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A High-Stakes Union Fight Who Will Fold First

January 5, 2004
Related Topics: Labor Relations, HR & Business Administration

Before January 13, 2003, Cintas Corp., whose primary business is designing, renting and laundering uniforms, was known mainly for its ubiquitous red, white and blue delivery trucks. Businesspeople and investors noted its unsurpassed size and strength in the "corporate identity" industry, its 34 consecutive years of profitability, and its appearance on Forbes’ "The World’s Best Companies" and Fortune’s "America’s Most Admired Companies" lists.

    On that fateful day, however, it became best known as one of the primary targets of American organized labor. Since then, two of labor’s most powerful entities, the AFL-CIO and the Teamsters, have committed big money, political muscle and personal reputations to the fight against Cintas. The battle is a high-stakes test of strength for the beleaguered union movement. It’s also a reality check for militantly anti-union businesses like Wal-Mart, FedEx and McDonald’s. And it’s a mandatory object lesson for any organization dealing with labor-management issues and deciding which tactics, old and new, will be effective in the 21st century. The protracted Cintas dispute serves as a wake-up call for companies that may wrongly assume that unless their workforce is already unionized, they have nothing to worry about.

    Though organized labor has been on a long downward slide for the past 20 years, making assumptions about unions today is potentially dangerous. It’s true that in 2002 only 13.2 percent of American workers were unionized, down from nearly 36 percent in the early 1950s. In recent years, massive job losses in the manufacturing sector have hit unions hard. The combination of highly publicized cases of union corruption, 9/11 and the recent recession has been devastating to unions. But the unions’ long membership decline statistically leveled off in 2000, says Michael Sculnick, a labor lawyer who is a director at PricewaterhouseCoopers. "Right now we’re at an inflection point," he says. "It could go either way."

    Recently, unions have won significant victories or at least held the line at Yale University, Verizon, Goodyear, Boeing and the Big Three automakers. In the mushrooming health-care sector, unionized nurses have made big gains. Median weekly earnings for full-time salaried union workers were $740 in 2002, compared with $587 for their nonunion counterparts. According to a 2002 poll of nonunion workers commissioned by the AFL-CIO, 50 percent said they would vote for union representation if offered the chance. And last year, endorsements by two major unions established Howard Dean as the clear front-runner for the Democratic presidential nomination.

The combination of highly publicized cases of union corruption, 9/11 and
the recent recession has been devastating to unions.
"Right now we’re at an inflection point. It could go either way."

    For the past year Cintas has been the target of a corporate campaign spearheaded by the Union of Needletrades, Industrial and Textile Employees, which is affiliated with the AFL-CIO. How much this has affected the company financially is unclear. Cintas’ vice chairman and former CEO Bob Kohlhepp says that there have been "minor" client losses and that the company has had to increase spending in "a measurable, not significant" way for services from outside contractors like labor lawyers, labor-management consultants and public relations firms. From January to March, Cintas stock dropped nearly 40 percent, but most of the loss had been recovered by mid-November. In September, the Value Line research firm named Cintas as one of only 14 companies it predicts will grow at a minimum 12 percent annual rate over the next three to five years. At about the same time, J.P. Morgan Securities issued a report on Cintas that bore the headline "Weak Topline Results, Near Term Outlook Uncertain" and said that "union issues continue to raise ugly questions." An analyst at R.W. Baird & Co. estimates that the UNITE organizing campaign will cost Cintas as much as $4 million in 2003 and predicts that there will be "significantly greater indirect costs caused by management disruptions and employee distractions." An analyst at Lehman Brothers says that if the organizing drive is successful, it will cost Cintas $21 to $33 million in earnings before interest, taxes, depreciation and amortization for fiscal year 2004.

    But simply probing for the bottom line is an incomplete method of handicapping this fight. When asked why they need to defeat Cintas, union officials mention concepts like justice, empowerment and dignity as often as wages. When asked what he would do if UNITE agreed to organize by NLRB ballot, Kohlhepp says that he would do everything it took to win, including spending the additional millions of dollars necessary for campaign materials, employee polling and proselytizing, and expensive lawyers and consultants. When asked whether unions are obsolete in today’s economy, he shakes his head emphatically. Unions are still useful, he says, but only at companies run by unfair and non-communicative managers.

