Steelworkers Face Off Against Kaiser

Like most workers at Kaiser Aluminum Corp.’s plant in Gramercy, Louisiana, Ray Scroggs never thought he’d still be out of work 20 months after talks between his union, the United Steelworkers of America, and company management broke down over job security and retiree health coverage.

Since October 1998, Scroggs and his USWA local have joined 2,900 workers at Kaiser plants in Spokane and Tacoma, Washington, and Newark, Ohio, to resist management demands that the company be allowed to “contract-out” 700 union jobs and put a cap on health care benefits.

Driving along a hot asphalt road in the neighboring town of Lutcher, Scroggs points to a spot about a half-mile from the Kaiser plant where a half-ton section of a chemical tank was found after a massive explosion on July 5, 1999. The blast splattered shards of metals over the plant’s property and spewed asbestos and lye into nearby communities.

No one was killed in the 5:15 AM explosion but 29 workers were evacuated to a nearby hospital with broken bones and burns caused by the boiling lye. If the explosion had taken place a few hours later, after the daily 6:00 AM shift change, Scroggs says the consequences could have been far worse.

At the time of the blast, replacement workers, or what many here call “scabs,” were operating the 42-year-old facility. According to company documents, a power outage was mishandled. The unionized steelworkers who had helped turn a nearly bankrupt 1980s facility into a 1997 money-maker, could only watch as ambulances raced in and out of the plant’s grounds, and area residents complained of burning eyes and throats.

“I’m confident that if we’d been in there at that time, the explosion never would have happened,” Scroggs said. “We’ve had a number of power failures, and we never blew up the plant before.”

The union’s argument that the explosion would not have occurred if the plant’s regular workers had been at the controls was validated on March 16 when the U.S. Department of Labor’s Mine Safety and Health Administration (MSHA) cited Kaiser for 23 safety violations, and asked a federal judge to fine the company $533,000.

Though the company is challenging both actions in court with the help of the Washington, DC firm of Patton Boggs LLP, MSHA’s report, which read more like an indictment, was explicit. The report stated that “because of the inexperience of the employees on site at the time of the power failure and the employees’ lack of training in procedures to be followed in the event of a power failure, they were unable to take timely action to prevent the explosion.”

More damning, the Labor Department announced a week later that it would consider making a request to the Justice Department to launch a criminal investigation into the blast. Kaiser called the ongoing probe unnecessary. A class action lawsuit has also been filed against the company on behalf of more than 5,000 local residents.

To Scroggs’ relief, Kaiser announced in March that it would allocate $198 million to rebuild the Gramercy refinery. The company expects the plant to be operational by early 2001. (Insurance is expected to cover 50 to 80 percent of the rebuilding cost.) All of that was good news, says Scroggs, provided that the lock-out ends, and Kaiser’s USWA workers can go back to work.

Unlike Kaiser’s manufacturing facilities in Washington state and Ohio, the Gramercy complex is more like a chemical plant. Three times a week, shipments of bauxite arrive from the Kaiser Jamaica Bauxite Company, a facility owned 49 percent by Kaiser Aluminum and 51 percent by the Government of Jamaica. The bauxite is then combined under intense pressure and searing heat with a caustic potash to form a liquor which later becomes alumina, the material used to make aluminum. Kaiser, which also owns plants in Ghana and Wales, is the world’s second largest producer of alumina.

The explosion had put Gramercy’s refinery on the map. While local and even national media started coming to Gramercy, the blast tore at Scroggs’s spirit. His wife told him that following the explosion he became withdrawn, afraid that Kaiser would use the accident as an excuse to leave Gramercy.

The shores of the Mississippi south of Baton Rouge are home to a Fortune 500 collection of corporations: Dow Chemical, Exxon, Mobil, and Dupont, to name just a few. Kaiser workers, though, are the second lowest paid industrial employees in the region, says the union. Pressing for better wages is made more difficult because Louisiana is a right-to-work state.

