U5 bargaining

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Questions attached.


Chapter 7: Wage and Salary Issues

Chapter 8: Employee Benefits



According to the reading, the company has a financial obligation to its employees. The issue of organizations having the ability to pay the employees can be an important factor during the negotiation process. In efforts to make certain the organization has the ability to meet the financial responsibility to the employees, some things should be considered. Not only do the organization look at the financial obligation, they should also look at the worth or importance of the job. Within the reading, some processes that can be done to accomplish this goal has been mentioned. Based on what you have learned in this unit, define job analysis. Identify and discuss in detail two things that are a result of the job analysis.

Your response must be at least 200 words in length.


Social security, unemployment insurance, and workers’ compensation are employee benefits required by law and are not negotiated. Based on the reading in this unit, identify and discuss the 5 groups of those benefits that are mandatory issues for negotiations. Provide an example of each.

Your response should be at least 200 words in length.

hapter Wage and Salary Issues

Starbucks paid $18 million to settle an overtime dispute with its employees. The U.S. Department of Labor in 2010 reported a record number of class action lawsuits in which workers won millions of dollars in overtime wages.

Source: AP Images.

Men work for two reasons. One is for wages, and one is for fear of losing their jobs.

Henry Ford (Founder and President, Ford Motor Company)

Chapter Outline

7.1. Union Wage Concerns

7.2. Management Wage Concerns

7.3. Negotiated Wage Adjustments

7.4. Concession Bargaining

7.5. Wage Negotiation Issues

7.6. Wage Surveys

7.7. Costing Wage Proposals

Labor News Overtime Cases Won by Workers

Mark R. Thierman, a Reno, Nevada, attorney and Harvard Law School graduate was a “union buster” management labor attorney for 20 years. Not anymore! Today, he is called the “trailblazer” of what has become a hotbed of U.S. employment cases: the overtime provision of the Fair Labor Standards Act (FLSA). From 2001 to 2010, the number of cases filed in federal courts more than doubled. The U.S. Chamber of Commerce describes it as the “FLSA litigation explosion,” which has led to over $1 billion annually in settlements in recent years. The cases are usually filed against employers on behalf of a large group of employees and have included the following:

· Starbucks: $18 million settlement to store managers in California

· UPS: $87 million settlement to 23,000 drivers

· Walmart: $172 million jury award to California workers and $78.5 million jury award to Pennsylvania workers

· Sony: $8.5 million settlement to video-game employees

· Citigroup/Salomon Smith Barney: $98 million settlement to 20,000 stockbrokers

· IBM: $65 million settlement to 32,000 technical and support workers

· Unite Here: The labor union has been charged with failing to pay organizers overtime

· Abbott Laboratories: A federal judge ruled pharmaceutical reps are due overtime

The core issue of the cases is employers’ failure to pay workers time-and-a-half pay for hours worked over 40 per week as required by the federal law—overtime. About 86 percent of the U.S. workforce is entitled to overtime according to the U.S. Department of Labor, or 115 million workers. Only certain workers are exempt from the law: mostly supervisors, professionals, and executives.

Why the recent deluge of cases? In 2010 the U.S. Department of Labor cited the following as possible reasons for the increase in class action suits for overtime violations:

· Successful employees are receiving double damages plus attorney fees—making it worth their efforts.

· Some employers are unclear about new overtime guidelines.

· Workers are more informed of their rights and willing to file suits.

· Competitive economic forces are increasingly causing employers to seek ways of cutting costs.

Source: Adapted from Michael Orey, “Wage Wars: Workers from Truck Drivers to Stockbrokers Are Winning Huge Overtime Lawsuits,” Business Week (October 1, 2007), pp. 52–60; Tracy Staton, “Abbott Sales Reps Win Overtime Pay Lawsuit,” FiercePharma Newsletter (June 15, 2010); and Joanne Deschemaux, “Wage and Hour Class Actions on the Rise,” HR Magazine 55, no. 7 (July 2010), p. 11.

Wages and other economic benefits for employees are undoubtedly the “meat and potatoes” of collective bargaining in labor relations. To the employee, they represent not only their current income and standard of living but also potential for economic growth and the ability to live comfortably during retirement. Wages are often considered the most important and difficult collective bargaining issue. When newly negotiated settlements are reported to the public, often the first item specified is the percentage wage increase received by employees. In fact, in many cases that may be the only item employees consider critical or an absolute must as they vote to ratify a tentative agreement. They focus on “the number”—the percentage wage increase in the contract.

According to industrial research, historically pay level has been positively related to employee satisfaction.
 Employees consider their pay to be a primary indicator of the organization’s goodwill. Many individuals in our society consider the salary or income one receives a measure of one’s worth. Employees can get an exact measure of their salary, which can easily be compared with the salaries of fellow employees and those in other organizations and occupations. Therefore, most of us consciously or subconsciously compare our income levels not only with inflation and our cost of living but also with incomes of other individuals.

Wages and benefits are also a prime collective bargaining issue to the employer. They represent the largest single cost factor on their income statement. Although many management negotiators would like to pay higher wages to employees, the reality of competition and the knowledge that competitors may be able to secure less expensive labor can make it difficult for a business to survive. Unlike many costs, such as capital and land, wages constantly rise, and they are not as easy to predict. Wages paid to employers in an area are also key issues to governments because they often are the largest source of tax revenue to federal, state, and local governments and in general are a strong indicator of the economic vitality of a community.

The total economic package of wages and benefits may be negotiated as one item rather than individual items, enabling both sides to estimate accurately the total cost of the contract to the organization in terms of increases over current salary and benefits. In this chapter we discuss wage issues; employee benefits are covered in 
Chapter 8
. Wages and benefits are separated to draw a distinction between the two; however, negotiators consider both a part of the total economic package.

Labor and management negotiators normally define pay by either time worked or units of output. 
Pay for time worked
, or an hourly wage or annual salary, has become the predominant means of employee compensation in the United States. Most labor contracts contain specific job titles and associated wage scales agreed on by labor and management. 
Table 7-1
 shows an example.

Pay for time worked

Employee wage rate based on the time actually worked (hours, days, shifts, etc.).

Table 7-1

Job Classifications and Wage Rates

Hire Rate ($)





Die Repair








Cage Attendant

Material Handling

Head Loader


Crane Operator

Material Handling



Material Handler

Material Handling


Door and Window



Plant Truck Driver





Material Handling

Material Handler

Material Handling






Glass Cutter

Insulated Glass

Sample Builder


Glass Washer and Assembler

Insulated Glass

Spacer Assembly

Insulated Glass

Door Prehanger




Small Punch Press Operator




Window Wrapper





Material Handling



Equipment Operator

Paint Line



Assistant Equipment Operator

Paint Line

Source: Adapted from UAW-Chrysler Newsgra (October 2007). Available at www.uaw.org. Accessed February 23, 2007. Used by permission.

Pay for units produced, usually referred to as piecework, is still used in many industries as not only a means of wage determination but also a motivational technique. Many piecework systems today provide a guaranteed salary with an additional rate established for units of output above a certain production level.

Union Wage Concerns

“A fair day’s pay for a fair day’s work” is a commonly used phrase summing up the expectations of many employees. Employees expect and even demand to be treated fairly and honestly by the organization. Although most are reasonable in their pay expectations, a few often believe they are being underpaid. If employees perceive that they are unfairly treated by the organization, particularly in pay matters, they typically react by leaving the workplace either temporarily through absenteeism and tardiness or permanently through seeking employment at another organization, by reducing the quantity or quality of their production, or by filing a grievance or enacting a work stoppage through the union. Eventually their pay dissatisfaction will be brought to the bargaining table, leading to demands for higher wages. Or they may change their perceptions of pay inequity by simply accepting the inequity, although this response may become a permanent morale factor.

pay equity
 in the workplace is difficult. The slogan “equal pay for equal work” is a guide that union and management leaders follow and that employees expect to be maintained. Obviously not all jobs involve work of equal value to an organization. The first-year bookkeeper does not expect the same pay as a tax accountant; the same is true for a punch press operator and a maintenance attendant. Employees understand that the value of the work leads to different pay grades and classifications for different jobs. As shown in 
Table 7-1
, labor agreements commonly provide for different job classifications being assigned different pay grades according to level of skill and work demanded. As long as pay grades are fairly structured and evenly applied, employees usually have no trouble accepting differential pay based on job classification and internal wage levels, unless, as seen in Case 7-1, pay differentials are not based purely on job classifications.

Pay equity

A historic union doctrine of “equal pay for equal work” that provides one standard pay rate for each job and all employees who perform it.

CASE7-1 Wages: Extra Compensation

The company operated a centralized facility to provide public transportation. The bargaining unit consisted of the vehicle operators, excluding supervisors, substitutes, guards, and office personnel. The collective bargaining agreement (CBA) was in effect from October 1, 1996 to June 30, 1999.

The operation was decentralized in April 1997 when the company opened seven suburban service center locations. Because the company had acted before hiring the management supervisory personnel at each site, it decided to assign certain unit drivers to temporary positions titled “coordinator.” These persons had limited supervisory authority but functioned as leaders in each service center. These positions were opened to the company’s unit member drivers, who applied and filled the positions. The company paid a $1 an hour stipend in addition to the regular contract rates for drivers for the additional leader duties. The additional duties specified for such coordinators were listed as opening and closing the facility, coordinating the work and assignments of drivers, and overseeing that proper service was provided. Additionally, these persons dispatched drivers and handled answering the telephone. This move and the temporary assignments were negotiated with the union, but no agreement was reached, nor was any objection raised to the procedure.

By July 1998, the service centers had been staffed with managers, and the company acted to eliminate the leader duties previously done by coordinators. However, certain duties, such as dispatch and telephone answering, were still assigned to the classification now known as “service provider,” which was a change from the former “driver” title. This realignment of duties was not negotiated with the union. When the company made this realignment of duties, those who had previously served as coordinators were continued at the $1-per-hour stipend out of recognition of the commitment those people had made to help the company. It viewed this as a grandfathering of the wage for those individuals. However, the company did not apply the $1 stipend to other individuals who served thereafter as service providers.

Ultimately, the union grieved extra duties assigned to the former driver classification and that certain employees who were classified as service providers were entitled to the $1 stipend because of the duties that they were performing, particularly the dispatching. The union complained that the company violated the contract and the law by unilaterally establishing terms and conditions of a new classification. The effectuation of such terms and conditions, including the assignment of duties and the payment of additional wages, is clearly contrary to the contract. Employees who are assigned such duties as telephone and dispatch should be paid at the same rate as others who formerly performed as coordinators.

The company insisted that it has the management right to assign duties to the drivers that are not inconsistent with the classification and the general purpose of the operation. In establishing coordinators on a temporary basis, it did exactly that and, in addition, compensated them for certain leader/supervisory obligations. When the need for the performance of such duties ended, the company properly removed such assignments. The fact that such employees and others later performed the function of dispatch and telephone should not be considered leader/coordinator duties for which an additional $1 stipend was paid but rather normal assignments permitted the company under the contract. All employees are paid equally for the same work within the classification, including dispatching and telephone. The only distinction is that those employees who formerly served as coordinators had been granted a special continuing rate of pay in light of their willingness to make the previous commitment to assist. In no respect did the company ever commit to pay an additional $1 for all drivers performing such nonleader/supervisory duties. There is no disparity in pay.


A key to this dispute is the question of whether the company would have, in the past, prior to the new service centers, violated the contract by assigning to members of the unit such duties as dispatching and telephone as are now done by certain service providers.

Under the management rights clause, there is certain flexibility and discretion allowing the company to assign related duties. The contract does not have any clear limitation on the assignment of such additional work. As long as such tasks are not supervisory and are reasonably related to the purpose—providing customer transportation—they may be included. In setting up the service centers, the company acted in somewhat of a hurry, so it did not have the managers and, hence, had to make use of drivers by assigning them temporarily to additional duties of a leadership nature. There was no objection to the process of application and interview and placement, nor was there any objection to the fact that the company paid an extra $1-per-hour stipend. The company never indicated that this move was intended to be permanent. The company saw certain leadership duties as beyond the scope of the classification and was willing to pay, but that did not create an obligation to continue it indefinitely.

When the company put managers in place, it no longer required the coordinators to perform supervisory tasks. However, there still was a need for nonmanagerial duties, such as dispatch and telephone answering, to be done. The question is whether after the managers were in place it was improper for the company to assign such duties to unit members without the additional compensation.

The fact that some former coordinators continued to do such tasks and received the $1 stipend is not determinative of the company’s commitment because, as the company explained, it felt committed to those people who had helped in the transition. Payment to such former coordinators does not, under the circumstances, establish any right of others who are assigned such duties. The issue is whether the company was obligated to “pay equally” everyone within the classification who performs the same duties.


The court found that the company did not violate the contract by adding nonsupervisory duties to the service provider classification under its management rights clause because those duties are reasonably connected to the operation of transporting customers and therefore within the scope of the prior driver classification. Furthermore, when the company filled the management positions, the company rightfully discontinued the leader/supervisory duties of the employees designated as coordinators. However, the duties attributable to their status as service providers—dispatch, telephone, and so on—were not leader/supervisory duties and properly were retained within the scope of the service provider classification. Continuing assignment of such work to former coordinators with the $1 stipend and to others without such extra compensation did not create a new compensation level or disparate treatment of persons within the classification because the company had the right to continue to pay those individuals $1 more an hour in appreciation of their service.

Source: Adapted from The Mass Transportation Authority v. AFSCME Local 1223, 115 LA 521 (2000).

Worker/CEO Pay Gap

In recent years a new pay equity issue has emerged—the worker/CEO pay gap. The gap is growing, according to a study by the National Bureau of Economic Research. In 1970, the average full-time worker earned $32,522, whereas the average CEO or top corporate executive earned $1.25 million (adjusted to 1998 dollars). By 2007, the average worker’s pay increased by 24.2 percent to $40,409, while the average Standard & Poor’s 500 Company CEO pay increased by more than 3,720 percent to 15.06 million.
 The difference in CEO pay and worker pay can irritate all workers, but poor timing of pay decisions can further strain management–union relations. For example, in 2003, as American Airlines asked three unions to accept deep pay and benefit cuts of about $10,000 per year per worker, or almost 20 percent of their total compensation, American Airlines disclosed special payments to 45 top executives of about $100 million of the $1.8 billion in concessions gained from the workers. Six top executives received a bonus equal to twice their base salaries. One union member, Joseph Szubryt, who supported the pay cuts to save union jobs exclaimed, “This feels like a stab in the back. … On the day we voted for all this stuff (pay and benefit cuts) … they disclose this? How the heck could these guys do that?”

Some wage systems provide for higher wages to employees with more longevity. Thus, seniority helps employees not only in bidding for open jobs but also in receiving higher pay. Even though less senior employees perform the same work, everyone realizes that longevity pay serves as an incentive to stay with the organization. But pay inequities can develop for any number of reasons, as seen in the discussion of mergers in 
Profile 7-1

Union Wage Objectives

How have unions, as organizations, affected the wages of their workers through the collective bargaining process? What primary objectives have unions held when negotiating wages? An extensive review of the related research by Bruce Kaufman, Department of Economics and the W. T. Beebe Institute of Personnel and Employment Relations at Georgia State

Profile 7-1 Pay Equity In Company Mergers

Mergers and acquisitions are common in today’s malleable business climate and have a significant impact on a wide range of employee issues. One major area of concern, of course, is how merging two organizations’ compensation plans affect employees’ pay. Experts advise that companies need to see the issue as more than just coordinating two payroll systems. “You have to make sure that you’re doing it in a holistic way, not just nailing one company to the other,” said Ken Ransby, a principal in the San Francisco office of Towers Perrin. Ransby went on to suggest that although it might be ideal to use the best aspects of each organization’s pay systems, such an approach might be too costly.

Before deciding how to approach compensation issues, the merged company should examine the underlying business reasons for the merger. If full integration of the two or more organizations was the goal, then the compensation systems must be aligned. Aligning pay systems requires a detailed analysis of the pay systems, consideration of how the organizations define pay, and recognition of geographic factors that cause pay disparities.

When Pfizer Animal Health Group acquired SmithKline Beecham Animal Health Business, the two compensation systems offered comparable pay, but Pfizer relied more on base pay whereas SmithKline offered incentive pay. The merged company wanted a single pay system, so it needed to integrate the SmithKline system into Pfizer’s without having the SmithKline workers feel they were losing out. The solution was to fold into those former SmithKline workers’ base pay an average annual incentive payout based on the three years prior to the merger.

Source: Adapted from “Company Mergers and Acquisitions Present New Pay Equity Considerations for Employers,” Labor Relations Reporter, 158 LRR 393 (July 27, 1998).

University, produced eight dimensions of the effects union wage negotiations have caused in the past 56 years:

1. Union goals in wage bargaining. Lynn Williams, former president of the United Steelworkers Union, summarized union wage goals as (1) “achieving the maximum level of wages and benefits for its members” and (2) “maintain[ing] all the jobs it could within as viable an industry as possible.”

2. The union–nonunion wage differential. In the United States the size of the union versus nonunion wage differential, on average, is currently about 19 percent. Thus compared to nonunion workers on similar jobs, union workers receive more pay. However exceptions exist. Some nonunion workers at Delta Air Lines, for example, before the merger with Northwestern airlines, were paid more than the union workers at Northwestern.

3. Union wage differentials over time. From the end of World War II to the early 1980s, the union–nonunion wage differential in the United States continued to increase, but since the early 1980s, it has had a modest decline.

4. Union wage rigidity and wage concessions. Unions have historically tried to hold to the principle of no “givebacks” or “backward steps” in wages, even to the point of letting a company go out of business rather than accept a cut in wages.

5. Wage structure. Unions have also affected the structure of wage scales among workers within one employer or industry, negotiating for differences in working conditions, skills, seniority, age, and job classification. They have typically “flattened” or “compressed” the wage structure among workers in a plant or company and between skilled and unskilled workers.

6. The form of compensation. Unions in most cases have bargained for wages based on time or hours worked. They have opposed pay systems based on output, such as a merit or piece-rate systems or merit evaluations by supervisors. They have also bargained for additional forms of compensation that are awarded across the board, such as bonuses based on seniority, overtime, and pensions.

When Pfizer acquired Smithkline, Pfizer found it needed to align the two pay systems both accomplish its goals for the merger and to be fair to employees.

Source: Mark Lennihan/AP Images.

7. Employment effects. Unions have in general negotiated for practices and work rules that create or maintain more jobs. Examples include restrictive work rules limiting what duties persons can perform in their job description and “make-work” or “featherbedding” jobs.

8. Pattern bargaining. Unions have generally strived to pattern bargain or obtain similar wage gains from separate employers within the same industry or sometimes within similar industries or a community. The extent of pattern bargaining has declined somewhat since the 1980s.

Industrial Differentials

Industrial wage differentials also provide a logical basis for differences in pay among employers in the same labor market. Employees recognize that the relationship between labor and total production costs affects their wage levels. Organizations in highly labor-intensive industries are usually less able to provide wage increases than organizations that are in more capital-intensive industries. For example, if a specialized chemical processing plant that has few competitors increased its wage rates by 10 percent, it would need to raise prices by only 0.6 percent to absorb the wage increase because only 6 percent of its total production costs would be attributable to labor. However, if a southern textile firm raised its wages by 10 percent, it would need to raise prices by 7 percent because its labor costs would equal 70 percent of total production costs. A 7 percent price increase could be disastrous to the highly competitive textile organization. Employees accept and understand that not all employers, because of their profitability or current competitive position within the marketplace, can be the highest-paying organization in the industry. If profits decrease so much that the organization suffers losses, wage demands usually reflect the reality of the economic times.

Management Wage Concerns

Wage and benefit changes have an impact on the cost of the production of goods and services. Management must consider how a change in wages will affect its pricing policy and ability to compete in the marketplace. It is often mistakenly inferred that management wants to minimize its labor costs for no particular reason or because employees are not appreciated. The reality is that management needs to maintain competitive labor costs to produce and price their products successfully within their industry. Thus, maintaining a competitive industry position is a primary aim of management in negotiations.

This practice, known as 
pattern bargaining
, can be highly successful for both management and labor.

Pattern Bargaining

A collective bargaining practice in which a national industry or union strives to establish equal wages and benefits from several unions or employers in the same industry.

The steel and auto industries, airline, petroleum, meatpacking and food industries, among others, have used pattern bargaining. Typically, the union leaders choose what they perceive as the weakest company—the one most susceptible to granting wage increases—and begin negotiations. Once negotiations are completed, the union insists that other firms in the industry agree to equal wage and benefit increases. However, another pattern strategy is to start with the largest employer in an industry, negotiate an agreement, and expect the other, smaller employers to follow suit. In 2001, for example, the United Mine Workers (UMW) ratified a new agreement with the Peabody Coal Company, the nation’s largest coal producer, a year before the old contract expired. The early ratification provided a $600 “early signing” lump-sum bonus to workers before the old agreement expired as well as wage, health-care, and pension increases, signaling to all other, smaller coal companies the strength of the UMW. This enabled the union to negotiate similar contracts with smaller companies, calling them 
“me-too” agreements

“Me-too” Agreements

Agreements that contain pay increases equal to that of another CBA or received by another group. The rationale is that if management can afford to increase pay for one group, it can for another; or one group is as worthy as another.

In some situations a single union can use joint bargaining to the same wage package with all major employers simultaneously and thus not advantage or disadvantage any one employer. In 2003, for example, the Teamsters union in Chicago, Illinois, was able to stage a successful strike against the 17 private garbage haulers and then reach a settlement with each that provided a 30 percent increase in wages, up to $25.70 per hour, or an average of $42,000 per year. Instead of negotiating with the 17 employer-members of the Chicago Refuse Haulers Association individually, the Teamsters jointly negotiated the same wage package with all the haulers—who were then able to pass the identical increased costs on to their customers and not suffer any competitive disadvantage. The ability to use joint bargaining, like pattern bargaining, gives a union enormous bargaining power, but it is not often a realistic possibility.

Pattern bargaining, however, does not prevent firms from negotiating differences according to local labor conditions and the profitability of a particular employer. Instead, when negotiated wage and benefit increases are equal for several employers, they maintain their same relative competitive position with regard to labor costs.

The uncertain economy that followed the terrorist attacks of September 11, 2001, caused a renewed interest in pattern bargaining by some employers. In 2002, about 30 percent of labor professionals negotiating new contracts said they closely watched the patterns set by competitors’ settlements. This was significantly more than ten years earlier in the wake of the Caterpillar strike.
 For example, in 2003, the United Steelworkers of America signed a five-year agreement with the U.S. Steel Corporation covering 13,000 workers. The agreement was patterned after similar contracts with LTU Steel Corporation and was identical to one with National Steel.

Wage Laws

A number of federal laws outside the National Labor Relations Act affect wage rates. The major compensation legislation regulating employers is the Fair Labor Standards Act (FLSA) of 1938, as amended. It governs the items discussed in the following sections.

Minimum Wages

Under the FLSA, employers must pay an employee at least a minimum wage per hour, as shown in 
Table 7-2
. The minimum wage per hour in 1938 was $0.25 and has been increased several times to $7.25 in 2009. Exempted from the act are small businesses whose gross sales do not exceed $500,000. Also exempted are organizations that operate within one state. However, some states have enacted minimum wage laws that are higher than the federal minimum, although most set the state minimum wage equal to the federal rate. Those with higher rates include California ($8.00), Connecticut ($7.65), and Massachusetts ($8.00).
 The amendments to FLSA

Table 7-2

U.S. Minimum Wage Changes Under Fair Labor Standards Act



































also provided for a training wage for employees less than 20 years of age set at 85 percent of the minimum wage. Critics of increases in the minimum wage often contend that employers are forced to lay off employees when the minimum is increased to control labor costs. However, three studies conducted after the increase in the minimum-wage rate and the creation of a training wage for teenagers showed that increases in the minimum wage caused no increase in unemployment.

Overtime Compensation

The FLSA stipulates that certain employees must receive overtime pay of one and a half times the normal rate when they work over 40 hours per week. Certain kinds of employees are 
 from the overtime provision of the act. A job title is not a sufficient basis for exemption. Rather, the actual work performed and the primary duties of the employee determine exempt or nonexempt status. A person with an executive title who does not primarily manage a department or a function may not meet all conditions for exemption. In 2004, the U.S. Department of Labor issued new regulations to determine if an employee is classified as exempt. To be exempt an employee must be paid a minimum salary of $455 per week ($23,660 per year). An employee who is paid by the hour or who makes a salary of less than $455 per week is 
 regardless of the type of work performed. An employee paid $455 per week must also meet the “duties test” to be exempt from overtime provisions:


Employees that are not subject to the overtime provisions of the FLSA, including most executive, administrative, professional, and outside sales employees.


Employees who are subject to the overtime provisions of the FLSA and thus must be paid time and a half their normal rate of pay when they work more than 40 hours per week.

· Primary duty is the management of the organization.

· Regularly direct two or more full-time employees or equivalent.

· Authority to hire/fire or recommend the hiring or firing, or promotion of others.

Or meet the administrative exemption provision:

· Primary duty of office work directly related to the management of the organization or customers.

· Exercise independent judgment on matters of significance.

Or meet the professional exemption provision:

· Primary duty of performing work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized, intellectual instruction; or performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Employees earning over $100,000 per year do not receive overtime if their duties are executive, administrative, or professional.

The 2004 rules were the first major changes in the 1938 act since 1949 and were hotly debated in Washington, D.C; labor unions claimed they would reduce the number of people receiving overtime by several million, and President Bush and supporters believed that the new rules would be easier for employers to implement.

About 98 percent of all agreements contain some premium pay for overtime above the FLSA requirement. Daily overtime premiums are provided in 93 percent of agreements. Sixth-day premiums—the sixth consecutive day of work is eligible for a premium payment—and seventh-day premiums are found in about 26 percent of contracts. The 
 (being paid for more than one premium pay on the same hours) of overtime pay is prohibited in 69 percent of contracts because of management’s concerns that the same hours might either become eligible for both daily and weekly overtime or become eligible for more than one type of premium.


The payment of overtime on overtime that occurs if the same hours of work qualify for both daily and weekly overtime payment. Most contracts prohibit this type of payment.

An example of the latter might be holiday pay plus double time on a seventh day worked. Most agreements also specify how overtime should be distributed among workers: “Equal distribution as far as practical” or on a strict seniority basis are common provisions.

In some industries today, the aspect of overtime that unions view as a key issue is the use of mandatory overtime. They believe that the excessive use of mandatory overtime keeps many of their members from having enough time with their families and can cause shortages of full-time positions as management tries to minimize the total number of employees in certain jobs. For example, in 2002, the Registered Nurses Association of University Hospital in Cincinnati, Ohio, was ready to strike because they believed mandatory overtime had become routine. Nurses were often ordered to work a second shift at the end of their first shift and were commonly called in on their off days. In addition, the union stressed that mandatory overtime may not be good for patient care. The strike was averted when hospital management agreed to end mandatory overtime by 2004.

In another case, the Communication Workers of America (CWA) walked off the job in 2003 over forced overtime. The 37,000 CWA members’ strike against Verizon was the largest concerted labor action against a telecommunications employer in U.S. history, and it was not over pay or health care—but mandatory overtime. The union eventually won a limited overtime provision. Why do unions today view excessive hours as a critical issue? AFL-CIO industrial hygienist Bill Kojola says the way work is organized in the United States is changing and requires longer hours. Research, according to Kojola, indicates that longer hours have the following effects on the workers:

· Have an adverse impact on the cardiovascular systems of workers.

· Increase the blood pressure of workers.

· Increase the risk of accidents exponentially to the point it is double for a 12-hour shift compared with an eight-hour shift.

· Increased risk of accident is highest on a night shift, higher on an afternoon shift, and lowest on a morning shift.

The Davis-Bacon Act

The Davis-Bacon Act of 1931 regulates employers who hold federal government contracts of $2,000 or more for federal construction projects. It provides that employees working on these projects must be paid the 
prevailing wage
 (PW) rate. In most urban areas, the union wage is the PW for that particular geographic area. Some state and local governments have similar laws. For example, in 2007, in Ohio the PW for electricians was $25.56 per hour; the average of all merit shop (nonunion) electricians was $19.17, a difference of about 25 percent. Similar differences for carpenters were $21.01 (merit), $23.27 (PW); bricklayers, $15.19 (merit), $22.20 (PW), whereas the PW for plumbers, $27.96, was less than that for merit: $30.04. Supporters of PW believe that in the long run the (PW) project saves costs by hiring more qualified workers. Opponents believe the higher costs, often between 8 and 15 percent of total costs, are unnecessary.
 The U.S. Department of Labor calculates the prevailing wage for each region. The reasoning behind the Davis-Bacon Act is that governments often award contracts to the firm submitting the lowest bid for certain construction specifications. By requiring all employers in construction projects to pay the prevailing wage, the Davis-Bacon Act puts bidders on an equal basis and ensures that craft workers will not be underpaid.

Prevailing wage

The hourly wage, usual benefits and overtime, paid to the majority of workers, laborers, and mechanics within a particular area. Prevailing wages are established, by the Department of Labor & Industries, for each trade and occupation employed in the performance of public work.

Opponents of the Davis-Bacon Act have consistently claimed that it is difficult to administer and substantially increases the cost of public construction projects. Supporters contend, however, that contractors trying to win construction bids will underbid by cutting wages and then hiring less-skilled nonunion labor. Many congressional bills have been introduced that would repeal or amend the Davis-Bacon Act. None have passed.

Walsh-Healey Act

The Walsh-Healey Act of 1936 covers employees with federal contracts of over $10,000. It requires employers to pay overtime for any hours worked over eight per day at a rate of one and a half times the normal hourly rate. If an employee works days of more than eight hours within a 40-hour week, he or she will receive greater compensation for the same total hours worked.

Negotiated Wage Adjustments

Standard Rate, Pay Range Systems

How wage rates are to be defined in the agreement is a critical issue. Many agreements contain a 
standard rate
, or flat rate, of pay for each job classification effective during the life of the agreement, as in 
Table 7-1
. Some agreements provide a pay range for each job: The person may be paid one of several steps within the range. Usually management will seek flexibility in wage administration by using a range of pay for each grade or category. A common practice in the nonunion sector, this allows management to reward individual differences in employees according to seniority, merit, or quality and quantity of production.

Standard rate

The flat or hourly rate of pay established for each job classification or occupation within a plant or employer, effective for the duration of the collective bargaining agreement.

Management usually wishes to hire new inexperienced employees at the minimum pay rate and allow them to advance during their tenure with the company through merit and seniority increases. Management may argue that it makes little sense to pay exactly the same wage rate for a job regardless of the performance level of the employee. Union leaders may argue that merit increases, which are the primary reason to have pay ranges instead of one standard rate for each job, are useful management tools in theory but in practice run into severe problems. Union leaders feel that because these systems normally are based on a supervisor’s performance appraisal, they are subject to supervisor bias. The subjectivity and imperfections of performance appraisal systems lead many union leaders to argue against a merit pay increase system.

Piece-Rate Systems

An alternative pay system is a 
piece-rate system
 . Straight piecework is the most common and easily understood individual incentive plan. If an employee is paid $0.1 per unit produced and completes 100 units in an hour, then the hour’s gross earnings will be $10.00. Variations of straight piecework include falling piece rate and rising piece rate. If designed effectively, a piece-rate system can reduce labor costs per unit, reward employees based on their productivity instead of the number of hours worked, and help attract and retain dedicated employees. An effective piece-rate system thus can benefit both the employer and the worker. One study, for example, found that when workers were paid piece rates instead of hourly wages, their productivity increased by 20 percent in comparison with workers performing the same job, but given a daily production standard, or goal.

Piece-rate system

A wage system in which employees receive a standard rate of pay per unit of output. The rate of pay is usually based on the average level of production, with bonus rates given on output units exceeding the average level.

Plans that use a falling piece rate involve a standard time and rate of production. If the employee produces more than the standard, the gain is shared between the employer and the employee. The employee’s hourly earnings increase with output above a standard of 100, but the rate per piece falls at various predetermined levels. Thus, an employee who has produced 140 units (40 percent above standard) might receive only $12.88 (29 percent more) and not $14.00, which would be the case if the $0.1 rate were maintained. The employer receives the remainder of the gain, effectively lowering the overhead cost per piece. Plans that use a rising piece rate also involve a standard time and rate of production.

Piece-rate systems have the advantages of being easily understood, simple to calculate, and motivational. But many jobs do not easily lend themselves to such a pay system because the output of the employee cannot be directly and objectively measured. Also, most employees’ output is affected by the output of others, so their productivity is not directly proportional to their input. Finally, union and management negotiators may have a difficult time agreeing on what is a fair production standard. Changes in standards by management can easily lead to union grievances.

Standard hour plans are similar in concept to piece-rate plans except a “standard time” is set to complete a particular job, instead of paying the employee a price per piece. For example, an auto mechanic might be given a standard time of two hours to tune up an eight-cylinder car. If the worker’s hourly rate is $16 per hour and three eight-cylinder tune-ups are finished in six hours, the employee earns $96. If a so-called Halsey 50/50 incentive plan is used, the worker and employer share equally in time saved by the employee. Thus, after completing the three tune-ups in five hours, the employee would be paid $104.00 ($96.00–$8.00 [a half hour saved at $16 per hour]), and the employer has an additional hour’s work time.

Deferred Wage Increases

Many multiyear collective bargaining agreements provide increases in wage rates that are deferred to later years rather than taking effect immediately. Such 
deferred wage rate increases
, together with the preferred use of cost-of-living adjustments (see next section), often make multiyear contracts desirable for both sides. Management can predict labor costs further into the future with a greater degree of accuracy, and union members feel that their buying power is protected for a longer period of time and do not have to worry annually about possible strikes. An example of a four-year deferred wage increase provision appears in 
Figure 7-1
. In slang terms the deferred wage increases in 
Table 7-1
 could be called a “3 – 2.5 – 2.5 – 3” for the four years.

Deferred wage rate increases

Wage rate increases that become effective on later dates as specified in a collective bar-gaining agreement.

Deferred wage provisions specify increases in the base pay to take effect on future dates during a multiyear contract. Negotiating multiyear increases often hinges on whether they are evenly distributed over the life of the contract or whether they are front-end loaded.

Front-end loading
 refers to a deferred wage increase with a larger proportion of the total percentage increase in the first year of the agreement. Thus, a three-year total wage increase package might be evenly distributed, with an equal percentage provided at the beginning of each year: 5-5-5 percent; or it could be front-end loaded: 10-3-2 percent. Contracts may provide front-end loading, including providing the total increase in the first year: 15-0-0.

Front-end loading

A deferred wage increase in which a larger proportion of the total increase occurs in the first year of a multiyear contract.

Management generally prefers to spread the increases over the life of the agreement for cash flow purposes and because the total cost of the agreement is substantially less because


This Wage Agreement is entered into this 18th day of June 2007 between the General Electric Company, for its Plant located in Evendale, Ohio (hereinafter referred to as “Company”) and the International Association of Machinists and Aerospace Workers, AFL-CIO, for itself and in behalf of its Lodge No. 912 (hereinafter referred to as the “Union”).

The Company and the Union hereby agree as follows:

This Wage Agreement shall be in full settlement of all wage issues between the Company and the Union up to and including June 19, 2011.

The Company will provide general wage increases as follows:

1. General Increase

Effective Date


June 18, 2007

Three percent (3.0%) applied to rates in effect on June 17, 2007.

June 23, 2008

Two and one half percent (2.5%) applied to rates in effect on June 22, 2008.

June 22, 2009

Two and one half percent (2.5%) applied to rates in effect on June 21, 2009.

June 21, 2010

Three percent (3.0%) applied to rates in effect on June 20, 2010.

Figure 7-1

Deferred Wage Agreement

Source: Agreement between General Electric Aviation and Lodge No. 912, International Association of Machinists and Aerospace Workers, AFL-CIO, 2007–2011. Used by permission.

higher wages paid only in later years are avoided in early years. For example, the two alternatives for the three-year 15 percent increase when applied to a $20,000 current wage produce the following wages paid:


Equal Increases, 5%-5%-5% ($)

Front-End Loaded, 10%-3%-2% ($)

Difference Each Year







+ $1,000




+ $ 610




– $ 40

+ $1,570

Union negotiators often prefer front-end-loaded wage rate increases so that their members receive the additional wages ($1,570) and realize a large increase in pay the very first year. However, negotiators acknowledge from past experience that front-end loading may produce long-term problems. Members who were quite happy with a 10 percent increase during the first year of an agreement can easily become dissatisfied with the two subsequent years of small increases, especially during periods of high inflation. Thus, “What have you done for me lately?” becomes a real problem for union and management leaders alike. Also, the annual wage rates at the end of the agreement can easily be lower under a front-end-loaded provision than under an evenly distributed provision, as in the previously cited examples. The union may demand a 
wage reopener
 provision providing for the reopening of contract talks to discuss only wage rates. Such a discussion during the later years of the agreement may become necessary because of unpredictable inflation or company financial success. Management is not obligated to agree to higher wage rates under such a reopener but realizes that this agreement may be necessary to obtain a long-term contract.

Wage reopener

A collective bargaining provision, effective for the term of the contract, which provides for contract talks to be reopened only for the renegotiation of wage rates.

Also, management negotiators realize they will likely be faced with the demands, particularly when they are valid, during the next negotiating session anyway.

Before the 1980s, virtually all collective bargaining agreements with multiyear settlements included front-end-loaded wage increases. However, foreign and domestic nonunion competition in the 1980s forced management negotiators to seek a variety of cost-curbing measures including back-loaded contracts. A 
back-loaded contract
 provides a lower wage adjustment in the first year with higher increases in later years of a multiyear contract. For example, a 10 percent three-year wage adjustment could be 2-4-4. In many back-loaded contracts, workers receive no wage increase in the first year. For example, a 1997–1999 UAW–Chrysler collective bargaining agreement provided for a 0-3-3 distribution with a $2,000 bonus.

Back-loaded contract

A multiyear contract that provides a lower wage adjustment in the first year with higher increases in later years.

Cost-of-Living Adjustments

Union negotiators may emphasize the need for 
cost-of-living adjustments (COLAs)
 during the life of an agreement. They contend that the real wage—the purchasing power negotiated in an agreement as a wage rate—is eroded by inflation during the life of the agreement. For example, in 2006, inflation in the United States, as measured by the Historical Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), was 3.2 and 19.1 percent in the seven years from 2000.
 Thus, an employee would need to have received a 19.1 percent pay increase over the period to break even or “keep up with inflation.” Therefore, labor may contend it is necessary to provide the COLA in an escalator clause so that wage rates will keep pace with inflation. General Motors first proposed a COLA clause during negotiations with the UAW in 1948.

Cost-of-living adjustment (COLA)

The negotiated compensation increase given an employee based on the percentage by which the cost of living has risen, usually measured by a change in the consumer price index (CPI).

Unions and employers were leery of COLAs until the 1950s. Both feared that COLAs would include pay cuts, which might have occurred because declines in the consumer price index (CPI) were at the time quite possible. Union leaders also disliked COLAs because they represented a “substitute for bargaining,” meaning they would receive less credit for increases with a COLA. Unions preferred wage reopeners that put them back at the bargaining table. However, by the mid-1950s, both sides worried less about deflation and more about their ability to estimate correctly rising inflation. In addition, in 1950, General Motors and the United Auto Workers signed a historic wage formula that combined deferred wage adjustments with a COLA—a practice previously avoided by GM but soon followed by many negotiators.
 The percentage of agreements that contained COLAs steadily increased and peaked in 1979 at 48 percent, but low CPI increases from the 1990s until today have caused the percentage slip to about 18 percent of agreements.
 The combination of two factors—low inflation rates and the increasing use of multiyear contracts—has decreased the need for quarterly or monthly COLA adjustments to be made if annual base-wage rate adjustments have been negotiated in the contract.

Both labor and management negotiators are careful to specify exact COLA provisions during the agreement. Several critical issues must be carefully spelled out.

1. Inflation index Most provisions use the consumer price index determined by the Bureau of Labor Statistics (BLS) as a standard for measuring change in inflation. Increases in the CPI are linked to increases in wages by an adjustment formula. The two most commonly used formulas are a cents-per-hour increase for each point increase in the CPI or a percentage increase in wage rates equal to some percentage increase in the CPI. The most commonly used formula provides for a 1-cent increase in wages for each 0.26-of-a-point increase in the CPI.

2. When the increases are to be provided The majority of agreements provide for inflation adjustment four times a year subsequent to the reported increase in the CPI. This quarterly increase provision is also included in the UAW–Ford agreement. Other labor agreements provide for adjustments to be made twice a year (semiannually) or once a year (annually).

3. Change in base pay If COLAs are treated as additions to the base pay, then other wage adjustments, such as shift differential and overtime, will increase after a COLA because they are usually a fixed percentage of a base pay. Thus, the company will find its personnel cost increased by an amount greater than the percentage COLA. The alternative is to treat the COLAs given during the life of the agreement as a lump-sum payment and not as an addition to the base pay (see 
Figure 7-2
 for an example).

a. Cost-of-Living Adjustments effective on the dates shown below in the amount of one cent ($.01) per hour for each full eight hundredths of one percent (.08 percent) by which the National Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W; Base 1982–84 = 100), as published by the United States Bureau of Labor Statistics, increases in the applicable measurement period.

Effective Date

Measurement Period

December 17, 2007

June 2007–October 2007

June 23, 2008

October 2007–April 2008

December 15, 2008

October 2007–October 2008

June 22, 2009

October 2008–April 2009

December 21, 2009

October 2008–October 2009

June 21, 2010

October 2009–April 2010

December 20, 2010

October 2009–October 2010

April 18, 2011

October 2010–February 2011

b. No adjustment, retroactive or otherwise, shall be made in pay or benefits as a result of any revision which later may be made in the published figures for Index for any month on the basis of which the cost-of-living calculation shall have been determined.

Figure 7-2

Cost-of-Living Adjustments

Source: Agreement between General Electric Aviation and Lodge No. 912, International Association of Machinists and Aerospace Workers, AFL-CIO, 2007–2011. Used by permission.

4. COLA maximums Some labor agreements provide for a maximum COLA increase made by the company during the life of the agreement. This maximum is usually referred to as a cap put on the cost-of-living provision. The cap assures management that wage increases because of CPI increases will not go beyond a certain total.

A significant problem with COLA adjustments that concerns both union leaders and management is that, once given, the increases are taken for granted by employees. Members may believe that the wage increases they receive on the basis of COLA provisions are not negotiated increases, and therefore they want further wage increases. Union and management negotiators may believe that they are not given credit for these negotiated increases. Because members come to expect automatic adjustments for inflation, they tend to ask labor negotiators and management, “What have you done for me lately?” Finally, management complains that COLA provisions prevent them from forecasting future labor costs. Management contends that it cannot predict the total product cost adequately and that COLA costs hamper the ability to bid successfully on projects or priced items.

Profit Sharing

Compensation systems whereby management agrees to make a lump-sum payment to employees in addition to their regular wages are termed 
or bonus plans. The payments may be based on the profits of the company using an agreed-on formula (profit sharing) or an amount specified in the contract based on production or sales levels. The UAW–Ford CBA, for example, provided a sliding scale of profits to be paid out, ranging from 6 to 17 percent of net profits that exceed certain sales levels. Both are preferred by management over base-wage increases because profit-sharing bonus increases do not carry over to future years and do not increase the cost of associated benefits such as overtime rates and pension payments, which are typically based on base-wage earnings. Profit-sharing plans appear in about 10 percent of agreements.

Profit sharing

A pay incentive system in which employees receive a share of the employer’s profits in addition to their regular wages. A precise formula specifying how profits will be distributed to employees is the heart of a profit-sharing plan.

Management favors profit sharing to COLAs as a wage supplement for several reasons: (1) payments are made only if the company makes a profit and thus is usually financially strong; (2) unlike COLAs, payments are not tied to inflation, which is not related to the company’s financial status and may require increases during difficult times; (3) workers’ pay is linked to their productivity and not just to the number of hours they work, giving them a direct incentive to see the company become more profitable; and (4) workers may feel more a part of the company and develop increased interest in reducing waste and increasing efficiency in all areas as well as their own jobs.

In 2001, for example, the Ford Motor Company distributed millions in annual profit-sharing checks to U.S. employees. The average worker received $6,700. Peter Pestillo, Ford’s personnel chief and chief labor negotiator, noted, “We think it’s money well spent. They get more, and they get more done. We think we get a payback in the cooperation and enthusiasm of the people.” Only a few years later, for most of the decade, Ford was losing billions of dollars, and thus there were no profits to be shared.
 However, 2010 produced record profits for Ford and General Motors, which resulted in over $400 million in profit-sharing payments to UAW workers, an average of over $5,000 per worker. Then in 2011 UAW president Bob King offered to bargain for increased profit sharing rather than higher hourly wages as new contract talks began. The offer was a historic first because like other unions the UAW had always resisted giving up sure pay increases in exchange for potential profit-sharing checks. The automakers were pleased since they could keep fixed costs competitive with other, nonunion manufacturers such as Toyota, Honda, and Nissan.

The concept of profit sharing within the auto industry is not new, however. Douglas Frasier, former president of the UAW, noted that the union first asked for a profit-sharing plan more than 40 years prior to the first agreement in 1984 and during several other negotiations, but none of the U.S. auto giants were interested in profit-sharing plans until they were losing money in the 1980s.

Variable Wage Formula

One public sector equivalent to profit sharing is the variable wage formula. Similar to a profit-sharing provision, under a 
variable wage formula
 provision, future wage rate increases depend, at least in part, on the employer’s future ability to pay—or future tax revenues. Also like a COLA provision, the wage increase is directly indexed to a specific tax revenue number. The primary advantage of a variable wage formula is that both sides can negotiate a long-term agreement because it provides for unknown future swings in tax revenues. Management knows that it will only pay increased wages if it has the ability to pay due to greater tax revenues, and a union knows that future revenue increases will be shared due to the formula. An example of a variable wage formula is provided in the Collective Bargaining Agreement By and Between Louisville/Jefferson County Metro Government and Louisville Professional Firefighters Association Local Union 345, IAFF AFL–CIO–CLC (October 10, 2009–June 30, 2013):

Variable Wage Formula

A public sector deferred wage increase that is indexed to the growth of future governmental tax revenues.


Schedule of Pay

Section 7
. c. On July 1, 2012, the hourly base pay rates shall be increased by a percentage equal to one-half of the percentage increase in the occupational license fee revenue received by Metro Government from the Revenue Commission for the then most recently concluding fiscal year as estimated in Metro Government’s Annual Budget Document and confirmed within 90 days of the close of the fiscal year and retroactively added to the hourly rate so to be effective on July 1 of the respective fiscal year or 2 percent whichever is more.

The above example contains three key values for negotiators to focus on during negotiations: (1) the definition of the exact tax revenue value that will trigger a wage increase (occupational license fee revenue), (2) the percent of tax revenue growth to be “shared” as a wage rate increase (50 percent), and (3) a minimum or “floor” wage increase in future years (2 percent). The variable wage formula negotiated between the city of Eugene, Oregon, and police, by comparison, provided for future wage rate increases of exactly 1 percent, 2 percent, or 3 percent depending on tax revenue growth, rather than a percentage of growth which could provide a wage increase of 2.15 percent or 2.50 percent and so on.

Scanlon Group Incentive Plans

Joseph Scanlon developed a group incentive plan designed to achieve greater production through increased efficiency with accrued savings divided among the workers and the company. Scanlon at the time was the research director of the United Steelworkers and later joined the faculty at the Massachusetts Institute of Technology.
Scanlon plan
 became the popular standard in U.S. group incentive plans. It has since become a basis for labor–management cooperation above and beyond its use as a group incentive plan. The plan contains two primary features: (1) departmental committees of union and management representatives meet together at least monthly to consider any cost-savings suggestions and (2) any documented cost savings resulting from implemented committee suggestions are divided 75 percent to employees and 25 percent to the company.

Scanlon Plan

A group incentive plan designed by Joseph Scanlon in which greater production is achieved through increased efficiency, with the accrued savings being distributed among the workers and the employer.

Most other group incentive plans involve programs that set expected levels of productivity, product costs, or sales levels for individual groups and then provide employee bonuses if the targeted goals are exceeded. One widely recognized example is the Nucor Corporation. In one year the company reported a staggering growth of 600 percent in sales and 1,500 percent in profits over ten years due to a production incentive program. The company actually developed four separate incentive programs: one each for production employees, department heads, professional employees, and senior officers. Their theory was that “money is the best motivation.”

A popular derivation of the Scanlon Plan is gain-sharing
. Under a gain-sharing plan an organizational performance goal is agreed to, and if the performance exceeds the goal, the “gain” is “shared” by the parties according to an agreed-upon formula. The purpose of gain-sharing is to increase employee involvement and thus productivity—because they realize they will benefit economically if the goal is exceeded. In a process similar to “quality circles,” groups of employees work together with members of management to develop and implement ideas that should improve efficiency. Monthly bonuses are then awarded based on the gain-sharing results.

Two-Tier Wage Systems

A wage system that pays newly hired workers less than current employees performing the same or similar jobs is termed “two tier.” The 
two-tier wage system
 was established in 1977 at General Motors Packard Electric Division in Warren, Ohio.
 The basic concept is to provide continued higher wage levels for current employees if the union will accept reduced levels for future employees. Union leaders believe that they must accept the two-tier system or accept pay cuts for current workers or face greater layoffs in the future. Management usually claims that the system is needed to compete with nonunion and foreign competition. Two-tier systems appeared in about 41 percent of manufacturing contracts in 1995, but fell to only 33 percent by 2002 and in 2005 appeared in only 27 percent of all contracts. The Great Recession of 2008 ignited a rebound in negotiated two-tier systems. In 2007, for example, the United Auto Workers and GM, Ford, and Chrysler agreed to a dramatic two-tier wage package that paid new workers only $14–$16 per hour, down from $26 per hour in prior contracts. The UAW agreed to the substantial pay reduction for new hires in exchange for job guarantees and decisions not to close plants that had been scheduled for closure. William C. Ford, executive chairman of the Ford Motor Company, confirmed, “If we didn’t have that (the two-tier wage package) in this contract, the number of autoworkers would have dwindled.”
 In 2010 Ford hired the first shift of employees under the new two-tier agreement—creating 1,200 new jobs at the Chicago assembly plant. The new “second-tier” employees earned just over $14 per hour on average—about half what current workers on the same jobs were paid. In addition the new “second-tier” employees also do not receive the pension benefits of other workers, but instead receive 401 (k) accounts.

Two-tier wage system

A wage system that pays newly hired workers less than current employees per-forming the same or similar jobs.

During the Great Recession of 2008, two-tier agreements also spread to the public sector for the first time as governments sought ways of reducing costs. For example, in New York City the 121,000-member District Council 37, American Federation of State, County and Municipal Employees (AFSCME), approved in 2008 a contract that set wages for new hires for their first two years of employment 15 percent less than that of current employees.

Industries in which two-tier wage systems are most common include food retail, airlines, manufacturing, chemical, rubber, plastic, and transportation.
 And, in highly competitive industries such as food retailing, where nonunion employers such as Walmart compete directly with unionized employers, two-tier agreements are gaining ground. In 2005, for example, members of the United Food and Commercial Workers union in Colorado voted (60–40 percent) to accept a two-tier agreement with King Soopers and City Market Stores to avoid a strike. The union’s negotiating committee had recommended rejecting the contract and going on a strike. Management maintained the two-tier pay system could have provided cost savings to remain competitive. Top-pay-scale union workers were required to pay higher health insurance premiums as their concession.

Although a two-tier system is contrary to the historical union doctrine of “equal pay for equal work,” or pay equity, when a system is first negotiated, the union representatives can claim that they have avoided disaster and saved the jobs or wage levels of current members (who must vote on the contract). It is relatively easy to sell such a concept because no workers at that point are accepting the “lower tier.” However, five or ten years later, when many workers are paid lower wages for the same work as their affiliated union members, it can become a source of conflict and resentment. In some cases the lower-paid workers express their feelings with lower product quality and productivity records than their higher-paid counterparts.
 In these bargaining units, the conflict could present even greater problems to both union and management as the number of lower-tier workers approaches 51 percent of the bargaining unit and they demand equity.

Do employees hired into a lower-tier pay position perceive their treatment as equitable? Concessions gained at the bargaining table do not guarantee cost savings and can cause problems for both sides. UAW workers at the General Motors (GM) plant in Lansing, Michigan, certainly think their new two-tier wage system has caused mixed emotions. In 2010 Steve Barnas, the UAW plant bargaining chairman, commented, “It’s sure difficult to look across the line at someone getting paid more for doing the same job you’re doing.” Under the new two-tier contract GM workers at the GM Buick assembly plant average about $35,000 annually, or $14/hour or about half of what workers on the higher tier earn. Today the new hires average about 20 percent less than the average American manufacturing worker. Another union leader, Saladin Parm, said workers are the angriest he has ever seen them in his 23 years with GM. Still, former UAW president Ron Gettelfinger agreed to the concessions because “… you can have the best contract in the world, but if you don’t have a job to go with it, what have you got?”
 At the same time GM during the first three years of the four-year contract did not realize any significant cost savings because the Great Recession caused the manufacturer to lay off over 5,000 employees of the total 51,000 UAW factory workers—and only hire 2,000 on the new lower-tier wage system. Thus, due to poor timing the new contract started just before the recession, the key concession provision of the 2007–2011 agreement didn’t help GM’s bottom line as anticipated.

Studies also indicate that the high-tier employee may be dissatisfied with the two-tier system. In a survey of over 1,000 employees in a 14-store food outlet company, researchers found that employees at the high end of a two-tier pay scale feared replacement by the lower-tiered employees. In addition, they believed the two-tier system had a detrimental effect on any wage increases they might feel entitled to receive.

One method of minimizing the morale problems of low-tier employees is to provide eventual merging of the two tiers. Temporary two-tier wage systems allow newly hired employees to reach the higher tier within 90–180 days or more. Some two-tier systems are permanent because the contract does not provide for any means by which employees hired at the lower-tier wage can progress to the higher tier. The presence of permanent systems in a contract puts a great deal of pressure on union negotiators to achieve a merger of the two tiers, which is found in about 60 percent of all two-tier contract clauses.
 Thus two-tier pay systems have produced mixed results. 
Table 7-3
 outlines the pros and cons of the two-tier wage system.

Lump-Sum Payments

As illustrated in 
Table 7-4
, of the major alternatives to increasing base pay, 
lump-sum payments
 and two-tier systems are methods to provide general wage increases and are increasing in their use, whereas COLAs and wage reopeners have declined in use. The most common form of lump-sum payment is a flat dollar amount per worker.

Lump-sum payments

A method of providing a general wage increase as a onetime payment rather than adding the increase to the hourly or annual salary of the employee.

The 2005 collective bargaining agreement between Caterpillar, Inc. and the United Auto Workers was heralded as a landmark “return” of two-tier pay systems combined with lump-sum increases as a major change in direction for negotiated wage increases. In highly competitive industries such as retail grocery, airlines, and manufacturing, employers seek a means of lowering

Table 7-3

Pros and Cons of the Two-Tier Wage System



Significantly reduced labor costs

Resentment, low quality, and low productivity from low-tier employees

Maintenance of higher employment levels

Higher absenteeism and turnover of low-tier employees

Relief from wage compression between senior and junior employees on the same job

Intensification of the preceding problems as low-tier employees increase in number

Table 7-4

Wage Trends in Contracts (frequency expressed as percentage of contracts)










Deferred increases










Cost-of-living adjustments










Wage reopeners










Lump sums





Two-tier pay






Source: Bureau of National Affairs, Basic Patterns in Union Contracts, 14th ed. (Washington, DC: BNA Books, 1995), p. 111; and Bureau of National Affairs, 2010 Source Book on Collective Bargaining (Washington, DC: BNA Books, 2010). Used by permission.

or “resetting” wage rates to meet low-wage global competition. By negotiating lump-sum increases for current employees together with a two-tier system for new employees, an employer can effectively lower base-wage rates and total labor costs.
 Management may prefer lump-sum payments to COLAs, or higher wages because their total cost during the contract is easier to predict, and they do not increase hourly wage rates. Unions may prefer they be paid early in the weeks of a new contract to provide quick benefit to members. Lump-sum payments do not preclude the negotiation of a wage rate increase, but usually management will offer a larger total compensation package in the first year if a lump sum is included instead of a larger base-wage increase. Common lump-sum awards include “signing” or “ratification” bonuses designed to give workers an immediate onetime payment between when the agreement is ratified and the first paycheck is issued under the new contract. In 2004, lump-sum payments were most common in manufacturing contracts (28 percent) versus nonmanufacturing (13 percent).

Concession Bargaining

The 1980s recession ushered in a new era in negotiated wages—concession bargaining. High levels of unemployment prompted unions in severely affected industries to seek ways to protect jobs. Through collective bargaining, unions tried to stop further layoffs. Employers were willing to agree to increased employment security only at the high price of wage or benefit cuts. In several cases, reductions in benefits, particularly paid time off work, are required to guarantee employment levels.
 Thus, givebacks, or 
concession bargaining
 techniques, were born out of necessity. During the 1990s concessions declined as the economy prospered. However, following the events of September 11, 2001, a new era of concession bargaining began, and in 2005, the Bureau of National Affairs estimated that over two-thirds of all employers negotiating contracts sought some concessions, primarily in health care, overtime, and pension benefits. In addition, 59 of the employers were willing to trade wage gains for benefit concessions. 
Table 7-5
 illustrates areas in which employers seek to gain concessions.
 It is important to remember that under the NLRA, during the life of a CBA employers are required to maintain negotiated wages and benefits—unless a union agrees to a new concession during a contract which is highly unlikely. Then concessions can generally only be gained during negotiations for a new agreement.

Concession bargaining

Collectively bargained reductions in previously negotiated wages, benefits, or work rules, usually in exchange for management-guaranteed employment levels during the term of a contract.

Concession bargaining first gained national headlines when the Chrysler Corporation negotiated more than $200 million in givebacks in November 1979. On the brink of bankruptcy, Chrysler used the United Auto Worker (UAW) concessions to negotiate more than $1 billion in long-term federal government loans. Although some concessions were in the area of deferred wage increases, the majority of the savings came in the reduced employee benefits of paid holidays, paid sickness and accident absences, and pension funds.
 In return, Chrysler gave the UAW a seat on its board of directors and a no-layoff guarantee.

Table 7-5

Areas Where Employers Strive to Gain Concessions

Percentage of Employers Seeking Concessions



Job Security


Paid Leave Benefits




Health Care/Insurance


Source: “Employees Take the Upper Hand in Wage Concessions,” HR Focus (May 2009), p. 8.

Public Sector Concessions.

The Great Recession which began in 2008 caused the first national spread of public sector concession bargaining. While many private sector unions and employers had experienced the Great Depression, most public sector unions had only first negotiated contracts in the 1970s and 1980s, when most states and local governments followed the lead of the federal government and first allowed employees to organize and collectively bargain. Thus the Great Recession of 2008 was the first time that many state and local governments experienced severe revenue decreases and thus needed to negotiate concessions to balance their budgets. A few had negotiated wage freezes or minor concessions in benefits during past recessions, but those negotiations were not as widespread or cuts as deep as those reflected in contracts negotiated during the years of 2008–2011.
 Most negotiations forced government and union negotiators to choose among very painful alternatives such as raising taxes—which few elected bodies of government were willing to do during a recession, cutting wage rates, layoffs, reductions in employer benefit contributions, furloughs (unpaid leave days), and early retirement programs (then leaving jobs unfilled), and even two-tier wage and benefit programs which were unheard of in the public sector. Examples of such public sector concessions are presented in 
Profile 7-2

Profile 7-2 Examples of Public Sector Concessions

A common pattern across the United States during the Great Recession was cities and states striving to avoid massive layoffs by “sharing the pain” of budget cuts through one or more of the following negotiated concessions:

· Chicago, IL: Mayor Daley offered unpaid furlough leaves to unions to avoid layoffs; two unions refused and suffered 431 layoffs.

· Detroit, MI: Mayor Dave Bing offered unions the choice of 26 unpaid furlough days to avoid layoffs of over 1,000 workers (one-tenth of the workforce).

· Los Angeles, CA: The city and unions together developed a concession plan that included increased worker pension and health care contributions.

· Eugene, OR: A negotiated 18 percent personnel cost decrease with AFSCME due to health care cuts (with 3 percent pay gains) and police agreeing to variable wage hikes (1–3 percent) based on inflation.

· Kokomo, IN: Firefighters agreed to layoffs for 1.5 percent pay hikes v. AFSCME FOP plus city workers; wage freeze with no layoffs.

· Lockport, NY: New “two-tier” wage scale with police starts new hires $2,700 less and saves city $20,000 per hire over 20 years.

· Tulsa, OK: Police rejected pay cut offer and accepted layoffs of 89 officers, but firefighters voted 422–177 to accept 5.2 percent pay cuts and 8 unpaid furlough days, and clothing allowance cuts in exchange for no layoffs of 147 members.

· Illinois: Newly hired employees must work up to 12 years more than current employees to receive full pensions.

· San Francisco: Twenty local unions accepted pay cuts of $100 million/year to avoid further layoffs.

· New Jersey: The state required employees increase their share of health care costs and banned part-time employees from drawing pensions.

Sources: Adapted from Stephane Fitch and Christopher Steiner, “Critical Mess,” Forbes 185, no. 10 (June 7, 2010), p. 24–26; and M. R. Carrell and C. Heavrin, International Municipal Lawyers Association Conference Proceedings, Miami, FL (October 2009).

Concessions demanded by mayors and governors including wage and benefit cuts, unpaid furloughs, and layoffs, caused many public sector workers like these Chicago police officers to stage public protests during the Great Recession of 2008–2011.

Source: Charles Rex Arbogast/AP Images.

During the Great Recession of 2008, a new method of dealing with concession negotiations that increased in popularity was 
arena bargaining
 —a process when management meets with representatives of all the bargaining units at one time to discuss difficult economic issues. The method has been particularly useful in the public sector, such as school boards and local governments, where other stakeholders including elected officials and the public can hear the same discussions, which often include outside experts. Often arena bargaining will focus on one issue, such as health care insurance costs, rather than entire contracts or multiple economic issues.

Arena Bargaining

A process when management meets with representatives of all the bargaining units at one time to discuss difficult economic issues.

A key issue during the precedent-setting 2007 UAW–GM, Ford, and Chrysler contract negotiations were the 
legacy costs
 (retiree benefits increases provided by prior contracts) for retiree pension and health care benefits. It was estimated that about 10 percent of the price of a new vehicle was paid to retirees. Legacy costs also roughly equaled about $25 per hour. Although the nonunion Japanese competitors—Toyota, Honda, Nissan—pay roughly the same wages to current workers as the Detroit Big Three automakers, they do not have the retiree legacy costs, and thus, according to management at GM, Ford, Chrysler, they realize a significant cost advantage. A tough question is this: Which side is responsible for legacy costs: the union, whose members receive the benefits, or management, which agreed to them in past negotiations?

Legacy costs

Contract costs for retiree benefits increases in retirement and health care provided in earlier contracts.

Management’s ability to convince labor of an impending financial crisis, one that could cause a significant loss of jobs or total shutdown of an operation, is a necessary element for successful concession bargaining.
 In 2009 for example, the Hearst Corporation threatened to close the 144-year-old San Francisco Chronicle—the largest circulation daily newspaper in the city, if the California Media Workers guild and Teamsters local union did not approve major wage, benefit, and staff reductions. The Chronicle had been losing money for eight years straight, including over $50 million in 2008. The union members by a 10-1 margin approved the concessions and the elimination of 150 jobs to save the newspaper.
 If a union is convinced that the employer may, in fact, file for bankruptcy, then it is motivated to agree to concessions in wages and benefits rather than allow a bankruptcy court judge to impose cuts. Courts have made cuts or allowed employers to abandon contracted wages and benefits in about 90 percent of U.S. bankruptcy proceedings.
 However, economic adversity alone may not be enough to bring about concessions. Union negotiators expect management concessions and programs to enhance labor–management relationships. Thus, employers as well as unions have made concessions during giveback negotiations, many aimed at increasing quality of work life and worker participation in decision making. Economic concessions have often centered on management’s sharing of future “good times” through profit sharing or gain sharing in exchange for immediate union givebacks.
 For example, in 2010 new UAW president Bob King warned that in upcoming contract talks with Ford, GM, and Chrysler he expected some of the givebacks to be reversed—“at least to the extent that management and other stakeholders get rewarded.” Why? King emphasized a core philosophy of union concession bargaining: “When there’s equality of sacrifice, there’s got to be equality of gain … We just want to make sure when things turn up we share in the upside.”

In many cases concessions are not directly called “concessions,” so that neither side appears to have lost or won in negotiations. Most negotiations involving givebacks require both labor and management to make some concessions in a true give-and-take process.
 Often, for example, if management demands givebacks in wages and benefits, union negotiators demand similar reductions in management salaries and benefits. If management requests greater flexibility in work rules and scheduling, labor negotiators might demand greater union participation in management decisions. During particularly hard economic times, such as the recent Great Recession, an employer may ask a union to accept concessions during a contract, even though the NLRA requires the employer to continue paying the negotiated wages and benefits in the CBA. In 2009, for example, Ford Motor Co. offered to invest $500 million in the Louisville, Kentucky, assembly plant—thus guaranteeing the plant would not close—if members of UAW Local 862 voted to accept wage increases contained in the 2007–2011 contract. The members voted 84 percent against, 16 percent in favor of the offer. UAW Local 862 President Rocky Comito said, “We heard from the silent majority … We gave so much already [in 2007 negotiations].” Troy Lee, a Ford electrician, perhaps best summarized the feelings of the workers when he said, “They should have given us three ways to vote. Yes, no, and hell no!”

84 percent of UAW Local 862 members in Louisville, Kentucky, voted against a 2007–2011 contract proposal by Ford Motor Co. to accept concessions in exchange for Ford’s promise to invest $500 million in the assembly plant—guaranteeing it would stay open. Troy Lee, a Ford electrician, commented, “They should have given us three ways to vote. Yes, no, and hell no!”

Source: Bloomberg via Getty Images.

Executive Pay

The issue of executive pay has become a hot negotiation topic in recent years. Union members want senior management executives to “share their pain.” For example, in 2004, union employees at US Airways Group Inc. were forced to accept a 21 percent pay cut to save the company from bankruptcy, but CEO Bruce Lakefield didn’t lower his own $425,000 salary, which caused union leaders to confront him and ask why they were “asked to make sacrifices and he wasn’t even making a token sacrifice.” At Delta Air Lines, executives were given a 10 percent pay cut when pilots accepted a 32.5 percent pay cut and five-year wage freeze in 2005. But then six top Delta executives were given $1.9 million in stock options, causing John Malone, the union leader, to claim, “The generals are dining while the troops are toiling.”
 The issue has also caused problems in the public sector. In 2007, for example, about 2,300 University of Cincinnati faculty members approved a three-year contract that included a total 8.5 percent wage increase and economic concessions in health care that almost offset the salary gains. Then, only a month later, UC president Nancy Zimpher received an 8 percent one-year salary increase, plus a 30 percent bonus! The American Association of University Professors (AAUP) gave UC an “F+” in faculty relations and said the president’s increase left them “appalled and demoralized.”
 In 2010 several thousand utility workers protested the “out of control” executive pay given to members of management who were at the same time at the bargaining table demanding concessions in healthcare. The workers were members of Utility Workers of America and Local 223 and employees of DTE Energy; they generate, deliver, and restore power and supply gas to Michigan customers. DTE had posted record first quarter profits of $230 million, and the chairman and CEO was awarded a $2 million bonus. James Harrison, president of Local 223, commented the company only had to bargain in good faith—instead of demanding concessions during a period of record profits.

Payback Agreements

Employers may try to protect the investment they have made in their employees by including payback agreements in the negotiations. Payback agreements require an employee who voluntarily quits before a specified period of time (usually one year) to pay the employer the cost of certain benefits. The most common benefits specified include relocation costs for newly hired employees, training program costs, and tuition assistance costs. Companies such as American Airlines (pilot training costs of about $10,000), Electronic Data Systems Corporation (relocation costs), and Lockheed Corporation (tuition assistance) have successfully sued employees who refused to honor their payback agreements.

Some unions have criticized payback agreements: The AFL-CIO has noted their similarity to indentured servitude (a person required to work for another as a servant). However, not all unions dislike the concept. The Sheet Metal Workers Union has required those who complete the union training program to repay the program costs if they work for a nonunion shop within ten years.

Employer Concessions

Union concessions generally involve wage, benefit, or work rule changes, with reduced benefits generally more acceptable to employees than wage concessions, although future wage increases may be renegotiated. Often work rule changes are easier to sell to employees and have a more lasting effect. Employers, however, must expect to pay the price of these concessions through one or more of five areas of negotiation:

1. Increased job security. The union will most likely try to extract a promise not to close plants or not to subcontract with nonunion producers. Another example of providing job security is the 2005 agreement between Comair and its pilots union, the Air Line Pilots Association. The agreement provided that Comair would add 36 new jet planes to its fleet and a hiring freeze for three years. The pilots believed the new planes were needed to maintain the current number of Comair flights—and their job.

2. Increased financial disclosure. The employer will have to make a claim of inability to pay or financial hardship. Although the company’s financial information normally need not be disclosed in collective bargaining, when the employer puts profitability or financial condition in contention, the financial data must be provided to substantiate the position.

3. Profit-sharing plans. Union members generally feel that sharing losses during lean years should mean sharing profits in good years. For example, Chrysler Corporation’s employees demanded a share of the record profits after the UAW made major concessions to guarantee the federal loan to Chrysler. Workers were pleased to receive the profit-sharing check during a slumping economy, and they expressed their feelings to the national union leaders who had negotiated the benefit in an unusual newspaper advertisement on April 13, 2001. The 103,000 hourly Ford workers under the national agreement received an average payout of $6,700 in 2001. The highest payout under the profit-sharing program that started with the 1982 contract was $8,000 in 1999.

4. Equality of sacrifice. Employers must demand the same sacrifices from management and nonunion employees as union employees. For instance, General Motors tried to increase its executive bonus program just after the UAW made major concessions in 1982. The UAW and its members demanded and got the increases rescinded.

5. Participation in decision making. Unions may seek greater participation in various management decisions, including plant closings and the use of new technological methods.

Wage Negotiation Issues

During the negotiation process one or both sides may use different wage-level theories to stress their economic proposals. One or both sides will bring to light one or more wage theories and issues having an impact on the negotiation of rates. Which issues might be stressed during negotiations and whether they are even presented depend on the history of the company’s labor relations and the personalities of the negotiators. In general, either side would utilize an issue it felt was valid or simply useful in providing a significant point for its list of arguments.

Productivity Theory

One of the oldest and broadest negotiation issues concerning wages involves the 
productivity theory
 that employees should share in increased profits caused by greater productivity. At the heart of the issue is the commonly accepted proposition that the organization’s production is a combination of three factors: machinery and equipment, employee labor, and managerial ability. Union and management leaders agree that all three share in the creation of profits because they contribute to the organization’s productivity.

Productivity theory

The negotiating position that employees should share in increased profits gained by the greater productivity achieved because of their efforts.

Whenever figures show that productivity or profits have risen, then the question becomes, “What percentage is attributable to employees’ labor as opposed to machinery and equipment or managerial ability?” Labor leaders commonly request that their members get their fair share of the increased profits. Management may request that the 
value-added concept
 be applied.

Value-added concept

The theory that wages should equal the contribution of labor to the final product.

Determining labor’s fair share then becomes the problem. Management may contend that all it asks is for employees to perform assigned work at stated times and at accepted levels of performance. The union usually counters that employees seek to improve the quality and quantity of output, reduce cost, and minimize the waste of resources. If specific production standards are established through negotiation, it is much easier to negotiate accepted wage increases. Yet separating out and measuring profit resulting from individual and group productivity as compared with management and capital equipment is almost impossible.

Ability to Pay

The issue of 
ability to pay
 is commonly expressed during wage negotiations. In principle, this issue is similar to the productivity theory. Union leaders emphasize that labor is one of the primary inputs into a company’s productivity and therefore profitability. Labor negotiators conclude that if the company is experiencing high profits, it can better pay its employees who have contributed to the good financial conditions. For example, 1996 was the most profitable year in the history of the airline industry. Thus, when it came time to renegotiate labor contracts, “a spirit of militancy” swept through the ranks of airline workers. “American Airlines is making record profits, and it’s time our wages reflect that,” said Rob Held, a pilot. American Airlines pilots, in fact, overwhelmingly rejected a contract offer that their own union leaders had called generous. United Airlines mechanics rejected an offer of a 10 percent wage increase. However, only a few years earlier these same unions had accepted layoffs, wage cuts, and longer hours during hard financial times in the airline industry.

Ability to pay

The financial position of a company and its ability to change its wage rates are general factors involved in negotiations. They are usually a reflection of company profits and will be a basis of a negotiator’s wage proposal.

The ability-to-pay concept, however, has severe limitations according to management negotiators. First, unions will not press this issue during hard times when profits have decreased or when the company is suffering temporary losses. Unions seldom want to apply the ability-to-pay doctrine consistently in both good and hard times; instead, they expect wage levels to be maintained during hard times and increased during good times. Second, management will argue that higher profits must be applied back into the company in capital investments. Finally, although profit levels fluctuate greatly, negotiated wage rates do not vary accordingly. If higher wage rates were negotiated on the basis of a six-month crest of high profits, the company might find it extremely difficult to maintain the higher wages during a period of sluggish profitability. Unfortunately, wage rates are negotiated for the future, and real profit information is available only for the past, causing management to use “estimated profits” when negotiating. (See 
Table 7-6
) Thus, estimating the company’s future ability to pay during the life of the new contract is quite difficult.

Table 7-6

Estimated Profits Available under a New Contract

Potential Profits Available from Current Operations




Sales revenue




Production costs




Labor costs (wages and benefits)




Labor costs as a percent of sales




Administrative and selling costs








Net profits before taxes




Income tax




After-tax profit




Dividends paid




Profits with current operations



Potential Increased Cost Savings Due to New Equipment




Increased output: 10% (reduced product costs: $23,100,000 × 0.10)




Costs of new equipment = $6,400,000 × 0.10 (current interest rate)




Related new equipment costs




Total cost of new equipment




Savings due to new equipment (savings available to all organizational needs)



Potential Profits Available from Future Operations and Savings Due to New Equipment



Potential profits available for all corporate needs (11 + 16)



Percent of profits available for labor



Profits available for increased labor costs under new contract


NOTE: This example might be used by either management or labor to calculate the dollar amount each believes will be available for labor under the new contract. Of course, each side might make different assumptions about the firm’s future sales, profits, and productivity.

Job Evaluation

Job evaluation
 is the process of systematically analyzing jobs to determine their relative worth within the organization. The process is generally part of job analysis—the personnel function of systematically reviewing the tasks, duties, and responsibilities of jobs, usually to write job descriptions and minimum qualifications as well as to provide information for job evaluation. In general, the result of a job evaluation effort is a pay system with a rate for each job commensurate with its status within the hierarchy of jobs in the organization.

Job evaluation

A systematic method of determining the worth of a job to an organization. This is usually accomplished by analysis of the internal job factors and comparison to the external job market.

Job evaluation procedures do not include analyzing employee performance; that is referred to as performance evaluation or performance appraisal. Rather, in a job evaluation the position is reviewed for several carefully selected criteria to determine the relative worth of the job to the organization in comparison with other jobs in the labor market. Union leaders as well as members of management can use job evaluation techniques as guides to negotiate wage agreements and explain paid differentials to employees. An example of how an agreement can provide for the use of job evaluation procedures during the life of a labor contract is shown in the following labor agreement between the Duke Energy Company and the International Brotherhood of Electrical Workers:

Article V

k. The Company’s Evaluation Committee will be responsible for evaluating all new and revised job classifications. The Union will appoint two (2) members to the Company’s Evaluation Committee. The evaluation that is established by this Committee is used to determine the maximum wage rate for each new or revised job classification. Results of the evaluation will be communicated to the Union two weeks before the new or revised job classification becomes effective.

l. The Union shall maintain a Job Evaluation Advisory Committee consisting of not more than five members who may review the evaluation and wage rate of any job classification which undergoes a substantial change in qualifications or duties. The Union’s Committee may, by request, meet with the Company’s Committee, at a mutually convenient time within thirty (30) days after the effective date of the new or revised job classification, to present any information relevant to the evaluation of the job classification which has been included in the previous written comments of the Union representative. The Union will be notified after the Company’s Committee has reviewed the additional information presented by the Union. All wage rates so established shall be final and binding and not subject to the grievance and arbitration procedure. However, if any revised wage rates are reduced as a result of the evaluation(s), they will not be placed into effect until the Company and the Union have had an opportunity to negotiate them during full contract negotiations, even though the revised job classification will be in effect.

Source: Agreement between Duke Energy Ohio, Inc. and Local Union 1347 International Brotherhood of Electrical Workers, AFL-CIO, 2006–2009. Used by Permission.

Job classification is common in labor agreements, and when an agreement contains a rigid classification, the employer may not unilaterally change it. When no explicit provision exists, it is generally recognized that management has the right to make classification changes or to add new jobs. However, even if the agreement contains a job classification, arbitrators have recognized management’s need—and right—to make changes as long as established pay rates are used, the union is allowed to file complaints through the grievance procedure, and management follows any procedures agreed to in the contract.
 Case 7-2 illustrates a typical dispute over job classification.

CASE7-2 Reclassification of Jobs

The company manufactures refrigerators and dehumidifiers. The grievance concerns assembly-line workers who installed foil wrap around the wired socket on certain food liner tops. The company instituted an operational modification that substituted fiberglass insulation for foil in the assembly operation. The grievants were classified as Class III Assemblers. Their grievance was a request to be reclassified to the high classification of Hand Pack Insulation workers. The Hand Pack Insulation classification was specifically created in the early 1960s to cover personnel who must work with fiberglass insulation.

It was the union’s position that the grievants regularly worked with fiberglass insulation and therefore should be classified to the higher classification. The workers do not have to spend more than 50 percent of their time handling fiberglass insulation before they can be classified as Hand Pack Insulators because there are Hand Pack Insulators who cut up fiberglass insulation on only two days per week. By creating the new classification, the parties had recognized that employees generally do not like to work with fiberglass insulation because it causes the workers to itch.

Using the management rights clause as its basis, the company contended that it had the right to change the materials being used in particular operations and to assign different tasks to appropriate classifications. The company pointed out that many assembly-line workers had occasionally come into contact with fiberglass materials during the 20 years preceding this grievance and that no prior claims or grievances had been made regarding reclassification. It contended that the jobs performed by the two grievants were not meaningfully changed by the substitution of fiberglass for foil. In fact, the job description for the Class III Assemblers mentions that the personnel must deal with insulation, indicating that they may be expected to handle some fiberglass.


The arbitrator found that, although it is apparent that the Hand Pack Insulation classification was created to cover personnel who spend a significant amount of their time handling fiberglass insulation, the history of the plant indicates that numerous assembly-line workers in other classifications continued to handle some fiberglass insulation without job reclassification. The arbitrator cited the basic rule that when jobs are classified by titles and the parties have not negotiated a detailed description of job content, management are permitted wide authority to assign work that is reasonably related or incidental to the regular duties of the job. The arbitrator also put heavy emphasis on the fact that other personnel had not previously sought reclassification of their jobs to Hand Pack Insulator, even though they did handle some fiberglass insulation.

Source: Adapted from Magic Chef, Inc., 84 LA 15 (1984).

Wage survey

The collection and appraisal of data from various sources used to determine the average salary for specified positions in the job market.

Wage Surveys

Both labor and management conduct their own wage surveys to provide information on external labor market conditions. The job evaluation process is used to maintain internal equity for wage rates, but it is also important to maintain external equity. That is, both sides want to offer wages competitive with the labor market and industry so that the firm can attract and retain qualified, productive employees.

Union leaders want to provide evidence during negotiations to management and their own members that the wage rates they are negotiating are fair and justified by market conditions.

Negotiators seek wage survey information from three general sources. The first source is published labor market information from federal agencies, primarily the U.S. Department of Labor, which provides wage and salary information to all organizations by metropolitan statistical area. In general, the government’s employment information is considered complete and accurate. Negotiators in specialized industries may wish to use the second source, industry wage surveys, published by various interested parties within the industry. Or negotiators may choose a third source, their own survey, which is a costly and time-consuming process. One side of the table is less likely to accept the figures produced by the other side unless they have a very strong working relationship or have participated in the survey process.

Using wage surveys in negotiations may involve two types of problems. First, because survey information is available from many sources, including industry data, the BLS employer associations, and union groups, it is often difficult to agree which source contains jobs and data applicable to a particular firm. This problem may be compounded if negotiators use survey information from different cities and therefore must agree on an acceptable cost-of-living difference between the areas as well. One solution is to combine relevant data of two published surveys to determine averages.
 But even if negotiators agree on wage survey information, a second problem involves the question of how the negotiating company should compare itself with other firms. Survey information usually provides an average as well as a range of wages paid for different jobs. Negotiating parties must then agree on whether they want to pay higher, average, or lower wages than the competition.

Thus, wage survey information will not resolve the issue of appropriate wage rates but will at least provide ballpark information to negotiators. Management may argue that what it lacks in wages, it makes up in liberal benefits, working conditions, or advancement opportunities. Labor leaders may counter that these advantages are available in higher-paying organizations and do not make up for the lack in take-home pay.

Costing Wage Proposals

Many of the changes in contract language may result in indirect or direct long-range cost to the company. However, most changes in wages, benefits, and COLAs are direct and usually substantial cost increases. Other types of changes, such as layoff provisions, seniority determination, and subcontracting, may result in indirect cost increases to the company. The process of determining the financial impact of a contract provision change is referred to as 


The methods of determining the financial impact of a contract change, such as total annual cost, cost per employee per year, percentage of payroll, and cents per hour.

The costing of labor contracts is obviously a critical aspect in collective bargaining negotiations. Both sides need to estimate accurately the cost of the contract provision so that it can be intelligently discussed and bargained for by either side. If it is an item that ultimately is given up by one side so that another provision can be gained, then its relative weight is best estimated by knowing its costs.

All economic provisions can be reduced to dollar estimates, whereas noneconomic items cannot be as easily valued by either side. The costing process enables both sides to compare the value of different contract provisions and, it is hoped, helps them arrive at a contract agreement. In most cases, accurate costing processes will be accepted by both sides with little disagreement over the methods employed.

The largest single cost incurred by most corporations is labor cost. Even in capital-intensive organizations such as commercial airlines, labor costs account for about 42 percent of total cost; but in labor-intensive organizations, such as local police departments, labor may account for more than 80 percent of total cost. 
Figure 7-3
 shows how a typical company might cost the wage provisions of a contract.

Figure 7-3

Costing a Wage Proposal

Accountant Michael Granof outlines the four most commonly used methods of costing union wage provisions:

1. Annual cost. This is the total sum expended by the company over a year on a given benefit; usually the sum excludes administrative costs. Most companies make computations similar to those illustrated in 
Figure 7-3
 to arrive at the annual cost of a wage agreement or benefit.

2. Cost per employee per year. This is determined by dividing the total costs of the benefit by either the average number of employees for the year or the number of employees covered by a particular program.

3. Percentage of payroll. This is the total cost of the benefit divided by the total payroll. Companies may include all payments to all employees in the total payroll, but some exclude overtime, shift differential, or premium pay.

4. Cents per hour. This is derived by dividing the total cost of the benefit or wage provision by the total productive hours worked by all employees during the year.

The two most commonly discussed economic figures are the annual cost figure and the cents-per-hour figure. When the contract is being negotiated, the total value of all additional wages and other economic items is included so that the annual cost of the entire package can be estimated accurately. All sides want to know the exact figure of the negotiated wages and benefits. The management negotiator may even offer a lump-sum amount, giving the union negotiators the choice of how to divide it among the various proposed economic enhancements. The cents-per-hour figure is perhaps the single most important item to employees in the new contract. Because employees can quickly estimate their additional take-home pay by using the cents-per-hour figure, it becomes vital when they vote on contract ratification. Granof found that most management negotiators agree that the primary goal in bargaining is to minimize the cents-per-hour direct wage increase.

Employers are usually aware that any negotiated economic increases may be duplicated for nonunion and management personnel. This spillover effect can be quite costly. However, most costing models do not include the spillover costs because unions do not consider them part of the negotiated wage increase.


