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A Review of Labor Contracts, the Labor Negotiations Process, and Costing Issues


March 31, 2014 by Cabot Dow
Category: HR Advisor , Collective Bargaining

By Cabot Dow
Cabot Dow Associates

Reasonable People Make Reasonable Agreements - G. Richard Shell

The purpose of this HR Advisor is:

  1. to suggest a framework for review of existing labor contract issues and provisions
  2. to suggest some guidelines (a/k/a punchlist) for navigating the labor negotiations process
  3. to offer some resources for costing out labor contract provisions, both from the standpoint of cash as well as paid time off
Every employer is unique with different issues, guiding principles and challenges. At the same time, there are a number of common issues and road signs to follow

A. A framework for review of existing labor contract issues and provisions

In getting started for another round of negotiations, we would suggest that employers take the time to identify the historical context as to why existing provisions in its labor agreements were agreed upon in the first place. Identify Legal issues that will need to be addressed, e.g. compliance with the Affordable Care Act (ACA) and Fair Labor Standards Act (FLSA). Get finance involved. Cost out (i.e. "Dollarize") all contract provisions on a line by line basis, in the short and long term, both direct and indirect. Cost out all contract language that drives Wage costs (e.g. shows up on W-2), Overtime provisions, "minimum staffing" provisions or practices, Paid Time Off provisions and Pension- related provisions (e.g., 401(k), 457, MEBT, etc.). Know the cost of cash-out provisions (e.g. sick, vacation, holiday leave, Kelly hours, etc.). Know the cost of release time for union negotiations and who pays.

Now is the time to determine how the Patient Protection and Affordable Care Act (ACA) will impact the bargaining process this year, going forward. The ACA was signed into law by President Obama on March 23, 2010. Beginning in 2015, the ACA mandates apply to employers with 100 or more full-time employees. Beginning in 2016, the ACA mandates apply to employers with 50 or more full-time employees. Full-time employees are employees working 30 hours per week, on average, or at least 130 hours in a month.

Hours of service not only includes hours worked but also hours for which an employee is paid but does not work, such as vacation, holiday, illness, disability, jury duty, military duty, or leave of absence (up to a maximum of 160 hours for any continuous period).

So, it is time to know what ACA issues and impacts need to be bargained and for having a plan for doing so in the next few months and addressing the following concerns:

For engaging labor groups now, not later, as mutuality and collaboration is needed
For providing Affordable Health Care
For avoiding Taxes, including Cadillac Taxes -- a 40% Excise Tax starting 2018 on health plans that cost above $10,200 (single) and $27,500 (family)
For Cost shifting to contain the cost of plans
For dealing with premium increases
For dealing with the loss of Grandfather status
For addressing coverage for spouses and dependents
For issues pertaining to wellness programs
For dealing with Full-time v. Part-time employees in the labor agreement
For addressing ACA timing and notice requirements
For having flexibility in contract language to comply (including mid-contract changes)
For dealing with the potential of interest arbitration.

Next, we would suggest review of language that has an affect on the organization's legal responsibility (positive and negative) and that has an affect on management's ability to manage efficiently and meet customer needs. Critique the adequacy of the no strike clause in the labor contract(s), including whether there is a provision that defines a "strike" broadly and holds the Union liable for damages. Read over the management rights clause to determine if the language includes such rights as the right to maintain efficiency of operations, the right to direct, schedule, discipline employees for cause; the right to issue rules and regulations and take all reasonable actions not prohibited by law or agreements of the parties. Re-write clauses that limit supervisors or managers from doing their job. Re-write provisions in the management rights article that serve to nullify the right to management to act without first negotiating the decision with the Union. Tune up grievance procedures to meet industry standards. For example, this would include reasonable time lines and arbitration provisions, including a clear understanding that the employer and union, respectively, will bear the costs of presenting their case, including attorney and witness fees. Fix language that requires management to discipline an employee within a certain amount of time, even if management did not have knowledge of the policy violation. Beware of layoff language that is based strictly on least amount of seniority regardless of its effect on the organization or programs. Most Unions understand this practical solution.

