While it is widely known that the Employee Free Choice Act
(EFCA, H.R. 800) would strip workers of their right to vote in
private on joining a union, the bill contains an equally harmful
provision that has attracted much less attention. EFCA would allow
unions to send negotiations on their first contract with an
employer to binding arbitration after 90 days. This would give
government officials unprecedented power to set wages and
employment conditions throughout the economy and would reduce
business innovation and competitiveness. Congress should not force
binding arbitration on unions and employers.
Binding Arbitration Rarely Used
Under the Employee Free Choice Act, if negotiations on an
initial contract (the first after a union is recognized) take too
long, both workers and management would have to accept the decision
of an arbitrator on their wages and working conditions. This is
known as interest arbitration.
Binding arbitration has proved very useful for settling disputes
that might arise when there is a contract in place, but outside of
government there has been little interest in using third-party
binding arbitration to settle the terms of collective bargaining
agreements when negotiations break down. Some airlines have used
this method in the past, but otherwise workers and employers in the
private sector have made little use of interest arbitration.
Government Wage Setting
In interest arbitration, government officials create binding
contracts based on their own opinions of what is prudent and fair,
as opposed to having employers and unions work out those contracts
on their own. The government would simply impose wage and
employment conditions on workers and companies. Government
officials, even after sitting through arbitration proceedings, do
not have the same understanding of either a company or its workers
as do the company's officers and its employees. An overly generous
award can have far-reaching effects and could eventually backfire
on those same workers it was intended to benefit-even those who
manage to avoid being laid off.
This procedure has a poor record in Michigan, where it has been
used for 40 years to resolve labor disputes involving police
officers and firefighters. The process has proved to be cumbersome,
with drawn-out arbitrations leading to large back pay awards for
workers who are forced to wait for months or years to receive pay
increases.
Impedes Competitiveness and
Innovation
As damaging as an ill-advised arbitrator's decision might be for
a local government, there are several reasons to believe that the
risk might be even greater in the private sector:
- Unlike the typical state interest arbitration scheme, this law
would apply only to the initial negotiations after a union is
recognized. This means that the arbitrator could not look to prior
collective bargaining agreements for guidance.
- A conscientious arbitrator is more likely to base his or her
decision on the practices of comparable companies, but this has
drawbacks. A company with its own distinctive business model could
be forced to adopt the practices of its competitors, but using a
workforce that was structured for its original, unique approach.
Likewise, employees may be obligated to adopt work practices with
which they are not familiar. Either way, the company and its
employees would find that a competitive advantage is suddenly
turned into a disadvantage.
- If the arbitration process turns out to be a slow one, as it
often is in Michigan, business owners would be forced to prepare
for retroactive back pay awards while they wait for overdue
decisions. This ties up funds that cannot be used to invest in new
equipment or to lure new workers, because back pay awards go
exclusively to the existing workforce.
- Unlike a local government, a business cannot raise taxes or
turn to a higher level of government for assistance if an
arbitrator's decision goes against it. Competition in the free
market means that if an arbitrator miscalculates and raises wages
too high, companies cannot raise their prices to compensate for the
decision without the risk of losing customers. These factors only
increase the chances that an ill-advised arbitrator's ruling will
lead to financial difficulty and layoffs.
Conclusion
Interest arbitration is rarely used in the private sector, for
good reason. Where it is used in the government sector, it works
poorly, with long delays. If the government requires companies to
enter binding arbitration, it would lead to government wage-setting
for hundreds of companies, forcing businesses into contracts that
leave them less competitive and less able to innovate. Congress
should think twice before forcing workers and companies into
binding arbitration for purposes that they seldom use it for
voluntarily.
-Paul Kersey is senior labor policy
analyst at the Mackinac Center for Public Policy, a research and
educational institute in Midland, Michigan. James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The
Heritage Foundation.