The first step in determining compensation costs is to develop the 
base compensation
 figure. During negotiation, this figure is essential in determining the percentage value of a requested increase in wages. For example, a $500 annual wage increase means a 2.5 percent wage increase on a $20,000 base and a 5 percent increase for an employee with a $10,000 base. The base may be thought of as the employee’s annual salary; however, it seldom represents the total payroll costs incurred by the company for that employee. For example, the average salary cost, or base salary, for a nurse in a city hospital was $28,200. Under the terms of the contract, a nurse may have also received an average of the following: longevity pay of $1,000, overtime of $2,400, shift differential of $2,100, vacation cost of $1,272, holiday pay of $1,120, hospitalization insurance of $2,100, a clothing allowance of $300, and pension benefit of $1,970. The total additional paid benefits were $9,837 for each nurse, equal to about 34 percent of base pay. These additional costs, when added to the base of $28,200, produced what many think of as the nurse’s true gross salary of $38,037.

Base compensation

An employee’s general rate of pay per unit or hour, disregarding payments for items such as overtime, pension benefits, and bonuses.

Figure 7-4
 illustrates the Chrysler Corporation–UAW agreement on base rates for three jobs. At the end of the old agreement the base rates were $22.98, $23.57 and $27.70 for the janitor, assembler, and tool-and-die job classifications, respectively. At the start of the new negotiation it was agreed to “fold in,” or add to the old base rates, the COLAs that had been given, thereby creating new base rates that would stay in effect during the new three-year agreement. If the CPI increased each year, the new COLA adjustment and negotiated deferred wage increases of 3 percent in the second and third years would cause the hourly wage rates to increase, as reflected in 
Figure 7-4
, to $27.81, $28.43, and $33.09 or about 21 percent each!

Figure 7-4

Chrysler–UAW Examples: Base Rate, COLA Adjustments, and Wage Adjustments.

Source: DaimlerChrysler Media Briefing Book, (Auburn Hills, MI: Media Center, 2007), pp. 15–16. Available at http://chryslerlabortalks07.com/Media_Briefing_Book.pdf. Accessed August 26, 2011.

The one absolutely essential figure that every negotiator should have in mind at all times is how much a wage increase of 1 percent will cost the employer in thousands of dollars per year. Although the overall dollar cost of a contract settlement is important for budget purposes, most negotiators do not consider such costs to be especially pertinent. They find the total cents- per-hour cost of the negotiated wage increase more relevant, and they bargain in those terms. Settlements are also evaluated by their superiors in terms of cents per hour, but they need to be able to convert cents per hour to total dollars for accurate costing.


As hourly wages increase, many benefits also directly increase because they are directly tied to the wage rate or base pay of employees. This direct increase in benefits caused by a negotiated wage increase is referred to as the 
 . Roll-up may also be called add-on or creep. All three terms refer to other costs incurred, which automatically increase as wage rates are increased. These costs must be “rolled up into” the total cost of the negotiated wage package to reflect accurately the total costs that will be incurred.


The direct increase in the cost of benefits that results from a negotiated increase in wage rates, such as Social Security, overtime pay, and pensions.

Examples of some of these benefits are the following:

1. Social Security and unemployment insurance contributions. The employer’s contribution is computed as a percentage of each employee’s wage up to a maximum annual figure. Any negotiated wage increase up to this maximum will cause a direct increase in the employer’s contribution.

2. Life insurance. Often the amount of life insurance coverage paid by the employer is based on the employee’s annual earnings. Therefore, as annual earnings are increased, the cost of the insurance automatically increases.

3. Overtime pay and shift premium. Overtime compensation and shift premium are often computed as a percentage of the base wage. Thus, these also increase with the base wage.

Tips from the Experts


What are three wage issues union negotiation team members should look for at the negotiating table?

1. Fairness at both ends of wage/salary scale

2. Rewards for performance as well as for service

3. Equal pay for equal work


What are some practical forms of wage concessions to use at negotiations that will not break an employer?

4. Swap indirect benefits and apply to direct labor (e.g., switch a holiday for a specific wage increase).

5. Lengthen the term of the collective bargaining agreement (perhaps in combination with item 3).

6. Stagger wage increases with minimum or no increase at the front end but load up near the end of contract (perhaps in combination with item 2).

7. Give concessions in an area that will be used infrequently but is a big morale booster, such as extended family leave (unpaid, event).

4. Pension benefits. The pension benefit formula normally includes employees’ average annual wages. An increase in wages increases the employer’s funding liability for the pension.

Negotiators often determine an agreed-on percentage attributable to roll-up. The roll-up percentage is computed by dividing the cost of the directly increased benefit by the cost of the wage rate increase. For example, if a $2-per-hour increase in the base wage directly causes a $0.40-per-hour increase in benefits, then the roll-up percentage is $0.40 divided by $2, or 20 percent. Therefore, if negotiators agreed to increase employees’ base wage by $2 per hour, from $20 per hour to $22 per hour, the 10 percent negotiated wage increase would cause a direct cost increase of 12 percent when the roll-up costs were added: $20 + $2 + .40 = $22.40/hour.

Total Negotiated Costs

At all times during negotiations, both labor and management maintain their estimated cost of wage and benefit items on which they have reached agreement. Therefore, as additional economic items are proposed, both sides know exactly the total cost of the new contract; they can then decide whether the cost of the new items would increase the total cost of the agreement beyond an affordable level. In 
Table 7-7
, the total cost of all new wage and benefit enhancements for the

Table 7-7

Estimated Costs of Negotiated Wage and Benefit Increases


First Year New Contract

Estimated Additional Cost

Wages (wage rate + roll-up)



Paid holidays

1 new day


Funeral leave

New provision: 3 days/death


Health insurance

Increase in employer share: ($120/year)


Clothing allowance

Additional year: ($50/employee)


Profit sharing

New provision: 10% of net


Pension benefits

Additional $50/month


Paid vacation

Two additional days/year for employees with less than two years service


Shift differential

Increased from 10% to 12%


Total cost of negotiated wage and benefit increases


metals firm example in 7-6 is $1,318,049 at some time in the negotiations. Management had previously determined that the profits available for increased labor costs under a new contract were $1,399,475 (also shown in 
Table 7-6
). Therefore, management would likely agree to the total package of items presented in 
Table 7-7
 or might even be willing to agree to additional economic enhancements if their total cost is less than $81,426.

The union might, for example, propose increasing the clothing allowance by another $150 per year to reach a final agreement. Although the total cost of this proposal would be only $100,500, or about half of 1 percent of the total wages and benefits that management estimates would be paid under the new contract, it would increase the total costs of all negotiated items to $1,418,549. Thus, the new total would exceed the maximum management believes it can afford under a new contract. In such a situation, management might (1) reject this proposal and therefore signal to the union that the total cost is close to the maximum; (2) respond with a counteroffer of an additional $50 clothing allowance, which would be less than the $81,426 that management believes it has left to bargain; or (3) accept the final proposal by the union if it would secure a contract and hope that the $19,074 by which management exceeded its estimate will not critically affect future operations. If management believed that the union would press other economic issues after the clothing allowance increase was accepted, management would most likely reject the proposal. Otherwise, the union could keep proposing small additional increases and possibly exceed the maximum cost estimate by a large amount.


Wages and benefits represent the heart of the collective bargaining process. Guarantee of a certain standard of living and a reasonable return for their productive efforts is the major concern for most union members. At the same time, management realizes what large percentages of its total costs are wages and benefits. Through job evaluation, wage surveys, and other methods, both sides negotiate either a standard rate or a pay range for each job covered in the agreement. Also, future deferred wage increases are negotiated. Both labor and management begin negotiations by estimating sales, production costs, overhead costs, and other significant economic variables that can then produce the predicted total revenue available for negotiated wage and benefit enhancements. This figure can be used as a target figure during negotiations and can therefore be constantly compared against estimated total cost of negotiated increases. Management can thus ensure that the organization will be able to afford negotiated future labor costs, and the union can obtain a fair share of future profits for its members.

The accurate costing of all negotiated wage changes is critical to successful bargaining and to management’s cost-containment efforts as well as to predictions of future labor cost. Roll-up costs must be included in any estimate when wage increases have been agreed on. The computer has given both management and labor a negotiating tool to add speed and accuracy to the costing of proposals.

Negotiated wages can take many forms including changes in base hourly rates, COLAs, two-tier pay systems, lump-sum payments, and profit-sharing plans. Concession bargaining which began in the 1980s has increased dramatically in recent years due to the Great Recession of 2008—and employers needs to adjust their personnel costs to remain competitive or, in the public sector, stay within budgets.

Case Studies Case Study 7-1 Premium Pay Rates

For at least 21 years, the company has paid double the straight-time pay rate for work after 50 hours in any given workweek to all plant employees, whether they worked a five-day, eight-hour schedule (“5/8 employees”) or a four-day, ten-hour schedule (“4/10 employees”). The collective bargaining agreement (CBA) provided for such payment after 50 hours to the 4/10 employees but not the 5/8 employees. The employer, in December 2000, put the union and all hourly personnel on notice that effective January 1, 2001, overtime would be paid in accordance with the CBA; that is, the practice of paying double time after 50 hours to 5/8 employees would cease. The union objected and brought this grievance.

The union argued that the practice of paying 5/8 employees double time for hours worked over 50 hours in one workweek has been in effect for over 20 years. The current CBA has a provision that protects employees from any deduction in pay. It says, “No employee shall suffer a deduction in wage rates or working conditions as a result of this agreement.” Allowing the company to change its overtime pay policies while this CBA is in effect violates that term. Furthermore, there have been some five CBAs negotiated since that practice has been in effect, and the company has never sought to negotiate or clarify the practice of how it pays overtime or the CBA provision regarding no reduction. Finally, the union pointed out that the length of time the practice was in place would certainly qualify it as a “past practice” that the company could not change unilaterally.

The company contended that the payment of overtime at double the straight-time rate for 5/8 employees is in direct conflict with the language of the CBA. An employer may abandon past practice that is in direct conflict with the clear language of the CBA. Also, the general CBA provision regarding “no reduction in pay” cannot be interpreted as controlling the specific overtime provision of the CBA.


In nondisciplinary matters, the party complaining of a violation of a CBA has the burden to prove that the other party is violating a specific requirement of that agreement. In this case the parties do not dispute that the CBA does not include 5/8 employees in the overtime provision. The union contends, however, that both past practice and the provision of the CBA “maintenance of benefits” clause entitle these employees to the overtime.

The court recognizes the following as primary elements necessary for an activity to qualify as a past practice:

1. A pattern of conduct that is clear and consistent

2. Longevity and recognition of the activity

3. Acceptability and mutual acknowledgment of the pattern of conduct by the parties

Applying those standards to this case, paying double time to 5/8 employees would certainly qualify as a past practice.

The company argues, however, and points to case law to support it, that if it can be proven that a past practice directly conflicts with a provision of a CBA, the company can abandon it unilaterally. Because the CBA’s provision specifically excludes the 5/8 employees and because the union has never sought to have them covered under that provision, the union cannot claim that the CBA provides for the overtime pay.

The issue for the court to determine is which side is correct as to which provision of the CBA applies. Both sides presented cases that had been decided that supported its position. The union argued that the court should avoid an interpretation of the CBA that renders the bargained-for benefits meaningless. A long-standing practice of paying double overtime wages would certainly be the type of “wages” the union sought to protect in its “no reduction” clause. The company argued, however, that the court should look to the unambiguous language of the CBA that governs overtime for the 5/8 employees as “trumping” the more general language of the “no reduction” clause. The fact that the company unilaterally paid more than it was required to under the CBA should not bind the company to continue to do so in the future. Those kinds of benefits should be negotiated at the bargaining table, which this was not.

Source: Adapted from Rod’s Food Products v. Teamsters, Local 630, 116 LA 1734 (2002).


1. What do you think would be the “fair” way to resolve this case? Should the company be required to pay 5/8 employees double time even though that benefit has never been negotiated, and so, arguably, the company has never received any exchange for this benefit? Or should those employees who have in good faith accepted overtime work believing they would be paid double time, even though their contract did not say they would, have to give up this benefit and get nothing in return?

2. Should the company have waited to bring up this issue when the CBA was being renegotiated? Does it change your answer to know that the CBA was not to be renegotiated for three years?

3. The parties did not know why the company began paying double time to the 5/8 employees. If the practice began as an error on the part of a payroll clerk, would that fact change your opinion as to how to decide this case?

Case Study 7-2 Incentive Pay

The company had an incentive pay rate in place that could increase the employees’ pay by 30 percent over their base pay. Citing changed circumstances, the employer eliminated the incentive pay for one department. The union appealed. The collective bargaining agreement (CBA) in place at the time of the grievance reserved all management rights to the company unless restricted by the language of the agreement.

Article V of the agreement established wages to be paid and specifically continued during the term of the agreement “all incentive rates” in existence at the time of the agreement, excepting only the company’s right to “establish new incentive rates or to adjust existing incentive rates” under certain conditions listed in the agreement. Those conditions included changes, modifications, or improvements made in equipment involved in an incentive pay area; new or changed standards of manufacturing; and changes in job duties of those affected by incentive pay.

Procedures on how the company was to proceed to establish new or changed incentive rates were also included in Article V of the agreement, unless changes to the incentive rates were a result of the changed circumstances previously cited. If this was the case, employees affected by the changes were given the right to grieve the application of the changed incentive rate. When the incentive pay was totally eliminated for one department, the union grieved on behalf of those affected employees.

It was the company’s position that significant changes of equipment and operations in the affected department authorized the unilateral elimination of the incentive pay under the agreement. A new mechanical device had eliminated the need for fracture tests of a furnace. The employees in the department had been reduced from 6 Head Operators, 22 Attendant Carburizing, and 4 Recorder Optical Pyrometers to 3 Head Operators and 4 Attendants. The classification of Recorder Optical Pyrometer was completely eliminated because the duties were no longer needed. The company’s interpretation of the contract language was that these changed circumstances allowed the company to eliminate unilaterally the incentive pay for the remaining employees.

The union’s position was that the CBA contemplated the incentive pay being kept in place as part of the employees’ wages, and the company could not unilaterally eliminate the incentive pay. New or changed rates could be negotiated as circumstances dictated, but eliminating the pay completely was not allowed.

The following are the relevant contract provisions:

Article V—Wages

A. Wage Rates

[S]uch hourly wage rates, together with all incentive rates now in existence, which altogether constitute the wage structure applicable to existing occupations in effect on August 28, 1983, shall remain in effect during the term of this agreement, except as any of such rates may be changed, adjusted, or supplemented in the manner prescribed in this Article …

B. New and Changed Rates

It is recognized that the company, at its discretion, may also find it necessary or desirable from time to time to establish new incentive rates or to adjust existing incentive rates because of any of the following circumstances:

1. Changes, modifications, or improvements made in equipment, material, or product. If there is any such change, modification, or improvement in existing equipment or material or on an existing product, the company may change the elements of the rate or rates affected by such change, modification, or improvement but will not change the elements not affected by such change, modification, or improvement.

2. New or changed standards of manufacture in (a) processes; (b) methods; and (c) quality.

3. Changes in the duties of an occupation covered by incentive rates that affect the existing incentive standards.

Whenever it is claimed by any employee that any of the changes or events have occurred that are outlined in Paragraphs 1, 2, and 3 of the preceding Section B of this Article V, any employee who is affected thereby, either (1) by the production of product or (2) by being employed on an occupation affected by such claimed changes or events outlined in said paragraphs, may request the establishment of a new rate by discussing such request with his supervisor. In the event that no agreement is reached in respect to the employee’s request, grievance may be filed by such employee within ten calendar days after such changes or events have occurred.

If, as the result of a grievance being processed under this Section B, it is determined that the company did not have the right to establish a new or adjusted rate, the rate structure in effect prior to the new or adjusted rate shall be reinstated as of the effective date of the new or adjusted rate. The company will calculate retroactive payment to the extent possible under the applicable rate structure.

Source: Adapted from Timken Co., 85 LA 377 (1985).


1. Did the changes made in the department satisfy the circumstances cited in the agreement that would allow the company to eliminate the incentive pay?

2. Did the affected employees have a legitimate grievance under the CBA’s language?

3. If you were the arbitrator, would you allow the company to eliminate the incentive pay? Explain your answer.

 You be the Arbitrator Scheduling Saturday as Part of the Workweek

· Article II—Union-Management Relations—

Section 2.5

 Management (in pertinent part): Except as specifically abridged or limited by the express provisions of this Agreement or any supplementary agreement that may hereafter be made, the Employer retains all the rights, powers and authority exercised or had by it prior to the time the Employer entered into its first collective bargaining agreement with this Union. Without limiting the generality of the foregoing, it is understood that the rights retained by management include, but are not limited to, the following: the right to plan, determine, direct and control bakery operations and the extent thereof; … and the right to control the workforce … the assignment and scheduling of work; …

· Article V—Working Hours and Other Conditions of Employmen t

· Workday and Workweek—(B) Production Workweek (in pertinent part): The basic workweek for all bakery employees shall consist of five (5) eight (8) hour workdays for a total of forty (40) hours … The basic workweek shall be from 12:01 a.m. Sunday and end at midnight (12:00 a.m.) Saturday.

· —Weekly and Daily Guarantees —(B) : A minimum of eight (8) hours of work shall be guaranteed to all full-time employees under this Agreement who report for work in any one day, except that the minimum guarantee shall be only four (4) hours with respect to work requested on the sixth and seventh day of the workweek.

· —Work Schedules (in pertinent part): The Employer reserves the right to determine working schedules and the number and starting times of working shifts …

· —Overtime and Other Premium Pay—

· (A) Overtime (in pertinent part): … Overtime at the rate of time and one-half (1-1/2) the employee’s regular straight time hourly rate … shall be paid for work performed … (4) On the sixth consecutive day of work. Overtime at the rate of double (2x) the employee’s regular straight time hourly rate … shall be paid for all work performed on the seventh consecutive day of work. No overtime shall be payable for Saturday or Sunday work as such.

· (B) Sunday Work: Any employee who is assigned to a work schedule that does not provide for two (2) consecutive days off shall be credited with one (1) earned work credit share for each Sunday worked under any non-consecutive day work schedule.

· (D) Extra Day Work (9): Saturday and Sunday work which is regularly scheduled as part of the basic workweek shall not be considered extra day work for purposes of seniority claiming.

· Letter of Understanding Calculation of Double Time Pay to Bakery Workers Who Work Seven Consecutive Days (page 50 of the Agreement) (in pertinent part): 
Section 5.5
 of the Collective Bargaining Agreement provides for the payment of double the employee’s regular straight time rate of pay for all work performed on the seventh consecutive day of work. It has been the past practice to combine two workweeks in order to allow employees to have seven consecutive days of work. Normally the employee’s pay period, as set by Payroll, runs from Sunday through Saturday and then a new week starts …


The employer is a wholesale baker and sells bakery products to others. The employer purchased the wholesale bakery assets of the former employer and is a successor employer that assumed the existing agreement. The employer employs 125 production employees, whose basic workweek for at least 14 years has been Sunday, Monday, Wednesday, Thursday, and Friday, with Tuesday and Saturday as days off. To meet increased customer demand, the employer opened a second bun line so that fresh buns would be baked on Saturday for pickup by 5 a.m. Sunday.

The employer posted bids for the new line, which showed the basic workweek for the new production employees to be Sunday, Tuesday, Wednesday, Thursday, and Saturday, and the days off would be Monday and Friday. Seventeen or 18 production employees work the second bun line and were affected by the new workweek. Two employees filed a grievance on behalf of the bakery employees affected by the new workweek schedule. The grievance charges that the employer violated the Article 5, 
Section 5.1
 B, of the agreement by starting the workweek on Saturday at 4 p.m.


Did the employer violate the collective bargaining agreement by scheduling Saturday as a part of the basic workweek?

Position of the Parties

The employer contended that it is permitted to make Saturday part of the basic workweek by the clear language of the agreement. The employer argued that pursuant to Article V, 
Section 5.1
(B), the basic workweek is clearly intended to be a seven-day period, beginning at 12:01 a.m. Sunday and ending at midnight Saturday. Furthermore, the letter of understanding confirms this by stating the workweek runs from “Sunday through Saturday.” Therefore, the employer may, under the management rights provision, change the basic workweek to include Saturday. The employer argued that a week is seven consecutive days usually beginning on Sunday and ending on Saturday and uses the Random House Dictionary to support that definition. Thus, the workweek necessarily runs through midnight Saturday, just before the 12:01 a.m. Sunday starting time. According to common usage, midnight is part of the day that is ending, not part of the day that is beginning. Therefore, it argued “midnight Saturday” means the midnight between Saturday and Sunday and not the midnight between Friday and Saturday. “Midnight” Saturday comes at the end of the day and is followed by Sunday. The reference to “12:00 a.m.” is a misunderstanding of how to designate midnight because noon and midnight are technically neither “a.m.” nor “p.m.” Noon is generally considered to be 12:00 p.m. and midnight to be 12:00 a.m. Under a prior arbitration proceeding, the arbitrator found that the collective bargaining agreement prohibited the use of a past practice to change the meaning of the agreement and that because the employer was a successor-employer who adopted the agreement and did not negotiate it, it was even more necessary to interpret and apply the parties’ written agreement according to the plain and ordinary meaning of its language.

The union argued that Article V, 
Section 5.1
(B), which provides that “the basic workweek shall be from 12:01 a.m. Sunday and end at midnight (12:00 a.m.) Saturday” does not permit the employer to make Saturday part of the basic workweek since Saturday is specifically excluded from the definition of the basic workweek as provided by this clear and unambiguous language. Under this language the production workweek ends 12:00 a.m. Friday night and begins again at 12:01 a.m. Sunday morning. If the negotiators had intended to have Saturday as part of the basic workweek, the language would read that the workweek would start at 12:01 Saturday morning. “a.m.” is morning before noon, and 12:00 a.m. is the morning of Saturday and not the morning of Sunday. In support of this position, the union cites Webster’s Dictionary, which defines “a.m.” as “ante meridian, before noon: used to designate the time from midnight to noon,” and “p.m.” as “post meridian, after noon: used to designate the time from noon to midnight.” The union further argues that there has been a long-standing past practice of at least 14 years that establishes that Saturday cannot be a part of the basic workweek because it is a scheduled day off for the production employees. The production employees have always had Saturday as a scheduled day off and have always been paid premium time when they have been required to work on Saturdays. The prior arbitration award did not preclude the examination of past practice in this instance because it is used to support and define the clear meaning of the agreement. Furthermore, the letter of understanding refers to a payroll issue, does not define the basic workweek, and does not override the specific provisions of the agreement that define the basic workweek.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer and/or the union have taken to avoid this conflict?

Source: Adapted from North Baking Co., 116 LA 1788 (2002).

Chapter 8 Employee Benefits

Nearly 1,500 machinists went on strike against the Space and Defense Systems unit of Boeing, like these IAM members from LL 2766 in Huntsville, Alabama.

Source: AP Images.

Every advance in this half-century: Social Security, civil rights, Medicare, aid to education—came with the support of American labor.

Jimmy Carter (38th U.S. President)

Chapter Outline

8.1. Required Benefits

8.2. Negotiated Benefits

8.3. Income Maintenance Plans

8.4. Health Care

8.5. Pay for Time Not Worked

8.6. Premium Pay

8.7. Employee Services

8.8. Public Sector Benefits Issues

Labor News New Health Care Law

Employee health benefits are the issue of concern to most union and management negotiators today. Employee benefits were often called “fringe benefits” in the past because their total costs were only a small portion of the total compensation package provided in labor agreements. Skyrocketing increases in the 1980s and 1990s, and employer demands that employees pay a greater share of the costs, made health care the most common issue behind labor strikes from 2000 to today.

U.S. presidential polls in 2008 indicated that health care is the top domestic issue on the minds of voters. Why? For over 50 years most U.S. workers, union and nonunion, received employer-provided health care with minimum or no cost to them. Then skyrocketing cost increases caused employers and unions to search for cost control methods such as HMOs, PPOs, flexible spending plans, and so on. But no magic pill, as it were, was found, and the standard employer-provided plan began to disappear.

U.S. employers offering any health care benefit fell from about 90 percent in the 1980s to below 60 percent by 2008. Employee-paid copayments rose sharply as did deductibles: $500 or larger deductibles were paid by only 14 percent of workers in 2000 but were paid by over 38 percent in 2010. Families bore a large portion of health insurance cost increases—the average U.S. family paid about $6,000 in 2000—which doubled to $12,000 in 2007! Presidential candidates and even the American Association of Retired Persons (AARP) began to urgently call for action by the federal government.

In 2010 President Barak Obama signed the Affordable Care Act after considerable debate and with the support of most congressional Democrats, most labor leaders, and the AARP, as well as others, but no congressional Republicans. It will take years for the long-term effects of the bill, especially for its effect on the costs of health care, to be known. The act contained several key provisions:

· Adult children remain under their parents’ insurance to age 26.

· Individuals without insurance in 2014 pay $750/year fine.

· Expanded benefits coverage for 32 million Americans.

· Small businesses with less than 25 employees (and average wages of $50,000) receive tax credits.

· Insurance companies’ new plans must cover full cost of preventive care and cannot deny preexisting conditions.

· Individuals over age 65 receive more care at a lower price.

· Expanded Medicare drug benefits with 50 percent cost reduction on brand name drugs.

Source: Adapted from Chad Terhune and Laura Meckler, “A Turning Point for Health Care,” Wall Street Journal (July 27, 2007), pp. A1, 13; and Shailagh Murray and Lori Montgomery, “House Passed Health Care Reform Bill,” The Washington Post (March 23, 2010), p. A1.

Today, negotiated employee benefits, once referred to as “fringe benefits,” represent a critical part of the total economic package. Employers may easily find that between 25 and 45 percent of the total economic package now consists of benefits rather than direct compensation. In fact, management negotiators may adopt a “zero-sum bargaining” approach. In this approach, all economic items—wages, health care, pensions, and other benefits—are traded against each other to create a zero or fixed amount increase instead of negotiating benefits separate from wages, as was customary in the past. Thus, in terms of collective bargaining, management often strives to meet an overall compensation budget goal.
 Yet benefits are not usually designed to meet the same employee objectives as the wage portion of the negotiated agreement. From the employee standpoint, the wage portion of the economic package provides income needed for the necessities of life, such as food, shelter, and clothing, and is exchanged for their labor. Management, by comparison, views wages as a means of attracting, retaining, and motivating employees and therefore maximizing their productivity.

Benefits, however, provide less certain motivational and productivity advantages to management. Thus today the cost of more expensive benefits such as health care, pension, and paid time off is more likely to be in question. Recently negotiated agreements produced dramatic shifts in the two most expensive types of employee benefits for employees in large and medium-size organizations. The area of health benefit plans saw a substantial shift away from fee-for-service plans, which accounted for over 67 percent of all plans in 1990 to less than 20 percent by 2010. During the same time, nontraditional health care plans, including health maintenance organizations (HMOs) and preferred provider organizations (PPOs), increased to 73 percent of all plans offered (HMOs, 33 percent; PPOs, 40 percent). In most of these newer plans, employees were required to contribute a greater portion of the costs than had been the case in their prior fee-for-service plans. Employers today continue to try to negotiate a shift in total health care cost to their employees, and unions resist that shift.

The second dramatic shift in benefits occurred in the area of retirement plans. Although the proportion of all employees covered by an employer retirement plan remained at about 80 percent, the shift away from defined benefit plans and toward defined contribution plans and other plans have increased.
 The shift continues through today when the number of employees covered by defined benefit plans has dropped to 54 percent, although more union workers are covered by defined benefit plans (73 percent) than nonunion workers (16 percent).

Required Benefits

Some employee benefits are required by law and are therefore not negotiated. However, both labor and management representatives need to be cognizant of these benefits and their impact on other benefits that can be negotiated. Some negotiated benefit plans are designed to supplement those required by law to guarantee the employee a greater level of benefit.

Unemployment insurance, Social Security, and workers’ compensation are three costly and important government-required benefits. Unemployment insurance programs have been operating since 1938. States provide unemployed workers with benefits by imposing payroll taxes on employers. The amount paid normally varies according to the state’s unemployment rate. The unemployed person must have worked for a certain period of time and must register with the state bureau of employment to receive benefits.

About 97 percent of all workers are included in the federal and state 
unemployment insurance
 system. Employers pay a payroll tax on each employee’s wages. There are no federal standards for benefits, qualifying requirements, benefit amounts, or duration of benefits; the states each develop their own formulas for workers’ benefits. Under all state laws, a worker’s benefit rights depend on work experience during a “base period” of time. Most states require a claimant to serve a waiting period before receiving benefits.
 Workers are usually required to be available for work, able to work, and seeking work actively to receive benefits. Claimants are disqualified for voluntarily leaving without good cause, discharge for misconduct, or refusal to accept suitable work. In 2007, for example, members of the Local 45B Glass Molders and Pottery Workers Union were denied state unemployment benefits because they had been on strike for three months. An Ohio hearing officer made that decision even though the OPW Fueling Company had declared a lockout and hired permanent replacement workers because those actions came after the strike had started. The workers lost $350 per week in unemployment benefits and only received $112 per week in union strike pay funds.

Unemployment insurance

Established in 1935 and funded through payroll taxes paid by employers, the program is designed to provide compensation, after a brief waiting period, to those employees who have been laid off from employment. Recipients are expected to seek employment actively.

In 1935, Congress established the Social Security system to provide supplemental income to retired workers. Initially intended to supplement private, often union-negotiated pension plans, Social Security would help retirees live in dignity and comfort. Employers and employees who pay an equal amount of taxes into the system carry the cost of the system, which then uses the funds to pay benefits to currently retired individuals. Technically, Social Security taxes are Federal Insurance Contributions Act (FICA) taxes. Management often points out that the employees pay only half the cost of the system yet receive all the benefits.

Another phase of the Social Security system was added to provide disability, survivor, and Medicare benefits. To become eligible for retirement benefits, individuals born after 1928 must contribute for 40 quarters (ten full years). Required contributions to receive medical benefits vary according to age.

Since the Social Security Revision Act of 1972, the benefits paid to retirement income recipients have increased each year by a percentage equal to the increase in the consumer price index. This automatic and liberal increase has been one of the main causes of the shaky financial condition of the Social Security system.
 It has also provided management’s primary weapon in not increasing employees’ private pensions. Employers complain that Social Security taxes have increased each year along with raised salaries because the tax is a percentage of the employees’ salary. In addition, Congress raised the employers’ and employees’ Social Security tax rate from 4.8 percent in 1970 to 7.65 percent in 1990.

Laws requiring 
workers compensation
 were enacted by states to protect employees and their families against permanent loss of income and high medical bills because of accidental injury or illness on the job. The primary purpose of most state laws is to keep the question of the cause of the accident out of court. The laws ensure employees payment for medical expenses or lost income. Workers compensation primarily consists of employer contributions into a statewide fund. A state industrial board then reviews cases and determines employee eligibility for compensation for injury on the job.

Workers compensation

A program designed to provide employees with assured payment for medical expenses or lost income due to injury on the job.

Negotiated Benefits

The law does not require most benefits included in labor agreements, although most are mandatory issues for negotiations. However, any such paid benefits must be gained at the negotiating table. In general, these benefits can be grouped into four categories as illustrated in 
Table 8-1
: (1) income maintenance, (2) employee health care, (3) pay for time not worked, and (4) premium pay. A fifth group includes employee services.

Table 8-1

Benefit Issues

Type of Issue


Relevant Items


Social Security

Unemployment insurance

Workers’ compensation


Income maintenance plans


Wage employment guarantees

Supplemental unemployment benefits (SUB) plans

Guaranteed income stream (GIS)

Severance pay

Death and disability

Employee health care

Health insurance

Dental, optical, prescription drugs

Alcohol and drug treatment

Wellness programs

Employee assistance programs

Pay for time not worked

Paid holidays

Paid vacations

Sick leave

Paid leaves

Premium pay

Reporting pay

Shift differential

Call-in pay/on-call pay

Bilingual skills

Travel pay

Employee services

Flexible benefit plans

Child care

Credit union

Education assistance

Income Maintenance Plans

Income maintenance provisions have become commonplace in collective bargaining agreements. These plans are negotiable and include supplemental unemployment benefits, severance pay (also called dismissal or termination pay), and wage employment guarantees (WEGs). In addition, these plans protect employees from financial disruptions. Private pension plans provide for income during retirement, along with Social Security.

Pension Plans

A pension is a guaranteed monthly payment to a former employee during retirement. The 
pension plan
 benefit began in the United States after the Civil War when former Union Army soldiers were given payments for their service. Then a few companies began offering pensions as a new benefit. One of the first private pension plans was offered by Procter & Gamble in Cincinnati, Ohio, to employees in its soap plants. Unions began negotiating pension benefits during World War II when a national wage freeze made it impossible to negotiate higher hourly wages, and pension plans gradually became a common benefit in the workplace. Since the 1980s, however, the number of employers offering pension plans has continuously declined. In 1985, about 112,208 plans were covered by the Pension Benefit Guarantee Corporation, whereas in 2005 only about 29,000 were covered, a 75 percent drop!

Pension Plan

The way a pension, which guarantees a monthly payment to a former employee during retirement, is structured.

Cost Containment

Employers striving to cut personnel costs that affect their bottom line have either simply terminated their pension plans or converted them to cash balance plans. In addition, new employers have not started plans. Employers in severe financial trouble have used the U.S. bankruptcy laws to avoid paying pensions owed to retired and current employees. Others, such as AK Steel, have asked unions to agree to major concessions to avoid bankruptcy and thus preserve their pension plans. Therefore, employee pension plans, a fixture in the American workplace as late as the 1980s, is today a vanishing part of the American dream for union and nonunion workers alike.
 Private pension plans today are one of the most prized and most expensive employee benefits. In the early stages of the U.S. labor movement, the benefit provided motivation for senior employees to remain with the organization and thus increase their retirement income. Later, both labor and management negotiators accepted management’s obligation to provide income to employees beyond their productive years. Acceptance of this obligation occurred largely as a result of a 1949 decision by the Supreme Court, Inland Steel Company v. NLRB,
 in which the Court declared that pension plans are mandatory collective bargaining subjects. Today, pension plans are still provided in most labor contracts.

Public Sector Pensions

Like their private sector counter parts, many local and state governments today are searching for ways to reduce skyrocketing pension costs. In San Francisco, for example, the city’s annual

Ballot measures before voters in San Francisco and Bakersfield proposed reducing the pensions of future public employee hires in efforts to rein in public pension costs.

source: ZUMA Press/ Newscom.

pension cost for current and retired workers more than doubled in just five years from 2005 to 2010, from $419 to $1.2 billion! Some changes only affect new workers. In Bakersfield, California, for example, future police officers and firefighters would be hired under a “2 at 50” plan—meaning retirees receive 2 percent of their final salary at age 50 for each year of service, which would be a 50 percent cut from the current “3 at 50”! Many public officials in other states and cities, also looking for ways to cut pension costs, are watching California closely since it was the California tax revolt, Proposition 13, that started a similar wave of tax law changes across the United States.
 In addition to private and public sector pension plans, those controlled by unions have reported underfunding during the Great Recession. In 2009, for example, Service Employees International Union National Industry Pension Fund was put in the “red zone” by federal regulators because it had only 74 percent of the funds needed to pay the earned benefits of its members. The Teamsters at 59 percent and United Food and Commercial Workers Union at 58 percent were even worse. The federal government “rule of thumb” is that any fund under 80 percent is “endangered” and below 65 percent is “critical.” The SEIU fund had been in great financial shape at 103 percent shortly before the economic recession. The Pension Benefit Guarantee Corporation, however, also reported that the stock market decline could not be solely blamed for the funds’ decline—poor management and union officer benefits were also noted as potential causes.

Traditional Pension Plans

The two “traditional” types of plans are distinguished by how their benefits are determined. A traditional 
defined benefit plan
 (73 percent of contracts) on retirement provides a stipulated, fixed amount of income, usually paid monthly. The exact amount is determined by a benefit formula (see p. 
) and is based on years of service and base pay. The second traditional type of plan is a 
defined contribution plan
, which is less common in labor contracts (27 percent) but far

Defined benefit plan

An employer-sponsored retirement plan in which employee benefits are paid based on a formula using factors such as salary and duration of employment. Usually there are restrictions on when and how the plans can be accessed without penalties. The amount of the retirement is fixed and the employee knows the amount.

Defined contribution plan

A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions as to when and how the plans can be accessed without penalties. There is no way to know how much the plan will ultimately give the employee upon retiring. The amount contributed is fixed, but the benefit is not.

Article 23


Grocery Pension Hourly Contributions—The Employer agrees to make a contribution of one dollar and eleven cents ($1.11) per hour on all straight-time hours worked for employees hired on or before October 16, 1989. (Tier I) Effective for employees hired after October 16, 1989, the contribution rate shall be eighty-five cents (.85) per hour after eighteen (18) full months of employment. (Tier II) The contributions requirement will begin on the first of the month following the individual employee having completed the required period of employment. Contributions shall also be made on hours for which employees receive holiday pay and vacation pay. No contribution shall be made on hours worked in excess of forty (40) per week. Employees hired after October 27, 2004 shall have a forty-five cents (.45) per hour contribution made on their behalf based on the above eligibility requirements. (Tier III)

Kroger and UFCW Local 1099 have agreed to a set of pension contribution and benefits changes. This includes an increase in the Employer contribution of .10 per hour for participants in all three tiers effective January 1, 2008, and a new benefit accrual rate of $17.11 for Tier II participants effective for service on and after January 1, 2008.



Tier I



Tier II



Tier III



Figure 8-1

Pension Article.

Source: Agreement between the Kroger Co. and the United Food and Commercial Workers International Union AFL–CIO, 2007–2010. Used by permission.

more common in nonunion employers. Under these plans the employer makes a specified dollar contribution to an account in a managed fund, and the retirement benefit depends on the investment gains or losses by the fund, as in the Kroger Co.–United Food and Commercial Workers Union example in 
Figure 8-1
, which provides for a defined hourly contribution.

The example also includes three “tiers” of contributions based on hire date, similar to “two-tier” pay systems. Because the benefits depend on the investment performance of the fund, the worker is not guaranteed a specific amount of income on retirement. Some contracts provide other pension options in addition to a defined benefit or defined contribution plan. Two other forms of pension plans are tax-deferred retirement savings plans: 401(k) plans and cash balance plans. Tax-deferred 401(k) accounts have grown in popularity from their creation so that by 2005, 77 percent of agreements provide for them, usually in combination with a defined benefit plan. The specifics of an IRS Tax Code 
Section 7
 vary, but most provide an employer match (at a ratio of 1:1 or 1:2) of a worker’s voluntary contribution up to a fixed percentage of salary, usually 6 percent. Employers and unions have viewed 401(k) accounts favorably as a means of increasing a worker’s retirement income, but only if the worker chooses to participate by providing funds.

The Enron Corporation, however, in 2001 changed the universal appeal of 401(k) accounts. Enron had matched employee contributions to 401(k) accounts with company stock and then froze those accounts and transferred them to another provider as the company revealed a huge loss of $638 million. Company executives managed to divest most of their own holdings before the fall in stock price, but thousands of workers were left with company stock accounts that were worthless. Thousands of other employers, unions, and their members realized the practical dangers of some 401(k) retirement accounts that put “all their eggs in one basket” as Enron had done. In addition, the substantial fall in stock prices from 2000 to 2002 also caused people to realize the volatility of these accounts.

Cash balance plans
 are the newest and fastest growing type of retirement plans and are found in 10 percent of collective bargaining contracts. Under these plans, often designed to supplement a defined benefit plan, the employer contributes a fixed percentage of workers’ income to a hypothetical account and guarantees it will grow at a fixed rate. Thus, the benefit grows more quickly than the traditional defined benefit plan and provides a more predictable benefit.
 Many employers, in recent years, including IBM, AT&T, Xerox Corporation, Cigna, and Delta Air Lines, have converted their traditional pension plans to cash balance plans in efforts to reduce their pension liability. These plans are usually less attractive to employees and typically reduce their retirement benefits by 20–40 percent in comparison with their former plan.

Cash balance plans

A type of defined-benefit pension plan under which an employer credits a participant’s account with a set percentage of his or her yearly compensation plus interest. The investment performance of the fund does not affect the final benefits to be received by the participant upon retirement. Unlike the regular defined benefit plan, the cash balance plan is maintained on an individual account basis, much like a defined contribution plan.

ESOP: An Alternative Retirement Plan

An employee stock ownership plan (ESOP) provides a unique alternative to a company in financial trouble or in need of improved employer–employee relations. An ESOP can act as a kind of retirement benefit plan. For example, since 1988, Houchens Industries Inc. has operated as a 100 percent employee-owned company. As the company makes money, it pays down outstanding debt and distributes shares of stock to employees, instead of retirement funds. Upon retiring, the employee sells the shares back to the company. Houchens began operations in 1919 with one grocery store in Bowling Green, Kentucky, and today is one of the largest ESOPs in the nation. In 2006, Houchens’s sales exceeded $200 million from over 400 stores, as well as construction, insurance, and manufacturing units. In 2007, it purchased Hilliard Lyons, the financial services firm, with $1.9 billion from its sale of Commonwealth Brands, the fourth largest U.S. cigarette producer to British Imperial Tobacco Group PLC.

Employee Retirement Income Security Act

In 1974, Congress passed the 
Employee Retirement Income Security Act (ERISA)
, also known as the Pension Reform Act. The law was passed in response to alleged abuses and incompetence in some private pension plans. ERISA provided a sweeping reform of pension and benefit rules. The lengthy and complicated law primarily affects the following aspects of pension planning:

Employee Retirement Income Security Act (ERISA)

The first comprehensive reform law passed to protect employee pensions. Additionally, it places strict regulations on private pension plans and protects the vested rights of employees’ beneficiaries.

1. Employers are required to count toward vesting all service from age 18 and to count toward earned benefits all earnings from age 21. (Prior to the Retirement Equity Act of 1984, accrual toward vesting began at age 22 and toward earnings at age 25.)

2. Employers must choose from among three minimum vesting standards (Sec. 203).

3. Each year employers must file reports of their pension plans with the U.S. secretary of labor for approval. New plans must be submitted for approval within 120 days of enactment.

4. The 
Pension Benefit Guarantee Corporation 
(PBGC) was established within the Department of Labor to encourage voluntary employee pension continuance when changing employment. This is accomplished by providing portability, the right of an employee to transfer tax-free pension benefits from one employer to another. The PBGC also assumes the pension plans from employers with underfunded plans in financial difficulties.

Pension Benefit Guarantee Corporation (PBGC)

Established within the Department of Labor to encourage voluntary employee pension continuance when changing employment by providing portability, the right of an employee to transfer tax-free pension benefits from one employer to another.

This provides an important safety net for retired and active workers who might otherwise lose their entire pension benefits. For example, in 2005, the PBGC assumed the underfunded retirement plans of United Airlines mechanics, ramp workers, and flight attendants. The plans covered over 120,000 workers and included a $9.8 billion underfunded liability, the largest in the 30-year history of the PBGC. United Airlines took the action to avoid bankruptcy. The PBGC assumption of the pension plans almost guarantees the workers will receive lower benefits than they expected.
 In 2009 the PBGC, in an unprecedented move, pressured General Motors into paying “top-ups” to retired Delphi UAW retirees so that they would receive the pensions promised them by GM when it spun off the parts division. The PBGC, which had taken over the Delphi pension fund, said it could not pay the promised levels with the assets given by GM when Delphi was spun off.

GM provided “top- ups” or increased pension benefits to retired Delphi workers, as promised, but not to non-union retirees.

source: AP Images.

The top-ups, much to the resentment of retired nonunion Delphi workers, was paid only to former union workers.

5. Pension plan members are permitted to leave the workforce for up to five consecutive years without losing service credit and allowed up to one year maternity or paternity leave without losing service credit.

Issues in Pension Negotiations


The conveying of employees’ nonforfeitable rights to share in a pension fund is termed 
 . Many individuals never receive private pension funds because they leave employers before working enough years to become vested.


The process by which an employee accrues nonforfeitable rights over employer contributions that are made to the employee’s qualified retirement plan account. Generally, nonforfeitable rights accrue based on the number of years of service performed by the employee.

Section 7
 of ERISA provides that employers choose from among three alternatives of retirement age and service. One alternative is to provide 100 percent vested rights after five years of service. The other two provide less than 100 percent vested rights with fewer years of service. Union negotiators are very interested in the plan chosen by management. However, no single plan is always preferred by employees.

Qualified Plan

qualified plan generally refers to a plan that meets standards set by the Internal Revenue Service (IRS). By qualifying under the IRS provisions, an employer can deduct pension contributions made to the qualified plan as business expenses for tax purposes. This, of course, is a major reason employers seek to qualify their pension plans whenever possible. Employees, however, also benefit because they do not pay taxes on any dollars either they or the employer invest in the plan under current income. Instead, income taxes are paid when the retirement benefits are received. A nonqualified plan would not provide the tax advantages of the qualified plan but would be required to meet the strict guidelines set by the IRS.

Contributory Plans

All pension plans are either contributory or noncontributory. In a contributory plan, the employer pays a portion of the funding and the employee pays the other portion. The percentage paid by employer and employee becomes of keen interest during collective bargaining. Also of interest is the type of benefit plan provided. In a noncontributory plan, the employer pays all the administrative and funding costs. Therefore, the question of how much is to be paid by the employer does not arise during collective bargaining; rather, the benefit package provided by the plan becomes the central issue.

Age or Service Requirement

Most pension plans require a minimum age or years of service before an employee becomes eligible to receive retirement benefits. The plan may simply require a minimum age such as 55 or 60 at which the retired employee begins receiving benefits or a minimum of 25 or 30 years of service. Other plans require a minimum of both, such as 25 and 60, meaning 25 years of service and 60 years of age. Under such a plan, the employee who began work with the company at age 20 must work for 40 years before becoming eligible to receive retirement benefits, even though he or she could become eligible at age 45 under the service requirement. Some systems provide for an option of retirement minimums. For example, an employee may receive 50 percent of the benefits if he or she retires at age 55, 70 percent at age 60, 80 percent at age 62, or 100 percent at age 65. Management realizes that the percentages and ages can be changed to motivate employees to retire at an earlier age or to stay with the company longer. A similar type of provision can be created for years of service. The minimum age or service requirement is an item of great interest during contract negotiations. If union membership is heavy with senior employees close to retirement, changing the minimum requirement becomes an even greater goal of the union negotiators.


ERISA allows a pension plan to suspend pension payments of a retired member who reenters the job market to protect participants against their pension plan being used, in effect, to subsidize low-wage employers who hire plan retirees to compete with and undercut the wages and working conditions of employees covered by the plan. In a 2004 Supreme Court case, Central Laborers’ Pension Fund v. Heinz, et al.,
 the anticut provision was interpreted, however, to protect accrued benefits from after-retirement changes. Heinz retired from the construction industry after accruing enough pension credits to qualify for early retirement payments under a “service-only” multiemployer pension plan that pays him the same monthly benefit he would have received had he retired at the usual age. The plan prohibits such beneficiaries from certain “disqualifying employment” after they retire, suspending monthly payments until they stop the forbidden work. When Heinz retired, the plan defined “disqualifying employment” to include a job as a construction worker but not as a supervisor, the job Heinz took. Subsequent to Heinz’s retirement and entry into his job, the plan expanded its definition of disqualifying employment to include any construction industry job and stopped Heinz’s payments. Heinz sued to recover the suspended benefits, claiming that the suspension violated the “anticutback” rule of ERISA, which prohibits any pension plan amendment that would reduce a participant’s accrued benefit. The Court held that imposing new conditions on rights to benefits already accrued violates the anticutback rule.


Employers wishing to downsize the number of union workers or replace some higher-paid workers with newly hired lower-tier workers may negotiate an early retirement provision with a union. For example, in 2006, a General Motors buyout offer led to a reduction of 34,000 workers who received a bonus of $39,000 to $140,000 in addition to their normal pensions. Because such programs are usually voluntary and help keep the employer competitive, unions may not oppose their implementation but will want to negotiate the exact terms of a program.

Benefit Formula

Perhaps the most important pension item in a defined benefit plan is the benefit formula, in which benefits due each retiree are calculated. A common benefit would appear as follows:

Benefit dollars = Years of service × Base pay × ____ %

The three variables of importance in the formula are years of service, employee’s base pay, and a percentage to be applied. The percentage is usually a fixed figure that is seldom negotiated to change; 2–3 percent is often used, but the percentage can be as high as 5 percent or as low as 1 percent. The individual employee determines the number of years of service. The determination of the base pay, therefore, becomes critical to many contract negotiations. For many years, base pay was defined as the average of the employee’s annual gross wage received. However, in recent years, with high inflation causing rapid salary increases as well as moves through promotion and transfer, base pay often receives other definitions.

Wage Employment Guarantees

In recent years, union negotiators have fought vigorously for an income maintenance benefit previously provided only to white-collar workers—that of guaranteed income throughout the year regardless of available hours of work or actual work performed. Union negotiators feel that their members should also have the security and convenience of regular pay periods. The problems and frustrations of fluctuating income make the guaranteed wage a high priority for many union leaders.

Wage employment guarantees
 (WEGs) ensure employees a minimum amount of work or compensation during a certain period of time, usually for the life of the contract. Normally all full-time employees who have at least one year’s service are eligible. The UAW contracted a guaranteed wage in its agreement with Ford Motor Company in 1967, a major step for union negotiators in the industry. Today WEGs appear in 16 percent of all agreements.
 A wage employment guaranteed provision might read, “All regular, full-time employees shall be guaranteed a minimum of 40 hours of work per week or compensation in lieu of work being provided.”

Wage employment guarantees (WEGs)

A contract negotiation assuring employees a minimum amount of work or compensation during a specified amount of time.

When negotiating to provide a guaranteed annual wage, management often will insist on an 
escape clause
 to suspend the guarantee for production delays beyond the control of management, such as natural or accidental disasters, voluntary absences, employee discharge, or strikes.

Escape clause

A contract provision that allows either negotiating party to be released from a specific provision of a collective bargaining agreement, under certain conditions.

Supplemental Unemployment Benefits

In the 1950s, steel and automobile industry union leaders began to negotiate for supplemental unemployment benefits (SUB) plans. These plans provide additional income to supplement state unemployment benefits to employees who are laid off. Union negotiators normally contend that state unemployment benefits do not enable employees to maintain adequately their style of living. SUB plans are designed to be directly supplemental; employees receive a certain percentage of their gross pay for a maximum number of weeks when unemployed. For example, if each employee subjected to a layoff during the period of the contract receives 75 percent of normal base pay, with the company providing the additional funds necessary to the employee’s state unemployment benefits, an employee making about $532 a week would receive a total of $400. This 75 percent figure would include $300 per week of state unemployment benefits, with the remaining $100 provided by the company.

Supplemental unemployment benefits (SUB) plans

Plans that provide additional income to supplement state unemployment benefits to employees who are laid off.

Some negotiated SUB plans provide only 50–75 percent of gross pay; few go beyond 75 percent. Most provide the additional unemployment benefits for at least a period equal to the state’s unemployment, often exceeding up to one year in length. Employees must have at least one year’s service before they are eligible for SUB benefits; they do not receive such benefits if they are on strike or under disciplinary action. Most SUB plan provisions include the escape clauses discussed in the previous section.

Management usually strongly opposes implementing a SUB plan. Management negotiators emphasize that the company already pays into the state unemployment fund as required by law and that union leaders should lobby their state legislature to increase those funds. Management also argues that additional unemployment benefits decrease its ability to make technological changes and to provide new equipment and processes because of the additional benefits paid to displaced employees.

Although some SUB plans were negotiated as early as 1923 by Procter & Gamble and 1932 by Nunn Shoe Company, the great increase in the number of plans providing coverage for employees came after the 1955 negotiated SUB plan between the Ford Motor Company and the UAW. Today most plans are within the primary metals, transportation, electrical, rubber, and auto industries.

Severance Pay

Severance pay
, sometimes called dismissal pay, is income provided to employees who have been permanently terminated from the job through no fault of their own. Although similar to SUB in its appearance and formula for provision in determining benefits, severance pay is given under quite different circumstances. SUB pay enables the employee who is temporarily laid off to feel minimum impact from the layoff and anticipate a return to work and full pay. Employees who receive severance pay, however, realize that they have no hope for future work with the company. It is not normally provided to employees who are terminated for just cause or who quit.

Severance pay

A lump sum or a dispersal of payments given to employees who are permanently separated from the company through no fault of their own.

The purpose of severance pay is to cushion the loss of income because of plant closing, merger, automation, or subcontracting of work. Union negotiators contend that management should shoulder some of the financial burden while the employee is seeking other permanent work.

The provision of severance pay and advance notice of layoffs varies by industry. It is most common in industries that have incurred past layoffs during hard economic times, such as manufacturing (74 percent of all contracts) and utilities; contracts for professional and technical employees seldom (16 percent) provide severance pay and advance notice.

The amount of severance pay is usually specified by a formula guaranteeing a percentage of base pay determined by number of years of service with the company. For example, the contract provision in 
Figure 8-2
 provides 16 hours of pay for each year of service. To be eligible, employees may be required to have a minimum number of years of service, usually one, except in a case of disability. Management negotiators have been somewhat more sympathetic to severance pay provisions because management controls its cost completely. However, as the economy, technology, and mergers force changes in many of our industries, management negotiators may be likely to resist further increases in severance pay provisions.

If severance pay is included in an agreement, it is considered an employee right. In the case of a merger, plant closing, relocation, or the sale of the company, the liability for severance pay may become a most important issue. Court decisions have upheld the legal right of employees to receive severance pay from the parties involved. In such cases severance pay owed workers is generally regarded as a legal liability of the company.
 Unions have a legal right to file suit on behalf of employees denied negotiated severance pay under the Labor Management Relations Act, 
Section 7

Article XVI

General Provisions

Section 1—Severance Provision

In the event the Company decides to permanently close C. Lee Cook, severance pay will be granted to each active (on the payroll) employee in the Machinists Bargaining Union in an amount equal to sixteen (16) hours pay at his/her regular hourly rate at the time of closing for each year of continuous service with C. Lee Cook. “Active” is defined for the purposes of severance pay, as meaning any employee on the active payroll of C. Lee Cook on the date of the Company announcement of shutdown plans, and any employee on approved medical leave of absence at that time; or any employee in a laid-off status then and not recalled actively prior to such announcement. The severance will be made available no later than seven (7) calendar days of the last day of operation of C. Lee Cook.

Figure 8-2

Severance Pay Article.

Source: Agreement between C. Lee Cook Division, Dover Resources, Inc. and Lodge No. 681, International Association of Machinists and Aerospace Workers AFL–CIO, 2007–2012. Used by permission.

Even though the former employees of Enron were nonunion, the AFL–CIO said it helped them recover severance pay because ‘unions exist to improve the lives of working families.

Source: David Phillip/AP Images.

In 2002 the AFL–CIO filed suit and paid all legal fees on behalf of the 4,200 former Enron workers. The unusual support followed the historic financial collapse of Enron after the company refused to pay severance pay to former workers, while top executives received millions in bonuses. After several months in federal court, Enron and its creditors agreed to pay $34 million in severance pay, up to $13,500 per worker. Even though the workers were nonunion, the AFL–CIO supported them because “unions exist to improve the lives of working families,” according to Vice President Linda Chavez-Thompson.

Death and Disability Plans

Union leaders have also strongly negotiated for death and disability benefits to supplement Social Security. The negotiated benefit may provide for coverage up to a maximum, or it may provide benefits independent of others received by the employee. The need for negotiators to be very specific about what is provided by these benefits is illustrated in Case 8-1, in which misunderstandings about a program led to arbitration. However, negotiators are aware of the benefits made available on death or disability to employees by the Social Security system, and employers remind union officials that they contribute to the Social Security system and therefore provide funding for its death and disability benefits as well as those received through the collective bargaining process. An example of the negotiated benefit is included in the following agreement between Duke Energy Company Ohio, Inc. and the International Brotherhood of Electrical Workers:

Article V

Section 27 . The Company will provide each employee with Term Life Insurance in the amount of two (2) times the employee’s straight time annual salary.

The company commonly bears the entire premium cost of death and disability insurance. However, often it may be negotiated that employees will be offered additional group insurance through the group plan at reduced rates. Union members, of course, often benefit from such a plan by an amount greater than the premium paid by the company in their behalf. Usually the company can obtain group insurance at a rate cheaper than each individual could purchase on his or her own.

Case 8-1 Disability Pension

The agency’s pension plan and agreement for the employees provided that an applicant for disability pension would be subject to a medical examination and evaluation by the agency doctors to determine whether the applicant was qualified for a disability pension. The decision, however, would be made by the Disability Pension Board, which is made up of three representatives from the company and three representatives from the union.

The employee in this case became disabled and was unable to drive a bus, which was her job. The employee had been diagnosed by her own doctor as suffering from temporomandibular joint syndrome (TMJ). The employee applied for disability pension, and the board voted on her application. The six-member panel was deadlocked: The three company trustees voted no, and the three union trustees voted yes. The position of the union was that the employee suffered from permanent disability and, under the collective bargaining agreement, should be allowed a pension.

The applicable provision of the collective bargaining agreement stated that employees with ten years or more of service who become permanently physically or mentally incapable of performing their job could retire and begin receiving benefits. Any such pensioner who regains his (or her) health or mental capacity will have his pension discontinued, and he will be restored to his former position with full seniority rights.

The union pointed out that although the collective bargaining agreement pension rules required an employee to be examined by an agency physician when applying for permanent disability, the decision of whether the employee qualified was left to the trustees. The trustees had admitted that they did not take into consideration the opinions of the employee’s private physicians that the employee suffered from TMJ and could be considered permanently disabled.

The position of the company, however, was that the examination by the agency physician failed to decide conclusively the issue of the permanency of the disability. On the basis of one examination, the agency physician determined that the employee was unable to drive a bus at that time but could not find any physical impairment that would justify classifying the employee’s condition as permanent disability.


The arbitrator found that to rely only on the agency physician, who had admittedly performed a relatively short and cursory exam, was not sufficient. The arbitrator found that the grievant did meet the disability requirement under the pension plan and should be awarded pension benefits.

Source: Adapted from Bi-state Development Agency, 90 LA 91 (1987).

Tips from the Experts


What are the three best benefits employees can try to get from their employers?

1. Employment security (as opposed to job security)

2. Family coverage (health insurance, appropriate leave opportunities, child care, and elder care)

3. Opportunity for employee growth through retraining, promotion, education, literacy, and recognition for performance


What three benefits should an employer avoid?

1. COLA (cost-of-living adjustment) or any other benefit plan with fixed benefits unrelated to costs or a future plan with fixed entitlement

2. Discretionary overtime

3. Premium pay for time not worked or any other pay for nonproductive time, such as on-call pay

Employee life insurance plans are included in more than 65 percent of negotiated plans. Most provide a specific benefit, often $10,000.
 Another common type of benefit provides an amount directly related to the employees’ annual earnings. Plans that relate the amount to earnings most often provide a maximum benefit equal to total yearly earnings; some provide twice the earnings.
 The cost of life insurance coverage is paid entirely by the employer in most agreements.

Health Care

Employee health benefits today are the issue for many employees, unions, and employers. Double-digit annual cost increases and premium hikes over the past 20 years caused health care to become a most common issue behind union-called strikes in recent years. Both unions and employers are concerned over the annual cost of employee health care—$12,600.00 per U.S. worker in 2011! Health care issues are also complex and thus more difficult to negotiate at the bargaining table. Issues to be negotiated include (1) benefit coverage, (2) deductibles, (3) monthly premiums, (4) copayments, and (5) choice of health care provider.

Health insurance benefits are found in most collective bargaining agreements (97 percent), and in terms of total labor costs they rank second only to wages and salaries for most employers. The most commonly found provisions provide for hospitalization (97 percent), prescription drugs (96 percent), physician visits (96 percent), mental health (93 percent), dental care (90 percent), and vision care (73 percent). Dental and vision care, less common only ten years ago (43 percent of contracts in 1993), have increasingly appeared in more contracts until today they are provided in 90 percent of 2011 contracts. Overall management negotiators have been willing to negotiate better health insurance benefits—which are then often provided to nonunion employees as well, including management. Both sides recognize the need for employees and their families to have access to health care, which may be unobtainable or very expensive if purchased outside an employer group plan. Health care plans usually specify an initial deductible, a family deductible, copayments, and maximum coverage. Most employers provide a choice of health insurance plans to employees, including one or more options under each of the three most common forms of coverage:

1. Preferred provider organizations (PPOs) are available to 74 percent of union workers. A PPO is a contract among the employer, insurance carriers, hospitals and health care providers, dentists, and physicians that provides specific services at a discount in exchange for a guaranteed number of patients.

2. Health maintenance organizations (HMOs) are available to 62 percent of union workers. An HMO is a medical facility that provides routine checkups, shots, and treatments as well as maternity care, vision testing, and so on, usually at a lower total annual cost to families than a typical insurance plan, and that requires a monthly charge per family.

3. Traditional fee-for-service or indemnity plans are available to 48 percent of union workers.

Health Care Cost Containment

Controlling health care cost increases is a major negotiation issue, sometimes resulting in difficult choices for both unions and employers. For example, the 11,000 members of the United Food and Commercial Workers Union (UFCW) Local 1099 authorized a “Hollywood” strike, or show of solidarity through a short two- to three-day strike against the Kroger Company. As contract talks reached an impasse, Kroger ran full-page newspaper ads announcing it was accepting applications for temporary replacement workers. The UFCW members picketed Kroger stores and called on customers to pressure management. For over 36 years, Kroger and the UFCW Local 1099 had experienced harmonious labor relations. What caused the disruption

Containing health care costs is a primary concern for both management and union negotiators.

Source: © FORGET Patrick/SAGAPHOTO. COM/Alamy.

of harmonious relations? Although wage and pension issues were also unresolved, health care was the core issue. In the end Kroger agreed to lower prescription copays, and no increases in employee premiums.

Why has this particular fringe benefit taken on so much importance? Employers in the United States experienced ten fold increase in family coverage health care premiums ($1,094–$12,600) in only ten years, 2000–2011, and that was on top of ten years of significant increases! Thus all parties involved have expressed a new willingness to find cost-containment measures.
 The single most important health care issue is usually what portion of the total cost the employer will pay and what portion the employees will pay. For employers, the issue of health care cost containment is critical because if costs are allowed to increase, they can quickly rise faster than any other personnel cost. Thus, 95 percent of labor contracts require union workers to directly share some of the costs, primarily through three methods: copayments, deductibles, and monthly premium contributions. Over 95 percent of all contracts include cost-containment methods, and most include several. In recent years the requirement to use generic drugs, preadmission testing for hospital stays, utilization reviews, and pretax spending accounts have rapidly increased because of employer demands. However, at the bargaining table the specifics of the cost-sharing plan typically receive greater attention than the addition or alteration of a cost-containment method. Management negotiators are seldom willing to consider changing a cost-containment method because they are aimed primarily at duplication and unnecessary costs. Union negotiators are generally sympathetic to management’s efforts to cut excess costs—as long as the cost-sharing specifics are reasonable from their perspective.

Behavior Modification Programs

A relatively new method of cost containment that is likely to be supported by both management and union negotiators is called “behavior modification”—a term that has been common in psychology for many years, but now applied to health care. Behavior modification programs generally include cash incentives to workers given when they complete, for example, (1) routine health risk assessments, (2) smoking cessation programs, (3) weight reduction programs, (4) exercise regimes. Studies indicate that cash incentives above $200 do positively modify workers’ behaviors over a long period of time and thus produce healthier employees, and save employers costs.

Health Reimbursement Arrangements

In 2006, the Ford Motor Company paid about $1,200 per vehicle manufactured in health care benefits. Alan Mulally, Ford CEO, stated frankly, “We simply cannot add that amount to a vehicle and remain competitive.” As a result, in 2008, Ford Motor Company stopped providing group health care insurance to 57,000 salaried (nonunion) retirees and their spouses and instead began to provide each $1,800 in a Health Reimbursement Arrangement (HRA). Those employees then decide when to use their HRA fund to pay for medical expenses, which may be supplemented by Medicare. An HRA is similar to a 401(k) pension fund in that an employer contributes a fixed amount of tax-deferred money into an account and then the employee or retiree chooses when to use the funds to pay for medical expenses. In 2007, Kellogg Company, Keebler unit, and Chrysler started similar HRA plans. The HRA provides the employer with a certain fixed cost for health care.
 Under IRS regulations, an HRA must be funded solely by an employer and cannot include voluntary employee salary reduction. Employees are reimbursed tax free for qualified medical expenses. An HRA may, however, be offered together with a Health Savings Account (HSA).

Health Reimbursement Accounts (HRA)

Similar to a 401(k) pension fund in that an employer contributes a fixed amount of tax-deferred money into an account for the employee to use for medical expenses.

A Health Savings account is a tax-exempt trust administered by a bank, insurance company, or other IRS-approved organization. Both employees and employers make tax deductible contributions to an HSA. Account balances may be carried over from one year to the next, and earned interest is tax free. Another advantage to employees is that an HSA is “portable”: It can be transferred from one employer to another.
 HSAs were introduced in 2004 as a way for employers to provide more affordable health care. The primary goal is to lower health insurance costs and premiums by giving the employee more control over how funds are spent and an incentive to save funds for future needs. In 2008, the maximum contributions are $2,900 for individuals and $5,800 per family. The fact that funds can be carried over from one year to the next gives HSAs a distinct advantage over flexible spending accounts. Thus, an HSA may be viewed as a health care retirement account.

Domestic Partners

In recent years some unions have sought health care benefits for the domestic partners of their members. The partners in such provisions may or may not be limited to same-sex partners. The provisions usually require specific evidence that the partner has shared housing for a minimum period of time. In 2007, for example, the University of Cincinnati and American Association of University Professors (AAUP) agreed to a new contract that contained full health care benefits (and tuition benefits) to domestic partners for the first time. The university chief labor negotiator, Bill Johnson, noted the change should cause a less than 1 percent increase in health care claims. The university believed the change in benefit would make it more competitive in recruiting and retaining faculty.

Voluntary Employees Beneficiary Association

Voluntary Employees Beneficiary Association (VEBA) under U.S. Internal Revenue Code 
Section 7
 is an organization created for the purpose to pay life, sick, accident, and similar benefits to members or their dependents or beneficiaries. The members must have an employment-related common bond, such as an employer or affiliated employers, coverage under one or more collective bargaining agreements, or membership in a labor union.
 A VEBA operates in a similar manner to a pension fund. Employers contribute a specific amount of money each year to accounts for their employees. The employer contributions are


An organization for members who have an employment-related common bond, or coverage under one or more collective bargaining agreements, or membership in a labor union, to pay life, sick, accident, and similar benefits. A VEBA operates similar to a pension fund in that employers contribute a specific amount of money each year to accounts for their employees.

tax deductible as operating expenses and earn tax-free interest in the VEBA.
 Employers can contribute their own stock to the plan that is less expensive, but then, if the VEBA is administered by a union like the 2007 UAW–GM, Ford, Chrysler trust, the union may become a major stockholder in the company. The UAW VEBA made headlines in 2007 because the auto companies had been the U.S. icon for the traditional health care plan that was started by GM and the UAW in 1950. Also the new UAW VEBA with about $70 billion in assets became the largest VEBA in the United States.

VEBAs, however, are not new concepts. A 1928 federal law first provided for tax-exempt trusts to fund life, health, and accident benefits to its members. It allows both employers and employees to contribute to a trust. About a third of large U.S. employers have established VEBAs, including Duke Energy Corporation, Conagra Foods, and Texas Instruments, as well as recently established ones by Procter & Gamble Company in 2005, the Kellogg Company in 2007, and the UAW–GM, Ford, Chrysler 2007 VEBA for retirees. GM had previously established a VEBA to fund health benefits for current employees.

VEBAs provide employers the following advantages: (1) current tax deductions for contributions to cover expenses that are not currently required; (2) latitude in choosing plan benefits; (3) funds grow tax deferred and have no penalties for early withdrawals; (4) benefits can be passed to family members free of income, estate, and gift taxes; and (5) the assets are protected from creditors in case of employer bankruptcy, of special interest to unions.

Some VEBA critics, however, point out the one created by Caterpillar, Inc., in 1998. The giant equipment manufacturer set up a VEBA health care trust to defray and control retiree medical costs. By 2004, the trust ran out of money and had to increase retiree monthly premiums by $281 per person.

Wellness Programs

Negotiated wellness programs have increased in collective bargaining agreements. In 2008, 55 percent of public sector CBAs and 37 percent of private sector CBAs contained at least two of the common benefits:

Wellness program

Any of a variety of employer-sponsored programs designed to enhance the employee’s well-being, such as stress management, cancer detection, exercise programs, and complete physical fitness centers.

· Smoking cessation

· Exercise programs

· Weight control

· Nutrition education

· Physical exams

· Stress management

· Back care

Most are expanded physical fitness or alcohol and drug rehabilitation programs, but many complete wellness programs include stress management, high blood pressure detection, cancer detection and treatment, and individualized exercise programs. Many wellness programs today are created or expanded as a health care cost containment measure. They focus on individual interventions with employees designed to identify and reduce risky behaviors such as smoking, overeating, and lack of exercise, as well as early detection of illnesses through regular checkups.

The DaimlerChrysler–United Auto Workers wellness program began in the 1980s with the then Chrysler Corporation and has evolved into a model of labor–management cooperation. The program is run by the six-person labor and management Wellness Advisory Council and involves over 90,000 UAW workers at 35 different DaimlerChrysler locations nationwide. It won the prestigious C. Everett Koop National Health Award in 2000 and was the first labor–management partnership to win the award. The objectives of the program include the number of annual employee health-risk assessments, employee satisfaction surveys, and research by an outside agency. The program provides free on-site awareness, education, and maintenance in several key health areas, including nutrition, exercise, injury prevention, mental health, driver safety, and smoking cessation. Employees may voluntarily attend workshops and receive individual counseling. Family members, retirees, and other workers are also allowed to participate.

The program has been widely accepted by employees and has grown until the following milestones were reached:

1. Thirty-six percent of eligible employees volunteered to participate in health-risk appraisals.

2. Ninety-five percent of employees who did participate were satisfied with the program.

3. Driving habit risks decreased by 42 percent.

4. Significantly lowered health risks were reported by 4,184 employees.

5. Smoking risks decreased 27 percent.

6. High-risk alcohol consumption decreased by 39 percent.

7. Mental health risks decreased significantly.

Both union and management negotiators often view a company-provided physical fitness plan or wellness program as a desirable addition to the workplace. Thus, the issue at the negotiating table may be reduced to who designs, runs, and pays for the program. What do workers think? A Ford Motor Company employee and UAW member noticed the positive effect on morale: “They’ve taken out 500 lockers and put in exercise equipment, and two hourly employees get paid to run the room. Those things help make the camaraderie stronger.”

Employee Assistance Programs

Beginning in the early 1970s, the number of 
employee assistance programs 
(EAPs) in contracts have increased significantly. In 2008, 82 percent of public sector CBAs and 65 percent of private sector CBAs contained at least one of the following EAP benefits:

Employee assistance programs (EAPs)

Company-sponsored programs designed to assist employees in resolving personal problems, such as stress, finances, and alcoholism, that may adversely affect job performance and attendance.

· Alcoholism

· Drug Abuse

· Marital difficulties

· Financial problems

· Emotional problems

· Legal problems

The number increased because many labor relations managers believe that they can save money by helping employees resolve personal problems that affect job performance. EAPs also provide the union with evidence of management’s concern for employees’ well-being, which should be a strong boost to employee relations. But the primary reason for more company-sponsored EAPs is that they may enhance a company’s profitability by reducing absenteeism, turnover, tardiness, accidents, and medical claims.

Many EAPs grew from alcohol treatment programs. The typical program addresses psychological and physical problems, including stress, chemical dependency (alcohol and drug), depression, marital and family problems, financial problems, health, anxiety, and even job boredom. The procedure in virtually all EAPs is problem identification, intervention, and treatment and recovery.

An example of a successful referral program is the EAP at Bechtel Power Corporation in San Francisco. When a supervisor believes an employee’s performance has been adversely affected by personal problems, the supervisor phones the EAP office. (An alternative first step would be an employee self-referral.) Once the supervisor and EAP specialist discuss the particulars of the situation—performance record, absenteeism, and so on—the supervisor is normally advised to suggest that the employee use the EAP. It is carefully explained to the employee that participation is voluntary and does not affect the discipline process, which may be implemented if required by poor work. Strict confidentiality is guaranteed.

Unions have often taken an active role in designing EAPs. Usually both labor and management agree that the troubled employee is a valuable asset and, if rehabilitated, can remain a valuable employee after treatment. However, neither the union nor management views the EAP as an alternative to the disciplinary process and at some point an employee may be forced to choose between treatment and termination.

The Consolidated Omnibus Budget Reconciliation Act

A federal law titled the 
Consolidated Omnibus Budget Reconciliation Act (COBRA)
 was passed in 1986. This law provides for the continuation of medical and dental insurance for employees, spouses, and dependents in the event of termination of employment, death of the employee, divorce, legal separation, or reduction of hours, which results in the loss of group health plan eligibility. An employee or the employee’s dependents must elect this coverage and pay 100 percent of the full cost of the plan selected. The intent of this law is to alleviate gaps in health care coverage by allowing the employee or beneficiary to elect to continue medical or dental insurance for up to 18 or 36 months, depending on the circumstances of their employment separation. The passage of the act was a major victory for unions, which had been seldom able to obtain similar provisions from employers at the bargaining table.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

A law that provides for the continuation of medical and dental insurance for employees, spouses, and dependents in the event of an employee’s death, termination, divorce, or other loss of health care eligibility.

Under COBRA, one of the six events requiring an employer to continue group health coverage is termination of employment or a reduction in hours. Under federal regulations, a strike qualifies as such an event; thus, management is required to provide continued health care coverage to striking employees and their families at the employees’ expense. COBRA also requires management to notify in writing each employee and spouse of the right to continue coverage. The employee then has 60 days to choose continued coverage. If the employee chooses to continue coverage, under COBRA, the employer must provide the same group health care coverage that was provided before the strike.

Pay for Time Not Worked

What has become one of the most sought-after employee benefits by union members is pay for time not worked on the job, or paid leave. Employees today have come to expect to be paid for holidays and vacations as well as many other absences. These time-off-with-pay components of labor agreements are many and varied and include the following:

· Holidays

· Vacations

· Jury duty

· Civic duty

· Military duty

· Funeral leave

· Marriage leave

· Maternity/paternity/family leave

· Sick leave

· Wellness leave (no sick leave used)

· Blood donation

· Grievance and contract negotiations

· Lunch, rest, and break periods

Table 8-2

Percentage of U.S. Workers with Access to Paid Leave Benefits, 2005

Family Leave

Type of Paid Leave

Holidays (%)

Sick Leave (%)

Vacation (%)

Funeral Leave (%)

Jury Duty (%)

Military (%)

Paid (%)

Unpaid (%)



















Source: U.S. Bureau of Labor Statistics, National Compensation Survey (Washington, DC: Bureau of Labor Statistics, 2005), p. 22.

· Personal leave/anniversary of employment

· Sabbatical leave

· Union business

In general, as illustrated in 
Table 8-2
, a greater percentage of union workers than nonunion workers receive paid leave for different reasons.

Profile 8-1 Law Benefits Former Workers at Nuclear Plants

In the 1940s and 1950s, the U.S. Department of Energy (DOE) constructed several atomic weapons plants. Upgrades and maintenance of the plants continued for decades. Since then, thousands of workers from those sites, including many International Brotherhood of Electrical Workers (IBEW) members, have suffered major illnesses, especially cancer, which is believed to have been caused by toxic exposure at the DOE plants. In July 2001, a new federal program, the Energy Employees Occupational Illness Compensation Program Act, became law, offering compensation benefits to workers who

The Energy Employees Occupational Illness Compensation Program Act in 2001 paid $121 million in benefits to 1,647 former IBEW members who worked at atomic energy plants and suffered cancer and other work –related illnesses.

Source: Smileus/ShutterStock.

have suffered from illnesses associated with their work at one of the atomic plants. In less than a year, 1,647 claims totaling $121 million were paid out under the act, with many workers receiving $150,000 lump-sum payments.

One IBEW business manager, Gary Seaz, worked at the Paducah, Kentucky, plant in the 1970s and, like many of the 150 IBEW electricians who worked at the plant, has been diagnosed with cancer. Seaz recalled, “We had no idea of the hazard that existed. Many local union members have come down with cancer.” According to the U.S. Department of Labor, workers exposed to radiation may have contracted cancer, beryllium sensitivity, chronic beryllium disease, or chronic silicoses. Claimants can get information at one of nine DOE centers around the nation.

Source: “Benefits Available for Employees of Nuclear Weapons Facilities,” IBEW Journal (April 2002), pp. 14–15.

Paid Holidays

More than 99 percent of labor agreements provide for paid holidays. Union negotiators’ demand for increased paid holidays has been great and continues to increase the average number of paid holidays provided by the agreements. In 1950, the average number of paid holidays in labor agreements was three; now, almost 60 years later, the average is closer to 11.
 However, the average number in agreements has remained steady at about 11 from 1986 to 2008. Most contracts provide for between 8 and 13 paid holidays, as illustrated in 
Table 8-3
. Normally, employees required to work on holidays receive double or even triple pay in the contract provision. In the chemical, hotel, and restaurant industries, which operate every day, employees may be given double pay for working holidays and another day off during the following week. If a holiday falls during an employee’s paid vacation, the employee usually receives an extra day of scheduled vacation. Employees on layoff during a paid holiday usually do not receive pay for that holiday. Vacation pay provisions can be the source of conflict, as you can see in Case 8-2.

Table 8-3

Trend in Number of Paid Holidays (frequency expressed as percentage of contracts)

a10 or more

b12 or more

Source: Bureau of National Affairs, Basic Patterns in Union Contracts, 14th ed. (Washington, DC: Bureau of National Affairs, 1995), p. 58; and see also U.S. Bureau of Labor Statistics, National Compensation Survey (Washington, DC: Bureau of Labor Statistics, 2005), p. 23.







None specified






Fewer than 7













































13 or more











Case 8-2 Vacation Pay

For many years, the company operated several cigarette-manufacturing facilities in Louisville, Kentucky. In February 1999, the company announced that it planned to phase out the production of cigarettes in the Louisville area. The final production date was in July 2000. However, employees were laid off in various stages prior to the final closing.

The collective bargaining agreement (CBA) between the union and the company provided for a one-week summer vacation and a one-week Christmas vacation for all bargaining unit employees. Generally, production at the facilities was halted during the two vacations, and employees were paid one week of vacation pay pursuant to the CBA. For both vacation shutdowns, the practice of the company has been to pay the vacation pay on the last scheduled day of work prior to the shutdown. The CBA requires that employees be “actually on the payroll at the time of the specific vacation period” to receive shutdown vacation pay. The employer scheduled the summer shutdown so that it included the Fourth of July holiday. The dates of the vacation period varied, depending on the employee’s place in the production process. Those employees who process tobacco at the beginning of the production cycle began their vacation on the Friday prior to the week of the Fourth of July and returned on a Monday, and employees who hold jobs later in the production sequence began vacation on Monday of the week of the Fourth of July and returned on Tuesday.

In 2000, the last day of production prior to the summer shutdown was Thursday, June 29, 2000, so the union understood the shutdown began on June 30, 2000. The employees performed regular duties on June 29. On June 30, the employees being laid off did not perform regular duties but reported to the plant to attend to various administrative matters related to their layoff. These employees were compensated for a full day of work for June 30, 2000, but were not paid vacation pay for the 2000 summer vacation shutdown. The company considered that the effective layoff date for the employees was July 1, 2000. The company concluded that these employees were not on the payroll during the vacation shutdown period and therefore were not entitled to the vacation pay for the summer shutdown because the start date for the summer shutdown was Monday, July 3, not Friday, June 30.

In 1999, the Christmas shutdown began on December 24, 1999. A group of employees was laid off in December 1999. Their last day of work was December 23, 1999, with an effective layoff date of January 1, 2000. These employees were paid for the Christmas shutdown because the company considered these employees to be employed during the shutdown.

The union argues that although Article VI, 
Part 2
, of the CBA says that only employees “on the payroll” are entitled to vacation shutdown pay, the term “on the payroll” is not defined in the agreement.

The CBA does not specify whether an employee must be on the payroll during the entire vacation period or only at the beginning of the vacation period. Also unanswered is the question of when a laid-off employee is to be removed from the payroll. For these reasons, Article VI, 
Part 2
, is ambiguous when applied to the facts in this case. Furthermore, the company sent a letter to employees who were to be laid off in June 2000. The letter provided that their last day of work would be June 30, 2000, with a layoff date of July 1, 2000. The “Summer Plant Shutdown Schedule” provides that the shutdown began as of the close of business on June 29, 2000. The employees worked on June 29, 2000, and were scheduled to report for work on June 30, 2000, and were paid their regular wages for that day. Therefore, the company considered the employees to be on the payroll on June 30, 2000. Because they were on the payroll on the first day of the scheduled summer shutdown, they should have received the vacation pay for that week.

The company contended that with the practice to vary the “extra” day the employees get during the summer shutdown by including the Fourth of July, the summer vacation shutdown begins on a Friday for some and a Monday for others. So in 2000, the employees who reported to work on Friday, June 30, would start their “summer shutdown week” on Monday, July 3. As the laid-off employees were not on the payroll on Monday, July 3, they were not eligible for the shutdown vacation pay. The laid-off employees who left the company in December 1999 had an effective layoff date of December 31, 1999. The shutdown week at Christmas that year began on December 23. Those employees were clearly on the payroll as of the start date of the winter shutdown.


The judge found the position of the company inconsistent. The company notified the laid-off employees that their last day of work would be June 30, a Friday, and they would be removed from the payroll on July 1, a Saturday. And yet the company argued that because the employees worked on Friday, their next “work day” would have been Monday, July 3. The company wanted to use workdays for calculation of the vacation shutdown but used calendar days for determining the date that employees could be removed from the payroll. The judge further noted that there was no indication as to, absent the layoff, which of the employees would have begun their vacation on Friday and which on Monday. The judge determined that the notice to the employees that the “shutdown” would begin on June 30 was binding on the company as to all the laid-off employees and that, because they were on the payroll as of that date, they were entitled to vacation pay.

Source: Adapted from Phillip Morris USA v. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, 116 LA 1650 (2002).

The personal day, or floating holiday, started in the rubber industry. Floating holiday provisions allow the selection of the day on which the holiday is observed to be left to the discretion of the employee or to be agreed on mutually between management and the employee. Management has resisted the concept of a floating holiday on the theory that there is little difference between a floating holiday and an additional vacation day.

Floating holiday

A paid holiday that may be used at the employee’s discretion or when mutually agreed to by the employee and management.

Many labor agreements have observed the 
Monday holiday provision
 of the federal government. The observance of Monday holidays is, in theory, designed to give employees more three-day weekends during the year for additional rest and relaxation. In practice, however, the Monday holiday has increased absenteeism, the chief administrative problem caused by paid holidays. Employees can easily see that being absent on Friday or Tuesday would provide them a four-day weekend or almost a complete week’s vacation.

Monday Holiday Provision

Based on a federal government practice, moving the observance of a holiday that has a specific date, such as a President’s birthday, to the closest Monday in order to give employees a three-day week-end.

An agreement provision for a paid holiday should specify the following:

 As illustrated in the duPont agreement, 
Figure 8-3

Section 7
, employee eligibility, which requires employees to work the last working day before the holiday and the first scheduled working day after the holiday, helps minimize the problem of employees stretching holiday periods.

Holiday rate.
 If employees are scheduled to work on what was agreed to be a paid holiday, they will receive premium pay, as in 
Section 7
Figure 8-4

Which days are paid holidays.
 The days determined to be paid holidays should be specified in the agreement as in 
Section 7
Figure 8-4

Holidays falling on nonwork days.
 As specified in 
Figure 8-4
, provisions for the holiday should be made in case the holiday falls on a nonwork day, such as a Sunday.

Paid Vacations

The practice of providing employees with paid vacations in labor agreements has become not only commonly accepted but also expected by union employees. About 86 percent of labor contracts in 2005 provided for paid vacations of two to six weeks’ duration.
 Employers believe that, unlike paid holidays, paid vacations are effective in increasing employee productivity. Employees, by taking a physical and mental break from the workplace, are able to return to work refreshed and rejuvenated.

Four types of vacation plans are commonly negotiated: the graduated plan, the uniform plan, the ratio-to-work plan, and the funded plan. By far the most popular type of plan is the graduated plan, which provides an increase in the number of weeks of vacation according to

Article VII

Holiday Pay

Section 1. An employee who works on any one of the holidays listed below shall be paid, subject to the further provisions of Section 3 of this Article, overtime pay at one and one-half (1) times his regular rate for hours worked in addition to a holiday allowance equivalent to his regularly scheduled working hours not to exceed two and one-half (2) times his regular often will such holiday hours worked, whichever yields the greater pay.