B. Punchlist (Guidelines) for navigating the labor negotiations process

1. Prior to Entering the Negotiations Process:

Table 1 provides a series of actions that should be taken before entering the negotiations process on a new or successor labor agreement:

TABLE 1

Clarify the employer's philosophy re labor relations
Establish Financial Targets (short and long term)
Establish an Overall Labor Policy (including Guiding Principles and Philosophy)
Identify Employee Relations issues that will need to be addressed
Identify Legal issues that will need to be addressed
Identify Operational issues that will need to be addressed
Sum up with clear and specific statement of goals with standards and norms to go by

2. Prior to Receiving the Union's Proposals:

Table 2 suggests what an employer's negotiations team should look like, a framework for a broader support system, and assignments for members of the employer's negotiations team:

TABLE 2

A Budget expert
An HR Expert
Clarify roles of managers and supervisors in the process
Conduct in-service training sessions for supervisors and managers
Establish a larger management group to assist in arriving at proposals and responses, and communicate employee concerns to negotiators
Establish a small caucus group (including the CEO for negotiating team to work with on an ongoing basis)
Labor relations expert (or liaison with labor attorney)
Operations Expert
Select a spokesperson and a recorder
Select any observers
Select management back-up groups (for guidance to negotiating team)

Table 3 identifies some important topics members of the employer's negotiations teams need to be prepared to address:

TABLE 3

Clarify what constitutes a legitimate role of shop stewards
Determine how broad the net for identification of other "comparable" employers than those recently used; this includes both public and private employers in the area
Establish guidelines for furnishing non-confidential information and information requests to those making such requests
Explain permissive conduct with respect to union activities to all concerned
Explain prohibited conduct with respect to union activities
Explain the relevant statutes, charter, ordinance, resolution and personnel rule provisions, and their interpretation
Identify unauthorized comments by employer staff or elected officials
Limit the use of City time/facilities for union-related activities
Take care to avoid communications that would come off as threats to labor
Uniform application of collective bargaining agreement(s) and practice(s)
Update salary and other benefit survey data
Update what Non-Discrimination looks like, i.e. protected classes
Write down employer's negotiating interests, positions and objectives

Table 4 provides a list of useful payroll and economic data for the budget expert to notebook and make available to all members of the employer's negotiations team:

TABLE 4

Average bargaining unit wage
Compile current payroll costs for each bargaining unit
Cost of salary range movements in forthcoming year
Employee distribution on the salary schedule (e.g. current step placement)
Holiday Leave accruals or cash-outs by bargaining unit
Number of employees, by classification in the bargaining unit
Number of single, one dependent, multiple dependents for benefits coverage
Sick Leave accruals for employees displayed by bargaining unit
Total up all base wages
Total wage related items by item (e.g., retirement, overtime, "incentive" pay)
Update data as to recent settlements
Update paid leave time usage by bargaining unit
Update the employee profile for each unit, e.g. hire dates in current position
Update use of CPI formulas (if used in lieu of fixed wage adjustments)
Vacation Leave accruals for employees displayed by bargaining unit

3. Review with designated operating management group the current CBA, MOUs, LOUs established practices subject to negotiations

Table 5 offers a list of review items that should be assigned to members of the employer's negotiations team so the process is linked to its affecting on operations and to the employer's duty to bargain over wages, hours and working conditions.

TABLE 5

Anticipate union demands
Awareness of content in Union websites as to union emphasis and labor concerns
Be aware of actions passed at union conventions and conferences, including themes
Compile a list of grievances filed by Union
Establish coordination channels with other employers in area
Identify excessive cost items that are off the reservation (abnormal) compared to industry standards
Identify problems caused by ambiguous provisions?
Identify problems caused by practices not supported by contract language
Identify provisions restricting management's right to act
Identify provisions restricting management's right to act served
Know what provisions adversely affect department efficiency
Know what provisions result in grievances
Look for the same or similar demands by same union in another employer
Review other employer's negotiations, MOUs and "brainstorm" new ideas

4. Analyzing Union Demands:

Table 6 identifies a framework for analyzing proposals that the Union brings to the bargaining table, often a result of an information gathering process involving its members. Each demand should initially be analyzed with the items and questions listed below in mind. This will assist the employer in making counterproposals to union proposals.

TABLE 6

Affect on ability to manage efficiently and to provide customer service
Affect on employer's legal responsibility
Affect on upcoming negotiations with other employer groups
Cost (direct and indirect, short-term, long-term)
Is the cost of the proposed solution reasonable in relation to the problem?
Is the cost reasonable in relation to the total cost impact of the settlement?
Is the proposal free from adverse operating effects or unanticipated costs, now or in the future, and does it infringe on management's rights to act?
Is the proposal the same size as the problem, e.g. be aware of overkill.
Make a list of questions to be asked on every union proposal (e.g. is there a real problem, is it a continuing problem, is it general in nature or specific and limited.
Make an employer proposal and determine if the proposal will fix or change the problem.
 
The designated management group should always be involved with assessing the implications of the union demands and their effect on the operations of a department. This involvement also allows for uniform application of proposals ultimately negotiated.

5. Establishing Negotiating Goals and Authority

Under guidance and direction of the CEO, thoroughly prepare for extended executive session(s) with elected officials to establish their role, general negotiating goals and review upper limits of overall authority

Determine the extent to which to include the top management cabinet in the development of overall strategy for labor negotiations

Explain the negotiations process to the elected officials, the "whys" and "hows" of their policy direction and underlying role in support of the process.

