless, and I find no violation of the Act.
On these findings of fact and conclusions of law and
on the entire record, 21 I issue the following recommend-
ed22
ORDER
The complaint herein is dismissed in its entirety.
19 Peerless Food Products, 231 NLRB 530 (1977), cited by the General
Counsel, is thus distinguishable It holds that the "insistence on the drop-
ping of" a lawsuit as a "precondition" to signing an agreement violates
Sec 8(a)(5)
20 To the extent that the General Counsel's , case is grounded on testi-
mony that the Union threatened on March 31 to file unfair labor prac-
tices and Gordon replied that he would meet again after the charges
were settled, I discredit such testimony Despite the alleged threat,
Gordon agreed to meet in South Bend on April 7 Contemporaneous
notes of Archiable support Gordon's denial of this testimony.
21 The General Counsel moved to add G C Exh 16, p 2, thereof,
which was Inadvertently omitted There being no opposition, the motion
is granted •
22 If no exceptions are filed as provided by Sec 102 46 of the Board's
Rules and Regulations, ,, the findings, conclusions, and recommended
Order shall, as provided in Sec 102 48 of the Rules, be adopted by the
Board and all objections to them shall be deemed waived for all pur-
poses