New Year’s Day

*Washington’s Birthday

Good Friday

Memorial Day

**July Third

July Fourth

Labor Day

Thanksgiving Day

Day after Thanksgiving Day

Christmas Eve

Christmas Day

*A Choice of either Washington’s Birthday or Martin Luther King’s Birthday will be offered provided the COMPANY and UNION have not agreed, prior to December 31 of the preceding year, that another day shall be designated as a holiday in lieu of either Washington’s Birthday or Martin Luther King’s Birthday.

**July Third shall be one of the recognized holidays except when July Fourth falls on Thursday in which case July Fifth shall be the holiday.

When any of the foregoing holidays, except Christmas Eve or July Third fall on Sunday, the following Monday will be observed as the holiday. When Christmas Eve or July Third falls on Sunday, the following Tuesday will be observed as the holiday. When any of the foregoing holidays fall on Saturday, the preceding Friday shall be observed as the holiday for all employees who normally are scheduled to work Monday through Friday. Saturday shall be designated as the holiday for all other employees. When Christmas Day or July Fourth falls on Saturday, and is observed on Friday by employees normally scheduled to work Monday through Friday, the December Twenty-Fourth holiday or the July Third holiday shall be observed on the preceding Thursday.

Holiday hours shall correspond to the hours of the regular workday.

Employees will be informed at least one (1) week in advance if they are expected to work on a holiday.

Section 2. Pay for hours equivalent to regularly scheduled hours not to exceed eight (8), at the employee’s regular rate, shall be paid to an employee for each of the holidays designated above on which he does not work, provided such employee:

a. a. Does not work the holiday for the reason that:

1. He is required by Management to take the day off from work solely because it is a holiday, or

2. The holiday is observed on one of his scheduled days of rest (an employee on vacation, leave of absence, or absent from work for one (1) week or more due to a shutdown of equipment or facilities or conditions beyond Management’s control shall not be considered as having “scheduled days of rest” during such periods of absence), and

b. b. Works on his last scheduled working day prior to the holiday and on his next scheduled working day following the holiday, except when the employee has been excused from work by Management.

If an employee who is scheduled to work on the holiday fails to work, he will receive no pay for the holiday if his absence is not excused.

Figure 8-3

Holiday Pay Provision, duPont-Neoprene Craftsmen Union Agreement.

Source: Agreement between E.I. duPont de Nemours and Neoprene Craftsmen Union, 1994, pp. 20–22.

Article 13


13.1 Vacation Schedule—Employees will be entitled to vacation pay based upon the following schedule:

*Years of Continuous Service

Weeks Vacation

1 year

1 week

3 years

2 weeks

7 years

3 weeks

14 years

4 weeks

18 years

5 weeks

25 years

6 weeks

*Continuous service shall include all service as a part-time and/or full-time employee without a break.

13.2 Eligibility for Vacation—Eligibility for an employee’s first vacation (one week) and for any increase in vacation will be determined by their anniversary date. Arrangements must be made to permit employees to enjoy such earned vacations between the actual anniversary date and the end of the year in which it occurs. Where necessary, vacations due in the 12th and 13th periods may be carried over to the first period of next year. Employees who completed the required service prior to January 1 of any year are eligible for vacations as of that date. After an employee has qualified for the amount of vacations as stipulated in Section 13.1 above, they automatically qualify for that amount of vacation as of January 1 of each year, provided the employee has worked one scheduled work day up to eight (8) hours in that year. Lay Off Status—Employees who are on lay off or leave of absence at the end of a calendar or anniversary year will not be entitled to vacation and vacation pay for service for said year until their return to work. Their vacation will be subject to the reductions outlined under paragraph 13.6.

13.4 Scheduling Vacation—Choice of vacation dates will be granted on the basis of seniority by classification … The Employer will post a vacation schedule in each store effective December 1 of each year. The employees will exercise their preference by January 15 of each year. A complete vacation schedule shall be posted in each store within fifteen (15) days …

13.5 Holiday Occurring During Vacation—If one of the holidays set forth in Article 12, Sections 12.1 and 12.2 occurs during any week of an employee’s vacation, they shall receive holiday pay as set forth in Article 12 of this Agreement, in addition to their vacation pay for such week.

Figure 8-4

Vacation Provision.

Source: Agreement between the Kroger Co. and the United Food and Commercial Workers International Union AFL-CIO, 2007–2010. Used by permission.

length of service. This is the most common type of vacation plan. The average number of days provided in contracts in 2005 based on servic is as follows:

Service (year)

Number of Vacation Days (days)















Source: The U.S. Bureau of Labor Statistics, National Compensation Survey (Washington, DC: Bureau of Labor Statistics, 2005), p. 24.

The uniform vacation plan provides all workers with the same length of vacation. This is most commonly found in manufacturing firms that shut down for specified periods to retool or change product lines, giving employees vacations during the shutdown. The ratio-to-work plan, commonly found in the printing and transportation industries, relates the length of vacation to the number of hours or days the employee works during a given time period, usually the year preceding the allocation of vacation. The funded plan requires employers to contribute to a vacation fund from which employees may draw vacation pay during periods when no work is available. This is most often found in the construction and apparel industries.

An example of a graduated vacation plan in the agreement between the Kroger Company and the United Food and Commercial Workers Union is provided in 
Figure 8-4

This example includes several provisions that should be specified in the labor agreement, including the eligibility for vacation leave and pay, how long the employee has to be with the company to qualify, and any other requirements for vacation leave. Duration of vacation leave must be determined along with any additional vacation pay, such as premium pay or bonuses. Also, the scheduling of vacations, a critical aspect of the contract, must be specified. Normally, scheduling is done on the basis of seniority, as in the Kroger Company example; however, management may try to retain some right in the determination of employee scheduling so that adequate skills and abilities can be maintained in the workplace. Note that the Kroger Co. example in 
Figure 8-4
 includes the language: “least affect the operation of stores … ” which gives management flexibility.

Determining the annual cost of any negotiated increase in the number of vacation days or holidays is relatively straightforward. One common method is to multiply the number of additional vacation or holiday hours by the base wage rate of employees covered. Another method would be to determine the appropriate percentage of the amount charged to the holiday or vacation pay account from the previous fiscal year. For example, if the company estimates that employees averaged 11 days of paid vacation in the previous year at a total cost of $1,200,000, then the average cost per day was $109,090. Thus, if one additional vacation day is negotiated, the total cost for the next year will be $1,309,090.
 One problem in determining the cost of additional vacation or holiday benefits is that the cost of continuing production as usual is not provided in the two alternatives. Industries such as chemical and utility companies that provide around-the-clock service require many employees to work on holidays for premium rates. Thus, it may be necessary to add additional factors to the estimate of negotiated increases in vacation and holiday pay.

Sick Leave

Sick leave
 is often accrued by employees at a specific rate, such as one day per month from the first day of permanent employment. The subject of many arbitration cases, sick leave is intended to provide for continuation of employment when employees are physically unable to report for work. To minimize grievances and other problems associated with sick leave provisions, the labor agreement should specify the procedure for taking sick leave: the time sick leave must be reported by during the beginning of the work shift and what verification by a physician or other individuals is required, a definition of “sick,” and the accumulation rights. Some contracts provide that unused sick leave can be accumulated without any maximum to cover employees who require extended sick leave for serious illnesses. A doctor’s certification is usually needed only when an employee uses extended sick leave. Many contracts also specify a maximum number of days of sick leave that can be accumulated by an employee.

Sick leave

Time off allowed an employee because of illness or injury, with the provision of continued employment when the employee is able to report back to work.

Paid Leaves of Absence

Most agreements provide for paid leaves of absence for a variety of other purposes, including military service, education, and union business as well as personal reasons. Personal leave may result from a variety of causes, such as jury duty, appearing as a witness in a court case, or attending a family funeral. In negotiations for a funeral leave benefit, it is important to specify for which family members the leave should apply. Personal leave may also include the awarding of personal days that employees may take without specifying why they missed work or giving advance notice. Military leave is often negotiated for employees in the United States Armed Forces Reserve Units.

Premium Pay

Virtually all labor agreements provide a specific work schedule and require 
premium pay
 for any hours worked beyond the normal schedule. More than 67 percent of labor agreements provide for premium pay for Saturdays and Sundays that are not part of the normally scheduled workweek, and 99 percent provide for specified overtime premium pay rates on either a weekly or a daily basis.
 Overtime premiums are often provided on a daily basis for time over eight hours. Such additional pay was termed “penalty pay” in the past because it was intended to discourage employers from requiring employees to work additional hours or weekends. Today employers are anxious to maintain their rights in scheduling additional hours so that overtime costs in premium payments can be minimized.

Premium pay

Wages that exceed the standard or regular pay rate given an employee for work performed under undesirable circumstances, such as overtime hours, weekend work, holiday work, or dangerous and hazardous circumstances.

Negotiated increases in overtime in premium pay benefits cannot easily be costed because the actual cost increase per year will be determined by management’s scheduling of overtime hours. Therefore, to make the best estimation of negotiated cost increases, multiply the percentage increase in the benefit by last year’s total dollars allocated to that particular benefit. For example, if management spent an additional $550,000 in overtime pay and the overtime rate is increased by 5 percent during the next year, the additional cost of the increase to management will be $27,500 annually.

pyramiding of overtime
 pay is prohibited in most contracts. Pyramiding is the payment of overtime on overtime, which can occur if the same hours of work qualify for both daily and weekly overtime payment. In contracts that prohibit pyramiding, provisions specifying how such hours will be paid are usually included.

Pyramiding of overtime

The payment of overtime on top of another overtime rate that occurs if the same hours of work qualify for both daily and weekly overtime payment. Most contracts prohibit this type of payment.

How overtime work is distributed among employees is also discussed in most labor contracts. The most common provision is a general statement to the effect that overtime will be distributed equally as far as practical. Other provisions assign overtime on the basis of seniority or by rotation. Many agreements limit overtime distribution to employees within a department, shift, job classification, or those specifically qualified.

Premium pay for other undesirable work situations may also be negotiated. Shift differentials are negotiated additional hourly rates of pay provided to employees who work the least desirable hours. Usually specified in cents per hour in the labor agreement, the cost of the increase in a shift differential would be calculated similarly to that of an overtime premium pay increase. More than 90 percent of all late-shift factory workers receive a shift differential premium over their day-shift counterparts. A significant 2007 research study of mostly nurses and airline crews found higher rates of breast and prostate cancer among women and men whose shift started after dark. The International Agency for Research on Cancer, of the World Health Organization, decided the research results were enough to add overnight shift work as a probable carcinogen. The higher cancer rates, however, do not prove that overnight work causes cancer; other related factors may contribute to the higher rate. Why the potential link between cancer and shift work? Researchers suspect the disruption of the circadian rhythm: The body’s biological clock may be the reason. The hormone melatonin that suppresses cancerous tumors is usually produced at night while the body is at rest. Graveyard shift work, therefore, may disrupt that production.

Shift differential

Additional hourly rates of pay provided to employees who work the least desirable hours.

Other forms of premium payments similar to shift differentials include reporting pay, call-in pay, and on-call pay. 
Reporting pay
 is the minimum payment guaranteed employees who report for work even if work is not available. If employees have not been given adequate notice An to work, usually of 24 hours, they are eligible to receive either the minimum amount of work or payment usually equal to four hours of scheduled work as seen in this example from an agreement between Miller Brewing Company and Teamsters Local 

Reporting pay

The minimum payment guaranteed for employees who report for work, even if work is not available, provided they have not been given adequate notice not to report to work.

Article XVI

Report-In Pay

Any employee who reports for work and who has not been notified not to work shall be granted four (4) hours of work or pay therefore. Notice in this Section means that the Company will telephone the employee at the number on file with the Company.

A supplemental payment given to employees called back to work before they were scheduled is usually termed 
call-in pay
. Most labor agreements provide a lump-sum amount or an amount equal to a minimum number of hours of pay for employees called in during other than scheduled work hours. Thus, employees receive a bonus for being called in before their next normal reporting time.

Call-in pay

A supplemental payment given to employees called back to work before they are normally scheduled to return.

On-call or standby pay is given to workers available to be called in if needed. This type of pay is commonly negotiated in companies such as the chemical industry or airlines that must provide continuous production or service. Usually a lump-sum amount is paid to employees on a daily basis when they must be available to work, whether they are called in or not.

Bilingual Language Skills

The 1996 agreement between the National Treasury Employees Union and the U.S. Treasury Department provided premium pay of 5 percent to about 7,000 customs agents who are bilingual. The new premium pay provision was one of the first in U.S. collective bargaining agreements. Other employers agreeing to pay a bilingual premium pay include Delta Airlines to flight attendants and MCI, which pays a 10 percent bonus to workers who are required to speak a second language more than half the time. In general, more unions are pressing for new bilingual premium pay if the skill is needed a substantial percentage of the time in job-related communication.

Travel Pay

In industries that require workers to travel regularly to different job sites, a premium is paid for excessive travel. The construction industry may provide, for example, a specified home office and a “free zone” of several miles from that office in which workers will travel to sites for free. Beyond that zone, they receive a premium as in this provision from the contract between Tri-State Contractors Association and the District Council of Carpenters:

Article 10—Travel Pay

Branch Office. Ashland, Kentucky

Travel pay on all jobs covered by this Agreement are as outlined below, and all miles shall be measured from the office of Millwright Local 1031 by use of the most direct route, using only improved or hard surface, non-toll roads.

5 miles free zone

All jobs outside the free zone shall be $.25 per hour additional for each hour paid.

Employee Services

A wide variety of employee services have been negotiated in labor agreements. In general, they are not as commonly found as the previously discussed employee benefits; however, most labor agreements provide for at least a few employee services. Some of the more traditional employee services include sponsoring social and recreational activities, such as picnics and athletic events. The cost of these services has been reexamined in recent years because only a relatively small percentage of employees use them.

Subsidized food services are a popular employee benefit. Both labor and management believe that providing dining facilities, low-cost meals, or vending machine products minimizes time away from the job spent on breaks or at mealtime in addition to improving employees’ diets. Company-sponsored credit unions are another employee service often sought by union negotiators. Although a credit union is normally operated completely independently from the employer, the employer’s cooperation in establishing it and providing payroll deductions is critical and must be negotiated.

In recent years, some of the newer employee services negotiated include work-related costs, such as transportation to and from the job; free or subsidized home computers; legal services; and elder care.

Flexible Benefit Plans

An alternative to negotiating a fixed combination of employer-provided benefits is a flexible benefit plan. In a typical flexible benefit plan, employees are allowed to choose the benefits they believe will best meet their needs. Their choices are limited to the total cost the employer has agreed to pay in the collective bargaining agreement. Thus, for example, employees may be given a monthly benefit-dollar figure and told that they can allocate the dollars to the benefits they select from a list. In many programs, employees may exceed their benefit limit, but they must pay the difference between what the employer provides and the cost of what they wish, or if employees choose to allocate fewer dollars than their maximum, they may be allowed to keep all or part of the savings as additional monthly income.

Flexible benefit plans

Negotiated in lieu of fixed benefits, employees can choose the benefits that fit their needs among a designated list and within a price established by the contract. Usually includes medical insurance, vacation, pensions, and life insurance.

Flexible benefit plans have had an on-again, off-again, on-again life. In the 1960s, cafeteria plans, which also allowed employees to choose some benefits from a “menu” of benefits, started to spread among employers. However, the cafeteria approach ran into problems. Employees found it confusing and difficult to make decisions, and employers (without today’s computer programs) found the administration of the programs expensive and difficult.

Today, however, flexible benefit plans have become commonplace for several reasons. A 2005 study by TowersPerrin found that 68 percent of employers with plans believe they help provide a positive organizational identity and culture.
 The primary reason employers are switching from fixed to flexible plans, in addition to better meeting their employees’ needs, is to contain their medical costs. In fact, flexible benefit plans may be the most effective means employers have of containing medical costs.

With a flexible benefit workers make individual choices—as they do in cafeterias.

Source: © CandyBox Images/Shutterstock.

An important feature of a flexible plan is the opportunity for each employee to spend employer dollars as personally desired. By contrast, many so-called flexible plans are fixed. They either offer the employee the opportunity to choose among limited alternatives or offer a “take- it-or-leave-it” approach. For example, the employer offers to pay a portion of an employee’s medical insurance if the employee pays the balance. But if the employee does not choose medical insurance (possibly because of a spouse’s coverage), then the employer’s contribution is lost. A true flexible plan credits the employee with the employer’s share, which could be applied to another benefit.

Advantages of Flexible Plans

Originally created to better meet the needs of employees, flexible plans have become increasingly effective in matching employees’ needs to their benefit plan. Among the advantages of flexible plans are the following:

Control benefit costs.
 Of employers with flexible plans, 78 percent reported that a major objective in their initiating a plan was to contain rising health care costs. With health care costs continuing to rise, this effective containment method is likely to spread among employers.

Improve benefits offered.
 Employers can better meet the needs of their employees by expanding the variety of benefits offered to employees. Child care is a good example: Employers can pay a portion or all of the cost of providing child care at an off-site facility through a voucher system. In choosing the coverage, employees must either reduce the coverage of another benefit or have the increased cost deducted from their pay. (Employers generally, however, provide a portion of child care.)

Attract and retain employees.
 The changing workforce is causing employers in some industries to consider flexible benefits as a tool in the recruitment and retention of employees. Just as flexible work schedules can be used to attract and keep employees, flexible benefit plans can be included in recruitment and advertising.

Avoid duplicate coverage.
 Another aspect of the changing labor force is the increased number of working married couples with duplicate benefit coverage from separate employers. Flexible benefit plans may allow a married couple to save thousands of dollars in wasted duplicate coverage.

Child care is one of the fastest growing employee benefits in labor contracts.

Source: MCT via Getty Images.

Child Care

Although many employers have addressed the child care needs of their employees, child care, according to the National Labor Relations Board (NLRB), is not a mandatory subject for collective bargaining. As the workforce continues to include more single parents and dual-career couples, the direct link between employment and child care might cause the NLRB to reconsider its position. A survey conducted by the U.S. Department of Labor listed the following employer benefits from a child care policy:

1. Greater ability of the employer to keep and attract good employees

2. Less employee absenteeism

3. A lower job turnover rate

4. Improved employee morale

Employer-sponsored child care programs are varied.

Child Care Centers

Some employers provide in-house child care services by establishing a child care center in the workplace. The company must have available space and a sufficient number of interested employees for this service to work. Often, smaller employers join together and create a nonprofit center off the premises for all employees. A number of employers choose to participate in their employees’ child care needs by providing financial assistance. Employees can afford quality child care with the assistance offered by the employer. Many communities lack the resources necessary to provide quality child care, however, and employers often find it necessary to actually provide the centers.

Elder Care Programs

A relatively new benefit in labor contracts is the support for elder care programs. Elder care is defined as assistance for employees who must care for older relatives not able to fully care for themselves. U.S. employees are increasingly challenged with caring for aging relatives. The demand has caused the number of employers offering some form of elder care benefit to increase to almost 25 percent of all large U.S. organizations. Verizon Communications Inc., for example, offers benefits to full-time and part-time employees. Employers have increased the benefit because it reduces absenteeism and worker stress.

Employer-sponsored programs may include the following:

· Information services including legal, retirement, and estate planning

· Referral services for in-home caregiving programs

· Geriatric evaluation and counseling

· Flexible work schedules, part-time work, and time-off policies

· Long-term care insurance for elderly relatives and employees/spouses

· In-home emergency care

Considering the demographics of the American workforce, it is a benefit likely to appear increasingly as a new priority issue for unions. In fact, a 2002 survey of Communication Workers of America (CWA) members found that 20 percent thought they would face elder care needs. Two of the first unions to have negotiated elder care benefits include the CWA and the Hotel and Restaurant Employees (HERE) Union. The benefits negotiated by the two differ in structure and represent two of the more common forms of the negotiated elder care provisions.

First, the CWA and Lucent Technologies in a five-year contract provided for annual contributions to a Family Care Development Fund (FCDF). Employees cannot obtain funds from the FCDF directly but rather can request grants to centers that provide elder care to their family members. Lucent contributes $1.5 million annually to the fund, and more than 330 grants totaling $11 million were awarded in five years. The contract also provides for an elder care referral program to employees seeking assistance. A second major type of elder care provision was negotiated by HERE with over 50 San Francisco hotels. First negotiated in 1994, the provision was partially intended to help the hotels reduce tardiness and absenteeism, which employees reported were partially caused by elder care obligations. Under the contract provision, the hotels contribute 18 cents per hour worked by the employees to a trust fund. Employees with eligible relatives must “win” one of the 100 slots through a lottery to receive the $150-per-month assistance benefit. Eligible relatives include spouse, parent, domestic partner, father-in-law, mother-in-law, or grandparent.

Credit Unions

One of the oldest and most common employee services is the credit union. Most agreements provide that the employer will initiate a payroll deduction process, but the union assumes responsibility for enrolling members, investing funds, and administering the program. In general, employers wish to stay apart from the process and have “the credit union assume complete responsibility.”

Public Sector Benefits Issues

Public employers provide many of the same employment benefits offered in the private sector. For most public employers, income maintenance plans include only pension and death and disability plans. Wage guarantees, supplemental employee benefits, guaranteed income stream plans, and severance pay are not provided to public employees as an acknowledgment that tax dollars cannot be used to pay for nonservice. Medical care plans offered are similar to those in the private sector, and public employers and employees face the same problem with escalating costs as do employers in the private sector.

Vacations, holidays, sick leave, and paid leave of absences for such reasons as jury duty and military leave are commonly found in public sector agreements. Premium pay provisions are usually found in agreements covering employees in public safety areas, such as fire, police, and emergency medical services.

One significant area of difference between public and private sector benefits is in the prevalence of defined benefit pension plans. Historically, public safety employees did not participate in the Social Security system. Therefore, nearly a third of all public employees relied solely on their pensions for retirement income. To match the retirement of an employee from the private sector who receives an average of 59 percent of final salary from a combination of benefits from a defined contribution pension plan and Social Security, the public employee receives 60 percent of final compensation from a defined benefit pension plan. In addition, many public pension plans provide health care benefits to retirees until they qualify for Medicare. In recent years sharply rising pension and health care benefits for retirees of state, county, and city governments has caused a budget crisis for many of them. For example, in one state, local governments in 1988 paid 19 percent of salaries of fire, police, and emergency medical service (EMS) workers into the state pension fund. By 2008, only 20 years later, the costs had risen to 34 percent and were estimated to increase to 61 percent by 2013! Newport, Kentucky, Finance Director Greg Engelman said of the rise: “It’s like a meteor and you can’t get out of the way!” In reality, governments have only poor choices: reduce services, raise taxes, change traditional “20 years and out” full pensions, or underfund pensions.


Once called only “fringe,” employee benefit costs have constantly risen for several decades and today are a sizable part of employee compensation. The four most expensive types of benefits in agreements are (1) income maintenance, (2) medical care, (3) pay for time not worked, and (4) premium pay. Still, a variety of employee benefits have increased in recent years as employees and union leaders initiate new benefits in labor negotiations. By necessity, some benefits are unique to particular industries. For example, the agreement between the UAW and Ford Motor Company includes a safety belt user program that pays $10,000 to the beneficiary of a participant who dies in an automobile accident while “properly using a qualified passenger restraint.”

Today the top benefit issues in most contract negotiations are health care and pensions. The health care issues include who will pay for it, which plans are to be offered, and how spiraling costs will be contained. Retirement plans are a close second to health care as a major benefit concern, with the concern being, again, who will pay for them and which type of plans will be offered. These two very expensive benefits are often among the top priorities of both union and management.

Case Studies Case 8-1 Paid Leaves of Absence

The collective bargaining agreement between the company and the union contained the following provisions:

Overtime/Compensatory Time: … Employees may elect to use compensatory time off in lieu of a cash payment. Compensatory time is paid at time and one-half. The scheduling of compensatory time, if such be elected by the employee, must be approved by the employee’s supervisor. …

Eligibility for Sick Leave: … Each permanent employee who has earned sick leave credits shall be eligible for sick leave for any period or absence from employment which is due to illness … of members of the immediate family (defined as … children of the employee or his/her spouse. … )

The company allowed employees who worked overtime to either be paid time and a half for each hour worked or earn time off at the rate of one and one-half hour for each hour worked. The employees accrued eight sick days and ten vacation days a year.

Prior to February 13, 1995, employees were allowed to use compensatory time when they were absent because of illness, and prior approval for the use was not always required. However, on February 13, 1995, the company issued a directive stating, “Supervisors will no longer approve utilizing compensatory time for sick leave absences. An exception may be made by a supervisor if the employee does not have any sick leave hours available but does have a compensatory balance.”

The employee’s son became ill on February 28, and she left a note for her supervisor that she might not be in on March 1. She did, in fact, take the day off. On March 2, she called in and said she would not be at work and said she would be using a vacation day. When she filled out her time sheet, she listed March 1 as a compensatory day. On the basis of the company’s directive, her supervisor required the employee to use a sick day for March 1 but allowed the use of a vacation day for March 2. The union pursued this grievance on her behalf.

The union’s position was that a past practice of allowing the employees to use compensatory time for leaves due to illness without the prior approval of the supervisor had been established and that the company could not change that practice unilaterally. The employees had acquired a “benefit” through that past practice, and the collective bargaining agreement (CBA) did not give the company the right to take away that benefit.

The company position was that the past practice argument was not controlling in this case. Rather, the precise language of the CBA required the use of sick leave for illness and required a supervisor’s approval for use of compensatory time. Because the CBA is definitive, past practice does not create additional rights. In addition, the management rights clause of the agreement allows the company to make changes in the way it manages the workplace. Controlling leave time would be included under that clause.

Source: Adapted from Sheboygan County, 105 LA 605 (1995).


1. The union claimed that the employees lost a benefit when the company changed the use of compensatory time for illness. In light of the fact that the use was permitted if the employee had no sick leave available, how were the employees damaged?

2. The company paid employees the same wage whether the time was credited against accrued sick leave, compensatory time, or vacation. Why would the employer care which leave was used?

3. As the arbitrator, give your reasons for ruling in the union’s favor. Now give your reasons for ruling in the company’s favor.

Case 8-2 Employee Benefits

The company offers its employees a two-option health and benefit plan. These plans are self-insured by the company, and a third party calculates the health insurance premiums. Premiums are calculated annually in late August on the basis of information from the preceding June–July period. Open enrollment for the employees for the next year are held in October to become effective for the following January.

Premium sharing by employees began on January 1, 1995. Under the collective bargaining agreement (CBA) that expired on August 12, 1999, employees paid an amount equal to 10 percent of the monthly premium. The CBA specified that those rates would be $18 for employees with no dependents (category 1), $36 for employees with one dependent (category 2), and $48 for employees with two or more dependents (category 3). These rates were 10 percent rounded to the nearest dollar of the third-party actuarial calculation of $180 for category 1, $355 for category 2, and $475 for category 3.

The current CBA, which became effective August 13, 1999, changed the premium sharing from 10 to 11 percent for the employees and set out premium sharing rates of $21, $41, and $54, respectively, for the three levels of coverage based on the 1999 premiums. In October 1999, however, the company announced that the premium share levels would be $23, $46, and $61, respectively. The union protested these rates. The union then filed an unfair labor practice charge with the NLRB alleging that the company unilaterally changed the terms of the CBA by increasing the premium sharing amount over the stated amounts.


The relevant provision of the CBA stated as follows:

Health Care and Welfare Benefits—Two-Option Plan (“TOP”)

Premium Sharing: Effective January 1, 2000, for employees and dependents, there will be a monthly premium sharing equal to 11 percent of the monthly premium for three (3) levels of coverage: (1) employee, (2) employee plus one dependent, and (3) employee plus two or more dependents. Based on 1999 premiums for the TOP, this is (1) $21 for the employee, (2) $41 for employee plus one dependent, and (3) $54 for the employee plus two or more dependents per month. Each year in October the rate for the next year will be announced. In no case shall the premium share dollar amounts increase by more than 10 percent per year rounded to the nearest whole-dollar amount.

The union argued that the company violated that section of the CBA because the amounts announced by the company in October exceeded the amounts in the CBA of $21, $41, and $54, which should have been the 2000 rates. And, the union argued, the amounts in the CBA were the amounts the union membership understood they would be charged for the employee share of premiums for the year 2000, when they voted on and approved the CBA.

The company argued that the operative language in that section of the CBA was “based on 1999 premiums.” It was clear from the use of that phrase that the dollar amounts for the employees’ share of the premiums in the CBA were there for illustrative purposes only, not to establish the 2000 rates. And even if the CBA was ambiguous, the company’s past practice was not. Each year the company counted on its third-party administrator to calculate the health insurance premiums on the basis of information from the preceding year June through July. That calculation was available in October for the open enrollment period, and the premiums took effect on January 1. The initial premiums that would take effect under the CBA approved in August would not be known until October. The union had to know that the rates in the CBA were there as examples only.

Source: Adapted from Sandia National Laboratories v. Atomic Projects and Production Workers, 115 LA 1482 (2001).


1. Premiums for health insurance have had a tendency to increase appreciatively from year to year. Has the union negotiated a “good” benefit provision for its members? Explain.

2. Do you think that the union’s interpretation of the CBA language was reasonable? Explain.

3. Do you think the company should have made the language of the CBA provision more specific so that the union members voting on the contract would understand exactly what the premiums would be? Explain.

 You be the Arbitrator Not Working a 40-Hour Week

Article 3

Hours of Work and Overtime:

Employees covered by this Agreement are to work a normal workweek of 40 hours and a normal workday of 8. Each employee shall be entitled to one (l) full day of rest per week, which shall be twenty-four (24) consecutive hours. All work performed in excess of the normal workday or in excess of the normal workweek, or on a day off, shall be paid one and one-half (11/2) times the straight hourly wage plus regular day’s pay, or one and one-half (11/2) times the daily rate of pay, whichever is the higher. Doorman does not get paid for lunch hour.

Article 12


The Company shall have the right to discipline or discharge employees for just cause. Any disciplinary action taken for minor infractions shall be progressive and will include:

a. written warning

b. written reprimand

c. suspension

d. discharge


The grievant is a night-shift doorman of an apartment building. He is required to work an eight-hour day. Beginning in August 1999, the grievant was sent a letter containing the caption “Second Warning,” which spelled out specific instances when he was away from his post for at least a half hour. He was reminded in the letter that his work hours were 3 p.m. to 11 p.m., with an hour off for dinner and reasonable bathroom breaks. Other than that, he was expected to be at the door. In July 2001, a new collective bargaining agreement (CBA) was entered into that changed the grievant’s work shift to 3 p.m. to 12 p.m., with an unpaid hour for dinner. In August 2001, the company’s vice president (“VP”) sent a registered letter to the grievant in which she pointed out that he was not working a full 40-hour week. She concluded that letter by stating to him, “Effective immediately, you will work an eight-hour day and a 40-hour week. If you continue to work a short week, you will be suspended without pay.” The VP had observed that in addition to the unpaid dinner hour, the grievant was regularly away from his post for 15- or 30-minute periods. This August 2001 letter did not contain any language indicating that it was a warning. In October 2001, the VP asked the building superintendent to document the actual hours being worked by the grievant. The superintendent monitored videotape records from security cameras in the building and documented the grievant’s actual hours of work. He showed that the grievant was not working eight hours during his nine-hour shift. The VP sent another letter to the grievant in which she advised him that he was being suspended for a one-week period. The union contends that this suspension was not for proper cause and filed this grievance.


Was there proper cause to suspend the grievant?

Position of Parties

The company states that the CBA is clear and unambiguous and that it required that employees work an eight-hour day. The grievant has a history of not working the required number of hours in a workday, and he was warned in August 2001 that if he continued not working a full eight-hour day, he would face the consequences of a disciplinary suspension.

It is the union’s position that the company is required to provide employees full and adequate notice of an offense before discipline can take place and that it failed to do so in this case. When the grievant received a warning in 1999, the letter was clearly labeled as a warning. The letter the VP sent to the grievant in August 2001 did not spell out that it was a warning letter. Further, under the contract that was in effect prior to July 2001, the grievant worked a shift beginning at 3 p.m. and ending at 11 p.m. In July 2001, the shift changed, and it ended at midnight with an unpaid dinner hour. The union argues that no one from management ever explained these changes to the grievant and thus that management was to blame for the grievant’s misunderstanding of the work hours.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer and/or the union have taken to avoid this conflict?

Source: Adapted from Sagamore Owners, 116 LA 1574.

Chapter 9 Job Security and Seniority

Employers in the railroad industry contract talks propose to consolidate engineers, conductors, switchmen, signalmen, firemen, and oilers into a generic “transportation employee” category. The unions oppose the proposal because it would eliminate minimum crew sizes, which are based on a certain number of each craft working on each train and, therefore, would reduce the number of union jobs. Thus, the core issue for the 155,000 union employees and the five largest U.S. railroads was job security.

Source: © Peter Titmuss/Shutterstock.

The issue is jobs. You can’t get away from it: jobs!

Studs Terkel (Pulitzer Prize-winning Author)

Chapter Outline

9.1. Job Security

9.2. Seniority

9.3. Calculation of Seniority

9.4. Promotions

9.5. Layoff and Recall Rights

9.6. Advanced Notice of Shutdown

9.7. Determining Ability

9.8. Company Mergers

9.9. Employee Teams

9.10. Successorship

9.11. Employee Alcohol and Drug Testing

9.12. Social Media Usage

9.13. Public Sector Security Issues

Labor News Railroad Unions, Carriers Clash Over Jobs

The contract talks between the five largest U.S. railroads and the unions that represent about 155,000 employees focused on one issue—job security. Don Hahs, president of the Brotherhood of Locomotive Engineers and Train men, which represents about 30,000 engineers and other railroad workers, said the key issue was the employers’ proposal to do away with the traditional crafts, which most unions are based on, and consolidate them into a “transportation employee” category under one collective bargaining agreement. The unions oppose the proposal for three primary reasons: (1) The elimination of minimum crew sizes (based on a certain number of each craft working on each train) would reduce the number of union jobs; (2) the railroad unions are largely organized by crafts (engineers, conductors, switchmen, signalmen, firemen, oilers, and maintenance of way), and the consolidation into one job category would cause conflict among the unions; and (3) safety—the reduction from two workers (engineer, conductor) to one (transportation employee) on most trains may present a public safety problem.

Robert Allen, chairman of the National Carriers Conference Committee, which represents Burlington Northern and Santa Fe Railway Co., CSX Transportation, Kansas City Southern Co., Norfolk Southern Railway Co., and Union Pacific, believes the current contract requires more workers than are needed on today’s modern trains, which are guided by improved technology. Consolidating employee crafts and reducing crew sizes is the goal of the carriers, according to Allen, and “when we can safely operate with one person, that’s what we’re after.”

After two years of negotiations, a new five-year contract (2007–2012) provides the job security sought by the union, as well as wage increases and a cap on health insurance premiums. “We were able to keep the carriers (management) at bay,” said Hahs.

Source: Adapted from “Unions Fight Freight Rail Carriers’ Bargaining Proposals,” 2005 Source Book on Collective Bargaining (Washington, DC: Bureau of National Affairs, 2005), p. 107. Available at www.ble.org. Accessed February 8, 2008.

Job Security

Over the years, workers’ interests and demands regarding job security have never waned. Together with wages and benefits, union negotiators view job security as a top priority in both good and bad economic times. Many view job security as simply meaning the guarantee of work. However, in reality it means much more, including the rights to remain employed during times of layoffs, rights to promotion opportunities, and to a fair hearing in cases involving discipline, as well as the need to have work performed by employees within the company rather than subcontracting or increasing the use of automatic equipment. The ultimate job security employment situation occurs in some other countries where, after a probationary period, employees are guaranteed a job with good wages and benefits for their entire careers as long as they continue to produce satisfactorily. At the other end of the job security continuum are the hypothetical situations in which management might fire, promote, or lay off employees without rationale or consideration for experience and productivity. Negotiating for better wages or working conditions would be meaningless if management could, without reason or with biased intentions, terminate employees or remove jobs from the workplace. As Studs Terkel said about job security and seniority in the chapter-opening quote—“the issue is jobs. You can’t get away from it: jobs!”

For example, a three-year-long and often bitter labor dispute between Anheuser-Busch (makers of Budweiser and Michelob) and the International Brotherhood of Teamsters (which includes bottlers, brewers, mechanics, and truck drivers) ended in July 1999 with a new four-year contract. In one case, after more than two years of failed negotiations, Anheuser-Busch imposed its final offer—paying the average Teamster, with overtime, $66,000 a year. Why did the union reject an offer that included the highest pay in the brewing industry? Job security. The members wanted a job security provision and struck the St. Louis plant when negotiations reached an impasse.

The concept of job security has also been termed 
industrial jurisprudence
 by Sumner Slichter. His concept contains the primary ingredients of job security in today’s collective bargaining: seniority as a determining factor in layoffs, promotions, and transfers; control of entrance to the organization or trade; seniority as a determining factor in job assignments; negotiated management change and work methods and introduction of new machinery; and negotiated wage rates.
 Industrial jurisprudence generally embodies the principle that a single individual or group of top management officials will not determine the operation of the organization. Instead, the employees are given some rights to guarantee input into important decisions regarding their employment.

Industrial jurisprudence

The system of rules and regulations that labor and management fashion to define their specific employment rights and obligations in the workplace.

The ultimate labor–management conflict over job security is a basic and important one. Management believes that it needs to have a free hand in the operation of the workplace to maximize profits and exercise its abilities. In contrast, labor believes that employee experience and skills are critical to productivity. Employees require some protection against unreasonable managers as well as guarantees that important decisions, such as promotions and layoffs, will be made rationally and that favoritism or union busting will be avoided.

Beginning in the 1930s, seniority-based procedures, such as the last-hired, first-fired rule, became common layoff and recall decision criteria. Various theories support this rule, including the human capital theory, in which employees increase their productivity with experience and rational employers want to retain the more productive employees; the implicit contract theory, in which the career strategy of employers encourages employees to commit themselves to steady productive work (thus, laying off senior employees would cause worker distrust in any career planning); and the internal labor market theory, in which collective bargaining produces rules and procedures to ease the tension between the parties. Seniority-based layoff procedures are a prime example of such rules in limiting management’s actions and increasing employee loyalty.

Last-hired, first-fired

Senioirty-based procedure for the order of layoff and recall to keep the most experienced employees.

The Great Recession of 2008 caused hundreds of thousands of workers to be permanently laid off. Permanent layoffs are of particular concern to employees because layoffs result in

The “last-hired, first-fired” rule is often used in layoffs because the employees’ past job performance is not an issue.

Source: Steve Miller/AP Images.

significant reductions in earnings over the course of employees’ work lives. Thus, employees have even stronger expectations that, during economic downswings, employers will reward loyalty.
 The last-hired, first-fired rule has caused lower permanent turnover rates among union workers in comparison with nonunion workers along with more frequent temporary layoffs in the union sector because of senior union members’ preference for short layoffs, allowing them to maintain their seniority.

Job security can be provided through a number of contract provisions. About 95 percent of contracts contain one of the job security provisions listed in 
Table 9-1
, and most contain three or more. In general, contracts with larger unionized workforces contain more job security provisions. Job security, along with wages, health care, and pension benefits, often ranks as one of the top negotiation priorities, especially during hard economic times.
 However, union negotiators may claim that, in contrast to wages and benefits, job security provisions may not become direct costs to an employer over the life of a contract; they may only determine which workers are promoted, trained, given scheduling preferences, and so on.


seniority system 
is a set of rules governing the allocation of economic benefits and opportunities on the basis of service with one employer.
 It is by far the most commonly negotiated means of measuring service and comparing employees for promotion and layoff–recall decisions, thus providing job security.

Seniority systems

A set of rules and procedures within an agreement that determine the allocation of certain job situations including promotion, layoff and recall, as well as certain economic benefits based on length of service.

Seniority is perhaps the most important measure of job security to employees, and the issue of seniority is popular among unions and viewed as critical to job security. Seniority is highly visible because it is so easy to define and measure. Normally, it is calculated in terms of days, beginning with the employee’s date of hire and, with a few exceptions, continues over the years during the employee’s tenure. Union negotiators will vehemently claim that management, in the absence of a job seniority system, will make promotion, layoff, and other decisions solely on the basis of possible short-run cost savings or individual biases rather than on the objective criteria that seniority easily provides. These criteria include the employee’s loyalty to the company and his or her skills and productivity, which increase with time spent on the job.

Table 9-1

Types of Job Security Provisions in Contracts

Source: Adapted from The Bureau of National Affairs, 2002 Source Book on Collective Bargaining (Washington, DC: BNA, Inc., 2002), p. 59. Used by permission. Copyright © 2002 by the Bureau of National Affairs, Inc.

Percentage of Employees

By Industry

By Size of Bargaining Unit

All Employees





Layoff and recall rights












Subcontracting restrictions






Advance notice of shutdown






Transfer rights












Flexible work scheduling






Professional development program






Retraining program





Shared work






Management may argue that time worked on the job is only one measure and the employee’s performance record (as well as other criteria, especially performance appraisals completed by supervisors) should be considered. However, performance appraisal systems often depend heavily on supervisors’ objectivity and ability to evaluate individual performance honestly and thoroughly, which is often very difficult. Therefore, performance appraisals are often viewed by unions as subjective and do not guarantee employees the objectivity and consistency they expect when promotion or layoff decisions are made.

To define fully the concepts of seniority, it may be helpful to distinguish between unionized and nonunionized employer–employee relationships. Seniority systems are not required by federal or local laws, nor are they an inherent right of employees. However, seniority is a mandatory subject in the collective bargaining process. Strict formal seniority systems are commonplace in virtually all unionized organizations, but they are rare among nonunion employers. However, nonunion employers often consider seniority a factor when making promotion or other employment decisions. In most of the contracts surveyed, seniority played a critical role in the determination of promotion, transfer, and layoff decisions.

Calculation of Seniority

In general, seniority is considered to be the process of giving preference in employment decisions on the basis of the length of continuous service with the company. When seniority is involved in promotion considerations, it may be defined as preference in employment on the basis of the length of continuous service and the ability and fitness of the employee to perform the job. New employees generally begin acquiring seniority on the date they are first hired. In the case of two or more employees hired on the same date, the exact time of hire or the alphabetical listing of their last names may determine seniority. Often, however, seniority is not awarded to employees until after the probationary period, even though they begin accruing seniority from their date of first hire.
 The contract clause that specifically defines seniority can be quite fairly detailed. Some clauses may be fairly brief, such as the following seniority provision from the agreement between Anaconda Aluminum Company and the Aluminum Workers Trades, AFL-CIO:


Section 1

. Plant seniority is defined as an employee’s length of continuous service at Anaconda Aluminum Company, division of the Anaconda Company, Columbia Falls reduction plant in Columbia Falls, Montana.


Section 2

. Departmental seniority is defined as employee’s length of continuous service in a department of the plant.


Section 3

. Granted leaves of absence, vacations, and jury duty will not be considered as a break in service. The applicable federal and state laws shall determine reemployment rights of employees who enter the armed forces.

Seniority List

Most agreements require the company prepare and post a 
seniority list
 so there will be no question about employee, department, or plant-wide seniority. There must be total agreement as to the exact calculation and order of employees on seniority lists. The method of displaying seniority lists is usually a matter for local negotiation between labor and management. Many contracts provide that seniority lists are updated on a regular basis and contain the employee’s name, occupational group or department, any specific skilled trades, date of entry, and related seniority. Any disputes over seniority lists are usually taken through the grievance procedure for resolution, as seen in Case 9-1.

Seniority list

A company list used to identify employees in a bargaining unit according to their length of continuous employment.

CASE 9-1 Dovetailing Seniority Lists

Employees worked for an unincorporated division, Division 1, of the company. The company also operated a second incorporated division in another state, Division 2. Each division had a separate collective bargaining agreement (CBA).

The company announced plans to relocate the Division 2 operations and workers to Division 1. It proposed to “dovetail” (i.e., integrate) the Division 2 seniority list into the Division 1 seniority list. The alternative would have been to “end-tail” the Division 2 workers, that is, treat them as new employees and eliminate their Division 2 seniority. The workers at the Division 1 plant filed a grievance protesting the dovetailing proposal, and the matter was submitted to arbitration.

The basic dispute that drove the arbitration was whether Division 1 and Division 2 were separate “employers” or whether the company should be considered the “employer” of the workers at both divisions. Under both CBAs, the term “employer” was defined as the division, “seniority” as “continuous service with the employer,” and the company was not mentioned by name.

The company argued that it was the employer for both divisions. It pointed out that Division 1 was not a separate legal entity. It operated out of the same facility as the company until 1987. The two divisions had the same president and the same accounting and administrative staff. Both divisions had substantially the same working conditions and pay rates. And virtually all the work was interchangeable between workers in the two divisions.

The employees of Division 1 argued that neither of the CBAs provided for the consolidation of the two divisions and that a “no-modification” clause in both contracts precluded the dovetailing of the seniority lists.


The arbitrator found, nonetheless, that the company had the authority to dovetail the two seniority lists. First, the arbitrator determined that the company was the de facto employer of the workers at both divisions based on the history of company’s development, the shared administrative and executive operations of the two divisions, and the fact that “Division 1” was merely an unregistered trade name, not a separate legal entity.

And although the two CBAs did not explicitly provide for dovetailing, they did not preclude it either. Allowing for dovetailing was a permissible interpretation of the agreement under the changed circumstances presented by the consolidation of work. As the arbitrator noted, the “grievance and arbitration procedures are part and parcel of the ongoing process of collective bargaining. It is through these processes that the supplementary rules of the plant are established.”

Source: Adapted from Division 1 v. R.W.F. Inc., 144 LRRM 2649 (1993).

Depending on the particular labor agreement, seniority rights are vested within a variety of employee units. The most common unit is plant-wide seniority, in which an individual employee receives credit that becomes applicable whenever that employee competes with any other employee from another unit for the same position. Plant-wide seniority first appeared in the E. I. duPont and Neoprene Craftsmen Union contract in 1943. That year, according to union negotiator Archie V. Carrell, it was the top priority of the members, who wanted job security over members of a new production unit being acquired. Thus, the provision in 1943 stated that “with respect to reduction of force,” seniority shall be determined by “length of continuous service at the plant,” therefore providing security to current union members over those of the new unit.
 All employees of the new unit, therefore, began with zero seniority like those of Division 2 in Case 9-1.

Other common seniority units include departmental, trade, classification, and companywide. In a departmental seniority system, employees accrue seniority according to the amount of time they worked within a particular department, and that seniority credit is valid only within that department.
 For example, an employee with 11 years seniority in Department X could not successfully compete with an employee with seven years in Department Y for an open position in Department Y.

Classification seniority, similar to departmental seniority, provides for employee seniority only within the same job classification. Companywide seniority systems combine all employees from various locations and types of facilities. When two employees compete for an open position in a companywide system, individual experience, length of service, and related departments or job classifications are not considered, only the seniority with the company. This provision makes companywide seniority the most impractical and infrequently used.

Companies often use a seniority system combining plant-wide seniority with departmental seniority, thus giving two different forms of seniority. Plant-wide seniority may be used for determining layoffs, vacations, and other specific benefits. Departmental seniority is often used to determine eligibility for a promotion or a transfer so employees with specific skills and related job experience can be considered for new positions. However, in the case of layoffs, it is often believed that employees’ total work experience, and therefore their plant-wide seniority, is the most important job security factor.

In situations involving layoffs, seniority systems often use bumping (63 percent of all contracts). 
 occurs when employees with greater seniority whose jobs have been phased out have the right to displace employees with less seniority. Most bumping clauses require that bumping employees be as qualified as the junior employee.
 For example, in one case, an arbitrator denied a more senior employee the right to bump a junior employee because the agreement specified that to bump another employee a person must be qualified to perform the work. The senior employee had been fired for poor performance and then reinstated. When he tried to bump a junior employee, the company denied his request. The arbitrator upheld the denial, citing the agreement language because the senior employee was not as qualified as the junior employee.


A procedure commonly used during layoffs, in which employees with greater seniority whose jobs are eliminated displace employees with lesser seniority. Bumping is more often used in companies with plant wide seniority in unskilled jobs.

Seniority and the Americans with Disabilities Act

In a historic decision, the Supreme Court ruled that an employee is not entitled to a job assignment as a reasonable accommodation of his or her disability under the Americans with Disabilities Act (ADA) if the assignment would conflict with the rules of a seniority system. The decision in U.S. Airways, Inc. v. Barnett supported seniority systems when they are in conflict with the ADA in a similar situation. In the case, Barnett, a freight handler, injured his back and then used his seniority to transfer to the mailroom. Two senior employees exercised their seniority, however, and bumped Barnett from the mailroom. Barnett asked to remain in the mailroom as a reasonable accommodation of his disability. U.S. Airways declined his request because it would have been counter to the seniority system in the contract. The Equal Employment Opportunity Commission concluded that U.S. Airways had discriminated against Barnett by denying him reasonable accommodation. The Supreme Court, however, held that the requested accommodation was in conflict with the rules of a bona fide and established seniority system and thus was not a reasonable accommodation.
 Thus the Supreme Court upheld seniority rights over employee rights under the ADA when they come in conflict.

Under the GM–UAW master contract, UAW workers from a GM plant in Baltimore were given superseniority over all other workers—both new employees and those transferred to the GM Shreveport, Louisiana, plant when it first opened. Many of the UAW workers deeply resented the Baltimore workers’ superseniority and called them “Baltimorons” because of their higher seniority rights.
 source: Steve Ruark/AP Images.


Union officers and committee personnel may be given preferred seniority rights for layoff and recall situations. Often referred to as 
, it is granted in the collective bargaining agreement so that union stewards and other labor officials will continue to work during periods of layoff, thus enabling the union to continue to operate effectively. When agreeing to superseniority for the union, management may ensure that certain labor relations personnel be similarly protected against layoffs. Some superseniority clauses require that protected union officials have the ability to perform available work or that superseniority is provided only within departments or job classifications. Others limit superseniority to those union officials who perform steward duties, such as grievance processing and contract administration.
 Superseniority may also be given in unique situations involving a national contract and local plants.


The special seniority rights granted to union officers and committee personnel that override ordinary seniority during layoffs and recall situations in order to maintain active union representation within the company.

The value of superseniority depends on the frequency and degree of layoffs typically experienced by the company. In some cases, it is virtually meaningless because union stewards and officials have high levels of seniority from their many years of experience with the union and company.

The labor agreement should explicitly specify under what conditions an employee might lose seniority. Virtually all contracts provide that employees lose seniority if they voluntarily quit or are discharged. Employees who do not report back to work after a vacation or other leave of absence for an excessive period of time may also be deprived of their seniority. Usually employees on layoff retain and accumulate seniority for a period of time specified within the agreement.


Management often disagrees with the use of seniority as the sole factor in promotion decisions. The Bureau of National Affairs estimates that seniority is a determining factor in promotional policies as provided by collective bargaining agreements in 67 percent of labor contracts. However, only 5 percent call for promotion decisions based on seniority as the sole determiner. Another 49 percent provide that the most senior individual will receive promotion among those equally qualified, and 40 percent provide seniority as one factor along with “skill and ability, with management determining ability.”

Some contract clauses that allow promotion according to seniority simply state that promotions to fill vacancies or new job positions on a permanent basis are based on length of service within the company and employee skill and ability. Determining which employees have the required skill and ability can be difficult and subjective. Management generally contends that promotion should be based on an employee’s individual performance and required skills as well as length of service.

When labor agreements provide that promotional decisions will be made according to seniority and job skills, it is difficult to determine the weight of each factor and the measurement of individual skills. Although seniority is a factor in promotion decisions in most labor contracts, it is usually not considered to be as important as the ability to perform the job. Quite frequently, ability becomes the dominant factor. When management decides to promote a less senior employee on the basis of higher demonstrated ability, employee grievances may result. Management must prove that the junior employee has greater ability to perform the job, as measured by tests, past performance, training, and so on.

Managers may argue that making important promotional decisions solely on length of service takes away employee incentive. Employees will tend to perform at the status quo, knowing they cannot be promoted before all the senior employees and that, when their turn comes, no one can take the promotion away from them. Labor leaders point out that seniority can be measured objectively and easily. Therefore, promotion decisions based on seniority are far less subject to supervisor bias or the inability to assess individual performance and skills correctly.

Arbitrators have generally held that management has the right to judge, weigh, and determine qualifications as long as the methods are fair and nondiscriminatory. However, if a clause provides that seniority alone is the deciding factor, then management cannot promote a “better qualified” person if the senior employee is “capable of doing the work.” When ability and seniority are equal factors, arbitrators generally allow management the right to make the selection, subject to a union challenge that the decision was unreasonable (given the facts), capricious, arbitrary, or discriminatory. In most disputed cases, the employer’s decision is supported, and when the position is a supervisory one, management has unquestioned authority. However it is important to note that contract clauses dealing with promotion apply only to positions within the bargaining unit.
 Why? It is generally held that management has complete authority to “select its own”—meaning managers. And, unless clearly restricted by the agreement, it is also generally held that management has the right to fill temporary vacancies in the bargaining unit caused by illness, vacations, and so forth.

Job Bidding

It is quite common for the 
job bidding
 process to be detailed in the labor agreement to minimize misunderstandings and grievances and to increase employee morale. An example of the detailed job bidding process follows in the agreement between C. Lee Cook Division, Dover Resources, and the International Association of Machinists and Aerospace Workers, AFL-CIO, 2007–2012:

Job bidding

The process of a company posting notices of new job positions to give permanent employees the opportunity to apply. Bids are based on plant seniority and competency and fall into three categories: (1) up-bid, a bid from a lower to a higher pay grade; (2) down-bid, a bid from a higher to a lower pay grade; and (3) lateral bid, a bid from one classification to another classification in the same pay grade.

Article XII


Section 7
—Job Bidding

A. The Company will post classification openings on the bulletin board for a period of three workings days. Bids will be accepted on all classification openings plus any classification not posted. Pre-bids will be accepted on all classifications and must specify job classification desired. Pre-bids will be purged on February 1st of each year.

After the three-day posting bid period, the posted opening will be filled from bids on hand, including pre-bids. Any jobs that become open as a result of filling the posted job will be filled from the bids and pre-bids on hand at the time of posting. If any employee leaves the newly assigned job for any reason, as second, third, and etc., selection will be made from the remaining original bids until a successful applicant is found or a new hire could result.

B. Qualifications will be based on the following:

1. Seniority

2. Skill and Ability

3. Experience

If Nos. 2 and 3 are equal, No. 1 will prevail. Seniority shall be on the basis of classification seniority first, if any exists among those employees bidding on the job and Plant-wide seniority second, if no classification seniority exists.

C. Job Bidding—Pay Rate. In job bidding, the employee’s pay rate will be determined as follows:

1. Employee bidding upward:

a. An employee bidding upward will be paid his present rate.

2. Employee bidding laterally:

a. A rated employee bidding laterally will be paid the bottom of the “A” rate.

b. A trainee bidding laterally will enter the classification at his present rate of pay.

3. Employee bidding downward:

a. Employee whose present rate of pay is higher than the “A” rate of the job to which he has bid, will enter the new classification at the bottom of the “A” pay rate.

4. Any employee may bid back into a classification in which he has classification seniority. If his previous rate, plus contract increases, was higher than the bottom of the “A” rate, this will be his new rate. If less, Item No. 2a or b will apply.

D. Multi-Job Bids. When a job bid is posted for more than one opening in a classification, and two or more employees covered by the contract bid on it, the seniority dates entering the new job classification will be staggered so as to maintain the same seniority status that exists plant wide among these employees accepting the jobs.

E. Employees will be limited to a combination of three bids in any one-year period. These will consist of upward, lateral, or downward bids. Where any employee signs a job bid, is offered the job, and refuses (the job), he will be charged with one of the three allowed bids. When more than one job is posted with the same date, employees will be charged with only one bid regardless of how many of the posted jobs he may be offered.

Layoff and Recall Rights

Agreements often specify seniority as the sole decision criterion in 
and recall situations. Employers may argue that ability should be a greater factor in determining layoff and recall of employees. However, because layoff and recall situations are usually seen as temporary, management’s argument against the use of seniority is considerably weakened. Also, in layoff and recall situations, there is less of a question of the employee’s ability because he or she had been performing the job satisfactorily before a layoff occurred. Thus, management has little room to argue that seniority is a more valid criterion in layoff and recall than in promotion decisions.

Layoff and recall rights

Contract provisions that specify how seniority, ability, and other factors will be used to determine the order of employee temporary job layoffs and job recalls.

In most labor contracts, probationary employees are to be laid off first, with further layoffs made in accordance with plant-wide seniority as necessary. Laid-off employees may be given the opportunity to exercise their plant-wide seniority and bump employees at the bottom of the seniority list rather than be laid off. When skilled trades or other specialized job classifications are involved, layoffs commonly occur by seniority within the trades or classifications. Most agreements also provide that the company gives reasonable notice and reasons for upcoming layoffs to the unions. If the workforce is increased after a layoff, contracts usually provide that laid-off employees be recalled according to plant-wide seniority for appropriate jobs.

Profile 9-1 Teacher Layoffs: Based on Seniority or Merit?

The 2008 Great Recession brought to the forefront an issue which had been simmering for years. The issue? How should K–12 teachers be laid off—according to seniority or merit? State budgets in many states with K–12 teacher unions such as California, Ohio, New York, Illinois, and New Jersey faced historic deficits and thus hundreds of layoffs resulted. In most states union agreements required that layoffs be decided solely by seniority, also the most common criteria in private sector agreements. Thus the newest teachers would be let go first under the “last in, first out” criteria of seniority. In Illinois, however, a new state law permits the use of merit as a criterion, and thus the least competent teacher to be let go first.

Supporters of the use of seniority only point out its advantages; it rewards loyalty, layoffs are not the fault of those involved, and in many cases merit is difficult to determine—for 
example 99
 percent of Chicago’s teachers are rated “excellent” or “superior,” only 1 percent “unsatisfactory”—and finally seniority is easy to calculate and use as a criteria. Supporters of using merit to decide layoffs, however, believe that principals know who are the worst teachers and if given the authority could make the decisions based on merit. In addition, according to Kate Walsh, of the National Council on Teacher Quality, “weeding out the weakest teachers and keeping the most effective” makes the most sense. Arizona is the only state to ban the use of seniority in cases of layoff and recall, although other states make teacher performance, or merit, a factor in hiring and promotion decisions, as well as seniority, and may follow Arizona’s lead in layoffs.

Source: Adapted from Pat Wingert and Evan Thomas, “Chicago’s Lesson in Layoffs,” Newsweek (July 26, 2010), p. 41.

A hot issue in education is which criteria, seniority or merit, should be used in cases of teacher layoffs. Which would you support?

Source: ZUMA Press/Newscom.

Contract layoff procedures may fall into four general categories: (1) layoff based entirely on seniority, (2) layoff based on seniority among those employees who management feels are capable of performing the work, (3) layoff based on seniority only if ability and other factors are equal among affected employees, and (4) the least common criteria, layoff based on past performance. See Profile 9-1 for a discussion of these controversial criteria. When the last three methods of layoff and recall procedures are used, grievances are likely to be filed because of the subjectivity of determining an employee’s ability to perform work, especially when bumping is used and employees are performing new jobs.
 If a contract provides that seniority and equal ability will govern in layoff and recall decisions, arbitrators are likely to interpret equal as meaning not exactly equal but relatively equal. When contracts provide that ability should be part of the determination in layoff and recall decisions, arbitrators’ awards have suggested that certain guidelines be considered.
 Some of the guidelines include the following:

1. When seniority is considered a governing criterion if ability to perform the work is relatively equal, then only the employee’s seniority should be considered.

2. A junior employee could be given preference over a senior employee if the senior requires a much greater amount of supervision in performing the job.

3. Senior employees can be required to demonstrate ability to perform the work by passing a test that would qualify them for jobs held by junior employees.

In cases involving temporary or emergency layoffs, management is often given more flexibility in selecting employees than in indefinite layoffs. If the contract does not specify differences in procedure involving temporary layoffs and indefinite layoffs, arbitrators have generally held that ordinary layoff procedures must be followed even where the lack of work lasted only a few hours or one to two days. However, the more common ruling of arbitrators in such situations has been that cumbersome seniority rules need not be followed to the letter in a brief layoff. Arbitrators have even held that in layoffs caused by emergency breakdowns or natural or unforeseen disasters, seniority rules can be disregarded if necessary. However, if the application of seniority rules in the contract does not cause a hardship during the emergency, the employer is advised to follow the contract layoff procedures.
 The following is a concise layoff and recall contract clause setting forth the procedure and notification requirements and possible emergency exceptions:

Article XII

Section 5—Layoff Procedure

A. When it becomes necessary to decrease the work force, the following provisions shall be applicable:

1. Probationary employees shall be the first to be laid off.

2. Additional layoffs, if necessary, shall be on a Plant-wide basis in reverse order of seniority.

3. When a cutback is necessary, the procedure will be to determine where every employee would be rolled up into the new classification structure. When established, the reduction will be by classification seniority.

4. Any employee involved in a reduction of the working force with more than three (3) years plant-wide seniority may exercise his right to bump at the time of the layoff another employee in any classification (excluding labor grades within classifications where no seniority is accrued), provided he has more classification seniority than the lowest senior man in that classification.

B. Employees removed from the classifications(s) as listed in Items 3 and 4 will then be placed in the vacancies created by the Plant-wide Seniority layoff. Such placements in the vacated jobs shall be on the same selection basis as job bidding. Jobs will not be posted.

C. Recall. An employee who has been laid off is subject to reemployment (recall) when work becomes available on the following basis:

1. Job openings to be filled will be posted and made available to working employees through the job bidding procedure.

2. If no bids are received, laid-off employees will be recalled on the basis of Plant-wide Seniority.

Typically, the only exceptions to the use of seniority as the total or partial determinant in layoff and recall decisions occur when probationary employees are laid off first without any discussion of ability to perform or in cases involving superseniority when union officials are laid off last.

Layoffs and Affirmative Action Plans

Regarding seniority rights involving layoffs by companies or governmental agencies subject to court-ordered affirmative action plans, the Supreme Court, in Firefighters Local Union No. 1784 v. Stotts,
 upheld a seniority system, even though the resulting layoffs adversely affected blacks hired under a consent decree to remedy past discrimination. The Court would not allow the consent decree, which had not dealt with the layoff issue, to be given preference over a collectively bargained seniority system. Labor leaders generally defend the protection afforded by seniority systems as necessary to preserve a basic negotiated job right. They argue that changed hiring practices giving women and blacks more job opportunities will eventually lead to their seniority in the various systems. Increased employment and secure job rights will accomplish the desired affirmative action goals without adversely affecting the senior worker. Since the 
Stotts case
 seniority rights have generally been upheld over Affirmation Action rights in cases of layoffs when the two are in conflict.

Advanced Notice of Shutdown

Worker Adjustment and Retraining Notification Act

In 1989, the Worker Adjustment and Retraining Notification Act (WARN), more commonly known as the Plant Closing Act, became effective.
 The general purpose of the law is to “warn” workers and local communities of plant closing or mass layoff decisions by requiring employers to provide advance notice in either situation. The U.S. Chamber of Commerce strongly opposed the plant closings bill. However, corporate officials at Ford Motor Company, Eastman Kodak, Whirlpool Corporation, and other companies noted that WARN mandates less notice than most firms have voluntarily given workers.

Stotts case

Supreme Court upheld a CBA seniority system even though the layoffs adversely affected blacks hired under a court order to remedy past discrimination.


Commonly known as the Plant Closing Act, WARN became effective in 1989 and generally requires employers to provide 60 days of advance written notice to employees and communities of either a plant closing or mass layoffs.

The act requires employers to provide 60 days’ advance written notice of either a plant closing or a mass layoff once the decision is made by management. A plant closing is defined as the permanent shutdown of a single site or one or more operating units that causes an employment loss of 30 days or more for 50 or more employees, excluding part-time workers. The law requires written notification even when other employees remain working if 50 or more are included in the shutdown. Advance notice of a temporary shutdown decision is required if the action affects, for more than six months, at least 50 employees and 33 percent of all employees—or whenever 500 or more employees are affected. Advance written notice of 60 days is also required when mass layoff decisions will affect at least 50 full-time workers and 33 percent of all employees or whenever 500 or more are affected.

Employers covered by the act include most private sector and nonprofit organizations that employ 100 or more full-time workers. Federal, state, and local government operations are not included in the law. Major exemptions from the law include sudden and unforeseen economic circumstances, natural disasters, and faltering companies actively raising capital to keep a facility open.

The greatest advantage of advance notification is that workers and their community are given time to prepare for the action. For example, workers near retirement may inquire about the status of their pension and decide to retire without unnecessary psychological strain. Other workers may choose to enter retraining programs offered by the employer or community agencies, and some will secure new jobs and thus avoid weeks or months of unemployment. In some cases, the additional notice can provide the time necessary for community, union, and company leaders to find a means of keeping the plant open. A most persuasive argument is simply the humanitarian issue. Studies show that the incidence of alcoholism, suicide, child abuse, ulcers, and heart attacks increases to an alarming extent when workers are subject to plant closure.

In another case, the Court found that, because the federal act had no time limitations on the bringing of a suit under it for failure to comply with its provisions, the laws in each state would be applied to determine the timeliness of the lawsuit. This interpretation will mean that in one state an employee might have one year to bring a suit against the employer for failure to notify of a plant closing and that in another state an employee could have five years.

Determining Ability

In general, the burden of proof is placed on the employer to show that a bypassed senior employee is not competent for the job during promotions or layoff or recall actions. However, employers are not required to show that junior employees are more competent. When seniority and ability are given practically equal weight in contract clauses, arbitrators expect the employer to prove whether the ability factor was given greater weight than the seniority factor. In general, even though arbitrators may speak in terms of burden of proof when management’s decision regarding a passed-over employee’s ability is challenged, both parties are expected to produce any evidence supporting their respective positions.

Although it is generally agreed that management has the right to determine how ability is to be measured in cases involving promotion or layoff and recall decisions, there is no federal law or agreed-on formula to specify exactly how such decisions should be made. Management generally uses a variety of factors to determine the ability to perform a job, including performance, tests, a trial period, disciplinary records, merit evaluations, and education, as long as they are job related.
 The specific factors may be limited by the contract clause prevailing in a given situation. However, the absence of any such clause gives management the freedom to determine its own factors and measurements. The factors or criteria most commonly used to determine an employee’s ability to perform the job and make decisions of promotion or recall can be found in 
Table 9-2

Company Mergers

When separate companies or different entities merge, how the seniority lists of the two are combined becomes a critical question. The merger must specify which principle of combining seniority lists will be used. For example, in 2009, Delta and Northwest airlines negotiated a merger. But they needed the support of the Air Line Pilots Association, which represented the pilots of both airlines and had successfully derailed a hostile takeover of Delta by US Airways. The merger would make the new airline the largest in the world. The task for the union leaders of the two airlines was to choose a method of merging the seniority lists that would satisfy their members. The merged seniority list is critical because it determines job losses, pay, work schedules, and the size of aircraft the pilots fly. Thus, it was important to both the unions and the airlines to find a fair method of merging the two seniority lists.

Over the years mergers have utilized at least five common methods of combining the seniority lists of merged employees. One of the most commonly used methods is the 
Surviving group principle
, in which seniority lists are merged by adding the names of the employees of the acquired company to the bottom of the acquiring company. Thus, all the employees of the acquiring company receive greater seniority consideration than any employee of the acquired company.

Surviving group principle

Seniority lists are merged by adding the names of the employees of the acquired company to the bottom of the acquiring company.

Table 9-2

Factors Commonly Utilized to Determine Employee Ability to Perform

Source: Adapted from Frank Elkouri and Edna Elkouri, How Arbitration Works, 6th ed. (Washington, DC: Bureau of National Affairs, 2003), pp. 883–921.



Include written, oral, behavioral (work samples), physical ability, assessment center, decision making.



Direct experience on the job or experience with similar individual tasks or job functions.


Trial period

Temporary period in which applicant is provided opportunity so he/she can perform the job satisfactorily.


Supervisor opinion

Includes ratings of quality of work, job knowledge, cooperation, initiative, and ability to follow orders.



Job-related training, technical training, and formal education.


Production record

As a measure of ability and motivation, may be given high priority or even used as sole criteria.


Attendance record

Past poor attendance may be reason for an employee being passed over.


Discipline record

Past record of disciplinary actions may be considered.


Physical ability

Job-related physical fitness test results may be considered if it may limit employee’s ability to perform the job.



Attitude as exhibited by behaviors such as cooperation with others, willingness to perform new tasks, customer relations.

Another method, the 
length of service principle
, is used when an employee’s length of service is considered, regardless of which company he or she worked for before the merger; therefore, the two seniority lists are combined, with no employee losing any previously earned seniority. With the 
follow the work principle
, employees are allowed to continue previously earned seniority on separate seniority lists when their work with the merged company can be separately identified. The 
absolute rank principle
 gives employees rank positions on the merging seniority lists equal to their rank position on the prior seniority lists. Therefore, two employees are ranked first, followed by two ranked second, followed by two ranked third, and so on.

Length of service principle

Two seniority lists are combined and length of service is considered regardless of with which company the employees formerly worked.

Follow the work principle

Seniority lists maintain previously earned seniority on separate seniority lists when their work with the merged company can be separately identified.

Absolute rank principle

Seniority list maintains employees’ ranking position from prior seniority list on merged list.

ratio-rank principle 
combines seniority lists by establishing a ratio based on the total number of employees in the two groups to be merged. If group A has 150 employees and group B has 50 employees, the ratio is 3:1, and of the first four places on the new seniority lists, the three ranked highest in group A are given positions 1, 2, and 3, and the highest ranked position in group B are given rank 4.

Ratio-rank principle

Seniority lists combined by establishing a ratio based on the total number of employees in the two groups to be merged.

Any one principle, especially length of service, may be selected, or a combination of methods may be used to combine seniority lists of merged units or companies, with weight given to the different principles. For example, in a case involving the merging two airline pilot seniority lists, one-third weight was given to the ratio-rank principle and two-thirds to the length of service principle.

Mergers can also cause problems when one employer has a bargaining unit for a certain job classification, and the other employer is nonunion. For example, when Delta Airlines and northwest Airlines merged in 2009 the 14,000 flight attendants at Delta were not unionized, but the 7,000 flight attendants at Northwestern belonged to the Association of Flight Attendants union. The merger agreement recognized and maintained the bargaining unit and the existing agreement, but also imposed Delta policies after the merger. This led to a grievance filed by the union over the dress policies imposed by Delta over the former Northwest flight attendants. The grievance concerned the lack of availability of dress sizes over 18, and the requirement that orthopedic shoes must be worn with slacks. The union asked that the dress size maximum be increased to 28. Management claimed safety concerns were the reason for the 18 maximum. Delta denied the grievance and maintained policies that were in place before the merger.

Subcontracting, Outsourcing, and Relocating

Although few problems arise when there are specific contract restrictions on management’s rights to subcontract, management’s insistence on freedom in this area often leads to grievances. A grievance over management’s right to subcontract (or outsource) work during the agreement often results in arbitration. In the past, many arbitrators held that management has the right to subcontract work through independent contractors; however, in recent years, arbitrators have somewhat restricted this practice.

What is subcontracting? It has been termed the “twilight zone” of management rights in collective bargaining, and both labor and management consider it a headache. Basically, 
and outsourcing may be defined as arranging to make goods or perform services with another firm that could be accomplished by the bargaining unit employees within the employer’s current facilities.
 The decision was made, however, in a 1964 Supreme Court ruling, Fibreboard Paper Products Corp. v. NLRB, that subcontracting is a mandatory subject for collective bargaining.

Subcontracting/ outsourcing

The arrangement by an employer to have another firm make goods or perform work that could be accomplished by the employer’s own bargaining unit employees, usually because the subcontracted work can be done more efficiently or for less cost.

Contract provisions limiting subcontracting may carry over to new employers, as when the Communication Workers of America won a $6 million settlement from AT&T over subcontracting. The 130 workers who won reinstatement of their jobs claimed that AT&T had violated the subcontracting clause contained in their agreement with Pennsylvania Bell. The breakup of the Bell system shifted the workers to AT&T, where they were laid off, and their work, primarily wiring and installation of telephones, was contracted out. The union won reinstatement of their jobs and back pay for the 130 workers and, in addition, it won back pay for another 900 workers and resolved more than 100 pending arbitration cases.

An example of a contract clause limiting the ability of management to subcontract is provided in 
Figure 9-1
. This example is typical in that it allows management to subcontract work but only for less than 500 hours—probably for seasonal rush periods, and not if the subcontracting would cause layoffs.

Outsourcing as a threat to job security is a threat to many unions today and causes them to negotiate a 
scope clause
 in new contracts. A scope clause like the one negotiated by the International Association of Machinists and Aerospace Workers (IAMAW) with Comair in their 2005–2009 agreement prohibits the company from outsourcing mechanical work while any member of the union is on furlough. The IAMAW had witnessed the Delta Air Lines layoff of 2,000 nonunion mechanics and the shift of work to outside companies only a month earlier.
 Thus the machinists union feared their furloughed employees would be replaced by laid-off nonunion Delta mechanics.

Scope clause

Provision that prohibits outsourcing bargaining unit work while any union member is in layoff status.

Management’s right to subcontract is usually judged by arbitrators against the recognition of the bargaining unit, seniority, wages, and other clauses within the agreement. Standards of

Article V

Section 19.

(a) The Company agrees to notify the Business Manager of the Union, on a quarterly basis, of the hiring of any outside contractors to do planned work normally done by the regular employees covered by this Agreement that may exceed 500 hours of time. It is the Company’s intention that any contractors performing work on behalf of the Company do so safely and competently.

(b) In instances where it is necessary to contract for equipment, during periods of emergency, such equipment will be manned by regular Company employees if and when they are available and qualified to operate such equipment.

(c) It is the sense of this provision that the Company will not contract any work which is ordinarily done by its regular employees, if as a result thereof, it would become necessary to lay off any such employees.

Figure 9-1

Subcontracting Provision.

Source: Agreement between Duke Energy Ohio, Inc. and Local Union 1347 International Brotherhood of Electrical Workers, AFL-CIO, 2006–2009. Used by permission.

The Duke Energy Company’s CBA with IBEW only allows the company to bring in outside contractors during emergencies, such as storm power outages, and for fewer than 500 hours.

Source: Chuck Burton/AP Images.

reasonableness and good faith are applied in determining whether subcontracting has violated clauses in the contract. In general, management’s right to subcontract is recognized; provided it is exercised in good faith and no specific contract restriction exists. Arbitrators often recognize that signing a contract does not establish an agreement that all the jobs will continue to be performed by members of the bargaining unit unless this condition is specified within the contract. However, the company cannot undermine the unit by subcontracting for the sole purpose of getting rid of work done by union employees in favor of nonunion employees who are paid lower wages.

An issue intertwined with subcontracting is management’s decision to relocate work previously done at one location by union workers to another location that is generally nonunion. A Supreme Court decision in 1981, First National Maintenance Corporation v. NLRB, said that a management decision to eliminate work previously done by union workers was not a mandatory bargaining issue if the decision to eliminate the work was for economic reasons.
 Case 9-2 is a typical grievance about subcontracting.

CASE9-2 Subcontracting

Until January 1982, the company was in the business of installing and servicing equipment on trucks and selling parts. Since the 1950s, the employees had been classified as mechanic welders, painters, and utility men and were covered by collective bargaining agreements. It is undisputed that the company had been losing money since 1979 and that by 1981 three of the four remaining unit employees were on layoff status.

In 1981, the company was approached by two individuals with an offer to take over the company’s mounting and service work under a subcontract. An agreement was worked out, and the company hired the two parties as independent contractors for providing mounting and service work. The company was to lease its facilities and equipment to them. The subcontractor was to pay a percentage of the company’s rent and utility bills and to provide various kinds of liability and other insurance. The company reserved the right to hire other subcontractors but reserved no right to exercise control over the employees of the subcontractor. The company notified its employees and the union of the subcontract agreement, citing the dire economic conditions that required the subcontract. The union grieved the layoff of employees as a violation of the contract, protesting that outside employees were performing work normally done by members of the bargaining unit. While the grievance was in progress, the union conducted an audit of the company’s books and confirmed that the company was in a poor financial condition. The union offered to consider wage concessions to get the laid-off employees back to work, but the company declined because it deemed the concessions insufficient to address the cash flow problems. The company, citing the reversal by the National Labor Relations Board (NLRB) of the Milwaukee Spring decision, stated that before it can be found a company has violated the act by subcontracting during the term of the contract, a specific term contained in the contract must be identified that prohibits such subcontracting. In addition, under the Otis Elevator Company case, a management decision to subcontract was not subject to mandatory bargaining because the essence of the decision turned on a change in the nature or direction of the business and not on labor costs.

The company stated that its decision to contract out service work turned not on labor cost but on a significant change in the nature and direction of the business; therefore, the company had no duty to bargain. The company’s decision to subcontract was to reduce its overhead cost across the board so it could remain in business. To that end, the subcontractor agreed to pay a specified percentage of the rent paid by the company for use of the premises, plus a monthly fee for the rental of the equipment. In addition, the subcontractor agreed to pay a specified percentage of utility bills, to produce liability insurance, and to maintain workers’ compensation and other insurance. The company had made a decision to abandon its service and mounting operations. Therefore, on the basis of Otis Elevator, the company had no duty to bargain regarding its subcontracting decision.


Although the NLRB agreed that the company did not have to bargain its decision to subcontract, it found that the company unlawfully failed to bargain with the union about the effects of the subcontracting decision on union employees. The NLRB found that the company’s notice to the union that the subcontract had been entered into, and its failure to meet with the union and laid-off employees for two months after the subcontract, was not sufficient notice and a meaningful opportunity to bargain with the union about the effect of subcontracting on unit employees. The employees were awarded back pay, as is the customary remedy in such cases.

Source: Adapted from Gar Wood Detroit Truck Equipment, 118 LRRM (1985).

The NLRB decided in Milwaukee Spring II 
 and in Otis Elevator II 
 that the decision to relocate work for economic reasons was akin to eliminating work for economic reasons and, therefore, was not a mandatory bargaining subject. Nonetheless, although a decision to relocate either all or part of the business for economic reasons is not a mandatory subject of bargaining, a company must bargain over the effects of such a decision.

In Dubuque Packing Co. v. NLRB, however, the NLRB modified its position. Noting that a decision to relocate, subcontract, or outsource work rather than to eliminate work was not a change in the scope of the enterprise itself, just a decision to do the same work with other workers, the board found that it was a mandatory bargaining subject.
 Generally, unless an agreement contains specific language barring subcontracting, a union has difficulty stopping it. They are generally not successful in winning arbitration cases based on a mere implication that it harms the bargaining unit. This view on subcontracting changed in recent years; once consistently limited by arbitrators, now subcontracting is a common practice.

Tips from the Experts


What are some practical protections against employers’ relocating, outsourcing, or subcontracting?

1. Good contract language is the best protection against these employer actions. Good language would ensure no loss of jobs as the result of any of these actions during the life of the contract.

2. Include processes for meaningful union input into the debate prior to these decisions being made and into plans to ensure no adverse effects on present employees from such decisions if they are made.

3. Address plans for retraining and redeployment of existing staff if necessary, outplacement services, severance packages, reemployment rights, insurance and pension protections, and reasonable notice of any adverse action.


What are the best ways an employer can outsource, relocate, or subcontract without violating the law or a collective bargaining agreement?

1. Retain specific management rights in each area in the collective bargaining agreement with no restrictions or limitations.

2. Develop a credible business plan for when outsourcing, relocating, or subcontracting is necessary, in conjunction with budgeting, marketing, production, sales organizations, and so on, with buy-in from all who assist in its development, which is defensible to the employees, the media, the public, and whatever board, arbitrator, or judge will ultimately hear the issue.

3. Give timely and appropriate notice to union leadership and then to employees as well.

Employee Teams

A large portion of the work within most organizations occurs within groups. Most jobs do not exist in isolation but instead involve both formal work groups (departments, sections, and etc.) and informal groups of employees whose strong friendships affect their working relationships. The effectiveness of these 
employee teams
 can be critical to the success of the entire organization.

Employee teams

Employee involvement that creates an environment in which people have an impact on decisions and actions that affect their workplace, not the terms and conditions of their employment. Characterized by workplace decision making by truly empowered, intact employee teams for whom managers provide consultation and assistance in how the work is to be done.

A major reason for the frequent use of groups is synergy, which occurs when the production of the whole (group) is greater than the sum of the parts (individuals). When people work together in a group, they exchange ideas, learn from each other, and motivate each other to achieve more than they typically achieve when working in isolation. The heart of this interaction is the social mingling of the group. Employees build strong friendships with each other; in fact, often their best friends are their coworkers. Thus, when a group develops a successful working interaction, synergy occurs, and more can be achieved as a group than the members could achieve working individually. This enhanced productivity occurs in three primary areas:

1. Decision making. Without a designated leader who is looked to for most decisions, groups often make better decisions than the member would if acting alone.

2. Problem solving. Through the exchange of ideas and sharing of information, groups usually solve common problems better than individuals who are limited to their own knowledge and experience.

3. Creativity. Groups are more willing to make innovative or creative changes in their tasks because they have the support of members.

In many organizations, formal groups of employees responsible for an identifiable work process, a specific project, or solving a problem are called employee teams or committees. These groups were once called the “productivity breakthrough of the 1990s,” even though the first ones—such as those at General Foods in Topeka, Kansas—had been in existence for more than 20 years.
 A 2004 study on employee teams noted that surveys of Fortune 1,000 companies indicate at least 68–70 percent use employee teams. Major users include Ford, Procter & Gamble, Federal Express, Levi Strauss, and Westinghouse. Most companies have reported that teams increased productivity, quality of products, and innovation. However, others have reported no gains in these areas and even negative outcomes from changing to teams. The research study found that the level of autonomy provided to a team and the structural context—work rules, policies, and procedures—might be significant predictors of the success of teams within an organization.
 We refer to all these groups as teams.

Union Response to Employee Teams

Union leaders and members have varied greatly in their responses to the creation of self-directed employee teams. At a Ford Motor Company assembly plant, the creation of self-directed teams has made the facility “a much better place to work,” according to J. R. “Buddy” Hoskinson, union cochairman of the UAW–Ford Education Development and Training Programs. “In the old days we punched a time card and had no say in what was going on. … We’d just do what we had to get by.” But today Hoskinson credits the self-directed teams, which have no direct supervision and devise their own work schedules, with creating a “new sense of pride. … We know we’re doing the best we can do.”

In general, the team concept and similar workplace programs designed to increase employee involvement, such as “high performance work systems,” are designed to increase productivity and employer loyalty by giving workers greater input into daily decision making. Some union critics of the team concept, however, believe that it undermines union legitimacy, workers’ belief that the union gives them solidarity through a sense of community, and their belief that the union is effective in protecting their economic interests. This concern is critical to unions because to a large extent employees join and remain in unions because they view them as a legitimate means of protecting their economic interests and providing a social community.

A unique 2007 case study of UAW team members at the GM Shreveport, Louisiana, truck assembly plant provided insight into the issue of whether or not employees’ participation in teams affects their perception of their union. The Shreveport plant is unique because it was unionized without a union election. Some employees at the start were UAW employees transferred from other plants; others were “locals” who were hired into the team concept from the start. Based on survey responses as well as in-depth interviews, the study found that workers’ attitudes toward the team concept were greatly affected by whether or not they entered the plant under the team concept, in which case they held more positive views, or if they were transferred from a nonteam plant, in which case they held more negative views. And those who had entered under the team concept, and only worked under the team concept, did indicate weaker support of the union than those who had transferred from a traditional unionized plant. In addition, the study found that working under the team concept weakened employee support for the union, even among union members transferred in years ago from traditional, unionized plants. A key issue for those workers unhappy with the team concept was that it weakened seniority, a historical basis of union solidarity. Thus, the study confirms union fears that members working under a team system may have weaker perceptions of their union.

The results from organizations that have adopted employee teams or high performance work practices (HPWPs) over the past 20 years have been mixed. Although HPWPs in some cases have produced increased organizational performance, and increased worker job satisfaction from more flexible job design teamwork and greater decision making, others have not produced the expected outcomes. In these cases, increased earnings and productivity did not materialize (with many possible causes), and workers’ concerns about job security and wages/benefits were high, as reported at the GM-Shreveport plant. In cases in which unions and their members experienced a “full” partnership with management, the outcomes were more likely to be positive than when unions adopted a “watchdog” or limited cooperation approach. A critical factor that may affect the outcomes from a union–management cooperative teamwork or HPWP approach is the level of external market pressures. If external competition, domestic or foreign, is high, then often management cannot deliver the higher economic benefits and job security expected by union members, and instead they must continually press for reduced costs and greater productivity. Unions, therefore, may find that in the face of a potential plant closing or layoffs, they are “coerced to cooperate.”
 This climate can produce the classic labor–management conflict: management’s need for higher profits and reduced costs versus the union’s goal of maintaining job security and negotiating greater economic benefits for its members.

