EMPLOYEE BENEFITS

The Union Wanted Wage and Benefit Increases. Management Saw That As the Path to Bankruptcy.

Was a strike inevitable?
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The month of September is usually a busy and festive time in Yakima, Washington. The much anticipated Central Washington State Fair opens and the fall harvest of apples and pears kicks into high gear. In 2004, the crop had been a good one. But Valerie Woerner, CEO of Snokist Growers, a 104-year-old fruit packing and canning cooperative, was hardly in the mood for a party. Woerner had spent the summer battling with a determined union. Now, she was facing a nasty strike--just as the crucial pear-packing season was beginning.

Between 2001 and 2003, Woerner had engineered a dramatic and, in some respects, brutal financial turnaround that had rescued the for-profit cooperative, which is owned by roughly 350 fruit growers, from bankruptcy. She slashed inventories and overhead, trimmed the work force, and scaled back benefits, cutting nearly $8 million in annual costs. But in the process, she so angered some of Snokist's cannery employees that they had sought representation from the United Brotherhood of Carpenters--which was now demanding higher wages, better benefits, and job security guarantees. In Woerner's view, those concessions would put Snokist right back on the edge.

Woerner was determined to stand her ground. But she knew that a strike could be disastrous. Many managers would be reluctant to cross a picket line. And there was a threat that unionized railroad workers and truck drivers would support the strikers, leaving Snokist's pears, plums, and cherries to rot in the warehouse. Woerner was sure that her strategy was sound. But was she really willing to put Snokist through a strike?

A 20-year food industry veteran, Woerner had known that her assignment at Snokist would be difficult when she took it in March 2001. It was a rough period for the fruit business for all sorts of reasons. The strong dollar made products too expensive to export. Fuel and transportation costs were rising, but grocery chains refused to accept price increases. Canners in China were making inroads and domestic giants, like Dole Foods and Fresh Del Monte (NYSE:DLM), were tough competitors. Just prior to Woerner's arrival at Snokist, two Washington cannery cooperatives had shut their doors.

Still, Woerner was unprepared for what she found when she arrived in Yakima. A seven-year backlog of unsold canned products sat in Snokist's warehouses. Overtime for mechanics ran so high that many earned between $70,000 and $80,000 per year, putting them on the same pay scale as top managers. "It was a real mess," she says. In 2001, the company had lost $6.5 million on revenue of about $100 million. Woerner's prescription: more automation, better coordination between business units, and a shift toward higher-margin products. She slowed production and wrote down several million dollars in inventory costs. Snokist's board, made up mostly of Yakima Valley fruit growers, strongly supported the cooperative's new CEO.

Fewer production runs, however, meant fewer hours and less overtime for company employees. And for workers, that was hardly the worst of it. For years, Snokist had been paying for health insurance for every worker; even seasonal workers were eligible when they were working. The plan was costing Snokist $2 million a year, and the cost was rising as the Snokist work force aged. For Woerner and the board, Snokist's past generosity was unsustainable. So in 2002, the company announced that it would no longer offer coverage to hourly workers. Woerner tried to soften the blow by offering a higher hourly wage. She also pointed out that most seasonal workers had wages that were low enough for them to qualify for the state's public assistance health insurance program at a cost of roughly $10 per month. Given the pay raise, she argued, many workers would come out ahead with the state plan.

In Snokist's fresh fruit division, which operates in a separate facility, the change met with little complaint. But the 270 hourly cannery workers were outraged and became even angrier when Woerner outsourced some unskilled seasonal positions to a temporary agency that paid lower wages. In August 2002, the workers petitioned the National Labor Relations Board to join the Carpenters Union. Three months later, they voted to unionize.

Contract negotiations began soon afterward and got off to a rocky start. The union demanded that Snokist restore health benefits, boost wages, and offer job security guarantees. In May 2004, the union walked away from the table, citing a hostile negotiating environment that arose after Snokist brought in an attorney from Texas who specialized in helping management win labor disputes. "He came in with a very arrogant attitude and was very rude to the bargaining committee," says Sherry Scott, a union representative. A month later, the union members voted to authorize a strike.

