Chicago Business Litigation Lawyer Blog
Labor unions are supposed to negotiate with employers on behalf of the workers, but according to a recent lawsuit against Fiat Chrysler, the officials of the United Auto Workers union (UAW) allegedly exploited their position to line their own pockets, rather than negotiate better terms for their workers. According to the lawsuit, filed by General Motors, Fiat Chrysler allegedly bribed UAW officials in order to get more favorable rates than their competitors.
Gary Jones, the former president of the UAW, has not been charged by the Justice Department, but he came under scrutiny when federal prosecutors found that union officers from a regional office Jones used to lead had charged more than $1 million in personal spending, including luxury travel. Jones took a leave of absence in November after the FBI raided his home in August and has since resigned as president of the UAW while the union was working to force him out of that position.
Several officers of the UAW and three people who used to work as executives for Fiat Chrysler have all pleaded guilty in cases that revealed that both the auto company and the union siphoned off millions of dollars (some of which was intended for a training center) for personal luxuries, including extravagant travel and meals.
In addition to allegations that the corruption allowed Fiat to gain cost concessions that G.M. was unable to win from the union in 2011 and 2015, the lawsuit also alleges that Fiat Chrysler bribed union leaders to support efforts made by Fiat Chrysler to pressure G.M. into a merger in 2015.
G.M. has not yet named a specific amount it is seeking from the lawsuit, but it has said that it is looking to collect billions of dollars from Fiat Chrysler for their alleged misdeeds. While it has named the three former Fiat Chrysler executives, it has not yet named any executives currently working for Fiat Chrysler.
For its part, Fiat Chrysler has released a statement expressing surprise at the lawsuit, claiming G.M. intentionally timed their filing of the lawsuit to coincide with Fiat’s latest contract negotiations with the union, as well as its proposed merger with the French automaker, Peugeot SA. Fiat Chrysler stated that the multi-billion-dollar lawsuit has no merit and that they have every intention of fighting it.
Despite Fiat Chrysler’s protestations of innocence, federal investigators revealed in 2017 that Alphons Iacobelli, the head of labor relations for Fiat Chrysler, had tolerated union officials putting personal expenses (including personal travel expenses) on credit cards linked to a training center that was being funded by Fiat Chrysler. One of those officials was General Holiefield, who led negotiations between Fiat Chrysler and the UAW from 2008 to 2015. According to prosecutors, Holiefield and his wife spent approximately $1.2 million with Iacobelli’s approval.
Iacobelli also allegedly used funds intended for the training center for his own personal use, including the purchase of a Ferrari and renovations to his home in a wealthy Detroit suburb.
In 2018, Iacobelli pleaded guilty and was sentenced to five and a half years in prison. Holiefiled died in 2015 before any charges could be filed against him. Monica Morgan, Holiefield’s wife, pleaded guilty in 2018 and was sentenced to 18 months in prison. Norwood Jewell, the successor to Holiefield’s position, was sentenced in August to 15 months in prison on charges related to the case.
When Iacobelli pleaded guilty, part of his plea agreement included an admission that he authorized UAW officials to spend $1.5 million as a way to try to sway them to favor Fiat Chrysler in contract negotiations.
Iacobelli and two other Fiat Chrysler executives who pleaded guilty to corruption, Michael Brown and Jerome Durden, were all listed as defendants in G.M.’s latest lawsuit, which alleges that the corruption favored Fiat Chrysler in contract negotiations with the union. The lawsuit further alleges that the union’s favorable terms with Fiat Chrysler gave the automaker the chance to hire more new and temporary workers at entry-level fees compared to G.M., which gave Fiat Chrysler another cost advantage over its competitors (including G.M.). Additionally, the union allegedly helped Fiat Chrysler further cut costs by supporting an overhaul of its manufacturing process and backing the plan to merge with G.M., even though the acquisition would have cost thousands of union jobs.
It is notable that G.M. has not listed the union has a defendant in the lawsuit. After a 40-day strike, the union has just agreed on a new contract with G.M.
G.M. filed its lawsuit on November 20th in the United States District Court in Detroit. The lawsuit will likely take years to resolve.
G.M. has to prove it got a raw deal from the union as a result of the misdirected funds, but that’s going to be tough to prove, especially since G.M. has been doing pretty well financially over the years the alleged misconduct took place. Profit margins for G.M. in North America have been about the same as, if not higher than, Fiat Chrysler’s profit margins, although stock prices for both G.M. and Fiat Chrysler fell after news of the lawsuit was released.
Fiat Chrysler and the other defendants have denied the claims.
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