A 19-year electrician and father of four, Scroggs shows up twice a week for his 12-hour shift on the steelworker’s picket line outside the Kaiser’s alumina refinery, an hour’s ride from New Orleans. It’s a big change, he says, from showing up to work. “Even if I lose my job, even if I never return to Kaiser, all of this is worth it,” says Scroggs. “It’s all about corporate greed. All of this is necessary to show that we won’t be victims of people like Charles Hurwitz.”

Hurwitz is the billionaire corporate raider who bought Kaiser in a hostile takeover in 1988. The son of an affluent haberdasher from the East Texas outpost of Kilgore, Hurwitz has been the target of a 15-year campaign by environmentalists to stop Hurwitz’s Pacific Lumber Co. from clear-cutting old-growth redwoods in the Headwaters Forest in Northern California. Hurwitz acquired the timber company in 1985 with the help of the soon-to-be convicted junk bond specialist Michael Milken of Drexel Burnham Lambert.

Hurwitz is also the target of several lawsuits filed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation seeking to recover up to $810 million for a series of risky investments that led to the failure of United Savings of Texas. Hurwitz denies he had anything to do with the S&L’s bankruptcy.

At the picketline, Rudolph Mitchell, a 27-year belt operator, exclaims that Hurwitz couldn’t be any more different than the man who once owned Kaiser Aluminum, the legendary industrialist Henry J. Kaiser. “You felt like coming to work when Henry J. Kaiser owned this company,” says Mitchell. “We were the highest paid employees on the river. It was teamwork, it was family. You just got a raise. It was automatic.”

When Kaiser died in 1967 at the age of 85, he passed his company, then known as Kaiser Tech, to family members who continued to operate it much as he had. By the mid-1980s, Kaiser was owned by an English investor named Alan Clore. Burdened by low aluminum prices, Kaiser turned to the USWA for concessions. The union agreed to wage cuts and other give-backs with the understanding that when the company’s fortunes turned around, they would be rewarded.

The new management, though, made a nearly fatal mistake predicting that aluminum prices would recover when in fact they would fall to historic lows. While Kaiser’s rivals, Alcoa Inc. and Reynolds Metals Co., laid off workers and stayed clear of debt, the company did just the opposite.

Following the 1987 stock market crash, Kaiser’s stock was weak and management was indecisive. Sensing a buying opportunity, Hurwitz seized Kaiser’s shares, adding another piece to his Houston-based holding company Maxxam Inc. To pay off his junk bonds, Hurwitz sold off some of Kaiser’s chemical plants, and began trimming the workforce. Since 1980, Kaiser’s workforce has fallen from 4,948 employees to 2,920 as of 1998.

Kaiser CEO Raymond J. Milchovich insists that further cuts are needed to make Kaiser competitive with Pittsburgh-based Alcoa, which is nearing the close of its $6.3 billion acquisition of Reynolds, further concentrating an industry in which Alcoa was already the world’s largest aluminum maker.

While the numbers have changed throughout the 20-month labor dispute, Kaiser’s most recent proposal would eliminate 450 union jobs through what it calls “changes in work rule flexi- bilities,” or combining job descriptions. Another 240 union jobs would be removed by “contracting-out” work to lower-paid non-union employees not eligible to receive company benefits. Kaiser spokesperson Lamb says the company has to rid its payroll of featherbedding.

The USWA’s John Duray who works in the union’s Pittsburgh office, calls the featherbedding allegation an excuse to eliminate union jobs with an established wage scale, health care, and pension benefits.“What the members are opposed to is making sacrifice for years if not decades, only to be told that your job is going to someone else,” Duray said. “You can always have fewer workers, but at some point you are talking about safety and efficiency. Look what happened in Gramercy.”

When the USWA and Kaiser management sat down for talks in Minneapolis in September 1998, Burnell says the union realized something was unusual when Kaiser presented five different labor agreements, one for each of its plants, in place of the usual master contract. (Spokane is home to two Kaiser facilities, the Mead smelter and the Trentwood rolling mill).

It appeared, Burnell says, that Kaiser and Hurwitz wanted to significantly weaken the union. “Demanding separate agreements is illegal if the union doesn’t want to do it,” Burnell says. “But they wouldn’t budge.”