    This view is anathema to a new generation of union leaders who are concentrating more on gaining new members than on investing existing members’ pension funds. One of them is Bruce Raynor. At age 53, the aggressive Raynor is considered a possible future head of the AFL-CIO. The union he leads has a long and colorful history, so it’s not surprising that the Cintas-UNITE struggle has been covered extensively in national publications and followed closely by academics. Ruth Milkman, a professor of sociology at UCLA and director of its Institute of Industrial Relations, believes that the Cintas outcome may provide an indication about the balance of power between unions and management for the foreseeable future. "There are a lot of workers involved, and it looks like the unions are making a very strong effort," she says. "If they win, it means a big breakthrough. If they fail, it means a big setback."

Facing off
    In the past few years, the 250,000-member UNITE has organized more than 40,000 laundry workers at companies smaller than Cintas. Cintas is based in Cincinnati and has more than 27,000 employees at its 365 sites in the United States and Canada. Only 700 employees are union members, so the 74-year-old company wasn’t expecting a union fight. "There was no real warning," says Larry Fultz, Cintas’ vice president of human resources, who in his two-and-a-half-year tenure at the company had concentrated on non-explosive matters like implementing e-learning, applicant-tracking and succession-planning systems.

    During the week of January 6, Fultz says, he and his front-office colleagues heard scattered rumors that UNITE was set to announce an organizing drive for 17,000 of the company’s employees. Over the weekend, then-CEO Bob Kohlhepp presided over an urgent strategy session to prepare Cintas for a union petition to hold a National Labor Relations Board-organized secret ballot. The employees would listen to arguments from both labor and management and would either vote the union in or reject it.

    On the following Monday morning, thousands of UNITE members arrived at 150 Cintas locations from Seattle to Miami. The activists distributed leaflets accusing Cintas of underpaying and mistreating their $7.50- to $9-per-hour production workers and forcing their $35,000- to $50,000-a-year driver-deliverymen, called service sales representatives, to work unpaid overtime.

    Most surprising to Cintas management, though, was the announcement a few days later that UNITE would not be petitioning for an NLRB election. Instead it intended to organize it under an alternative process called "card-check neutrality." UNITE would press Cintas management to agree to remain neutral on the matter of union representation, at which point the company would stop lobbying, "educating" or even expressing an opinion on the matter. Meanwhile, the union would try to obtain signatures from Cintas employees expressing their desire to join the union. If and when UNITE got signed cards from a majority of eligible workers, it would be authorized to negotiate a contract with Cintas.

    Bruce Raynor revved up the rhetoric. "This is a company that generated $234 million in profit off $2.27 billion in sales last year and then turned around and increased the cost of its pathetic health insurance for its underpaid, overworked and abused workforce," he declared. Since January, UNITE has assigned dozens of organizers to meet with Cintas employees in their homes. It has spent more than $3 million on its corporate campaign, which included a much-publicized day of picketing outside a downtown Chicago Starbucks, a Cintas client.

"I knew little or nothing about card-check neutrality. In fact, I’ll tell you what. When I first heard about it, my initial reaction was, ‘How can the law allow a union to do this?’ I mean, it seems so un-American, so unfair."

    In May, UNITE filed a $100 million class-action lawsuit against Cintas in behalf of its service sales representatives. In June, two Cintas production workers in San Leandro, California, filed a lawsuit claiming that by supplying the nearby city of Hayward with laundry, the company had violated that municipality’s "living wage" law. That same month, UNITE took the unprecedented step of joining forces with the Teamsters, which are historically independent of the AFL-CIO. The Teamsters’ target would be the Cintas driver-deliverymen.

    In July, 90 Democratic congressmen signed a letter supporting the Teamsters-UNITE effort. In September, Democratic senator Charles Schumer introduced a bill abolishing NLRB elections and mandating card-check neutrality for all union organizing efforts. On Labor Day, several thousand union members held a picnic and rally at a Cincinnati park and heard speeches by AFL-CIO president John Sweeney and Raynor. "We’re bigger than they are," Raynor said. "Stronger than they are. And have more guts than they do."

