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Argument: EFCA wrongly imposes binding arbitration on companies

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James Sherk and Paul Kersey. "How the Employee Free Choice Act Takes Away Workers' Rights". Heritage Foundation. 23 Apr. 2007 - The Case Against Binding Arbitration

The Employee Free Choice Act also provides for the use of binding arbitration to resolve bar­gaining impasses. Currently, negotiations on an initial contract following unionization are treated much the same as any other contract: The parties negotiate in good faith until they settle on terms. If they fail to do so, the union may call a strike, and the employer may implement its last offer or even lock out workers.

In a section misleadingly titled "Facilitating Ini­tial Collective Bargaining Agreements," the EFCA provides that after 90 days of bargaining on an ini­tial union contract, either party may request media­tion by the Federal Mediation and Conciliation Service (FMCS). Thirty days later, if the parties are still unable to settle on a contract or agree to extend negotiations, the 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 two years, unless amended during such pe­riod by written consent of the parties.[55]

Arbitration can be a valuable method for resolv­ing disputes and is frequently used in labor rela­tions. Both management and labor have found it useful to bring in a trusted third party to evaluate grievances that might arise under an existing con­tract, a process that allows them to avoid the costs and delays of litigation. In this sense, arbitration is a valuable alternative to the court system.

Given the disruption and even violence that can accompany strikes, it may seem attractive to avoid them by having a neutral third party step in and determine the wages and other terms of employ­ment when unions and employers fail to reach an agreement. This process is referred to as "binding arbitration," and many states use it to resolve bar­gaining impasses involving public employees who are not allowed to go on strike.

But unlike other situations in which arbitration works well, in binding arbitration, the arbitrator does not simply take the place of a judge in a court­room. Instead of applying the law or the terms of an existing agreement to settle a dispute, the arbitrator has the task of figuring out what a fair agreement should look like. This is a much more difficult and risky process and one that unions and management seldom agree to on their own.[56]

While the EFCA purports to "facilitat[e] Initial Collective Bargaining Agreements," it does the opposite, leaving both parties subject to the deci­sions of an arbitration panel that one side or both sides may not want rather than encouraging them to arrive at a mutually satisfactory contract. In place of an agreement, the EFCA would impose the edu­cated guess of a government-appointed arbitrator, leaving management and workers to deal with the consequences.

Binding Arbitration's Bad Record. The EFCA says little about the specific process of binding arbi­tration, leaving it to the FMCS to determine how an arbitration panel will be chosen, what sort of evi­dence it will consider and when, and what process it will use to make a decision. The state of Michigan uses binding arbitration to resolve bargaining impasses involving public safety workers, such as police officers, firefighters, and emergency medical technicians employed by county and municipal governments. The process in Michigan is fairly typ­ical, and the experience of this state is a reasonable guide to the risks involved in binding arbitration.

When negotiations break down to the point that binding arbitration is needed, Michigan law calls for a three-member panel to determine wages and other terms of employment. The government employer and union each appoint a panelist, while the third, a neutral arbitrator who serves as chairman, is chosen from a list provided by the state.[57] Because the members appointed by the union and the employer can be counted on to support their own sides, the binding arbitration process ultimately hinges on the opinions of this neutral member.

Under the Michigan statute, binding arbitration is supposed to go quickly. Assembling the arbitra­tion panel should take less than three weeks. Once the panel is named, the first hearing should be held within 15 days, and hearings are supposed to be wrapped up 30 days after they commence.[58]

In reality, the process takes much longer. In the early 1990s, only one out of every six binding arbi­tration cases was resolved within 300 days of a peti­tion's being filed. The pace of arbitration has improved since then, but not by much.[59] A review of 29 binding arbitration cases resolved in 2005 and 2006 showed that only seven--fewer than one out of four--were resolved within 300 days. On aver­age, binding arbitration takes almost 15 months from the date that a request is filed to the date that a decision is reached.[60]

Unaccountable Arbitrators. The Employee Free Choice Act would put control of wages and working conditions in the hands of unaccountable govern­ment officials. Arbitrators do not have to live with the consequences of their decisions. Michigan law lists a number of criteria that the panel is to consider in making a decision, such as the ability of the gov­ernment employer to pay, comparisons with similar communities, trends in private-sector employment, and the local cost of living. Nonetheless, in the end, the process is very arbitrary; there is no step-by-step analysis that an arbitrator should go through. Arbi­trators decide what weights to put on these factors with virtually no risk that their rulings will be over­turned by the courts.

An ill-conceived arbitrator's award can have severe consequences for both communities and employees. For instance, an arbitrator's 1978 deci­sion to award Detroit police a cost-of-living allow­ance--an expensive item given the high inflation of the late 1970s--threw a precarious city budget out of balance. After the state courts refused to overturn the award, the city was forced to lay off 20 percent of its police force. Crime rates, which had been declining, increased dramatically. Even those offic­ers who kept their jobs paid a price; in 1981, the city and the police union agreed to a wage freeze.[61]

Unlike a local government, a business cannot raise taxes or turn to a higher level of government for financial assistance if an arbitrator's decision goes against it. Competition in the free market means that if an arbitrator miscalculates and raises wages too high, a company cannot raise its prices to compensate for the decision without the risk of los­ing customers. An ill-advised arbitrator's ruling can easily lead to financial difficulty and layoffs. Yet arbitrators face no penalty if a miscalculation sends a company into bankruptcy or cheats workers out of a wage increase they would have earned. Unlike binding arbitration, with collective bargaining, both sides have a stake in making the final agree­ment work.

"The Employee Free Choice Act: The Unanswered Questions". The Metropolitan Corporate Counsel - "In a nutshell, the E.F.C.A. will...inject the government into the collective-bargaining process, allowing arbitrators to impose a two-year contract on employers if private negotiations do not produce one within 120 days; and"

"The Impact of the Employee Free Choice Act on Employers". Ford and Harrison - EFCA Allows A Government-Paid Arbitrator To Set Wages and Benefits. Perhaps the most shockingly anti-employer provision in EFCA is its requirement that the union can call for mandatory arbitration if the parties have not reached a first labor agreement after only 120 days following certification. EFCA’s mandatory arbitration provision is essentially government-mandated interest arbitration. The arbitrator – a government employee – writes an entire two-year labor agreement for the parties. Imagine just these few examples of potential outcomes as a result of this provision:

  • Arbitrator imposes on a struggling employer a restrictive no-subcontracting clause, a plant closing moratorium, or a broad successor and assigns clause obligating a purchaser of assets to assume the contract.
  • Arbitrator grants significant pay raises when the employer sought concessions.
  • Arbitrator requires the employer to make contributions to an underfunded union defined benefit pension plan instead of providing a 401(k) plan.
  • Arbitrator establishes overtime pay on an 8-hour day instead of a 40-hour week.
  • Arbitrator says that seniority – not merit – is the basis for promotions, transfers, layoff and recall, etc.
  • Arbitrator mandates employer participation in an expensive union health and welfare plan.

Substantial labor unrest is a strong possibility when these first contracts expire as employers take a hard-line approach in renegotiations to achieve the terms and conditions they wanted two years earlier. This could result in more strikes and have a destabilizing effect on the economy.

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