In 1998, the Teamsters union won a long-sought agreement from United Parcel Service to end “Team Concept” programs. The Teamsters believed the “real purpose [of the teams]” appeared to restrict workers’ rights under collective bargaining.
 The National Labor Relations Board and the courts have generally agreed with critics who have considered employee involvement programs and self-directed work teams as potentially unlawful under 
Section 7
 of the Wagner Act. In general, for a violation to occur it must be shown that (1) the entity created by the program is a “labor organization” and (2) the employer dominates or interferes with the formation or administration of that labor organization or contributes support to it. A committee or group is generally considered a “labor organization” if employees participate in it and at least one purpose is to “deal with” the employer on issues of grievances, labor disputes, wages, work rules, or hours of employment. The “dealing” must involve give and take—as in collective bargaining. If the employer simply says yes or no to employee proposals (often the case with committee quality circles) or if an employee group can decide such issues by itself (often the case with self-directed teams), then the element of dealing is missing, and the group is probably not a labor organization.

With regard to the second criterion for violation—employer domination or interference—
Section 7
 of the Wagner Act allows an employer to voice an opinion on labor–management issues but not to create or initiate a labor organization. Thus, an employer can suggest the idea of committees or work teams, but employees must be free to adopt or reject the concept (as did the Union Pacific workers). In cases involving employers’ suggesting the creation of employee teams, motive may be considered a factor. Although 
Section 7
 of the Wagner Act does not require the presence of an antiunion motive; it condemns any interference or domination.
 Some “employee–management” teams have been in existence for years and avoid any criticism. How? See Profile 9-2.

The National Labor Relations Board (NLRB) in two historic decisions has limited the creation of employee committees or teams by its strict interpretation of the NLRA. Employee teams having the authority to make decisions and act without obtaining employer approval are not illegal labor organizations.
 If joint labor–management teams or committees are created to

Profile 9-2 Employee Teams at Kaiser Permanente

A provision in the national collective bargaining agreement between Kaiser Permanente and the Coalition of Kaiser Permanente Unions provides for the establishment of 1,793 teams of workers across the country. The teams include about 55,516 employees in unit-based teams. John August, the union’s executive director, said the teams perform a “derivative of collective bargaining” by developing lower cost programs that provide better patient care. Examples of how the teams have worked successfully include the following:

Healthy bones program.
 A team developed a method of identifying patients of high risk of broken bones and treated them before they suffered a fracture. The program lowered the number of broken bones by 37 percent and saved over $39 million in the first year.

High blood pressure.
 A Denver team composed of a nurse, doctor, pharmacist, and medical assistant developed a new method of using electronic records to identify at-risk patients and allowed them to be seen without appointment. After only two years the program experienced a control rate of 70 percent (patients with high blood pressure in check), saved 11 lives, and over $512,000.

Congestive heart failure.
 A team in Hawaii developed a new approach to treating patients with diabetes and congestive heart failure that led to a 70 percent reduction in such admissions.

Source: Adapted from “Integrated Care Used by Kaiser, Unions Touted as Reform Model,” BNA Reports, 2010 Source Book on Collective Bargaining (Washington, DC: Bureau of National Affairs, 2010), p. 119.

The CBA between Kaiser Permanente, the health care provider, and its unions provides for 1,793 employee teams with over 55,000 workers. The teams are formed to develop methods of better patient care and cost reductions.

Source: © Michael Macor/San Francisco Chronicle/ Corbis.

consider employment issues and a union represents the employees, the union must be involved in the creation of the groups. If such groups are created, they should be voluntary and contain more union members than management. In addition, the board has ruled that an employee committee with delegated managerial authority does not take on the union’s role to “deal with” management because they are management.


If there is a change in either a collective bargaining representative or an employer, parties to an unexpired collective bargaining agreement may not be certain of their status. This situation may exist when the union becomes decertified, because of a schism, merger, or change in union affiliation, or if the union simply becomes defunct and is replaced. Changes in management can occur when the sale of all or part of a business occurs because of a merger or corporation consolidation or if the corporation is reorganized. The courts refer to these situations as 


The status of the collective bargaining relationship between an employer and the union when a change in the ownership of the organization or a change in a union occurs.

The law on successorship provides that if there is a genuine change in the collective bargaining representative, the existing collective bargaining contract, even if unexpired, is not binding on the successor representative. If a genuine change of employer exists but the employing industry remains substantially the same, the successor employer is required to recognize the existing collective bargaining unit and its representative but is not bound by the agreement.

The Supreme Court for the first time offered a test for determining the circumstances under which the successorship doctrine applies in Fall River Dyeing v. National Labor Relations Board. 
 A new company, Fall River Dyeing, acquired the plant, equipment, and remaining inventory of a textile dyeing and finishing plant (Sterlingware Corporation). The union that had represented the production employees of Sterlingware sought and was refused recognition by Fall River Dyeing. The union filed an unfair labor practice charge, and the NLRB upheld its claim. The Supreme Court upheld the NLRB decision and imposed a bargaining duty on Fall River Dyeing under the successorship doctrine. The Court in its decision suggested three factors that must be present for the successorship doctrine to apply to the purchaser of a business employing union members:

1. Substantial continuity. The successor substantially continues the business operations of the predecessor. Factors considered include the purchase of real property, equipment, and

Employees may lose their negotiated wages, benefits, and working conditions when a change in ownership occurs, such as when British Petroleum (BP) replaced Texaco.

Source: Paul Sancya/AP Images.

inventory; employing workers on essentially the same jobs; employing the same supervisors; and continuing the predecessor’s product line. In general, not all factors must be present for substantial continuity.

2. Appropriate bargaining unit. The bargaining unit(s) of employees must remain appropriate after the change of employers. Job duties and operational structure are critical in this determination. Significant change in the nature of jobs performed or in the means of operation may mean the unit is no longer appropriate.

3. Predecessor’s workers. The new employer hires a majority of its employees from the predecessor.

Successor Employer Rights

The new employer has several important rights even as a successor employer, including (1) the right to hire its own workers (although it may not discriminate against workers of the predecessor because of union status), (2) the right to disregard the predecessor’s collective bargaining agreement, and (3) the right to set the initial terms of employment, such as wages, benefits, and working conditions, without consulting the union.
 The NLRB qualified prior rulings concerning a successor employer’s refusal to rehire the predecessor’s employees because of their union status in Planned Building Services. The board held that if a successor employer could show it would not have hired the employees even in the absence of its acknowledged union animus, it would not be guilty of an unfair labor practice.

In a 2009 decision, a U.S. Court of Appeals sought to clarify what is sometimes called the “perfectly clear” successor concept. The court stated if and only if a new employer has made it “perfectly clear” to the predecessor’s employees that their employment status would remain unchanged if they accepted employment with the new employer, then the successor is not entitled to change terms of employment within a CBA without bargaining with the union. This is because, noted the court, a successor employer ordinarily may set terms for hiring the predecessor’s employees. The U.S. Supreme Court in a precedent case, Burns, had ruled that a successor employer, except in the rare case (e.g., the “perfectly clear” successor), is not bound by the provisions of a CBA negotiated by the predecessor employer. In the 2009 case, which involved a Long Beach California nursing home, the Appeals Court noted that the new employer had notified the employees that if rehired, their status would be “at will” and that their wages, benefits, policies, and employment conditions were subject to change under new terms of employment. In addition they were informed of the elimination of the grievance/arbitration process. Thus the judge found “no employee could have failed to understand that significant changes were underfoot,” and the new employer was not a “perfectly clear” successor and was lawfully able to set new working conditions under the successorship doctrine.

A successor employer also may be obligated to remedy an unfair labor practice committed by its predecessor. If it is a true successor, and if it had notice of the unfair labor charge, the NLRB may require the new owner to remedy the unfair labor practice by, for example, reinstating an employee and providing back pay.

A successor employer may be obligated to arbitrate the grievances filed under the predecessor’s collective bargaining agreement. So, although a successor employer is not bound by the prior employer’s collective bargaining agreement, it is bound to arbitrate violations. If the collective bargaining agreement contained a successor clause that stated the predecessor employer agreed to “require” a purchaser of the company to honor the collective bargaining agreement and did not do so, a union may be able to force the successor employer to honor that agreement through arbitration.

The NLRB further delineated the successorship doctrine in the Canteen Company case. In this case, the NLRB found that the employer was obligated to bargain with the union about terms of employment. The employer had acquired a unionized plant from another company. The employer then interviewed and offered jobs to some employees and discussed possible new provisions with the union. The NLRB found that by making job offers to some employees and discussing the compensation package with the union, the employer had “demonstrated a clear intention” to hire a majority of its new workforce from among the workforce of the former employer; thus, it had violated the National Labor Relations Act by not bargaining with the union.


Cases that involve the bankruptcy of an employer organization are unique legal situations because the NLRA conflicts with 
Chapter 11
 of the U.S. federal bankruptcy code. The major difference between the two is the NLRA does not allow for a breach of an existing CBA due to financial hardship, while 
Chapter 11
 does allow for a bankruptcy judge to reject an existing CBA. Bankruptcy courts have exclusive jurisdiction over a reorganization proceeding, and they have granted petitions by employers to reject an existing CBA about 68 percent of the time. Furthermore, judges assume once a CBA expires, it is over and done with and there is no obligation to maintain current wages, benefits, or other contract provisions. Thus the use of federal bankruptcy courts to terminate existing agreements has become a more realistic alternative to employers in recent years, especially during hard financial times.

Employee Alcohol and Drug Testing

The use of alcohol and drug testing of job applicants and employees has become a complicated and critically important job security issue. Management often claims that employee use of alcohol and illegal drugs is a problem that must be contained.

President Ronald Reagan launched a federal government “drug-free workplace” campaign that started the testing of job applicants and employees. By 2003, it was estimated that about 25 million people in the United States were tested annually, and millions more were subject to a possible test because of an accident or other cause. Drug test screens typically detect opiates, cocaine, barbiturates, methamphetamine, and marijuana. According to the American Management Association, approximately 61 percent of all employers screen job applicants, and 50 percent test employees. According to the American Council for Drug Education, substance abusers, compared with nonabusers, are ten times more likely to miss work, 3.6 times more likely to be involved in an on-the-job accident, five times as likely to file a workers’ compensation claim, have three times the health care costs, and have 33 percent lower productivity.
 Illegal drug use continues to be a major workplace problem, despite greater testing by employers and unions. The U.S. Department of Labor estimates that substance abuse costs American businesses over $100 billion per year or about $740 per employee through higher absenteeism (30 days per year average), higher rate of on-the-job accidents, lower productivity, greater criminal behavior, and greater health care costs. The industry with the highest rate of substance abuse is the construction industry. A 2006 report of construction companies found that 85 percent had drug-testing programs. Companies with testing programs reported reductions in drug-related accidents of between 10 and 60 percent. One company reported a reduction in insurance premiums from $1.2 million annually to $206,000.

In two landmark decisions, the NLRB ruled that the alcohol and drug testing of current employees is a mandatory subject of bargaining; thus, any such program must be negotiated with the union.
 The NLRB reasoned that the test results could affect a worker’s job security and therefore constituted a condition of employment; thus, the testing requires bargaining. Management may generally require any applicant to submit to a drug-screening test, unless limited by a state law. Employers, in a statement of policy, may express their desire to hire only qualified applicants, and because the use of drugs may adversely affect job performance, they can choose to hire only applicants who pass a screening test. Today many unions have instituted drug testing for their officers and personnel as well as apprenticeship program applicants. For example, in 2005, the International Brotherhood of Electrical Workers instituted a drug-testing program for its own personnel and negotiated an agreement with the National Electrical Contractors’ Association that required local unions to institute programs.

Worker drug-testing programs have become common in contracts in recent years. The NLRB ruled that employee drug testing is a mandatory bargaining subject. However, negotiation issues such as employee privacy, test validity, and when drug testing should occur make it a complicated issue.

Source: Rick Rycroft/AP Images.

Management’s desire to screen all job candidates may increase because of several factors: (1) the increased use of drugs within all segments of society, (2) the reluctance of previous employers to report suspected or known drug usage of former employees for fear of litigation, and (3) the employer’s liability for the negligent hiring of employees.

Six common types of drug testing are used by employers:

1. Preemployment testing

2. Reasonable suspicion testing

3. Routine fitness-for-duty testing

4. Post-accident testing

5. Random testing

6. Follow-up to rehabilitation (after returning to work from drug/alcohol treatment) testing

In general, drug testing follows these steps:

1. The employee or potential employee receives a letter from his employer indicating the time, date, and location of the test and a description of what will happen if the employee tests positive or refuses to participate.

2. On the day of the test, the employee provides a urine and/or hair sample either at the workplace or at a clinic.

3. The sample is collected and sent to a certified testing laboratory. During the collection and testing processes, a “Chain of Custody” form is used to ensure no tampering of the samples.

4. The test results are reported to a Medical Review Officer (MRO). The MRO is a licensed physician who has knowledge of substance abuse disorders and has received the appropriate medical training to interpret and evaluate an individual’s positive test result as it relates to the employee’s medical history and/or any other biomedical information.

5. If the result is positive, a confirmation test is performed. All samples confirmed as positive are referred to an MRO for interpretation.

6. Results are reported to the employer.

CASE9-3 Drug Testing

The company and union are parties to a collective bargaining agreement (CBA) with arbitration provisions. The CBA specifies that, in arbitration, in order to discharge an employee, the company must prove it has “just cause.” Otherwise, the arbitrator will order the employee reinstated. The arbitrator’s decision is final.

Smith worked for the company as a member of a road crew, a job that required him to drive heavy truck-like vehicles on public highways. As a truck driver, Smith was subject to Department of Transportation (DOT) regulations requiring random drug testing of workers engaged in “safety-sensitive” tasks. Smith tested positive for marijuana. The company sought to discharge him. The union went to arbitration, and the arbitrator concluded that Smith’s positive drug test did not amount to just cause for discharge. Instead, the arbitrator ordered Smith’s reinstatement with conditions. Smith had to accept a suspension of 30 days without pay, participate in a substance abuse program, and undergo drug tests at the discretion of company for the next five years. Smith passed four random drug tests.

But in July 1997, he again tested positive for marijuana. The company again sought to discharge Smith. The union again went to arbitration, and the arbitrator again concluded that Smith’s use of marijuana did not amount to just cause for discharge in light of two mitigating circumstances. Smith had been a good employee for 17 years and had made a credible appeal concerning a personal/family problem that caused this current relapse into drug use. The arbitrator ordered Smith’s reinstatement with new conditions. Smith had to accept a new suspension without pay, this time for slightly more than three months; reimburse the company and the union for the costs of both arbitration proceedings; continue to participate in a substance abuse program; continue to undergo random drug testing; and provide the company with a signed, undated letter of resignation to take effect if Smith tested positive for drugs within the next five years.

The company brought suit in federal court seeking to have the arbitrator’s award vacated, arguing that the award contravened a public policy against the operation of dangerous machinery by workers who test positive for drugs. The district court, although recognizing a strong regulation-based public policy against drug use by workers who perform safety-sensitive functions, held that Smith’s conditional reinstatement did not violate that policy. The Court of Appeals for the Fourth Circuit also affirmed the arbitration award, and the company appealed to the Supreme Court.

The Supreme Court considered the company’s claims that considerations of public policy make the arbitration award unenforceable. In considering this claim, however, the Court held that the CBA itself called for Smith’s reinstatement because both employer and union have granted to the arbitrator the authority to interpret the meaning of the contract’s language. Therefore, the arbitrator’s award must be treated as if it represented an agreement between the company and the union. The Court then had only to decide whether a contractual requirement to reinstate the employee is so contrary to public policy that it would fall within the legal exception that makes a CBA unenforceable.

The question before the Court, then, was not whether Smith’s drug use itself violates public policy but whether the agreement to reinstate him does so. To put the question more specifically, does a contractual agreement to reinstate Smith with specified conditions run contrary to an explicit, well-defined, dominant public policy?

In the company’s view, federal laws regarding drug use by workers in the transportation field embody a strong public policy against drug use by transportation workers in safety-sensitive positions and in favor of random drug testing to detect that use. The company argued that reinstatement of a driver who has twice failed random drug tests would undermine that policy—to the point where a judge must set aside an employer–union agreement requiring reinstatement.

In the union’s view, these same federal laws promote rehabilitation as a critical component of any testing program, stating that rehabilitation “should be made available to individuals, as appropriate.” The DOT regulations specifically state that a driver who has tested positive for drugs cannot return to a safety-sensitive position until (1) the driver has been evaluated by a “substance abuse professional” to determine if treatment is needed, (2) the substance abuse professional has certified that the driver has followed a rehabilitation program, and (3) the driver has passed a return-to-duty drug test. In addition, the driver must be subject to at least six random drug tests during the first year after returning to the job. Neither the act nor the regulations forbids an employer to reinstate in a safety-sensitive position an employee who fails a random drug test once or twice.


The Court noted that the law on drug testing embodied several relevant policies. As the company pointed out, these include policies against drug use by employees in safety-sensitive transportation positions and in favor of drug testing such employees; and as the union noted they also include a policy favoring rehabilitation of employees who use drugs. But these relevant statutory and regulatory provisions must be weighed against the labor law policy that favors arbitration.

The award violated no specific provision of any law or regulation. It was consistent with DOT rules requiring completion of substance abuse treatment before returning to work. It does not preclude the company from assigning Smith to a non-safety-sensitive position until Smith completes the prescribed treatment program. The award is also consistent with the act’s rehabilitative concerns because it requires substance abuse treatment and testing before Smith can return to work.

The Court noted that reasonable people could differ as to whether reinstatement or discharge is the more appropriate remedy in this case. But as both the employer and the union have agreed to entrust this remedial decision to an arbitrator, the Court could find no law or legal precedent of an explicit, well-defined, dominant public policy to which the arbitrator’s decision runs contrary. Therefore, the Court affirmed the lower-court decisions in upholding the arbitrator’s decision.

Source: Adapted from Company Associated Coal v. United Mine Workers, 165 LRRM 2865 (2000).

Employee Attitudes toward Drug Testing

Unions’ institutional response to drug-testing programs originally focused on the struggle over bargaining duties; that is, could an employer institute a drug-testing program unilaterally? After the NLRB ruled that such policies have to be negotiated, unions were faced with the responsibility of representing their members’ views on drug testing at the bargaining table. In the atmosphere created by the federal government’s “War on Drugs,” less than a strong antidrug attitude was considered unpatriotic. Knowing that, unions focused no longer on whether drug testing would be done but on how it would be done.

Of the three policies, the use of random testing has raised the strongest criticisms by unions, largely on the basis of an employee’s right to privacy. However, as discussed in a later section, because of the random testing policies in the public sector and in industries regulated by the federal government, such as in the defense and transportation industries, the legal barriers to random testing have largely been removed.

Still, private sector unions may resist random testing programs and insist on a probable-cause or an accident-related program. Drug testing only when there is “probable cause” is a policy that will often be more readily acceptable by employees. Probable-cause testing has also received support from the courts and from arbitrators when the test has been given because of a reasonable suspicion of drug use. A supervisor’s reasonable suspicion based on absenteeism, erratic behavior, or poor work performance can generally be accepted as a reason to test.

A major accident involving employees can be considered an immediate probable-cause situation and can thus invoke required testing of all employees involved. The Supreme Court in the Skinner case upheld the federal government regulation requiring railroads to test all crew members after major train accidents.
 The Court held that private railroads subject to federal regulations had to comply with the requirement that all members of a train crew be tested after a major train accident. Both blood and urine tests are required.

Here are several negotiation issues regarding the probable-cause testing process and the use of test results.

1. Valid testing procedure. The burden of proof is clearly on management in questions regarding the use of confidential, fair, and valid testing procedures. Proper testing procedures include the use of an approved, certified laboratory with state-of-the-art tests. To guard against “false-positive” results leading to unfair discipline or other actions, a second confirming test should be required. The testing procedure should also specify a “chain of custody” of the specimen. In Amalgamated Transit Union, for example, an employee fired for a positive drug test was able to show that the company failed to protect the chain of custody of the drug sample, rendering it useless to the disciplinary proceedings.

2. On-the-job impairment. In cases involving discipline as a result of a positive drug test, an employee or union may contend that the tests prove the presence of a drug in the employee’s body but not on-the-job use or on-the-job impairment. Indeed, in Shelby County Health Care Center, the relevant provision of the contract limited drug- or alcohol-related major offenses to drug or alcohol use on the employer’s premises or being “under the influence.” A fired employee was reinstated because, although his drug test was positive, there was no on-the-job impairment.

There is concern that positive drug tests involving illegal drugs might be used to discipline an employee for the illegal activity involved in obtaining and possessing the drug regardless of the on-the-job effect. The employer’s position is that an employee who engages in such illegal activity is not a fit employee. To date, however, arbitrators and courts often require a nexus between the employee’s drug use and the behavior in the workplace before just cause for discipline is found. Such a relationship should not be difficult to find in most cases.

For example, in Boise Cascade Corp., a drug-screening test was done on an employee after his involvement in an auto accident. Although the test found the presence of marijuana, the level was so low that there was no finding of intoxication. The arbitrator, however, upheld the company’s 60-day suspension and requirement that the employee join the employee assistance program. The arbitrator pointed to the employer’s drug program, which the union had never challenged, that allowed for disciplinary action “if drugs are detected.” No on-the-job impairment was necessary.

3. Refusal to be tested. Management can usually sustain the termination of an employee for failure to take a drug test in cases of probable cause. In Warehouse Distribution Centers, the employer was told that his employee had been seen in a car in the company parking lot “blowing a joint.” On the basis of that report, the employee was directed to have a drug test taken, but the employee refused. The collective bargaining agreement provided for disciplining an employee who refused to take a drug test if there is suspicion of drug use. The arbitrator found sufficient grounds for the employer’s suspicion and upheld the firing.
 However, if no probable cause is found for the test, an employee is within his or her rights to refuse to take the test as a protest against an unwarranted invasion of privacy. In Gem City Chemicals, management unilaterally added a drug screen to a negotiated annual “physical examination for environmental effects.” There was no demonstrated drug problem at the plant. The grievant refused to submit to the test as part of his annual physical and was discharged for his refusal. The arbitrator reinstated the employee because requiring the test under that circumstance was not reasonable.

And just as with other dischargeable offenses, the employee must be warned that failure to submit to testing will result in discharge. After a truck accident, a supervisor who smelled beer on the driver’s breath asked him to take a blood alcohol test. The driver at first agreed and accompanied the supervisor to the hospital. However, before the test he changed his mind and declined to take the test. The arbitrator found no evidence that the supervisor made it clear to the employee that failure to take the test would result in disciplinary action, and the employee was reinstated.

4. Supervisor training. A program that includes the training of all supervisors to recognize the typical signs of employee drug use is important if probable cause is the basis of testing. Any challenge to the reasonableness of a supervisor’s request for a test is likely to be discounted if the supervisor has participated in an appropriate training program.
 Although many supervisors may be able to detect alcoholic intoxication, detection of drug abuse is more difficult to recognize without training.

Whether unions are indeed representing their members’ views in negotiating drug-testing programs was the subject of an interesting survey. In 1989, 930 union members were surveyed on their attitudes toward various drug-testing programs. Approximately 29 percent of those surveyed had drug-testing programs in their workplace; 71 percent did not. The survey hoped to discover whether union members’ attitudes regarding drug-testing programs were greatly influenced by their own personal workplace experience or whether the attitudes among union members were fairly uniform.

Social Media Usage

A major new job security issue appearing in more newly negotiated agreements and in more discipline cases is employees’ use of social media such as Facebook, Twitter, and YouTube. Employers, in both private and public sectors, are increasingly adopting policies to limit the use of social media—both in and out of the workplace. The failure to follow such a work rule under many existing CBAs is treated as a case of employee misconduct, and can lead to suspension or even termination. Unions thus may strive to negotiate a specific new contract provision that deals with social media. Teamsters’ special counsel James A. McCall recommends that such provisions include the following:

· Description of acceptable use of social media tracking technology

· Notice to workers warning them of such tracking

· Union access to information obtained through tracking

· The inclusion of an “on-off switch” on the tracking technology to protect workers who take home equipment and are allowed to use it for personal business

The employers’ right to use technology to ensure employees on the job are working and not using technology for nonwork purposes versus employees’ rights to privacy and not having monitoring technology used for illegitimate purposes is at the heart of the social media issue. In one case, a city fire department lieutenant used the department’s e-mail to send “sexually suggestive” messages to the wife of a subordinate with whom he was having an affair. When the city found the e-mails, it terminated the lieutenant for violating the city’s e-mail use policy—which applied to all city workers. The union grieved arguing the city had no rule against “fraternization among employees.” The arbitrator noted that absent any specific contract language applying to the case, “while it is a fundamental principle of workplace justice that an employee’s private life is none of the employer’s concern,” the lieutenant’s conduct clearly violated the city’s policy against sexually oriented email messages. The arbitrator upheld the termination.

Public Sector Security Issues

As discussed in 
Chapter 3
, public unions and their members are concerned that to lower their personnel costs, governments will turn to outsourcing full-time public sector jobs. In Indianapolis, for example, outsourcing reduced the city’s number of public employees by 40 percent in only three years. Sunnyvale, California, used a temporary Manpower company for 25 percent of its workforce. Some states, such as Pennsylvania, have developed their own pool of temporary workers, and large state community college systems use as many as 66 percent contract workers instead of full-time faculty.

In addition to outsourcing both the National Education Association (NEA) and the American Federation of Teachers (AFT) have cited “school voucher” programs as a major concern for the public employee. Critics of public schools have advocated tuition voucher programs, which provide families with public funds that could be used for private school tuition, including religious-based school tuition. Advocates of school vouchers contend that giving families a choice will force public schools to improve to stay competitive.
 The NEA and AFT argue that the lack of public oversight of private schools undermines accountability to the public for the expenditure of tax dollars.

Finally, as a result of the Great Recession of 2008, public sector unions are watching developments around the country as angry taxpayers complain about the size and expense of government.


Job security and seniority are vital to collective bargaining agreements. Both labor and management strongly believe that they must maintain certain rights where job security affects the employee’s ability to keep his or her job and successfully compete for higher positions. Seniority, or length of service with the organization, and the employee’s ability to perform the job successfully are the two primary factors considered in layoff and promotion situations for both union and nonunion companies. An effective job security system also requires that the labor agreement contain a fair and just discipline and grievance system so that management’s decisions regarding promotion or layoff and recall can be properly disputed by labor.

Seniority systems have generally been used because they are easy to develop and provide an objective, unambiguous means of considering employees when job openings occur. The theory behind using seniority is that if the employees are approximately equal in ability, then the employee who has the greatest length of service should be given the opportunity first. This practice is commonplace in nonunion as well as union organizations. Unfortunately, there are not always objective measures of ability to perform. The difficulty lies in determining the relative ability of competing employees. Seniority systems and employee feelings of job security are meaningless unless contract provisions limit management’s ability to subcontract work. Without such provisions, management can subcontract work temporarily and force severe hardships on employees, causing them to leave and lose their seniority. Certainly, although union leaders agree that subcontracting is necessary in some situations, it can and has been used to undermine labor unions.

If a change in employers occurs, the successor is not bound by existing collective bargaining agreements. Also, if a genuine change in business has occurred, the new employer is not required to recognize the union. Public sector unions try to use a successorship provision to make sure its members do not lose their jobs to outside contractors.

The use of an alcohol- and drug-testing program on current employees covered by a collective bargaining agreement must be negotiated at the bargaining table. Unions generally agree only to probable-cause testing and strongly object to random testing of all workers. Both sides express great interest in several aspects of any testing program, including the testing procedure, on-the-job impairment, and basis for probable-cause testing.

Employees are finding that more and more employers are adopting policies to limit the use of social media in the workplace, while such new technologies offer employers an opportunity to watch the activities of employees more closely.

Public sector unions worry that in hard economic times the public is willing to have many of their jobs outsourced or eliminated altogether.

Case Studies Case Study 9-1 Relocating Work without Bargaining

The company is a family-owned business founded in 1943. Schultz is the company’s president and part owner. The company began manufacturing caliper pins, which are used in the production of automobile disc brakes, at its Michigan facility in late 1994. Deciding that caliper pins would be the critical product line for the future of the company, the company received a $3 million industrial development revenue bond from Michigan Strategic Fund (MSF) in March 1996. For federal tax purposes, a borrowing under an MSF agreement must be for a specific project at a specific location. Under the company’s MSF agreement, the project site was the Michigan facility, and the project was the renovation of that facility and the purchase and installation of new machinery, including machinery for use in the production of caliper pins. Because the purpose of the MSF was to strengthen the state economy, the company had to give assurances of a reasonable intent to install the machinery at the project site and to maintain it there during the term of the loan. If the company decided to move equipment purchased under the MSF agreement from the site, the company would have to redeem an amount of the bonds equivalent to the value of the relocated machinery “contemporaneously” with the movement of machinery. After receiving the MSF loan, the company renovated its facility and purchased new machinery to meet its goal of increased caliper production. As part of the renovation, the company converted an area of approximately 2,300 square feet in the facility, known as the “blue room,” into a caliper pin production area.

In December 1995, the company also applied for tax abatement from Plymouth Township. The tax abatement was to apply to the new machinery that the company would use in its caliper pin production and required that the machinery remain within the township. The company submitted its tax abatement application on May 31, 1996, and the tax abatement was granted on January 29, 1997.

On May 10, 1996, the company signed a lease to acquire 10,800 square feet of space in Louisville, Kentucky. The company sent its caliper pin customer in the Louisville area—an announcement of its intent to open a warehouse and distribution facility in Louisville.

In June 1996, the company held a meeting for all employees at the Elks Club across the street from the Plymouth facility to tell them about the company’s future plans. Schultz discussed the company’s plans for increased personnel and machinery. He forecast that the company’s caliper pin sales would go from approximately $1.5–$6 million and that the caliper pin business might be relocated to Louisville to be closer to the company’s customer base. Schultz did not mention any specific date for the relocation, however, and he did not state that a definite decision had been made to move the caliper pin operation.

Between October and December 1996, Schultz said he generally discussed with the caliper pin customer whether it would be prudent to move the company’s caliper pin operation to Louisville. Schultz testified that he wanted to know whether the company’s largest caliper pin customer thought it would be wise to undertake such a move. Schultz further testified that he decided independently in late December 1996 to relocate the caliper pin operation to Louisville, and he made this decision primarily because Louisville was closer to the company’s main caliper pin customer.

In February 1997, the union began its organizing drive at the company’s Michigan facility. The union presented Schultz with a signed employee document that set out the rights of employees under Section 7 of the act and explained what specific acts would be illegal during the union’s organizing campaign. On March 6, the union filed its election petition with the board. The union gave Schultz a document titled “Sensible Rules for a Fair Election,” which was signed by 50 employees. Schultz read the document but would not sign it. It is undisputed that the company was aware of the campaign because employees openly wore union buttons to show their support for the UAW. The election was held on April 17, and the union was certified as the exclusive collective bargaining representative of the unit employees on April 25. In May, a UAW staff representative was assigned to assist the newly certified union obtain its first collective bargaining agreement with the company, which at the time of this grievance had not been done.

Sometime in March, before the election, Schultz walked over to two of the unit employees while they were working in the blue room. He asked, “Do you know what’s going on around here?” They both responded no. He then said, “Well, if a union gets in here, a lot of people could be laid off.” He placed his hand on one worker’s shoulder and said, “If the union gets in here, you can be laid off.” In late March or early April, and again prior to the election, the company’s comptroller came up to a group of employees as they were discussing the pros and cons of the union and said to the group, “You know that there are changes that are going to be made when the union is voted in, and there may or may not be jobs left. Nothing is in stone, nothing is permanent.”

On June 3, a company manager asked the owner of an equipment moving company to come to the Plymouth plant to look at certain machines that were to be moved to another facility. During a tour of the facility, he was asked whether there would be any labor problems if the equipment were relocated. The company manager stated that he did not believe there would be a problem, and he said he wanted the equipment moved from the Plymouth facility to Louisville on July 4.

On June 24, the moving company owner telephoned the union representative and told him of his visit to the company’s Plymouth facility and informed him that the company wanted him to move six machines from the Plymouth facility to Louisville on July 4. On June 27, the union representative met with Schultz at the Plymouth facility. During the meeting, he told Schultz that he had heard rumors that the company planned to move some of its equipment and operations to the south. Schultz responded, “That may be something that may have to be considered in the future, but as it stood right then, there were no immediate plans to move anything out of the plant.”

On July 2, Schultz informed his customer that the company was relocating its caliper pin operation to Louisville. Then, on July 3, Schultz held an employee meeting at the Plymouth facility. He informed the employees that because of overcrowding in the blue room and the caliper pin customers were closer to Louisville, it was necessary to implement a reduction of employees because of the transfer of the caliper pin operation to the company’s Louisville facility. Schultz explained that it would be necessary to lay off 33 employees—those who had been hired since January 1995. Schultz added that applications would be accepted from anyone who was interested in applying for a job in Louisville. Also on July 3, the union representative received a fax transmission from Schultz concerning the move of the caliper pin operation from the Plymouth facility to Louisville.

The union representative responded,

I specifically asked you [at the June 27 meeting] about any plans the company might have to move work from Plymouth to your facilities in the south. You did not indicate any such plans. Six days later, I now receive your letter announcing the company’s “gradual realignment of its core business” and the news you are moving 29 jobs to Kentucky. I find it hard to believe that you were not aware of this plan when we spoke last Friday.

Also on July 3, the union president received a call from a company employee who informed him of the just-announced layoff of company employees. He decided that the union would put up an informational picket line at the Plymouth facility on July 4. Early on July 4, the company manager contacted a moving company and asked them to begin to move the equipment immediately.

A vice president in the commercial loan department of the bank that loaned the company the $3 million testified without contradiction that he learned in September that the company had acquired a facility in Louisville and that it had transferred machinery valued at over $1 million to that facility from Plymouth. He advised Schultz that the bonds had to be redeemed to the value of the machinery moved out of state. On November 7, the company redeemed $1.3 million of the bonds with funds borrowed on a short-term loan. On its year-end tax return for 1997, the company notified Plymouth Township that machinery that had been subject to the tax abatement had been moved out of state.

The union filed an unfair labor charge against the company for unilaterally implementing a decision to relocate bargaining unit work and for discrimination because it was clear the decision to relocate the union work was in response to the employees exercising their right to organize and bargain collectively.


Applying the analysis set out in Dubuque Packing Co., the union argued that the relocation decision was a mandatory subject of bargaining; that labor costs, both direct and indirect, were a factor in the company’s decision to relocate the caliper pin operation; and that the union could have offered labor cost concessions that could have persuaded the company, had it been notified and permitted to submit bargaining proposals prior to July 3, to retain the caliper pin manufacturing work at the Plymouth facility.

The union further argued that the relocation and layoffs were discriminatorily motivated and therefore violated 
Section 7
 of the act. The union pointed out that the evidence does not support Schultz’s testimony that he made the relocation decision in December 1996, some two months before the union came on the scene. It was not coincidental that the company implemented the relocation and layoffs on July 3 and 4, less than three months after the union had won the election and been certified as the bargaining representative of the company’s employees. Thus, the timing of the relocation and layoffs, shortly after the employees’ union activities culminated in the union’s election victory and certification, and the company’s knowledge of its employees’ union activities support the union’s contention that the relocation and layoffs were unlawfully motivated.

Furthermore, Schultz and the comptroller implied loss of employment if the union won the election. Their unsupported statements that layoffs could occur and that there might or might not be jobs left if the union got in are evidence of antiunion animus. Schultz was the president of the company and therefore in a position to carry out the threatened layoffs if the union won the election. In these circumstances, the mere fact that he may have visited the facility only once a week does not lessen the impact of his threat. The company comptroller’s threats were credible to the employees because she was fully informed of the company’s financial condition.

The union also pointed out that the company originally announced that it intended to use the Louisville facility as a warehouse and distribution center. It was only after the union had been certified and immediately prior to the relocation that the company leased additional space at a second facility in Louisville so it could relocate the caliper pin machinery from Plymouth to Louisville. The employees’ union activities were a motivating factor in the company’s decision to relocate the caliper pin operation to Louisville. The company’s entering into the MFS agreement in 1996 evidences the company’s intention to maintain its caliper pin operation at the Plymouth facility for the indefinite future. It was only after a bank official notified the company of the redemption obligation over two months after the relocation that the company took steps to remedy the problem. Even then, it could only redeem the bonds through a short-term loan. The company’s careful preparations to get the MSF loan with its announced intent to keep the caliper pin operation in Plymouth—preparations that occurred prior to the union’s appearance—stand in sharp contrast to the company’s sudden breach of the terms of the agreement in July—after the union came on the scene—and to its abrupt departure from its avowed intent to keep the caliper pin operation in Plymouth. The union contended that this dramatic change proved that the union’s appearance was a motivating factor in the company’s relocation decision.

The company’s intent to keep the caliper pin operation in Plymouth before the onset of the union campaign is also evidenced by its successful efforts to gain tax abatement from Plymouth Township for the caliper pin machinery. Less than six months after receiving the tax abatement, however, and less than three months after the union won the election, the company moved that machinery out of Plymouth Township. This sudden departure from the company’s documented intention to keep the caliper machinery in Plymouth proves that the appearance of the union was a motivating factor in the company’s decision to relocate that machinery. Finally, the union pointed out the company’s stealth in carrying out the relocation—its refusal to inform the union representative that the relocation was imminent despite his request he be so informed and its sudden secreting of the equipment out of the Plymouth facility over the July 4 holiday—are further evidence of the company’s desire to avoid and be rid of the union. The company’s stealth in relocating the equipment is further evidenced by its failure to inform its caliper pin customer in the Louisville area of the relocation until only a few days before it occurred.

In its defense, the company pointed out that even if an antiunion animus is found, the company could not be found to have engaged in an unfair labor practice if it would have taken the same action regardless of the union activity. The company then reiterated that Schultz discussed the possibility of moving the caliper pin operation to Louisville with his customer in the fall of 1996, before the organizing campaign, and that he contended he made the relocation decision in December 1996. And he reminded the court that as early as June 1996, long before the organizing campaign, he informed his employees there was a possibility that the work would move to Louisville.

Furthermore, Schultz asserted that the reasons for making the relocation decision—that the blue room was overcrowded and the company’s caliper pin customers were in the Louisville area—were valid reasons that supported his decision to move.

Source: Adapted from Vico Products Co. v. NLRB, 170 LRRM 1124 (2001).


1. The union argues that the company’s efforts to borrow low-interest bonds and to get tax breaks to build and operate in Michigan support their position that the motivating factor in moving to Kentucky was antiunion animus. Do you agree?

2. The company’s defense, that Schultz made the decision to move the company before the organizing campaign got started, was supported only by his own testimony. If you were told that the hearing officer who conducted the hearing and heard the testimony believed Schultz, would it change your opinion of the defense? Why or why not?

3. Kentucky, like Michigan, is not a right-to-work state, so union organizing in a plant in Kentucky is as likely as in Michigan. The company’s decision to move from Michigan seems to have been both complicated and expensive. Do you think that the company made such a decision mainly to avoid a unionized workforce?

Case Study 9-2 Drug Testing

The company and the union had negotiated a typical substance abuse prevention and treatment program in their collective bargaining agreement. It prohibited the use of legally obtained drugs and alcohol if such use adversely affected the employee’s job performance. It also prohibited the sale, purchase, transfer, use, or possession of illegal drugs “on the work premises or while on employer business.” It allowed for testing in the following circumstances: for reasonable cause, after on-the-job accidents or incidents, for safety-sensitive jobs, and for reinstatement after treatment for drug or alcohol abuse. The collective bargaining agreement also stated, in a separate article, the general principle that “there is no intent to intrude upon the private lives of employees.”

The employee tested positive for an illegal substance after an on-the-job accident and was enrolled in an inpatient treatment program. At the completion of the program, he was reinstated subject to the normal provisions that he would continue with aftercare treatment and submit to random testing for three years. The employee was a member of a work crew that reported to work on a regular schedule and was not subject to being called in. In fact, if he chose not to report to work with his crew, there was no penalty. The employee had been called for a random drug test and had been tested eight times, all of which were negative. The ninth time he was called, he was contacted at home on a day he was not scheduled to work and was told to report for a drug test. In this instance, he tested positive, and the company dismissed him. The union appealed.

The union position was that the collective bargaining agreement prohibited intrusion into the private lives of employees, the drug policy prohibited only on-the-job impairment or abuse, and random testing can be used only in relationship to the workplace (i.e., when the employee is, should be, or may be reporting to work, at work, or about to leave work). The employee was not scheduled to work, was not on the employer’s premises or business, and was not subject to being called in to work. His reinstatement agreement to submit to random drug tests meant only those types of random tests consistent with the substance abuse policy (i.e., for on-the-job impairment).

The company’s position was that because some employees can be called into work at any time, the conduct of random testing needs to be on a 24-hour-a-day, 7-day-a-week basis; the union had not previously objected, and a past practice can be argued; the employee had violated the collective bargaining agreement by drug use on the job and had agreed to submit to random testing for three years in order to be reinstated, so an argument can be made that his testing then is job related; and this employee could elect not to report to work on any given day, so this reinforces the need to be able to test him on his off-duty time.

Source: Adapted from New Orleans Steamship Association, 105 LA 79 (1995).


1. As the arbitrator, give your reasons for ruling in the union’s favor. Then give your reasons for ruling in the employer’s favor.

2. Argue for and against a decision by the employer in this case to insist on expanding the drug program to include the prohibition of sale, possession, or use of illegal substances on the employee’s own time.

 You be the Arbitrator Subcontracting Work or Union Busting?

Article XXV

Contracting Work

If for any reason the Company desires to contract or subcontract out work, it may do so; however, the Company agrees not to use such contracting or subcontracting as a union-busting tactic.

It is not the Company’s intent to contract or subcontract work within a branch location while employees who are qualified to do the work within the branch are on layoff status, except as required by business necessity.


The employer marketed and sold both large (PBX) and small (key) telephone systems for institutional customers and provided the service and maintenance of those systems after installation. The employer’s extensive warehouse and depot operation was responsible for the storage and staging areas for (1) some PBX and almost all key systems, (2) materials and parts stocking for technicians’ trucks, and (3) critical spare and replacement parts for both PBS and key systems. In the mid-1990s, to become a competitive survivor in the collapsing telecommunications industry, the employer adopted a strategic survival plan that included the dramatic centralization of its distribution operations. The strategic plan called for closing five local warehouses and reducing the size of several others. Following discussions with the union in January 1996, the employer began to implement the centralizing strategic plan. Some material handler positions were eliminated, but although it had no contractual obligation to do so under the terms of the collective bargaining agreement (CBA), the employer successfully placed all the affected employees within its operations. Around the same time, the employer entered into a number of third-party vendor (TPV) contracts. These TPVs provided services that the employer’s warehouse workers could not perform, a 24/7/365 delivery system for critical spare and replacement parts and the storing and staging of PBX equipment. In the fall of 2000, the employer, which had continued to lose money, refined its strategic plan to focus on its service and maintenance agreements and dramatically cut back on its sales and installation role. Ultimately, this led to consolidating the entire employer’s 59 warehouses and depots into three locations and the layoff of hundreds of employees. Eleven laid-off material handlers who were not placed within the operation filed a grievance charging that the employer had violated the subcontracting clause of the CBA.


Did the employer have a business necessity to subcontract work that the laid-off employees could perform, or was it union busting?

Position of the Parties

According to the union, the laid-off employees were fully qualified to provide the services being performed by the TPVs. They had historically performed the full range of work, including the storage and staging of the large PBX equipment, albeit infrequently, and the delivery of critical spare and replacement parts. The union admitted that the employer did not provide the same 24/7/365 operation the TPV did, but the employees were under an “on-call” system so that they could perform timely deliveries just as well as the TPV. The union pointed out that the employer’s decision to consolidate and eliminate warehouses resulted in not having the physical facilities that would have allowed the employees to perform their jobs. It was like a taxicab company that sells all its taxis and then subcontracts with another taxi company to transport its customers. Clearly, the employer’s actions were nothing but union busting. Further, the union contended that the employer could not prove it had a business necessity for consolidating its warehouse operation and laying off the employees because it still had considerable losses after the 2000 changes. Clearly, according to the union, the real reason for the layoffs and subcontracting was to bust the union.

According to the employer, it had no antiunion animus. It had, in fact, consulted with the union as its strategic plan was put into place and had made an effort to place laid-off employees within the confines of its scaled-back operations. The TPV contracts had been entered into prior to the 2000 consolidation plan and prior to the last CBA negotiations of the employer with the union. The TPV work did not increase after execution of the 2000 strategic plan; rather, the employer’s work changed so that its growth was in the service and maintenance operations and not its warehousing operations. In other words, there was a decrease in the employer’s overall warehousing operation, and the decrease came totally from the employee side of its operation, not the contractual side of its operation. So although there was a loss on the employee side, there was no gain on the contractual side. Therefore, its subcontracting did not violate the CBA. Furthermore, the TPVs were in place when the current CBA was negotiated. If the union had wanted to “undo” the existing subcontracts, it should have brought it up at the negotiating table. The employer contended that the laid-off workers were not qualified to do the work of the TPVs because the employer did not have the facilities to house/move the PBX systems, and the “call-in” of workers could not meet the efficiency of the 24/7/365 of the TPVs. Finally, the employer contended that the savings in changing its core work from supplying equipment to servicing and maintaining the systems proved that there was a business necessity for the changes it made, including the closing of the warehouses and its subcontracting.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer and/or the union have taken to avoid this conflict?

Source: Adapted from Nexitra, 116 LA 1780.

Part IV The Labor Relations Process in Action

Chapter 10 Unfair Labor Practices and Contract Enforcement

Thousands of University of California union workers on nine campuses picketed in protest during contract talks. UC officials filed an unfair labor practice charge against the AFSMCE union. In 2010 Californian PERB dismissed the charges.

Source: Newscom

Employees covered by the Act are protected from certain types of employer and union misconduct and have the right to attempt to form a union where none currently exists.

National Labor Relations Board

Chapter Outline

10.1. Interference With Employees’ Right to Organize

10.2. Discrimination against Union Members

10.3. Protected Concerted Activities

10.4. Duty to Bargain in Good Faith

10.5. Rights and Prohibited Conduct During the Term of a Contract

10.6. The Authority of the NLRB

10.7. Public Sector Unfair Labor Practices and Contract Enforcement

10.8. Individual Rights Within Unions

Labor News Unfair Labor Charges Filed Against AFSCME Union

The University of California filed unfair labor practice charges against the American Federation of State, County and Municipal Employees Union (AFSCME). The union represents about 11,000 patient care employees who work in UC medical centers in California. The charges claim the union failed to “bargain in good faith” during contract negotiations. In addition, the charges claim the union failed to participate in impasse procedures in good faith and exhibited a disregard for patients and their families.

At the center of the university’s charges was a response to AFSCME’s unwillingness to bargain over the union’s distribution of leaflets to patients and visitors to the UC medical centers. The leaflet distribution was a violation of the university’s long-standing policy against handing out leaflets for any purpose. The university stated the policy was designed to provide safe access to the facilities and to protect the rights of patients and their families. That refusal to follow the policy, and actively distribute the leaflets during contract negotiations, led the university to file the unfair labor practice charge against AFSCME for failure to bargain in good faith. The medical centers affected include the University of California medical centers in San Francisco, Los Angeles, Davis, Irvine, and San Diego. The California Public Employment Relations Board (PERB) in 2010 dismissed the unfair labor practice charge filed by the university. The PERB decision noted that the AFSCME leafleting action was in fact a violation of the contract. However, when confronted by university officials, the union members agreed to move their activity, and thus their conduct was “just an isolated breach of the contract” and thus not a failure to “bargain in good faith,” which might have constituted an unfair labor practice.

Source: Adapted from “UC Files Unfair Labor Charges Against AFSMCE,” UCSF Today (February 22, 2008), p. 1; and State of California PERB Decision No. 2105-H (April 21, 2010). Available at www.perb.ca.gov. Accessed August 30, 2011.

As explained throughout this text, the National Labor Relations Act (NLRA) gives most private sector employees the right to organize and to choose their representatives; it also requires employers to meet with the employee representatives and make an honest effort to reach agreement on workplace issues. The act protects the right of employees to strike and limits the employer’s retaliatory powers. And although the interest of management and labor usually focuses on the months of negotiations necessary to arrive at a collective bargaining agreement, the negotiated agreement itself is implemented over a much longer period. It is that period of implementation that tests the quality of its terms and the willingness of the parties to abide by the contract.

The NLRA, as with any law, requires effective enforcement. This chapter details how to recognize violations of the act, known as an 
unfair labor practices 
or ULPs, and how the National Labor Relations Board and federal courts take action on those violations. The authority of the NLRB in such cases is also discussed. This chapter also includes an overview of the rights of individuals within unions.

Unfair labor practices (ULPs)

Certain actions taken by employers or unions that violate the NLRA. Such acts may be investigated by the NLRB.

The primary objective of the NLRA is to encourage collective bargaining in order to minimize industrial strife that adversely affects the free flow of commerce. (
Section 7
.) To that end, the act gave employees certain protected rights. 
Section 7
 of the act, as amended by the Taft-Hartley Amendments, enumerates these rights:

1. To self-organize

2. To form, join, or assist labor organizations or to refrain from such union activities

3. To bargain collectively through representatives of their own choosing

4. To engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection

5. To refrain from any or all of the preceding rights

The act in 
Section 7
 also lists activities considered unfair labor practices in violation of those rights by employers:

1. Interference with, restraint, or coercion of employees in rights guaranteed under 
Section 7
 (Subsection (1))

2. Domination or interference with the formation or administration of a labor union (Subsection (2))

3. Discrimination against union members for their union membership (Subsection (3))

4. Discrimination against an employee for pursuing the rights under the act (Subsection (4))

5. Refusal to bargain collectively with representatives of its employees
 (Subsection (5))

Also in 
Section 7
 of the act, activities considered unfair labor practices by labor organizations are listed:

1. Restraint or coercion of employees in rights guaranteed under 
Section 7
 (Subsection (1))

2. Discrimination against an employee for not engaging in union activities (Subsection (2))

3. Refusal to bargain in good faith with the employer (Subsection (3))

4. Conducting secondary strikes or boycotts, or strikes to dislodge another union (Subsection (4))

5. Requiring a closed shop (Subsection (5))

6. Demanding “make work” jobs (Subsection (6))

7. Certain picketing activities (Subsection (7))

It may be helpful to think of unfair labor practices in two major categories: first, unfair labor practices that occur during a union organizational campaign, and second, unfair labor practices that occur during the negotiations of a collective bargaining agreement and during the life of that agreement.


The process for establishing a bargaining unit and gaining recognition by conducting an election is detailed in 
Chapter 4
. As pointed out in that chapter, there are “do’s and don’ts” by both employers and unions during such activity. The first unfair labor practice listed in the NLRA for both sides prohibits actions that interfere, restrain, or coerce employees in the exercise of their right to unionize or not to unionize. To determine an unfair labor practice by an employer of this right, the NLRB must find that the employer’s action interfered with, restrained, or coerced an activity under a reasonable probability test.

The NLRB’s reasonable probability test eliminates the need to prove actual interference, restraint, or coercion by the employer if it can be shown that the activity tends to interfere with the free exercise of protected rights.
 The courts, however, distinguish between inherently discriminatory or destructive violations of employee rights, when an employer could foresee the unlawful consequences, and those not so blatantly in violation. A hostile motive may be necessary to establish proof of an unfair labor practice if the activity itself can be objectively viewed as nondestructive. The kind of practice that most often evokes the need to prove intent is one motivated by a legitimate and substantial business justification.
 In such cases, an actual intent to frustrate the purposes of the act must be found to warrant an unfair labor practice charge. Employers’ historical resistance to having their employees represented by unions has created an extensive list of do’s and don’ts by employers and unions during representation elections, as previously detailed in 
Chapter 4
. Following is a more detailed look at how violations of those do’s and don’ts may be unfair labor practices.

Unfair Labor Practices That Interfere With Organizing a Bargaining Unit

Employees have the right to “organize” into labor organizations. The first step in organizing is to talk to other employees about the issues involved in unionizing, and the “pros and cons” of unions. Employees have the right to organize, but in many cases, the exercise of that right directly opposes the employer’s right to maintain a work environment. The courts have devised rules based on the NLRB’s opinion that working time is for work, to balance the two interests. Organizing activities that are protected under the National Labor Relations Act include the following:

1. Solicitation and distribution. Employees are allowed to solicit support for a union from their fellow employees during nonworking times. This includes lunchtime, break time, rest periods, and before and after the regular workday. The Supreme Court in Republic Aviation said that an employer rule prohibiting union solicitation by employees outside working time, even on the employer’s property, was an unfair labor practice as an unreasonable impediment to self-organization.
 Employees are limited, however, in the distribution of union literature. Generally such distribution is restricted to nonworking times and areas. The board based this decision on employers’ representations that such literature could clutter the workplace. The board has held, however, that the distribution by off-duty employees of union literature in nonworking areas, such as in company parking lots, is clearly protected by the act and that an employer commits an unfair labor practice prohibiting such activity unless the prohibition is justified by business reasons.
 However, the board adopted a blanket rule for employers in retail businesses, such as department stores and restaurants, saying they may prohibit union solicitation by employees in areas where the public is invited even during an employee’s nonworking time.
 And the board concluded that the special characteristics of hospitals justified similar treatment because the primary function of a hospital is patient care and that a tranquil atmosphere is essential to the carrying out of that function. In order to provide this atmosphere, hospitals may be justified in imposing somewhat more stringent prohibitions on solicitation than are generally permitted. For example, a hospital may be warranted in prohibiting solicitation even on nonworking time in strictly patient care areas, such as the patients’ rooms, operating rooms, and places where patients receive treatment, such as x-ray and therapy areas.

The courts, however, have long viewed organizing by an employee and organizing by a nonemployee, or union organizer, as distinct when deciding on the right of access to employer premises. Originally, nonemployee union organizers could be barred from coming onto the employer’s property to solicit support for a union if there were other 
reasonable means
 to reach employees. For example, if there was one location from which the employees entered or exited the property so that the union organizer had the ability to speak with all of the employees, the company’s rule was not an unfair labor practice. However, with the decision in the Lechmere case, the Supreme Court decided that an employer would not be committing an unfair labor practice when barring a nonemployee access to its property if there was 
any other means
 to reach the employees.
 Lechmere owned a retail store in a shopping plaza and was part owner of the plaza’s parking lot. Lechmere employees used this lot to park their vehicles during their shifts. This parking lot was separated from a public highway by a strip of land which was almost entirely public property. Local union organizers, not employees of Lechmere, attempted to organize Lechmere employees by placing promotional handbills on the windshields of cars parked in the employee area of the lot. Lechmere denied the organizers access to the lot. This act caused the organizers to instead distribute their handbills and picket from the strip of public land between the lot and the highway. Justice Clarence Thomas wrote in his opinion that the nonemployee union organizers had reasonable access to the employees outside the employer’s property; because such access existed, there was to be no “balancing” of the employer–employee rights used in other cases.

A landmark federal appeals court decision reaffirmed the Lechmere decision and, to a certain extent, expanded it. In UFCW Local No. 880 v. NLRB, the court ruled against a union’s request to find the employer, a retail store, guilty of an unfair labor practice when the employer refused the union access to its parking lot to distribute boycott information to the store’s customers. Relying on the Lechmere reasoning, the court noted that the availability of mass media alone to reach the store’s customers gives the union a reasonable alternative to what the court termed “trespass access.”

An employer may implement a 
no-solicitation policy
 for employees during both work and nonwork hours if that policy extends to all types of solicitation. If it is applied only to union solicitation, it is likely to be an unfair labor practice. For example, several employees at an Oklahoma manufacturing plant were disciplined for soliciting support for the United Steelworkers union on company time. The employer had a nonsolicitation policy that prohibited workers from distributing literature or soliciting during work hours. The court in Webco Industries, Inc. v. NLRB 
 upheld the NLRB decision that the employer had committed an unfair labor practice not because the policy was unlawful, but because the employer allowed other types of solicitation such as group sales of candy and cookies, sports pools, and fantasy football.
 However, in Cleveland Real Estate Partners v. NLRB,
 the federal court held that the employer did not discriminate against unions when it excluded handbills favoring one union over another or employer materials over union materials but allowed charities to solicit on its property.

No-solicitation Policy

Employer policy that bars on-site solicitation of employees for a specific purpose. Generally unfair if only applied to union activity

2. Union buttons or insignias. Another protected activity is the wearing of union buttons or insignias. This right is balanced against the employer’s right to conduct business. If a button or insignia should in particular circumstances cause a disturbance, present a health hazard, distract workers, cause damage to a product, or offend or distract customers, it may be prohibited. The NLRB in 1985, however, refused to allow an employer to discharge a construction employee who had a union insignia sticker on his helmet because no special circumstance existed to make the removal necessary to maintain production or discipline or to ensure safety.

3. Bulletin boards and meeting halls. Employees have no statutory right to use an employer’s bulletin board. However, if the employees are allowed access to the bulletin board, the employer cannot censor the material to exclude union solicitation. In addition, a union may negotiate the use of a bulletin board for union business, such as this example:

An employee has the right to wear union buttons or insignias in most circumstances.

Source: Getty Images.

Article X

Bulletin Boards

The Company shall supply on its premises and in a prominent place, one bulletin board for the use of the Union. The Union agrees to sign all its notices and present them to the Director of Operations. The Union has the right to post notices in the following categories:

1. Notices of Union recreational and social affairs.

2. Notices of Union elections.

3. Notices of Union appointments and results of Union elections.

4. Notices of Union meetings.

Notices outside this category must not be posted unless approved by the management.

Meeting halls fall under the same rule. If access has been allowed to employees on an unrestricted basis, use by employees for union organization cannot be the only exception. Also, if the physical location of the business makes other meeting places inaccessible and the employer does not normally give employees access to the hall, his or her subsequent refusal might result in an unfair labor practice charge. In one case, the NLRB found an unfair labor practice when the company denied the union access to employee mailboxes that the union had been using to distribute literature for 40 years. Although the company claimed that the union could reach employees by other means, their denial was found discriminatory because other groups were allowed access to the mailboxes.

4. E-mail solicitation. 

Section 7
 of the NLRB clearly affects employer rights to regulate electronic mail (e-mail) use. Employees have the right not to be discriminated against by their employer for engaging in discussions relating to wages, hours, and working conditions, assuming the discussions do not violate a legitimate employer policy regarding the use of work time or equipment. An NLRB decision in 2007 restricted the use of e-mail solicitations by unions. The board held that it is legal for an employer to prohibit union-related e-mail if the employer has a policy banning employees from using the employer’s e-mail for other “non-job-related” solicitations for outside organizations. The decision overturned several prior board decisions that had made it illegal for an employer to impose such a ban on union-related e-mail if it let employees use e-mail for personal communications. The NLRB reasoned that a distinction can be made between personal e-mail use, such as “for-sale” notices or birthday announcements, and organizational e-mail purposes, such as union material. Unions see the decision as a significant setback in their communication efforts. The NLRB ruling involved a Eugene, Oregon, newspaper, The Register-Guard, and e-mail messages sent by the president of the Newspaper Guild.

5. Employer rules. Employer rules that prohibit employees from discussing wages, benefits, and conditions of employment may be an unlawful restriction of employee rights under 
Section 7
 of the NLRA. However, in Lutheran Heritage Village-Livonia Home, Inc.,
 the NLRB reversed its prior position and ruled that rules prohibiting “abusive and profane language,” “harassment,” and “verbal, mental and physical abuse” were lawful. Employers, according to the NLRB, have the right to establish such rules for the similar purpose of maintaining a civil workplace and to avoid liability under federal and state laws. In similar cases, the NLRB upheld employer rules that prohibit fraternization on or off duty, dating, or becoming overly friendly with a client’s employee.

Typical Unfair Labor Practices in an Organizing Campaign

Through its rulings over the years, the NLRB has determined that certain activities during an election that constitute violations of the act include the following:

1. Campaign propaganda and misrepresentation. In the conduct of representation elections, the board routinely ignores rhetoric, realizing that it is part of any election campaign and usually will be disregarded by employees in making decisions. But such an attitude is flexible if the rights of the parties to an untrammeled choice are in jeopardy. In Midland National Life Insurance Company, the NLRB stated that it would intervene in cases in which forgery would render the voters unable to discern the propagandistic nature of a publication.
 Also, an employer was found to have interfered with an election when it provided a $250 prize to the employee who scored highest on a test that determined knowledge of the process used in decertifying a union.

The board often sees misleading information on wage and fringe benefit data, proffered by the union to encourage unionization, as exaggeration, but if viewed by the courts as more serious, it can cause the election to be invalidated.
 The board has also found that a flyer circulated by the union that guaranteed it was illegal for the company to close or threaten to close the plant if the union won the election was a piece of union campaign literature that the voters could evaluate for themselves and not a reason to void an election.

2. Threats and loss of benefits. Unlike mere campaign rhetoric, the actual reduction or withholding of benefits as a method of combating an organizational drive constitutes interference. Direct threats of economic reprisals issued to thwart a representation election will result in an unfair labor practice finding. These include discharge, loss of pay or benefits, more onerous working conditions, and threats of plant closure, physical violence, or permanent replacement of strikers. It is more difficult to ascertain an unfair labor practice when threats of reprisals or promises of benefits are merely implied. In 2000 in Springs Industries, the NLRB ruled that when an employer threatens to close a plant if the union wins a representation election, that the assumption is the threat will make the rounds of the workplace, thereby tainting an election. However, in a 2004 NLRB (3 to 2) decision, Springs Industries was overruled. In Crown Bolt, Inc., the NLRB decided that if a threat of plant closure were made to a single employee, an election would not be overturned without evidence that the threat was actually disseminated throughout the workforce.

Under the Gissel case, an employer is not prohibited from communicating general views about unionism or predictions of the effect of unionization on the company as long as such predictions involve consequences outside the employer’s control.
 The Supreme Court added a subjective test of what the speaker intended and the listener understood to ensure that veiled threats would not coerce employee actions. To determine the coercive nature of a statement, a court should examine the total context in which the statement is made. Elements to be reviewed include the presence or absence of other unfair labor practice incidents, the actual content of the communication, the exact language used, the employer’s history of dealing with unions, and the identity of the speaker.

3. Promise or grant of benefit. The promise of economic benefits by the employer if employees reject unionization will violate the National Labor Relations Act, as will the promise or grant of economic benefits during an organizational campaign to influence the outcome of an election or to discourage organizational activities. The fact that there is no direct link between receipt of the benefit and a vote against the union is unimportant; the courts look to the implication of such largesse. The employee may be impressed with the power of the employer’s discretion to give and presumably take away benefits. However, the granting of benefits during a union campaign has not always been held a violation of the act. The board does not favor a per se approach but examines each case within context. For example, the board refused to assume without specific proof that an employer’s unilateral grant of improved health insurance caused a decertification of the union.
 Clearly, offering money while urging a vote in a particular way will be considered coercive. In other cases, the board has found interference when salary increases were made in the context of repeated references to unionization, made effective just before an election, or announced before an election when there was no particular reason to do so.
 However, a salary increase has been found not to interfere with the employee’s right to organize when the timing, amount, and application of the increase were consistent with past practice.

4. Interrogation and polling of employees. The NLRB originally viewed all employer interrogation of employees as to union sympathy as unlawful per se for two reasons: Such interrogation instills a fear of discrimination in the mind of the employee, thereby restraining freedom of choice, and no purpose could be served by such inquiry except to identify employees with union sympathies. The courts, however, chose not to view employee interrogation as a per se violation and instead examined it within the context of the inquiry. As a result, the board set its standard for polling of employees in Struksnes Construction Co.:

Absent unusual circumstances, the polling of employees by an employer will be violative of 
Section 7
 of the act unless the following safeguards are observed: the purpose of the poll is to determine the truth of a union’s claim of majority, this purpose is communicated to the employees, assurances against reprisals are given, the employees are polled by secret ballot, and the employer has not engaged in unfair labor practices or otherwise created a coercive atmosphere.

A long-standing NLRB precedent provides that an employer who entertains a 
good-faith reasonable doubt
 whether a majority of its employees support an incumbent union has three options:

Good-faith reasonable doubt

An NLRB rule that provides an employer who entertains a good-faith reasonable doubt that the employees support the incumbent union may request an election, withdraw recognition and refuse to bargain with that union, or conduct an informal poll of employees.

· To request a formal board-supervised election

· To withdraw recognition from the union and refuse to bargain

· To conduct an internal poll of employee support for the union

In the 1998 decision of Allentown Mack Sales & Service, Inc. v. NLRB,
 the Supreme Court held the “good-faith reasonable doubt” test for employer polling to be consistent with the National Labor Relations Act. The reasonable doubt standard is the same one used to support a representation petition (RM) that is used when an employer questions if a labor organization continues to represent a majority of the employees.
 And the NLRB held that in determining whether an employer had a good-faith uncertainty under Allentown Mack, statements by known union opponents to the effect that other unnamed employees opposed union representation were entitled to “little weight.”

Individual or isolated questioning of employees is not a per se violation of the act. Tests of noncoercive questioning are whether an employer has a legitimate interest in the information sought, the employee is assured that no reprisals will result from the answer, and there is no evidence of coercion in the interrogation itself. Such interrogation can arise when an employer attempts to prepare a defense for an NLRB unfair labor practice proceeding. However, if under all the circumstances the interrogation reasonably tends to restrain or interfere with employees in the exercise of their rights, it will be held unlawful (see Case 10-1). Previously, the board had held that questioning of open and well-known union adherents was inherently coercive, but under its decision in Rossmore House, the totality of the circumstances must now be examined to determine if a violation has occurred.

CASE10-1 Unlawful Interrogation

The company is in the business of selling automotive replacement parts at wholesale from 11 warehouses and distribution centers in the eastern United States. Early on the morning of May 12, 1994, the plant manager summoned an employee to his office and asked whether she had heard rumors about the union. When she replied that she had, the plant manager asked what he could do to stop the union and if getting rid of a particular supervisor whom the workers disliked would help. The employee said she did not know, and the conversation ended.

The union charged the company with an unfair labor practice because asking the employee whether the union could be stopped if he terminated the disliked supervisor constituted an unlawful offer to improve working conditions in violation of 
Section 7
. In addition the union alleged that the conversation was an unlawful interrogation.

The company contended that there was no coercion during this conversation inasmuch as the plant manager was unaware that the employee had signed a union card, he had spoken with her a number of times over the years, and he “trusted” her.

An employer violates 
Section 7
 when it interrogates an employee about the union where the questioning reasonably tends to restrain, coerce, or interfere with employees’ rights guaranteed by the act. To determine whether the inquiry is coercive, the board considers the following factors: the background, the nature of the information sought, the identity of the questioner, and the place and method of interrogation.


Applying these factors to the plant manager’s interrogation of the employee, the board found that the union amply demonstrated coercion on the part of the company of the type prohibited by 
Section 7
. As of May 12, 1994, the employee was not an open and active union supporter. On that date, the plant manager, the highest management official at the facility, summoned her to his office for no purpose other than to ask her about the union and, during the course of the brief conversation, unlawfully promised to improve working conditions to stop the union effort. Where the interrogation is accompanied by threats or other violations of 
Section 7
, as this one was, there can be no question as to the coercive effect of the inquiry.

Source: Adapted from Parts Depot, Inc. v. NLRB, 170 LRRM 1005 (2000).

1. Surveillance. Surveillance in almost any form has been held a violation of the unfair labor practices section of the National Labor Relations Act. The board has such an aversion to surveillance that it will uphold findings even if the employees know nothing about it or the surveillance was only an employer’s attempt to foster an impression of scrutiny. Encouraging surveillance and eavesdropping by union members has also been condemned by the NLRB.

2. Poll Activity. The NLRB prohibits any electioneering at or near the polls in a campaign. In fact, in Milchem, Inc., the board applied a strict rule that conversations between company or union officials in the polling area are prohibited regardless of what is discussed. Although the exact distance within this rule varies, the board often sets a radius of 100 feet around the polls.

3. 24-Hour Rule In a 1953 case, Peerless Plywood Co.,
 the board detailed a 
24-hour rule
, which it has maintained for more than 50 years. The 24-hour rule prohibits employers and unions from making organizational campaign speeches on company time to large assemblies of employees within 24 hours of a scheduled election—the 24-hour rule. However, such meetings within 24 hours of an election do not violate these rules if voluntarily attended on the employee’s own time. Employers may assemble their employees and speak to them on company time if it is prior to 24 hours to the election and if the employer does not prevent, by rigid no-solicitation rules, access to the employees by the union representatives.

24-hour rule

This NLRB rule prohibits employers and unions from making organizational campaign speeches on company time to assemblies of employees within 24 hours of a scheduled election.

On election day, prolonged conversations between either party and the voters are prohibited, as are traditional campaign activities at the polling place. For example, election-day raffles have been held to be illegal because of the potential to taint an election
. In recent studies of employee participation in representative elections, some questions have been raised as to what degree even a legal campaign discourages participation.
 If an employee perceives that an election will be won or lost regardless of his or her vote, that employee may choose not to vote at all.

Union Interference with an Organizing Campaign

The activities that concern representation elections, including the 24-hour rule, electioneering near polls, and coercion, apply equally to unions and employers. In addition, unions, under 
Section 7
 of the National Labor Relations Act, are prohibited from the threat or use of violence against unsupportive employees. Threats, if made by union organizers or merely supportive employees, may cause the NLRB to overturn an election.
 For example, in United Broadcasting Co. of New York, a union steward told an employee he would be blacklisted and could never work again in New York: The union victory was overturned.

Examples of unfair labor practices during union organizing campaigns can be found in 
Table 10-1

Table 10-1

Organizational Campaign

Unfair Labor Practice

Not an Unfair Labor Practice

Organizing a Bargaining Unit

Not letting employees solicit union support outside of working time on employer’s premises

Not letting employees solicit union support during working time on or off of employer’s premises

Not letting nonemployees solicit union support outside of working time on employer’s premise if there is absolutely no other way to reach employees

Not letting nonemployees solicit union support outside of working time on employer’s premise if union has any other access

Not letting employees distribute union material outside of working time in nonworking areas

No-leafleting policy applies equally to distribution of all types of material

Restricting employees’ display of union buttons which do not interfere with employer’s business

Restricting employees’ display of union buttons if it causes a hazard

Not allowing use of a bulletin board and meeting halls for union business

Not allowing use of a bulletin board and meeting halls for any non-job-related business

Not allowing use of company e-mail for union business

Not allowing use of company e-mail for any “non-job-related” business and/or allowing use of company e-mail only for personal use

Union picketing for recognition for longer than 30 days without filing an election petition

Election Campaign Activity: Employer and Union

Misrepresentation in campaign literature using forgery or fraud

Campaign literature that exaggerates facts

Direct threats of economic reprisals during a campaign

Communicating general views about possible economic consequence of unionization

Promising or granting benefits during a campaign

Granting benefits during campaign consistent with past practice as to timing and amount

Threats (by union) to employees that they will lose their jobs unless they support the union

Engaging in picket line misconduct, such as threatening, assaulting, or barring nonstrikers from the employer’s premises

Interrogating or polling employees as to union sympathy

Interrogating or polling employees under a “good-faith reasonable doubt” as to majority support for union

Surveillance and eavesdropping

Electioneering near polls

Electioneering outside a 100 foot radius from polls

Campaign speeches on company time within 24 hours of an election

Campaign speeches on employee’s own time 24 hours of an election if attendance is voluntary

Employer Domination and Interference

Under the National Labor Relations Act, in addition to campaign-related violations, employers’ domination of and assistance to labor organizations are also employer unfair labor practices. This provision obviously reflects the historical aversion to company unions of the 1930s that were used to discourage outside union organization. The National Labor Relations Act views employer interference in the internal workings of a union as a threat to the employees’ free exercise of guaranteed rights.

The unlawful domination and assistance pertains only to labor organizations. Employee recreation committees, credit unions, social clubs, and the like may be initiated and supported by the employer without violation. Once a labor organization is identified, the board looks for prohibited domination or support. Support is mere assistance to a favored union, whereas domination means actual control of the union. An employer-created organization falls within the prohibited controls section of the act.

Employee Teams and the NLRA

The National Labor Relations Board (NLRB) in two historic decisions has limited the creation of employee committees or teams by its strict interpretation of the Wagner Act. In the 
case, the board found that the company illegally created and dominated a labor organization.
 The case involved the Electromation Company of Elkhart, Indiana, a nonunion electrical parts manufacturer. The employer crafted six “action committees” to deal with the employees on various issues. The committees contained members of both management and hourly workers and were charged with developing proposals for management’s consideration. Issues considered by the action committees included pay, absenteeism, and attendance bonus programs. The Teamsters union had begun an organizing drive at the company about the time the committees were created. The NLRB ruled that the company clearly violated 
Section 7
 of the National Labor Relations Act by creating the action committees. The board decided that the committees had been formed for the purpose, at least in part, of “dealing with” the employer over conditions of employment.

Electromation case

A Supreme Court case in which the Court ruled that the employer-created “work committees” comprising both employees and managers that met to discuss working conditions were a violation of the National Labor Relations Act.

In the 1993 landmark duPont case, the NLRB ordered the company to dismantle seven committees of labor and management representatives that had been established to work on safety and recreation issues at the Deepwater, New Jersey, plant.
 The board ruled that the company had illegally bypassed the plant’s union by setting up the committees and thus violated the Wagner Act. This was the board’s first ruling on labor–management committees in a unionized plant. The board did note that “brainstorming” sessions might be held if decisions are made by a majority vote and management representatives are in the minority.

From these cases and others, it can be concluded, in general, that employee teams having the authority to make decisions and act without obtaining employer approval are not illegal labor organizations.
 If joint labor–management teams or committees are created to consider employment issues and a union represents the employees, the union must be involved in the creation of the groups. If such groups are created, they should be voluntary and contain more union members than management.

A decision by the NLRB, however, appears to signal a possible departure from the board’s holdings in Electromation and duPont. Under Electromation the board had a consistent, restrictive approach to employee committee issues. This approach lasted throughout the 1990s and until mid-2001, when Crown Cork & Seal 
 was decided. Crown Cork & Seal Company, an aluminum can manufacturing plant, employed approximately 150 employees who were not represented by a union. From the time the plant opened, it operated under an employee–management system in which substantial authority was delegated to employees to operate the facility through their participation on numerous standing committees. These employee participation committees consisted of employees and managers and made decisions concerning a broad range of matters, including production, quality, training, attendance, safety, and maintenance. Committees also decided certain disciplinary issues. The board found the employee committees lawful on the grounds that none of the committees were “dealing” with management because “dealing” is not present where a committee’s purpose is to perform managerial functions. Indeed, the board found that an employee committee with delegated managerial authority does not “deal with” management because they are management.

Domination of a union may also be found when the employer does not create a union. The employer’s behavior toward an existing union may result in the employees’ freedom of choice being unlawfully infringed. Courts have found domination when supervisors solicited union membership, the employer’s attorney acted for the union in drafting its constitution and bylaws, and the employer allowed union officials on company time and property to pursue a union organization drive. Tests for domination are subjective from the standpoint of the employees.
 Another violation of this section is employer interference by friendly cooperation with the creation or operation of a labor organization. A suggestion in and of itself by an employer that a union be formed is not an unfair labor practice, but interference may be found if the suggestion is timed to counter an organizational drive by an outside union. After a union has been recognized, a violation may occur if supervisors and company executives who gained membership status prior to their promotions remain in the union.

Employer Support and Assistance

Although domination and control of a labor organization clearly violate the act, support and assistance of a labor organization by the employer present a different problem. Often the suspect activities may be a manifestation of the employer’s legal cooperation with the union. If the support does not have any effect on the employees’ exercise of their rights guaranteed by the act and is trivial, no violation will be found.

Assistance or support that does violate the NLRA is employer aid to one of two competing unions. The employer can unlawfully favor one union by giving direct assistance to its campaign drive, by allowing it exclusive use of company facilities, by supplying the union with employee names to aid in a raid of the other union’s membership, and by assessing and collecting union dues without signed authorization cards. Prior to 1982, continuing to recognize an incumbent union when an election challenge is pending would have been a violation of the act. The board determined in that year that the mere filing of a representation petition by an outside union does not require or permit an employer to withdraw from bargaining with the incumbent union.
 Financial support of a union, either directly by donating money or indirectly by, for instance, allowing the union to receive the profits from company-owned vending machines, are other violations of the support and assistance provisions.

Discrimination Against Union Members

Discrimination against employees, based on their union activities, is an unfair labor practice and an obvious deterrent to successful collective bargaining. A violation of the act occurs when an employer encourages or discourages membership in any labor organization by hiring or tenure practices or by using membership as a term or condition of employment.

Discrimination occurs when a union member is treated differently from a nonunion worker because he or she is involved in union activity. In general, the fact that a particular incident took place is not an issue. It is easy to ascertain that a refusal to hire, a discharge, or a change in an employment condition has occurred. The question for the board to resolve is whether the action was motivated by a desire to encourage or discourage union membership and thereby discriminate against the member. 
Antiunion animus
 is found when the employer’s conduct is not motivated, or at least is not entirely motivated, by legitimate and substantial business reasons but by a desire to penalize or reward employees for union activity or the lack of it.

Antiunion animus

When an employer’s conduct is not motivated, or at least not entirely motivated, by legitimate and substantial business reasons but by a desire to penalize or reward employees for union activity or the lack of it.

An employer has a right to select employees and take disciplinary action to maintain good business conditions. The NLRB must weigh claims of discrimination by the employee against claims by the employer that certain actions were taken for cause.

Discrimination cases fall into two categories. In a 
dual-motive discrimination case
, two explanations for the action complained of can be offered by the employer. One constitutes a legitimate business reason, and the other is a reason prohibited under the act. In a 
pretext discrimination 
case, the employer puts forth only the legitimate business reason, but the complainant asserts that the prohibited reason is the true cause for the action. Approximately 60 percent of the unfair labor practice cases presented to the board involve a charge of discrimination for union activity. Prior to 1980, the board’s test in these cases was to decide if the antiunion animus of the employer played a part in the complaint. If so, the employer was found to have violated the act. Since then, however, the board has required the employee to present a prima facie case that the antiunion animus of the employer played a substantial or motivating role in the complaint before requiring the employer to justify the action taken.

Dual-motive discrimination case

A case in which the employer puts forth two explanations for taking an action against an employee—one constitutes a legitimate business reason and the other is a reason prohibited under the NLRA as an unfair labor practice.

Pretext discrimination case

An unfair labor practice charge in which an employer puts forth a legitimate business reason for taking an action, but the employee asserts that the true reason is one prohibited under the NLRA.

Discriminatory acts by the employer in compliance with a union shop provision in a collective bargaining agreement do not violate the act. The act specifically allows a collective bargaining agreement to require that new employees join the union within 30 days of employment.

Applicants for jobs as well as persons already employed are protected by the act. The language “discrimination in regard to hire” could stand no other interpretation. Therefore, it is an unfair labor practice for an employer to refuse to hire an applicant because of union activities. It is also a violation to offer employment on the condition that the applicant will not join or participate in a union. As discussed in 
Chapter 4
, union “salts” have, to some extent, been treated differently than other union members seeking employment. The Supreme Court ruled in NLRB v. Town and Country Electric 
 that regardless of one’s relationship with one’s union, each employee of the nonunion company has rights under the National Labor Relations Act. If the employee is doing the work asked by his or her employer, union activities cannot be used against the employee.
 The lower court had ruled that paid union organizers, or “salts,” were not employees in the true meaning of the act and thus did not have the right to organize and engage in collective bargaining. The rationale provided by the lower court was that paid organizers served the union’s interests and not the interests of the employer. In disagreeing, however, the Supreme Court noted that (1) paid union organizers fall within the definition of “employee,” (2) individuals can be employed by two employers without losing their employee status, and (3) an employee has the right to attempt to persuade fellow employees to support or join a union.
 The protection of salting as an effective organizing tool has been diminished by these rulings of the NLRB: A union interfered with employees’ right not to organize by granting “salts” preference dispatching treatment in a hiring hall over other members who were not willing or able to act as salts;
 limited back-pay awards to those discriminated against in a salting case because there is no presumption in salting cases that the employee would have stayed with the employer for any significant length of time even if hired;
 and required that an applicant’s genuine interest in securing employment must be proven to sustain an unfair labor practices charge. It provided a two-prong test for ascertaining such interest (1) the individual, or someone particularly designated by the individual, has to actually apply for a position and (2) the application must reflect that the applicant is sincerely seeking employment.

Obvious acts of discrimination against employees regarding wages, hours, and working conditions may lead to charges of unfair labor practices. As discussed earlier, withholding benefits pending union recognition elections is an unfair labor practice if the purpose is to influence the election. Discrimination can arise when an employer treats striking employees differently from nonstriking employees. For example, discrimination may be found if an employer announces that he or she will pay vacation benefits under an expired agreement to returning strikers, nonstriking workers, and strike replacements but not to strikers.

Examples of when an employer commits an unfair labor practice by attempting to take over a labor organization and when an employer is guilty of discriminating against union members can be found in 
Table 10-2

Table 10-2

Employer Interference with Union and Discrimination

Unfair Labor Practice

Not an Unfair Labor Practice

Employer Interference with Labor Organizations

Company created employee group which “deals with” the employer on issues of grievances, labor disputes, wages, work rules, or hours of employment

Company created employee group to performs managerial duties

Company participation in union’s internal activities

Company support of one union over another

Discrimination in Employment

Taking employment action against employee because of union status

Taking employment action against employee because of union status and a legitimate business reason so that antiunion animus is not the substantial reason for the action (dual-motive discrimination)

Taking employment action against employee citing legitimate business reason

Taking employment action against employee and union status is the real reason (pretext discrimination)

Refusing to hire because of union activities

Not hiring “salts” when the applicant(s) is not genuinely interested in getting the job

Hiring on condition applicant will not join union

Treating striking employees different from nonstriking employees

Protected Concerted Activities

Employers that discriminate against employees for engaging in concerted activities violate the interference, restraint, or coercion provisions of the unfair labor practices section of the act and also violate the discrimination for purposes of discouraging union membership provision. 
Concerted activity
 is any action by employees to further legitimately their common interests pursued on behalf of or with other employees and not solely by and on behalf of an individual.
 The most common form of concerted activity is the strike. Concerted activity need not involve union leadership or membership to be protected. To establish concerted activity, certain elements must exist: The issue involved must be work related, the goal should be to further a group interest, a specific remedy or result is sought, and the act itself must not be unlawful or improper.

Concerted activity

Any legitimate action taken by employees to further their common but not individual interests, such as wages, hours, and working conditions.

The work-relatedness requirement is not stringently applied. The board has found many activities protected under the act:

1. Employees assisting another employer’s personnel to unionize

2. Union resolution condemning employer’s opposition to another union’s strike

3. Union support of workers’ compensation law changes

4. Union lobbying against the National Immigration Policy

5. Union lobbying against right-to-work laws

However, as seen in Case 10-2, the courts do not always agree with the NLRB’s findings.

CASE10-2 Employer’s Unfair Labor Practice: Retaliation

The company, an industrial general contractor, received a contract to modernize a steel mill near the beginning of 1987. According to the company, various unions attempted to delay the project because the company’s employees were nonunion. The company and the mill operator filed suit against those unions based on the following basic allegations:

1. The unions had lobbied for adoption and enforcement of an emissions standard despite having no real concern the project would harm the environment.

2. The unions had passed out handbills and picketed at the company’s site—and also encouraged strikes among the employees of the company’s subcontractors—without revealing reasons for their disagreement.

3. The unions had filed an action in state court alleging violations of the Health and Safety Code to delay the construction project and raise costs.

4. The unions had launched grievance proceedings against the company’s joint venture partner based on inapplicable collective bargaining agreements.

Initially, the company and the mill operator sought damages under 
Section 7
 of the Labor–Management Relations Act, which provides a cause of action against labor organizations for injuries caused by secondary boycotts prohibited under Section 158(b)(4). But after the court granted the unions’ motion for summary judgment on the company’s lobbying- and grievance-related claims, it amended the complaint to allege that the unions’ activities violated 
Sections 7
 of the Sherman Antitrust Act, which prohibit certain agreements in restraint of trade, monopolization, and attempts to monopolize.

The court dismissed the amended complaint because it realleged claims that had already been decided. The appeals court affirmed the dismissal of the company’s antitrust claim because the unions had antitrust immunity when lobbying officials or petitioning courts and agencies, unless the activity was a sham. The company did not argue that the unions’ litigation activity had been objectively baseless but maintained that “the unions had engaged in a pattern of automatic petitioning of governmental bodies … without regard to … the merits of said petitions.”

