General Motors is suing Fiat Chrysler, alleging that its crosstown rival got an unfair business advantage by bribing officials of the United Auto Workers union.
The unprecedented lawsuit, filed Wednesday in U.S. District Court in Detroit, alleges that FCA was involved in racketeering by paying millions in bribes to get concessions and gain advantages in three labor agreements with the union.
Details of the racketeering have been exposed in a federal probe of corruption at the union that has resulted in multiple arrests starting in 2017.
Also on Wednesday, the union’s Executive Board filed paperwork to oust President Gary Jones and Regional Director Vance Pearson, both of whom have been implicated in the widening federal probe.
GM’s lawsuit alleges that Fiat Chrysler corrupted the bargaining process with the UAW in the 2009, 2011 and 2015 union contracts to gain advantages over General Motors.
“FCA was the clear sponsor of pervasive wrongdoing, paying millions of dollars in bribes to obtain concessions” from the union, GM General Counsel Craig Glidden said. “FCA’s manipulation of the collective bargaining process resulted in unfair labor costs and operational advantages for it, causing harm to GM.”
In a statement, Fiat Chrysler called the lawsuit “meritless” and said it would defend itself vigorously. It also accused GM of trying to disrupt its proposed merger with French automaker PSA Peugeot as well as ongoing contract talks with the UAW.
“We are astonished by this filing, both its content and its timing,” Fiat Chrysler said. “We intend to vigorously defend against this meritless lawsuit and pursue all legal remedies in response to it.”
Glidden alleged that Fiat Chrysler CEO Sergio Marchionne, who died last year, was a “central figure” in the conspiracy, which was designed to put GM at a cost disadvantage to FCA.
Erik Gordon, a University of Michigan business and law professor, said one company suing another over bribes to union officials is without precedent. While GM’s allegations are believable given what federal prosecutors have already uncovered, it will have the burden of convincing a jury that the scheme actually happened, Gordon said.
In addition to Fiat Chrysler, GM’s lawsuit names former FCA labor relations chief Alphons Iacobelli, and former FCA officials Jerome Durden and Michael Brown as defendants. All have pleaded guilty in the federal corruption probe, which has alleged that Fiat Chrysler bribed UAW officials to keep them “fat, dumb and happy.”
Authorities have said that payments were made through a training center jointly run by the company and the UAW. Durden handled the training center’s finances, and Brown helped run the center.
After leaving Fiat Chrysler, Iacobelli went to GM’s labor relations department in 2016. He was suspended after his indictment and fired in December of 2017.
In a separate statement, the UAW said it had multiple safeguards in place to ensure the integrity of its contracts negotiated with Fiat Chrysler, including reviews by local and international union officials.
“We are confident that the terms of those contracts were not affected by Iacobelli’s misconduct, nor that of any UAW officials involved in the misuse of joint program funds at FCA,” the statement said.
The UAW says it’s committed to make whatever changes are needed to make sure misconduct never happens again.
Glidden told reporters that in the three UAW contracts, FCA was able to reduce its labor costs because the union allowed it to hire more temporary and lower-paid workers than GM.
In 2007, the union agreed that new hires would be paid less than longtime workers, setting up a “second-tier” of employees who were paid less. FCA has more second-tier workers than either of its Detroit competitors.
The Center for Auto Research, an industry think tank, calculated earlier this year that Fiat Chrysler’s total labor costs including wages and benefits were about $55 per hour, giving it an $8 per hour benefit over GM and a $6 advantage over Ford.
Glidden said GM is not suing the UAW because it believes that responsibility rests with FCA, which was the “orchestrator” of the conspiracy.
“We were denied benefits that FCA received under their collective bargaining agreements and were damaged as a result,” he said.
Glidden said GM is seeking substantial damages in the case, but he could not give a specific amount. The lawsuit says GM doesn’t seek to reduce wages or benefits of any UAW workers.
Hours after the lawsuit was filed, the UAW’s executive board signed paperwork seeking to boot Jones and Pearson from the union. Both men are on paid leaves as their cases are prosecuted.
The papers say that Jones and Pearson directed submission of bogus expense records and concealed where the money went, violating ethics procedures and federal labor laws.
Pearson has been charged with embezzling thousands of dollars to pay for expensive cigars and wines, golf greens fees, clothing and to rent a lavish villa in California. Jones has not been charged but federal authorities raided his suburban Detroit home in August.
A panel of delegates to the last international convention will hold trials for both men, who have 15 days to prepare their defense under the union’s constitution.
Last week, a retired union vice president and former GM board member became the 13th person to be charged in the federal probe of the union and auto companies.
Joe Ashton is accused of receiving millions of dollars in kickbacks from a contractor who made watches for union members. The 58,000 watches, purchased through the GM-UAW joint training center, are still in storage five years later.
Ashton was charged with conspiracy to commit wire fraud and conspiring to commit money laundering. A guilty plea is expected on Dec. 4, according to a court filing Wednesday.
Glidden said GM had no knowledge of the scheme that allegedly involved Ashton, and the lawsuit had nothing to do with that case.
“In the fullness of time, GM will address that conduct,” he said.
Last month, the union settled with GM after a 40-day strike, and Ford workers reached an agreement shortly after. Intense talks with Fiat Chrysler began Monday, with the possibility of another strike possible due in part to union members’ distrust of UAW leadership.
Source: Associated Press – Tom Krisher