Kellogg's says it will permanently replace striking workers after offer is rejected

Kellogg's employees have rejected a contract proposal offering 3% annual raises, with 1,400 workers at the company's four U.S. cereal plants choosing to remain on strike.

The Bakery, Confectionary, Tobacco Workers and Grain Millers International (BCTGM) Union said on Tuesday that an overwhelming majority of workers voted down the five-year offer, which also would have also provided cost-of-living adjustments in the later years of the deal and preserved the workers' current health care benefits.

"The members have spoken. The strike continues," union President Anthony Shelton said.

The union and Kellogg's have been stuck at the bargaining table for more than a year. With talks at an impasse, workers have been on strike since October 5 at plants in Battle Creek, Michigan; Omaha, Nebraska; Lancaster, Pennsylvania; and Memphis, Tennessee. The plant locations make all of the company's well-known brands of cereal, including Apple Jacks, Frosted Flakes and Rice Krispies. 

Kellogg's said it will now move forward with plans to start hiring permanent replacements for the striking workers. The company has already been using salaried employees and outside workers to keep the plants operating during the strike.

"While certainly not the result we had hoped for, we must take the necessary steps to ensure business continuity," said Chris Hood, president of Kellogg North America. "We have an obligation to our customers and consumers to continue to provide the cereals that they know and love."

Rutgers University professor Todd Vachon, who teaches classes about labor relations, said he's not sure the company will be able to hire enough workers to replace the ones who are out on strike in the current economy, and Kellogg's may have a hard time finding people willing to cross a picket line.

"By voting 'no,' the workers are making a strong statement that they are not satisfied by the agreement, but they are also signaling they believe they have the leverage that's needed to win more," Vachon said.

One sticking point in the negotiations has been the company's two-tiered system of wages that gives newer workers at the plants less pay and fewer benefits. As many as 30% of the workforce at the cereal plants have been receiving those lower wages. 

Kellogg's said the new contract will allow all workers with at least four years of experience to move up to the higher legacy pay level immediately and some additional workers would move up in the later years of the contract.

9 years for higher pay 

Dan Osborn, president of the BCTGM's local Omaha union, said the company's offer wouldn't let enough workers move up to the higher pay level quickly, so some newer workers might have to wait as much as nine years to reach the higher legacy pay level. The proposed contract would have limited the number of workers who could move up in pay each year to 3% of a plant's total headcount.

"Ultimately, we don't want to leave anyone behind. And we want a secure future," Osborn said.

Union members would also like to see the company offer bigger raises to its mechanics and electricians so Kellogg's can better compete for those workers, he said.

Victor Chen, a sociologist at Virginia Commonwealth University who studies labor, said he understands why the union is taking a stand against the two-tiered wage system because it is a divisive issue within its ranks.

"A union depends on the solidarity of its members," Chen said. "When you have two-tiered systems — which have become popular in corporate America — you're weakening that solidarity. It turns workers against each other."

At times during the strike, the disagreements between the company and the union turned bitter.

Kellogg's went to court in Omaha in November to secure an order that set guidelines for how workers behaved on the picket line because the company said striking workers were blocking the plant's entrances and intimidating replacement workers. Union officials denied any improper behavior during the strike and said police never cited workers for causing problems.

Strikers emboldened by labor shortages

But the workers have been holding out for higher wages because they believe the ongoing worker shortages across the country give them an advantage during the negotiations. 

Millions of Americans have been slow to return to the job market, with about 4.7 million fewer people in the labor force than prior to the pandemic. That sent wages higher in November as employers tried to lure workers, with average hourly earnings increasing by 4.8% from a year earlier.

Workers at the cereal plants have said they believed they deserve significant raises because they routinely work more than 80 hours a week, and they kept the plants running throughout the coronavirus pandemic. Breakfast cereal sales have spiked during the pandemic, particularly those of older brands that carry nostalgic value. 

In general, U.S. corporate profits have never been fatter — or accounted for a bigger portion of economic growth, recent figures released by the U.S. Bureau of Economic Analysis show. All that profitable padding may leave room for some companies to handle both inflation and wage demands without hiking prices, economists at Oxford Economics said in a recent note. 

Earlier this year, about 600 food workers also went on strike at a Frito-Lay plant in Topeka, Kansas, and 1,000 others walked off the job at five Nabisco plants across the U.S. At meatpacking plants across the country labor unions have been successfully negotiating significant raises for employees.

In another recent strike, over 10,000 Deere workers secured 10% raises and improved benefits but those gains came after the workers remained on strike for a month and rejected two offers from the company. The offer that Kellogg's workers rejected was the first one they have voted on since the strike began.