In the meantime, two unions had lodged complaints against the company with the NLRB, and after the federal proceedings ended, the board’s general counsel issued an administrative complaint against the company, alleging that it had violated 
Section 7
 of the National Labor Relations Act by filing and maintaining the federal lawsuit. 
Section 7
 prohibits employers from restraining, coercing, or interfering with employees’ exercise of rights related to self-organization, collective bargaining, and other concerted activities.

The NLRB ruled that the company’s federal lawsuit had been unmeritorious because all of the company’s claims were dismissed or voluntarily withdrawn with prejudice. The board then examined whether the company’s suit had been filed to retaliate against the unions for engaging in activities protected under the National Labor Relations Act. The board first concluded that the unions’ conduct was protected activity and then decided that the company’s lawsuit had been unlawfully motivated because it was directed at protected conduct and necessarily tended to discourage similar protected activity. The NLRB also found evidence of retaliatory motive because the company’s Labor–Management Relations Act claims had an utter absence of merit and had been dismissed on summary judgment. The NLRB found that the company had committed an unfair labor practice because the suit it brought was unsuccessful and retaliatory. The company appealed to the Supreme Court.


The Supreme Court reversed the judgment, however, holding that the same application of the First Amendment that kept the unions from being found in violation of the Sherman Antitrust Act for lobbying efforts prevented the company from being charged with an unfair labor practice. Under the First Amendment, citizens are allowed the right to “petition” their government. Joining together to lobby elected officials, which certainly unions do, is a protected activity and cannot be found to have violated the Sherman Antitrust Act. Likewise, “petitioning” the government includes the right to seek redress with the court system. So that filing a well-founded, albeit unsuccessful, lawsuit, even if it would not have been commenced but for the company’s desire to retaliate against the unions for exercising rights protected by the National Labor Relations Act, is a protected activity under the First Amendment.

The case, being reversed and decided on constitutional grounds and not under the NLRA, was sent back to the NLRB for review of the unfair labor practice charge. The NLRB ruled that an employer exercising protected First Amendment rights, that is, bringing a reasonably based lawsuit, could not be charged with an unfair labor practice just because the lawsuit had been brought for a retaliatory reason against a union and was, ultimately, unsuccessful.

Source: Adapted from BE & K Construction Company v. NLRB, 170 LRRM 2225 (2002); and BE & K Construction Company, 351 NLRB No. 29 (September 29, 2007).

Unprotected concerted activities occur when the employees are violent, act in breach of contract, or engage in activities otherwise prohibited by the act, such as jurisdictional strikes or secondary boycotts. Employees can lose the protection of 
Section 7
 concerted activities if they take actions disproportionate to the grievance involved. Disparaging an employer’s product without clarification of the context of the dispute is such an action.


A strike is a type of concerted activity protected under the act if it is called for economic reasons (an economic strike
) or to protest unfair labor practices (unfair labor practice strike
). Any retaliation against employees participating in a primary strike is therefore an unfair labor practice. For example, if a union member was fired for union activities, workers could stage a strike until the discriminatory practice was remedied.

The circumstances that cause workers to strike and form a picket line are often tense and thus can easily provoke strikers to “let off steam,” an impulse that can easily lead to serious misconduct. Workers on strike may resort to conduct that the employer believes is improper—conduct that causes damage to property or, in some cases, even bodily harm. The NLRB has held that activities of striking employees constitute serious misconduct when they “reasonably tend to coerce or intimidate employees.”
 The application of this standard has led the courts and the NLRB to consider physical acts or threats of physical harm directed at nonstriking employees (called 


) to be serious and warrant possible discharge. Actions that have been ruled as serious misconduct include the throwing of rocks or eggs, vandalizing a supervisor’s car, carrying a gun or a club on the picket line, and threatening physical harm.
 In Clear Pine Mouldings, Inc.,
 the NLRB ruled that verbal threats alone could warrant the discharge of a striker who, while carrying a gun, threatened to kill a nonstriking employee. In most cases, the isolated instance of obscenities or name-calling alone is not considered serious strike misconduct. If an employer fires striking employees because of serious misconduct, the employer is not required to show that all the employees engaged in the activity if they were “actively cooperating” in the misconduct. And violent activity can result in the removal of the participants from the protection of the National Labor Relations Act. An examination of misconduct cases led one labor attorney to conclude that arbitrators are generally tolerant of strikers’ misconduct, particularly if the employer provoked the incident.


Workers who cross picket lines to work when union employees are on strike.

This distinction between how striking employees are treated as a result of either an economic or an unfair labor practice strike was established by a Supreme Court decision in 1938.
 As discussed in 
Chapter 6
, the Court decided employers could permanently replace striking workers without violating the (then three-year-old) Wagner Act. The Court noted that although 
Section 7
 of the National Labor Relations Act prohibits the interference with employees’ right to strike, an employer has the right to continue the operations of a business and replace strikers. Three NLRB decisions which modified the Court’s ruling held that employers cannot permanently replace strikers who are striking over an unfair labor practice, strikers who apply for reinstatement unconditionally must be placed on a “waiting list” and hired as jobs become available, and employers cannot grant pay raises to replacements not offered to strikers.

Illegal Strikes

Strikes undertaken by unlawful means or purposes are not legal, and employees can be fired. Unlawful means of conducting a strike include the following:

Sit-down strike. 
A takeover of the employer’s property. This action is seen as a violation of the owner’s property rights.

Wildcat strike. 
An economic strike conducted by a minority of the workers without the approval of the union and in violation of a no-strike clause in an existing contract. Although courts try to discourage such actions to ensure the continued credibility of the union, these strikes may be sanctioned if actually called to protect one of the union’s aims.

Partial strike. 
Various types of job actions, such as a work slowdown or refusal to work overtime. This action is seen as a violation of the owner’s property rights.

An organized effort to have workers call in sick. In the 1990s, the fastest growing type of job action was the 

. In December 1998, for example, Trans World Airlines was forced to cancel 240 flights after the flight attendants all called in sick during the week of Christmas. In an age when most labor unions try to avoid strikes if possible, the sickout is a good alternative job action. The action sends a clear message to the employer and can cause real inconvenience and loss of income. However, unlike when workers go out on an economic strike, they are not out long enough to be replaced with new permanent employees. Public sector unions, usually under no-strike laws, used sickouts more often than private sector unions in past years. But private sector unions have increasingly used the tactic as a show of strength and to protest stalled contract negotiations. They can be most effective when used by employees who cannot be easily replaced.


An illegal partial strike in which employees call in sick to protest a working condition.

In the absence of an absolute strike, the employer cannot replace the workers to keep the operation going, although the employer continues to be responsible for the workers’ wages.

The National Labor Relations Act requires that a union desiring to terminate or modify an existing contract may not strike for 60 days after giving written notice to the employer or before the termination date of the contract, whichever occurs later. Also, the appropriate federal and state mediation agencies must be notified within 30 days. Any strike held during the 60-day period is unlawful.

The National Labor Relations Act outlaws some consequences for which workers might strike. The following are unlawful ends that make a strike illegal:

1. Jurisdictional strike. Called because two unions are in dispute as to whose workers deserve the work. For example, an electrical union could strike a construction site in protest of laborers being used to unload electrical supplies.

2. Featherbedding strike. When a union tries to pressure the employer to make work for union members through the limitation of production, increasing the amount of work to be performed, or other make-work arrangements.

3. Recognitional strike. When a strike is called to gain recognition for another union if a certified union already represents employees.

Prominent U.S. Strikes

The number of major economic strikes (1,000 or more workers) has declined sharply in recent years—to a record low of only 11 in 2010. However, a few significant strikes which have attracted the news media and permanently affected U.S. labor–management relations are summarized in 
Table 10-3

Table 10-3

Major US Strikes 1983 to Present

The 1983 and 1989 Telephone Workers Strikes

Nearly 700,000 unionized telephone workers broke a 12-year labor peace on August 7, 1983. This strike was partially the result of an order by a federal judge to divest AT&T into 22 local operating companies. Management’s ability to endure the strike by means of automated equipment and longer shifts of supervision was something new—telescabbing, using modern technology as a substitute for labor during a called strike.

The 1986–1987 Steel Industry Negotiations

For the first time in 30 years, the major U.S. steelmakers decided in the spring of 1986 not to bargain jointly. The prior use of coordinated bargaining enabled all the major steel producers to negotiate common wage rates and benefits with the United Steelworkers of America.

The 1993 United Mine Workers Strike

In early May 1993, the United Mine Workers began a selective strike against coal producers after contract negotiations failed to result in a new master agreement with the Bituminous Coal Operators Association. The primary goal of the union during the talks was to stem the coal operators’ practice of opening new nonunion mines.

The 1994 Baseball Players Strike

The most disastrous strike in sports history canceled the 1994 World Series and cost the sport many fans and significant revenue (see 
Chapter 1

The 1996 General Motors Strike

A local labor dispute in one plant eventually crippled the world’s largest automobile company. UAW local in Dayton, Ohio, went on strike over outsourcing, the employer practice of giving business to nonunion suppliers that usually eventually means fewer union jobs. The strike gained national prominence and historical significance because the Dayton General Motors plant supplied 90 percent of the brakes for GM cars and trucks. Thus, within weeks, more than 72,000 workers at 21 of GM’s 29 North American auto assembly plants were idled at a cost of $45 million per day.

The 1997 UPS Strike

The Teamsters union strike idled over 180,000 workers and crippled delivery of packages worldwide. A central issue was part-time versus full-time jobs. The union won 10,000 new full-time jobs and focused national attention on this issue. After the strike the Teamsters kept pressure on UPS to add the promised new full-time jobs. One successful method used by the union was to ask its members online (www.teamsters.org) to help identify exactly where full-time jobs were needed (see 
Figure 10-4

The 2001 Comair Strike

Comair, once one of the most successful of the regional U.S. airlines, began an 89-day strike in the spring of 2001 by the Airlines Pilots Association, costing Comair and parent company Delta Airlines almost $500 million in expenses and lost revenue. In addition 2,400 nonpilot employees were laid off because of the strike. With the strike settled in June 2001, Comair had slowly begun to rebuild when the aftermath of September 11, 2001, severely hit the entire airline industry and stalled Comair’s recovery.

The 2003–2004 Southern California Grocery Chain Lockout and Strike

In October 2003, contract negotiations between the United Food and Commercial Workers Union and Kroger’s West Coast grocery chains (Albertsons, Vons, and Ralphs) broke down over health care costs. A bitter 20-week strike caused Kroger Company to lose over $337 million in one quarter and cost over 70,000 workers in 860 stores from San Diego to San Luis Obispo almost five months of income. Kroger cited the need to lower operating costs to compete with the nation’s largest food retailer, Walmart, which is nonunion and estimated to have substantially lower personnel costs. The new contract, approved in February 2004, contained a “two-tiered” system of wages and health care benefits, with employees hired after October 5, 2003, placed on a lower tier. The union tried unsuccessfully to resist the two-tier approach.

The 2007–2008 Writers Guild Strike

The Writers Guild of America, representing over 12,000 television and movie writers in Hollywood as well as the East Coast, struck the Alliance of Motion Picture and Television producers. The strike was the first in 20 years by the writers and affected millions of movie fans and TV viewers, and cost the entertainment industry over $500 million in lost commercial revenues. The key issue was the writers’ demand for a greater percentage of DVD, download, and online revenues.

Figure 10-1

Teamster Online Appeal to Members

Source: Available at www.teamsters.org/98ups.

Weingarten Rule

The U.S. Supreme Court in the case NLRB v. Weingarten, Inc.


 adopted what is today one of the most important concerted activity rights provided employees by the NLRA. The Court held that employees under 
Section 7
 of the NLRA are entitled to have a union representative present during an investigatory interview where the employee fears the interview may result in their receiving discipline. However, under this Weingarten Rule, while an employee has the right to union representation during an investigatory interview, such representation is limited by the employer’s right to conduct the interview. The role of the union representative is to protect the employees without interfering with the legitimate rights of the employer, without turning the interview into an adversarial contest. The role of the union representative therefore is seen to lie somewhere between mandatory silence and adversarial confrontation. The employer cannot request that the union representative remain silent during the interview. The union representative may advise the employee against answering questions that are perceived to be abusive, misleading, badgering, confusing, or harassing.

Weingarten rule

A Supreme Court ruling that a union employee has the right to request the presence of a union official during a meeting with management if the meeting may involve a discipline issue.

The Court reasoned that employee representation is appropriate due to the NLRA’s purpose of eliminating the inequality of power between the employer and the employee. However, the Court also noted that the employer is not obligated in any way to bargain with the union representative. If an employer denies an employee a union representative, the NLRB under the Weingarten Rule will usually grant a “make-whole” remedy, including reinstatement, back pay, and the removal of all related discipline records, except in discipline cases involving “just cause.” The employer cannot discipline an employee for the union representative’s conduct, but may discipline the representative.

The original Weingarten decision has been narrowed by subsequent board decisions. For example, the union employee cannot refuse to attend a meeting with management without a union representative because until the meeting begins, the employee cannot know it is an investigatory interview,
 and a union steward can be expelled from an investigatory interview if the steward interferes with the employer’s legitimate right to investigate.
 Thus, management can request some meetings with employees without a steward present and is not obligated under Weingarten to tell employees when they do have the right to have their steward present. The general purpose for having a steward present when a disciplinary situation may be discussed is to (1) provide a witness, (2) provide the employee with assistance of a person experienced in such situations, and (3) advise the employee about what to say and not say. The International Brotherhood of Teamsters provides their members printed cards with language to use if management asks about a potential disciplinary situation. The card reads, “If this discussion could in any way lead to my being disciplined or terminated, or affect my personal working conditions, I request that my union representative, officer, or steward be present at the meeting. Without representation, I choose not to answer any questions.”

Tips from the Experts Union Most Common Unfair Labor Practices

What are the most common unfair labor practices unions should avoid, and how can it do so?

A. Charge: 8(b)(1), interfering with employees rights under Seciton 7. In states where unions can negotiate union shop provisions, employees must become a union member or at least pay a lawful fee representing the cost of being represented. Unions can seek the employee’s suspension, discharge, or other punishment for not being a union member but not if the employee has paid or offered to pay the applicable fees. Union officials have to be very careful to respect the employee’s right not to be a union member.

B. Charge: 8(b)(2), discriminting against an employee for not engaging in union activities. A union must fairly represent all of the employees covered by a collective bargaining agreement in the grievance and arbitration procedures. Union officials must be diligent in investigating and pursuing employees’ rights, especially for nonunion employees to avoid a charge of failing in that duty. If the grievance is not worth pursuing, make sure that fact is documented and that a union member’s similar grievance was treated the same way.


What are the most common unfair labor practices management should avoid, and how can it do so?

A. Charge: 8(a)(3), discriminating against a union sympathizer/organizer/officer as regards discipline, especially termination. Avoid by either not touching those persons for violations of work rules (which makes managing the workforce very difficult) or (preferably) being doubly cautious in enforcing violations of work rules by such persons, that is, making absolutely certain that the violation and similar treatment for nonunion violators is well documented before taking action.

B. Charge: 8(a)(5), refusal to bargain/surface bargain intentionally or inadvertently, such as in unilaterally implementing a drug and alcohol policy. Avoid by scheduling sufficient numbers of negotiation sessions, being prepared and willing to make and listen to proposals, making some movement on at least some issues, not making public announcements either before bargaining commences or during the process (prior to impasse) that “X” is the company’s position and that the union can go fly a kite or whatever if it thinks it will get any more, and so on. With respect to the inadvertent stuff, make sure human resources and legal are working together in the implementation of any new or major changes to current policies or benefits to ensure no unintentional unilateral changes in terms or conditions of employment.

C. Charge: 8(a)(1), interference with employees in the exercise of their 
Section 7
 rights. Avoid soliciting information, spying, or crossing over the line in an organizing campaign. Make sure thorough supervisory training is repeated regularly and supported by an adequately staffed and respected labor relations department. Make certain the labor relations department is available for immediate assistance when necessary.

In 2004, the NLRB reversed a previous NLRB decision
 that had extended the Weingarten right to employees in nonunion workplaces. That previous opinion found such activity protected under the act for all employees because it provided employees with the opportunity to act in concert to address their mutual concerns. The board in IBM, Corp.,
 however, asserted that in nonunion workplaces coworkers do not represent the interests of the entire workforce, have no official status as a union representative, thus they cannot redress the imbalance of power between employer and employee, and may compromise the confidentiality of the interview. Therefore, employees who work in a nonunion organization do not have the right to request that a coworker be present in an investigatory interview.

Union Restraint or Coercion of Employees

Unfair labor practice standards were applied to labor organizations to enforce an employee’s right to refrain from union activities, which was granted by the Taft-Hartley Amendments. This right includes protection to work without restraint from strikes, to refuse to sign union dues check offs, and not to be coerced into accepting a particular union or any union at all.

The amendments did not impair the right of a labor organization to prescribe its own rules on members in good standing. And if a union shop provision is part of a current collective bargaining agreement, an employee can be compelled to join the union after being hired and to pay dues or fees to retain employment. Nonetheless, in Pattern Makers League v. National Labor Relations Board, the Supreme Court held that a union was guilty of an unfair labor practice when it attempted to fine its members for resigning from the union and returning to work during a strike. The Court believed that such fines were an attempt to compel membership in the union in violation of 
Section 7
 of the act.

Only a labor organization or its agent can violate the section of the amendments prohibiting unfair labor practices by unions. Actions by individual employees not sanctioned by a union cannot subject the employee to an unfair labor practice charge. Coercion may also take the form of “pink sheeting”—a practice where union officials pressure organizers into disclosing sensitive personal information—recorded on pink pieces of paper. The organizers are then strongly urged to tell their personal stories of abuse or neglect to workers they were trying to organize in order to gain their support. While Unite Here, a union formed in 2004 by the merger of Unite, an apparel workers union, with Here, a hotel and restaurant employees union, adopted new guidelines against pink sheeting, several of its organizers reported that it was common practice for the aggressive, fast-growing union. One Tampa International Airport Unite Here organizer, Julia Rivera, complained that she was ordered to tell her personal story of sexual abuse again and again to workers and that “it was sick, it was horrible.” Ms. Rivera left Unite Here to work for Workers United in Florida.

Specific union activities that have been deemed to be in violation of the amendments include the following:

1. Physical assaults or threats of violence directed at employees or their relatives

2. Threats of economic reprisals

3. Mass picketing that restrains the lawful entry or leaving of a worksite

4. Causing or attempting to cause an employer to discriminate against employees

5. Discriminating provisions in collective bargaining agreements (union shop being an exception), for example, superseniority clauses for union members that do not exist for a legitimate purpose

Unfair labor practices concerning protected concerted effort can be found in 
Table 10-4

Table 10-4

Protected Concerted Activities

Unfair Labor Practice

Not an Unfair Labor Practice

Protected Concerted Activities

Taking action against workers for primary strike for economic reasons or to protest unfair labor practice

Taking action against striking workers who are engaged in illegal strikes such as secondary strikes or boycotts, sit-down strike, wildcat strike, partial strike, sickout

Replacing striking workers with permanent employees during an unfair labor practice strike

Replacing striking workers with permanent employees during an economic strike

Unions striking under an existing contract

Unions striking under an existing contract after giving employers 60 days’ notice and mediation agency 30 days’ notice

Participating in a jurisdictional strike; featherbedding strike; or strike targeting another certified union

Denying union representation at an investigatory meeting that may result in discipline (Weingarten rule)

Employee Right to Refrain from Union Activity

Fining employees who have validly resigned from the union for engaging in protected concerted activities following their resignation or for crossing an unlawful picket line

Seeking the suspension, discharge, or other punishment of an employee for not being a union member even if the employee has paid or offered to pay a lawful initiation fee and periodic fees thereafter

Duty to Bargain in Good Faith

The National Labor Relations Act established a national policy to encourage collective bargaining as a way to eliminate or to mitigate industrial strife obstructing commerce. Employees seek strength in numbers by joining employee organizations to ensure equal bargaining powers. Under the act, union organizing is a right—protected and preserved. However, once that right is exercised, a duty is placed on both the union and the employer to proceed to bargain in good faith.

Nature of the Duty

The Wagner (National Labor Relations) Act made it an unfair labor practice for an employer to refuse to bargain with representatives of his employees. The NLRB, in enforcing that provision—
 the duty to bargain in good faith 
—imposed a good-faith efforts test as a condition for compliance with this duty. The comprehensive inclusion of unions in the unfair labor practices by the Taft-Hartley Amendments placed an equal obligation to bargain in good faith on employees. In addition, the amendments clarified what “bargaining” was under the act: to meet at reasonable times; to confer in good faith with respect to rates of pay, wages, hours of employment, or other conditions of employment; and to execute a written contract if the parties reach an agreement. However, the obligation to bargain does not compel either party to agree to a proposal or to make a concession.

Surface bargaining

The act by either party of simply going through the motions of negotiating without any real intention of arriving at an agreement. Surface bargaining is a violation of the duty to bargain in good faith.

Duty to bargain in good faith

Reasonable efforts demonstrated by both management and labor during contract negotiations. Generally, it requires both sides to meet, confer, and make written offers. It does not require either side to concede or agree on any issue but rather to show reasonable intent to reach an agreement.

The “good faith” criteria established by the board goes farther and includes the following:

1. Active participation in deliberations with an intention to find a basis for agreement

2. A sincere effort to reach a common ground

3. Binding agreements on mutually acceptable terms

The board found indications of bad faith in bargaining if employers (1) met directly with employees outside the bargaining process to reach an agreement not sanctioned by their representatives; (2) made unilateral changes in terms or conditions of employment; (3) refused to make counterproposals; or (4) refused to put the agreement in writing even after all issues were agreed to.
 Examples of bad-faith bargaining on the part of a union include (1) refusing to sign an agreement the union and employer have come to terms on and (2) insistence on being recognized as the exclusive bargaining agent for an inappropriate unit or when majority status is not held.

Totality of Conduct Doctrine

As the employer is mandated to negotiate while employees seek to negotiate, it is generally the employer who is judged on its “good faith.” A test, known as the 
totality of conduct doctrine
, is applied to determine the fulfillment of the good-faith bargaining obligation
. If, in total conduct, a party has negotiated with an open mind in a sincere attempt to reach an agreement, isolated acts will not prove bad faith. However, actions that are not per se unfair labor practices may indicate bad-faith bargaining when viewed in the totality of the bargaining process.

Totality of conduct doctrine

A test or review of the total bargaining process used to determine if a negotiating party has acted in good faith, as opposed to isolated acts that may have occurred during negotiations. Generally requires some “give and take” by a negotiating party to warrant good faith.

 is a “take-it-or-leave-it” bargaining technique. Its name derives from Lemuel R. Boulware, a vice president for the General Electric Company, who negotiated for that company. His strategy was to refuse to bargain with the union while sending management’s offer directly to the workers. Using this technique, a company presents a comprehensive contract proposal that, in its opinion, has included all that is necessary or warranted. This form of negotiation eliminates any need to compromise in the employer’s mind. Such a proposal is presented at the outset with the understanding that nothing is being held back for later trading, and employees are notified it is a final offer. This practice places the employer in the untenable position of not being able to negotiate. The NLRB declared an attitude of boulwarism a violation of the duty to bargain. It noted that although the formality of bargaining is followed—no illegal or nonmandatory subjects are insisted on, and intent to enter into an agreement is exhibited—there exists no serious intent to adjust differences and to reach a common ground.


A collective bargaining approach in which management presents its entire proposal as its final offer, holding nothing back for further negotiations. This approach lacks any “give and take” in bargaining.

Negotiators bargaining in “good-faith” exchange proposals at a negotiation table.

Source: © REBECCA COOK/Reuters/Corbis.

A 1964 decision (confirmed in 1969) involving this procedure as practiced by the General Electric Company gave the NLRB a chance to examine the technique in detail. The company had examined all relevant facts and had anticipated union demands. It actively communicated its position to employees prior to the negotiation session. It presented what it considered a fair and firm offer; although representations were made that new information could alter its position. The company was found to have failed in its duty to bargain in good faith because it failed to furnish information requested by the union; it had attempted to bypass the international union and to bargain directly with local unions; it had presented a take-it-or-leave-it insurance proposal; and it had, in its overall attitude and approach as evidenced by the totality of its conduct, failed in the good-faith test.

By the examination of the totality of conduct, the court expanded the understanding of the duty to bargain collectively by emphasizing the collective nature of the duty as contained in the National Labor Relations Act. Involvement is a bilateral procedure, allowing both parties a voice in the agreements reached. It is in direct opposition to the intent and purpose of the act for a party to assume the role of decision maker; an exchange of options must be presented and received with an open mind.

The technique of boulwarism, although most often used by an employer, has also been used by unions. In Utility Workers (Ohio Power Company), the board found a union violating the duty to bargain in good faith when the union insisted that identical offers be made to several bargaining units and conditioned acceptance in any single unit on submission of identical offers to all units.

Surface Bargaining

Another violation of the good-faith duty can be evidenced by 
surface bargaining
, that is, simply going through the motions without any real intention of arriving at an agreement. A totality test is used to determine surface bargaining. Surface bargaining can occur when a party has rejected a proposal and offered its own and does not attempt to reconcile the differences, or it can be used when a party’s only proposal is the continuation of existing practices.
 Surface bargaining often occurs in cases of first contract negotiations after a heated representation election. For example, in one instance in the initial bargaining session after a successful representation election, the employer refused to provide the union with requested information, threatened employees with job loss, and did in fact terminate two union supporters. The NLRB sought and won an injunction against the employer for engaging in surface bargaining.

Extensive negotiation in and of itself will not justify a finding of surface bargaining because the National Labor Relations Act does not compel parties to agree to proposals or to make concessions. Hard bargaining on a major issue does not exhibit bad faith because a party is not required to yield on a position fairly maintained. Even if the parties exhibit open hostility, surface bargaining may not be charged if the totality of the bargaining process complies with the dictates of the act.

The NLRB uses these factors when considering an unfair labor charge for surface bargaining:

1. Prior bargaining history of the parties

2. Parties’ willingness to make concessions

3. The character of exchanged proposals and demands

4. Any dilatory tactics used during negotiations

5. Conditions imposed by either party as necessary to reaching an agreement

6. Unilateral changes made during the bargaining process in conditions subject to bargaining

7. Communications by employer to individual employees

8. Any unfair labor practices committed during bargaining

Delaying Tactics

The NLRB in its totality review considers the degree to which either party stalls or uses delaying tactics to avoid collective bargaining. Obviously, a complete refusal to meet and to bargain violates the act. Scheduling meetings infrequently or canceling scheduled meetings can also evidence bad faith. Prolonged discussions on formalities designed to thwart the collective bargaining process are considered bad faith. The number or length of negotiation sessions alone cannot determine good or bad faith, but the NLRB frequently reviews meeting history to determine an employer’s charge of bad faith. Also, although there is no hard-and-fast rule as to how many or how long sessions should be, a review of case decisions shows the board’s preference for frequent meetings—79 in 11 months, 11 in 5 months, 11 in 4 months, and 37 in 10 months.

As described in 
Chapter 7
, the Great Recession of 2008 ushered in another era of concession bargaining. Good-faith negotiations means that the parties must seriously work to resolve differences and reach a common understanding. But this duty does not require either party to agree to the other’s demands or to make a concession. So while it is not unlawful for an employer to insist on concessions from its union by asking the employees to give up gains made under previous agreements, it may be difficult to reach agreement. When the parties reach an impasse, employees have the right to strike and the employer has the right to unilaterally imposing its pre-impasse proposals, including a reduction of wages and benefits. So in concession bargaining the employees are presented with a unique challenge. If they agree, they will give up pay or benefits previously won in negotiations, but by continuing to negotiate, they maintain the status quo, which means they might have higher wages and benefits during bargaining than under a new contract. Consequently, unions may have a vested interest in prolonging the bargaining process. Delays in a declaration of impasse, a declaration which would free management to implement concessions unilaterally, tend to strengthen the bargaining power of unions rather than that of employers.

Unilateral Changes by Employer

Employers may be guilty of bad faith if they unilaterally change conditions, such as employees’ wages, rates of pay, or hours of employment, during contract negotiations. One employer violated the act when it unilaterally rescinded a long-standing practice of allowing employees to participate in blood drives during paid work time after an impasse.
 The NLRB has ruled in decertification situations, however, that there must be a causal connection between the unilateral change in benefits and the employee dissatisfaction with the union.
 The act seeks to avoid this attempt to bypass the union and to deal directly with employees. However, there are exceptions to this rule. If an impasse is reached that is not the result of the employer’s bad faith, unilaterally imposing contract terms and conditions that are reasonably comprehended within its pre-impasse proposals is not evidence of bad faith. This ability to unilaterally impose changed working conditions at impasse is a judicial invention used to reconcile the dual mandate of the act, that is, to enforce the duty of good-faith bargaining while not compelling parties to accept agreements or make concessions. The NLRB is regularly called upon to determine if the employer’s unilateral change in pay or working conditions of its union employees was a result of an actual impasse. In Taft Broadcasting, 163 N.L.R.B. 475 (1967), the board enunciated specific factors which would become the standard the courts looked to when evaluating impasse as a matter of law. The factors include the following: (1) the good faith of the parties in the negotiations, (2) the bargaining history, (3) the length of negotiations, (4) the importance of the issues over which there is disagreement, and (5) the contemporaneous understanding of the parties as to the state of negotiations. The presence of good faith throughout the negotiation process is necessary to a finding of true impasse. Only if the parties have demonstrated the willingness to compromise on at least some issues will a court accept the premise that continuing to negotiate will not result in agreement on the still remaining issues.

Bypass the Union

Bypassing the bargaining representation by attempting to negotiate directly with employees is often held as a violation of the duty to bargain in good faith. The courts, in reviewing the National Labor Relations Act, found it was the employer’s duty to recognize the union and conduct negotiations through the union rather than deal directly with employees. This is an obligation even if the employer traditionally had contracts with individual workers. The collective bargaining contract supersedes such contracts.
 One very important exception to this rule is that if during contract negotiations a union refuses a final offer, the employer may communicate that offer directly to employees.

Authority to Settle

The good-faith test includes the duty to send negotiators to the table with sufficient authority to carry on meaningful negotiations. All attempts to delay commitment by the recourse of management representatives to check with some final authority are scrutinized closely for evidence of bad faith. However, the obligation of the union representative to take a contract back for a vote of union members before acceptance is not a violation of the duty to bargain in good faith.

Committing Unfair Labor Practice

Unfair labor practices during contract negotiations evidence bad faith. Threats to close a plant or to engage in discriminating layoffs during bargaining have been held to be in bad faith. To encourage the decertification of a union or to assist employees in the decertification process has also been found to obstruct the bargaining process.

Duty to Furnish Information

The employer has a duty to furnish information to the union, enabling it to carry on the negotiation process. Often, the employees are unable to collect relevant data about an employer’s business without the employer’s cooperation. If the National Labor Relations Act did not support this duty to furnish information, much of the collective bargaining process would be futile. As with the duty to bargain, the duty to furnish information arises only after a request for information is made in good faith. A union may be subject to a charge of an unfair labor practice if it requests information only to harass or humiliate the employer.

1. Relevancy. Within liberal interpretations, the NLRB has said that information requested must be relevant to the union’s right to represent its members. The union need not prove that the particular information requested is related to a currently discussed item if the subject matter is part of the overall negotiations.

2. Financial information of company. When an employer claims financial inability to meet a union wage demand, the financial information of the employer’s company becomes relevant. The Supreme Court held that if such a claim by the employer is important enough to be made at the table, it requires some proof of its accuracy.
 The board has extended this rule to actual claims of financial inability. Refusal to grant wage increases because the employer claims it could not stay competitive or would lose the profit margin was held by the board to invoke financial inability. Therefore, financial data become relevant. In the absence of such a claim, an employer’s financial records can be denied the union’s bargaining team. The employer may see nondisclosure of financial information as a reaffirmation of management prerogative and by the employees as an obstacle to effective bargaining.
 In a very narrow interpretation of previous Court decisions, the NLRB has denied a union’s right to financial information when the employer merely claimed it could not meet the union’s wage demands and stay competitive.
 A later federal court opinion, however, ruled that an employer had asserted an “inability to pay” when it said that “competitive pressures” prevented it from agreeing to union contract demands.

3. Prompt delivery of information in workable form. Bad faith may be evidenced if requested information is not delivered in a timely manner or is delivered in an unreasonable, useless form. An employer may claim that compiling requested data is unduly burdensome, but he or she must be flexible and should suggest alternatives. If the information is given in a form generally accepted in business, a union’s request for a different form will not be binding on the employer. And when the employer allows the union access to all its records, it need not furnish information in a more organized form.

4. Information that must be furnished. Almost all areas touching on mandatory bargaining have been open to union requests for information. However, employers frequently refuse requests by the union to furnish wage information. The board, supported by lower courts and the Supreme Court, has found little if any justification for such refusals. The statutory requirement that wages be subject to collective bargaining extends to wages paid to particular employees, to groups of employees, and to methods of computing compensation. The union’s right to information may include employees even outside the bargaining unit or in other plants operated by the employer.

Rights and Prohibited Conduct During the Term of a Contract

Certain rights and duties arise during the term of a contract. These include the duty to bargain during a contract term, and the duty to refrain from prohibited economic activities.

Duty to Bargain during the Contract Term

The standards for good-faith collective bargaining contained in the National Labor Relations Act include the duty to bargain during the contract term under certain circumstances. The duty, however, is not absolute. The language of the act provides that a party cannot be required to discuss or agree to terminate or modify the contract during its term. In addition, the contract under which parties operate may limit the duty in the following ways:

1. Zipper clause. The 
zipper clause
 is an abbreviated form of the waiver provision in a collective bargaining agreement, sometimes referred to as a “wrap-up” clause, considered to denote waiver of the right of either party to require the other to bargain on any matter not covered in an agreement during the life of the contract, thus limiting the terms and conditions of employment to those set forth in the contract. A clause of this type is the following zipper clause

Zipper clause

A provision of a collective bargaining agreement that restricts either party from requiring the other party to bargain on any issue that was not previously negotiated in the agreement for the term of the contract.

contained in the 2007–2011 Agreement between Louisville/Jefferson County Metro Government and Fraternal Order of Police, Lodge 614:

Article 39

Entire Agreement

Section 7
. Metro Government and the Lodge shall not be bound by any requirement, which is not specifically stated in this Agreement. Specifically, but not exclusively Metro Government and the Lodge are not bound by any past practices or understandings of Metro Government or the Lodge, or their predecessors. The parties agree that only those items contained in this Agreement constitute the entire agreement and respective rights of the parties.

Section 7
. The Lodge and Metro Government agree that this Agreement is intended to cover all matters referred to in Article 2 and that during the term of this Agreement, neither Metro Government nor Lodge will be required to negotiate on any further matters affecting these or other subjects not specifically set forth in this Agreement.

Opener clause

Opener clause

An agreement provision that allows future negotiations during the term of the contract on specific mandatory issues such as wages or health care.

This clause allows negotiations to take place during the contract term on certain mandatory items. Most clauses provide for the reopening of negotiations on only one specific issue, whereas the remainder of the contract is closed to discussions. The most common issue specified in reopeners is wages; specific benefits are also common issues.
 For example,

Article XX

Section 7
. This Agreement shall be reopened by either party for the purpose of adjusting the increase in the base hourly rate of pay, and only the hourly rate of pay; upon receiving a written request, the parties will meet within ten days.

Severability clause

Severability Clause

A CBA provision that keeps all other provisions in the agreement in place should one provision become null and void.

Most contracts contain a severability clause that protects the rest of the contract should one section come into conflict with state or federal law. Such a clause usually provides that the offending section becomes null and void or that, as in the following Article XIV from the agreement between duPont Co. and the Neoprene Craftsmen Union, the section must be renegotiated as needed:

Article XIV

Suspension of Provisions of Agreement

Section 7
. If during the life of this agreement there shall be in existence any applicable rule, regulation or order issued by governmental authority, which shall be inconsistent with any provision of this agreement, such provision shall be modified to the extent necessary to comply with such law, rule, regulation, or order.

Union Demand to Negotiate During a CBA

A question of bargaining during the contract term may arise when the union seeks to add new items not covered under the contract. This situation highlights the two competing views of collective bargaining. One view is that the collective bargaining agreement does not end the collective bargaining process. It is a continuous process, albeit with rules as to how the process should proceed. Many people believe that the grievance-arbitration procedures are a part of that process because those decisions shape the administration of the contract and therefore its terms.

The opposite view is that the collective bargaining process must be completed with the signing of the contract to give meaning to the contract terms. Because bargaining should encompass all subjects, the final agreement should settle all subjects either explicitly or implicitly between the parties. Under this view, the grievance-arbitration procedure only interprets the contract and adds nothing to its terms. The NLRB’s attitude to a union demand for bargaining on a new mandatory bargaining item during a contract term seems to be that, without a zipper clause, if the item is not contained in the contract and was not discussed during negotiations, the employer has a duty to bargain on that item.

Employer’s Unilateral Action During a Contract Term

Most often the question of the duty to bargain during a contract term arises as a result of unilateral action by the employer. Depending on the circumstances, such action may be deemed an unfair labor practice as a breach of that duty to bargain. The question of whether a substantive or procedural provision of a contract was violated arises when an employer takes unilateral action during a contract term and makes a change in some condition of employment. If the employer’s action changes a stated term of the contract, the answer is simple. The employer has committed an unfair labor practice. However, if under a broad management rights clause the employer takes an action that affects employees in a manner not contemplated by the contract, disagreement as to breach obviously occurs. For example, an employer committed an unfair labor practice when it installed hidden surveillance cameras and disciplined or discharged 16 workers recorded engaging in misconduct. But although the NLRB found the employer’s unilateral action in installing the cameras violated the act, it overruled prior board decisions and refused to order reinstatement or back pay for the workers caught misbehaving.

As a rule, the NLRB considers charges of unfair labor practice by a union against an employer for taking unilateral action a matter for arbitration and, under the Collyer decision, will defer its jurisdiction to the arbitrator.

Even under a management rights clause in which the final decision is the employer’s, a contract may contain a requirement that the union must be consulted before any action. An employer who violates this procedural requirement is in breach of the contract and of his or her duty to bargain during its duration.

Prohibited Economic Activity During a Contract Term

To use economic pressure as a means to enforce a contract obviously is not the preferred method, as evidenced by the support given arbitration in court decisions. A union slowdown or strike countered by an employer lockout or mass dismissal seems at odds with the National Labor Relations Act’s aim of promoting industrial peace. But to use economic activity, or at least the ability to resort to economic activity, is a key element in the success of the collective bargaining process.

As discussed earlier, the use of economic weapons, strikes, and other concerted activity during recognition campaigns and during negotiations are familiar tactics. Although use of economic power to enforce an existing contract has become increasingly rare because of mandatory grievance and arbitration procedures and no-strike clauses in labor agreements, such action has not disappeared. The Supreme Court, in the 
Boys Marketcase 
, upheld an injunction against a union that struck over an arbitrable grievance despite a no-strike clause and a mandatory grievance procedure.
 But the Court noted that not all such strikes would be enjoined. It adopted strict standards from an earlier case:

Boys Market case

A case in which the Supreme Court upheld an injunction against a union that struck an employer despite a no-strike clause in its contract. The Court also ruled that an employer is ordered to arbitrate while seeking a court injunction against a union striking in violation of a no-strike clause.

When a strike is sought to be enjoined because it is over a grievance which both parties are contractually bound to arbitrate, the district court may issue no injunctive order until it holds that the contract does have that effect; and the employer should be ordered to arbitrate, as a condition of his obtaining an injunction against the strike. Beyond this, the district court must, of course, consider whether issuance of an injunction would be warranted under ordinary principles of equity—whether breaches are occurring and will continue, or have been threatened and will be committed; whether they have caused or will cause irreparable injury to the employer; and whether the employer will suffer more from the denial of an injunction than will the union from its issuance.

Thus, a union does have an effective weapon despite a no-strike clause if the grievance does not factually come under the contract arbitration procedure, if the employer is not willing to arbitrate, and if the employer cannot show where he or she has suffered irreparable injury from the breach of the no-strike obligation.

The Supreme Court later upheld the right of a union to engage in a sympathy strike pending an arbitrator’s decision on whether such a strike was forbidden under the particular no-strike clause of the labor agreement.
 The strike had been called in support of another union properly engaged in an economic strike. Although the arbitration procedure could be invoked to decide the scope of the no-strike clause, the Court would not allow the union’s strike to be enjoined pending that decision. The NLRB, in its decision in Indianapolis Power and Light Company,
 attempted to create a presumption that broad no-strike clauses were intended to cover sympathy strikes, but the U.S. Court of Appeals overruled that presumption in 1986 in International Brotherhood of Electrical Workers, Local 387 v. National Labor Relations Board.
 The court said a no-strike clause must be interpreted according to the terms of the particular collective bargaining agreement, the bargaining history, and the past practices of the parties to determine its application to sympathy strikes.

The National Labor Relations Act, as amended by Taft-Hartley and Landrum-Griffin, outlawed four specific economic pressure techniques that unions might try to use during the term of a contract: secondary boycotts, hot cargo agreements, jurisdictional disputes, and featherbedding.

Secondary Boycotts

Section 7
 of the National Labor Relations Act prohibits a union from engaging in or from inducing others to engage in a strike or boycott aimed against the goods or services of one employer so as to force the employer to cease doing business with another employer. This prohibition was a response to the labor movement’s use of the 
secondary boycott
 to affect employer A by exerting economic pressure on those who do business with employer A. Primary economic activity such as a boycott by employees against an employer is not prohibited by this section, nor is a secondary boycott with an objective that is not statutorily forbidden.

Secondary boycott

Union pressure exerted on a neutral party indirectly related to the primary employer. The neutral party then exerts pressure against the primary employer.

The Supreme Court attempted to give guidance on the distinction between a primary and a secondary boycott. A 
primary boycott
 occurs when persons who normally deal directly with the work involved are encouraged to withhold their services. This type of boycott is not prohibited and includes, for example, appeals to replacement workers or delivery people not to cross a picket line or appeals to employees of subcontractors not to continue work essential to the operation. Even if the picketing takes place at the work site of the secondary employer, it may be protected if the work involved is the object of the dispute.

Primary boycott

A legally permissible action against the employer directly involved in collective bargaining that involves pressure on others to withhold purchases of the employer’s goods or services.

In 1988, the Supreme Court gave a significant victory to labor unions by ruling that union members may hand out leaflets in a secondary boycott action. The case, De Bartola Corp. v. Florida Gulf Coast Trades Council,
 involved a union’s distributing handbills in a shopping mall. The handbills asked customers not to shop at any of the stores in the mall because a construction company hired to build a new mall store was paying substandard wages. The mall was owned by the De Bartola Corporation, which then filed a complaint with the NLRB charging the union with engaging in a secondary boycott against the mall stores. The NLRB and a U.S. circuit court ruled in favor of De Bartola and ordered the union to cease and desist the action. The Supreme Court reversed the decision on the grounds that peaceful handbilling urging a customer boycott was not prohibited by 
Section 7
 of the National Labor Relations Act when unaccompanied by picketing. The key difference between this case and previous cases was the act of handbilling without picketing. The Court declared that picketing was qualitatively different and produced different consequences. Although the Court noted that both picketing and handbilling could have detrimental effects on a neutral third party, prohibiting peaceful and truthful handbilling raised questions of First Amendment rights.

The use of banners by a union outside of a secondary business, however, was upheld in 2005 by the U.S. Ninth Circuit Court of Appeals in Overstreet v. United Brotherhood of Carpenters & Joiners of America.
 The Circuit Court held that 
Section 7
 of the NLRA if

Workers are legally permitted to boycott the employer they directly have a dispute with to put business pressure on the employer.

Source: Noah Berger/AP Images.

used to prohibit a union’s bannering activity would be a violation of the union’s First Amendment free speech rights. The court decided that since the 4- by 15-foot banners that read “SHAME ON (name of neutral retailer)” and “LABOR DISPUTE” did not obstruct the business or contain a fraudulent message, and was a reasonable distance from the entrances, it was not an unlawful secondary boycott. The case involved the United Brotherhood of Carpenters union, which set up the signs in front of 18 retail sites where the retailers conducted business with any of three construction contractors that hired nonunion workers.

A union may be held liable for any actual damages resulting from an unlawful secondary boycott sustained by the secondary or primary employer.


A new form of secondary boycotting was demonstrated in 1995 by a union in Massachusetts. The Teamsters union was in a labor dispute with a beer distributor, August A. Busch & Co. of Massachusetts, Inc. The union conducted three shop-ins involving three different retail establishments that carried Busch products. The shop-ins involved anywhere from 50 to 125 union members converging on the stores at the same time; buying small items, such as gum or snacks; and paying with large-denomination bills.

The results were crowded parking lots, delays in service, and the loss of regular customers. The union did not engage in any information sharing; that is, it did not leaflet or express an opinion regarding Busch. Nor was it actually picketing. An unfair labor practice charge was made against the union, and the NLRB found this activity to be prohibited as a secondary boycott. Clearly the shop-in was conducted to pressure the retailers not to use Busch products. There was no communication to the public about Busch that would have been protected under the First Amendment.

Hot Cargo Agreement

Hot cargo agreement
 refers to a negotiated contract provision stating that union members of one employer need not handle nonunion or struck goods of other employers. Court decisions after passage of the Taft-Hartley Amendments basically allowed such agreements, stating that the prohibition against secondary boycotts did not prohibit an employer and union from voluntarily including a hot cargo clause in their agreement, but such a provision was not an absolute defense against an unfair labor practice charge. If inducements of employees prohibited by 
Section 7
 of the National Labor Relations Act in the absence of a hot cargo provision occurred, the inducements would still violate the act.

Hot cargo agreement

A negotiated contract provision stating that union members of one employer have the right to refuse to handle nonunion or struck goods of other employers.

Clauses completely prohibiting an employer from subcontracting are valid. But a clause forbidding subcontracting with nonunion employers may be a violation if it is aimed at a union’s difference with another employer and is not designed to protect union standards. A work-preservation clause is lawful if the object of the clause is to protect and preserve work customarily performed by employees in the unit. This is true even if it involves refusing to handle certain cargo as long as it is the cargo that is refused and not the employer making the cargo. The aim of the clause must be to protect the actual employees of the bargaining unit and not union members as a group.

Hot Cargo and Sweatshops

The Landrum-Griffin Act clouds union concerns over the operation of foreign sweatshops. The Garment Industry Proviso in 
Section 7
 of the National Labor Relations Act allows labor organizations representing the apparel industry to require garment industry employers—known as jobbers—to do business only with union shops. It exempts the garment industry from the provision of the act that makes it an unfair labor practice for labor organizations to force employers to stop handling products of nonunion employers or hot cargo agreements. The garment industry’s labor agreement requires jobbers who use contractors to hire union shops. But it also allows those who use nonunion shops or who use low-cost factories outside the United States to pay a “liquidated damage” penalty to the union. Garment unions have collected more than $160 million in liquidated damages.


Another prohibited activity is featherbedding, which, according to 
Section 7
 of the National Labor Relations Act, is “to cause an employer to pay … for services not performed or not to be performed.”
 The featherbedding section is rarely used unless a union tries to cause an employer to pay for services neither performed nor intended to be performed. In such cases the NLRB may order the union to reimburse the employer and cease the unlawful activity.
 The Supreme Court may uphold a negotiated agreement to provide pay for make-work if the work was actually done regardless of its value to the employer.

Some examples of unfair labor practices during negotiations and under a collective bargaining agreement are summarized in 
Table 10-5

Table 10-5

Unfair Labor Practices During Bargaining and During Term of Contract

Unfair Labor Practice

Not an Unfair Labor Practice

Duty to Bargain in Good Faith

Refusing to meet for the purpose of negotiating an agreement

Boulwarism—“take it or leave it” approach with no give and take exchange is bad faith

Surface bargaining—going through the motions with no intent to reach agreement is bad faith

Hard bargaining on mandatory issues even if parties can’t reach agreement

Employer’s unilateral change in conditions of employment during negotiations

Employer’s unilateral change in conditions of employment after reaching “no-fault” impasse

Negotiating directly with employees

Communicating “final offer” union rejected to all employees

Not sending negotiators to table with sufficient authority to have meaningful negotiations is evidence of bad faith

Union negotiators having to take proposals back to union membership for final vote

Refusing to sign an agreement after reaching consensus

Duty to Furnish Information

Employer refusing to provide financial information when claiming inability to pay

Employer refusing to provide financial information if not claiming inability to pay

Delay in furnishing information or furnishing it in useless form

Providing information in form generally accepted in business

Refusing to provide information employer does not consider relevant to negotiations

Union requesting information to harass or humiliate employer

During Term of Contract

Union strike when CBA has no-strike clause and grievance procedure

Union strike when CBA has no-strike clause and grievance procedure but disputed issue is not grievable

Refusing to bargain under an “opener clause”

Refusing to bargain on new mandatory item raised by union if not contained in contract or discussed during negotiations

Refusing to bargain under a “zipper clause”

Unilateral change in terms and conditions of employment by employer during term of contract

Unilateral change in terms and conditions of employment by employer during term of contract if valid under management rights clause

Unions engaging in secondary boycotts—picketing 3rd party to influence 2nd party

Unions only leafleting, not picketing, in secondary boycott to pressure 3rd party to influence 2nd party

Unions engaged in “shop-in” to disrupt 3rd party business

Union forcing employers to refrain from handling products of nonunion employers in absence of hot cargo agreement in CBA

Forcing employers in the garment industry to refrain from handling products of nonunion employers even in absence of hot cargo agreement in CBA

Striking to force featherbedding

Refusing to process a grievance because an employee is not a member of the union in states where union security clauses are not permitted.

The Authority of the NLRB

Unfair Labor Practices

An unfair labor practice charge comes to the NLRB through procedures similar to election petitions. The party claiming injury files an appropriate form with a regional office of the NLRB (see 
Figure 10-2
Figure 10-3
). An initial investigation is held, and if merit is found to the charge and the regional director cannot convince the parties to settle, a hearing is held before an administrative law judge. The decision of the administrative law judge may be appealed to the NLRB, which decides the case through a subpanel of three members randomly selected by its executive secretary.

A party who disagrees with an NLRB decision can appeal to a federal court. Recent statistics, however, show that less than 3 percent of the unfair labor practice cases brought to the NLRB actually ended up in a litigation process, either in the NLRB or in federal court. The study demonstrated how cases are resolved through the NLRB process. When a complaint is filed, it is

Figure 10-2

National Labor Relations Board Charge Against Employer

Figure 10-3

National Labor Relations Board Charge Against Labor Organization or its Agents

assigned to an agent of the regional director in the NLRB region with jurisdiction over the parties. The agent is under tight time restraints to investigate the charges and make a recommendation to the regional director. Statistics show that the decision of a regional director to issue a complaint or not almost always determines the ultimate outcome of the charges. With that in mind, the practice of the NLRB regional directors is to let the parties know which way the decision is going to go and to give the losing party a choice of withdrawing (if the charging party is going to lose) or offering a settlement (if the charged party is going to lose).
 The success of this precharging process can be seen in the statistics in 
Figure 10-4
 showing the disposition of NLRB cases in a typical year in which some withdrawals and dismissals were resolved before complaints were issued.

Section 7: Court Injunctions

Section 10(j) 7
 of the National Labor Relations Act permits the NLRB to seek a federal court injunction in situations in which the action of the union or employer might cause substantial harm to the other side. The court, in response, can then order either party to resume or desist from a certain action. In general, the NLRB must demonstrate that the unfair labor practice, if left alone, will irreparably harm the other side before a final NLRB decision can be administered, or “justice delayed is justice denied.” For example, in 2009 a federal district court issued a 
Section 7
 injunction against an employer, Vincent/Metro Trucking LLC, and ordered it to resume collective bargaining with the United food and Commercial Workers Union Local 789. The courts stated the injunction was “essential, just, proper and appropriate” because the NLRB was investigating unfair labor practices, and unless the injunction was issued, the employer’s potentially illegal actions were likely to continue. The union had requested the telephone and fax

Figure 10-4

Dispositions of NLRB Cases, 2009.

Source: “Seventy-Fourth Annual Report of the National Labor Relations Board for Fiscal Year ending September 30, 2009,” p. 6. Available at http://www.nlrb.gov.

Section 10(j) 7 injunction

The section of the NLRA that allows the board to seek a federal court injunction in situations in which the action of a union or the employer might cause substantial harm to the other side.

In 2009 a federal court issued an injunction against Vincent/Metro Trucking LLC and required it to resume collective bargaining with the local UFCW union.

Source: © Doug Berry/Corbis.

numbers and addresses of employees, which the employer had not provided, and at the same time held meetings with the employees in an attempt to bypass the union.

In the 1994–1996 baseball strike players would have found their abilities slipping with increasing age; thus U.S. District Court judge Sonia Sotomayor ordered the owners to abide by the old contract and to “play ball” until a new contract was reached. Some baseball fans believed that the NLRB saved the game!

Section 7
 cases fall within the following 13 categories:

1. Union organizing campaign interference

2. Subcontracting work to outside employers

3. Withdrawing recognition of the union

4. Undermining or denigrating the members of the union’s bargaining team

5. Granting exclusive representation to a minority union

6. Successor employer refusing to recognize and bargain

7. Bad-faith conduct during negotiations

8. Picketing violence

9. Strike or picketing notice or waiting period violations

10. Employer refusal to allow protected activity on private property

11. Retaliation for NLRB processes

12. Closedown of operations during litigation

13. Union coercion to achieve unlawful object

The number of 
Section 7
 injunctions issued by the NLRB, however, has declined sharply since 2000 under the Bush-appointed NLRB. 
Section 7
 gives the NLRB, at its discretion, one of its most powerful tools: to obtain quick injunctive relief against a wide variety of unfair labor practices, committed by either an employer or a labor organization. In practice, however, most injunctions are applied against employers in cases involving the employer’s refusal to bargain with a newly certified union (about half of the cases) or employee termination or discipline cases. In 1995, the NLRB issued 
Section 7
 injunctions in 104 cases, the highest total in the 70-year history of the board. In 2004, however, only 14 injunctions were authorized by the NLRB, the lowest number in over 30 years.

Contract Enforcement by NLRB

Once the parties have agreed and entered into a collective bargaining agreement, disputes can still disrupt the workplace. The CBA is a contract and as such can be enforced through court proceedings as any other contract; enforced through adherence to grievance and arbitration procedures as discussed in 
Chapters 11
; through the economic self-help pressure activities discussed earlier; or in some cases enforced through an unfair labor practice action by the NLRB.

Violation of a provision of a collective bargaining agreement is not in and of itself an unfair labor practice. Therefore, enforcement and interpretation of a contract provision might come within the jurisdiction of the board only if the matter also involves a violation of an unfair labor practice provision. The board may be involved in contract enforcement if the contract has incorporated a statutory obligation it already has jurisdiction to enforce or if a contract has incorporated an unlawful provision it is called on to invalidate.

For example, if an employer is accused of refusing to bargain during the term of the contract by making a unilateral change in the wage structure or other term of employment, by subcontracting work, and by refusing to supply information the union seeks, and if the employer claims that the contract justifies his or her action, the NLRB can interpret the lawful contract clause. The board is called on to investigate and determine the validity of the employer’s claim.

The board’s interpretive power might also be apparent in a case involving a union security clause or the provisions of a grievance procedure in which a contract is used by an employer or a union to defend the discharge or disciplining of an employee and that employee claims a violation of the National Labor Relations Act.

In representation cases, a party may claim that proper interpretation of a contract places him or her under its protection and provisions. Thus, the NLRB’s definition of the parties to a collective bargaining agreement or the appropriate unit of employees who should be represented by a union can have great impact.

The NLRB may invalidate a contract or clause if it finds that the union acted under an erroneous though good-faith claim that it had majority representation, in a successorship situation in which one union has dissolved or merged with another, or when a business has changed hands. Contract clauses impinging on areas prohibited by the act will come before the board for validity tests. Items tested include union security clauses, discriminatory provisions, hot cargo clauses (in which union members refuse to handle goods from a nonunion employer), and breach of a union’s duty of fair representation. Also, a petition and election for representation not barred by an existing contract may invalidate an existing contract.

Court and NLRB Deferral to Arbitration

Prior to the Taft-Hartley Amendments, employers and unions could sue in state court for breach of contract if one party believed the other party violated a collective bargaining agreement. Most state courts viewed the collective bargaining agreement as a legally enforceable obligation. Unions could obtain injunctions to restrain employers from violation of wage provisions or to require employers to abide by a union shop agreement. The employer could obtain an injunction against strikes in breach of a valid no-strike clause. Still, contract enforcement for the employer was difficult because many labor unions were not incorporated. In some states such unincorporated organizations could not be sued; thus, the employer had to sue each union member individually. Even if the unincorporated union could be sued for specific injunctive relief, monetary damages might not be available. The Taft-Hartley Amendments were an attempt to lessen the unions’ power by allowing access to federal courts on suits for collective bargaining contract violations. The amendments specifically recognized labor unions as entities that could be sued and held liable for monetary damages.

Having established that the courts could effectively enforce labor agreements, the Supreme Court looked to the grievance and arbitration provisions found in most agreements and called for specific performance of an employer’s promise to arbitrate.
 The Court felt that the agreement to arbitrate grievance disputes was the employer’s trade-off for the union’s agreement not to strike.

The role of arbitration and court enforcement of contract agreements was specifically outlined in the 
Lincoln Mills 
case and three cases known as the Steelworkers Trilogy. 
 These cases held that when a collective bargaining agreement contains an arbitration provision, the function of a court is limited to a review of whether the issue to be arbitrated is governed by the contract. Any doubt as to the coverage should be resolved in favor of arbitration. Unless the arbitrator’s award is ambiguous, the courts should enforce it even if the court would not have decided the substantive issue in the same way. The Court gave almost complete deference to arbitration as a means of contract enforcement by limiting its own review of an arbitration award to whether the issue under arbitration is in the agreement.

Lincoln Mills case

A landmark decision in which the Supreme Court ordered an employer to arbitrate grievances as provided for in a collective bargaining agreement, stating that an employer’s agreement to arbitrate grievance disputes was a trade-off for the union’s agreement not to strike.

Steelworkers’ Trilogy

Three 1960 Supreme Court rulings that upheld the grievance arbitration process and limited judicial intervention.

The Misco case is an example of the Supreme Court’s deferral to arbitration. In the Misco case, the Company’s work rules listed as cause for discharge the possession or use of a controlled substance on company property. An employee covered by the collective labor agreement was apprehended by police in the backseat of someone else’s car on the company parking lot. There was marijuana smoke in the air of the car and a lighted marijuana cigarette in the front-seat ashtray. A police search of the employee’s own car on the lot revealed marijuana gleanings. Management discharged the employee for violation of the disciplinary rule. The employee grieved, and an arbitrator later upheld the grievance and ordered reinstatement. The arbitrator concluded that the cigarette incident was insufficient proof that the grievant was using or had possessed marijuana on company property. At the time of discharge, the company was not aware of the fact that marijuana was found in the employee’s own car, and the arbitrator refused to accept that claim into evidence. The lower court vacated the arbitration award ruling that reinstatement would violate the public policy against the operation of dangerous machinery by persons under the influence of drugs. The Supreme Court reversed, however, holding that the court of appeals exceeded the limited authority possessed by a court reviewing an arbitrator’s award under a collective bargaining agreement. The Court stated that absent fraud by the parties or the arbitrator’s dishonesty, reviewing courts in such cases are not authorized to reconsider the merits of an arbitrator’s award. The Court also stated that the collective bargaining agreement left evidentiary matters to the arbitrator: The arbitrator’s finding of fact is conclusive.
 Since the Misco decision, fewer federal or district courts have overturned an arbitration decision on public policy grounds.

The NLRB also defers its jurisdiction in certain unfair labor practice cases to an arbitration procedure established under the contract. In the 
Collyer case 
, the NLRB agreed to defer jurisdiction if there was a stable collective bargaining relationship between the parties, the party defending the charge was willing to arbitrate the issue, and the dispute centered on the contract and its meaning.
 The board also decided to defer to an arbitration award if the arbitration procedure met the following criteria:

1. Fair and regular proceedings. That the proceedings are the equivalent of due process, affording parties an opportunity to be heard, cross-examine witnesses, be represented by counsel, and have an unbiased decision maker.

2. Agreement to be bound. Both parties must agree to abide by the arbitrator’s decision. A hearing over the parties’ objections would not be honored.

3. Award not repugnant to purposes and policies of the act. Even if due process is followed, the arbitrator’s award can be invalidated if it violates the purposes of the National Labor Relations Act. For example, an arbitrator upheld a dismissal of an employee for being disloyal, but his so-called disloyalty was in seeking help from the NLRB. The board did not uphold that award.

4. Unfair labor practice to be considered by arbitrator. The actual issue surrounding the unfair labor practice must be reviewed and decided by the arbitrator, or the NLRB will not defer to the award. Deciding other issues between the parties is immaterial.

5. Facts are presented. The arbitrator was generally presented with the facts relevant to resolving the unfair labor practice.

Public Sector Unfair Labor Practices and Contract Enforcement

Federal Government

For 1.1 million federal government employees represented by unions worldwide, the Federal Labor Relations Authority (FLRA) is the independent government agency charged with administering federal labor–management relations. Included in that role is adjudicating unfair labor practice claims involving federal government agencies. Modeled after the National Labor Relations Act, the Federal Labor Relations Act creates rights and obligations on the part of management and unions in a federal government workplace represented by a labor union. The Federal Service Labor–Management Relations Statute (Civil Service Reform Act of 1978, Title VII) enumerates the following unfair labor practices for an agency:

1. Interference with, restraint, or coercion of employees in rights guaranteed under the statute;

2. Discrimination against union members for their union membership;

3. Domination or interference with the formation or administration of a labor union;

4. Discrimination against an employee for pursuing the rights under this statute;

5. Refusal to consult or bargain collectively with representatives of its employees as required by the statute;

6. Fail to or refuse to cooperate in impasse procedures and impasse decisions as required by the statute;

7. Enforce any rule or regulation in conflict with an applicable collective bargaining agreement if the agreement was in effect before the date the rule or regulation was prescribed; or

8. Fail or refuse to comply with any provision of the statute.

The statute also details the following unfair labor practices for labor organizations under the statute:

1. Interfere with, restrain, or coerce any employee in the exercise of any right under the statute;

2. Cause or attempt to cause an agency to discriminate against any employee in the exercise by the employee of any right under the statute;

3. Coerce, discipline, fine, or attempt to coerce a member of the labor organization as punishment, as reprisal, or for the purpose of hindering or impeding the member’s work performance or productivity as an employee or the discharge of the member’s duties as an employee;

4. Discriminate against an employee with regard to the terms or conditions of membership in the labor organization on the basis of race, color, creed, national origin, sex, age, preferential or nonpreferential civil service status, political affiliation, marital status, or handicapping condition;

5. Refuse to consult or negotiate in good faith with an agency as required by the statute;

6. Fail or refuse to cooperate in impasse procedures and impasse decisions as required by the statute;

7. Call, or participate in, a strike, work stoppage, or slowdown, or picketing of an agency in a labor–management dispute if such picketing interferes with an agency’s operations, or condone such activity by failing to take action to prevent or stop such activity; or

8. Otherwise fail or refuse to comply with any provision of the statute.

The FLRA’s enforcement power in unfair labor practice cases is similar to that of the NLRB; it may order the agency or labor organization to cease and desist from continuing an unfair labor practice; require the parties to renegotiate a collective bargaining agreement in accordance with the order of the Authority and require that the agreement be given retroactive effect; and/or require reinstatement with back pay of an employee.

As noted earlier, the NLRB has fairly limited authority in contract enforcement. Violation of a provision of a collective bargaining agreement is not in and of itself an unfair labor practice. Therefore, a contract violation only comes under NLRB jurisdiction if the matter also involves a violation of an unfair labor practice provision. But the Authority has jurisdiction in all the arbitration awards appealed to it regardless of the issue involved. The authority performs a quasi-judicial role, and it determines whether the arbitrator’s award is contrary to any law, rule, or regulation or is deficient on other grounds similar to those applied by federal courts in private sector labor–management relations.

State and Local Governments

Most bargaining statutes specify unfair labor practices on the part of both the employer-government and the labor organization modeled on the NLRA. The only significant difference is that it is considered an unfair labor practice in most jurisdictions that recognize public sector collective bargaining for employees to participate in a strike. (See 
Chapter 3

Individual Rights within Unions

Duty of Fair Representation in contract negotiations

The certified union for a bargaining unit is granted an exclusive right under the National Labor Relations Act to represent all the employees in that unit, members and nonmembers alike. Individuals within that bargaining unit may not contract privately with the employer but must be represented by the recognized bargaining agent. The exclusivity rule giving the union the right to represent all members, however, is essential to the union’s ability for proper representation at the bargaining table. Along with this right goes the duty to represent fairly all the employees of the unit. Under its duty of fair representation, a union must consider all the employees in the bargaining unit when negotiating an agreement and must make an honest effort to serve their interests. This must be a good-faith effort, without hostility or arbitrary discrimination to represent union and non-union alike. But the end result of such negotiations may still unevenly affect one, several, or a class of employees without the union’s being considered in breach of its duty.

Right to Refrain from Union Activities

The NLRA gives employees the right to refrain from union activities. Individual employees who may have voted in a minority against the union still find their employment contract affected by the negotiations. Although the union has a duty to represent all employees fairly during the negotiation process, absent a showing of actual hostile discrimination, the court will accept a wide range of “reasonableness” when a question of a breach of that duty arises.

Union Security Clauses

Originally the National Labor Relations Act allowed an employer to make an agreement with a union to require union membership as a prior condition of employment—that is, the closed shop. All forms of union security were permitted as long as the agreement was made with a bona fide union representing the bargaining unit. Closed shop clauses became common in collective bargaining agreements. Although these clauses protected and promoted the growth of unions, abuses of the system against individuals who were denied job opportunities led to the Taft-Hartley Amendments. These amendments made the closed shop an unfair labor practice and added the right not to organize and engage in union activity. Although union shop clauses still could be negotiated and enforced against existing employees, the employee need only pay dues to abide by that contract clause; no other activity was required. The amendments also allowed state right-to-work laws to outlaw even the union shop requirement.

The union hiring hall is another practice that appears to give equal consideration to union and nonunion personnel. Although a hiring hall operating as a closed shop was technically outlawed by the amendments, a union can still negotiate a contract clause that requires the employer to hire through the union’s exclusive referral system. It is then up to the nonunion individual to claim and prove discriminatory referrals.

Negotiating clauses to compel union membership are not the only prohibited behavior violating the individual employee’s right to refrain from union activity. The courts consider union intimidation, reprisals, or threats against employees as restraint and coercion. In a leading Supreme Court case, Steele v. Louisville and N.R.R., a black railroad fireman asked the Court to set aside a seniority agreement negotiated by his union because it discriminated against minorities who were part of the bargaining unit.
 Although the Railway Labor Act under which the union had exclusive rights to bargain for the employees did not explicitly do so, the Court held that the act implicitly imposed a duty on the union to exercise its powers fairly on behalf of all those it acted for. Later court decisions found that the National Labor Relations Act imposed that same duty on its unions.

In 1998, the Court upheld its decision in Vaca in Marquez v. Screen Actors Guild, Inc., et al., and held that a union does not breach the duty of fair representation by negotiating a union security clause that includes statutory language that incorporates an employee’s right not to “join” the union and to pay only for representational activities.
 In a historic Supreme Court case, Bowen v. The U.S. Postal Service, the Court apportioned the damages due the wrongfully discharged employee between the union and the employer by using the date of a hypothetical arbitration decision.
 All back pay prior to that hypothetical date was due from the employer; all back pay from that date to the time of settlement was due from the union. The Court reasoned that if the employee had been properly represented, the employer’s liability would have ended at the arbitration decision. All back-pay benefits from that point forward were caused and should be paid by the union.

Employees’ “right to refrain” from supporting a union includes (1) the right to refrain from joining a union, (2) the right to resign union membership at any time, and (3) the right to stop paying full union dues and pay only the financial core, which includes only the costs of collective bargaining. When an employee joins a union, however, he or she is subject to the internal rules of the union and may be fined and even sued in court. As an example, unions often fine members who cross a picket line during a strike. However, unions can discipline only their voluntary members, and those members are free to leave the union at any time. Many employees wrongfully believe that they must remain a union member to keep their jobs. However, formal union membership cannot be required—they can only be required to pay the financial core or agency fee. But union members and nonmembers are still within the bargaining unit and thus covered by the terms of any negotiated agreement, including wages, benefits, and working conditions. Because a union can discipline only those employees who are voluntary members, those who refrain from joining or leave a union are not subject to any form of discipline a union may impose on its members.

Fair Representation in Contract Enforcement

A far more litigious area concerning fair representation is in contract enforcement. An employee must use the grievance procedure controlled by the union, but the employee does not have an absolute right to have a grievance pursued. In Vaca v. Sipes, the Supreme Court noted that a procedure giving the union discretion to supervise the grievance machinery and to invoke arbitration establishes an atmosphere for both parties to settle grievances short of arbitration.
 The parties are assured that similar grievances receive similar treatment; thus, problem areas under the collective bargaining agreement can be isolated and perhaps resolved. Therefore, a breach of the duty to represent an employee fairly occurs only if the union’s conduct toward the member is arbitrary, discriminatory, or in bad faith. Grievance arbitration has become the most common method of enforcing each party’s promise to abide by the contract. That promise to arbitrate is enforceable by either the employer or the union. Fitting the individual into that arbitration system involves balancing conflicting interests. The National Labor Relations Act adopted the doctrine of majority rule when it granted a union exclusive representation rights if selected by most unit members. The courts confirmed this doctrine by giving the collective agreement precedence over the individual employment contract. To balance the power of the union, the court recognized the union’s duty to represent all its employees.

But there remained a question of whether an individual employee could arbitrate against both or either party. In Vaca v. Sipes, Hines v. Anchor Motor Co., Inc., and Bowen v. U.S. Postal Service, the Supreme Court indicated that the individual has no absolute right to have a grievance arbitrated and that the union is liable to the employee only if, in processing and settling that grievance, it violates its fair representation duty.

In contract administration issues, the duty of fair representation is breached when a union’s conduct is arbitrary, discriminatory, or in bad faith. A union may not arbitrarily ignore a meritorious grievance or process it in a perfunctory manner. Yet proof of the merit of a grievance is not enough under this test: Arbitrary or bad-faith actions must also be proved.

The subjective nature of the fair representation test has left unions with “Hobson’s choice.” If a union cannot be reasonably certain that its honest and rational decision not to pursue a grievance to arbitration will withstand a Vaca challenge, the arbitration process will be so burdened that its effectiveness and financial viability will be undermined. At the same time, the Vaca rule ensures an individual that although there is no absolute right to arbitrate a grievance, the union cannot behave in a capricious fashion.


Employer unfair labor practices impede the collective bargaining process. Unfair labor practices, as contained in the National Labor Relations Act, include interference with employees in the exercise of their rights, domination of an employee union, discrimination against union members, and refusal to bargain. The act imposed a duty to bargain in good faith on both the employer and the labor organization. That good faith is evidenced by the total conduct of the parties toward the collective bargaining process.

Because the NLRA guarantees employees the right to refrain from union activities, attempts by labor unions to coerce employees to join may be a ULP violation. A union must fairly represent all its members, union and nonunion alike, and a breach of that duty is an unfair labor practice. The Weingarten Rule provides members an important right—to have a steward present as a witness and advisor during a discipline meeting with management.

Case Studies Case Study 10-1 Unfair Labor Practice by an Employer

The employer manufactures automobile parts and supplies those parts to major auto manufacturers. The UAW filed a representation petition to unionize the employer’s workforce. Between November 14, 1994, when the petition was filed, and January 12, 1995, when the election was held, the employer did the following:

1. The human resources director distributed a letter to employees asserting that two-thirds of the 600 plants that had closed in their state over the past 20 years had been unionized.

2. The employer distributed an article concerning Ford’s decision to move a parts contract from a supplier whose workforce had gone out on strike, emphasizing that the striking union was the UAW.

3. Around Christmas, the employer relocated production of a Ford part to another one of its plants at a location not subject to the pending election petition. The employer offered no explanation for the move.

4. The employer told the employees that negotiations on a renewal contract with a customer were being held in abeyance until the outcome of the union election, although the customer also had issues of quality and delivery to discuss.

5. The employer displayed large photo posters of closed manufacturing plants and distributed a letter noting that all the plants had been unionized.

6. On January 9, 1995, the president of the company sent a letter to employees telling of his concern that its manufacturing partners would become nervous and go elsewhere if the company developed “a reputation for not being dependable because of labor problems, a UAW-led strike, or even the possibility of a strike every time the contract comes up for renewal.”

7. On January 10, 1995, the division manager told employees that the employer was concerned about the impact of the union vote on its manufacturing customers. On January 9 and 10, one such customer did a very visible “walk-through” inspection of the facility accompanied by numerous managers.

When the ballots were counted, the union lost 196 to 154. The union filed an unfair labor charge against the employer, charging that its campaign tactics had violated the National Labor Relations Act and invalidated the results.

Source: Adapted from SPX Corporation, 151 LRRM 1300 (1995).


1. Which, if any, of the employer’s actions might the court find violated the National Labor Relations Act and therefore might cause the election to be set aside?

2. Recognizing that this election took place in 1995, do you think the court might find that the employees could have seen through the employer’s tactics and voted the way they wanted despite the employer’s actions?

3. Would you have been swayed by the employer’s actions to the point you could not have voted with “freedom of choice”?

Case Study 10-2 Unfair Labor Practice by a Union

A decertification election was held at a plant owned by a Japanese company. The appeal to the NLRB by the company and one employee was that the election, in which the decertification petition was defeated, be set aside on the basis of the union’s unfair labor practice. The company and the petitioning employee charged that the union’s patterns of threats and intimidation, as well as its racially oriented acts, were so extensive and persuasive that they prevented the employees’ exercise of free choice.

The company presented testimony at the hearing regarding the following activities:

1. An employee’s tires were slashed after he had been identified in the union’s newsletter as withdrawing his union membership. In addition, one of his wheels fell off when he left work; he discovered that the lugs had been removed and were only a few feet from where the car had been parked.

2. Another employee, who had headed up the decertification petition, received numerous anonymous obscene telephone calls.

3. A union steward intimidated an employee along the roadway by slowing down so the employee would pass and then speeding up and quickly slamming on the brakes, causing the employee to do the same and swerve to avoid an accident. The union steward had used the same harassing highway tactics on another employee who was driving with her daughter and five grandchildren.

4. One employee was followed home and found her fuel line cut the next day.

5. Another employee discovered a scratch down the entire side of her car, which had been parked at the plant.

6. An employee wearing a “Vote No” button was threatened with physical harm by a fellow employee.

7. Several employees received intimidating telephone calls at their homes from both union agents and anonymous callers. The employees’ children answered some of the calls, and threatening statements were then made to the children.

8. Two employees were overheard discussing the rumors of threats surrounding the campaign, and one of the employees said, “Sometimes it takes this kind of thing to get the point across.”

9. At two union organizing meetings, at which more than 100 employees were present, a union official ended his speech with the following quote: “We beat the Japs after Pearl Harbor, and we can beat them again.” Anti-Japanese graffiti appeared on bathroom walls, and a steward wore a shirt and work tags printed with the phrases “Remember Pearl Harbor” and “Japs go home.”

The union’s position was that it should not be charged with an unfair labor practice because of the alleged activities of individuals who were not acting at the union’s direction. Union membership and support for the union can cause emotions to run high; it happens in every election. But no evidence indicated that the employees were prevented from exercising their free choice in the election itself. The anti-Japanese statements were unfortunate but mere rhetoric. Such rhetoric violates none of the established NLRB standards for conducting a fair election.

Source: Adapted from YKK (U.S.A.), Inc., 115 LRRM 1186 (1984).


1. Would you set aside the election results and order another election? Explain your answer.

2. How could the union have stopped individuals from the intimidating actions that allegedly went on in this case?

3. Does the racial nature of the rhetoric involved in this case put a heavier burden on the union than does the usual rhetoric about an employer? Explain your answer.

 You be the Arbitrator Refusing to Arbitrate

Article IV

Grievance Procedure

3. If the grievance is not resolved at the conference as provided for In STEP TWO above, then either party may request, in writing, within fifteen (15) days of the conference that the matter proceed in accordance with ARTICLE V. Failure of either party to give such written notice shall waive the rights to proceed in accordance with ARTICLE V.

Article V


1. Disputes concerning contract interpretation, the disposition of assets, the right of sale, the right to control the number of hours that the plant be open or closed down either for lack of business or for economic reasons, or matters which involve management decision or business judgment shall not be subject to arbitration. Procedural questions of compliance with the contract shall be subject to judicial determination and not arbitration. Either party may seek judicial relief with regard to any of the foregoing.

Any other disputes concerning working conditions, safety or other matters not excluded herein, shall be subject to arbitration; provided a written notice has been given as provided in ARTICLE IV, 
Section 3
 above. The Company and the Union shall attempt by mutual agreement to appoint an arbitrator, then either party may request a panel of arbitrators to be submitted by the Federal Mediation and Conciliation Service, State Conciliation Service or American Arbitration Association, and an arbitrator shall be selected from such panel by the process of each party alternately eliminating one of the suggested names until there remains only one name on the panel. …


The Union and Employer are parties to a written collective-bargaining agreement (the CBA) covering a 30-member unit of production employees at a plant in Yuma, Arizona.

The CBA has a no-strike, no-lockout provision and requires that all disputes and grievances be resolved under the grievance procedure in the agreement. The CBA includes a two-step formal grievance procedure prior to either arbitration or judicial enforcement. The CBA requires that formal grievances at step one and step two to be in writing, describe the facts, state the remedy sought, and identify the sections of the CBA claimed to have been violated.

The Union filed four grievances, none of which were resolved at Step two. The issues grieved were (1) a performance memo issued to an employee for having a negative and uncooperative attitude and suspending her for three days, (2) an employee being improperly hired and paid from the piece rate pool generated by senior unit employees, (3) an operator improperly given a share of group piecework pay for work done by other unit employees, (4) a written warning issued to the entire crew for asserted violations of company policy and a work rule.

The Union sent separate letters to the State Mediation and Conciliation Service requesting a panel of arbitrators for each grievance. Each of the letters stated, inter alia, “This matter is a labor dispute involving interpretation and application of a collective-bargaining agreement.”

The Employer refused to arbitrate these grievances, contending that they were not subject to arbitration under the CBA.


Was the Employer’s refusal to arbitrate the grievances an unfair labor practice?

Union Position

An employer’s refusal to arbitrate grievances, pursuant to a collective-bargaining agreement, violates 
Section 7
 of the act if the employer’s conduct amounts to a unilateral modification or wholesale repudiation of the collective-bargaining agreement. The Union charged that the Employer’s refusal to arbitrate grievances in this case was both an unlawful contract modification and an unlawful unilateral change. In refusing to arbitrate the grievances, the Employer relied on the narrow language of the arbitration clause, which excludes from arbitration disputes concerning contract interpretation or matters which involve management decision or business judgment. The Union asserts that the grievances at issue here were not excluded by the language of the contact, and that even assuming that there was some arguable basis for the Employer’s position, the Employer was required to arbitrate the arbitrability of the grievances. The Union further argues that the Employer’s conduct is a “wholesale” repudiation of the arbitration procedure.

Employer Position

It is well settled that arbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute that the party has not agreed to submit. The CBA in this case contains a very narrow arbitration clause, expressly excluding, inter alia, “[d]isputes concerning contract interpretation … management decision or business judgment.” The Employer contended that the four grievances concerned contract interpretation, management decisions, or business judgment and were therefore excluded from the arbitration provision. The Union itself initially took the position that the four grievances involved contract interpretation; the Union’s letters requesting the arbitration of those grievances stated that the “matter is a labor dispute involving interpretation and application of a collective-bargaining agreement.” Given the nature of the grievances and the Union’s own characterization of the four grievances as involving contract interpretation, the Employer was under no obligation to arbitrate the four grievances.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer and/or the union have taken to avoid this conflict?

Source: ACS, LLC and United Food and Commercial Workers International Union, Local 1096, 345 NLRB No. 87 (2005).

Chapter 11 Grievance and Disciplinary Procedures

The Hotel Association of New York City reported a 44 percent increase in grievances being filed by the New York Hotel Trades Council in anticipation of new contract negotiations. A contract settlement avoided a strike and provided funds to resolve hundreds of grievances. Fears of a harmful strike by hotel workers were eased, and the New York hotel industry experienced a period of peace and growth with occupancy rates of over 90 percent in 2010 and the opening of 44 new hotels.

Source: Stewart Cohen/Photolibrary.com.

We will never have civilization until we have learned to recognize the rights of others.

Will Rogers (American News Reporter, Author, Columnist, Humorist)

Chapter Outline

11.1. Steps in a Grievance Procedure

11.2. Functions of Grievance Procedures

11.3. Employee Misconduct

11.4. Disciplinary Procedures

11.5. Grievance Mediation

11.6. Public Sector Grievance Issues

Labor News New York Hotel Strike Avoided

The Hotel Association of New York City negotiated with the New York Hotel Trades Council union that represents thousands of employees at 149 hotels. The Hotel Association reported that the union filed 597 grievances in the previous calendar year—an increase of 44 percent over the prior year. The substantial increase in the number of grievances was largely over increased workloads according to Peter Ward, president of the New York Hotel Trades Council, and foreshadowed the new negotiations in 2006 as the prior five-year contract expired. The union president emphasized that the substantial increase in grievances filed during the term of a contract was a strong indication of the area the union members would want to focus on in the new contract negotiations. The union strike fund of $13 million was growing rapidly and raised fears of a strike that could cripple the New York hotel and tourism industry.

The workload grievances included complaints of unsafe working conditions and employees being required to work through scheduled breaks. The core of the workload issue is the expanded duties, including cleaning coffeepots and triple-sheeting mattresses while being required to clean the same number of rooms—14 per day. It is estimated that at $20 per hour, New York’s desk clerks and room attendants are among the highest paid in the industry. Ward would like to have more of his approximately 1,000 unemployed union members hired by the hotels. In the previous eight years the union was involved in recovering over $12 million in back pay for members in workload grievance cases.

A historic six-year contract was signed that avoided a strike and provided three years of 4 percent wage increases followed by three years of 3.5 percent increases, or a total of 22.5 percent. Health care, safety, and back pay to settle hundreds of grievance disputes were also included in the new contract. Under the new industry-wide agreement, grievances may be sent to arbitration for resolution. One labor leader noted, “New York City is booming and is where the dream of good hotel jobs comes true.” For example, in 2010, 44 new hotels opened in New York, and overall occupancy averaged over 90 percent.

Source: Adapted from Lisa Fickenscher, “Hotel Union Sets Targets for Contract,” Crain’s New York Business 21, no. 39 (September 26, 2005), pp. 1–3. Used by permission. Also see www.hotelworkersrising.org. Accessed August 3, 2010.

In the day-to-day administration of a collective bargaining agreement, the majority of time is spent on grievance handling.
grievance procedure 
is the core of the continuous collective bargaining process. An employer’s refusal to process grievances is a violation of the NLRA. The extreme importance of a good grievance procedure has been described as the “lifeblood of a collective bargaining relationship.”


Any formal complaint filed by an employee or union concerning any aspect of the employment relationship. A grievance is generally a perceived violation of a contract provision.

Regardless of the completeness and clarity of the labor agreement, disagreements do arise during the life of the contract. Thus, a grievance procedure, a previously agreed-on procedure to resolve such disputes, must be provided in the agreement. The grievance handling process must settle disputes arising during the term of the agreement; if it does not, strikes, lockouts, or other work disruptions may result. A 
 is often defined as any perceived violation of a contract provision. This definition could be broadened to include any complaint by an employee against an employer and vice versa. One arbitrator provided a classic definition: “If a man thinks he has a grievance, he has a grievance.”
 However, a more precise definition might include any formal complaint lodged by persons who believe they have been wronged.
 A grievance is not a gripe, which is generally defined as a complaint by an employee concerning an action by management that does not violate the contract, past practice, or law. For example, an employee may only have a gripe if his supervisor speaks to him in a harsh tone, but when the supervisor assigns him work outside his job classification, he may have a grievance.

Fortunately, most collective bargaining agreements contain provisions similar to 
Figure 11-1
 and delineate a grievance procedure that consists of a specified series of four or five procedural steps that aggrieved employees, unions, and management representatives

Article 8

Grievance and Arbitration Procedure

8.1 Grievance Procedure—Should any “grievance” arise over the interpretation or application of the contents of this Agreement, there shall be an earnest effort on the part of both parties to settle same promptly through the following steps. The term “grievance” comprehends any complaint, difficulty, disagreement or dispute between the Employer and the Union or any employee covered by this Agreement, and which complaint, difficulty, disagreement or dispute pertains to the interpretation or application of any and all provision of this Agreement.