    UNITE’s next thrust came from a different direction. At Cintas’ annual shareholder meeting on October 14, the company faced four dissident shareholders’ resolutions, three more than in its entire history. The AFL-CIO openly backed only one, a corporate-governance proposal that would reconfigure the board of directors’ nominating committee to include only independent directors. This would exclude company chairman Richard Farmer, the father of CEO Scott Farmer and the company’s largest individual stockholder. The resolution failed, 62.7 percent to 37.3 percent, with the losing side representing half of the stock not controlled by management. Afterward, the five other members of the nominating committee voted Farmer off the panel.

    Cintas’ reaction to all this has been, quite literally, by the book. In The Spirit Is the Difference, an 86-page hardcover book given to each new employee, the company’s "principal objective" is explained. That objective: "To maximize the long-term value of Cintas for its shareholders and working partners by exceeding our customers’ expectations." One consequence of a company’s management not having that objective, it says, is that "they may sign a union contract that will make them less competitive instead of taking a strike to avoid the work and grief of battling the union. They don’t want to rock the boat."

    In addition to flatly rejecting all charges of intentional wrongdoing, Cintas has responded to UNITE with a mixture of disbelief, defiance and scorn. UNITE’s organizing strategy is the prime target. "I knew little or nothing about card-check neutrality," says Kohlhepp, who since July has been Cintas’ vice chairman under fourth-generation CEO Scott Farmer. "In fact, I’ll tell you what. When I first heard about it, my initial reaction was, ‘How can the law allow a union to do this?’ I mean, it seems so un-American, so unfair." He adds that acceding to card-check neutrality would be akin to betraying his company’s traditions and culture.

"We're bigger than they are.
Stronger than they are.
And have more guts than they do."

    Kohlhepp, who has worked at Cintas since 1967 but wears a name tag on the lapel of his business suit and occupies a small, spartan office in the antiseptically clean headquarters facility, is largely responsible for the company’s anti-UNITE strategy. Scott Farmer says that corporate structure allows him to delegate the union problem to Kohlhepp while he concentrates on day-to-day operations. From the beginning, Cintas executives have insisted that UNITE is attempting to pressure their employees, called "partners" by management, "into surrendering their rights to a government-supervised election and unilaterally accepting union representation." Cintas, they add, "will continue to vigorously oppose this campaign to defend our employees’ rights." The company has redoubled its efforts to communicate with employees and to address their concerns. Cintas’ 2003 annual report, not coincidentally, contains dozens of admiring short biographies of partners from all backgrounds and job classifications.

Taking issues
    Whether Cintas’ intransigence reflects steely business sense or arrogance is yet to be determined. Just as uncertain is the ultimate outcome of the Cintas-UNITE struggle. In the meantime, business and labor experts are busy identifying the major issues. There is hardly a company in America that doesn’t face one of the following issues, if not urgently so. They include:

  • Globalization. Nelson Lichtenstein, a professor at the University of California at Santa Barbara and a noted labor historian, knows exactly why UNITE targeted Cintas. "Because you can’t make money sending clothing to China to be laundered," he says. Cintas, which assembles most of its uniforms overseas, still needs to keep its laundries near its customers. This eliminates the option of exporting laundry jobs and nullifies a potent anti-union weapon.

  • Wages and Benefits. During the summer of 2002, UNITE renegotiated a contract at a unionized laundry in Detroit that Cintas had recently purchased. It won a 22 percent pay raise and held off the company’s demands to shift health-care costs to the workers. It’s a potent argument in its favor, but Cintas has one, too. It offers everybody from top to bottom the same fairly competitive health-care, profit-sharing and 401(k) plans. The union counters that workers earning $17,000 a year are unable to afford the health-care plan’s premiums, co-payments and deductibles. Probably true, says Peter Capelli, a professor of management at the Wharton School, "but not very compelling when lots of people are losing their jobs."

  • Competition. Unlike Wal-Mart, a company much admired at Cintas headquarters, Cintas hasn’t translated its nonunion status into a significant price advantage. Neither has it stampeded its competitors into anti-unionism. "We’re proponents of unions," says a spokesman for Aramark Corp., which is second only to Cintas in the U.S. uniform-rental business. "They’re good for the American people," the spokesman adds, "and that’s the way we’ve done business since our inception." Although he denies that Aramark has tried to take advantage of the UNITE campaign, he says that some customers have switched to them "because they’re not happy with the situation at Cintas." One such customer is the city of Hayward.

