Binding Arbitration Threatens Workers' Rights

COMMENTARY Jobs and Labor

Binding Arbitration Threatens Workers' Rights

Jun 20th, 2007 3 min read

Research Fellow, Labor Economics

As research fellow in labor economics at The Heritage Foundation, James Sherk researched ways to promote competition and mobility.

With union membership in steady decline, Organized Labor faces a choice. It can do the hard work necessary to shed the New Deal-model that still shapes its outdated approach and adapt to today's economy. Or it can flex its political muscle and get Congress to make it easier to force workers to join.

Union leaders have selected curtain number two.

Lately, they've been using their clout in the new Congress to push the cynically misnamed "Employee Free Choice Act." Its most well-known provision would strip workers of the privacy of the ballot box and make them join a union by publicly singing a union card. But the act goes further. Almost overlooked is the binding arbitration section of the act, which would do even more to undermine workers' rights and a free economy.

At issue is how long it takes to hammer out a new labor contract. One third of the time, union leaders allege, employers take more than two years to agree to an initial contract with a newly formed union. So the Employee Free Choice Act would let unions send the contract to binding arbitration after 90 days of negotiations. When that happens, a government-appointed arbitrator sets wages and working conditions, and the contract binds both employers and employees for two years.

Never mind the fact that the researcher who produced the one-third figure says that it applies to only a limited number of organizing drives, and that the actual rate is less than half that much for all organizing campaigns. Or the fact that binding arbitration itself is glacially slow and takes an average of 15 months to produce contracts in states that use it. Unions see binding arbitration as a chance to have the government impose far greater concessions on employers than they could ever win at the bargaining table.

Binding arbitration would end free markets throughout much of the economy. Government officials could dictate wages and working conditions to any company unfortunate enough to be organized. Wage controls failed in the 1970s, but Organized Labor wants to bring them back.

Since arbitrators are outside government officials, not businessmen, they lack the detailed knowledge of a company needed to write a workable contract. In a first contract, arbitrators have no previous contracts to look to for guidance. They would probably look to contracts signed by other firms in the same industry, meaning that they're likely to force innovative firms to adopt the same businesses models as their competitors.

Arbitrators who write a poor contract could easily bankrupt a company. In a competitive market, firms cannot pass high wage costs onto consumers without losing most of their customers. Unlike collective bargaining, where employers and employees must live with the contract they produce together, the law leaves arbitrators unaccountable for the results of the contracts they write.

Binding arbitration would do just as much damage to workers' rights. They would lose all recourses currently available to them. Union members would lose their right to vote on ratifying the contract they must work under, and they could not strike over the final contract, no matter how bad it is. Binding arbitration gives workers a contract whether they like it or not.

Binding arbitration could also cost workers their pensions. Unions are likely to press the arbitrator to force newly organized workers to join a multi-employer union pension plan, and in industries where these plans are common, the arbitrator would likely agree.

Mismanagement and overly generous benefits have left many of these plans under funded, and unions are eager to add new workers so that their contributions will keep the benefits flowing to current retirees. But once in, new workers would be paying largely to shore up an endangered plan, not to build a secure retirement for themselves.

In addition, labor law prevents workers from voting to decertify their union while a contract is in place. So binding arbitration would guarantee that if a union used pressure tactics to intimidate workers into joining, they couldn't vote that union out for at least two years.

Unions are counting on binding arbitration to revitalize their movement. There is talk in Washington that labor officials recognize that trying to take away workers' right to vote in privacy is politically toxic, and that they could accept, for now, a compromise bill that includes only the binding-arbitration provision. Such a compromise would be almost as bad as the original bill -- stripping workers of their rights while allowing Washington officials to dictate wages and working conditions.

Union leaders might want to return to the 1970s, when union membership was twice what it is today. But America workers shouldn't be forced to go along for the ride.

James Sherk is a policy analyst in the Center for Data Analysis at The Heritage Foundation.