Step 1

By conference between the aggrieved employee, the job steward or both and/or a representative of the Union and the manager of the store. If the grievance is not settled, it shall be reduced to writing with copies to the Union and Employer and referred within ten (10) days to Step 2, unless such time period is mutually extended by the Union, and the zone manager.

Step 2

By conference between the representative of the Union and zone manager. If this Step does not settle the grievance, it shall be referred within ten days to Step 3, unless such time period is mutually extended by the Union and zone manager.

Step 3

By conference between the business representative and/or the executive officer of the Union, the Human Resource Manager and/or a representative delegated by the Employer. In the event the grievance is not settled in this Step, a written response will be exchanged by the parties within twenty (20) days from the Step 3 conference unless otherwise mutually agreed to.

Step 4

In the event that the last Step fails to settle satisfactorily the grievance, and either party wishes to submit it to arbitration, the party desiring arbitration must so advise the other party in writing within forty-five (45) days from Step 3 written response, or the grievance will be considered settled in Step 3.

8.1 Timeliness of Grievances—No grievance will be considered or discussed unless the outlined procedure has been followed, and the grievance presented within ten (10) days, except a grievance arising from an error in the rate of pay may be presented within two (2) years.

Grievances may arise of a general nature affecting or tending to affect an employee or employees. Such grievances may be initiated at any of the above steps deemed appropriate by the parties.

Figure 11-1

Grievance Procedure

Source: Agreement between the Kroger Co. and the United Food and Commercial Workers International Union AFL-CIO (2007–2010). Used by permission.

must follow when a complaint arises. Typically, the grievant is provided with a systematic set of appeals through successively higher levels of union and management representatives. The fact that most contracts provide for specific grievance procedures clearly indicates that although both sides try to develop a clear and precise document during the contract negotiation process, some areas will be subject to misunderstanding during the life of the contract. Indeed, as shown in Case 11-1, the grievance procedure itself is sometimes the subject of a grievance.

The signing of a contract spells out a new relationship between labor and management, and the agreement specifies a new set of rules legally binding labor and management during the life of the contract. The formal grievance process agreed on in the contract provides for the administration of the contract. Although the number and contents of the procedural steps in a formal grievance process vary from contract to contract, most grievance processes involve three to five steps.

CASE11-1 Untimely Filing of a Grievance

The grievance procedure in this case contains four steps with a time period of seven calendar days at each step. For example, Step 1 of the grievance procedure states that the union has seven calendar days to present a grievable incident to management. If the grievance is not resolved in Step 1, then the union has seven calendar days to prepare a grievance form and move it to Step 2, and so on. At Step 4, if the grievance is not resolved, the union is required to prepare a written notice of intent to arbitrate and has 14 calendar days to do so. The contract specifies that the notice of intent to arbitrate shall be sent by certified mail with return receipt requested, and the postmark shall govern compliance with the time limit. The union is also required to obtain a listing of possible arbitrators from the Federal Mediation and Conciliation Service (FMCS), meet with the company, and select an arbitrator.

On November 4, 1993, a meeting occurred between the union business agent and the employer’s human resources manager (HRM) concerning the discharge of two employees. The meeting was within the seven-day time period required in the contract. During the arbitration hearing, the union business agent testified that on November 9, 1993, he had hand-delivered the “intent to arbitrate” document to the company’s HRM. Also, during the arbitration, the HRM testified that he did not remember receiving such a document from the union. On November 15, 1993, the union forwarded a request for an arbitration panel to the FMCS. On December 28, 1993, the union business agent approached the company’s HRM with a list of arbitrators. At that time (December 28, 1993), the HRM informed the union for the first time that a grievance had not been properly filed. The union argued that Step 1 of the grievance procedure became Step 4 because of the nature of the grievance (the two employees had been discharged) and that an intent to arbitrate had been filed in a timely manner. The parties continued to disagree with respect to both whether the grievance was filed and its timeliness.

In November 1994, at an arbitration hearing to resolve this issue, the arbitrator was asked to make a finding as to the timeliness issue. If the grievance was determined to be timely, then the grievance would be heard on its merits. Otherwise, the matter would be dismissed. During the arbitration hearing, the company argued that a written grievance was not filed in a timely manner and that the parties’ labor agreement specifically states the following: “If the grieving party fails to process the grievance in accordance with the requirements of this article, the grievance is waived.”

The collective bargaining agreement further states that the “arbitrator may not add to, detract from, or alter in any way, the provisions of the agreement.”


The arbitrator ruled that the union had failed to follow the requirements of the grievance procedure, and the grievance was denied.

Source: Adapted from Los Alamos Protection Technology, 104 LA 23.

Steps in a Grievance Procedure

The number of steps and the exact process specified varies from contract to contract. However, most CBAs contain 3–5 steps with binding arbitration as the last step, which ensures the issues will be resolved.

Step 1: Employee, Steward, Supervisor

The initial step in a grievance procedure usually instructs the employee to discuss the grievance with the shop steward or go directly to the supervisor. The employee has the legal right to do the latter; the supervisor must resolve the grievance consistent with the contract. The supervisor must also notify the union of the grievance. The shop steward, however, is usually the first person contacted. Therefore, the steward must be experienced in handling grievance matters and be familiar with the terms of the contract and its provisions. The steward must also be able to recognize grievances containing some merit as well as those that are trivial and should be dropped. A steward will encourage and help the employee to pursue a legitimate grievance and in some cases must convince the employee that a grievance contains no merit.

The extent to which grievances are resolved at the lowest possible level is an important indicator of effective grievance handling and a measure of peaceful labor relations. One means of attaining resolution at the lowest possible level is the use of feedback from previous grievance cases. The outcome of previous similar cases provides cues to both parties that tend to focus their discussion and provide a faster resolution of the grievance. In general, the purpose of feedback is not to “set precedent” but to provide both parties with an array of possible likely solutions.
 In practice, if both sides introduce the results of previous similar grievances at the first level of grievance discussions, a compromise may well be reached more quickly than if they wait until the issue goes to arbitration.

Step 2: Written Grievance

If steward and employee agree that the grievance has some merit and should be pursued, then the grievance is reduced to writing. At this point, the grievance is said to have moved from the informal to the formal stage. The steward and employee complete a grievance form within a specified period, usually 48 hours of the occurrence or within the time limit specified in the contract. The process of writing out the complaint forces the grievant to set forth the facts, contract provisions, and contingencies early on in the process.

Most company and union representatives believe it is important to formalize the grievance in written format at this stage.
 Once the grievance has been reduced to writing, the steward and the employee meet with the supervisor to discuss the grievance in an honest effort to settle the matter quickly. Both sides can assess the strengths and weaknesses of the claim. Most grievances containing little merit are dropped at this stage.

The steward normally investigates the grievance to provide documented facts on the case. The pertinent facts are written on a grievance form such as the one in 
Figure 11-2
. A good rule for remembering the crucial facts in a grievance is the “5Ws” rule:

“5 Ws” rule

Assembling crucial facts in a grievance what happened, where did it happen, when did it happen, why is the complaint a grievance, and who was involved.

· What happened?

· Where did it happen?

· When did the event take place?

· Why is the complaint a grievance?

· Who was involved? (Witnesses?)

The written grievance is delivered to the supervisor, and a meeting of the three parties is held (the shop steward is occasionally accompanied by a personnel or industrial relations representative). In discussing the grievance, all the parties make an attempt to settle the matter at that point. Research indicates that most grievances are settled in this step of the grievance process. If the grievance cannot be resolved at this stage, the employee usually may choose to appeal.

Step 3: Shop Steward, Department Head

When the shop steward and supervisor cannot resolve the grievance, then it may be appealed to the next higher level of management and union representative, usually within seven calendar days. At this

Figure 11-2

A Standard Grievance Record Form Step I

point, the union representative continues to be the shop steward or business agent. However, the management representative usually represents a higher level and may be a plant superintendent or department head. At this stage, the two sides review the written grievance and try to reach a resolution.

Step 4: Union Grievance Committee, Director of Personnel and Industrial Relations

At this step the plant manager or department head may be assisted by the director of personnel and industrial relations in reviewing the grievance from a management perspective. As with the second step, they review the written grievance and discuss the case with the employee’s representatives. The two sides continue to try to resolve the grievance honestly rather than go to the final stage of the process—final and binding arbitration. At this point, a plant-wide union grievance committee that may further appeal the answer to Step 5, usually within 30 calendar days, reviews the employee’s grievance. This final step is more expensive, represents a failure to reach an agreement in the matter, and brings greater tension to the grievance. Both sides realize that they may completely lose the case before an independent arbitrator.

Step 5: Arbitration

Approximately 98 percent of all collective bargaining agreements provide for a binding arbitration as the final step in the handling of grievances.
 The contract provisions usually include that either management or labor may request arbitration as a final step in resolving the grievance. This request must be made within a specified period, such as 30 calendar days of the receipt of the answer of Step 4. The outside independent arbitrator studies the evidence and listens to the arguments of both sides before rendering a decision. The arbitrator’s decision, as agreed on in the collective bargaining contract, is final and binding on both parties and can be appealed to the courts only on the grounds of collusion, if the arbitrator’s award exceeded his or her authority, or if the arbitrator’s decision was not based on the essence of the labor agreement.
 Profile 11-1 explains how a new “expedited grievance-arbitration” process works for the U.S. Postal Service.

Profile 11-1 New Grievance-Arbitration Process Relieves Gridlock at the U.S. Postal Service

In 2001, the U.S. Postal Service had one of its worst financial years—a $2.4 billion loss. The causes for the financial failure included higher fuel costs, revenues that fell short of estimates, and a “grievance gridlock.” About 210,000 grievances were pending under a grievance system that has been negotiated among the National Association of Letter Carriers (NALC), the American Postal Workers Union (APWU), the National Postal Mail Handlers Union (NPMHU), and the U.S. Postal Service at costs of more than $200 million per year to operate. It required over 300 outside arbitrators to settle just the grievances that reached the final step in the resolution process, not the hundreds of thousands that are resolved before that step.

Why was the grievance system in a state of gridlock? Employees said that supervisors are too domineering and that they complain employees are paid too much and work too little. Supervisors complained that employees file grievances just to annoy them. But Anthony Vegliante, vice president of labor relations for the Postal Service, notes that postal workers, like most public sector employees, cannot legally strike and do not receive profit sharing or some other private sector economic perks, and thus they turn to the grievance system to air their complaints. And the significant backlog of cases, he noted, created underlying tensions that harmed productivity because people felt their issues should be heard in a timely manner.

In April 2002, USPS and NALC, representing approximately 234,000 postal employees, announced a new Joint Dispute Resolution Process. The new process is faster, more efficient, and focuses on addressing and resolving disputes at the lowest levels of the organization. It places a premium

After years of “grievance gridlock” a new grievance process reduced grievances sent to arbitration by 59 percent!

Source: © David R. Frazier Photolibrary, Inc. / Alamy.

on teaching dispute resolution skills to individuals responsible for grievance handling at the lowest steps of the process. This ensures that disputes are resolved when it is appropriate to do so. The Joint Dispute Resolution Process was piloted in 19 sites across the country and reduced the number of cases appealed to arbitration by 59 percent. A five-year collective bargaining agreement with NALC, signed in 2002, incorporated the new grievance-arbitration procedure, replacing an old process that no longer met the parties’ needs. This was the first major restructuring of the grievance-arbitration procedure in more than 20 years. “The best part of the new system is that both groups, the Postal Service and the Union, share the responsibility. If we measure it against the past, it’s been very successful,” said Vincent R. Sombrotto, president of the National Association of Letter Carriers, AFL-CIO. “Under the old system, someone had to win and someone had to lose. This way, the two parties can work to achieve a win-win. It’s better for employees and it’s better for the Postal Service,” said Vegliante.

And in 2005, a Memorandum of Understanding was entered into with APWU to improve the grievance-arbitration process by streamlining the handling of cases. The agreement included such steps as holding grievances that were the same or substantially similar to a grievance already pending at the national level until those grievances were resolved, and moving a “Direct Appeal” grievance to regular or expedited arbitration immediately. The APWU represents approximately 260,000 postal workers.

Source: Adapted from Rick Brooks, “Mail Disorder: Blizzard of Grievances Joins a Sack of Woes at U.S. Postal Service,” Wall Street Journal (June 22, 2001), pp. A1, A4. Available at www.apwu.org and www.usps.com. Accessed March 2, 2008.

Functions of Grievance Procedures

Formal grievance procedures are the most common tool to resolve conflicts arising between labor and management during the life of the agreement. In general, the functions provided by a grievance procedure are as follows.

1. Conflict management resolution. Before grievance procedures and arbitration became popular, employees and unions often used strikes, slowdowns, or other disruptive actions to resolve complaints over the interpretation of labor agreements. Without grievance procedures, issues would often be resolved by a test of strength, harmful both to management and to the union, rather than the facts of the case. The use of grievance procedures to resolve complaints has greatly improved the labor relations process.

2. Agreement clarification. All agreements contain a certain amount of unintentional ambiguity that results in questions requiring contract interpretation. The dynamics of the employer–employee relationships cannot be fully anticipated by the parties at the bargaining table; thus, negotiating language often must be applied to unforeseen situations. Several of the “You Be the Arbitrator” cases at the end of chapters in this text contain issues that arose at least in part due to vague, incomplete, or competing contract provisions.

3. Communication. Grievance procedures provide a vehicle for individual employees to express their problems and perceptions. They offer employees a formal process to air perceived inequities in the workplace.

4. Due process. The most widely heralded function of grievance procedures is that of a neutral, third-party intervention. Most grievance procedures provide a fair and equitable due process containing binding arbitration as a final step, and some include grievance mediation as a step before arbitration. Without this process, management would likely have an upper hand in most grievance situations. However, employee and union strikes would be heightened and economic measures used to balance management’s authority.

5. Strength enhancement. The grievance mechanism helps unions develop employee loyalty and trust. Grievance processing emphasizes union presence and strength during the term of the collective bargaining agreement and reminds employees of the union efforts to protect their interests. The formal grievance also strengthens management and labor’s communication skills because first-level stewards and supervisors are almost always involved in the initial step of the grievance procedure. The two sides come to better understand each other’s perspectives and develop a closer working relationship.

Employee Misconduct

In labor relations the term “misconduct” applies to a broad spectrum of offenses, ranging from relatively minor ones, such as discourteous behavior, to major ones, including theft and picket line violence. A basic maxim or premise established early in the history of U.S. labor relations is that incidents of 
employee misconduct
 should be viewed as either (1) serious offenses, which under normal circumstances warrant immediate discharge without the necessity of prior warnings or attempts at corrective action, or (2) minor offenses, which call for attempts at corrective action and do not call for discharge for the first offense. However, minor offenses can, when repeated despite warnings, lead to discharge.

Employee misconduct

A wide range of offenses ranging from serious, such as fighting or threatening others, to minor offenses, such as failing to punch a timecard, can be considered examples of misconduct.

Employee misconduct cases that are decided by arbitration often are won or lost not because of questions of guilt or innocence but because of (1) management’s consistent enforcement of the rules that are involved in the case, (2) management’s compliance with the disciplinary procedures in the contract, (3) an employee’s work history, and (4) an employee’s length of service with the company. According to the Bureau of National Affairs’ Grievance Guide, 12th ed. (2008), the most common examples of employee misconduct and key factors considered by arbitrators in deciding the cases include the following.

1. Damaging company property. A person’s deliberate and malicious intent is the primary factor in considering the appropriate discipline. The relative value of the damage has relatively little significance. Immediate discharge is usually upheld even in cases of low property value when intent is deliberate.

2. Discourtesy. Employees, especially those who serve the public, are expected to be courteous and solicitous toward coworkers and members of the public. Employee discourtesy is generally accepted as just cause for disciplinary action. Customer complaints about rude behavior can be used as sufficient reason for termination, even when they are anonymous.

3. Dishonesty. Proof “beyond a reasonable doubt,” a higher standard than in most misconduct cases, is required to uphold a discharge because of dishonesty. A higher standard of evidence is required because the accused worker has a greater inability to become reemployed (after a discharge due to dishonesty) than for any other cause.

4. Dress and grooming. Management has the right to set dress and grooming standards for reasons of public image, job safety, and the health of workers, coworkers, and customers. However, workers have the right to unwarranted interference by management. Thus, dress and grooming standards must be clear and consistently enforced and reasonably related to a “business need,” which may include distraction owing to revealing attire.

5. E-mail and technology issues. Employers increasingly monitor employees’ use of e-mail and the Internet in efforts to reduce personal and inappropriate use. Unions realize e-mail is a fast and inexpensive means of communicating with members—and workers they are trying to organize. Employers generally should develop and communicate policies that make it clear to all employees that their e-mail communication and Internet use are not private but instead are the property of the employer. 
Section 7
 of the NLRA protects the communications of both union and nonunion employees who might discuss wages, hours, working conditions, and so on. However, in the Register–Guard case
 the NLRB supported a company policy that e-mail was “not to be used to solicit outside organizations (unions)” but allowed other personal uses. The NLRB noted that “
Section 7
 does not provide employees an automatic right to use company email” because it is employer property, but that company policy cannot single out union uses of e-mail. The U.S. Court of Appeals for the District of Columbia reversed certain aspects of that ruling, however, in finding that the company’s policy was not discriminatory to the union. However, the enforcement of that policy against a union employee who used the company e-mail was discriminatory because the e-mail was not a solicitation and did not call for action but merely discussed a union-related event.
 The use of e-mail, however, will likely be reviewed again by the NLRB for a more definitive decision.

6. Gambling. In most organizations, gambling, such as sports pools or lunch-hour poker, is ignored. However, employees involved in illegal bookmaking or numbers operations may be discharged, particularly if they have been given prior warning.

7. Garnishment. Management may discharge employees who violate rules concerning the garnishment of their wages. However, such rules must be based on employer cost, liability, and inconvenience. Less severe penalties may be decided on the basis of the employee’s length of service, work record, and efforts to resolve the debt.

8. Horseplay. Although joking and playing pranks is usually tolerated, acts of horseplay that involve a high risk of serious injury may warrant a serious penalty. Only acts that are premeditated, malicious, and done with evil intent with knowledge of possible injuries or property damage will likely warrant discharge for the first incident (see Case 11-2).

9. Off-duty misconduct. In general, management may not discipline an employee for off-duty misconduct because employees have a right to privacy in their private lives. However, employees may be discharged or given lesser penalties if their off-duty misconduct (1) creates publicity that harms the organization’s public image, (2) creates difficulty for an employee to perform his or her job, or (3) causes other employees to refuse to work with the employee. Examples of discharges include an employee convicted of manslaughter for fatally beating a 71-year-old woman and an employee who ignored written warnings and continued to park his car on residential streets, invoking the “wrath” of local residents.

10. Moonlighting. Holding a second job or moonlighting during an employee’s off time can be a cause for discharge, particularly if the labor contract includes a relevant provision. Discharge actions are most likely upheld if the case involves (1) an employee’s impaired performance, such as absenteeism, tardiness, poor productivity, or inability to work overtime; (2) a conflict of interest because of the second employer being viewed as a competitor; or (3) fraudulently taking a leave of absence to work at another job.

11. Sleeping and loafing. In general, sleeping on the job warrants discharge, particularly when it causes danger to employees or equipment. However, management in such cases must prove the employee was actually sleeping and not just resting with eyes closed. In addition, management must strictly and consistently enforce a no-sleeping work rule.

In some cases even “horseplay” on the job can result in termination for a first offense, as in the “Gooseplay” case.

Source: Compassionate Eye Foundation/Janie Airey/OJO Images Ltd.

Sleeping during lunch breaks or rest periods is generally permissible unless it causes the employee not to return to work on time.

12. Violence. The increased number of workplace violence incidents that have led to the injury or death of coworkers or supervisors has caused employers to take the issue more seriously in recent years. Many employers, therefore, have developed serious or “zero-tolerance” policies covering not only violent acts and fighting but also threats of violence, bullying, and “uncivil” behavior. Arbitrators have generally held that management has the right to invoke discipline, including termination, in such cases. In cases where the violence was clearly provoked, including fighting, arbitrators have imposed lesser penalties. They will also likely consider other factors, such as the length of service and work record of the employee, whether the act consisted of a single blow or a series of deliberate acts, whether the blow was with a dangerous weapon, the effect of the act on other employees, and the emotional stability of the employee.

CASE11-2 “Gooseplay”

The events in this case occurred in the context of the eighth organizational campaign conducted at the company’s Berea, Kentucky, facility. So far as the record shows, no prior unfair labor practices have been committed at this plant.

The company has a pond on its property, and in September hundreds of ducks and geese are there. A goose wandered into the work area of employee Rowlett, who picked up the goose by its feet and told other employees that it wanted to sign a union card to join the union. Employee Poff wrote “Vote Yes” on a small card, attached it to a string about two feet long, and placed the sign over the goose’s head while Rowlett held it. Rowlett then proceeded to drive the goose through the plant on a forklift truck. The record shows that a Canada goose weighs approximately 14 pounds and has a five-foot wingspan.

At the conclusion of the goose escapade, the company sent Rowlett and Poff home early. The company conducted an investigation and collected statements from witnesses. Rowlett and Poff were given the opportunity to explain their conduct, but they declined to participate in the investigation. After considering all the information it compiled, the company discharged Rowlett and Poff. The basic reasons for the discharge decision were that the employees’ behavior did not meet adult expectations, posed a safety hazard to them as well as to others, and disrupted production activities of the plant.

The employees sued the company for unfair labor practice in discharging them, claiming that it was because they were union members supporting the organizational campaign.

The administrative law judge (ALJ) appeared to recognize that the National Labor Relations Act did not protect the goose incident because she said the employees’ conduct should have a disciplinary consequence. She concluded, however, that the discipline imposed was unlawfully motivated; that is, she found that antecedent lawful union activity, not the “goose” incident, was the reason for the discharge. As evidence of this, she pointed to antiunion statements in the company’s employee handbook and the fact that the only types of dischargeable offenses in the company prior to this had involved dishonesty, attendance problems, and sexual activity on the job.

The company appealed.


The National Labor Relations Board (NLRB) found that the record, when fairly considered as a whole, did not contain substantial evidence of antiunion animus. It is true that the company’s employee handbook expressed the view that a union “could seriously impair the relationship between the company and the employees and could retard the growth of the company and the progress of the employees.” The NLRB has held that statements such as these, although alone not rising to the level of unfair labor practices, may still be used to show animus.

However, the ALJ failed to accord weight to the significant countervailing evidence. No antiunion comments were made to the discharged employees. No unfair labor practices were committed in the previous organizational campaigns conducted at the Berea plant. The same employee handbook that the ALJ relied on as evidence of animus expressly acknowledged the right of the employees to join a union if they wished. In sum, the company’s opposition to unionization is not sufficient, in the circumstances of this case, to warrant the inference that it would unlawfully terminate these employees because of their union support or activities.

The company’s officials involved in the investigation and/or decision-making aspects of this incident consistently, albeit in different words, explained their actions as concerns for maintaining safety, production, and discipline in the plant.

Having reviewed the record, the NLRB found no basis for finding that these concerns were not the foundation for the company’s decision to suspend and discharge both Poff and Rowlett. Finally, the NLRB rejected the ALJ’s finding that these discharges constituted disparate treatment because the only earlier incidents of employee misconduct that resulted in discharge involved dishonesty, attendance problems, and sexual activity on the job. It is true that the record contains no evidence of previous incidents of “gooseplay” resulting in termination. However, an essential ingredient of a disparate treatment finding is that other employees in similar circumstances were treated more leniently than the alleged discriminatee was treated. The NLRB found no record of a similar incident that the company tolerated. Thus, it concluded that there is no evidence of disparate treatment.


The complaint was dismissed because the union failed to establish by a preponderance of the evidence that the company was unlawfully motivated in suspending and discharging Poff and Rowlett.

Source: Adapted from NACCO Materials Handling Group Inc., v. NLRB, 170 LRRM 1139.

Minor Offenses

Incidents of employee misconduct that are generally considered minor offenses include loafing during working hours, failure to attend meetings, attending to personal business during working hours, failure to keep a time card, minor insubordination, carelessness, and, perhaps most important, poor work performance. Under most labor agreements the penalty for a minor offense is determined by how often it has occurred. Such a system of 
progressive discipline
 usually includes several levels of penalties for minor offenses, such as the following:

Progressive discipline

A discipline system for addressing minor employee misconduct that usually includes several levels of penalties such as warnings, reprimands, suspensions, and, finally, termination. The objective is to inform an employee of inappropriate behavior and enable the employee to correct such behavior without serious or permanent consequences.

· First offense—oral warning

· Second offense—written warning

· Third offense—second written warning and suspension without pay

· Fourth offense—termination

The objectives of a system of progressive levels of penalties are to inform employees of their inappropriate behavior, advise them of the correct behavior, and allow them to correct it without serious consequences. It is assumed that the cause of the problem is lack of awareness or motivation and not ability, and therefore the employee can choose to correct the behavior in the future. Thus, a CBA may specify if the behavior is not repeated within a certain period of time, such as six months, the incident(s) usually is removed from the employee’s record. However, repeated incidents of even unrelated minor offenses can lead to termination because the employee is unwilling or unable to stop his or her behavior.

The right of the Company to discharge and discipline employees is recognized, but such action will only be taken for just cause.

Section 1. Commission of the following acts shall constitute just cause for disciplinary action, up to and including discharge:

1. Dishonesty, such as stealing from the Company or other employees, falsification of time records, punching time cards of other employees, or furnishing false information for personnel records.

2. Performing willful destructive acts harmful to persons or property.

3. Interfering with or obstructing production, or attempting to do so.

4. Conviction of a felony or a crime.

5. Gross negligence on Company premises or in line of duty resulting in injury, loss, or damage to persons or property.

6. Insubordination, including refusal or deliberate failure to perform work assignments on instructions given by supervisors.

7. Fighting, horseplay, or any other form of disorderly conduct.

8. Bringing intoxicants onto the Company’s premises or consuming intoxicants while on duty, or reporting to work under the influence of intoxicants.

9. Being away from the job or out of work area without the permission of the supervisor.

10. Possessing dangerous weapons on Company property.

11. Excessive unexcused absences and tardiness (more than two days per month).

12. Deliberate violations of safety rules or sanitation rules, or repeated refusal or failure to observe such rules.

13. Operating any machine, equipment, or vehicle without instruction or permission.

14. Participating in the unnecessary wasting of materials.

15. Sleeping on duty.

16. Failure or refusal to cooperate with other workers.

Section 2. The list in Section. 1 of acts which shall constitute just cause for discharge is not exhaustive, and the failure to enumerate any specific act above shall in no way be interpreted to infer that other acts other than enumerated above may not also constitute just cause of discharge.

Figure 11-3

Article XXI Discharge and Discipline

Source: Adapted from an Agreement between AFL-CIO Local 2501, Kentucky State District Council of Carpenters and Anderson Wood Products Company, Inc., 1999–2002.

Serious Offenses

Contracts often contain provisions that specify certain actions can lead to immediate discharge for the first offense. 
Figure 11-3
 is an example of such a provision from an agreement between AFL-CIO carpenters’ local union and Anderson Wood Products Company, Inc. It lists 16 specific examples that can lead to discharge, but “such action will only be taken for just cause.” 
Section 7
 of the agreement also notes that the list of 16 acts is not exhaustive; other acts may also lead to discharge for just cause. The purpose of listing the 16 most common acts is to warn employees about those specific acts and thus, it is hoped, remove any doubt they may have as to the outcome should they commit one of those acts. It is also important to realize that the union has agreed to the acts listed in the contract.

Last Chance Agreement

When an employee’s misconduct becomes unacceptable, a 
last chance agreement
 (LCA) among the employer, union, and employee can be negotiated. Last chance agreements, however, are not viewed the same by all labor experts. One view is that an LCA is separate from the collective bargaining agreement and will be strictly enforced. That is, the employee will be terminated if the LCA is violated. A second view of LCAs is that they represent a mutually accepted modification of the collective bargaining agreement in which the employer has forfeited the right to immediate discharge, in favor of giving the employee a last chance, and the employee has given up the right to arbitrate or litigate a potential termination in favor of retention within the specifics of the LCA. Generally the written agreement describes the conduct that led to the potential termination, specific policy violations, and specific work requirements that if not met will lead to termination in the future, as well as the employee’s forfeit of arbitration or litigation rights. The agreement may include an expiration date.
 In general, courts have upheld LCAs. For example, in Mayo v. Columbia University, a federal judge ruled that Columbia University did not violate the Age Discrimination Act by terminating an employee who failed to meet the terms of an LCA. The court upheld the LCA when it found that the employee had been terminated for a nondiscriminatory, work-related reason and therefore failed to meet the conditions of the LCA.

Last Chance Agreement

Agreement between the union and the employer that allows an employee who was fired for misconduct his/her job back with the condition that if the employee violates the LCA he/she will be discharged without right of an appeal.

Disciplinary Procedures

A primary objective of a grievance process is to provide employees with a fair review and, if necessary, an appeal of disciplinary actions taken by management. Regardless of size or industry, every company at some time must administer corrective discipline. Certain employees may need such attention only once or twice in their careers and quickly respond to fair procedures; others may never correct their behavior and will exhaust any progressive disciplinary process. However, other employees must believe the disciplined employee was given a fair chance and equitable punishment. To maintain good labor relations, both labor and management should strive for fair and effective disciplinary policies.

Employers need a comprehensive and effective discipline system to maintain control over the workforce. Otherwise, satisfactory employee attendance, conduct, and productivity cannot be achieved. A well-structured and uniformly enforced discipline program also may reduce employee discontent, along with any manager’s tendency to treat employees in an arbitrary or biased manner. Employees are more satisfied when they know what consequences to expect from rule violations and when they see 
disciplinary procedures
 administered consistently.

Disciplinary procedures

Processes that are usually designed to set standards of performance and work rules, and apply discipline (up to termination) when those standards are not followed, in a fair and consistent manner. The general purpose of the procedures is to reduce the number of violations.

Labor and management officials want to minimize the use of disciplinary actions, but both realize such actions will be needed in some situations. Therefore, virtually all collective bargaining agreements outline a disciplinary procedure.

Other than the economic benefits of a labor agreement, the disciplinary process may be the most vital aspect of a labor–management relationship. Management views the right and ability to discipline its employees effectively as the heart of maintaining a productive workforce. If one employee can accidentally or willfully violate work rules, the total result could be very costly. For example, if one employee continues to neglect wearing protective goggles because they are uncomfortable or inconvenient, others may follow because they think the rule has been relaxed. The eventual penalty is Occupational Safety and Health Administration (OSHA) citations and fines or possibly an individual’s loss of eyesight in an accident because of one minor infraction.

Any degree of discipline—even if it is only an oral warning—is both stressful and embarrassing to the employee because of the economic and psychological penalties of possible layoff or termination. If such discipline is not warranted by the facts of the situation, if the employee is ignorant of any wrongdoing, or if the penalty is unusually harsh, other employees will react very negatively. Protection from biased or thoughtless supervisors in disciplinary matters has been a prime motive behind many union organizing campaigns.

A critical aspect of the disciplinary procedure is the face-to-face counseling provided by the supervisor. Such encounters can become explosive and often lead to subjective and emotional behavior. Employees may feel that they need a union to protect them against what they perceive as unfair supervisory actions.

A variety of disciplinary policies may be provided in the labor contract. The Bureau of National Affairs suggests management and labor officials use the following policies.

Disciplinary Procedure

1. Explain company rules. Orientation courses, employee handbooks, bulletin board notices, e-mails, and other devices may be used to bring work rules to the attention of employees.

2. Get the facts. Investigate fairly and objectively by interviewing witnesses to ensure that both sides of a story are presented. Circumstantial evidence, personality factors, and unproven assumptions cannot be easily defended before arbitrators. Determine if substantial evidence is present.

3. Give adequate warning. Most grievance warning steps are given to the employee in writing; however, all warnings, even oral warnings, should be noted in the employee’s personnel record. Copies of warning notices should go to the union.

4. Ascertain motive. People usually have a reason for what they do. Seldom do employees intentionally and maliciously violate rules. The penalty should be adjusted to the degree the employee’s action was intentional.

5. Consider the employee’s past record. Before taking disciplinary action, consider the employee’s past record. Take into account both a good work record and seniority, especially in cases of minor offenses. Previous unrelated offenses should not be given heavy consideration.

6. Discipline without discharge. Wherever possible, avoid the use of discharge. Only when there is no hope of future improvement or the offense is severe should discharge be used. Consider the employee’s length of service, past work record, and if appropriate using a last chance agreement.

7. Act in a timely fashion. Issue discipline in a timely manner, within a reasonable period after the misconduct, for 
example 24
 hours. In most cases, the further removed the disciplinary meeting is from the event, the less productive the discussion.

The Labor–Management Relations Act, in addition to civil and antidiscrimination laws, provides restrictions on employee discipline. The act prohibits disciplinary action against employees for union-related activity. Most related charges of such employer actions arise from union organizing campaigns. The second most common source of unfair discipline charges arises from conflict between the union steward and management. The steward must file the grievances of union members and advocate their point of view. In this situation, the NLRB may view disciplinary actions against the steward as an unfair labor practice. Thus, employers should have a uniformly applied and well-documented disciplinary program they can defend against possible claims of unfair labor practice discrimination.

Grounds for Discharge

Employees may be terminated or discharged for “cause” or “just cause” for specific offenses. Most contracts specify the offenses that are sufficient grounds for immediate discharge, but they also provide for an appeal procedure in that event. The contract may require that the union be notified in advance of a discharge or that a predischarge hearing be held with the employee and union present. The most common grounds for discharge specified in contracts include those listed in 
Table 11-1
. An example of a “violation of leave” grievance is seen in Case 11-3. In cases involving the termination of an employee, the union often insists on taking the case through all the procedural steps to arbitration in an effort to save the employee’s job. Management exercises extreme care to follow the steps of the disciplinary process exactly because the decision and process steps are likely to be challenged. Arbitrators generally view a discharge as the “workplace equivalent of capital punishment” and therefore expect both parties to adhere carefully to the letter and spirit of the contract.

Table 11-1

Common Grounds for Immediate Discharge

1. Unsatisfactory work performance

2. Unauthorized absence

3. Insubordination (one major occurrence or persistent minor occurrences)

4. Dishonesty or theft of employer property

5. Failure to follow safety rules

6. Impaired work performance due to the influence of alcohol or drugs

7. Conviction of job-related crime

8. Workplace violence

9. Unauthorized strike participation

10. Violation of work rules

CASE11-3 Just Cause

The company posted a notice on October 24 scheduling the grievant, along with other employees, to report a half hour early on October 28 to attend a United Way meeting. The half hour would be scheduled overtime and paid as such. The grievant saw the notice, made no attempt to discuss the matter with his supervisor, and failed to report at the time stated in the notice. The grievant reported at his regular work time. The company put a discipline memo in his personnel file for failure to report to work for scheduled overtime. The memo noted that the grievant had not reported to work as scheduled and warned that further disciplinary action would result if he continued to violate the contract. The employee grieved the disciplinary action on the basis that he should not be required to attend a United Way meeting because he did not agree with the principles espoused by United Way.

It was the company’s position that the company was within its rights to require the employee to report a half hour early for work and to attend the United Way meeting on company time. Furthermore, the failure of the employee to report to work on time was in violation of a contract provision. The company adhered to the established principle that the employee should “obey now, grieve later.” The company argued that the employee should have attended the meeting and then grieved the factual issue of whether the company had the right to compel attendance at the United Way meeting. It was the union’s position that, although the union was supportive of the United Way activity and participated with the company in the annual United Way drive, the company did not have the right to compel the attendance of the employee at the meeting.


The arbitrator found that the issue in the case was whether the company had the right to compel the grievant’s attendance at a United Way meeting. Although it is a well-established rule that the employer has the right to direct the workforce—and this company had the right under its contract with the union to schedule overtime with appropriate notice—the exercise of its management rights must reasonably relate to the operation of the employer’s enterprise. It was the arbitrator’s belief that the United Way drive was not reasonably related to the company’s operation. So, although the company may request attendance by the employees at a meeting and be willing to pay overtime, it did not have the authority to require attendance at the meeting. The arbitrator did not accept the company’s position that the grievant should have reported to work and grieved the issue later because that basic premise, “work now, grieve later,” is relevant only when it allows the company’s operation to continue during a dispute with a grievant. Because the United Way meeting was in no way related to the employer’s ability to keep his operation going, there was no requirement that the employee delay his disagreement with the requirement.

Source: Adapted from Green Bay Packing, 87 LA 1057.

Grievance Mediation

Most collective bargaining agreements include procedures to resolve grievances that arise during the life of the contract, with binding arbitration as the last step. Increasingly, contracts provide for 
grievance mediation
 as a voluntary last step before arbitration if it is acceptable to both parties—because generally mediation to be successful is a voluntary process in which both parties seek a neutral third party to assist them in finding a settlement. The following CBA example provides mediation as the fourth step in a grievance procedure:

Grievance mediation

The use of a neutral third party as one step in a grievance procedure. The mediator, in a confidential process, facilitates the parties developing a resolution of the grievance themselves and thus avoiding arbitration.

Article VII

Grievance Procedure

Step 4. Mediation may be used in place of traditional arbitration provided that this option is acceptable to the Company and the Union. If either party rejects mediation, it will be moved to Step 5, arbitration. In the event mediation is chosen, the parties will mutually agree on a mediator at that time.

Tips from the Experts


What are the three best ways to ensure a fair grievance procedure if you are the employer or the union?

1. Conduct a full and adequate investigation into the facts and circumstances. Give the employee an opportunity to explain why he or she should not be disciplined, or the employer the chance to explain why the discipline imposed did not violate the agreement or past practice.

2. Make full disclosures at the earliest possible grievance step. Disclose the issues, the facts, the documents to be presented, and the names of the witnesses and what they will offer as testimony.

3. Do not rely on the other side to make the case for you. Develop a theory of the case, with witnesses and documents ready to support it.

The process provides the opportunity for a neutral third party, such as a mediator from the FMCS (Federal Mediation and Conciliation Service), state, or local mediation services to assist the parties in reaching their own settlement of the dispute before it reaches arbitration.

Grievance mediation is a supplement to or a single step in a contractual grievance resolution process but should not be viewed as a substitute for the process. The mediator cannot resolve the dispute by making a binding decision but rather works with both parties to achieve a mutually acceptable settlement of the grievance. To request a mediator, both parties must submit a signed written request that outlines the issues involved.

Grievance mediation often provides several advantages to the process of resolving disputes: (1) faster resolution of issues compared to arbitration; (2) both parties, grievant and manager, have the opportunity to present their case to a neutral third party without the possibility of losing as they might in a binding arbitration; (3) even if the process does not lead to a settlement, both parties can better evaluate the strengths and weaknesses of their cases before proceeding to arbitration; (4) the FMCS or state offices provide the service without charge to the parties so that, if a settlement is reached, the costs of arbitration can be avoided, and (5) the mediation process is confidential—the mediator assures the parties that he/she will not discuss any aspect of their case with anyone else. The process the FMCS uses in grievance mediation is somewhat different from that of arbitration; thus, the documents prepared and statements made in grievance mediation cannot be used during subsequent arbitration proceedings. Both parties must usually agree to the 10 FMCS Guidelines for Grievance Mediation in 
Figure 11-4

The process of grievance mediation generally follows one of two formats: (1) the mediator meets with both parties separately and jointly to determine the issues, priorities, and barriers. Then the mediator may present to each side the likely outcome if the grievance progresses to arbitration, or (2) instead of predicting outcomes, the mediator meets jointly and separately with the parties and uses an interest-based process to seek a mutually agreeable settlement that the parties fashion themselves. For example, a union might trade its demand for back pay (low priority) in exchange for reinstatement (high priority).
 A 2005 study of 3,387 cases over a 24-year period produced significant findings that support the use of grievance mediation in comparison to arbitration:

· Cost savings. The average cost of mediation per case was $672 compared to $3,202 per arbitration.

· Time savings. The average time required to mediate a case was 43.5 days—compared to 473 days to arbitrate a case.

· Satisfaction with process. The participants who were “highly satisfied” with interest-based mediation included 89 percent management, 68 percent union, and 47 percent grievants.

· Increased ability to resolve grievances. Participants (83 percent) indicated they were better able to resolve future grievances because they learned how to communicate better. In addition, 65 percent indicated that the use of interest-based grievance mediation had led to a better union–management relationship thanks to a more cooperative atmosphere and the use of mediation techniques.

In recent years grievance mediation has increasingly been combined with expedited arbitration. This combination resolves the major disadvantage of grievance mediation in settling

1. The grievant is entitled to attend the mediation.

2. Unless the collective bargaining agreement provides for mediation within the grievance procedure, the parties must waive any time limits while the grievance mediation step is being utilized.

3. The grievance mediation process is informal and the rules of evidence do not apply. No record, stenographic, or tape recordings of the meetings will be made.

4. The mediator’s notes are confidential and will be destroyed at the conclusion of the grievance mediation meeting. FMCS is a neutral agency, created to mediate disputes, and maintains a policy of declining to testify for any party, either in court proceedings or before government regulatory authorities.

5. The mediator will use problem-solving skills to assist the parties, including joint and separate caucuses.

6. The mediator has no authority to compel a resolution.

7. If the parties cannot resolve the problem, the mediator may provide the parties in joint or separate session with an oral advisory opinion.

8. If the parties cannot resolve the grievance, they may proceed to arbitration according to the procedures in their collective bargaining agreement.

9. No statement given by either party as part of the grievance mediation process, nor any documents prepared for a mediation session, can be used during arbitration proceedings.

10. The parties must agree to hold FMCS and FMCS mediators harmless for any claim of damage arising from the mediation process.

Figure 11-4

Guidelines for Grievance Mediation.

Source: FMCS Grievance Mediation: Problem Solving in the Workplace (Washington, DC: U.S. Government Printing Office, 2001).

labor disputes—the possibility of no settlement. For example, the National Mediation Board, which is responsible for resolving labor disputes in the railroad and airline industries, will send the case to expedited arbitration if a grievance mediation is not successful, sometimes through web conferencing to even further reduce costs and obtain a faster decision.

Public Sector Grievance Issues

Although differences exist between public and private sector labor relations, there are similarities. A major similarity is that the collective bargaining agreements of both sectors are often influenced by the personalities of the negotiators and their abilities to improve their bargaining power relative to the other party.
 Also, grievances in the two sectors are generally processed in the same manner.

The expense of grievance arbitration is of concern to employers in the public sector just as it is to those in the private sector. A study was done on the attitudes of union stewards toward filing grievances in the public sector to see whether costs could be reduced. It was demonstrated that grievance rates tended to be reduced when management negotiators were perceived as accommodating rather than combative during negotiations. Grievance rates tended to increase or decrease depending on whether union stewards perceived their union members to be combative or cooperative toward their government managers. The study also found that if an informal method of communication existed, fewer grievances were filed. Surprisingly, the clarity of a collective bargaining agreement had little effect on the number of grievances filed. If the relationship between the parties tended to be combative or cooperative, disagreements over contract language followed that same pattern.
 See Profile 11-2 for some of the approaches used in the federal government to counter the time and expense of typical grievance arbitration resolution techniques.

In the area of discipline and dismissal, however, public sector labor law has developed along completely different lines because of the constitutional protection afforded government employees. When government acts at any level to discipline or dismiss an employee, a form of state action has occurred. The power of the state over an individual is curtailed by the Bill of Rights, and if any constitutionally protected right is infringed on by the discipline

Profile 11-2 FLRA Collaboration and Alternative Dispute Resolution Activities

The Federal Labor Relations Authority is actively engaged in the labor–management Collaboration and Alternative Dispute Resolution Program (CADR). CADR is dedicated to reducing the costs of conflict in the federal service. This agency-wide program, launched in 1996, provides overall coordination of the use of alternative dispute resolution techniques in every step of labor–management disputes—from investigation and prosecution to the adjudication of cases and resolution of bargaining impasses.

The initiatives include the following:

1. Resolving unfair labor practice and representational disputes by the Office of General Counsel using facilitation, training, and educational services delivered jointly to both management and union representatives on the federal labor relations law, interest-based bargaining, alternative dispute resolution, and relationship building and intervention.

2. Operating an Unfair Labor Practice Trial Settlement Project administered by the Office of Administrative Law Judges; this assigns a judge or a settlement attorney to conduct settlement conference negotiations with the parties before trial. The initial pilot of this project resulted in an 80 percent settlement rate.

3. Resolving impasses in collective bargaining agreement negotiations through the Federal Service Impasses Panel using procedures that include mediation, fact-finding, written submissions, and arbitration to move the parties toward voluntarily resolving the impasses short of a written decision and order from the panel.

Source: Adapted from “FLRA News.” (2000). Available at www.flra.gov. Accessed October 15, 1999.

or dismissal of an employee, that employee has a valid claim against the governmental entity regardless of contractual rights. Examples of constitutionally protected rights include the following:

1. Privilege against self-incrimination

2. Freedom of association

3. Right to participate in partisan politics

4. Freedom of expression

These constitutionally protected rights, as well as specific statutes allowing government employees to appeal to various courts, have assured public employees of multiple forms of relief not available to private sector employees. Although this protection tends to weaken the grievance-arbitration system, it guarantees the rights of the individual over those of the unions.


Grievance procedures and the mediation and arbitration of disputes provide important tools to collective bargaining. Without such procedures, labor and management, as well as the community, would suffer greatly from alternative actions such as strikes and walkouts. In addition, the effective resolution of grievances prevents “grievance gridlock” and low employee morale and productivity. Instead, issues such as a supervisor’s disciplining an employee, as well as instances of “letting off steam,” as it were, can be decided logically. Contract provisions that specify how situations involving employee misconduct will be handled are included in most contracts. Serious offenses usually lead to immediate termination, whereas minor offenses are treated by a progressive discipline policy.

The Supreme Court and the NLRB have given sufficient authority to negotiated grievance procedures and the use of arbitration as a final step, making the practices commonplace and effective. However, specific steps to be used in employee grievances should be detailed in the labor agreement. Grievance mediation reduces the need for arbitration as a final step and should be considered when possible. In addition, in comparison to arbitration, mediation is less expensive, faster, and produces more satisfactory results. A key reason for the success of grievance mediation is that, unlike arbitration, both parties participate in deve-loping a mutually agreeable settlement, not one that is imposed by a judge or arbitrator, and thus neither party can “lose” a decision.

Case Studies Case Study 11-1 Insubordination of a Police Officer While in Pursuit of a Stolen Vehicle

The city’s police department has a procedure that establishes guidelines for police officers who are in pursuit of the occupants of another vehicle. A section of the pursuit policy states that a shift commander is to be assigned as management supervisor of each pursuit and has the authority to terminate a pursuit when public safety is at risk.

Patrol officers became involved in a pursuit when a man pointed a rifle at his wife, threatened her, discharged the rifle, and then, in a vehicle he had stolen, fled from investigating police officers. Sergeant D, who had been assigned as managing supervisor, monitored the pursuit and finally ordered it terminated. Police Officer A, however, continued to follow the suspect, despite having been told by both Sergeant D and Sergeant C to stop the pursuit. Officer A apprehended the suspect when the suspect’s automobile “broke down.” The city charged Officer A with a violation of the pursuit procedure and suspended him for one day without pay.

At an arbitration hearing, Officer A testified that he was concerned the suspect’s automobile would break down and because the suspect had committed a felony (stealing a vehicle) and was armed, he might engage in a carjacking. Officer A further testified of his oath to protect the public and his belief that the public was in danger from the suspect. Officer A also testified that his emergency lights and siren were not in operation while he followed the suspect, and he never attempted to close the gap on the suspect’s automobile; thus, he was not in pursuit.

The city argued that Officer A had failed to obey the orders of two sergeants to terminate a pursuit and should be disciplined for his failure to obey their orders.

Source: Adapted from City of San Antonio, 95 ARB 5066.


1. Was Officer A in pursuit of the suspect’s vehicle?

2. As an arbitrator, would you uphold or deny the grievance?

3. Would you change the punishment of Officer A from a one-day suspension to that of a written warning?

4. What is the value to the police command in disciplining Officer A?

Case Study 11-2 Sleeping On the Job

The grievant has been employed by the Company as a truck driver of an all-wheel drive, articulating dump truck which he operated in conjunction with other pieces of equipment. While sitting in a loading area at the preparation plant he was being loaded by a long-armed loader; he was observed by a supervisor leaning back with his head against the box behind the seat with his eyes closed and his mouth open. The truck was running, and it was out of gear with the safety brake on, as prescribed by the safety procedures. He was suspended in compliance with the labor agreement—a 24–48-hour meeting was properly held, and he was terminated on March 11, 2009, for sleeping on the job.

The Company contended that this was the third such incident involving the grievant. In the previous summer, the supervisor found the grievant asleep while sitting in his truck as it was being loaded. The motor was running, it was out of gear, and the safety brake was on. The supervisor had the loader bump the truck, and when the startled grievant eyeballed the supervisor, the supervisor shook his finger at him and shook his head to let him know he was caught sleeping and that it was not permitted.

On September 17, 2008, the grievant was observed sleeping for an extended period of time while being loaded by a backhoe. In this instance the supervisor physically mounted the truck and opened the cab door to a very startled awakened employee. Again, the motor was running, it was out of gear, and the safety brake was on. A written safety observation card which stated “EMPLOYEE WAS ASLEEP” was issued to the grievant. In addition, a counseling session was held with the grievant and his Union Steward. The Company and the Union Stewart informed the grievant that if he were caught asleep again, he would be discharged. The Company informed him if he had physical problems, he should get a doctor’s excuse and he stated he had no problems.

A third occurrence of the grievant being found sleeping on the job was evidenced on March 3, 2009, as the supervisor was walking past the grievant’s truck while it was being loaded. The supervisor had walked completely around the truck and was not seen or noticed by the sleeping grievant. The cab of the truck has a clear 180-degree open view through its windows. The supervisor and the backhoe operator observed the grievant asleep for several minutes. The Supervisor reported the incident to Management, and the grievant was discharged for sleeping on the job.

The Company argued that a third sleeping on the job violation, while in the cab of a running piece of heavy equipment, is more than just cause for termination. This is a work area where there is high foot traffic and is frequented with numerous smaller vehicles and other equipment that is constantly on the move. Sleeping on the job is a very dangerous act.

The Union argued that there was no record of the first “sleeping on the job” incident reported by the supervisor. The supervisor’s statement that he believed it occurred sometime in the summer is insufficient to establish occurrence. If this is such a critical incident, which warrants immediate discharge, it seems unreasonable that in one instance it would be treated with just the shaking of a finger. This incident is unrecorded and should not be considered as evidence against the grievant.

There is no denial of the second incident as the grievant states he does not know if he was asleep or not. He was startled by the supervisor jumping on his truck and became disoriented as a result. He was arguably asleep, however, and was counseled by his Steward to be extremely careful in the future. It is easy to shut your eyes and relax for a few minutes while your truck is being loaded. The truck was locked out with the parking brake and cannot move; thus there is no immediate danger of any kind.

In the incident of March 3, 2009, the truck was parked at an odd angle with the left front of the truck angled down. In order not to slide off the seat, the grievant had to totally extend his left leg and brace it against the corner of the bottom of the left door. This put him in a reclining position forcing his head back against the black box mounted behind the seat. One must remember the seat in this vehicle is in the middle; thus the downhill angle of the truck forced the grievant to appear to be lying back in a reclining position. Appearance of asleep is not asleep as charged. Furthermore, the Union noted that the Company’s treatment of the grievant for the previous similar incident was only a safety observation and counseling; no discipline was involved. The Union did not have the backhoe driver testify at the hearing.

Source: Adapted from Dickenson-Russell Coal Company, LLC and United Mine Workers of America, Local Union No. 7950, 126 LA (BNA) 517 (2009).


1. Should the Company’s treatment of the grievant for the first two “sleeping on the job” incidents influence the outcome in this case? Explain.

2. Did the Company have just cause to dismiss the grievant for violating safety rules when in each instance cited, the truck was out of gear with the safety break on?

3. Is the union’s argument that the grievant just “appeared to be sleeping” creditable in the absence of any testimony of support by the backhoe driver, a fellow union member?

 You be the Arbitrator Employee Writing Threats

Section XXIV

Company Rules

Company rules include but are not limited to those listed in APPENDIX “D” of this Agreement. Reasonable changes or additions to these rules may be made from time to time and the Company shall notify the Union of the same prior to the notification to all employees. By the publishing of these rules and notification of changes and additions, it shall be considered that employees will have complete knowledge of the rules. The employees shall abide by the Company’s rules and practices; however, the Union may question the reasonableness of any new rule.

Appendix Rules for Employee Conduct

Rules for acceptable conduct of employees are necessary for the orderly operation of the Courtland Mill and for the benefit and protection of the right, safety, and security of all employees and the Company.

These rules, and others which may be established from time to time, are hereby published to provide and promote understanding of what is considered unacceptable conduct in order to promote a safe, orderly, and efficient operation of the Mill.

Any employee who commits any of the following acts or other acts which are properly and customarily the subject of disciplinary action may be disciplined, including discharge from employment, either after a warning or immediately without warning, depending on the seriousness, nature, and circumstances of the violation(s). Repeated violations of the same rule, or compounded violations of more than one, shall be cause for accelerated disciplinary action …

7. Deliberately damaging, destroying, mutilating, or defacing tools, equipment, or any property of the Company or of another employee …

22. Threatening, intimidating, coercing other employees; interfering with the activities of another employee in the performance of his work; or directing abusive, vile or insulting remarks to or about another employee on Company premises at any time.

Supplemental Agreement—Memorandum of Under-standing Sub-Foreman Statements (in pertinent part)

A bargaining unit employee set-up to Sub-foreman will continue to have and to accrue all benefits he or she has as a bargaining unit employee during the time he or she is set-up to Sub-foreman.


The company employed approximately 1,800 production workers represented by three unions. As a result of a change in how its production was done, it announced a downsizing of production workers and some supervisory staff. It accorded the three unions an opportunity to comment on the downsizing plan, which two unions did. One union did not and protested by asking its members not to bid on the sub-foreman jobs as they became available. Employee R, a union member, chose to bid and was given a sub-foreman job. Employee R became the object of union harassment in the form of X-rated graffiti on the bathroom walls. Many of the writings contained threats as well. One bathroom wall had the following: “Watch your back R, you M——F—— er. R has an A——whipping coming and soon.” The company sent copies of the graffiti and samples of handwritings of a number of workers it suspected to a handwriting expert who determined that the grievant had written the graffiti. The grievant, a 20-year employee, was notified that he was suspected of writing the threats on the bathroom walls and was suspended. He and his union representative met with management, and after confirming that the handwriting sample the company had provided the expert was the grievant’s handwriting, he was told he was terminated. He asked management to reconsider and give him a suspension or a last-chance letter rather than dismiss him. Management declined to do so, stating that his request for leniency was tantamount to an admission of guilt. The grievant denied that he was guilty, but he was dismissed. He filed this grievance. At his hearing, management’s handwriting expert testified that the grievant was the writer of the graffiti. But the union’s handwriting expert testified that the grievant was not the writer of the graffiti.


Did the company have just cause to discharge a 20-year employee for writing threats against another employee on bathroom walls?

The Position of the Parties

The company’s position was that the grievant was fired for just cause because he violated the company rules regarding threats and destroying company property that were a part of the collective bargaining agreement (CBA). Further more, the company’s workplace violence policy had a zero-tolerance level. The company had suspected the grievant because he had brought Employee R up on charges with the union for taking the sub-foreman position. After the handwriting expert had identified the grievant as the responsible party and he was told he was fired, his reaction was to ask for a lesser penalty. Only after he was denied a reprieve did he say he was not guilty of the offense. The grievant’s actions warranted the ultimate penalty of discharge because the company cannot tolerate the kind of hostile work environment the threats of violence created.

The union’s position is that the grievant alone did not create the hostile work environment that existed in the plant. The company had to share responsibility for that because of its downsizing. And, after 20 years of service without incident, the grievant deserved better treatment. First of all, the union’s handwriting expert testified that the grievant was not the writer of the graffiti. Second, the grievant had correctly pressed his complaint about Employee R when he brought him up on charges within the union. There was no testimony that the grievant had done anything else that could have been called harassment of Employee R. The union contended that the company had not demonstrated it had just cause to dismiss the grievant.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer and/or the union have taken to avoid this conflict?

Source: Adapted from Champion International Co. v. Paper, Allied Industrial, Chemical and Energy Workers International Union, 115 LA 27.

Chapter 12 The Arbitration Process

Today many U.S. employers require employees to sign employment arbitration agreements that require arbitration, rather than the courts, to resolve employment disputes. In 2009, in response to employee–rights groups’ complaints that such agreements unfairly restrict the rights of workers, the Arbitration Fairness Act was introduced in the U.S. Congress. The act if passed in the future will make employment and consumer arbitration agreements invalid and unenforceable.

Source: Photos.com/ Jupiter Images.

When will mankind be convinced and agree to settle their difficulties by arbitration?

Benjamin Franklin (U.S. Founding Father and Signer of the Declaration of Independence)

Chapter Outline

12.1. Types of Arbitration

12.2. History and Legal State of Arbitration

12.3. Arbitration of Statutory Rights in Union and Nonunion Cases

12.4. Selecting the Arbitrator

12.5. Determining Arbitrability

12.6. Hearing Procedures

12.7. Case Preparation

12.8. Just Cause

12.9. Arbitration Issues in the Public Sector

Labor News Arbitration of Employment Disputes on the Rise

U.S. employers are increasingly using arbitration to resolve disputes with their employees. The use of employment arbitration has risen partly in response to rising litigation costs and large jury awards in cases involving race, sex, and disability discrimination. Although the use of arbitration originated in labor–management settings, it has spread to less unionized industries including retail, restaurants, financial services, and law. About 20 percent of U.S. employers now require employees to sign an arbitration agreement mandating them to use arbitration to resolve any employment disputes that may arise. In some cases a signed agreement may not be needed.

For example, a Missouri court ruled that an employee was bound by an arbitration agreement even though she had not signed it because she continued to work after the employer mailed her a copy of the arbitration policy. Judges generally prefer arbitration as a means of reducing their caseload. Employers generally support the use of arbitration to resolve cases more quickly and in a more private manner and to avoid large damage awards. Plaintiff lawyers and some union leaders have opposed employment arbitration because they believe workers win fewer cases and receive smaller awards when they do prevail. The Arbitration Fairness Act of 2009 was introduced in the U.S. Congress and would have made mandatory employment arbitration agreements unlawful. The legislation did not pass but will likely be introduced again because opponents continue to criticize what they perceive are abuses of arbitration agreements in employment.

Source: Nathan Koppel, “When Suing Your Boss Is Not an Option,” Wall Street Journal (December 18, 2007), p. D1.

Types of Arbitration

Two major types of arbitration exist with respect to labor disputes: interest arbitration and rights arbitration. 
Interest arbitration
 resolves conflicts of interest over the establishment of the terms and conditions of employment that are negotiated through collective bargaining and formalized in union contracts. A breakdown in these collective bargaining negotiations can result in a strike. Interest arbitration avoids or ends strikes. As discussed in 
Chapter 2
, the development of interest arbitration can be attributed to the government’s desire to protect the public interest by preventing

Interest arbitration

A process used to resolve an impasse in negotiations in which the parties submit the unresolved items to a neutral third party to render a binding decision.

Article XXII


Any grievance which remains unsettled having been fully processed pursuant to the provisions of the Article XXII shall notwithstanding the Company right to refuse to arbitrate grievances, as reserved in Article XXIV (2), be submitted to arbitration upon written request of either the Union or the Company, provided such request is made within thirty days after the final decision of the Company has been given to the Union pursuant to Article XXII, and provided such request directly raises an issue which is either: a disciplinary penalty, consisting of a warning notice, a suspension, or a discharge, which penalty is imposed on or after the effective date of this Agreement and is claimed to have been imposed without just cause; or a non-disciplinary termination occurring after the effective date of this Agreement; or a claimed violation of one of the provisions of this Agreement.

Any grievance which remains unsettled after having been fully processed pursuant to the provisions of Article XXII, and which involves any issue not included among those specified as subject to arbitration in paragraph (1) of this Article, may be submitted to arbitration only if the Company and the Union first mutually agree in writing to do so.

If, within ten days following the request for arbitration of such a grievance, the Company and the Union cannot mutually agree upon an arbitrator, they may jointly request the Federal Mediation and Conciliation Service to submit a panel of seven names from which an arbitrator shall be chosen. Upon receipt of such panel, representatives of the Company and the Union shall strike in alternate turn one of the names from the panel list until six names have been so struck, whereupon the arbitrator whose name remains shall be deemed to be the arbitrator selected by mutual agreement of the parties. A second panel may be requested by mutual agreement of the parties.

The award of an arbitrator so selected upon any grievance so submitted to him/her shall be final and binding upon all parties to this Agreement. The arbitrator shall have no authority to add to, detract from, or in any way alter the provisions of this Agreement.

The fees and expenses of the arbitrator, as well as the cost of furnishing the hearing room, shall be borne equally by the Company and the Union.

Figure 12-1

Arbitration Provision

Source: Agreement between General Electric Aviation and Lodge No. 912, International Association of Machinists and Aerospace Workers, AFL-CIO, 2007–2011. Used by permission.

or ending strikes in key industries, such as the Coal Strike of 1902. Interest arbitration is still frequently used in the construction industry to resolve collective bargaining disputes. The United Steelworkers of America adopted an elaborate form of interest arbitration, known as the Experimental Negotiating Agreement, in the 1970s as a means of avoiding the long and costly strikes that had made the industry vulnerable to foreign competition. The agreement was in place for nearly a decade and is credited with raising the average wage of steelworkers.
 Major League Baseball uses a variant of interest arbitration, in which an arbitrator chooses between the two sides’ final offers, to set the terms for contracts for players who are not eligible for free agency.

Interest arbitration in the private sector is voluntary—the parties can choose arbitration as an alternative to a strike if desired. Most interest arbitration in the United States occurs in the public sector under compulsory statutes as discussed later in this chapter. Private sector negotiators are generally reluctant to give up their right to strike and to turn over their decision-making authority to a third party. Case 12-1 offers an example of one dissatisfied participant. The voluntary nature of interest arbitration in the private sector may change, however, if the Employee Free Choice Act is approved by Congress. Union organizers have long complained that under the current labor law, even after a majority of employees vote for union representation, only 56 percent of them achieves a first contract after two years. The EFCA includes a process for ensuring that once employees vote for a union, they will get a first contract. It provides for negotiations and mediation as the first step in the process and arbitration for those that fail to reach an agreement on their own. Experience in the public sector shows that only a small minority, in most cases well under 10 percent, of negotiations end up requiring an arbitration decision. In areas where

CASE12-1 Arbitrability in Major-League Sports

The Major League Baseball Players Association (Association) filed grievances against the Major League Baseball Clubs (Clubs), claiming the Clubs had colluded in the market for free-agent services, in violation of the industry’s collective bargaining agreement. A free agent is a player who may contract with any Club rather than one whose right to contract is restricted to a particular Club. The case resulted in a finding of collusion by the Clubs, and damages were awarded in the amount of $280 million. The Association and Clubs entered into a Settlement Agreement (Agreement) regarding the distribution of the fund for claims relating to a particular season or seasons. The Agreement provided that players could seek an arbitrator’s review of the distribution plan. The arbitrator would determine “only whether the approved framework and the criteria set forth therein have been properly applied in the proposed Distribution Plan.”

Steve Garvey, a retired, highly regarded first baseman, submitted a claim for damages of approximately $3 million, alleging that his contract with the San Diego Padres was not extended because of collusion. The Association rejected Garvey’s claim because he presented no evidence that the Padres actually offered to extend his contract. Garvey objected, and an arbitration hearing was held. At the arbitration, he presented a June 1996 letter from the president of the Padres that contained the offer to extend Garvey’s contract through the 1989 season but then refused to negotiate with Garvey because of collusion. The arbitrator denied Garvey’s claim, and in his decision he explained that he doubted the credibility of the statements in the letter because, he noted, in the original arbitration the president of the Padres had denied collusion and had testified the Padres simply were not interested in extending Garvey’s contract.

Garvey asked the federal district court to vacate the arbitrator’s award, alleging that the arbitrator violated the framework by denying his claim. The district court denied the motion. The Court of Appeals for the Ninth Circuit, however, granted the motion and reversed the arbitrator’s decision. The court acknowledged that judicial review of an arbitrator’s decision in a labor dispute is extremely limited. But it held that review of the merits of the arbitrator’s award was warranted in this case because the arbitrator’s refusal to credit the president’s letter was “inexplicable” and “border[ed] on the irrational” because a panel of arbitrators in the original proceedings had concluded that the owners’ prior testimony was false; that is, the testimony that they did not collude had been rejected by that arbitration. The court found that the record provided “strong support” for the truthfulness of the 1996 letter and directed the lower court to vacate the award. The lower court remanded the case to the arbitration panel for further hearings, and Garvey appealed, arguing that the arbitrator had nothing more to decide because the court of appeals had already found that the 1996 letter was controlling. The court of appeals agreed and directed that the arbitration panel simply enter an award to Garvey in an appropriate amount. Both the Association and the Club appealed the Court of Appeals’ overruling of the arbitrator’s award to the U.S. Supreme Court, which agreed to hear the case.


The Supreme Court noted that 
Section 7
 of the Labor Management Relations Act guided its decision because the controversy involved rights under an agreement between an employer and a labor organization. Garvey’s specific allegation was that the arbitrator violated the scheme for resolving players’ claims for damages, which was to remedy the Clubs’ breach of the collective bargaining agreement. The Court noted that judicial review of a labor-arbitration decision pursuant to such an agreement is very limited. Courts are not authorized to review the arbitrator’s decision on the merits even if there are allegations that the decision rests on factual errors or misinterpretation of the parties’ agreement. Under the Steelworkers Trilogy, it is only when the arbitrator strays from interpretation and application of the agreement that the decision may be

held unenforceable by the Court. When an arbitrator resolves disputes regarding the application of a contract and no dishonesty is alleged, the arbitrator’s improvident, even silly, fact-finding does not provide a basis for a reviewing court to refuse to enforce the award.

As the Court had previously ruled in the Misco case, even in the very rare instances when an arbitrator’s procedural aberrations rise to the level of misconduct, the court must not settle the merits of the case but should simply vacate the award and leave open the possibility of further arbitration proceedings under the terms of the negotiated agreement.

In this case, the Court of Appeals erred when it overturned the arbitrator’s decision because it disagreed with the arbitrator’s factual findings with respect to the credibility of the 1996 letter. The arbitrator was construing a contract and acting within the scope of his authority, and established law precludes a court from resolving the merits of the parties’ dispute on the basis of its own factual determinations, no matter how erroneous the arbitrator’s decision.

The Supreme Court reversed the Court of Appeals’ decision and sent Garvey back to the arbitrator for further proceedings.

Source: Adapted from Major League Baseball Players Association v. Steve Garvey, 532 U.S. 504 (2001).

public sector employees have the right to resolve collective bargaining conflicts through arbitration, the vast majority of contracts are still settled voluntarily rather than through arbitration.

Rights arbitration
, or grievance arbitration, involves interpretation of a party’s “rights” or the application of a particular provision under an existing contract. Rights arbitration is found in almost every labor agreement and used far more than interest arbitration today. Grievance arbitration became popular during World War II, when most unions had adopted a no-strike pledge. The War Labor Board, which attempted to mediate disputes over contract terms, pressed for inclusion of grievance arbitration in collective bargaining agreements. The Supreme Court subsequently made labor arbitration a key aspect of federal labor policy. Rights arbitration deals with the allegation that an existing collective agreement has been violated or misinterpreted. Most collective bargaining agreements set out a procedure for the handling of disputes and differences. The idea is that parties should be obliged to meet at different steps in their own specific grievance procedure to review and discuss the grievance. However, often the parties cannot resolve disputes and need to use arbitration. A common example involves the discipline and discharge of employees. Most union contracts specify that employees can only be disciplined and discharged with just cause, so grievances are frequently filed over whether or not a specific instance of discipline or discharge was consistent with the requirements of just cause. An arbitrator might rule that the discharge was consistent with just cause and therefore stands or that management violated a principle of just cause, and therefore the grievant is entitled to be reinstated to his or her job, perhaps with back pay. Other examples include questions of whether or not the contractual provisions were followed in layoffs or promotions, whether or not a specific employee was eligible for vacation pay, or whether or not management has the right to subcontract work.

Rights arbitration

The submission to arbitration for the interpretation or application of current contract terms. In grievance cases, the arbitration involves the rights of the parties involved under the terms of the contract.

Demand for Rights Arbitration

There are no prescribed rules for grievance arbitration as there are in the judicial process. Arbitration procedures should be based on the wishes and the needs of the parties involved to the extent possible within the judgment of the arbitrator. The arbitration process is more private and therefore unique to the parties, as compared with the public judicial process. Also, the grievance arbitration procedure involves more sophisticated and knowledgeable parties than those in most judicial proceedings, and the arbitrator, in most cases, is more knowledgeable than the judge. 
Figure 12-2
 is a typical example of a demand for a contract interpretation or rights arbitration.

Figure 12-2

Demand for Arbitration

Although many labor disputes are clearly suitable for arbitration, judgment must be exercised in deciding whether to arbitrate a particular dispute. Factors to be considered are the merits of the case, the importance of the issue, the effect of winning or losing the dispute, the possibilities of settlement, and psychological and face-saving aspects. The most popular use of labor arbitration is interpreting applications of the collective bargaining agreements. However, labor arbitration is not always the solution. Management will hesitate to arbitrate issues it considers to be its sole prerogative, such as determining methods of production, operating policies, and finances. Labor likewise considers the settlement of an internal union conflict as a topic in which management should not participate.

History and Legal State of Arbitration

As discussed in 
Chapter 10
, state and federal courts have the authority to enforce collective bargaining agreements. In doing so, the Supreme Court in the 
Lincoln Mills case
 required specific performance of an employer’s promise to arbitrate in a collective bargaining agreement.
 The Court felt that the agreement to arbitrate grievance disputes was the employer’s trade-off for the union’s agreement not to strike. The role of arbitration and court enforcement of contract agreements was more specifically outlined in three Supreme Court cases known as

Lincoln Mills case

A landmark decision in which the Supreme Court ordered an employer to arbitrate grievances as provided for in a collective bargaining agreement, stating that an employer’s agreement to arbitrate grievance disputes was a trade-off for the union’s agreement not to strike.

Steelworkers Trilogy

 These cases held that the function of a court is limited to a review of whether the issue to be arbitrated is governed by the contract. Any doubt as to the coverage should be resolved in favor of arbitration. Unless the arbitrator’s award is ambiguous, the courts should enforce it even if the court would not have decided the substantive issue in the same way:

Steelworkers Trilogy

Three 1960 Supreme Court rulings that upheld the grievance arbitration process and limited judicial intervention.

The 1960 Steelworkers Trilogy expanded vastly upon the foundation laid in Lincoln Mills. Arbitration was acknowledged as the preferred, superior forum for contract interpretation and enforcement. The powers of an arbitrator were held to be bounded by the restrictions of the “four corners of the contract” but arbitral actions were largely immunized from judicial review. As repeatedly stated thereafter, arbitration became the cornerstone of the rapidly arising edifice housing the federal law of the labor agreement.

The Court gave almost complete deference to arbitration as a means of contract enforcement by limiting its own review of an arbitration award to whether the issue under arbitration is in the agreement.

In a study of federal and district court decisions for the 30 years following the Steelworkers Trilogy, it was found that the courts deferred to the arbitration process 70–74 percent of the time.

These four cases established the following five principles to govern the arbitration of grievances under collective bargaining:

1. Arbitration is a matter of contract. The parties are not required to arbitrate a dispute that they have not agreed to submit to arbitration. The courts determine whether there is a duty to arbitrate a dispute.

2. In determining whether there is a duty to arbitrate a dispute, the courts should not examine the merits of the underlying grievance, even if it appears to be frivolous.

3. In labor contracts with an arbitration clause, there is a presumption of arbitrability unless there is positive assurance that the arbitration clause is not susceptible to an interpretation that covers the dispute. Doubts should be resolved in favor of coverage.

4. As long as an arbitration award is based on the bargaining agreement, a court should enforce the award without examining its correctness.

5. In interpreting the labor agreement, the arbitrator is not limited to the words of the contract. The arbitrator may consider factors such as past practice, parol evidence, and the common law of the shop.

Three important issues have evolved from the Lincoln Mills and the Steelworkers Trilogy cases: the principle of general arbitrability, situations in which the contract has expired or the ownership of the company has changed, and whether the duty to arbitrate survives a change in company ownership:

1. General arbitrability. The courts have consistently enforced the principle that if the contract provides for the arbitration of grievances, then a grievance is presumed to be arbitrable as long as the agreement does not exclude the topic under consideration.

2. Expired contracts or changes in ownership. The U.S. Supreme Court has ruled that the duty to arbitrate can extend beyond the life of the contract. A post-expiration grievance is arbitrable only when it involves facts and events that occurred before the expiration of a CBA, when the action infringes a right vested under the agreement, or when the normal principles of contract interpretation show that the disputed contractual right survives the remainder of the agreement.

3. Successorship. The U.S. Supreme Court has also ruled that a successor employer is not required to adopt the substantive terms of the predecessor agreement, but that the successor inherits the contractual duty to arbitrate as long as there is “substantial continuity” between the old and the new companies.

In summary, the rulings by the Supreme Court on the duty to arbitrate make it clear that if the parties’ labor agreement requires the arbitration of grievances, then it will be difficult to avoid arbitration, even in situations where the CBA has expired, a new owner becomes the employer (successor), or the issue is not explicitly discussed in the CBA.

The Supreme Court acknowledged the superiority of arbitration in resolving labor– management disputes under collective bargaining agreements by stating the following:

The labor arbitrator performs functions which are not normal to the courts; the considerations which help him fashion judgments may indeed be foreign to the confines of courts. The parties expect that his judgments of a particular grievance will not only reflect what the contract says but, insofar as the collective bargaining agreement permits, such factors as the effect upon productivity of a particular result, its consequence to the morale of the shop, his judgment whether detentions will be heightened or diminished. For the parties’ objective in using the arbitration process is primarily to further their common goal of uninterrupted production under the agreement, to make the agreement meet their specialized needs. The ablest judge cannot be expected to bring the same experience and confidence to bear upon the determination of a grievance because he cannot be similarly informed.

The arbitrator’s role, however, is not unlimited. Beginning with the Steelworkers Trilogy, the Supreme Court limited the arbitrator’s role to the interpretation and application of the collective bargaining agreement. The Court held that although an arbitrator may look outside the contract for guidance, “he does not sit to dispense his own brand of industrial justice.”
 The courts stressed that arbitrators’ decisions, as long as they are based on interpretation of the contract, should be final and binding and not questioned by the courts. For example, in 1986, the Seventh Circuit Court upheld an arbitrator’s decision and overturned a district court’s reversal of that decision. In this case, an employee of E. I. duPont de Nemours & Company, during a nervous breakdown, attacked fellow employees and damaged company property. The arbitrator had concluded that the incident was a result of a mental breakdown (not drug use as the company contended) and would most likely not recur. The Seventh Circuit Court upheld the arbitrator’s decision, which had been vacated by the district court. The court stated, “So long as the arbitrator interpreted the contract in making his award, his award must be affirmed even if he clearly misinterpreted the contract.”

Another advantage of arbitration over litigation is the final and binding provision contained in most agreements to arbitrate grievances. This provides a final step for settling labor disputes in comparison with the court process requiring a series of lengthy appeals and many steps before a final decision. In addition, the technical rules of evidence found in the courtroom need not be applied to the proceedings. Arbitration hearings are less formal than litigation, and the advocates need not have legal training.

For most of the 50-plus years since the Steelworkers Trilogy cases, judges have refused to review the merits of an arbitration award. Why? Former Michigan Law School dean Theodore St. Antoine answered that question:

Put most simply, the arbitrator is the parties’ officially designated “reader” of the contract. He (or she) is their joint alter ego for the purpose of striking whatever supplementary bargain is necessary to handle the unanticipated omissions of the initial agreement. Thus, a “misinterpretation” or “gross mistake” by the arbitrator becomes a contradiction in terms. In the absence of fraud or an overreaching of authority on the part of the arbitrator, he is speaking for the parties and his award is their contract.

The arbitrator in the role of interpreting and applying the provisions of a collective bargaining agreement is often required to look outside of the “four corners” of the agreement itself. Disputes arise because the parties cannot agree on the meaning of the written agreement. In most cases that reach arbitration, there is some ambiguity in the language of the contract, or events that were not anticipated when the contract was negotiated have caused the contract to be applied in a way the parties may not have agreed. In those instances, the arbitrator is not just the “reader” of the contract but is, in fact, the judge of what the parties really meant in the agreement. The arbitrator will usually rely upon past practice, common law of the shop, or parol evidence to reach that judgment.

Past practice
 is recognition of the bargaining history of the two parties involved in the dispute. For example, a collective bargaining agreement states that a holiday that falls on a Sunday will be observed on the following Monday, but is silent as to whether a holiday that falls on a Saturday will be observed on the preceding Friday. The employer, however, has always done so. One year, the employer decides not to observe the holiday and the union appeals. Relying on past practice, the arbitrator would decide that the employees had come to rely upon this “practice” and therefore even though the contract was silent on the issue, the practice had become a condition of employment upon which the employees could rely.

Past practice

A recognition of the bargaining history of the two parties involved in a dispute to determine their respective rights in arbitration.

common law of the shop
 is recognition of the bargaining history of those in the same industry as opposed to the actual parties in a particular case. For example, some large manufacturers “schedule” employees’ vacations by closing the plant for an established week each year. An arbitrator might uphold a decision by an employer that produces parts for a manufacturing plant, even if the parts employer’s agreement was unclear as to whether or not management had the right to change the vacation scheduling process.

Common law of the shop

A recognition of the bargaining history of those in the same industry to determine the respective rights of the parties involved in a labor dispute.

Parol evidence
 in labor arbitration cases refers to evidence, oral or otherwise, that is not contained within the four edges of the collective bargaining contract. In other words, it is evidence of discussions or writings that happened prior to or outside of the bargaining process that are not referenced in the final collective bargaining agreement itself. In basic contract law, the terms of a final written agreement between two parties cannot be interpreted or contradicted by evidence of anything that happened before the contact was finalized—or “parol evidence.” For example, two parties enter into an agreement on the sale and purchase of a house. The contract clearly states that none of the house’s appliances are a part of the transaction. After the buyer moves in, however, she sues the seller claiming that an earlier version of the contract provided that the seller would leave the dishwasher. The court will not allow the buyer to present such evidence. The assumption is that the agreement as contained in the formal written document both parties signed is the agreement of the parties that should be enforced.

Parol evidence

Evidence that is not contained within the four edges of the collective bargaining agreement but which may be considered by the arbitrator to interpret terms of the agreement but which may be considered by the arbitrator to interpret terms of the agreement and find or clarify ambiguities within the agreement.

However, collective bargaining agreements have special qualities that make some contract principles inapplicable. First, often the parties negotiating a union contract are not drafting the final agreement. Second, unlike ordinary contracts, collective bargaining agreements are often intentionally silent on significant matters. In order to be of a readable length, collective agreements must be written in generalized language that is capable of capturing the myriad relationships between management and labor. Third, collective bargaining doesn’t stop with the signing of an agreement; it is a continuous process, beginning with the negotiation of a contract through the life of the contract with almost daily interpretations and administration of its provisions. Because of the unique nature of the collective bargaining agreement, arbitrators often rely upon parol evidence to ascertain the true meaning of the written labor agreement. Such evidence is usually not admitted for the purpose of varying or contradicting the actual written language recorded in the labor agreement. Generally parol evidence is used in the following ways:

1. To aid in the interpretation of existing terms. For example, an arbitrator is asked to determine what kind of offenses the parties meant by “Discipline for minor offenses will be progressive” when the contract did not include any definition of “minor.” The arbitrator allowed the union to present a number of prior contracts between the parties that had listed examples of offenses subject to progressive discipline.

2. Show that in light of all the circumstances surrounding the making of the contract, the contract is actually ambiguous. For example, an arbitrator is asked to determine whether employees received pay for travel time based on a provision of the contract that states “if you are ‘called in/called out’ to work outside you normal work schedule … you will receive overtime pay for all hours worked.” The union testified that they believed the “all” included travel time because in the negotiations, the parties often referred to provisions in the company’s “Employee Handbook” to explain proposals, and under the handbook’s identical language, employees were paid for travel time. Therefore, the union believed that was the agreement of the parties. The arbitrator allowed introduction of the “Employee Handbook” even though it is parol evidence.

3. Resolve an ambiguity in the contract. For example, an arbitrator is asked to determine whether there was a valid contract in effect on January 1, 2005, when the cover page of the CBA said, “Date of Agreement: January 1, 2005–March 31, 2008,” but the first sentence of the CBA stated, “This is an Agreement by and between … effective April 13, 2005.” The arbitrator allowed introduction of prior CBAs between the parties to determine whether the cover page or the language inside the document was used in the past to define the term.

Arbitration of Statutory Rights in Union and Nonunion Cases

In Alexander v. Gardner-Denver, the Supreme Court addressed the application of an arbitration clause to the pursuit of an individual’s statutory rights even if the individual is covered by an arbitration provision in a collective bargaining agreement.
 In that case the Court ruled that an individual could not be precluded from suing under the civil rights laws just because his claim had gone through arbitration under the collective bargaining agreement. The Court was articulating a public policy exception to labor arbitration provisions.

Title VII Cases

The principle stated by the Court in the Gardner-Denver case is clear: Individuals may exercise a legal right based on external law that is independent of their rights under a collective bargaining agreement.
 An individual who takes a grievance to arbitration that involves an EEO (equal employment opportunity) matter could be entitled to a trial if he or she loses in arbitration.

In 1998, the Supreme Court again took up the issue of whether an employee subject to a collective bargaining agreement with a compulsory arbitration clause is required to take a discrimination dispute to arbitration rather than pursue the claim in federal court. In Wright v. Universal Maritime Service Corp., a longshoreman was refused employment following a settlement of a claim for permanent disability.
 When he filed suit under the Americans with Disabilities Act, the lower court dismissed the case because the longshoreman failed to pursue his claim under the contract’s arbitration procedure. The Supreme Court reversed the lower-court decision on the grounds that the arbitration provision did not contain a “clear and unmistakable” waiver of the employee’s right to pursue his antidiscrimination claim in federal court.
 And at least one federal court has ruled that a waiver of an individual statutory right by a collective bargaining agreement is nonnegotiable, making it an illegal bargaining item.

Although seeming to uphold Gardner-Denver, some observers note that the decision follows the reasoning of the Court in Gilmer v. Interstate/Johnson Lane Corporation.
 In Gilmer, the Court upheld compulsory arbitration of an age discrimination claim under an employee-signed employment agreement that covered termination for any reason. Although Gilmer did not involve an arbitration clause in a collective bargaining agreement, the holding in Wright would indicate that if a collective bargaining agreement arbitration provision “clearly and unmistakably” includes antidiscrimination claims. In Penn Plaza v. Pyett, the U.S. Supreme Court in 2009 ruled that a collective bargaining agreement that “clearly and unmistakably” requires employees to arbitrate claims under the Age Discrimination in Employment Act (ADEA) is enforceable. The opinion of the court included the justification that “nothing in the text of the ADEA prohibited arbitration of discrimination suits” and that the “broad sweep” of the NLRA makes collective bargaining agreements and their arbitration provisions enforceable. The decision pleased many employers who disliked the idea of employees getting two sources of recourse—first a grievance under the CBA, and then a federal lawsuit to win their case. Employees, however, may not like the idea that the CBA negotiated by their union now may waive their right as an individual to file a federal lawsuit.
 The Pyett decision therefore permits employers and unions to bargain away the right of individual members of the bargaining unit to pursue individual claims of discrimination in federal court if a provision in the CBA “clearly and unmistakably” requires them to arbitrate such claims. Therefore, instead of federal judges, labor arbitrators will decide cases involving federal discrimination laws, a field in which they may or may not have experience.

The Federal Arbitration Act and Individual Employment Agreements

In the United States, three statutes govern the private sector arbitration of disputes: the 1947 Labor Management Relations Act (LMRA), which provides for the arbitration of disputes involving collective bargaining agreements as discussed in this chapter; the 1926 Railway Labor Act (RLA), which has jurisdiction over disputes between employees and a carrier in the railroad and airline industries; and the 1925 Federal Arbitration Act (FAA), also called the United States Arbitration Act.
 The U.S. Supreme Court reinterpreted the FAA in a series of cases in the 1980s and 1990s to cover the full scope of interstate commerce. In the process, the Court held that the FAA preempted many state laws covering arbitration, some of which had been passed by state legislatures to protect their consumers against powerful corporations.