  • The Spirit Is the Difference. UNITE’s corporate campaign depicts Cintas managers as greedy, uncaring sweatshop operators. This pre-World War II template is an awkward fit. While laundry work is repetitive, even mind-numbing, most of Cintas’ plants, particularly the 65 built during the last few years, are clean and air-conditioned. Cintas promotes from within, and its workers frequently climb into the middle class. CEO Scott Farmer’s annual salary is $450,000, well below modern robber baron levels. He has an open-door policy and meets regularly with workers at every level. Each year Cintas holds a Spirit Day, when everyone from the CEO down pledges to uphold the company’s "mission." UNITE categorizes all this as propaganda and subtle coercion, but Leo Troy, a professor of economics at Rutgers University, says it does so at its peril. "To the unions, a worker who votes for a union is intelligent," Troy says. "A worker who votes against it is a tool of management. But it’s absurd to say that employers oppose unions only because of ideology. Corporate culture goes beyond saying ‘we don’t want a union.’ These plans are focused on productivity, not just governance of the workplace. The reason that employers are successful in a nonunion company is that the company treats its human capital as a valuable asset."

  • Union Grievances vs. Human Rights. In this hyper-competitive era, the concept of workplace "unfairness" has little traction. To compensate, Nelson Lichtenstein says, some unions are experimenting with borrowing arguments and techniques from the civil rights and human rights movements. Hence UNITE’s picketing of Starbucks, which has been accused of exploiting coffee workers in Central and South America. Hence too UNITE’s emphasis on the fact that most of Cintas’ lowest-paid workers are Spanish-speaking immigrants, and an EEOC complaint alleging racism and sexism in the workplace filed by UNITE and the Teamsters in November.

  • Card-Check Neutrality. Regardless of Cintas’ contention that it is undemocratic and an insult to management and workers, this organizing method, though relatively unfamiliar to the public, is in fact used frequently. In recent years corporations have become adept at turning NLRB elections into grinding endurance contests by hiring battalions of lawyers and consultants who specialize in regulatory hairsplitting and lengthy court challenges. "I think companies have decided that breaking the rules and paying a fine down the line is a legitimate delaying tactic," says a prominent labor scholar who requested anonymity. Instead of entering such a contest, unions try to negotiate neutrality agreements. Adrienne Eaton, a professor in the School of Management and Labor Relations at Rutgers University, says that union leverage in these cases comes from the desire of companies to avoid the costs of a strike or corporate campaign, to operate in cities run by pro-union politicians, to avoid alienating union workers employed at other branches of their company and to prevent the dampening effect on business of picketers at the front gates. Companies organized via card check in the last few years, she says, include Marriott, Freightliner, Cingular and Rite-Aid. UNITE won the right via card check to represent 800 workers at Brylane, a catalog-clothing distribution center in Indianapolis, last January. "Brylane should be congratulated for agreeing to the card-check-neutrality process and should be seen as a positive example for other employers," Bruce Raynor said.

  • Politics. Richard Farmer is a major campaign donor to President Bush, and it’s safe to say that Senator Schumer’s card-check bill will go nowhere as long as the Republicans control Congress and the White House. If political control shifts, it’s likely that the bill will pass. But at least for now, neither Cintas nor the union likes to talk about forces beyond its control affecting the outcome of the fight.

    In one stratagem that has survived the entire 20th century and into the 21st, neither will concede that the other side’s position is more than a dubious mishmash of greed, deception, desperation and self-delusion. Nor will they look at the bigger picture and speculate on how the eventual outcome of their grudge match will clarify the current state of labor/management relations.

    Both sides, however, will gladly talk about how they think the conflict will end. Bruce Raynor thinks that bottom-line realities, as well as the rights of workers, will prevail. "I think Cintas has a decision to make. Are they in the business of serving shareholders and owners or fighting the union? You can’t do both. We will set the stage so the company will not do both. In the end Cintas ownership will make the logical decision."

    Bob Kohlhepp has his own confident prediction. "I think at some point UNITE and the Teamsters will recognize that they are spending a lot of money and they are not going to get anywhere," he says. "I don’t think they will ever admit defeat. But I think at some point they’ll realize they’ve got easier fish to fry."

Workforce Management, January 2004, pp. 28-38 -- Subscribe Now!

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