On the issue of wages, Kaiser remained unwilling to raise salaries comparable to those paid by Alcoa and Reynolds, the industry leaders. More importantly for those in Gramercy, Kaiser refused to match salaries paid to skilled industrial workers at other Mississippi River factories.

With the two sides deadlocked and the master contract due to expire on September 30, USWA president George Becker and David Foster, the lead negotiator on the Kaiser strike and the head of the union’s District 11 in Minneapolis, flew to Washington D.C. to meet directly with outgoing Kaiser CEO George Haymaker, and his eventual replacement, Milchovich. Once again, no agreement could be found.

Seeing no alternative, the USWA went out on strike the next day. Quietly, the union was hoping for a repeat of a 1995 action when Kaiser workers at all five domestic plants and workers at Kaiser’s Jamaican facility struck for five days before the company agreed to a new three-year contract. Maxxam says the strike cost them $17 million.

But this time, Kaiser was prepared for a more prolonged face-off. During the fall of 1998, the two sides finally met face-to-face in San Francisco on December 17. It was at that meeting that Milchovich unveiled a 2,000-page proposal that grouped workers according to “skill-sets,” awarding higher wages to better skilled workers. Wage rates, though, were not specified for about one-third of the workers. “That proposal was a giant leap backward. A dreadful proposal,” Burnell says.

Curiously, Kaiser’s chief negotiator, David Pryzbylski, who had been hired as a consultant, resigned, later telling union officials that he didn’t see the groundwork for a viable compromise. Pryzby- lski, who now works for Beta Steel in Portage, Indiana declined to comment on the negotiations.

To replace Pryzbylski, Kaiser brought in Jeremy Sherman, a corporate specialist with the Chicago law firm of Seyfarth, Shaw, Fairweather & Geraldson, whose co-founder Lee C. Shaw, helped draft the anti-union Taft-Hartley Act of 1947. Sherman told the USWA’s chief negotiator Foster that the union should expect punitive actions if it did not settle. The union took the comments as a threat to hire permanent replacements. At a January 13, 1999 meeting in Chicago, the union acquiesced, offering to end the strike and resume work on the previous contract provided that the company would continue talking.

Kaiser refused. Instead, it presented the giant proposal as a “take-it or leave” offer. Without an agreement, the company began its lock-out on January 14. Following the lock-out, Kaiser management accused the union of intransigence in the face of an increasingly competitive global aluminum market. Burnell countered that Kaiser was bargaining in bad faith.

Nearly 15 months later, the union’s case was backed up when the General Counsel of the National Labor Relations Board ruled on April 26 that Kaiser had failed to openly negotiate family and medical leave policies, pension plans, job-assignments, and salaries.

The company’s contract proposal, wrote Leonard R. Page, the NLRB’s General Counsel, “lacked sufficient specificity to make it capable of acceptance by the Union.” The case has since been referred to an NLRB administrative judge. If Kaiser loses, the union would be eligible to receive full back pay and benefits worth about $270 million.

Kaiser, meanwhile, is losing money. Revenues in 1999 fell 9 percent to $2.04 billion, while losses totaled $54.1 million. In the past year, the company’s stock price has fallen 58 percent, closing the month of April at $4.25 a share. Kaiser spokesperson Scott Lamb dismissed the NLRB ruling. “Until the full process is completed, no one should prejudge the company on those charges,” Lamb said. “There is nothing in there about guilt; nothing improper was done.”

In Washington, DC, Burnell greeted the NLRB’s decision with controlled elation. Although the board’s decision validated the USWA’s complaints, Burnell stressed that the case could be bogged down in the board’s bureaucracy for a very long time. Another round of talks is scheduled in May at which time the union plans to push a 5-year proposal that it says would boost productivity and save the company $10 million in annual labor costs.

Back in Gramercy, Scroggs remained cautious. “With Hurwitz, he wants more money because the economy is global, and he thinks he needs more money from us to compete,” Scroggs says. “Well, we’re down here in the U.S. economy just trying to stay alive. All I’m lookin’ for is to be just below the middle-class. That’s all I’m lookin’ for.”                        Z

Leon Lazaroff covers the energy industry for The Daily Deal.