In early August, the two sides reached a tentative agreement that awarded some small wage increases, but the deal was rejected by workers. Seeing a strike coming, Woerner began to make plans to bus in replacement workers and run the cannery with cooperative members who would leave their orchards to take over the factory. The mood was bleak as both sides dug in their heels. The union had not set a strike deadline, a strategic decision that made it more difficult for management to prepare. Snokist's growers, still smarting from a hit to their pocketbooks in 2001, lined up solidly behind Woerner.

The Decision

Just before midnight on September 23, 2004, 270 cannery workers walked off the job. They staged a midnight rally, illuminating the facility with car headlights and chanting slogans through bullhorns. Several managers either resigned or refused to cross the picket line, leaving Woerner and the co-op members even more short-handed than they had expected. With the help of replacement workers hired through advertisements and word of mouth, Snokist managed to turn out canned fruit running fewer shifts but the company soon fell several weeks behind schedule. Railroad workers refused to transport Snokist products, forcing the company to use trucks at far greater expense. Customers were warned that delays and shortages were likely.

It got ugly fast. Woerner and some Snokist managers say they began receiving death threats. Woerner says protesters waved posters with the image of her face with a bull's-eye printed on her forehead. "It was absolutely chilling," she says. Snokist hired bodyguards for some of its managers, but at least one manager quit as a result of the threats. "The police investigated all these allegations and they couldn't prove anything," says Sherry Scott, who claims the strike was actually about normal in terms of tension and discomfort.

The work stoppage lasted eight months. Finally, in April 2005, workers agreed to return to the cannery without a contract. A few weeks later, the union accepted an offer that included no wage boost and only scant benefits guarantees. Still, both sides declared victory and an uneasy truce was struck.

Recovering from the strike's financial blow has not been easy. While most longtime customers stayed loyal, in 2004 Snokist lost $2.7 million on its cannery operations. The red ink spilled into 2005, when the company lost an additional $2.5 million. In its current fiscal year, the cannery finally is turning a small profit.

The current contract is up for renewal in 2008, and the union is expected to seek significant wage and benefits improvements. "We think we deserve a better deal from the company and we look forward to talking to them about it," says Sherry Scott. Woerner says the mood at the cannery is upbeat--an assessment that Scott disagrees with. Still, the CEO now feels the company is in better shape than ever and is making significant progress toward moving from an old-line can and pack company to a sophisticated enterprise with flexible production lines and the capability to quickly produce specialty products for private-label customers and supermarkets. Says Woerner, "I regret that the strike happened but I don't think we had a choice, and the changes we've fought to make have given the company a new lease on life."

The Experts Weigh In

Typical CFO behavior

Change was necessary, but I'm not certain that the communications were handled properly. It seems like the big changes came down as edicts; workers had no chance to respond or make suggestions or propose solutions. This is typical CFO behavior. CFOs want to fix the problem as quickly as possible because the company is bleeding money. But we always say there is not a single unionized company that didn't ask for it because the election of a union means workers feel as though they are being ignored and need a voice.

Peter Robb
Chief Negotiator
Hawaii Employers Council
Honolulu

Nicely done

I don't think Woerner had any other options. Snokist was bleeding red ink and the growers were not in a position to hang on forever. Cutting benefits and outsourcing jobs were the right things to do to cut costs--especially when your competition for agricultural goods is China. True, bringing in a labor attorney may have sent things in a more confrontational direction, but it also may have quickly demonstrated how far apart the parties already were. I think Woerner handled this about as well as anyone could have been expected to.

Steve Bernstein
Partner
Fisher & Phillips
Atlanta

Act sooner

It would have been smarter to not let the negotiations reach the harvest season. Our company was in a similar position with the farm workers union in 2002. We announced that failure to accept the contract would result in a lockout. The lockout started three months before harvesting, giving us the ability to prepare our managers and train temporary employees. Also, our philosophy is to manage our own negotiations and not have outside attorneys get involved. That creates an even more adversarial environment.

Thomas Fossey
CFO
C. Mondavi & Sons
St. Helena, California

Last updated: May 1, 2007




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