It is also important to know what the negotiation team's upper authority is for total compensation package and core concerns of elected and management officials on non- economic items.

If ordinal ranking in the market is part of the policy-making process, provide the CEO with all relevant information and a summary of the survey data before presenting a package to the election officials for action.

Be aware of the effects concessions may have on the budget and priorities established by the elected officials.

Be aware of permissive subjects of bargaining, as provided in Table 7, which provides a list of items which do not have to be negotiated with the Union or which the employer cannot insist that the Union negotiate. Negotiations may take place on such items, but engagement by either party is not required. For example, if the employer decides not to discuss the issue, the Union must drop it (at least before reaching impasse).1

TABLE 7

Access to interest arbitration for contracts not covering positions eligible for interest arbitration (e.g. police officers, firefighters, ems)
Allocation of unanticipated funds
Annexation
Assignment of duties and content of job descriptions
Budget decisions
Citation of employee for violation of State Law
Contractual waivers (but be aware of management rights exception)2
Creating or participation in advisory committees
Employee evaluations and relate policies for evaluation of employees
Employee suggestion systems
Employment qualification standards
Going out of the business (e.g. change from city-only dispatch to county-wide
Hiring of temporary or seasonal employees
Implementation of new technology (e.g. computer, causing loss of positions)
Insurance carriers and reserves
Performance standards
Procedures for dealing with substance abuse to maintain a safe working environment
Promotions outside the bargaining unit
Removal of a confidential employee from the bargaining unit
Reorganization increasing number of positions
Restricting Union access to grievance procedure
Retroactivity prior to certification of a bargaining unit
Services offered by employer
Staffing level decisions (unless safety is involved)
Subcontracting required by law
Supplemental retirement benefits for LEOFF employees
Training standards
Use of volunteers for work not normally performed by bargaining unit members
Work performed by confidential employee previously within the bargaining unit
 

6. Establish Communication Procedures to be Followed During Negotiations:

Table 8 is a reminder of the types of communication procedures that should be followed during negotiations.

TABLE 8

Communications to other managers not at the bargaining table
Communications with caucus group(s), e.g. involving designated supervisors
Communications with CEO
Communications with designated management group
Communications with elected officials updating the status of negotiations
Communications with payroll office regarding items that affect payroll procedures
Communications with employees providing factual negotiations process updates
 

7. Punchlist for Initial Meeting with Union

Table 9 is a reminder of the types of subjects that should be addressed with the Union at the outset of the bargaining process for a new or successor contract.

TABLE 9

Address how release time of employees will be paid (employer, union, split, etc.)
Confirm authority of employee or union committee
Create and prepare an opening statement (whether oral or in writing)
Decide on length of meetings and future meeting dates
Establish agenda for meetings or how future agendas will be set
Find out if you have the union's total package on the table
If paid release time is involve, establish a reasonable cap stated in total number of hours employer will pay; decide method of ratification and adoption of agreement
State employer's philosophy towards negotiation
State that agreements are tentative subject to final agreement on all items
Try to set cutoff date for negotiations issues and goal for finishing
 

8. Negotiating Process

Table 10 offers guidelines for the employer's spokesperson to follow during the bargaining process:

TABLE 10

Clarify employee organization proposals and get rationale (refer back to "Analyzing Union Demands", which is in Table 6 above)
Explain to the Union the rationale for management interests or positions
Request employee organization's answer to management's proposals.
Restate all agreements as they are reached
Submit management proposal and counterproposal package in writing
Write up all tentative agreements as soon as possible; initial and date, unless tentative
 

9. Crisis/Impasse Negotiation

Table 11 addresses guidelines for the process if and when parties are in mediation and approaching impasse.

TABLE 11

Check with CEO and Elected officials periodically to make sure that negotiations team is expressing their firm position
Check to resolve all minor issues at the same time major issues are resolved
Educate the management team and elected officials as to the illegality of employee work stoppages (back up by pertinent case law and court decisions)
Know the pros and cons of making a "last, best and final offer", which is usually precursor to unilateral implementation (if not ratified)
Review pros and cons of lawful communications to employees when employees are being kept in the dark, negotiations are protracted, and when approaching
With the active involvement of management team, establish procedure for documenting any damages caused by employee work stoppages so that Union knows it will be held liable (since public employee strikes are illegal)
With the elected officials, estimate the detriment of no agreement compared to the detriment of making a concession and their tolerance for impasse, which includes interest arbitration for police and fire bargaining units
 

C. Resources and strategies pertaining to costing labor contract issues and provisions both from the standpoint of cash as well as paid time off

1. Costing Parameters

Table C-1 assumes that parameters for bargaining have been secured by the employer's chief negotiator and shared with the employer's negotiations team. It is important for the employer to take credit for concessions already made and employ creativity in crafting a mutually acceptable agreement with the Union that balances the interests of both parties. The employer will want to know how its offer compares to settlements or offers others are making in the industry.

