Seven things you should know about interest arbitration
By Daryll J. Neuser, Reinhart Boerner Van Deuren S.C.
and Daniel Barker, Melli Law
It is probably safe to say that every labor relations professional, union-side and management-side, has been anxiously looking forward to spring. The reason is that most pundits believe that the election of Barack Obama coupled with the significant Democratic gains in the Senate are harbingers of substantial changes to federal labor law in the form of passage of the Employee Free Choice Act (EFCA).
The EFCA has been proposed in Congress since at least 2005 but has not generated much traction with a Republican president and a Republican-controlled Senate. Most recently, in March 2007, the EFCA overwhelmingly passed in the House but failed to overcome a Republican filibuster in the Senate. It is easy to see then that the probability that the EFCA will become law has increased significantly now that the nation has a Democratic president and a Democratic-controlled Congress.
Reasonable people can, and will, debate the wisdom of the EFCA as federal labor law policy. That is not the purpose of this article. Instead, this article focuses on one concept within the EFCA that could bring about the most extensive change to federal labor law in 60 years.
While one can find media coverage on the EFCA’s provision that permits a “card check” process to be an alternative to secret ballot elections when determining whether employees want union representation, there is another major change within the EFCA that has largely escaped notice. The EFCA mandates interest arbitration for first labor contracts if the union and employer cannot reach a voluntary agreement in the 120 days following the union’s request to bargain. The current law does not require an employer and a union to reach a first contract. Instead, the parties must bargain in good faith with a sincere desire to reach a labor contract. Under the EFCA, however, if an employer and a union cannot agree on an initial labor contract and mandatory mediation has failed, the EFCA provides that the Federal Mediation and Conciliation Service (“FMCS”): “shall refer the dispute to an arbitration board established in accordance with such regulations as may be prescribed by the Service. The arbitration panel shall render a decision settling the dispute and such decision shall be binding upon the parties for a period of 2 years, unless amended during such period by written consent of the parties.”
In other words, if the parties cannot reach an agreement, the government will refer “the dispute” to an arbitrator who will decide what will be included in the parties’ labor contract.
There are more questions about the legal implications of this provision than answers. Two examples illustrate the uncertainty facing both employers and unions.
First, the provision states that the FMCS will refer the dispute to an “arbitration board.” Right now, we have no guidance on important questions such as who will be designated as a member of this board, whether the board will be made up of one person or several persons, or whether the member(s) will need specific experience in the employer’s industry to be qualified to sit on this board.
Second, the provision states that the arbitration board will “settle the dispute” and “render a decision.” What we do not yet know is whether the EFCA intends the word “dispute” to mean the contract as a whole or only the open issues. Will the arbitrator have the authority to reverse the parties’ tentative agreements on specific issues in order to fashion an entire labor contract?
What is known at this point is that employers who are unfamiliar with, and uninitiated into, the process of interest arbitration would be well-served to understand the basic concepts. To help you skip up the learning curve, we have generated a list of the top seven things we think you should know about “interest arbitration”:
Advertisement
1. Interest arbitration is different froom grievance arbitration. Interest arbitration is a legal process whereby some or all contract terms are forced on both parties when the parties cannot agree. In contrast, grievance arbitration is the legal process by which an arbitrator decides whether a party to the contract violated the mutually agreed upon terms of the contract.
Some labor relations professionals think that one sign of a good labor contract is that both sides are unhappy with it. The thought is that the unhappiness is an indication that both sides compromised on important elements to arrive at an agreement.
Given our experience, we don’t think the same will be true when the terms of a labor contract are forced upon the parties. Just as before, both sides will be unhappy with the result but with interest arbitration, the unhappiness will stem from the forcing of the labor contract, not the compromises that were made to get the deal done.
2. The government is the arbitrator in interest arbitration. In the case of the EFCA, the arbitrators will likely be employed by or affiliated with the federal government. In other words, the government is placed in a position where it decides what contract terms are fair and make sense in a given business or operations. The government then mandates those terms into the contract.
3. Interest arbitration is not quick. The idea behind interest arbitration in the EFCA is that employees who vote in a union will be certain to have a first labor contract very soon after negotiations begin. While this goal is admirable, we have seen statistics that suggest this is not realistic. A study of the Michigan statute that mandates interest arbitration in contract disputes in units of state police and firefighters found that, on average, interest arbitration took almost 15 months from the date that a request was filed to the date that a decision was reached.
4. There are many different forms of interest arbitration. To resolve economic terms of the contract, the options for arbitration range from providing the arbitrator with a bracketed range of numbers acceptable to the parties, to “baseball arbitration” in which both parties choose one and only one acceptable number, and the arbitrator selects one of the two submitted numbers. Resolving disputes about contract language, rather than economics, proves trickier. Where we practice in Wisconsin, public-sector employers have contract terms decided by arbitrators using a method where each side submits its last-best final offer, and the arbitrator chooses one.
5. Interest arbitration can be expensive. It is a legal proceeding, just like grievance arbitration. The stakes, however, are potentially higher, as an arbitrator will have the power to impose an unfavorable labor contract on the parties. Avoiding such a result will require companies to present thoroughly researched arguments, undoubtedly at significant expense.
6. Interest arbitrators often look to “comparable” employers when deciding what terms to impose. Both parties in an interest arbitration will likely differ on what employers are comparable. Unions will probably argue that the employer’s unionized competition is the appropriate comparable, while the employer will argue that non-union employers are, in fact, comparable.
This raises the natural question of how employers will obtain information concerning the wages and benefits paid by their non-union competitors in preparation for interest arbitration.
Employers will likely have to subpoena such information, which will in turn raise privacy concerns from employees that are the subject of the subpoena.
7. Interest arbitration radically changes the parties’ strategy and tactics in negotiations. In the private sector, employers and unions have the legal freedom to refuse proposals which they believe are unacceptable.
If a deal cannot be reached, either or both parties can resort to strikes and lockouts.
We think mandatory interest arbitration in the private sector will result in some employers quickly compromising to avoid the risk of having an unfavorable labor contract forced on them in interest arbitration.
Other employers, who will not accept unfavorable terms in a labor contract regardless of whether those unfavorable terms were the product of compromise or of interest arbitration, will adopt more aggressive tactics such as lockouts.
Therefore, the interest arbitration provisions of the EFCA may lead to more labor disputes, which was what Congress was trying to avoid when it passed the National Labor Relations Act in 1935.