The Federal Arbitration Act
 governs commercial arbitration situations such as business–business, employer–employee, and buyer–seller situations. The FAA provides the parties involved with guidelines and enforcement mechanisms for arbitrated disputes. The act enables one party to force the other party to arbitrate a dispute when an agreement to arbitrate exists between the two parties. The U.S. Supreme Court stated that with the FAA, Congress “declared a national policy favoring arbitration” over the more expensive, slower court litigation process. The act also provides that an arbitration award can be confirmed by a court judgment.

The Supreme Court expanded its Gilmer decision when it ruled that individual employment agreements that contain arbitration clauses could be enforced under the Federal Arbitration Act (FAA). In Circuit City Stores Inc. v. Adams, the employee had signed an employment application with Circuit City that included a provision agreeing to settle any and all “claims, disputes, or controversies arising out of or relating to my … employment … exclusively by final and binding arbitration.
 By way of example only, such claims include claims under federal, state, and local statutory or common law, including … the Civil Rights Act.” Two years later, the employee filed an employment discrimination lawsuit against Circuit City, and Circuit City filed suit to require him to submit to final and binding arbitration. The court of appeals ruled that because the FAA excluded coverage of “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” the clause was not enforceable. The Supreme Court disagreed. It held that the exclusion language of the FAA ought to be narrowly interpreted to apply only to transportation workers. The Court held the following:

“[A]rbitration agreements can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law; as we noted in Gilmer, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial forum.”

As a result of the U.S. Supreme Court decision in the Circuit City case, many nonunion employees are bound by employment arbitration agreements. Source: William T Kane/ Getty Images.

The Supreme Court also upheld a mandatory arbitration provision in a nonemployment case that might have repercussions on employment arbitrations. In Green Tree Financial Corp. Alabama v. Randolph, the plaintiff claimed that because the arbitration clause was silent about the costs for such arbitration, she was effectively precluded from pursuing her statutory claim under the Truth in Lending Act for fear of incurring excessive costs.
 The Court ruled that a party seeking to avoid an arbitration agreement must demonstrate the likelihood of incurring prohibitive costs, not just the possibility. And in February 2008, the Supreme Court held that a challenge to the validity or legality of a contract that has an arbitration clause must be decided by the arbitrator not another state court or agency because the FAA has preempted state laws in this area.

Profile 12-1 Arbitration of Nonunion Employment Disputes

In 1991, the U.S. Supreme Court held for the first time that predispute employment arbitration agreements are enforceable just like any other contracts. Since then, many employers have drafted arbitration agreements for their employees and applicants. Some of these are simple stand-alone agreements in which the employer and employees agree to arbitrate rather than litigate any disputes that might arise in the future. Other agreements involve overreaching by the employer—as when an employer attempts to waive or restrict employees’ ability to recover damages, to impose onerous filing fees or other costs, or to choose the arbitrator without the employee’s participation. Courts generally have struck down arbitration agreements that involve employer overreaching.

Some more progressive employers, however, have gone in the opposite direction, and have designed comprehensive dispute-resolution programs for their nonunion workforces. The premise behind these programs is that both employers and employees are better off if they are able to amicably resolve their differences without having to go to court, and that both sides benefit if the programs are truly fair.

The Anheuser-Busch Program

One example of a hugely successful program is Anheuser-Busch, the beer manufacturer which controls over half the U.S. market, and is a wholly owned subsidiary of

Anheuser-Bush, the beer manufacturer, provides employees a three-step dispute-resolution program which includes mediation and binding arbitration.

Source: © Michael Newman / PhotoEdit.

Belgium-based Anheuser-Busch InBev. Anheuser-Bush implemented an innovative dispute-resolution program in 1997. Anheuser-Busch encourages employees to resolve work-related disputes informally with their managers or the H.R. Department. When such informal efforts do not resolve the dispute, there is a three-step process.

1. Step 1:.

2. In Level One, Local Management Review, the dispute-resolution procedures vary by subsidiary or department, but all involve the employee and members of the management team specially trained in dispute resolution.

3. Step 2:.

4. Level Two is nonbinding mediation with a mediator jointly selected by the employee and the company. The employee pays a $50 filing fee, and the company pays for the mediator and for the employee’s wages during the mediation.

5. Step 3:.

6. Level Three is binding arbitration with an arbitrator jointly selected by the employee and the company. The employee pays a $125 filing fee, and the company pays for the arbitrator and the wages of the employee and any employee-witnesses during the arbitration hearing. The arbitrator’s decision is final and binding on both the company and the employee. Employees must agree to this dispute-resolution program as a condition of employment.


Results from the first ten years of the program indicate it has been beneficial to both employees and management. Of the claims submitted to Anheuser-Busch’s dispute-resolution program, 95 percent are resolved in Level One, 4 percent are resolved in Level Two, and only 1 percent progress to Level Three. Anheuser-Busch’s both legal and administrative cost of resolving employment disputes declined approximately 50 percent following implementation of the program, and that reduction has held steady over time. Level One disputes were resolved in an average of four weeks, Level Two disputes in six months, and Level Three disputes in 15 months. Win rates for employees at Level Three were slightly higher than would be expected in litigation, though the amount recovered was lower. Figures for win rates and recovery amounts probably is not reliable, however, both because of the small number of disputes that made it to Level Three and because the claims that made it to that level were not necessarily representative of claims that otherwise would have been litigated (e.g., comprehensive dispute-resolution programs enable employers to identify, and settle early, cases that an employee might otherwise have won in litigation).

Source: Richard A. Bales and Jason N. W. Plowman, “Compulsory Arbitration as Part of a Broader Employment Dispute Resolution Process: The Anheuser-Busch Example,” Hofstra Law Review 26, no. 1 (2010). Used by Permission.

Selecting the Arbitrator

Both labor and management pay the arbitration fees and have a hand in the choice of arbitrator; he or she is not an outside party imposed on them to resolve disputes. The arbitrator’s jurisdiction evolves from the contract negotiated by the two parties. Therefore, the arbitrator’s performance must generally be satisfactory; the parties can dispense with an incompetent arbitrator. The arbitrator is well aware that he or she provides a service for a fee and is expected to meet certain professional standards. Unlike litigation, both parties have the ability to participate in the selection of the arbitrator. This is recognized as a great advantage over the litigation process, in which the parties have little or no input in the selection of a judge. In fact, both parties can easily access thousands of arbitration awards by arbitrator, by employer, and by union or subject matter. Thus, they know a great deal about possible arbitrator candidates and their thoughts in similar cases.

Because of the very real need to keep both parties satisfied with arbitration decisions, arbitrator decisions and awards are far from uniform on almost any issue.
 However, no two grievance situations are the same. The arbitrator may be a permanent umpire chosen beforehand by labor and management to decide disputes arising during the life of the collective bargaining agreement. However, most arbitrations take place ad hoc, with arbitrators selected to hear disputes case by case. Permanent arbitration can help provide a stable union–management relationship. With their knowledge of the specific language of a contract, the personalities involved, and past labor relations, permanent arbitrators can quickly participate, provide immediate assistance, and resolve disputes much faster than the courts in most situations.
 Collective bargaining agreements with arbitration normally provide for the selection process of arbitrators. If a permanent arbitrator is not designated in the contract, then an impartial agency is often agreed on as a source of arbitrators. The American Arbitration Association and the Federal Mediation and Conciliation Service agencies are the most frequent sources of arbitrators.

The arbitrator would be required to follow the contract language regardless of any personal opinion as to the reasonableness of the agreement language if the intent of the provision is clear.

Contract provisions often call for arbitrators (one or a panel) to be selected from the American Arbitration Association or the FMCS Office of Arbitration Services. Source: bikeriderlondon/ ShutterStock.

However, the language is often ambiguous, and the arbitrator must interpret the provision in question.

By interpreting contract language, arbitrators are often sources of future contract language. Collective bargaining agreements can be drafted with general language to be flexible. Sometimes the parties at the bargaining table are purposely vague in some areas to reach agreement in others. At other times, simply because of the size and complexity of an agreement, inconsistent provisions are a source of contention after the contract is signed. Arbitrators therefore are called on to resolve disputes arising from the contract language. In the absence of clear and unambiguous contract language, an arbitrator is guided by basic contract interpretation principles derived from the common law of contracts:

1. Honor the intent of the parties.

2. Interpret the agreement as a whole.

3. Give effect to all terms of the agreement.

4. Give undefined terms reasonable definitions.

5. Avoid absurd results by considering reason and equity.

By following those rules, an arbitrator crafts an “award” that often includes an interpretation of a collective bargaining agreement. To some extent, an 
arbitrator’s award
 interpreting contract language becomes part of the contract. A prior arbitration award that contains a well-reasoned opinion and involves the same parties, the same contract, and the same issues is entitled to great weight in subsequent arbitrations. This creates a disincentive for a party dissatisfied with the outcome of arbitration from repeating the same issue before another arbitrator in the hopes of getting a different result.

Arbitrator’s Award

The arbitrator’s decision in a grievance case, presented in written format and signed by the arbitrator. Examples of awards include back pay and reinstatement of job or benefits.

In addition, in cases where the parties have had the opportunity to negotiate subsequent contracts and to make changes in contract language that has been interpreted in arbitration and fail to do so, the parties may be held to have adopted the award as a part of the contract. Indeed, the binding force of an award may even be strengthened by such renegotiation without change because the opportunity exists in negotiations to alter, amend, or modify any arbitral interpretation that does not reflect the intent of the parties.

Arbitration Services

One source of arbitration panels is the Federal Mediation and Conciliation Services’ Office of Arbitration Services (OAS). The responsibilities of the OAS include the following:

· Maintaining a roster of arbitrators qualified to hear and decide labor questions in labor–management disputes

· Providing the parties involved in collective bargaining agreements with a list of experienced panels of arbitrators

· Appointing arbitrators following their selection by the involved parties

The OAS maintains a roster of approximately 1,641 private arbitrators. The maintenance of this roster requires establishment of and adherence to high standards of qualification. The OAS boasts of experienced practitioners with backgrounds in collective bargaining and labor– management relations. Panels are selected on the basis of geographic location, professional affiliation, occupation, experience in various industries, and issues or other specified criteria requested by the parties. In 1996, the OAS submitted 30,066 panels to requesting parties in both the private and the public sectors. 
Table 12-1
 shows the number of OAS panel requests from 2005 through 2009.

Qualifications of Arbitrators

Arbitrators are not required to have any specific educational or technical training unless specified in the collective bargaining agreement. But the qualifications of an arbitrator are key to a

Table 12-1

OAS Arbitration Panel Services

aFrequently, the labor–management parties request more than one panel for arbitration cases, resulting in an increase in the number of panels issued over the number of requests received.

Source: Federal Mediation and Conciliation Service. Sixty-Second Annual Report (Washington, DC: Author, 2010), p.8. Available at http://www.fmcs.gov. Accessed September 5, 2010.







Panel Requests






Panels Issueda






Arbitrators Appointed






successful system. If rigid qualifications are required, it may become very difficult to find an available arbitrator.

Various characteristics, including experience, education, occupation, and visibility, have been identified as affecting arbitrator selection. Both labor and management prefer arbitrators with specific attributes. Research indicates that age and experience are the most significant demographic factors affecting arbitrator decisions. Surprisingly, though, labor lawyers have not been able to distinguish between the decisions of experienced and inexperienced arbitrators.

In addition to these demographic variables, other variables affecting arbitrator selection include visibility, such as public speaking and professional association membership, and past arbitration decisions. All three appear to determine which arbitrator might be selected for a case. Empirical data indicate that visibility in the community may be the single most important variable.
 In addition to visibility, a 2000 study of arbitrator behaviors found that arbitrators who use more procedural justice methods (process and procedures used during hearings) are perceived to be fairer by the participants. In addition, those who use more interactional justice methods (treat the participants with respect, candor, and a lack of prejudice) are more acceptable and likely to be chosen for future cases.

Arbitrators are secured from a wide variety of backgrounds and include attorneys, public officials, judges, and university professors. Elkouri and Elkouri in How Arbitration Works outline some general qualifications of an arbitrator:

1. Impartiality. Although no one can be absolutely free from bias or prejudice, the arbitrator is expected to divest himself or herself from personal inclinations during an arbitration, even though he or she decides cases according to his or her own judgment. The elements of honesty and impartiality are the most critical qualifications, and the arbitrator must always be able to be up front with both parties. Otherwise, he or she might not be selected again.

2. Integrity. Arbitrators are expected to be of the highest integrity. Both parties can review backgrounds and affiliations of prospective arbitrators; personal, financial, or business interests in the affairs of either party are primary considerations. The Code of Ethics for Arbitrators requires the arbitrator to disclose any association or relation that might reasonably bring any doubt to his or her objectivity. Records of past decisions and whether the arbitrator has expressed strong opinions in favor of either labor or management are also reviewed. Arbitrators are expected to exercise fairness and good judgment in issuing awards and not just to please both sides by splitting awards.

3. Ability and expertise. A labor–management arbitrator should have a broad background of social and economic experience. Maturity of judgment and a quick, analytical mind are also necessary. The arbitrator is not expected to be a subject-matter specialist; such an expert may be difficult or impossible to find. Both parties may prefer someone with general business or financial expertise, as well as significant arbitration experience.

4. Legal training. Labor–management arbitrators are often lawyers. Legal training may help an arbitrator to be objective and to analyze and evaluate facts without personal bias.

Profile 12-2

William C. Heekin is a labor arbitrator/ADR neutral based in Cincinnati, Ohio. Presently, he is on the arbitration and fact-finding rosters maintained by the Federal Mediation and Conciliation Service (FMCS), the National Mediation Board (NMB), the City of Louisville, Kentucky Labor/Management Committee, and the Ohio State Employee Relations Board (SERB). He graduated from Xavier University in 1977 with a B.A. in economics and in 1983 received a J.D. from Northern Kentucky University/Salmon P. Chase School of Law. From 1979 to 1983, he was the Labor Tribunal Administrator in the Cincinnati regional office of the American Arbitration Association (AAA). From 1983 to 1985, he interned with Arbitrator Charles L. Mullin in Pittsburgh, Pennsylvania, while beginning a career as a labor arbitrator/ADR neutral. In 1989, he became a member of the National Academy of Arbitrators (NAA). In 2003, he founded the Arbitration and Mediation Service (AMS), a private firm dedicated to strengthening the ADR, an institutional framework with a primary focus on labor arbitration. From 1997 to 2003, he participated in a number of international development projects regarding the transition to a democratic government/free market economy in several countries located in Central and Eastern Europe. This was under the sponsorship of the American Bar Association, Central East European Law Initiative (ABA/CEELI) and funded by the United States Agency for International Development (USAID).

Arbitration is a form of alternative dispute resolution (ADR) which, like mediation, involves the intervention of a third-party neutral. As with mediation, arbitration is normally faster and less expensive than litigation. It is usually voluntary and thus not Court-ordered or required by statute as exists in Ohio regarding public sector safety forces. Most often, labor arbitration is used by way of a grievance procedure/arbitration clause contained in a collective bargaining agreement (CBA). Thus, it is normally used to resolve a contract or “rights” dispute pertaining to the interpretation and/or application of a CBA. Unlike with mediation, labor arbitration, which is reflective of the “Common Law” tradition, has established standards and procedures. Since arbitration is comparable to litigation in that it involves the adjudicative process, where the parties do not retain decision-making authority over the outcome, there is a hearing where witnesses are called and document evidence submitted. Accordingly, unlike in mediation, which involves the legislative process, arbitration results in a final and binding decision being made by an outside labor arbitrator based on the merits.

William C. Heekin is a highly acclaimed arbitrator with international experience. Source: William Heekin.

However, not all lawyers make good arbitrators, nor are all good arbitrators lawyers. The lawyer who is overly concerned with technical rules of evidence may be ineffective.
 Profile 12-2 includes the background and beliefs of a successful labor arbitrator.

Tripartite Arbitration Board

The labor agreement may provide for multiple arbitrators. A 
tripartite arbitration board
 usually has one or more members selected by management, an equal number of members selected by labor, and a neutral member who serves as chairperson. The labor and management members act as partisans or advocates for their respective sides, and in essence, the neutral chairperson becomes a single arbitrator. The panel chair plays a unique role in the arbitration process. It is the chair’s duty to keep the other arbitrators informed about all aspects of the case so they can make informed decisions. One panel member may be assigned the duty to outline all issues to be decided and circulate relevant information among the panel members. This outline serves as a “road map” of the issues in dispute.

Tripartite arbitration board

An arbitration board composed of one or more members representing management, an equal number representing labor, and a neutral member who serves as chairperson.

Tripartite boards sometimes do not reach decisions unanimously. Collective bargaining agreements, therefore, often stipulate that a majority award of the board is final and binding. Some agreements may even give the neutral member the sole right and responsibility for making the final decision. The advantage of using a tripartite board rather than a single arbitrator is to provide the neutral member with valuable advice and assistance from the partisan members. Each party may be able to give to the neutral arbitrator a more realistic and informed picture of the issues involved than may be given by formal presentation of the issues. The disadvantage of such a board, of course, is the additional time and expense incurred.
 The following is an example of a panel selection procedure specified in a CBA:

Article 27

Section 2

If the issue cannot be resolved by the Joint Conference Committee, a panel of seven (7) impartial arbitrators will be promptly secured from the Federal Mediation and Conciliation Service. The employer and the union shall each have the right to reject two arbitrators from the panel of seven impartial arbitrators. The remaining three individuals shall be the arbitrators and their decision shall be final and binding on the employer, the union, and the employees. Expenses incurred in any arbitration under the provision of this article will be borne equally by the employer and the union.

Determining Arbitrability

The basic concept of arbitrability suggests that some disputes and conflicts are not subject to arbitration. The power to determine whether arbitration is proper, the breadth of contractual issues, and whether any other issues limit the ability of an arbitrator to resolve a dispute may be called 

 If both parties in a dispute submit the dispute to arbitration, there is no question of arbitrability because a submission by both parties identifies their agreement to go to arbitration. However, if only one party invokes the arbitration clause in a collective bargaining agreement by notice of intent to arbitrate a dispute, the other party may

resist the intent to arbitrate on the grounds that the dispute is not arbitrable. Such a challenge to arbitrability is presented either to the arbitrator or to the courts. Although most questions of arbitrability are left in the hands of the arbitrator, they may be taken to the courts. The courts may be involved with arbitrability in one of three ways:


The challenge of whether a disputed issue is subject to arbitration under the terms of the contract.

1. The party challenging arbitrability may seek a temporary injunction or stay of arbitration, pending determination of arbitrability.

2. The party demanding arbitration may seek a court order compelling the other party to arbitrate when the applicable law upholds agreements to arbitrate future disputes; the latter party then raises the issue of arbitrability.

3. The issue of arbitrability may be considered when an award is taken to court for review or enforcement unless the parties have clearly vested the arbitrator with exclusive and final right of determining arbitrability or unless the right to challenge arbitrability is held by the court to have been otherwise waived under the circumstances of the case.

The Supreme Court in the 
Warrior & Gulfcase 
declared that congressional policy in favor of settlement of disputes through arbitration restricts the judicial process and strictly confines it to questions of whether the reluctant party agreed to arbitrate the grievance in the collective bargaining contract. A labor–management agreement to arbitrate therefore should not be denied unless a court is absolutely positive that the arbitration clause in the collective bargaining contract is not susceptible to interpretation covering the dispute. Any doubt in questions of arbitrability should be resolved in favor of the grievance being arbitrated.
 Case Study 12-2 at the end of the chapter illustrates a possible exception to this rule.

In general, the arbitrator may rule on the question of arbitrability. That ruling is not subject to reversal by the courts as long as the arbitrator is applying the contract and acting within the scope of his or her authority. For example, in 2004, the arbitrator in the Republic Waste Services case ruled that regardless of the merits of the case, which involved termination of an employee, he did not have the authority to arbitrate it. His lack of authority was owing to the fact that the prior agreement had expired in January, the employee was fired in April, and the new contract started in July. The new contract did not contain a “retroactivity” clause, and the employer argued the question of arbitrability because the contract was not in effect when the employee was fired, and thus it could not be compelled into arbitration.

Double Jeopardy

A bus driver departed from his scheduled stop five minutes early and was given a six-day suspension. He accepted the suspension and returned to work afterward. About a week after he returned to his route, he was informed that because of his history of running ahead of schedule and deviating from his route, he was terminated for his record of numerous offenses. The employer’s discipline code included specific infractions, including running ahead of schedule, which could result in termination after four offenses in the period of a year. The driver’s offense was his fourth within a year.

The union, however, grieved the driver’s termination under the principle of 
double jeopardy

. The union argued that his six-day suspension, which he served, was the disciplinary action decided by management for the last offense, and the termination decision was a second disciplinary action for the same offense and therefore amounted to “double jeopardy,” or two penalties for the same offense.

Double Jeopardy

A concept borrowed from criminal law for the principle that a person cannot be punished twice for the same offense based on the same conduct.

The arbitrator pointed out that the union did not contest the fact that the driver committed a code violation or that the employer had the right to discipline the driver, and that the disciplinary action chosen could have been termination because it was his fourth offense within a year. However, the union did contest management’s decision to impart a second disciplinary action for the same offense. The arbitrator pointed out that the employer knew his record at the time the suspension was imposed and presented no facts to support why a second disciplinary action was justified. The arbitrator noted that the principle of “double jeopardy” is well known in labor and employment relations and a commonly accepted principle. Thus, the arbitrator applied the principle and concluded that the employer lacked sufficient cause to levy the second penalty of termination.

An arbitrator returned a bus driver to his job after his employer first suspended, then fired him for the same infraction. The arbitrator invoked the principle of “double jeopardy” in ruling that the employer could not punish the employee twice for the same offense.

Source: Tina Fineberg/AP Images.

Hearing Procedures

The arbitrator fixes the date of the hearing after consulting with both sides and makes the necessary arrangements. The hearing procedure for the arbitration of a grievance normally follows a certain series of steps:

1. An opening statement by the initiating party (except that the company goes first in discharge or discipline cases)

2. An opening statement by the other side

3. The presentation of evidence, witnesses, and arguments by the initiating party

4. A cross-examination by the other side

5. The presentation of evidence, witnesses, and arguments by the defense

6. A cross-examination by the initiating party

7. A summation by the initiating party (optional)

8. A summation by the other side (optional)

9. Filing of briefs (optional)

10. The arbitrator’s award

Opening Statement

The opening statement lays the groundwork for the testimony of witnesses and helps the arbitrator understand the relevance of oral and written evidence. The statement should clearly identify the issue, indicate what is to be proved, and specify the relief sought. Sometimes parties present the opening statement in writing to the arbitrator, with a copy given to the other side. Usually, the opening statement is also made orally so appropriate points can be highlighted and given emphasis if doing so would be to the advantage of the presenting side.

Rules of Evidence

Strict legal rules of evidence are not usually observed unless expressly required by the parties. The arbitrator determines how the hearing is run and how evidence is presented: In arbitration, the parties have submitted the matter to persons whose judgment they trust, and it is for the arbitrators to determine the weight or credibility of evidence presented to them without restrictions as to rules of admissibility that would apply in a court of law.

In general, any pertinent information or testimony is acceptable as evidence if it helps the arbitrator understand and decide the issue. Arbitrators are usually extremely receptive to evidence, giving both parties a free hand in presenting any type they choose to strengthen and clarify their case.
 The arbitrator decides how much weight to give evidence in making a decision.

Assessing Credibility of Witnesses

Included in the weighing of evidence is the arbitrator’s need to assess witness credibility. An arbitrator is both judge and jury in deciding an arbitration. Conducting a fair hearing and at the same time trying to arrive at the truth from the facts presented demands keen analysis. Psychological studies regarding eyewitness testimony offer arbitrators helpful guidelines for such analysis.

An arbitrator must be aware of the following:

1. The most confident witness is not necessarily the most accurate.

2. Demeanor alone cannot reveal that a witness is lying.

3. Biases because of race, sex, or ethnic stereotyping must be eliminated.

4. The occupation or social class of a witness does not guarantee veracity.

In addition, studies indicate the following regarding the ability of a witness to recall information:

1. The more often and the longer an observer sees an event, the more accurate the recall. This factor must be weighed against the possibility that the observer’s familiarity with a situation causes the person to see what he or she expects to see from past experience.

2. Witnesses are not very accurate in estimating the duration of an event or the height, distance, or speed relevant to an event. The more emotionally charged the event, the less accurate the recall.

3. A witness’s personal biases may cloud both the memory and the perception of an event.

4. Memory dims as time passes, and “after-acquired” information becomes incorporated into this memory.

Presenting Documents, Photographs, and Videos

Most arbitration cases provide for the presentation of essential documents. Most important, of course, are those sections of the collective bargaining agreement that have some bearing on the grievance. Other documentation might include records of settled grievances, jointly signed memoranda, official minutes of contract negotiation meetings, personnel records, office reports, and organizational information. Documentary evidence is usually presented to the arbitrator, with a copy made available to the other party, but it is also explained orally to emphasize its importance.
 Photographs and videos as well as written documents can provide excellent evidence. In fact, experienced arbitrators encourage the use of visual evidence that can be worth “a thousand words” in understanding a dispute. Visual aids should be carefully identified with date, location, and the identification of the key persons involved.

Examination of Witnesses

Each party depends on the direct examination of its own witnesses during an arbitration hearing. The witness is identified and qualified as an authority on the facts to which he or she will testify and is generally permitted to tell his or her story without interruptions and without the extensive use of leading questions as in legal cases. The witness in an arbitration proceeding is rarely cut off, and some arbitrators even ask the witness whether he or she wants to add anything to the testimony as relevant to the case. Arbitrators generally uphold the right of cross-examination of witnesses but not as strongly as the courts. The arbitrator also does not usually limit the rights of parties to call witnesses from the other side for cross-examination. However, opinion is split concerning the right of the company to call the grievant as a witness. One side believes that the application of the privilege against self-incrimination should apply in arbitration proceedings, even though there is no applicable constitutional privilege. The opposing view is that the privilege against self-incrimination in the field of criminal law is not present in grievance cases.


Before the hearing is closed by the arbitrator, both sides are given equal time for closing statements. This is the last chance for each side to convince the arbitrator and to refute all the other side’s arguments. Each side can summarize the situation and emphasize relevant facts and issues.

Arbitrator’s Award and Opinion

The arbitrator’s award is the arbitrator’s decision in the grievance case. Awards are usually short, presented in written format, and signed by the arbitrator. Even if an oral award is rendered, the arbitrator usually produces a written award later. Awards usually include the arbitrator’s decision on each remedy sought by the party filing the grievance.

The arbitrator also often presents a written 
arbitrator’s opinion
 stating the reasons for the decision. This opinion is separate from the award and clearly indicates where the opinion ends and the award begins. It is generally felt that a well-reasoned opinion can contribute greatly to the acceptance of the award. The Supreme Court has emphasized the need for arbitrator opinions and encouraged their use. Such opinions should be solidly based on the contract’s terms, answer all the questions raised in the arbitration without raising new questions, and address all the arguments raised in the hearing, especially those of the losing party.

Arbitrator’s Opinion

An arbitrator’s written statement discussing the reasons for the decision in the case.

Case Preparation

When a grievance has reached the point of arbitration, both parties have probably gone through several steps of discussion in negotiations to resolve the issue. The issues disputed by the parties usually have been fairly well defined by the time the case reaches arbitration. To prepare the case for arbitration, the American Arbitration Association recommends the following steps in hearing preparation:

1. Study the original statement of the grievance and review its history through every step of the grievance machinery.

2. Carefully examine the initiating grievance paper (submission or demand) to help determine the arbitrator’s role. It might be found, for instance, that although the original grievance contains many elements, the arbitrator, under the contract, is restricted to resolving only certain aspects.

3. Review the collective bargaining agreement from beginning to end. Often clauses that at first glance seem to be unrelated to the grievance are found to have some bearing.

4. Assemble all necessary documents and papers at the hearing. When feasible, make postdated copies for the arbitrator and the other party. If some of the documents are in the possession of the other party, ask in advance that they be brought to the arbitration. Under some arbitration laws, the arbitrator has the authority to subpoena documents and witnesses if they cannot be made available in any other way.

5. If you think the arbitrator should visit the plant or job site for on-the-spot investigation, make plans in advance. The arbitrator should be accompanied by representatives of both parties.

6. Interview all witnesses. They should certainly understand the whole case and particularly the importance of their own testimony.

7. Make a written summary of each proposed witness’s testimony. This summary is useful as a checklist at the hearing to make sure nothing is overlooked.

8. Study the other side of the case. Be prepared to answer the opposing evidence and arguments.

9. Discuss your outline of the case with others in your organization. Another’s viewpoint often discloses weak areas or previously overlooked details.

10. Read as many articles and published awards as you can on the general subject matter and dispute. Although awards by other arbitrators or other parties have no binding present value, they may help clarify the thinking of parties and arbitrators alike.

Decision Criteria

In surveys conducted by the National Academy of Arbitrators, some interesting facts on how arbitrators decide cases were analyzed. The major criteria used by arbitrators did not change over the 12-year period. The following three factors were used most by arbitrators in both groups:

1. Labor contract language. If the labor agreement provides clear and specific directives, obviously this is the first factor that arbitrators use.

2. Past practice. In the absence of clear contract language, arbitrators rely on the parties’ past practice to decide.

3. Fairness. Arbitrators felt some latitude to decide an issue in a fair and reasonable way regardless of contract language and past practices.

The next five factors were not used by arbitrators in the same order, but they were used often:

1. Industry practice. Even if the parties have no past practice in a particular area, the industry may have some consistent approach to an issue that an arbitrator can use.

2. Other arbitration awards. Precedent does not bind arbitrators, but they do often review other arbitrator awards for guidance.

3. Future labor relations. Occasionally an arbitrator decides an issue on what he or she believes will further the labor–management relationship.

4. State or federal law. If relevant, adherence to or violation of state or federal law determines the outcome of arbitration.

5. Social mores and customs. Seldom is an arbitration award decided on the basis of customs outside the workplace.

As a counterweight to the findings on how arbitrators decide cases, a New York State Bar Association survey of labor and management attorneys found considerable criticism of some arbitrators’ styles. Three-fourths of the 345 respondents felt that arbitrators should not consider outside factors in deciding a case. Such factors as the political fallout of a decision, a possible strike, or alleged abuse of power were not appropriate considerations. The respondents also believed that an arbitrator should not help one side even if that side has poor representation at the arbitration hearing.
 The critical importance of addressing only the precise issue(s) in a dispute cannot be overstated. The arbitrator must avoid obiter dictum—remarks irrelevant to the decision—and confine the opinion and award to the case brought to arbitration.

just cause

Although both labor and management strive to produce a contract that results in as few disagreements as possible, contractual disputes do arise. Some of these, of course, end up in arbitration after other avenues for resolution have been explored. Historically, certain contractual issues seem to develop an agreed-on solution mechanism that eventually enables both parties to resolve their dispute before arbitration is needed. However, many issues simply cannot be easily resolved with any contractual language and therefore must go to arbitration for final resolution. 
Table 12-2
 lists typical contract issues in arbitration with the Federal Mediation and Conciliation Services’

Table 12-2

Arbitration Issues

Source: Federal Mediation and Conciliation Service, Sixty-First Annual Report (Washington, DC: Author, 2009), pp. 9–10. Available at http://www.fmcs.gov. Accessed September 5, 2010.


Percentage of Cases


Percentage of Cases

Total Number of Issues





General Issues










Promotion and upgrading



Layoff bumping and recall



Other seniority



Working conditions






Management rights



Scheduling of work



Work assignments



Economic Wage Rates and Pay Issues





Wage issues



Overtime pay



Fringe Benefits Issues





Health and welfare






Other fringe issues



Discharge and Disciplinary Issues





Technical Job Issues





Job posting and bidding



Job evaluation



Job classification



Scope of Agreement








Jurisdictional disputes



Arbitrability of Grievances





All Other





Office of Arbitration Services. The most common issue was discipline and discharge—which often focuses on 
just cause
, a critical although vague concept in labor relations.

Just cause

Sufficient or proper reasons for which management has the right to discipline or discharge employees.

Most collective bargaining agreements provide that management has the right to discipline or discharge employees for just cause. Arbitrator Clarence R. Deitsch noted the importance of just cause provisions in agreements: “Protection from arbitrary and capricious discipline has remained the rock-solid foundation upon which all other negotiated benefits have been based.”
 Thus, he reasoned, bargaining unit members’ negotiated wages, benefits, and working conditions are at risk unless the labor contract contains a provision requiring that employees can only lose them for a good, proper, or just cause—or simply a good reason. In addition, Deitsch has judged cases in recent years in which employers have pressed for an “end run” around just cause clauses by arguing that an employee under a seniority clause should not only lose seniority but employment as well. This most commonly occurs when an employee “walks away” from the job or is absent without notification for three consecutive working days.

The equal treatment of all employees who may violate a work rule is a critical factor in determining “just cause” for employee discipline. For example, all employees who do not wear required safety goggles on the job should receive the same discipline. Source: Al Goldis/AP Images.

CASE12-2 Just Cause at Ball-Icon

A 20-year maintenance electrician employed by Ball-Icon Glass Packaging Corporation was discharged after he physically attacked his supervisor, who allegedly had pushed the employee and slapped his face while giving him a new work assignment. Several coworkers prevented the employee from attempting to throw the supervisor over a catwalk railing (the employee and supervisor were on a catwalk approximately 30 feet from floor level).

During arbitration, the supervisor alleged that the electrician previously had threatened to beat him up and also had threatened to kill him. The current plant manager testified that there were morale problems between the supervisor and his employees. The former plant manager testified that the electrician had complained about his supervisor several times and on one occasion had said, “If things don’t change, somebody is going to get hurt.”

The company contended that the discharge should be upheld because the electrician assaulted his supervisor, who could have been seriously injured or killed. “No employee has the right to physically assault his supervisor with the intent to do serious bodily harm or cause death to him,” the company argued.

The union’s position was that the electrician was provoked. The supervisor had systematically harassed the electrician over the past four years, the union contended, and the company’s inability to control the situation after it was brought to management’s attention several times “puts the responsibility squarely on the company’s shoulders.”


Arbitrator Marlin Volz ruled that, although fighting with a supervisor is a serious disciplinary offense, the manner in which the supervisor assigned the work to the electrician had triggered the offense. Arbitrator Volz noted several factors in the employee’s favor: an exceptionally good work record for 20 years, no prior disciplinary offenses, three consecutive years of perfect attendance, and no record of difficulties getting along with other supervisors.

Volz ruled that Ball-Icon did not have sufficient just cause to discharge the electrician and restored the electrician to his job with back pay.

Source: Adapted from Ball-Icon Glass Packaging Corporation, 98 LA 1.

Although most labor and management negotiators can agree on the general concept, specifying exactly what constitutes just cause appears impossible. Some contracts specify the exact grounds that constitute just cause and usually include other less specific provisions that are open to dispute. The inability to specify exactly which employee offenses constitute just cause is a major reason why employee discipline and discharge procedures continue to be one of the most frequently arbitrated contractual issues.
 The overwhelming majority of discipline cases also involve disagreement over the concept of just cause. Case 12-2 presents an unusual set of circumstances leading to an employee discharge later found to be unjust.

An example of the just cause provisions appears in the agreement between the National Conference of Brewery and Soft Drink Workers and Teamsters Local No. 745 and the Jos. Schlitz Brewing Company, Longview, Texas:

Article V

Section 1

The right of the company to discharge, suspend, or otherwise discipline in a fair and impartial manner for just and sufficient cause is hereby acknowledged. Whenever employees are discharged, suspended, or otherwise disciplined, the union and the employees shall promptly be notified in writing of such discharge, suspension, or other disciplinary action and the reason therefore. No discipline, written notice of which has not been given to the union and the employee, nor any discipline which has been given more than twelve months prior to the current act, shall be considered by the company in any subsequent discharge, suspension, or other disciplinary action.

Section 2

If the union is dissatisfied with the discharge, suspension, or other disciplinary action, the questions as to whether the employee was properly discharged, suspended, or otherwise disciplined shall, upon request of the union, be reviewed in accordance with the grievance procedure set forth.

Seven Tests of Just Cause for Discipline

In employee discipline and discharge cases arbitrators commonly apply the just cause standard in deciding the case. While the particular facts and circumstances of each case are important for the arbitrator to determine if management acted fairly, many arbitrators apply the “seven tests of just cause for discipline” developed by arbitrator Adolph M. Koven in deciding a case:

1. Adequate warning. Is the employee given adequate, oral or printed, warning as to the consequences of his conduct? Employees should be warned by the employer as to punishments either in the contract, handbook, or other means in disciplinary cases. Certain conducts such as insubordination, drunkenness, or stealing are considered so serious that employees are expected to know they will be punishable. Was the rule reasonably related to efficient and safe operation of the organization?

2. Prior investigation. Did management investigate the case before administering the discipline? Thorough investigation should have normally been made before the decision to discipline. When immediate action is required, the employee should be suspended pending investigation with the understanding that he or she will be returned to the job and paid for time lost if found not guilty.

3. Evidence. Did the investigation produce substantial evidence or proof of guilt? It is not required that evidence be conclusive or beyond reasonable doubt, except when the misconduct is of such a criminal nature that it seriously impairs the chances for future employment of the person accused of wrongdoing.

4. Equal treatment. Were all employees judged by the same standards, with rules applied equally? If past enforcement was lax, management should not suddenly begin to crack down without a new warning. The same penalty, however, may not be always given because it may be a second offense, or other factors may logically suggest a different punishment.

5. Reasonable penalty. Was the penalty reasonably related to the seriousness of the offense and the past record of the employee? The level of the offense should be related to the level of the penalty, and the employee’s past record should be taken under consideration.

6. Rule of reason. Was the rule or order reasonably related to efficient and safe operations? Even in the absence of specific provisions, a collective bargaining agreement protects employees against unjust discipline. Employees may reasonably challenge any company procedure that threatens to deprive employees of their negotiated rights.

7. Internal consistency. Was management enforcement of the rule or procedure consistent? The company should not selectively enforce codes of conduct against certain employees. Enforcement should be fair and objective. An arbitrator carefully reviews the past practice of management in similar cases.

The more common remedies used by arbitrators in overturning management actions in discipline and discharge cases often include a make whole remedy such as reinstatement with back pay, without back pay, or with partial back pay, with other rights and privileges remaining unimpaired; commuting the discharge to suspension for a specified period of time or further reducing the penalty to only a reprimand or a warning; and reversing management’s assessment of suspension because the arbitrator believes the penalty is too severe. Back pay is usually ordered consistent with the elimination of suspension.
 Most arbitrators apply accepted common law with contracts not specifying just cause, which usually means that management action is subjected to tests of prior standards and procedural requirements. If the action meets both criteria, it will generally be found to be a valid prerogative of management.

Case 12-3 describes a situation in which an employee was discharged because his absences placed him in the “worst 2 percent” of all employees and the arbitrator decided to reinstate the employee with back pay.

CASE12-3 Absenteeism at Weber Aircraft

Weber Aircraft’s labor agreement contains a no-fault attendance policy that specifies that after 80 hours of absences, an employee is subject to discharge. Vacation time, approved medical leaves, special situation absences, or holidays are not counted against the employee. On February 26, 1992, grievant A received a written notice that his 1990 and 1991 absences placed him “in the worst 2 percent of all employees in the entire plant with respect to attendance and that a failure to maintain an acceptable attendance may result in discharge without any additional warnings.” The labor agreement also specifies that an employee is to be notified when 64 of the allowed 80 hours of absences are used.

Beginning in 1990, grievant A experienced heart problems and high blood pressure, which occasioned considerable absence from work during 1990 and 1991 while on approved medical leave. After these absences, grievant A received the February 26, 1992, warning letter. On March 31, 1992, grievant A was granted a medical leave of absence relating to a cyst problem. Grievant A had a cyst removed from his leg and originally believed that this procedure would not result in any loss of work. However, the stitches broke open, and A had to seek and obtain medical leave again. Grievant A’s hour bank was not charged for the approved medical leave relating to the cyst problem. Beginning in June 1992, Grievant A experienced considerable discomfort and symptoms (blood in his urine) related to a prostate condition. He continued to work with this discomfort until he left work at approximately 10:30 a.m. on June 15, 1992, to visit a doctor. A’s shift began at 7 a.m., and he had obtained approval from his supervisor to leave work. His doctor advised him to take off work until June 22, 1992. On the morning of June 16, 1992, A’s wife (also a company employee) took a slip signed by A’s doctor to the plant nurse, who advised that A should apply for medical leave. The nurse advised A’s wife that he probably would not be granted a second medical leave but the company would charge vacation time for the medical leave and A would not be charged for an absence. On June 17, 1992, A received a telephone call from his supervisor advising that his medical leave had not been approved, his allowable absence hours were exhausted, and he was discharged. The company argued that it could not operate efficiently without the assurance that employees, within reason, will report to work. Numerous arbitral decisions were cited by the company in which an employer has the general right to discharge an employee for chronic excessive absenteeism.


Arbitrator Daniel Jennings ruled that the employer was not justified in discharging A because his work record reflected “genuine hard luck and real illnesses” rather than

Tips from the Experts


What are the three most common violations by employers of the “just cause” provision of a collective bargaining agreement?

1. Assuming that the company’s rule-making authority abolished the contractual obligation to observe just cause in imposing discipline. It does not necessarily follow that because a unilaterally promulgated rule is reasonable on its face and uniformly applied that all the just cause requirements have been met and the penalty is automatically justified.

2. Failing to observe an employee’s Weingarten rights. Whenever an employee is summoned to an interview with management that he or she reasonably believes is likely to result in discipline, he or she is entitled to union representation if a request is made.

3. Failing to afford the employee procedural due process. This action would include such elements as giving adequate notice of a rule, conducting an adequate and thorough investigation before imposing discipline, and imposing discipline for the purpose of correcting conduct and not punishing.

What are the three most common errors unions make in challenging a “just cause” discharge?

1. Failing to screen the facts and circumstances or to assess properly the company’s case. Before deciding to proceed with the grievance, the union needs to be thorough in its investigation and assess the possibility of losing or setting a harmful precedent.

2. Failing to offer successful post-discharge evidence of rehabilitation. In cases involving discharge for drug and alcohol use, a union can demonstrate to the arbitrator the rehabilitation of the employee discharged.

3. Relying on uncorroborated hearsay evidence or bad precedents. A union should carefully screen its evidence for corroboration and its precedents when citing prior arbitration awards to make sure they support the union’s position.

frequently recurring illnesses that would indicate a sickly state that might be permanent. Arbitrator Jennings noted (1) that A’s problems (high blood pressure, cyst, and prostate problems) were not permanent and that no evidence was introduced to suggest the grievant suffered from an illness that would prevent him from returning to work on a regular basis; (2) that although the company had warned A on February 26, 1992, it had failed to discipline him for subsequent illnesses or to warn him that his employment was in jeopardy; in fact, the company had granted a medical leave for the period March 25, 1992, through April 6, 1992; (3) that the company had failed to notify A that he had expended 48 hours of his allowable 80 absence hours; and (4) that the company had failed to honor its agent, the plant nurse, who had given assurances that A’s absences since June 15, 1992, would not be counted against him.

The award of arbitrator Jennings was to uphold A’s grievance; A was reinstated and received back pay.

Source: Adapted from Weber Aircraft, 100 LA 417.

Arbitration Issues in the Public Sector

Interest Arbitration

In the public sector, interest arbitration is often compulsory, that is, required by law, which echoes the rationale of preventing strikes that harm the public interest. At least 20 states and the federal government deny government employees the right to strike and instead require interest arbitration. These compulsory arbitration laws are especially prevalent among occupations deemed essential, such as police officers, firefighters, and prison guards. Legislation that allows public sector collective bargaining but prohibits strikes often details the procedures available to resolve an impasse. Mediation is provided in almost all states with collective bargaining in the public sector. As with the private sector, the mediator has no independent

In the public sector, workers essential to serve the public often are denied the right to strike, by law, and therefore the laws also require the use of interest arbitration to settle contract negotiations that go to impasse. Source: Glynnis Jones/ ShutterStock.

authority but uses acquired skills to bring the parties back together. It has been suggested that the mediator represent the public’s interest at the bargaining table. Such a role does not facilitate resolution of a dispute.

Fact-finding and advisory arbitration can be far more successful in the public sector than the private sector because of political pressures. Under fact-finding and advisory arbitration, an unbiased third party examines the collective bargaining impasse and issues findings and recommendations. The findings may move the process by simply eliminating the distrust a party feels for the other party’s facts or figures. Reasonable recommendations may also pressure a party to accept an offer that otherwise would not have been considered.

Interest arbitration allows a panel to make a final and binding decision on a negotiation dispute and has been used in the public sector to resolve impasses. However, the legality of allowing a third party to set the terms of the contract has been questioned in light of the sovereignty doctrine discussed in 
Chapter 1
 The use of a compulsory mechanism such as final and binding interest arbitration seems incompatible with collective bargaining. A fundamental tenet of American industrial relations is that the bargaining outcome be determined by the parties to the greatest extent possible. Interest arbitration violates that tenet by substituting a third party’s decision for that of the negotiating parties. Interest arbitration can become a substitute for the arduous demands of bargaining and can discourage the concessions so necessary to negotiations.
 Furthermore, a third party’s decision removes the inherent authority of public officials to determine policies, in this case, concerning public employment issues.

Rights Arbitration

Rights arbitration in the public sector is treated much like the private sector as shown in Case 12-4. As in Case 12-4, the authority of the arbitrator in rights arbitration is limited by the terms and conditions of the collective bargaining agreement. If a public agency agrees to arbitrate employment decisions using the “just cause” standard, then the arbitrator generally has the authority to reinstate a public employee if that standard is violated. However, courts have overturned an arbitrator’s decision to reinstate an employee because the arbitrator felt the discipline was too severe stating, “If an arbitrator finds that one of the enumerated grounds for dismissal has been proved, the arbitrator may not substitute his judgment of what the penalty should be for that of the school district.”

CASE12-4 Public Safety and Random Drug Tests

Oklahoma City, Oklahoma (“City”), in its collective bargaining agreement (“CBA”) with the American Federation of State, County and Municipal Employees (“Union”), required employees with Commercial Driver’s Licenses (CDLs) to submit to random drug testing pursuant to Federal Statutes and the U.S. Department of Transportation rules for public employers. Employees who test positive for drugs or alcohol are subject to “suspension, demotion, or termination … determined based on the employee’s total work record, including but not limited to, any prior drug or alcohol problems.” The CBA’s Drug Policy also included an Employee Assistance Program to which employees could be required to participate in as a condition of continued employment.

The Grievant had been employed by the City for 19 years and had an excellent work record. As a driver in the Street and Drainage Maintenance Division of the Public Works Department, he was required to have a CDL and to submit to random drug tests. In May 2001, he was selected for a random test, for the fourth time in one and a half years, and tested positive for marijuana. Following a predetermination hearing in which the grievant offered no defense to the results of the test, the City discharged the Grievant. The Union appealed the City’s action, and an arbitration hearing was held.

The City contended that the grievant was required to have a CDL, the random drug-testing policy for CDL drivers was valid, and the grievant tested positive for marijuana use. The grievant did not challenge the test at the time or avail himself of his right to have the sample tested by a different lab. The City defended its decision to dismiss the grievant as an appropriate act because it cannot tolerate the abuse of controlled substances that represents a threat to public safety and its “accountability to its citizens.” The City contended that its decision in this case to dismiss the grievant rather than impose a lesser discipline was after due consideration of the grievant’s “total work record.” The relevant “work record” for the City to consider, according to the testimony of the city officials, was whether the offending employee was or was not required to have a CDL. In other words, nothing in the grievant’s 19 years of service was relevant to the City’s determination other than the CDL requirement. The City maintained that since 1998 there was a City rule that employees with CDLs who test positive for drug use be dismissed. Therefore, the grievant was not treated differently than other employees. Finally, the City argued that unless the City has violated a specific provision of the CBA or abused its discretion, the Arbitrator should not substitute his decision for the City’s as to the proper discipline for a public employee for failing a drug test.

The Union contended that the City’s random drug-testing procedures were suspect because the grievant was one of 500 employees subject to testing, and yet he was tested four times in one and a half years. More importantly, the drug test did not indicate that the grievant was impaired or under the influence of drugs while at work. The Union further contended that the discharge did not meet the “just cause” test because the City failed to follow progressive discipline and treated the grievant differently from other City employees. The Union presented the Arbitrator with proof that of the 48 City employees with CDLs who had tested positively for drugs in the preceding three years, 13 were demoted to nondriving positions and not discharged. Finally, the Union argued that the City violated the CBA because it did not consider the Grievant’s “total work record” of 19 years of exemplary performance but only considered the fact that the grievant was required to have a CDL for his position.

The City countered that its decision to demote other employees for the same offense was irrelevant in that some of the demotions were necessary because the procedures followed in those cases were flawed and would not have withstood a challenge by the offending employees. The City noted that even if it had decided that demotion was proper in this case, there was no funded nondriver position available for the grievant.


Arbitrator Dr. Daniel F. Jennings declined to take a position on the issues raised by the Union as to the validity of the actual drug test taken by the grievant as there was insufficient evidence presented at the hearing on the test. The Arbitrator did find that there was sufficient evidence to determine that the City has not always discharged employees with CDLs who test positive for drugs or alcohol; although there was insufficient evidence to determine whether there was disparate treatment in this case because the circumstances of the other incidents were not presented at the hearing.

The Arbitrator then considered whether the City had “just cause” to impose the severest penalty available to it and addressed the City’s contention that the Arbitrator should not substitute his judgment for that of the City in deciding the appropriate punishment. The Arbitrator relied on other arbitration opinions by other arbitrators as justification for overturning the disciplining of an employee. One arbitrator ruled: “Taking the supreme penalty against an employee without due consideration for a long unblemished record goes to the very heart of ‘just cause.’” While another held, “[M]ost arbitrators exercise the right to change or modify a penalty if it is found to be improper or too severe, … This right is deemed to be inherent in the arbitrator’s power to discipline and in his authority to finally settle and adjust the dispute before him.”

Arbitrator Jennings found that the grievant had an excellent work record for 19 years, and the City, in imposing the discipline, should have considered it. Therefore, he held that the City lacked “just cause” to terminate the grievant and ordered that he be reinstated in a nondriving position at the same pay as an Equipment Operator I, even if such a position had to be created for him. He also awarded the grievant back pay, less a two-month suspension, which the Arbitrator deemed the appropriate penalty for the grievant in this case.

Source: City of Oklahoma City, 116 LA 1117.


The arbitration process has been developed and refined over many years. The selection of an arbitrator or board of arbitrators is generally specified in the labor agreement. The hearing procedure, however, which is not bound by legal precedent, is quite flexible and subject to the arbitrator’s discretion. The courts have generally left the questions of arbitrability and case decisions to arbitrators.

A great variety of important and complex issues are referred to arbitration. The issue of just cause for employee discipline or discharge is difficult to define within the contract and in most cases involves emotional situations. Drug testing for substance abuse presents unique problems for an arbitrator to resolve. Seniority and absenteeism are deceptively simple yet important contractual issues. Disagreements over incompetence, holiday pay, and management rights are also common arbitration subjects.

In recent years the number of nonunion employees covered by employment arbitration agreements has rapidly increased until the number has exceeded the number of employees who have the right to arbitration under collective bargaining agreements. Thus, the use of arbitration and not litigation to settle employment disputes has become commonplace in the nonunion sector, as it has been in the unionized sector for decades.

Case Studies Case Study 12-1 Drug and Alcohol Testing

The company is an insulation subcontractor that performs maintenance work for duPont. For several decades, the company had a collective bargaining agreement with a union that included employees who were sent to a duPont plant for maintenance work. The contract in effect between the company and the union had no reference to a drug-testing or substance abuse program. Before 1986, the company had never required its employees to submit to drug testing. In 1986, however, the company received a letter from duPont stating that duPont was developing a substance abuse policy and requiring its subcontractors to develop a similar policy to include testing procedures.

The company instituted a drug program similar to duPont’s and sent it to the union for its information. The company notified the union that it was willing to meet to discuss the plan. At the meeting, the union met not only with its company but also with representatives from duPont concerning the drug program. The written policy stated that “the use, possession of, being under influence of, or the presence in the person’s system of prohibitive drugs and unauthorized alcoholic beverages is prohibited on any company work location.” Under the policy, all new employees of the company were required to sign consent forms for testing as a condition of employment. The company implemented the drug-testing policy but only as it related to the duPont plant. The union instructed its members to sign the forms consenting to drug testing with the statement that they were signing under duress.

The grievant in this case was referred to the duPont plant by the company for its maintenance work in April 1987. The employee, along with four other fellow employees, submitted to a urine test. The grievant’s test was sent to the screening facility, and the initial test resulted in a positive finding of marijuana. The chain of custody for the test was not established, and the level of marijuana found in the test was extremely low. Nonetheless, the grievant was dismissed. The position of the company was that duPont made it mandatory for subcontractors to adopt minimum requirements for drug testing and that such minimum requirements for new employees were not unreasonable. The company further contended that, although it did not agree to negotiate with the union, the company gave the union ample time to study the program’s policy.

The union believed that the company’s policy was really duPont’s policy and was adopted despite the union’s disapproval solely because duPont had insisted on it. The union contended that the company made no effort to assure the union that the policy or the enforcement of the policy was reasonable, fair, or accurate. The cutoff level for a positive test result was unreasonable because it did not indicate either on-the-job impairment or consistent use of marijuana. The company did not examine the grievant’s prior work record or the fact that there was no prior history or evidence of drug impairment on the job. In fact, the company could not even prove that the specimen tested was the grievant’s. The union further contended that even if the results of the test proved the employee was using marijuana, on the basis of her past work history, she should be given an opportunity to correct her conduct and be treated in a fair and consistent way. Discharge was clearly not appropriate.

Source: Adapted from Young Insulation Group, 90 LA 341.


1. Did the company have a legitimate business reason for instituting a drug-testing program during the term of a contract?

2. Did the company conduct the drug-testing program properly?

3. As the arbitrator, would you reverse or uphold the dismissal of the grievant? Explain your answer.

Case Study 12-2 Arbitrability

In September 1981, the union grieved the company’s announced intention to lay off 79 employees from its Chicago location. The union contended there was no lack of work at that site, and under the contract the company can lay off from the site only when there is a lack of work. Despite the grievance, the company laid off the employees and transferred approximately 80 employees from other locations to the Chicago location.

The union demanded that the dispute be arbitrated, and the company refused. The company claimed that the “management functions” clause of the contract gives it the prerogative to determine “lack of work” and that as long as it lays off in the order prescribed by the contract, there is nothing to arbitrate. The union contended that certain provisions of the contract modified the “management functions” clause and requested the court to order arbitration.

The lower court found there were arguable issues to arbitrate and ordered the parties to arbitrate the arbitrability issue; in other words, an arbitrator would decide whether she had jurisdiction under the contract of the issue in dispute.

Before this could happen, the company appealed the lower court’s ruling. The company argued that the lower court erred in not simply deciding whether the dispute was subject to arbitration. It contended that under the Steelworkers Trilogy cases, the courts, not the arbitrator, must decide whether the issue is subject to arbitration. The company proposed the following points:

1. Arbitration is a matter of contract, and parties cannot be forced to submit issues to arbitration that they have not agreed to submit.

2. Unless the contract clearly provides otherwise, arbitrability is a judicial determination.

3. In deciding arbitrability, the court is not to decide on the merits of the claim.

4. Where the contract has an arbitration clause, the presumption is for arbitrability.

The lower court pointed out, however, that the exception to the rule is found when deciding the arbitrability of the case would also involve the court in interpreting the substantive provisions of the labor agreement.

The union’s position was that the layoffs were subject to arbitration, and they pointed to sections of the labor agreement to prove this. The “management functions” clause, the “adjustment to the working force” clause, and the “arbitration” clause must be read together and interpreted. The court could not decide arbitrability in this case without interpreting these sections and therefore deciding the substantive issue. It is for an arbitrator to decide the substantive issues.

Source: Adapted from Communication Workers of America v. Western Electric, 751 F.2d 203.


1. Should the court decide whether there is an issue to arbitrate, or should an arbitrator? Why?

2. Give the reasons you think arbitration is a superior resolution process to court action in contract disputes.

3. Give the reasons you think a court action is a superior resolution process to arbitration in contract disputes.

 You be the Arbitrator Can a “Just Cause” Standard Be Satisfied without Proving Fault?



A. The employer may establish and publish reasonable rules and regulations governing the conduct of employees, as are necessary for the proper operation of the facilities and the proper care of residents.

1. Any discipline imposed for infractions of these rules and regulations will be corrective and progressive in nature with the objective of helping the employee improve….

D. Should it be determined by the Home, or by the arbitrator appointed in accordance with the arbitration procedure, that the employee has been suspended or discharged unjustly, the Home shall reinstate the employee and pay full compensation at the regular rate of pay for the time lost.


The employer is a nursing home in the state of Minnesota. The state of Minnesota has implemented a policy for the return of unused Schedule III medications from nursing homes to pharmacies, a protocol to ensure the integrity of the drug being returned. When drugs for one reason or another are left over at the end of a one-week cycle at the employer’s nursing home, they are returned to the dispensing pharmacies in accordance with that protocol.

During the Thursday to Friday night shift, the four drug carts, one from each wing of the nursing home, are collected by the charge nurse and (at least until recently, with the assistance of a Trained Medication Aide) the drug trays are then sorted and the amounts being returned recorded and then placed in large blue canvas transfer bags for return to the dispensing pharmacies. Prior to their return to the pharmacies, the bags are stored in the 400-wing “med room.” The room contains a locked drug cabinet for storing Schedule II medications and also has a lock on the door to the room. The nursing home stores the unlocked bags for pickup in the locked med room.

It came to the attention of the employer that there was a discrepancy in the records concerning how much medication had been returned to the pharmacies from one of the grievant’s shifts. The grievant was a charge nurse on the graveyard shift. An investigation was initiated. Witnesses were questioned regarding access to keys to the meds room. Testimony indicated that the investigation concluded that each Licensed Professional Nurse charge nurse had a key, as did the four LPNs on the day shift and the Registered Nurses and DK, the nurse secretary; there was no inventory of the total number of keys, nor was there any sort of “sign-in/ sign-out” system for the keys. No other conclusion regarding the missing medication was reached. The grievant received a letter from her employer indicating that she was being terminated “due to discrepancy in the amount of medication returned to the pharmacies after the exchange done on the nights you were charge nurse. Records indicate that the number of individual pills documented for return is less than the amount received by the pharmacy.” The grievant appealed her termination.


Can the “just cause” standard, which governs discipline and discharge of employees in the bargaining unit, be satisfied without proving fault on the part of the grievant?

Position of the Parties

The employer contended it had just cause to dismiss the grievant. It did not contend that the grievant took the missing medications or knows who did. Rather, it contends that as charge nurse she had the responsibility to correctly account for and return unused medications, and her failure to do so or to supervise others to do so properly put the nursing home’s license at risk. The employer pointed to the grievant’s job description, which requires her to be licensed and to function under the standards of the nursing profession and in compliance with all the nursing home’s rules and regulations. The employer held the grievant to a “strict liability” theory; that is, if there were discrepancies in the tallies, no matter what the explanation might be for such discrepancies, the grievant was responsible.

The union’s position was that the employer did not have just cause to discharge the grievant. Although the grievant acknowledged that as the nurse in charge of the building at night she had a duty to try to explain any discrepancies in the drug tallies, she testified that it had not been her understanding that her failure to be able to explain the discrepancies was grounds for termination. The discrepancies in the drug count could have been caused by any number of things not under the control of the grievant. There is no meaningful difference between “for cause,” “just cause,” “discharged unjustly,” and similar such phrases. “Just cause” references and provisions have evolved in the workplace and in arbitration decisions over time to the point of having certain characteristics and requirements in common, which are generally applicable to all grievance disputes. As a general proposition, expressions in contracts referring to “just cause” exclude discipline and discharge for mere whim or caprice. They are, obviously, intended to include those things for which employees have traditionally been fired. The employer in this case has disciplined the grievant for something that occurred—discrepancy in drug count—without proving that the grievant did anything wrong. The grievant should be returned to her position.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer or the union have taken to avoid this conflict?

Source: Adapted from Lutheran Care Center, 116 La 1795 (Arb. 2002).

Chapter 13 Comparative Global Industrial Relations

In China a wave of worker strikes and unrest was highlighted by a May 17, 2010, strike. It took place at Honda’s China factories when hundreds of workers walked off their jobs and Honda was forced to close four assembly plants. The strikes were led by a new generation of Chinese workers who demand higher wages and benefits.

Source: AP Images.

Only free men can negotiate, prisoners cannot enter into contracts. Your freedom and mine cannot be separated.

Nelson Mandela (President of South Africa and Civil Rights Leader)

Chapter Outline

13.1. Globalization

13.2. Worldwide Labor Movement

13.3. International Labour Organization

13.4. Anglophone Countries

13.5. European Union Nations

13.6. Far East

Labor News China Labor Unrest at Honda Plants

A new labor movement in China is led by a new generation of young, educated workers who know their rights and are demanding higher wages and better working conditions. The movement is aided by 787 million mobile-phone users and 348 million Internet users who use technology to organize and to learn their rights under a new 2008 national law that guarantees safer working conditions and double pay for overtime. In the past authorities quickly fired labor leaders to settle labor issues, but a very tight labor market and a new generation of workers less tolerant of such actions have changed the labor climate. Instead, according to Harley Seyedin, president of the American Chamber of Commerce in China, “The days of cheap labor are gone!”

On May 17, 2010, the labor unrest in China surfaced when young, mostly women, workers demonstrated and struck several Honda facilities in China. The unrest was triggered by one woman at the Zhongshan plant who was denied entry by a security guard because she wore her identity badge improperly on her shirt. When she complained the guard pushed her to the ground and other employees began demonstrating, which led to a general strike of the 1,700 workers. Management told workers they would forgive them if they returned to work and signed a “no strike” promise. Management also tried hiring replacement workers, but the acute labor shortage in China caused that to fail. The strike lasted for eight days as workers demanded the following:

· Wage increases of 89 percent—to equal the male-dominated Foshan plant

· The right to form their own union, independent of the national union which is forbidden in China

· Changes in policies that do not allow workers to talk while on the job and require them to ask for passes to go to the bathroom.

Because Honda has a “zero inventory” policy, the strike quickly shut down Honda’s other four Chinese factories. The May strike was followed by others in China including one at Atsumitec, a Honda supplier, that resulted in a 45 percent wage increase for workers plus performance bonuses, and another in Zhongshan that idled over 1,000 workers.

The Chinese government eventually brought the parties together to settle the issues. Workers were able to democratically elect 16 representatives to collectively bargain for them, and prominent Chinese labor scholar Professor Chang Kai was brought in to facilitate the talks. On June 4, 2010, the shop stewards and management settled an agreement that provided for substantial gains, including increased wages of 35 percent for permanent workers and 70 percent for trainees, a promise of no reprisals for the union leaders, and new work policies.

Shortly after the Honda strikes, workers at Toyota plants in China also went on strike and secured substantial wage increases. Labor scholars believe that the strikes may begin a new wave of worker unrest in China over poor wages and benefits, subminimum wages paid to trainees, excessive overtime, and the lack of independent labor unions.

Source: Adapted from Keith Bradsher, “A Labor Movement Stirs in China,” The New York Times (June 10, 2010), p. A1; and Dexter Roberts, “A New Labor Movement in China is Born,” Bloomberg Businessweek (June 14–20, 2010), pp. 7–8.

Business conducted on an international scale is commonplace. Its impact on the labor movement, in this country and around the world, is significant. This chapter discusses how the cycle of globalization in the twenty-first century, unlike previous cycles, has resulted in a complex system of worldwide investment, technology, deregulation, and flexible labor markets. These worldwide labor markets have become both competitors with and companions to the U.S. labor movement. A comprehensive review of international labor relations and collective bargaining theories and practices around the world is beyond the scope of this text. However, it is necessary to have a basic understanding of how labor relations developed in representative nations and of the current state of labor relations and collective bargaining around the world. This chapter focuses primarily on industrial relations in Great Britain, Canada, and Australia; on the European Union—Germany, France, and Italy; and on the Far East nations of Japan and China. The International Labour Organization, a common thread for industrial relations in many nations, is also examined within the context of the worldwide labor movement and globalization.


 is the pervasive integration of economies and societies around the world as a result of unprecedented changes in communications, transportation, and computer technology.
 Globalization results in increased competition. For example, the production of automobiles, which for nearly a century was concentrated geographically at a national level, is now done at a global level, with cars that are being assembled from component parts that are produced by suppliers in dozens of countries. The internationalization of production directly affects the collective bargaining environment. With companies easily able to operate in the international arena, not only the actual transfer of an enterprise from one country to another adversely affects unionized employees, but the mere threat of doing so can also significantly change power relations at the bargaining table. In addition, workers bargaining at a national level may find that they have inadequate access to information about the international financial position and corporate plans of their employer or that the employer’s representative has no real decision-making power. In such circumstances, the real content and meaning of collective bargaining can be seriously reduced. One view is that the effective realization of the right to collective bargaining requires that it too be conducted at the international level.
 Some unions and multinational corporations are addressing the need for a more global approach to labor relations by entering into international agreements as outlined in Profile 13-1, International Framework Agreements.


Refers not only to the expansion of international trade in goods and services but also to the degree of interdependence that goes along with the integration of production across national boundaries and the resulting increase in international investment by multinational enterprises.

The term globalization means many things to many people. For the purposes of this text, it refers not only to the expansion of international trade in goods and services but also to the degree of interdependence that goes along with the integration of production across national boundaries and the resulting increase in international investment by multinational enterprises.
 In this section, we examine the components of globalization that have impacted the employer–employee relationship. These components include foreign investments, multinational enterprises, the import and export of goods and services, deregulation, and the technological revolution.

Foreign Direct Investment

International economic interdependence has been driven over the past 30 years by a dramatic growth of 
foreign direct investment (FDI) .
 FDI is a category of international investment made by a direct investor (a resident entity in one country) in a direct investment enterprise (an enterprise resident in another country) with the objective of establishing a lasting interest. Until the 1970s, international economic activity was mostly in the form of exchange of goods and services between nation-states where products were made in one country and then transported to another. Since that time, companies have moved production to other countries, resulting in a significant increase in the movement of capital in the global economy.

Multinational Enterprises

This trend toward foreign direct investment has a concomitant increase in the role multinational enterprises play in the world economy. Because an important share of the investment and world trade takes place within multinational enterprises, their operation affects labor relations around the world. A company is not a 
multinational enterprise
 just because it sells exports overseas; it has to have actually moved part of its operations to another country by investing abroad. Lowering economic barriers between nations opens up enormous new possibilities for multinational companies and the growing number of national businesses connected to them. Parent firms

Multinational enterprise

An entity that operates in more than one nation for a significant portion of its business, that may export products, and that may have actually moved part of its operations to another country by investing abroad. Also called transnationals.

Profile 13-1 International Framework Agreements (IFA)

What do Volkswagen, DaimlerChrysler, Renault, and BMW, all global automotive industry giants, have in common with IKEA, the Swedish furniture company? These international companies have joined dozens of others in entering into International Framework Agreements as explained in this article from the International Metalworkers’ Federation:

International Framework Agreements (IFAs) are negotiated between a transnational company and the trade unions of its workforce at the global level. It is a global instrument with the purpose of ensuring fundamental workers’ rights in all the target company’s locations. Thus, IFAs are negotiated on a global level but implemented locally. Generally, an IFA recognizes the ILO Core Labour Standards. In addition, the company should also agree to offer decent wages and working conditions as well as to provide a safe and hygienic working environment. Furthermore, there is an agreement that suppliers must be persuaded to comply and, finally, the IFA includes trade unions in the implementation. Transnational business operations and a global economy raise issues that go beyond the reach of national legislation. Through IFAs, the ILO’s Core Labour Standards can be guaranteed in all facilities of a transnational company, which is especially helpful in transitional and developing countries, where legislation is sometimes insufficient, poorly enforced, or antiworker. For transnational companies, IFAs can secure good relations with trade unions and contribute to a positive public image. More and more companies increasingly see the need to respond to the growing ethical concerns of consumers and investors. For trade unions, IFAs are a way to promote workers’ rights in the global arena. The arrangement guarantees influence and the possibility of a dialogue that is mutually beneficial. Unlike unilateral Codes of Conduct, IFAs emphasize implementation, which paves the way for actual improvements.

Source: International Metalworkers’ Federation, NewsLetter (January 7, 2003). Available at www.imfmetal.org. Accessed October 1, 2005. Used with permission.

and foreign affiliates of multinational enterprises (MNEs) now account for 25 percent of global output.
Although the main impact of employment is on national/local companies that are subcontractors or otherwise linked to MNEs, total direct employment of foreign employees has been increasing.

Financial Markets

After World War II, a money exchange rate system was put into place to provide a degree of international exchange rate stability. It resulted in the creation of international financial institutions such as the International Monetary Fund (IMF) and the World Bank. The Bretton Woods exchange rate system collapsed in the 1970s, and flexible exchange rates were introduced.
 Many national controls on the movement of investment capital were removed, followed by deregulation of the financial sector. The result has been significant movement of capital around the world, with increased cross-border lending, and development of new and restructured financial institutions.

Over the years, the International Confederation of Free Trade Unions (ICFTU) has sought to introduce new international regulations of those financial processes to dampen speculation and to reduce the risk of large-scale financial collapse. The ICFTU has suggested reform of the IMF and World Bank, so that their programs promote good governance, respect for human rights and fundamental labor standards, increased employment, poverty reduction, and the provision of public services in key areas.

Deregulation and Liberalization

As a result of global, regional, and bilateral trade and investment negotiations, countries have lowered barriers to trade and investment by liberalizing trade quotas, tariffs, and, as discussed earlier, deregulated national capital controls. This deregulation and liberalization trend is worldwide. Major financial institutions, such as the IMF and the World Bank, encourage and facilitate the introduction of free-market-based economic policies in their programs. A broadening of the global market saw some developing countries, particularly in Asia, receive a great deal of investment and support for their exports. With the collapse of the Soviet bloc, many Eastern European countries increased their participation in and exposure to the global market as well.

Developing countries have also moved toward a market economy, many of them under the pressure of the structural adjustment programs of the IMF or the World Bank. Economic reforms often involve privatization of large state-owned enterprises and a reduction of public services. One of the main driving forces responsible for the increase in global trade has been the creation of a framework of intergovernmental trade agreements at global and regional levels, which are covered later in this chapter.

Trade Unions

All the changes brought about by globalization—the restructuring of production through new technology, the opening of financial and labor markets, and deregulation and the liberalization of national laws regarding trade—have allowed organizations to concentrate on their core business and to outsource nonessential functions previously done by in-house workers. Modifications in work organization, spurred by the search for more flexible and responsive work methods, have resulted in more contract and part-time work. In addition, the labor market has been doubled with the entry of China, India, and the former Soviet countries into the world economy.
 These factors are affecting traditional employment relations and the exercise of collective bargaining rights. Flexible work patterns make it more difficult to organize workers; subcontracting arrangements have begun to resemble commercial relationships rather than employer–employee relationships.

Globalization has presented significant challenges to workers and their trade unions:

· Government deregulation has challenged nation-centered systems whose national social and economic policies helped create a degree of social justice and economic equity.

· The international institutions lack a framework in place that can deal effectively with issues of justice and equity.

· Capital is much more mobile than workers, so different forms of business organization and relationships have been created that shift employment and threaten collective bargaining relationships.

· MNEs, which can be rootless, introduce new management methods and sometimes threaten to relocate to countries with lower social or environmental standards and no independent trade unions.

· New forms of work organization have been established such as outsourcing, subcontracting, contract labor, and various other forms of nontraditional employment.

· Competitiveness and flexibility are still the main objectives for most enterprises in the global environment, which put workers into increasingly fierce competition for keeping their jobs, exert pressure on social safety nets, and undermine workers’ rights.

The challenge facing trade unions in the era of globalization is to ensure that structural change and adaptation are achieved without compromising the goals of full employment and social justice.

Worldwide Labor Movement

Industrial Revolution

industrial revolution
 began in England in the early 1800s and developed there and in the United States in similar fashion. In fact, the industrial revolution’s impact on other nations has certain common features regardless of when the industrialization began, although

Industrial revolution

Through invention and innovation, enterprises substituted machinery for human labor and by using new chemical and metallurgical process harnessed new forms of energy to fuel production. This resulted in the emergence of factories with large concentrations of workers in an interdependent production process that required a hierarchy style of management and a clear division of labor.

industrialization was tempered by national experiences and economic influences. The industrial revolution, through invention and innovation, substituted machinery for human labor and by using new chemical and metallurgical process harnessed new forms of energy to fuel production. This resulted in the emergence of factories with large concentrations of workers in an interdependent production process that required a hierarchy style of management and a clear division of labor.

The industrial revolution caused the widespread movement of people from rural to urban areas, as well as immigration from the Old World to the New World as discussed in 
Chapter 1
. In England and in Europe, employment was characterized as a “status” relationship such as tenant farmers and peasants in feudal relationships with landed gentry or apprentices and indentured servants tied to master craftsmen engaged in cottage industries such as weaving or metallurgy. The migration of labor into urban areas to work in mines, mills, and factories changed the labor market from one of “status” between master and servant to one of “contract” between employer and employee. The need for workers, worker mobility, and the increased proportion of people working for wages caused labor to be seen as a commodity, and its purchase and sale became a cost of doing business.

Democratic Revolution

The political revolutions of the late eighteenth century in the United States and in France coincided with the industrial revolution. France’s revolution had a dramatic influence in Europe because France shared its feudal tradition with its neighboring nations, and the impact of a new political and social order anchored with the idea of people governing themselves threatened centuries of tradition.

The transformation of the United States into a democracy was easier because it had no feudal past or rigid patterns of class inequality, with the notable exception of slavery. The growth of democratic ideas and political liberalization in France, as well as Germany, Sweden, Italy, the Austro-Hungarian Empire, and Russia through the nineteenth century, coupled with the development of a middle class through industrialization, led to a demand for industrial democracy. Workers, who were questioning the continuation of the “divine right of kings” in the political arena, began to question the autocracy and denial of basic human rights in the mills and factories.

Capitalist Revolution

The third revolution of the late nineteenth century was the rise of capitalism and the spread of the market economy. Adam Smith, in The Wealth of Nations 
 published in 1776, the same year as the American Declaration of Independence, challenged the mercantile system of economic monopoly by asserting that a market economy would produce national prosperity. Mercantilism is the economic theory that a nation’s prosperity depends on the amount of its capital, represented by bullion, and by the volume at which its exports exceed its imports. A mercantile system of economics requires a protectionist role of government in encouraging exports and discouraging imports, generally through the use of tariffs.

According to Smith, however, a nation’s prosperity relies on its people as a strategic asset for economic development and a source of prosperity through a more productive use of human capital. Smith believed that a market economy, which is characterized by the principles of free trade, competition, and choice, would spur economic development and reduce poverty. Smith explained that by increasing the division of labor, there would be greater productivity and the development of machinery, as well as the development of new skills and trades among workers.
 Smith claimed that if given a free hand, an individual would invest a resource, for example, land or labor, to earn the highest possible return on it. Such self-interest, if allowed to flourish, would drive a nation’s economy toward prosperity. Smith is credited with creating 
 from his market economy philosophy because capitalism is about allowing self-interest, profit making, and market forces to have free play.


A market economy characterized by the principles of free trade, competition and choice, and noninterference by government.

The creation of private property (i.e., private ownership of the means of production and their use for personal profit) was a cornerstone of capitalism and the source of a new labor relationship. Employers paid a group of people—employees—to provide labor in the form of work, and a market for “labor” was created. This labor market was the result of the interplay between the employer’s demand for labor and the worker’s supply of labor. Labor markets could be in geographic areas over which competition for labor took place or within categories of labor such as skilled or unskilled. The wage relation was the negotiation, either formal or informal, over what work labor was willing to perform and what the employer was willing to pay for that work. Wages to the employer represented a cost that affected the enterprise’s production cost and profit. Wages to the employees were a source of income and the means for survival. Capitalists wanted to have labor at the lowest possible price, and workers, the suppliers of labor, wanted the highest possible price. This created the basic conflict of interests between capital and labor. However, because without cooperation nothing would be produced and no wages would be earned, capital and labor in a capitalistic economy have an incentive to cooperate.

The need for collective action and the formation of trade unions came about because when the parties are negotiating their wage relation, they are “equals,” but once the relationship is established, the employer becomes the “boss.” The boss has an interest in regulating how the work is performed to make sure it is efficient and effective. And because the effort expended by labor is to a degree discretionary by the employees, the boss uses various methods and practices to elicit the maximum amount of work from labor, such as providing supervision, granting incentives, or imposing penalties. At the end of the 1800s and in the early 1900s, large numbers of unemployed workers in major industrial nations allowed employers to pay little and treat workers poorly. The outgrowth of this mistreatment in the United Kingdom (U.K.) and Europe, as in the United States, was the rise of collective action, by the creation of trade unions, by the use of worker strikes, and, at times, by violence. Capitalism, although the constant economic theory in U.S. labor relations, competed with other economic theories as the industrial revolution spread. 
Table 13-1
 details such other economic and social theories that influenced the path of other nations’ industrial relations.

Table 13-1

Economic/Social Movements Influencing Global Industrial Relations

Manchester School

The economic theory that agreed with the noninterference maxim of capitalism but without an emphasis on human capital.


The economic theory that a nation’s prosperity relies on a more productive use of human capital and that by increasing the division of labor there would be greater productivity, the development of new machinery and of new skills and trades among workers. A capitalist or market economy is characterized by the principles of free trade, competition, and choice and noninterference by government.


The economic theory that a nation’s prosperity depends on the amount of its capital, represented by bullion, and by the volume at which its exports exceed its imports. A mercantile system of economics requires a protectionist role of government in encouraging exports and discouraging imports, generally through the use of tariffs.


Neoliberalism refers to a political and economic philosophy that deemphasizes or rejects government intervention in the economy, focusing instead on achieving progress and even social justice by encouraging free-market methods and fewer restrictions on business operations and economic development.


Chartism was a short-lived political movement in England based on the demand for voting rights and the political representation of the working class in Parliament. It won support from a wide variety of workers and even from lower-middle-class radicals and was regarded a threat to the established order. In 1842, it engineered a general strike against the proposal of the cotton manufactures to cut wages by 25 percent because of the severe trade depression. The government responded with mass arrests of Chartist leaders, who were put on trial for “levying war against the Queen” and exiled.


The organizers’ pre–World War I strikes were inspired by syndicalism, which advocated mass strikes and rapid trade union recruitment as a means to overcome employers’ actions.

Fabian Society

The Fabians aimed for democratic socialism. Believing that voters could be persuaded of socialism’s justice, they sought to achieve reform by education, stimulating debate through lectures and discussions initiated by democratically accountable and educated professionals. The Fabian Society maintained its independence from the Labour Party, although it helped to create the Labour Representation Committee in 1900. Trade union militancy from 1910 to 1926 and the unemployment climate and depression of the 1930s diminished the attractiveness of Fabian Society, but the seeds for a more political labor movement had been sown.


A broadly based reform movement that reached its height early in the twentieth century. It arose as a response to the vast changes brought by industrialization, the spread of the factory system, and the growth of cities.

Growth of Trade Unions

At their conception, trade unions in the United States, U.K., and Europe were seen as having three roles: (1) their market function was to represent and advance the employment interests of its members through collective bargaining as workplace representatives; (2) their class function was to fight battles for the rights and interests of all workers to increase workers’ status and power in the economic and political systems; and (3) their social function was to improve the overall quality of life of workers, promoting greater social justice, better schools, and health care. In the United States, unions made the choice to focus on just representation in the workplace, whereas in the U.K. and Europe, they tended to embrace all three to some degree, making the history and direction of the industrial relations in Europe all the more complex.

Most governments have displayed one or more of three distinct attitudes in reaction to unionization of workers: suppression, tolerance, and encouragement.
 Early in the development of their industrial economy, most countries worked to suppress unions and the notion of collective bargaining. In Great Britain at the beginning of the industrial revolution, the Combination Acts, passed in 1799 and 1800, made a union of employees illegal as a conspiracy to restrain trade. In France, a 1791 law that forbade employee combinations—ostensibly to prevent any organization from coming between the government and the workers—was actually used to suppress unions. In the late nineteenth and early twentieth centuries, when industrialization reached Germany, Russia, and Japan, these nations passed laws suppressing or banning unions. Some developing countries just emerging into the industrial world have not directly banned unions but have attempted to suppress collective bargaining. The governments of Ghana, Nigeria, and Singapore, for example, supported unions legislatively but limited their authority.

Great Britain and the United States, however, from as early as the 1830s, began to tolerate unions, primarily because unions continued to function despite antiunion attitudes. The ability or desire to keep workers from organizing lost support as these countries experienced economic growth. As representatives of the working masses, unions became powerful political forces that could not be ignored.
 In addition, both nations had budding middle classes that had embraced progressive moral and political agendas, some from a desire to avoid labor unrest that would threaten their newly found prosperity.

Industrial nations fighting World War I, and subsequently World War II, found it necessary to marshal capital and labor for the war effort. Governments found that what “capital” wanted in exchange was money and what labor wanted was collective bargaining. Largely as a result of this need, through law or policy, the United States and Britain mandated collective bargaining, although other countries continued to resist it. As a nation’s economy fluctuates, its attitude toward unions and collective bargaining fluctuate. Governments encourage collective bargaining when it is perceived as having a positive effect on the economy.
 But they discourage it when the economy is struggling. This was the case in the interwar period between the world wars (1919–1938) when there was a massive global economic recession. The Great Depression was by far the largest sustained decline in industrial production and productivity in the century and a half for which economic records had been kept. Its impact was felt throughout the entire industrialized world and with their trading partners in less developed nations. Nations’ individual responses to trade unions during this period are discussed later. As for international response to trade unions, the League of Nations attempted to address the need for stability of labor markets by the creation of the International Labour Organization.

International Labour Organization

The signers of the Treaty of Versailles in 1919, which ended World War I, formed the 
International Labour Organization (ILO)
 as a parallel organization to the League of Nations. The mission of the League was to keep the peace between nations, and the mission of the ILO was to keep the peace within societies threatened by class divisions within countries. Before the war in Europe, the fear that continued worker unrest could lead to increased labor radicalism, support for the Marxist class struggle, and the abolition of capitalism created a labour problem that needed to be addressed.
 A contributing cause for World War I was the imperialistic, territorial, and economic rivalries that had been intensifying from the late nineteenth century, particularly among Germany, France, Great Britain, Russia, and Austria-Hungary. These issues, imperialist and nationalist, seemed to have been moderated by the advance of industrialization and economic prosperity. Many Europeans counted on the deterrent of war’s destructiveness to preserve the peace. But that did not happen.

International Labour Organization (ILO)

Created as a parallel organization to the League of Nations with a mission to keep the peace withing societies threatened by class divisions between capital and labor.

After the war, these nations hoped to address the humanitarian, political, and economic issues that had been prominent prior to and during the war by the creation of the ILO and by adopting labor standards to improve the conditions of workers.
 The humanitarian goal of the ILO was to end the exploitation of workers in industrialized countries; the political goal was to moderate unrest caused by clashes between workers and the owners; and the economic goal was to establish international standards to improve the workplace so that countries that adopted social reforms would still be competitive.

The creation of the ILO was not without difficulties. Samuel Gompers, president of the American Federation of Labor (AFL), served as chair of the drafting committee charged with formulating the special labor clauses for the treaty. Consistent with his AFL philosophy, Gompers advocated an international organization that would foster support for the workers’ right to organize and collective bargaining as the solution to the labor problem, rather than an organization that advocated for political and economic reforms. Many trade unionists and social reformers from Europe believed the ILO had to do more to reform society as well as the workplace if it was to accomplish its purpose of fostering industrial peace. The industrialized countries wanted a set of labor standards that applied to everyone, whereas countries beginning industrialization wanted some leeway to foster their development. There was a question of how

In 1941, President Franklin D. Roosevelt addressed 250 delegates of the International Labour Organization in the East Room of the White House.

Source: © Bettmann/ CORBIS.

colonial territories were going to be affected, and some nations warned they would not join the ILO unless a strong statement condemned racial segregation in participating nations.

A compromise plan proposed by the British gained acceptance.
 To satisfy the European interests, the ILO was housed in Geneva, Switzerland, and its mission included political lobbying to improve employer–worker relations. All nation-states in the League of Nations were automatic members. The United States never joined the League of Nations, so it was not an initial participant in the ILO.

Nine principles written into the ILO Constitution defined its philosophy:

· Labor should not be treated as a commodity.

· Workers have the right to organize.

· Workers should get a reasonable wage to maintain a reasonable standard of living.

· Work should be limited to an 8-hour day or a 48-hour week.

· One day of rest each week.

· No child labor.

· Equal pay for equal work.

· Equitable treatment of immigrants.

· Enforcement of labor laws.