TABLE C-1

Establish bargaining cost parameters (a/k/a budget for negotiations)
Take credit for the cost or value of concessions already made
Discuss creative cost options for getting to "yes"; still staying within parameters
Discuss the use of a costing model in comparing your "total package" with others
Discuss communications with the negotiator and use of costing authority
Take time for questions and dialogue regarding costing labor agreements
 

2. Costing Team

Table C-2 identifies the detailed components of costing, communicating costs to the Union, how to know if the employer's offer is within budget and consistent with market- driven principles.

TABLE C-2

Apply a cost to contractual overtime, over and above what the FLSA requires?
Be aware of language that drives up Health & Welfare costs beyond the termination
Communicate how you are costing the package with the Union?
Do not include CPI formulas that survive the termination date of the agreement
Dollarize the cost of Holidays, Kelly Days, Vacations, & Sick Leave in your costing model
Have a CPI formula that adjusts for a negative CPI. Charges the cost of Health and Welfare from year to year against the wage package?
Know the cost of the Union's vs. Managements proposals (at any given time), including the monetary value of the proposal to the employee(s).
Know the cost of your total package compared to the cost of your comps (in light of
Know what a status quo contract costs, over the next 1, 2, 3 years, e.g., with longevity/step increases, vacation increments, sick leave liability, insurance (MOB)3, and statutory requirements (e.g. LEOFF or PERS contributions).
 

3. Obvious Costing Issues

Table C-3 provides a sampling of contract components to which dollars are relatively easy to attach.

TABLE C-3

Base Wages and Overtime
Longevity Pay
Premium Pay (tied to assignments, shift schedules, education, certifications, etc.)
Lump sum payments
Health Insurance (i.e. medical, dental, vision, life, disability)
Pension Contributions (LEOFF, PERS, MEBT, 401(k), etc.)
Hours of Work
Vacation Leave
Holiday Leave
Sick Leave
Funding Post-Retiree Medical
Clothing, footwear and cleaning Allowances
 

4. Not so obvious costing issues:

Table C-4 provides a sampling of contract components to which dollars are not quite as easy to attach as those in Table C-3. Nevertheless, the components in Table C-4 affect payroll costs in the form of number of FTEs, coverage, risk management, creeping costs affected by years of service and leave accrual systems.

TABLE C-4

Acting Pay or Working-out-of-Class Pay
Alternative Work Schedules
Attendance incentives and Cash-out Programs
Automatic Step increases
Breaks and Meal Periods
FLSA vs. Contractual Overtime
Off Duty Employment Liability
Paid Meal Periods
Prevailing Rights or Past Practice Clauses
Quartermaster Uniform Systems
Raising caps on comp time accumulation
Raising caps on sick leave accruals
Raising caps on vacation leave carryover
State-Mandated Pension Contributions
Uncapped Health Insurance Contributions
Workers Comp Benefits & RCW 41.04.500-550 (LEOFF II)
 

5. Some Professional Resources:

Suggested Reading in Getting Prepared for Negotiations:

  • Bargaining for Advantage, Negotiation Strategies for Reasonable People, G. Richard Shell, Director of the Wharton Executive Negotiation Workshop, 2006, Penguin Books
  • Negotiate to Close: How to Make More Successful Deals, Gary Karrass, 1985, Simon & Schuster.
  • Negotiating a Labor Contract, Charles S. Loughran, Exq., BNA Books, 3rd Edition, 2003.

1Consult with legal counsel as to PERC authority on such items listed as permissive. However, an employer may advance to interest arbitration on a management rights clause, which includes waivers of union rights, in negotiations for a new or successor contract.

2However, an employer may advance to interest arbitration on a management rights clause, which includes waivers of union rights, in negotiations for a new or successor contract.

3MOB = The cost of maintenance of current level of benefits, without a cap on employer costs


MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Cabot Dow

Cabot Dow writes for MRSC as an HR Advisor.

Cabot Dow is President of Cabot Dow Associates, Inc. He offers more than 25 years of experience representing public and private sector clients in the full spectrum of collective bargaining matters, including negotiations, mediation and arbitration proceedings. Prior to entering the labor relations consulting field, he was the Assistant City Manager and Labor Relations Director for the City of Bellevue, Washington.

The views expressed in Advisor columns represent the opinions of the author and do not necessarily reflect those of MRSC.

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