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March 12, 2009
By James Sherk
The Employee Free Choice Act (EFCA, H.R. 1409, S. 560) does more
than take away secret ballot elections: It empowers the federal
government to impose contracts on newly organized companies. The
government would set wages, benefits, work assignments, promotion
procedures, and any major changes to business operations. Because
EFCA has no meaningful small businesses exemption, it would
authorize federal control of up to 4 million small businesses
employing 39 million Americans. Consequently, bureaucrats with no
management experience would effectively control these small
Four Million Small Businesses
The misnamed Employee Free Choice Act affects both large and
small businesses. The National Labor Relations Act (NLRA) has a
small business exception. However, this exemption has not been
updated for inflation since 1959. It covers all non-retail
businesses with gross revenues of $50,000 a year and retail
businesses with gross revenues over $500,000 a year.
To put those figures into perspective, the average
private-sector worker costs his or her employer $56,000 a year in
wages and benefits--before the cost of any capital needed to do the
A business with one worker earning average pay would not qualify.
Consequently, the law has no meaningful small businesses
The Heritage Foundation used Census Bureau data to calculate how
many small businesses EFCA would affect: The act covers 4,180,000
businesses employing 38,934,000 workers.
EFCA's Other Provision
EFCA takes away these workers' right to a secret ballot vote on
joining a union--a consequence that has attracted considerable
controversy. However, the bill has a second provision of equal if
not greater significance to small businesses that has attracted
much less attention: EFCA replaces collective bargaining with
government-imposed contracts for newly organized companies. Section
3 of the act provides that, after unions organize a business, the
company has 10 days to meet with union officials to begin
collective bargaining. After 90 days of bargaining, either party
may request mediation by the Federal Mediation and Conciliation
Service (FMCS). Thirty days later, if the parties have not settled
on a contract or agreed to extend negotiations, the FMCS shall
refer the dispute to an arbitration board established in accordance
with such regulations as may be prescribed by the service. The
arbitration panel shall render a decision settling the dispute, and
such decision shall be binding upon the parties for a period of two
years, unless amended during such period by written consent> of the
In place of collective bargaining, the government would impose a
contract for two years. In practice, EFCA will effectively
eliminate collective bargaining for initial contracts because the
system provides no reason for unions not to hold out for a
government contract. Unions would have strong incentives to make
extreme demands and hope the FMCS appointed arbitrator splits the
difference between these demands and management's position.
Bureaucrats Control the Workplace
Granting such a radical amount of power to the FMCS puts control
of workplaces in the hands of unaccountable government bureaucrats.
Labor contracts do not simply set wage and benefit levels but cover
many aspects of how businesses operate. Under EFCA government
bureaucrats would impose:
The government would decide how many employees a firm hired, how
much it paid them, how it promotes them, and what retirement and
health benefits they receive.
Additionally, the government would also be empowered to make
critical decisions regarding business operations. Any business
operation that significantly affects workers' jobs or working
conditions would be set by arbitrators--even the equipment
employees use. The government would determine what tasks a
firm subcontracts out for and what work gets performed in-house.
For two years, government bureaucrats would set most major business
decisions for newly organized businesses. Given the power the
government would now wield over the private sector, EFCA
effectively allows the government to run these companies.
Businesses at Risk
Government control would harm any company, but it would be
particularly hard for small businesses to recover from government
mistakes because they have less money with which to absorb losses.
Consider a small car-repair shop that employs five mechanics.
Teamster organizers take three of the mechanics out for beer after
work and persuade them to sign union cards before hearing opposing
arguments. The Teamsters--under EFCA's card check recognition
requirements--then represent all five workers in the shop. If,
after four months of negotiations, the owner and the union had not
reached a contract--perhaps because the union insisted on extreme
demands such as firing any worker who did not join the
Teamsters--the union could request meditation through the FMCS.
After a lengthy process, approximately 15 months in the public
sector, the government would impose a contract.
At that point both the small business owner and the mechanics
would lose all control over their workplace. Workers have no vote
on the contract and they cannot go on strike; workers must accept
whatever the government chooses for them.
For instance, the government could:
Many of these provisions would drive up costs and force the
repair shop to raise prices. But if higher prices drove customers
to a competitor, putting the shop out of business, the government
would not protect the mechanics' jobs. EFCA forces workers to
accept whatever the government gives them and live with the
Government Control of Small
The misnamed Employee Free Choice Act puts control of small
businesses in the hands of government bureaucrats because it
contains no meaningful small business exemption. About 39 million
employees from 4 million small businesses would lose their right to
a secret ballot. EFCA then allows the government to impose
contracts on newly organized small business employees. The federal
government, not workers or their employers, would decide how much
workers should earn, how--and if--they are promoted, and what
benefits they receive. The government would assign work tasks and
set business operations. The government would take control of every
significant aspect of the small business workplace.
James Sherk is the Bradley Fellow in Labor
Policy at The Heritage Foundation.
Show references in this report
National Labor Relations Act, 29 U.S.C. §
151, 164 (1935).
National Labor Relations Board, National
Labor Relations Board Case Casehandling Manual,Part I: Unfair
Labor Practice Proceedings, Section 11700 Jurisdictional Standards,
May 2008, at http://www.nlrb.gov/nlrb/
legal/manuals/COMMON TO ALL CASES 11700 11886.pdf (March
Heritage Foundation calculations based on data
from the Department of Labor, Bureau of Labor Statistics, "Employer
Costs for Employee Compensation" / Haver Analytics. The typical
private sector worker earned $27.07 an hour in wages and benefits
in the third quarter of 2008. That represents $56,306 for 2,080
hours of work in one year.
Heritage Foundation calculations based on data
from the Department of Commerce, Census Bureau, "Statistics of U.S.
Businesses 2002," at http://www.census.gov/csd/susb/susb02.htm
(March 11, 2009).The figure is the number of firms and employees at
businesses with gross receipts of between $100,000 and $10,000,000
a year in the non-retail sector and between $500,000 and
$10,000,000 a year in the retail sector and excluding industries
not subject to the NLRA. Those industries are agriculture, railway,
and airlines. Workers in the management of companies and
enterprises sector were also excluded because supervisors are not
subject to the NLRA.
Employee Free Choice Act, S. 560, 111th Cong., 1st Sess., Section
Homer Deakins, "Consequences of the Employee
Free Choice Act," speech at the Heritage Foundation, Washington,
D.C., February 23, 2009, at http://www.heritage.org/press/events/ev022309b.cfm.
Patrick Hardin and John Higgens, Jr., eds,
The Developing Labor Law, 4th ed., vol. 1 (Arlington, Va.:
BNA Books, 2001), Chap. 16.
Ibid., p. 225. Employers may not change
business operations if that decision significantly affects the jobs
of workers at the company without modifications to a collective
bargaining agreement. Courts have determined that changing the type
of machinery businesses use can represent such a change in business
James Sherk and Paul Kersey, "How the Employee
Free Choice Act Takes Away Workers Rights," Heritage Foundation
Backgrounder No. 2027, updated March 4, 2009, at http://www.heritage.org/research/Labor/bg2027.cfm.
The Employee Free Choice Act does more than take away secret ballotelections: It empowers the federal government to impose contractson newly organized companies.
Senior Policy Analyst in Labor Economics
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