The ILO had a unique 
tripartite organizational structure
 that brought together representatives of not only the participating governments but also employers and workers as equal parties in its governance. The main work of the ILO was to enact international conventions and recommendations regarding labor. Conventions would be submitted for ratification to the nation-states and on ratification would be binding; Recommendations were suggested provisions submitted for nation-states to consider. The first International Labour Conference resulted in six International Labour Conventions covering hours of work, unemployment, maternity protection, night work for women, and the minimum age for young workers. Since that time, the ILO has issued 185 conventions and 195 recommendations.

Tripartite organizational structure

Unique ILO governance structure in which governments, employers, and workers are equal parties.

In 1998, the ILO adopted a Declaration on Fundamental Principles and Rights at Work to ensure that social progress goes hand in hand with economic progress and development. The Declaration commits member states to respect and promote principles and rights in four categories: freedom of association and the effective recognition of the right to collective bargaining, the elimination of forced or compulsory labor, the abolition of child labor, and the elimination of discrimination in employment. A Global Report each year provides a dynamic global picture of the current situation of the principles and rights expressed in the Declaration. The Global Report is an objective view of the global and regional trends on the issues relevant to the Declaration and serves to highlight those areas that require greater attention. In the Global Report “Your Voice at Work,” issued in 2000,
 the ILO focused on collective bargaining and the standards and principles regarding collective bargaining embodied in the ILO Convention 87, “Freedom of Association and Protection of the Right to Organize,” adopted in 1948, and Convention 98, “Right to Organize and Collective Bargaining,” adopted in 1949.

Those conventions endorsed good-faith collective bargaining as a fundamental right of all workers, private and public, except those in the armed services and the police. Some of the overriding principles can be summarized as follows:

· Collective bargaining should be undertaken by independent workers’ organizations not under the control of employers or governments.

· The collective bargaining process should include bargaining over the terms and conditions of employment and the relationship between the parties.

· The agreements reached should be binding on the parties.

· A trade union that represents a majority or high percentage of the workers may enjoy exclusive bargaining rights.

· Conciliation and mediation can be a part of collective bargaining, but compulsory arbitration on the terms and conditions in agreements is contrary to the principle of voluntary collective bargaining.

· Legislation intending to annul, modify, or restrict the agreement of the parties, particularly as it relates to wage agreements, is also contrary to the principle of voluntary collective bargaining.

The Global Report concluded that three interrelated priorities should guide the promotional work by the ILO: (1) ensuring that all workers can form and join a trade union of their choice without fear of intimidation or reprisal and that employers are also free to form and join independent associations; (2) encouraging an open and constructive attitude by private business and public employers to the chosen representation of workers, including the development of agreed methods of bargaining and complementary forms of cooperation concerning terms and conditions of work; (3) recognition by governments that respect for fundamental principles and rights at work contributes to stable economic, political, and social development in the context of international economic integration, the fostering of democracy, and the fight against poverty.

Anglophone Countries

Although the United States, Great Britain, Canada, and Australia have a common heritage, share a language, and legal and political systems, their industrial relations developed in some unique ways. In this section, we compare their evolution and their status today.

Great Britain

As discussed earlier, the industrial revolution began in Great Britain largely because it had the technological means, government encouragement, and a large and varied trade network via its river system. The development of a large inland water-transport network was perhaps the most important factor behind the industrial revolution in Great Britain.
 The first factories appeared in 1740, concentrating on textile production. Such English inventions as the flying shuttle and carding machines and the spinning jenny integrated with a new source of power, the steam engine, resulted in more than 100,000 power looms in Great Britain and Scotland between 1790 and 1830. But the industrial revolution had brought with it abuses and hardships on workers. As a medical doctor described such a workplace in the early 1830s,

The operatives are congregated in rooms and workshops during the twelve hours in the day, in an enervating, heated atmosphere, which is frequently loaded with dust or filaments of cotton. … They are drudges who watch the movements, and assist the operations of a mighty material force. … The preserving labor of the operative must rival the mathematical precision, the incessant motion, the exhaustless power of the machine.

Whereas previously workers had joined together to form skilled trade unions, the industrial revolution spurred widespread unionization of semiskilled and unskilled laborers as a reaction to low wages, long hours, and deplorable conditions. Trade unions developed rapidly, especially in the factory-based textile industry. There were also attempts to form general unions of all workers irrespective of trade as a means for protecting and improving workers’ living standards and for changing the political and economic order of society. 
Table 13-1
 lists a number of movements in Britain’s labor history that influenced the path of its trade unionism.

In 1868, the 
Trades Union Congress
 was founded and because of the extension of the right to vote, trade unions began to have success in lobbying for laws protecting workers. The Employers and Workmen Act of 1875 modified the old Master and Servant Law so employers too could be sued for breach of contract; the 1874 Factory Act set a ten-hour limit on the working day; and the 1871 Trade Union Act recognized unions as legal entities entitled to protection under the law.

Trades Union Congress

Federation of labour unions founded in Great Britain in 1868 to represent trade unionists. Currently has 56 affiliated unions representing 6.2 million workers.

Between 1888 and 1918, membership in trade unions grew from 750,000 to 6.5 million, and unionism within the unskilled, semiskilled, white-collar, and professional workforces spread

The interior of the doubling-room at Dean Mill, Halliwell, England, in 1851 is an example of some of the innovations in textile production in England at the start of the industrial revolution.

Source: © Bettmann/ CORBIS All Rights Reserved.

rapidly. The strength of the movement was seen in its huge May Day 1890 demonstration in favor of the eight-hour day. Employers, who were threatened by the unions’ obvious strength, engineered court decisions that outlawed peaceful picketing and enabled them to sue unions for losses during strikes. Despite these measures, the militancy of unions during the prewar years led to a wave of strike action, dubbed “the great unrest.”

The World War I accentuated divisions within the labor movement as labor’s rank and file continued to press for economic and political reforms while labor’s leaders aligned more with the government in its war effort. The gulf between the two generated its own structures in the form of the 
Shop Stewards Movement and Workers’ Committees

. Shop stewards of today can trace their origins to this wartime period, during which rank-and-file workers rather than union officials kept effective trade unionism alive in the face of their leaders’ preoccupation with the war effort.

Shop Stewards Movement and Workers’ Committees

In Britain worker committees formed during World War I, when divisions within the labor movement—with rank and file interested in reforms and labor leaders interested in supporting war effort—created a need for new representation.

The British labor movement in the early 1920s was influenced by the following beliefs: Capitalism’s decline was inevitable, labor and capital have opposing interests, capitalism should be replaced by socialism, and strikes should be used for both economic and political ends. Great Britain, reacting to what it believed was an untenable position, created the Whitley Committee to study the causes of labor unrest. The committee recommended collective bargaining by independent trade unions and endorsed a system of joint councils to provide for joint consultation by employers and unions.

The first majority Labour government gained prominence as a part of Winston Churchill’s coalition government during World War II. In the election of 1945, it gained a majority of the members of Parliament, resulting in a Labour Party prime minister and cabinet. The Labour government inherited the severe economic problems of postwar Europe and responded by passing the following legislation involving labor:

· Nationalized the ailing coal, gas, and electric industries; the iron and steel industry; and the Bank of England, resulting in more than 2 million people becoming public sector employees.

· Extended social benefits instituting the “cradle-to-grave” welfare system with sick leave and unemployment benefits, workers’ compensation, and universal health care.

From 1965 to 1979, the British trade union movement was supported by the creation of a Royal Commission on Trade Unions and Employers Associations (the Donovan Commission), which endorsed collective bargaining rights and Britain’s traditional approach to minimal legal regulations of unions and bargaining.
 This traditional approach, characterized by an absence of statutory regulation, is termed voluntarism or a collective laissez-faire system. Under voluntarism, a union and an employer or an employers’ association can agree to be a party to a collective bargaining agreement, and the contract can extend for as long as the parties agree, although wages are generally negotiated annually. The collective bargaining agreement’s terms and conditions cover all the individuals in the bargaining unit, even if they are not in the union. Laissez-faire in British labor relations came to an end with the election of the Conservative government headed by Prime Minister Margaret Thatcher. During Thatcher’s term in office, a number of changes occurred in labor–management relations when legislation was passed that

· narrowed a union’s immunity from labor injunctions

· outlawed secondary strikes

· restrained picketing

· required a secret election of the union membership before calling a strike

· prohibited a closed shop

With the election of a Labour government in 1997, led by Prime Minister Tony Blair, unions hoped for a change in attitude. But the major aspects of Thatcher’s legislation remained in place. Blair’s government opted into the European Union EU’s protocols on employment standards involving hours of work, parental leave, and the creation of work councils. The Employment Act of 2002 was enacted to ensure the following:

· Enhance employees’ parental leave rights

· Guarantee parental flextime

· Curtail employment appeal rights by requiring the losing party to pay the cost of the appeal

· Establish minimal grievance procedures for collective bargaining agreements to reduce the caseload of employment courts

· Grant fixed-term, or contract, employee protections comparable with regular employees

· Require consultation with employee representatives before layoffs

These legislative enactments have largely supplanted the long-established voluntarism in Britain’s labor relation’s history.


Canada in the late 1880s and early 1900s confronted the same labor unrest as the United States and Great Britain because of the deplorable working conditions associated with the early stages of industrialization. The Winnipeg General Strike in 1919 and fears of Bolshevism led to the appointment of the Royal Commission on Industrial Relations, which cited as its charge, “[T]he duty of considering and making suggestions for establishing permanent improvement in the relations between employers and employees, whereby, through close contact and joint action, they can improve existing industrial conditions and devise means for their continual review and betterment.”
 The Royal Commission identified unemployment as the most important condition causing industrial unrest; condemned the treatment of labor as a commodity to be bought and sold at a price determined by supply and demand; and endorsed a collective voice for workers, although it had both a majority position, which endorsed independent unions, and a minority position accepting employer-created representation plans.

Up until the World War II, Canada’s economy was still largely rural, centered on resource extraction industries of mining and timber, rather than manufacturing. This inhibited the growth of a large urban-based, wage-earning labor force. And because of Canada’s reliance on a few key industries, its economy was more vulnerable to the disruptive effects of strikes and labor conflict. For these reasons, Canada’s labor relations developed to discourage the adversarial scheme of trade unionism and collective bargaining and to encourage cooperation and unity of interest between employers and employees to promote efficiency in production and peace in labor relations. This strategy combined British-style voluntarism in union recognition, American-style welfare capitalism, and Australian-style government-mandated mediation and fact-finding.

As the percentage of union membership steadily declined in the United States beginning in the 1940s, the pattern was reversed in Canada, where more collectivist traditions led to more favorable political attitudes toward unions and thus a growth in the union movement. Another contributing factor is Canada’s governmental and legal environment. Canada’s system of federated government vests most employment matters in the ten provinces. Its federal authority, except in times of crisis, is limited to about 10 percent of its workers in federal civil service and national industries such as transportation and telecommunications.
 This fragmented system means that employers and unions have to contend with varying local labor laws. Quebec province, which still enjoys its French heritage, and Ontario province have the largest share of Canada’s union members.

Canadian law on both the federal and the provincial levels mirrors the protections found in the U.S. National Labor Relations Act. Workers have the right to form unions and to elect exclusive bargaining agents, employers must meet with unions for the purpose of collective bargaining, grievance procedures and arbitration are mandated, and strikes during the term of a contract are prohibited. Canadian labor boards have the authority to (1) certify unions without formal elections; (2) make quick, final decisions on unfair labor practice cases; and (3) impose first contracts when employers refuse to bargain with a new union. Canadian labor laws have also provided public sector unions a stronger position by giving them the right to strike (in most instances) and the right to compulsory arbitration.

A Federal Government Task Force in 1998 endorsed Canada’s collective bargaining system as a “balance between labour and management; between social and economic values; between the various instruments of labour policy; between rights and responsibilities; between individual and democratic group rights; and between the public interest and free collective bargaining.”

Traditionally, the fate of labor relations in Canada followed that of the United States. In fact, in 1966, the percentage of workers in unions in the two countries was almost identical. In recent years, however, that has not been the case. Canadian union density increased and decreased later than the United States or U.K., peaking in the mid-1980s and declining less severely, so that by 2000 its density was 30 percent overall and over 80 percent in the public sector, which was higher than in either the United States or the U.K. and actually double the United States in overall union density.

The Canadian Auto Workers (CAW) union is the largest private sector union in Canada. In 1985, the CAW split from the U.S. United Auto Workers (UAW) union to become an independent union. Since that year, the UAW has experienced declining membership while the new Canadian union more than doubled its membership from 120,000 members to over 260,000 members today. The CAW successfully expanded into other industries such as education, health care, retail, railways, airlines, hotels, and transportation. Because of this growth, CAW’s former president Basil “Buzz” Hargrove became a national figure in Canada. In addition to growth, the CAW has (1) made wage gains by retaining cost-of-living increases and resisting wage concessions, or lump-sum payments and profit sharing, typical of U.S. labor agreements; (2) resisted long-term contracts, which by policy it called “the new concession,” and (3) negotiated same-sex spousal recognition for paid leaves and benefits.


Australia, like Canada, had a long history of British colonial rule and largely reflected British cultural, political, and legal systems. But Australia’s industrial relations developed in a unique manner. In opposition to the Anglo-American preference for voluntarism in labor relations, Australia adopted a federal compulsory conciliation and arbitration system in 1904, which gave legal protection to collective bargaining but requires trade union and employer associations to submit disputed contract terms to a state tribunal for conciliation and, if necessary, binding arbitration.
 This system was in place for most of the twentieth century, but amid the economic difficulties of the 1980s, both labor and employers sought to decentralize collective bargaining and adopt enterprise (company or industry specific) bargaining.

Australian labor relations are governed by the 
Workplace Relations Act (WRA)

. The key elements of the WRA include the following:

Workplace Relations Act (WRA)

Australian labor law reform that includes streamlined award and unfair-dismissal system; emphasis on enterprise bargaining; and curbs on strikes.

· A streamlined “award” system (CBAs)

· More emphasis on enterprise bargaining

· Curbs on union power

· Restrictions on strikes

· A streamlined unfair-dismissal system that limits frivolous appeals and compensation claims

Under the WRA, the Australian system of industrial relations is still a centralized model, characterized by industry-wide or company awards (similar to U.S. collective bargaining agreements), which are negotiated by company, union, and sometimes government officials and then submitted to the Australian Industrial Relations Commission (AIRC) for ratification or resolution of differences.
 Such awards establish minimum wages and working conditions for specific categories of workers.
 Individual companies and their employees or unions may negotiate supplemented “over award” wage benefits based on market conditions. These benefits, when registered with the AIRC, are known as a Certified Agreement if it covers most or all of a company’s workforce or an Australian Workplace Agreement (AWA) if it covers an individual employee.

The WRA also barred closed shops, where an individual has to be a member of a union to be hired and eliminated preference clauses, which required an employer to give a preference to specified individuals. Under the WRA, unions and workers are prohibited from striking companies engaged in interstate commerce, except when they are negotiating a new enterprise agreement. The strike must also concern a matter specifically related to the negotiations. This is known as “protected action” during a “bargaining period.” Industrial disputes are then intended to be settled via conciliation and, if necessary, compulsory arbitration by the AIRC. When unions do strike outside a bargaining period, they can be sued by employers for damages, and union officials and individual strikers can be held personally liable.

Eighty percent of all Australian wage and salary earners are covered by the awards system, with the greatest proportion of employees receiving overaward payments through some form of enterprise agreement. Despite efforts by the federal government to promote the use of AWAs, the vast majority of employers still prefer enterprise agreements or awards.

Although enterprise bargaining is likely to continue to dominate the industrial relations scene for years to come, the ACTU believes that enterprise bargaining has run its course in Australia and has been arguing that workers are unlikely to benefit any further from decentralized bargaining. The union movement sees the future in terms of a return to industry-wide bargaining as the only way to provide increased significant new benefits to workers, especially in view of the weakening of the award system.

European Union Nations

The European Union

The European Union (EU) is a unique regional body made up of 27 member states that delegate their sovereignty on questions of joint interest to common institutions, which represent the interests of the EU as a whole. However, the EU member states are not one single new nation. The mission of the EU is to integrate the economies of the member states, to “lay the foundations for an ever closer union,” to raise the living standards of its citizens, to remove obstacles to concerted action, and to promote a high level of employment and of social protection. As of 2010 no member has ever withdrawn from the EU. However, the May 2010, $147 billion bailout of Greece by the EU through the IMF caused many to question the economic viability of the EU. In Spain, for example, the country’s largest union, Comisiones Obreras, which represents 2.6 million public sector employees, conducted a strike in which 75 percent of the members participated, the largest number in the country’s history. The 2010 strike was to protest the Spanish government’s response to the economic recession which hit both Greece and Spain particularly hard. The Spanish government announced a 5 percent wage cut and a freeze in pension contributions in an effort to balance the budget. The union was concerned that these economic cuts were only the first steps in a broader national effort to change labor laws and harm workers’ rights.

European Union

A regional body made up of 27 member states on the continent of Europe that delegate their sovereignty on questions of joint interest to common institutions, which represent the interests of the EU as a whole. However, the EU member states are not one single new nation.

The EU’s priority objective has been the political and economic integration of Europe through a gradual elimination of customs barriers and an introduction of common external tariffs. As explained in an EU publication:

The EU’s foundational agreement is a pact between sovereign nations that have resolved to share a common destiny and to pool an increasing share of their sovereignty. It concerns the things that European peoples care most deeply about: peace, security, participatory democracy, justice and solidarity. This pact is being strengthened and confirmed all across Europe: half a billion human beings have chosen to live under the rule of law and in accordance with age-old values that center on humanity and human dignity.

Figure 13-1

European Union Countries.

Source: Available at http://www.cia.gov/library/publications/the-worldfactbook. Accessed September 29, 2010.

Five EU institutions—the European Parliament, the Council, the Commission, the Court of Justice, and the Court of Auditors—hold responsibility for making and administering EU policy. The EU, headquartered in Brussels, includes Belgium, Germany, France, Italy, Luxembourg, the Netherlands, Austria, Denmark, Finland, Greece, Ireland, Portugal, Spain, Sweden, the United Kingdom, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Bulgaria, and Romania. As a politician from one of the new member states put it, “Europe has finally managed to reconcile its history with its geography,”
 as seen on the map of EU member states in 
Figure 13-1

In economic, trade, and monetary terms, the EU has become a major world power. It has considerable influence within international organizations such as the World Trade Organization (WTO), the United Nations (UN), and at world summits on the environment and development. The EU dates its beginning to 1957 when its member states began removing trade barriers and forming a “common market.” In 1967, a single Council of Ministers as well as the European Parliament was created to govern the Common Market. Originally, the members of the European Parliament were chosen by the national parliaments, but in 1979 the first direct elections were held, allowing the citizens of the member states to vote for the candidate of their choice. Since then, direct elections have been held every five years.

Treaty of Maastricht
 (1992) enhanced the EU by introducing intergovernmental cooperation to the existing “Community” system and adding new forms of cooperation between the member states, particularly on defense and in the area of justice and home affairs. Economic and political integration within the EU has resulted in member countries developing common

Treaty of Maastricht

Enhanced the European Union through intergovernmental cooperation and adding new forms of cooperation between the member states, particularly on defense and in the area of justice and home affairs.

policies in a very wide range of fields—agriculture, culture, consumer affairs, the environment, energy, transportation, and trade. The EU negotiates major trade and aid agreements with other countries and is developing a Common Foreign and Security Policy.

The Single Market was formally completed at the end of 1992 when the EU decided to adopt economic and monetary union (EMU), through the introduction of a single European currency managed by a European Central Bank. The single currency—the euro—became a reality on January 1, 2002, when euro notes and coins replaced national currencies in 15 of the 27 countries of the European Union (Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Slovenia, Cyprus, and Malta).

The completion of the Single Market affected the EU’s trade policy. The import restrictions that EU countries had been allowed to maintain were steadily abolished, as was the internal distribution of “sensitive” imports such as textiles, steel, cars, and electronic goods. The EU is a single trading bloc, and it is home to nearly half a billion consumers with a relatively high average level of income. As such, it is a very attractive market for exporters in other countries. In terms of trade and investment, the EU is the main partner of the United States and the only one with which it enjoys a stable relationship.

The European Commission recognizes three European-wide industrial relations unions as “social partners” in the EU social dialogue: the European Trade Union Confederation (ETUC) for labor and the Union of Industrial and Employers’ Confederations of Europe (UNICE) and the European Center of Enterprises with Public Participation and Enterprises of General Economic Interest (CEEP) for employers.
 ETUC, CEEP, and UNICE are the primary liaison bodies that advise and lobby the European Commission on employment and labor concerns. The commission is required to consult with its social partners when it wants to submit proposals in a particular social field. Unions within the EU face the challenge of operating at the supranational level, in an effort to influence common EU social and economic policy directly affecting their interests.

The Social Charter contained in the Maastricht Treaty sets forth an action program to protect workers’ rights in employment contracts, collective bargaining, health and safety in the workplace, consultation and participation, parental leave, and social protection. Workers’ rights, especially during corporate downsizing, became a hot political issue during the 1990s. The EU borrowed from its members’ experiences, especially French and German, to guarantee workers and their unions the right to information and consultation before large-scale layoffs could occur and to institutionalize work councils within companies. 
Works councils
 are permanent elected bodies of workforce representatives or in some instances joint committees with employer’s representatives, established on the basis of law or collective bargaining agreements with the overall task of promoting cooperation within the enterprise. Their task is for the benefit of both the employees and the enterprise by maintaining good and stable employment conditions and increasing the welfare and security of employees and their understanding of enterprise operations, finance, and competitiveness. The EU directive on works councils specifies it is to provide employees with rights to information and consultation, and it directs member states to ensure that the employees’ representatives, when carrying out their functions, enjoy adequate protection against dismissal. These are the information and consultation rights:

Works councils

Permanent elected bodies of workers representatives or in some instances joint committees with employers representatives, established on the basis of law or collective bargaining agreements with the overall task of promoting cooperation within the enterprise.

· Information on the recent and probable development of the company’s activities and economic situation

· Information and consultation on the situation, structure, and probable development of employment within the company and on any anticipatory measures envisaged, in particular, where there is a threat of layoffs

· Information and consultation, with a view to reaching an agreement, on decisions likely to lead to substantial changes in the company or in contractual relations with the company

For a summary of works councils in the EU15 countries see 
Table 13-2

Organized labor is well established in the EU throughout its member states,
 although union membership has dwindled in most EU nations. Changes in the composition of the labor force,

Table 13-2

Work Councils in EU-15 Regulations on Employee Information and Consultation




Elected by the workforce, represents all employees within an enterprise consistently employing five or more workers. Exercises the workplace-level consultation and codetermination rights conferred by law on the workforce as a whole.


With the workplace health and safety committee, a works council is the main form of employee participation and representation in an undertaking with 100 or more employees. It is a joint bipartite body composed of representatives elected by workers in the enterprise and representatives appointed by the employer from among managerial staff, who may not outnumber the employees’ representatives.


Joint body with equal management/workforce representation set up under a cooperation agreement with the purpose of promoting cooperation and employee involvement at individual workplace level. The employee representatives may not be a member of a trade union.


Works councils are not a part of the national regulation on cooperation within undertakings. The Act on Personnel Representation in the Administration of Undertakings only provides employee representation on the company administrative bodies.


Joint body composed of the company’s CEO and employee representatives elected by the workforce, of private companies with more than 50 employees. They receive information, respond to formal consultation by the employer, and manage cultural activities for which they have a budget at their disposal.


Employee representation body that applies to establishments that are organized under private law. The works council has a number of participation rights, consisting of rights to information, consultation, and codetermination.


Voluntary organs of employee representation and participation in enterprises with at least 50 employees or 20 employees for enterprises that have no trade union. The function of the works councils is participatory and consultative and is aimed at improving working conditions in conjunction with the growth of the company.


No statutory work council system.


Works councils are created by the trade unions, which also define their regulations based on the national sectoral collective agreement. Works councils generally exercise information and consultation rights.


Employee Committees are made up of employee representatives whose function is to protect employee rights and interest through their right of information and consultation. In addition Joint Works Committees are bodies composed of both employee and employer representatives and exercise codetermination rights over company policy and management decision.

The Netherlands

Body composed of employees within an enterprise that has the task of promoting the interest both of the enterprise and of its workforce. The main rights given to works councils by law are the right of access to information, advisory powers, the right of consent (i.e., the veto right on a number of related matters), and the right to propose initiatives.


The working environmental committees are compulsory bipartite bodies composed of an equal number of employee and employer representatives. The various duties of these committees include considering questions in areas such as rationalism schemes, work process, and working time arrangements. In addition, work councils are compulsory in companies with more than 100 employees. Employees may also demand the establishment of a work council in companies with fewer than 100 employees.


The committee is made up of elected worker representatives. It has defined information and consultation rights, but no right to codetermination. Duties include monitoring the implementation of labor laws and related discipline.


There is no system of statutory works councils in Sweden, nor are such bodies established on a voluntary basis. Workplace employee participation and representation is based on the role of trade unions and their codetermination rights.

United Kingdom

There is no system of statutory works councils in the U.K. Trade unions are the primary vehicle for the consultation of employees. However there is legislation providing for consultation of employees over certain issues. In addition, “joint consultative committees,” based on collective agreements or voluntary practice, remain significant.

Source: Mark Carley, Annalisa Baradel, and Christian Welz, Works Council, Workplace Representation and Participation Structures (© European Foundation for the Improvement of Living and Working Conditions, 2004), pp. 1–38, 6–8. Used with permission.

including women, temporary and part-time workers, and foreign workers, have required trade unions to change from traditional methods of advocacy. At the present time, the overwhelming majority of collective bargaining agreements are still negotiated and signed at the national level or lower. However, the increasing integration of the national economies into a European one (including the introduction of the euro) is opening new methods for transnational labor–management relations. Steelworkers in Germany and the Netherlands have jointly negotiated a labor contract, and ETUC is developing resources to allow its affiliates and its 11 European industry federations to compare agreements made in other parts of the EU to improve on their negotiations. To date, ETUC, UNICE, and CEEP have signed three European “framework agreements,” dealing with parental leave, part-time work, and fixed-term contracts. These agreements are much more general than a normal collective bargaining agreement and only set general frameworks for further negotiations on national levels (see Profile 13-1).


For Germany the coming of the industrial revolution, democracy, and capitalism was not a gradual transition but was concentrated in the last half of the 1800s. Earlier in that century, the German principalities, ruled by monarchs and supported by a serf system, were challenged by bloody and unsuccessful revolts. The successful uniting of Germany in 1872 did create an elected Parliament, albeit selected by landowners only, and a chancellor appointed by a hereditary monarch.
 A severe economic slump in Germany that coincided with its emerging industrialization caused Germany to reject Adam Smith’s brand of capitalism and Great Britain’s form of democracy for a state socialism. This state socialism emphasized the role of government in regulating the market economy rather than the laissez-faire touted by capitalists. In its feudal tradition, Germany’s state socialism included a safety net of welfare programs (called Soczialpoletik 
), but such programs failed to suppress the inevitable labor problem that accompanied the abuses of the industrial system. When the working classes began to embrace the socialism of Karl Marx and to form radical anarchist political parties, Germany enacted an Anti Socialist Law that banned all political meetings and trade unions associated with socialist groups.
 After that the trade unionists adopted the threefold agenda rejected by U.S. unions of representation at the bargaining table, participating within the economic and political systems, and pursuing social justice for all workers.

Nonetheless, just as the United States and U.K. had cooperated with labor when two world wars and a worldwide depression threatened their democracies, German industrialists began to cooperate with trade unions during the World War I, which continued through Germany’s defeat and the abdication by the kaiser. In 1918, trade unions and industrialists signed the Stinnes-Legien Agreement to preserve a representative democracy and a market economy, followed by legislative guarantees for workers’ rights. But during World War II, Adolf Hitler and the Nazi Party abolished labor unions and persecuted its leadership. After World War II, Germany’s modern industrial relations system was created.

Briefly, in Germany employees are represented in three ways:

Trade unions
 negotiate collective bargaining agreements that are primarily concerned with wages. Collective bargaining takes place nationally or regionally with a particular industry. These centralized negotiations usually take place annually and result in “pattern” or fairly uniform results.
 Such collective agreements, however, are only legally binding on the employers who are a part of the association negotiating the agreement and the actual members of the trade union,
 although employers generally apply the contract to all workers.

Work councils
 negotiate working conditions that are location specific and enforce the collective bargaining agreement. Work councils, at the company or enterprise level, participate in the day-to-day operation of the collective bargaining agreement. The members are elected by all employees and represent them in mandated consultations with the particular employer. Employers have to consult with work councils before taking certain employment action such as dismissals, layoffs, or changes in benefits. Work councils can seek wage increases above the collective bargaining agreement entered into on the national level.

Codetermination law
, in firms with 2,000 or more employees, requires that the company’s supervisory board contain a certain number of employee representatives. 
 means that unions and employees have a say in company policy, as well as sharing responsibility for the firm.


In Germany, a system which requires a company’s supervising board to have employee representatives giving unions and employees a say in policy and a stake in company’s success.

The pressure on German trade unions intensified with the fall of the Berlin Wall. Suddenly, an entire country, East Germany, had to be integrated into the economic, political, and social fabric of West Germany. Policy makers underestimated the scope of unemployment, antiquated means of production and infrastructure, and environmental damage in West Germany, as well as the negative impact through the loss of the former Soviet Union’s foreign trade system. The East German trade unions, which had been closely aligned with the communist regime, dissolved, and an influx of new members to West German trade unions did not improve working conditions as had been hoped. Globalization and membership in the EU have added more challenges to Germany by the internationalization of employee relations and the creation of European work councils. 
Table 13-2
 describes the range of work councils in the EU.


Industrial relations in France are characterized by a strong legacy of class conflict, anarcho- syndicalism, and communism within the labor movement; employer opposition to power sharing, which caused a slow development of collective bargaining rights; and extensive state involvement through legal regulations. The evolution of French collective bargaining is consistent with its cultural heritage. It has been a grant of power from the state (previously represented by royalty) to the social partners—employers (previously represented by the nobility) and employees (previously represented by the feudal system). Industrialization started in the early 1800s, followed by the growth of craft unions and then national federations of labor. After World War I, France enacted favorable collective bargaining legislation that increased union membership. In reaction to the Great Depression, France initiated the Popular Front, which paralleled Franklin Roosevelt’s New Deal. France emerged after World War II as a major economic power with large, technologically equipped companies, and an active labor movement.

The French system of employee relations is unique in that it emerged from the anarchists and revolutionary socialists within the labor movement (anarcho-syndicalism), which led to a working-class culture distrustful of government and employers and bitter that class divisions still existed. Employers have exacerbated the situation by their hold on the reins of authority as a claim of right unfettered by their need for labor. All French governments of whatever persuasion have advocated for the freedom of social partners to negotiate terms and conditions of employment through collective bargaining, but all have also seriously intervened by passing legislation governing those very terms. Reciprocally, employers’ associations and unions exert serious pressure on political parties and the government to obtain through legislation what they cannot get through bargaining.

Collective bargaining legislation names the employers’ and employees’ bodies that have “representative” status; establishes the terms under which bargaining is valid; specifies what subjects are open to negotiation; and details most bargaining practices (e.g., the law places an obligation to negotiate annually on pay and on job classifications every five years). Additionally, the state is directly responsible for a series of decisions regarding the minimum wage, hours of work, employment status, and terms and conditions for layoffs. Frequently, the content of collective agreements is merely a repackaging of the wording of general statutory frameworks.

Negotiations can be carried out at all levels of economic activity, national, sector, or company, as long as recognized bodies take part in them. All employees in a sector or company are covered by an agreement through a state-approved extension. Companies that are not even members of the employers’ association that entered into the agreement are still covered by a sector-level agreement once the government has extended it. As a general rule, the government always extends sector-level agreements when they comply with statutory criteria and have been signed by recognized bodies. Because of the extension of sector-level agreements by the Ministry of Labour, despite a union membership of less than 10 percent, it is estimated that around 90 percent of private sector employees in France are covered by sector-level agreements. This system of extension explains the dichotomy for France between union density, which is the percentage of workers in the workforce who are union members, and collective bargaining coverage, which is the percentage of workers in the workforce who are covered by a collective bargaining agreement (see 
Figure 13-2
, Union Density/Collective Bargaining Coverage).

Figure 13-2

Union Density/Collective Bargaining Coverage, 2007–2008.

Source: OECD Employment Outlook, Organization for Economic Co-operation and Development (2004). Available at http://www.oecd.org. Accessed September 2010; “Collective Bargaining, A Positive Force for the Greater Good,” CWA News 67, no. 2 (March 2007), p. 3; and “Collective Bargaining,” European Trade Union Institute. Available at http://www.worker-participation.eu. Accessed September 2010.

French president Nicolas Sarkozy, after his 2007 election victory, began questioning his nation’s labor laws. Eric Woerth, his budget minister, has stated that France is still in the “Stone Age” of labor relations. He cited the World Economic Forum’s Global Competitiveness Index, which ranks France’s labor market 129th out of 131 countries.

The first labor target of Sarkozy was the retirement requirement of public transport workers, who responded with a crippling nine-day strike in 2007. Sarkozy proposed increasing the number of years for some public employees to retire from 37.5 to 40 years. A public opinion survey showed 82 percent of French citizens supported the change. The workers ended the strike after nine days and a loss of hundreds of millions in lost productivity because French workers were unable to get to their jobs. The proposed change in retirement years remains unresolved.

Sarkozy promised to continue his attack on Frances’ Code du travail, or labor laws, which were largely written in the 1960s and provide a cradle-to-grave social contract for workers. Other key targets include the national 35-hour workweek, early retirement, and employers’ ability to fire or lay off workers owing to profitability.
 Sarkozy was elected in May 2007 largely on his promise of labor law reform. His election came only a year after his predecessor, Jacques Chirac, tried to change a labor law, and his effort resulted in over a million workers staging protests all over France, including the Place de la Bastille, where the 1789 French Revolution began (see Profile 13-2). After 15 days, Chirac cancelled the new law that would have allowed employers to fire new workers under the age of 26 without reason. Will Sarkozy be able to achieve labor law changes despite worker protests?

Profile 13-2 Youth Labor Law Ignites Protests across France

Over a million French teenage workers, union members, and retirees jammed the streets of Paris, France, on March 27, 2006, to protest a new labor law. The protests centered outside the Place de la Bastille, where the historic 1789 French Revolution began over 200 years before, and they followed several weeks of similar protests. The French labor law that ignited the protests made it easier for employers to fire young workers. However, some observers, including Serge July, director of the French newspaper Liberation, believe the protests are also about the new French “free-market system,” which is supported by only 36 percent of the French population, compared to 71 percent in the United States and 74 percent in China, according to a poll conducted by the University of Maryland Program on International Policy Attitudes.

The protests coincided with a one-day national strike conducted by French trade unions that closed schools, factories, rail and air traffic, and even the Eiffel Tower. Protests also occurred in other French cities across the country. In Montpellier, a city in the south of France, protestors took down a statue of former socialist Jean Jaurès, claiming it represented their “mourning of the rise of capitalism.” Hundreds of protestors were arrested, and in Paris riot, police were forced to use water cannons and tear gas to disperse thousands of protestors who began throwing bottles and stones at the police.

Prime Minister Dominique de Villepin stood firmly behind the new law, despite national polls showing his government with only a 20 percent favorable rating. The new law had allowed employers to fire workers under the age of 26 without reason during the first two years of work. Called “the first contract,” the law was known as CPE in France and is designed to lower national unemployment, estimated at 9.6 percent for all workers and 23 percent for workers under age 26. The rationale behind the law was that employers would be more likely to hire additional workers if they knew they were not required to keep them. Previously it was almost impossible for employers to fire workers unless they committed “grievous mistakes” or the company faced bankruptcy, and even then a worker could go to court where judges usually ruled in favor of the worker.

On April 10, 2006, former President Chirac “caved in to” the protesters and canceled the law. The announcement was seen as a major political blow to Villepin, who had hoped to succeed Chirac as president of France.

After over a million French teenage workers, union members, and retirees protested a new labor law in the streets of Paris, President Jacques Chirac cancelled the implementation of the act, which critics said would have made it easier for employers to fire young workers.Source: Remy Gabalda/AP Images.

Source: Adapted from Andrew Higgins, “Liberté, Précarité: Labor Law Ignites Anxiety in France,” Wall Street Journal (March 28, 2006), pp. A1, A8; John Leicester, “Labor Law Protests Widen in France,” Associated Press (March 29, 2006); and Christine Ollivier, “France Rescinds Labor Law; Protesters Win,” Louisville Courier Journal (April 11, 2006), p. A4.


Modern Italy can be traced to the influence of the French Revolution in 1789, which spurred liberal Italians to push for unification of the various city-states that occupied the Italian peninsula. The Italian unification movement, known as the Risorgimento, led to final unification in 1861. Unification combined a group of wealthier northern regions with historical and cultural ties to Austria, Switzerland, and France with a group of southern regions linked to North Africa.

The new nation faced many serious problems. A large debt, few natural resources, and almost no industry or transportation facilities combined with extreme poverty. During the 1880s, in Italy as in other European countries, a socialist movement began to develop among workers in the cities. Despite the fact that some economic and social progress took place before World War I, Italy during those prewar decades, in an attempt to increase its international influence and prestige, joined in an alliance with Germany and Austria and tried unsuccessfully to conquer Ethiopia and Libya. After the outbreak of World War I in 1914, Italy remained neutral for almost a year and then finally joined the Allies. Aside from a few victories in 1918, Italy suffered serious losses of men, materiel, and morale, and under the treaties that followed the war, Italy received only a small part of the territories it had expected. These disappointments produced a powerful wave of nationalist sentiment against the Allies and the Italian government. Italy was plunged into deep social and political crisis by the war, and the 1919 elections suddenly made the Socialist and the new Popular (Catholic) parties the largest in parliament. In the midst of these unsettled conditions, Benito Mussolini, a former revolutionary socialist, founded a new movement called fascism. In the 1930s, the Italian army invaded and conquered Ethiopia and Albania, sent troops to support Francisco Franco in the Spanish Civil War, established the Rome-Berlin Axis with Adolf Hitler, and entered World War II on Germany’s side. Mussolini’s war effort met with setbacks and defeats on all fronts so that when the Allies invaded Sicily, Mussolini was forced to resign. Italy then joined in the war against Germany.

Between 1945 and 1948, Italians abolished the monarchy in favor of a republic and adopted a new constitution. The Italian nation emerged from the disaster of fascism and war under the leadership of its largest political party, the Christian Democrats, which stressed industrial growth, agricultural reform, and close cooperation with the United States and the Vatican. In the late 1970s and early 1980s, Italy, along with other Western nations, experienced chronic inflation and unemployment. Labor unrest, frequent government scandals, and the violence of extremists all contributed to a volatile political situation.

In the 1990s, Italy faced significant challenges as voters demanded political, economic, and ethical reforms. New political forces and new alignments of power emerged in the 1994 national elections, which swept media magnate Silvio Berlusconi and his “Freedom Pole” coalition into office, his first time as prime minister. A series of center-left coalitions dominated Italy’s political landscape between 1996 and 2001 when national elections returned Berlusconi to power at the head of the five-party center-right “Freedom House” coalition. Because of a poor showing in regional elections, he was again forced to resign in April 2005 and form a new government, which was the 60th government since the liberation of Italy.

Industrial relations in Italy are governed by its constitution, acts of Parliament, regional laws, customs and practice, and also European Union (EU) measures affecting employment and any adopted recommendations and conventions of the International Labour Organization. The Constitution

· Recognizes trade union freedom and collective bargaining (Article 39)

· Recognizes the right to strike (Article 40)

· Recognizes employee participation in enterprises (Article 46)

· Recognizes the right to work (Article 4)

· Charges the republic with a duty to protect labor (Article 35)

· Establishes the right to pay based on quantity and quality of work (Article 36)

· Calls for the registration of trade unions for the purpose of extending the terms of labor agreements to all workers in the industry, union and nonunion, known as an 
erga omnes

Erga omnes

In Italy, collective bargaining agreements that apply to all workers in a bargaining unit and all employees in industries are covered by it if the trade union is properly registered.

The Workers’ Statute guarantees the freedom of opinion, the right to form and join unions, and the right to carry on union activity at the workplace. It provides trade union representation in firms with more than 15 workers and includes the right to collective bargaining at the company or production facility level, as well as the right to call a strike at company level. Companies may not take actions to suppress union activity. Employers and unions are involved in determining the overall direction of general policy with respect to legislative activity and economic policy and planning.

Reform of Italian labor law to enhance the match between labor demand and supply, relating primarily to job placement services and forms of employment, culminated in June 2003, with the approval of a draft decree enacting a new law on employment and the labor market, the so-called Biagi reform, named after Italian Labor Ministry consultant Marco Biagi, whose assassination in 2002 is linked with the reform law, discussed in Profile 13-3.

As a result of the Biagi Law reform measure, collective bargaining negotiations have begun to address and regulate the use of some of these new forms of employment. They include an agreement on part-time work negotiated at the local level that provides incentives for companies to increase the number of part-time staff and give workers time off with pay according to the premium for overtime work established by the sectoral collective agreement. The first national agreement on coordinated freelance contracts in outsourced call centers and a company-level

Profile 13-3 Marco Biagi, International Labor Martyr

In the United States, the violence that accompanied the fledgling labor movement in the nineteenth century

Marco Biagi, 50, was shot dead March 2002 in Bologna, Italy. Biagi worked as an adviser for the Italian Labour Ministry on controversial labor reform proposals.


produced regrettable but infrequent incidents of deaths among labor leaders. Such incidents, however, are far removed from today’s labor movement. But it would seem the same is not true in Italy. On March 19, 2002, terrorists, claiming to be from the “Red Brigades,” murdered Marco Biagi, an Italian labor law and industrial relations expert, who was working with the Italian Labor Ministry on labor law reforms. Three years prior to this, terrorists who identified themselves as “Red Brigades” claimed to have murdered Massimo D’Antona, who also advised the government on labor reforms. Biagi was consulting on a proposal to reform the Italian labor market by changing the protections offered laid-off or fired workers under a system that makes a third of Italy’s 21 million workers virtually invulnerable to firing. On the day of his death, Biagi had published an article in Italy’s leading business newspaper arguing that Italy needed to change its welfare system to catch up with Europe’s biggest economies.

Biagi, a professor of labor law at the University of Modena and a consultant to the EU, was a member of the Italian Socialist Party but had worked with the center-right government of Prime Minister Silvio Berliusconi because he knew that Italy needed to change its labor market. As Biagi biked home from work, he was gunned down by two men on motorcycles outside his home, just steps away from his wife and child and just months after his security escort had been discontinued after threats over his work on a Milan employment pact.

agreement that established a committee on working hours and an “hours bank” in which workers can accumulate overtime hours are additional innovations.

The involvement of social partners—employers and employees—in the design of economic policy, the so-called 
 of the Italian government, has been promoted by the formal adoption of tripartite agreements, or pacts. Such agreements were signed between labor unions, employers associations, and the government in 1995 to target pension reform; in 1996 to reform the labor market and promote worker education and training; in 1998 to set up a new system of three-way industrial relations, including local authorities; and in 2002 with the goal of reforming the nation’s labor market and employment benefits. That bargaining structure was established by a tripartite pact as a framework for income policy and new rules for the wage bargaining system. The Protocol on Labour Costs of July 1993 provides for a two-tier wage bargaining system: At the national industry level, collective bargaining agreements are valid for four years on the terms and conditions of employment and for two years for wages and economic benefits and are intended to set minimum wage levels; and at the company or firm level, agreements are valid for four years and may link pay to company profits and increases in productivity.
 National agreements are binding for all employers in a sector under a principle known as erga omnes.
 In theory, consistent with this two-tiered approach to bargaining, economic decisions at the national level are to be influenced by external measures regarding the competitive position of the affected industry and the rate of inflation. At the company level, pay is linked to the performance achieved in relationship to the expectations of the parties.


Involvement of employees and employers in the design of economic policy with the Italian government promoted by the formal adoption of tripartite agreements or pacts.

In the face of continuing difficulties in the Italian economy, industry has proposed new action strategies that require reform of the production system—mainly by means of large investments in research and in the development of infrastructures—and the resumption of meaningful dialogue with the trade unions and the government. Amid the apparent stagnation of Italian industry, these events can be interpreted as signaling a renewed commitment by trade unions and employers’ associations to participate with the government in the definition of economic and social policies, which may prove crucial for the Italian economic system to improve its competitiveness.

Far East

Western industrialization took place primarily in a laissez-faire setting, not under direct government direction or patronage. An entrepreneurial middle class moved the industrialization process forward, which in turn created a distinctive and relatively homogeneous working class. This working class was able to organize into trade unions to protect its interests. Western governments did not “create” unions. Western industrial relations systems reached maturity in the twentieth century, long after the commencement of the industrial revolution and at a time when democratic political systems were more or less in place. The industrial relations systems that developed were underpinned by a value system based on democratic principles, a balance between employers and employees, and relatively minimal government intervention. In such an environment, collective bargaining and freedom of association were logical developments.

In contrast, the majority of Asian countries were subject to foreign occupation, so no indigenous entrepreneurial middle class of any significance emerged that could have spearheaded the industrialization process. During the colonial period, governments assumed a dominant role, which was maintained by the post-independence governments. Only after the industrialization process had been in operation for some time did an entrepreneurial class emerge to take over some part of the government’s role in economic activity. In Japan and China, for example, the governments nurtured and assisted in the development of these entrepreneurial classes and provided them with protection from competition until they achieved international competitiveness. The economic development and its imperatives, then, were government and not entrepreneurial driven.


Contrary to most aspects of Japanese society, the Japanese system of labor relations is not the product of years of tradition. Japan’s industrialization began in the 1880s with ownership of a majority of its enterprises concentrated in powerful family groups, which later became the powerful 
 group of holding companies. Keiretsu is a loose conglomeration of companies organized around a single bank for their mutual benefit. The companies sometimes, but not always, own equity in each other. These families ran their factories in a paternalistic tradition, not unlike U.S. company towns of the same era. Although some trade unions were around before World War II, they had very little impact. After the war during the occupation of Japan by Allied forces, the Japanese labor movement was encouraged, so by 1949, 55.8 percent of the workforce was unionized. In Japan as elsewhere, however, union membership hovered around 30 percent from the 1950s to the 1970s, fell to 20 percent in the early 1980s, and in 2003, the unionization rate dropped to 19.6 percent.


In Japan, a conglomeration of companies organized around a single bank for their mutual benefit.

Three Key Premises of Japanese Labor Relations.

The Japanese system of labor relations can be summarized as having three key premises. The first key premise is the concept of lifetime employment, which is not so much a guaranteed benefit as a result of how enterprises are organized. Regular employees enter a firm with the expectation that they will be kept on until they reach the mandatory retirement age of 60. These employees are hired not for specific jobs or occupations but as company employees, knowing the employer will exhaust all other measures before laying these regular employees off. Japanese firms compete with each other every spring to recruit the best of the new university and high school graduates as regular employees. The desirability of each graduate is normally determined as much by the prestige attached to his or her university or school as by academic record.

The second key premise is the traditional Japanese wage system based on seniority. New employees are given a monthly salary based on the individual’s level of educational attainment but not job assignment. This sum automatically rises at least annually in accordance with a published table on the basis of length of service. Japan also has a distinctive bonus system, under which workers are given bonuses twice yearly (June and December). These bonuses are described as a deferred salary payment and constitute a significant portion of the workers’ annual income. The amount of the bonus, which is either negotiated with a union or based on custom, traditionally is not tied to profits.

The third key premise is that although Japanese labor unions are organized into three tiers—enterprise-based unions, industry-level unions, and national federations—more than 90 percent are enterprise-based unions. These company unions engage in collective bargaining and consultation with company management. Together, these three management methods, lifetime employment, seniority-based pay, and company unions, served as a mechanism in which both managers and employees could develop their knowledge and ability within the company in the security of the practice of long-term stable employment. The result was that expertise and know-how was accumulated within the organization.

In recent years, Japanese companies have shifted toward a wage system that links performance and bonuses to overall corporate profits because Japanese businesses now face increasing global competition and the need to motivate their workers.

Japan is increasing the scope of its employment legislation to deal with the new economic and social conditions. A council established by Japan’s government called for legal reform in the employment/labor field to encourage labor mobility, industrial structure transformation, and diversified working patterns. Lawmakers in 2003 added an explicit clause that (1) required employers to have just cause when dismissing employees; (2) increased the maximum duration of a fixed-term labor contract from one to three years (five years for workers engaged in highly specialized duties and those ages 60 and above); (3) extended the period from one to three years that a worker may be “dispatched” and the types of job dispatched workers (i.e., temporary workers) can engage in; (4) granted local public bodies the right to provide free job placement services; (5) increased the contribution rate for the unemployment insurance program; (6) lowered the maximum amount of unemployment benefits; (7) enabled a panel of a judge and two labor experts to provide rapid, specific solutions for labor disputes; and (8) extended the retirement age until age 65.

The constitution of Japan provides for freedom of association, the right to organize, and the right to act collectively. The courts have interpreted the right to act collectively as extending to the right to strike. The Trade Union Law protects Japanese workers in exercising autonomous self-organization for the purpose of collective action, defines collective action as the right to engage in union activities and the right to strike, and allows unions and employers to negotiate with each other and to conclude collective bargaining agreements. The Trade Union Law proscribes an employer’s refusal to bargain collectively as an unfair labor practice.

Japanese labor unions basically have a “triplicate structure,” enterprise labor unions organized at each business, industrial trade unions organized as loose federations of enterprise union members by industry, and national centers made up of the industry trade unions at the national level (a typical example is the Japanese Trade Union Confederation, Rengo).

Collective bargaining is practiced widely in Japan on the terms and conditions of employment. However, issues affecting management and production, such as new plant and equipment and subcontracting, usually are resolved through regular consultations between the unions and management. The Japanese joint consultation system provides a means for continual information sharing and communication. Joint consultation committees are made up of both senior corporate executives and high-level union officials. These committees do not conduct wage negotiations, but it is common for the enterprise to share confidential business and financial information with the union through these committees before wage negotiations. The approach of Japanese employers and unions to a cooperative collective bargaining process through information sharing has resulted in more employment security but more moderate wage increases.

Collective bargaining negotiations normally do not cover wages, which are negotiated separately during the Spring Wage Offensive ( 
 ). The Spring Wage Offensive has occurred annually since 1955. During shunto, enterprise-based unions in each industry conduct negotiations simultaneously with their companies. The objectives of shunto are to provide each individual union with a greater bargaining power and to distribute wage increases proportionally across the industry. Recently, shunto negotiations have shifted away from wages to job security because of the current economic situation.


The Spring Wage Offensive in Japan, at which wages are negotiated separate from other collective bargaining. During shunto enterprise-based unions in each industry simultaneously conduct negotiations with their companies. The objectives of shunto are to provide each individual union with a greater bargaining power and to distribute wage increases proportionally across the industry.

Rengo, formed in 1989 with the merger of public and private sector unions, is the largest national trade union organization in Japan, representing over 7 million members, almost two-thirds of Japanese organized labor. In 2000, 11.4 million of an eligible 53.8 million Japanese workers were unionized. The most important role of the national trade unions is their participation in politics. Rengo represents the labor sector on various government advisory bodies and actively takes part in decision-making processes concerning labor policy.


For centuries China, the third largest country in the world occupying a fifteenth of the world’s landmass, stood as a leading civilization, outpacing the rest of the world in the arts and sciences. But in the nineteenth and early twentieth centuries, the country was beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the Communists under Mao Zedong established an autocratic socialist system that imposed strict controls over everyday life.

In late 1978, Deng Xiaoping and other leaders began moving the economy from a sluggish, inefficient, centrally planned economy to a more market-oriented system. Although the system still operates within a political framework of strict state control, the economic influence of nonstate organizations and individual citizens has been steadily increasing. China replaced old collectives with a system of household and village responsibility in agriculture, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprises in services and light manufacturing, and opened the economy to increased foreign trade and investment. The result has been a quadrupling of the gross domestic product (GDP) since 1978 and an amazing growth in foreign trade (
Table 13-3
). Measured on purchasing power parity (PPP) basis, China in

Table 13-3

Growth of China’s Foreign Trade (1996–2008) (Unit USD$ 1 billion)

























Source: China Statistical Yearbook, China Statistics Press, 2010; General Administration of Customers of the PRC, China’s Customs Statistics from Chinability at www.chinability.com.

2010 stood as the second largest economy in the world after the United States. In only thirty short years after Xiaoping’s economic reforms, China’s exports increased from $9.75 billion in 1978 to $1,428.6 billion in 2008.

China has benefited from globalization in the Internet industry and has a lead in the absorption of technology and a rising prominence in world trade. For example, China posted an 11.4 percent economic growth in 2007—more than twice the world average of 4.9 percent.
 The transition toward a market economy has led to changes in the labor relations environment. The starting point of China’s industrial relations system was an economy based on the state ownership of the means of production and strict centralized control of wages, prices, and employment. This planned economy was able to reconcile the interests of workers, managers, and the state with an administrative framework guaranteed by the central government. China initially attempted to develop a “ 
socialist market economy
 ” in which state ownership of the means of production would be retained but the control of wages, prices, and employment would be relaxed and a private sector would be allowed to develop.
 China revised that economic model to strongly favor state-owned enterprises, granting them preferential access to capital, technology, and markets, and, at the same time, to allow foreign investment, resulting in foreign firms claiming much of China’s industrial exports.
 China relaxed its guarantees of employment, wages, and welfare as these 
state-owned enterprises
 (SOEs) became subject to competitive market pressures, and the central government turned over responsibility for economic management and financial solvency to the SOEs.

Socialist market economy

In China, economic system in which state retains ownership of the means of production but wages, prices, and employment would be allowed to develop in the private sector.

State-owned enterprises

In China, state-owned businesses which enjoy preferential access to capital, technology, and markets as well as protection from private sector competition.

This transformation challenged trade unions in China because they had been a part of the socialist system, not as workers’ representatives but performing state functions in the workplace. The All-China Federation of Trade Union’s constitution had described their role as “transmission belts between the [communist] party and the masses.”
 They focused on the day-to-day shop floor problems to ensure the success of the enterprise while educating the workers and making sure they were not exploited. With entry into the global economy, jobs and living standards have

A Chinese woman sews shirts at the Youngor Group’s textile factory in Ningbo, in China’s Zhejiang province.

Source: © REINHARD KRAUSE/Reuters/Corbis.

become subordinate issues to SOEs being competitive. So the growing divergence of interest between employers (the state) and employees has led to increased worker unrest. Thus, in China, as in the countries discussed earlier, the emergence of trade unions as worker representatives, and not the representatives of employers, has been as a result of labor unrest.

Philosophically, China’s industrial relations within its socialist market economy have a fundamental difference from industrial relations within capitalist economies. According to the theory of the socialist market economy, state ownership of the enterprise means the “employers” are really custodians of the interests of the entire society. The trade union, then, is not supposed to represent the employees against the employer, but the entire enterprise, just as the employers do. Therefore, collective contracting and resolution of disputes were nonadversarial, resolved on the basis of the common interest of the whole.
 That philosophy began to change somewhat with the transition to a capitalist market economy, albeit made up primarily of SOEs. These enterprises had to cover their costs and realize a profit to finance future development, which refocused their attention from the collective good to the bottom line. Trade unions found their roles somewhat enhanced as actual representatives of the employees rather than just transition belts between the government and the workers.

In the past, trade unionism in China, as in other “new” economies, suffered from its inability to pressure employers, be they either SOEs or foreign investors, without resorting to conflict tactics that might provoke social unrest and renewed repression, as had been experienced after the Tiananmen Square incident in 1989.

However, a new labor movement in China that surfaced when workers went on strike at Honda and Toyota plants has caused many companies to change their labor relations practices and policies, raise wages and benefits, and improve working conditions. Some Chinese production workers are comparing their pay with their counterparts in Japan—a substantial pay gap that may be an ominous sign for Chinese employers. The tight job market combined with a more militant, young, educated workforce has caused employers like Honda, Toyota, Daimler AG, Yum Brands Inc. (KFC and Pizza Hut), and Compal Electronics—the world’s largest manufacturer of PCs—to offer performance-based bonuses as well as other economic improvements to attract and retain Chinese workers. One dramatic incident caused Hon Hai Precision Industry—the world’s largest contract manufacturer of electronics (Apple and Hewlett-Packard)—to initiate labor improvements. In 2010 ten of Hon Hai’s workers jumped to their deaths to focus attention on the plight of their coworkers.

Profile 13-4 China Walmart Stores Organized with U.S. Labor Assistance

On August 16, 2006, Walmart, the U.S. retailer with a history of antiunion policies, signed an agreement allowing the formation of unions in its China stores. Joe Hatfield, chief executive of Walmart, Asia, said, “I fully anticipate working collaboratively with leadership from All China Federation of Trade Unions (ACFTV) and union organizations at all levels to create a model working relationship.” The decision was a complete reversal of Walmart’s hostile union policy in past years. It is quite ironic because Walmart, the U.S.-based retail giant, opened the door to unions in communist China, whereas it has successfully kept out unions in the United States. Within months, the ACFTU established unions at 62 Walmart stores in 30 China cities. Under Chinese law, however, the unions do not have collective bargaining or strike rights.

The historic event came largely as the result of (1) a new 2005 China labor law that gives unions more powers to organize workers and (2) a two-year focused effort by U.S.

Even though Walmart announced it would not allow its stores in China to unionize, the All-China Federation of Trade Unions (ACFTU), with over 130 million members, successfully organized 62 Walmart stores by the end of 2007.

Source: Remy Gabalda/AP Images.

labor leader Andy Stern, president of Service Employees International Union (SEIU), to organize Walmart stores in China. A key point in the process came in November 2005 when a delegation from the Chinese union flew to the United States. At a dinner in San Francisco they complained that workers in Nanjing, China, had made more than 20 attempts to meet with Walmart management—without success. The SEIU team suggested that instead they begin meeting with workers at their homes, bus stops, or restaurants. The idea worked, and the ACFTU leaders found a Walmart employee to lead the organizational effort. Ke Yunlong, a 30-year-old frozen meats worker in Jingiang, agreed to lead the union efforts. Yunlong, with the assistance of the ACFTU, held the first Walmart China union meeting on July 29, 2006. The ACFTU officials made a written promise to workers that if they were fired for union-related activity, the union would find them a similar-paying job. The union then began sending organizers to the entrance of the store to catch workers before shifts and sign them as members. The banner above Yunlong on July 29, 2006, read, “Determined to take the road to develop trade unionism with Chinese characteristics.”

Source: Adapted from Mei Fong and Kris Maher, “U.S. Labor Leader Aided China’s Wal-Mart Coup,” Wall Street Journal (June 22, 2007), pp. A1, 8; and UNI, Commerce home page. Available at www.union-network.org. Accessed February 28, 2008.


Globalization in the twenty-first century has increased competition among nations for investment, technology, and labor. The international trade union movement has been seen as a uniting force, able, perhaps, to institutionalize worker protections within various political and legal systems. In studying labor relations around the world, a comparison can be made between a number of countries and the United States in the way the labor movement grew from industrialization. When the industrial revolution began, whether in England in the early 1800s or in Japan a century later, the unskilled workers needed to fuel the industries were vulnerable to being treated as a commodity. So although industrialization brought progress and prosperity, workers found it necessary to band together to make sure they could reap benefits from both.

Great Britain had for years followed a voluntary approach to labor relations, which focused on a union and an employer’s agreement to engage in collective bargaining, rather than legislative fiats. That situation changed somewhat in the 1980s when Prime Minister Margaret Thatcher outlawed secondary strikes, limited picketing, and prohibited a closed shop. Australia’s industrial relations system uses compulsory conciliation and arbitration to resolve collective bargaining impasses. Prior to the 1980s, most of the time wages and terms of conditions of employment were established across industries once an “award” was arrived at by negotiators or imposed by the arbitrator. Australia modernized its system by streamlining the award system and emphasizing enterprise rather than industry-wide bargaining. Canada combined British-style voluntarism in recognition of unions, American-style welfare capitalism in labor benefits laws, and Australian-style government-mandated mediation and fact-finding for its industrial relations.

In Europe, oligarchies and democracies, capitalists and socialists, caused the labor movement to embrace a threefold agenda: representing employees and advancing their employment interests through collective action, increasing workers’ protections through active engagement in the political process, and improving the lives of workers through the promotion of welfare and education agendas. The EU has become a powerful economic and political entity through its Single Market and Social Charter principles. However, it is still struggling to increase labor mobility despite linguistic and cultural differences, problems with benefit portability, and inconsistent training and education standards.

Japan had been subject to foreign occupation so that when the industrial revolution arrived, it had no indigenous entrepreneurial middle class to finance and grow needed industries. So powerful families, with the help of the government, became the entrepreneurs and opened and ran the factories with the government’s help. The Allies fostered the labor movement in Japan after World War II. China has emerged as the second largest world economy after moving to a market-oriented system. In recent years Chinese workers demanded and received substantially higher wages and benefits.

And although it is not a significant player in the history of the labor movement in the United States, the International Labour Organization is a 70-year-old organization dedicated to the key principles of the labor movement: Labor is not a commodity, workers have the right to organize into unions, and workers have the right to bargain with their employers about wages and the terms and conditions of their employment. ILO’s international standards bring focus and unity to the labor movement around the world, particularly in developing nations.

Case Studies Case Study 13-1 Freedom of Movement

Regulation (EEC) No 1612/68 of the European Union Council of October 15, 1968 on freedom of movement for workers within the Community Article 7(1) and (2) reads as follows:

1. A worker who is a national of a Member State may not, in the territory of another Member State, be treated differently from national workers by reason of his nationality in respect of any conditions of employment and work, in particular as regards remuneration, dismissal, and should he become unemployed, reinstatement or reemployment;

2. He shall enjoy the same social and tax advantages as national workers.

According to the law of Germany on child-raising allowance and parental leave, any permanent resident or any person who is ordinarily a resident of Germany who has a dependent child and has no full-time employment can claim a child-raising allowance. In addition, nationals of the EU Member States from countries having a common border with Germany are also entitled to the child-raising allowance, provided they are engaged in more than minor employment in Germany. Finally, the spouse resident in another Member State of a person working in the civil service or a public-law employment in Germany may receive child-raising allowance. The Court had previously held that Germany’s child-raising allowance constitutes a social advantage within the meaning of Article 7(2).

The Plaintiff is an Austrian national married to a German national who previously lived in Germany. They now live in Austria with their three children, and her husband works in Germany as a civil servant. Bavaria refused to grant Ms. Hartmann the child-raising allowance provided for under German law for her three children. The grounds for the refusal to grant the child-raising allowance were that the Plaintiff was not a resident in Germany and did not work there.

Two questions were presented to the court for a preliminary ruling. First:

“Is a German national who, while continuing his service as a post office official in Germany, moved his permanent residence from Germany to Austria and has since then carried on his occupation as a border worker to be regarded as a migrant worker within the meaning of Regulation (EEC) No 1612/68?”

The German government, the U.K. government, and the Commission of the European Communities, in their written observations, and the Netherlands government, at the hearing, submitted that only the movement of a person to another Member State for the purpose of carrying on an occupation should be regarded as having exercised the right of freedom of movement for workers protected by EU agreements. A person such as the Plaintiff’s husband, who never left his employment in the Member State of which he is a national and merely transferred his residence to the Member State of his spouse, could not therefore benefit from the EU Community provisions on freedom of movement for workers.

The Plaintiff’s response was that just because her husband settled in Austria for reasons not connected with his employment does not justify refusing him the status of migrant worker that he acquired when, following the transfer of his residence to Austria, he made full use of his right to freedom of movement for workers by going to Germany to carry on an occupation there. Plaintiff’s husband falls within the scope of the provisions of the EC Treaty on freedom of movement for workers, and hence of the Regulation.

This was the second question:

“Does it constitute indirect discrimination within the meaning of Article 7(2) of Regulation No 1612/68 if the non-working spouse of the person mentioned in Question 1, who lives in Austria and is an Austrian national, was excluded from receiving German child-raising allowance in the period in question because she did not have either her permanent or ordinary residence in Germany?”

The German and U.K. governments observed that it would be unfair to allow a border worker whose residence and workplace are in different Member States to enjoy the same social advantages in both Member States and to combine them. To avoid that risk, and in view of the fact that the Regulation does not contain any coordinating rules to avoid the stacking of benefits, the possibility of “exporting” child-raising allowance to the frontier worker’s Member State of residence could be excluded. As explained by the parties, the German child-raising allowance constitutes an instrument of national family policy intended to encourage the birth-rate in that country. The primary purpose of the allowance is to allow parents to care for their children themselves by giving up or reducing their employment in order to concentrate on bringing up their children in the first years of their life. The German government adds essentially that child-raising allowance is granted in order to benefit persons who, by their choice of residence, have established a real link with German society. It says that, in that context, a residence condition such as that at issue in the main proceedings is justified.

The Plaintiff argues that her husband’s status of frontier worker does not in any way prevent him from being able to claim the equal treatment prescribed by Article 7(2) in relation to the grant of social advantages. The Court has already held that frontier workers can rely on the provisions of Article 7 on the same basis as any other worker to whom that article applies. The Plaintiff as the spouse of a worker who falls within the scope of the Regulation, is an indirect beneficiary of the equal treatment granted to migrant workers by Article 7(2). Consequently, the benefit of German child-raising allowance can be extended to her if that allowance constitutes for her husband a “social advantage” within the meaning of Article 7(2).

The Plaintiff notes that a benefit such as German child-raising allowance, which enables one of the parents to devote himself or herself to the raising of a young child, by meeting family expenses, benefits the family as a whole, whichever parent it is who claims the allowance. The grant of such an allowance to a worker’s spouse is capable of reducing that worker’s obligation to contribute to family expenses, and therefore constitutes for him, or her, a “social advantage” within the meaning of Article 7(2). Further, that article provides that a migrant worker is to enjoy the same social and tax advantages in the host Member State as national workers. Since child-raising allowance is a “social advantage” within the meaning of that provision, a migrant worker in a situation such as this, and consequently his spouse, must, for the reasons mentioned earlier, be able to enjoy it on the same basis as a national worker. Regardless of whether the aims pursued by the German legislation could justify a national rule based exclusively on the criterion of residence, it must be observed that the German legislature did not confine itself to a strict application of the residence condition for the grant of child-raising allowance but allowed exceptions under which frontier workers who carry on an occupation in Germany but reside in another Member State can claim German child-raising allowance if they carry on an occupation of a more than minor extent.

Source: Adapted from Gertraud Hartmann v. Freistaat Bayern, Case C-212/05, Court of Justice of European Union (Grand Chamber), July 18, 2007.


1. How should the court decide this case to support the European Union’s commitment to labor mobility between Member States? Explain.

2. Contrast and compare the situations of compelling Germany to grant child-raising benefits to the plaintiff, a resident of Austria, with the state of Illinois granting state unemployment benefits to a resident of Indiana.

Case Study 13-2 Discrimination against Union Official

The Trade Unions International of Public and Allied Employees filed a complaint with the ILO Committee alleging violations of trade union rights in France. The union explained that Mr. Laganier, administrator at the National Institute of Statistics and Economic Studies (INSEE), had been detached to the Ministry of Industry for seven years. On his return from leave he found furniture removers in his office and learned that he was being sent back to his office of origin without his superiors having requested it. Although the official reason given for the measure was that of budgetary restrictions, the union added that Laganier had cost the Ministry of Industry nothing because he continued to be paid by the INSEE. The union stated that Laganier has been transferred not in his capacity as an official with INSEE, but as general secretary of a trade union, and the move was a violation of trade union rights in complete contradiction with ILO Conventions Nos. 98 and 135. According to the union, it was part of a more general, large-scale offensive against the trade union rights of public servants, organized by the French government.

In its reply the government stated that the director of the Office of the Minister of Industry had communicated the decision of Laganier’s return to his former office to his superiors. According to the government, the reason for the return was the reorganization of the services of the Ministry of Industry, which required a reduction in the number of permanent officials on loan from INSEE. Naturally Laganier was paid by INSEE, but there is an overall limitation on loaned officials so there are organizational ramifications for placements. Furthermore, the government pointed out that this decision was by no means an exceptional one because it fell within the normal career development process of INSEE administrators, who are placed at the disposal of the Ministry of Industry on a purely temporary basis. The case of Laganier, who had been attached to the Ministry for over seven years, was, according to the government, analogous to that of all other INSEE administrators recruited at the same time or earlier, without exception, and they, like him, had returned to this body after spending several years working for the Ministry of Industry. The government added that the official’s departure had no effect on the CGT’s representation within the ministry. It concluded by stating that freedom of association was fully respected in this ministry, as in other departments, under the provisions of the prime minister’s circular dated September 14 relating to the exercise of trade union rights in the public service.

The union responded that ILO has always taken the view that one of the fundamental principles of freedom of association is that workers should enjoy adequate protection against all acts of antiunion discrimination in respect of their employment—dismissal, transfer, downgrading, and other prejudicial measures—and that this protection is particularly desirable in the case of trade union officials because, to carry out their trade union functions in full independence, they must have the assurance they will not be victimized by virtue of their trade union office. Furthermore, the ILO considers that the existence of basic legislation forbidding acts of antitrade union discrimination is insufficient if such legislation is not accompanied by effective procedures ensuring its practical application. Thus, when a worker considers that he has been a victim of antitrade union practices, he should be able to appeal to a tribunal or to another authority independent of the parties.

The government responded that, based on the provisions of the prime minister’s circular previously mentioned, the representatives of trade union organizations subjected to discrimination regarding their progression in their careers “may in particular defend themselves before administrative courts against … individual decisions prejudicial to the collective interests of public officials.” The union in this case did not appeal the decision of the ministry with the appropriate French court so this case should not be before the ILO Committee. The ILO Committee, although not bound by any rule that national procedures of redress must be exhausted before it will hear such complaints, will consider that a national remedy before an independent tribunal whose procedure offers appropriate protections, has not been pursued.

Source: Adapted from The Trade Unions International of Public and Allied Employees v. Government of France, Case No. 866, Report No. 168, International Labour Organization.


1. What are some of the reasons that the ILO does not defer to national procedures, such as U.S. courts defer to arbitration, before hearing a labor complaint?

2. If the practice of the Ministry of Industry had been to return loaned personnel on a routine basis, give some of the reasons why the union in this case would have believed Laganier was being discriminated against.

 You be the Arbitrator Minimum Wage

Paragraph 1 (1)

Minimum Wage

The Law on the Posting of Workers extends certain collective agreements to employers established outside Germany and to their workers posted to Germany. That provision is worded as follows:

The legal rules resulting from a collective agreement governing the construction industry which is declared to be universally applicable …, which relate to minimum pay, including pay for overtime … shall also apply … to an employment relationship linking an employer established outside Germany and his employee working within the territory covered by that collective agreement. …

[T]he collective agreement on the minimum wage provides that the minimum wage consists of the hourly pay provided for by that agreement and the bonus granted to workers in the construction industry, which together make up the total hourly pay under the agreement. … [A]llowances and supplements paid by an employer, with the exception of the general bonus granted to workers in the construction industry, were not to be regarded as constituent elements of the minimum wage. … those supplements include in particular allowances in respect of overtime, night and Sunday work or work on public holidays, in addition to bonuses for travel and for heavy work.


It is an obligation of the member states to the European Union to ensure that employers from other countries that have posted their workers within the member state’s borders follow the host country’s minimum wage laws. This obligation stems from the promotion of freedom of movement for workers and nondiscrimination against another member state’s citizens. The EU Commission investigated a complaint lodged against the Federal Republic of Germany that it was not enforcing the minimum wage law because it was not including in the calculation of the minimum wage all allowances and supplements paid by the employer. By not including those allowances and supplements, the foreign employer was required to pay its workers a higher minimum wage than German employers were required to pay. Specifically, the omitted allowances included bonuses for a 13th and 14th salary months, holiday pay, contributions to retirement accounts, bonuses for the quality of the work performed, and bonuses for dirty, heavy, or dangerous work.


Did Germany apply the correct method for comparing the minimum rate of pay due under German law and the amount of pay actually paid by the employer established in another member state to its posted employees?

The Position of the Parties

According to the commission, employers established in other Member States may be obliged, under the provisions applicable in those states, to provide other elements of pay in addition to the normal hourly pay. For example, an employer in the U.K. may be required to compensate its construction workers posted outside the U.K. for any medical bills they are required to pay because they would not have access to U.K.’s universal health care coverage while outside the U.K. Under the German legislation, such payments cannot be taken into account for the purpose of calculating the minimum wage. The commission contends that the failure to take into account allowances and supplements results in higher wage costs than those that German employers are required to pay to their employees and that employers established in other Member States are thus prevented from offering their services in Germany. Although the commission agrees that the Member State to the territory of which a worker is posted is allowed to determine the minimum rate of pay applicable within its borders, a Member State cannot, in comparing that rate and the wages paid by employers established in other Member States, impose its own payment structure on that employer.

According to the German government, it recognizes allowances and supplements paid by an employer that do not alter the relationship between the service provided by the worker and the payment that he receives. By contrast, allowances and supplements that do alter the balance between the services provided by the worker and the consideration that he receives in return cannot, according to the German rules, be recognized as forming part of the minimum wage and cannot be treated as constituent elements of that wage rate. The German government argues that hours worked that involve requirements of a particularly high degree of quality, or that involve special constraints or dangers, have a greater economic value than that of normal working hours and that the bonuses relating to such hours must not be taken into account in the calculation of the minimum wage. If those amounts were taken into account for the purposes of that calculation, the worker would be deprived of the economic value corresponding to those hours of work.


1. As arbitrator, what would be your award and opinion in this arbitration?

2. Identify the key, relevant section(s), phrases, or words of the collective bargaining agreement (CBA), and explain why they were critical in making your decision.

3. What actions might the employer and/or the union have taken to avoid this conflict?

Source: Adapted from Commission of the European Communities v. Federal Republic of Germany, Case C-341/02, April 14, 2005.

Appendix A Texts of Statutes

National Labor Relations Act

· Also cited NLRA or the Act; 29 U.S.C. §§151–169

· [Title 29, 
Chapter 7
, Subchapter II, United States Code]

Findings and Policies

Section 1. [§151.]

The denial by some employers of the right of employees to organize and the refusal by some employers to accept the procedure of collective bargaining lead to strikes and other forms of industrial strife or unrest, which have the intent or the necessary effect of burdening or obstructing commerce by (a) impairing the efficiency, safety, or operation of the instrumentalities of commerce; (b) occurring in the current of commerce; (c) materially affecting, restraining, or controlling the flow of raw materials or manufactured or processed goods from or into the channels of commerce, or the prices of such materials or goods in commerce; or (d) causing diminution of employment and wages in such volume as substantially to impair or disrupt the market for goods flowing from or into the channels of commerce.

The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries.

Experience has proved that protection by law of the right of employees to organize and bargain collectively safeguards commerce from injury, impairment, or interruption, and promotes the flow of commerce by removing certain recognized sources of industrial strife and unrest, by encouraging practices fundamental to the friendly adjustment of industrial disputes arising out of differences as to wages, hours, or other working conditions, and by restoring equality of bargaining power between employers and employees.

Experience has further demonstrated that certain practices by some labor organizations, their officers, and members have the intent or the necessary effect of burdening or obstructing commerce by preventing the free flow of goods in such commerce through strikes and other forms of industrial unrest or through concerted activities which impair the interest of the public in the free flow of such commerce. The elimination of such practices is a necessary condition to the assurance of the rights herein guaranteed.

It is declared to be the policy of the United States to eliminate the causes of certain substantial obstructions to the free flow of commerce and to mitigate and eliminate these obstructions when they have occurred by encouraging the practice and procedure of collective bargaining and by protecting the exercise by workers of full freedom of association, self-organization, and designation of representatives of their own choosing, for the purpose of negotiating the terms and conditions of their employment or other mutual aid or protection.


Sec. 2. [§152.]

When used in this Act [subchapter]—

1. The term “person” includes one or more individuals, labor organizations, partnerships, associations, corporations, legal representatives, trustees, trustees in cases under title 11 of the United States Code [under title 11], or receivers.

2. The term “employer” includes any person acting as an agent of an employer, directly or indirectly, but shall not include the United States or any wholly owned Government corporation, or any Federal Reserve Bank, or any State or political subdivision thereof, or any person subject to the Railway Labor Act [45 U.S.C. §151 et seq.], as amended from time to time, or any labor organization (other than when acting as an employer), or anyone acting in the capacity of officer or agent of such labor organization.

[Pub. L. 93–360, §1(a), July 26, 1974, 88 Stat. 395, deleted the phrase “or any corporation or association operating a hospital, if no part of the net earnings inures to the benefit of any private shareholder or individual” from the definition of “employer.”]

3. The term “employee” shall include any employee, and shall not be limited to the employees of a particular employer, unless the Act [this subchapter] explicitly states otherwise, and shall include any individual whose work has ceased as a consequence of, or in connection with, any current labor dispute or because of any unfair labor practice, and who has not obtained any other regular and substantially equivalent employment, but shall not include any individual employed as an agricultural laborer, or in the domestic service of any family or person at his home, or any individual employed by his parent or spouse, or any individual having the status of an independent contractor, or any individual employed as a supervisor, or any individual employed by an employer subject to the Railway Labor Act [45 U.S.C. §151 et seq.], as amended from time to time, or by any other person who is not an employer as herein defined.

4. The term “representatives” includes any individual or labor organization.

5. The term “labor organization” means any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.

6. The term “commerce” means trade, traffic, commerce, transportation or communication among the several States, or between the District of Columbia or any Territory of the United States and any State or other Territory, or between any foreign country and any State, Territory, or the District of Columbia, or within the District of Columbia or any Territory, or between points in the same State but through any other State or any Territory or the District of Columbia or any foreign country.

7. The term “affecting commerce” means in commerce, or burdening or obstructing commerce or the free flow of commerce, or having led or tending to lead to a labor dispute burdening or obstructing commerce or the free flow of commerce.

8. The term “unfair labor practice” means any unfair labor practice listed in section 8 [section 158 of this title].

9. The term “labor dispute” includes any controversy concerning term, tenure or conditions of employment, or concerning the association or representation of persons in negotiating, fixing, maintaining, changing, or seeking to arrange terms or conditions of employment, regardless of whether the disputants stand in the proximate relation of employer and employee.

10. The term “National Labor Relations Board” means the National Labor Relations Board provided for in section 3 of this Act [section 153 of this title].

11. The term “supervisor” means any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

12. The term “professional employee” means—

a. any employee engaged in work (i) predominantly intellectual and varied in character as opposed to routine mental, manual, mechanical, or physical work; (ii) involving the consistent exercise of discretion and judgment in its performance; (iii) of such a character that the output produced or the result accomplished cannot be standardized in relation to a given period of time; (iv) requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study in an institution of higher learning or a hospital, as distinguished from a general academic education or from an apprenticeship or from training in the performance of routine mental, manual, or physical processes; or

b. any employee, who (i) has completed the courses of specialized intellectual instruction and study described in clause (iv) of paragraph (a), and (ii) is performing related work under the supervision of a professional person to qualify himself to become a professional employee as defined in paragraph (a).

13. In determining whether any person is acting as an “agent” of another person so as to make such other person responsible for his acts, the question of whether the specific acts performed were actually authorized or subsequently ratified shall not be controlling.

14. The term “health care institution” shall include any hospital, convalescent hospital, health maintenance organization, health clinic, nursing home, extended care facility, or other institution devoted to the care of sick, infirm, or aged person.

[Pub. L. 93–360, §1(b), July 26, 1974, 88 Stat. 395, added par. (14).]

National Labor Relations Board

Sec. 3. [§153.]

a. [Creation, composition, appointment, and tenure; Chairman; removal of members] The National Labor Relations Board (hereinafter called the “Board”) created by this Act [subchapter] prior to its amendment by the Labor Management Relations Act, 1947 [29 U.S.C. §141 et seq.], is continued as an agency of the United States, except that the Board shall consist of five instead of three members, appointed by the President by and with the advice and consent of the Senate. Of the two additional members so provided for, one shall be appointed for a term of five years and the other for a term of two years. Their successors, and the successors of the other members, shall be appointed for terms of five years each, excepting that any individual chosen to fill a vacancy shall be appointed only for the unexpired term of the member whom he shall succeed. The President shall designate one member to serve as Chairman of the Board. Any member of the Board may be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.

b. [Delegation of powers to members and regional directors; review and stay of actions of regional directors; quorum; seal] The Board is authorized to delegate to any group of three or more members any or all of the powers which it may itself exercise. The Board is also authorized to delegate to its regional directors its powers under section 9 [section 159 of this title] to determine the unit appropriate for the purpose of collective bargaining, to investigate and provide for hearings, and determine whether a question of representation exists, and to direct an election or take a secret ballot under subsection (c) or (e) of section 9 [section 159 of this title] and certify the results thereof, except that upon the filling of a request therefor with the Board by any interested person, the Board may review any action of a regional director delegated to him under this paragraph, but such a review shall not, unless specifically ordered by the Board, operate as a stay of any action taken by the regional director. A vacancy in the Board shall not impair the right of the remaining members to exercise all of the powers of the Board, and three members of the Board shall, at all times, constitute a quorum of the Board, except that two members shall constitute a quorum of any group designated pursuant to the first sentence hereof. The Board shall have an official seal which shall be judicially noticed.

c. [Annual reports to Congress and the President] The Board shall at the close of each fiscal year make a report in writing to Congress and to the President summarizing significant case activities and operations for that fiscal year.

d. [General Counsel; appointment and tenure; powers and duties; vacancy] There shall be a General Counsel of the Board who shall be appointed by the President, by and with the advice and consent of the Senate, for a term of four years. The General Counsel of the Board shall exercise general supervision over all attorneys employed by the Board (other than administrative law judges and legal assistants to Board members) and over the officers and employees in the regional offices. He shall have final authority, on behalf of the Board, in respect of the investigation of charges and issuance of complaints under section 10 [section 160 of this title], and in respect of the prosecution of such complaints before the Board, and shall have such other duties as the Board may prescribe or as may be provided by law. In case of vacancy in the office of the General Counsel, the President is authorized to designate the officer or employee who shall act as General Counsel during such vacancy, but no person or persons so designated shall so act (1) for more than forty days when the Congress is in session unless a nomination to fill such vacancy shall have been submitted to the Senate, or (2) after the adjournment sine die of the session of the Senate in which such nomination was submitted.

[The title “administrative law judge” was adopted in 5 U.S.C. §3105.]

Sec. 4. [§154. Eligibility for reappointment; officers and employees; payment of expenses]

a. Each member of the Board and the General Counsel of the Board shall be eligible for reappointment, and shall not engage in any other business, vocation, or employment. The Board shall appoint an executive secretary, and such attorneys, examiners, and regional directors, and such other employees as it may from time to time find necessary for the proper performance of its duties. The Board may not employ any attorneys for the purpose of reviewing transcripts of hearings or preparing drafts of opinions except that any attorney employed for assignment as a legal assistant to any Board member may for such Board member review such transcripts and prepare such drafts. No administrative law judge’s report shall be reviewed, either before or after its publication, by any person other than a member of the Board or his legal assistant, and no administrative law judge shall advise or consult with the Board with respect to exceptions taken to his findings, rulings, or recommendations. The Board may establish or utilize such regional, local, or other agencies, and utilize such voluntary and uncompensated services, as may from time to time be needed. Attorneys appointed under this section may, at the direction of the Board, appear for and represent the Board in any case in court. Nothing in this Act [subchapter] shall be construed to authorize the Board to appoint individuals for the purpose of conciliation or mediation, or for economic analysis.

[The title “administrative law judge” was adopted in 5 U.S.C. §3105.]

b. All of the expenses of the Board, including all necessary traveling and subsistence expenses outside the District of Columbia incurred by the members or employees of the Board under its orders, shall be allowed and paid on the presentation of itemized vouchers therefore approved by the Board or by any individual it designates for that purpose.

Sec. 5. [§155. Principal office, conducting inquiriesthroughout country; participation in decisions or inquiries conducted by member]

The principal office of the Board shall be in the District of Columbia, but it may meet and exercise any or all of its powers at any other place. The Board may, by one or more of its members or by such agents or agencies as it may designate, prosecute any inquiry necessary to its functions in any part of the United States. A member who participates in such an inquiry shall not be disqualified from subsequently participating in a decision of the Board in the same case.

Sec. 6. [§156. Rules and regulations]

The Board shall have authority from time to time to make, amend, and rescind, in the manner prescribed by the Administrative Procedure Act [by subchapter II of 
chapter 5
 of title 5], such rules and regulations as may be necessary to carry out the provisions of this Act [subchapter].

Rights of Employees

Sec. 7. [§157.]

Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities except to the extent that such right may be affected by an agreement