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What's Important Now?


September 1, 2013 by Cabot Dow
Category: HR Advisor , Collective Bargaining

What

By Cabot Dow, Cabot Dow Associates

A simple but powerful acronym that comes from the well-known and entertaining football coach and ESPN commentator Lou Holtz is W.I.N. In the gospel according to Lou Holtz, it stands for 'What's Important Now?'

Last July, Coach Holtz was standing behind me in a painfully slow line at the famous Bellagio Hotel and I had the opportunity to show him my “what's important now” inscription I engraved on my athletic bracelet. I asked Lou: “What's important now”? To which, he replied: I am celebrating my 51st wedding anniversary here in Las Vegas. God has been good to me and Beth, but I am beginning to wonder about this line.” What was of importance to Coach Holtz that day was celebrating his wedding anniversary and at that moment getting to the front of the line so he could check into his room and get on with the celebration.

Holtz instructed his players and countless audiences to ask themselves this question at least 35 times a day. He wanted them to think about it when they awakened, while they were at work, in class, at the library, the weight room, the practice field, at the computer, out with friends the night before a game, and while on the playing field at a game. Holtz wanted his players to be able to learn to focus on what mattered most at any given time.

As employment relations professionals, we should ask ourselves this same question many times a day. In doing so, we are forced to focus on what is important at a particular moment in time, enabling us to prioritize our mission, adhere to guiding principles, and weigh the consequences of our actions. If we are strong and courageous in our thinking, we will focus on what we need to do to win that particular challenge.

As leaders, we should ask ourselves this question. It helps us focus on what is important in carrying out our responsibilities, which areas of leadership need to be addressed and which have the highest priority. This focus is required for us to truly prepare and support our employees to be winners and ambassadors to the “customers” we serve.

Let us explore a couple of areas where we need to take a serious look at 'What's Important Now?'

In this article, I have chosen to focus on “important” linkages that involve four mandatory subjects of bargaining, all central to the employer-employee relationship.

  • MANAGEMENT RIGHTS
  • MEDICAL COVERAGE
  • PENSION COSTS
  • WAGES

MANAGEMENT RIGHTS

Much of this article will focus upon the importance of “management rights” or “management responsibilities”. The reason for this focus is the recent PERC developments on whether or not management can insist on negotiating a detailed list of management rights into a collective bargaining agreement under the Washington State Collective Bargaining Statute, Chapter 41.56 RCW, applicable to public employers.

Why the Management Rights Conversation is Important?

The objective of effective labor-management relations is to negotiate an agreement that balances employee interests (job security, wages, overtime, hours, benefits, pensions, working conditions) with employer interests, especially retention of critical decision-making options.

The Recent Bellevue Management Rights Case:

When the City and the Fire fighter union were negotiating the labor agreement for 2010-2012, a dispute arose between the City and the Union over the management rights clause. The Union became the moving party when it proposed substantial revisions to the “Prevailing Rights” clause that has existed for over approximately 25 years in the parties' labor agreement. Unable to resolve the dispute with the Union, the City requested that the dispute be submitted to interest arbitration because management rights clauses are mandatory subjects of bargaining. The union claimed the dispute over management rights language could not be submitted to interest arbitration. The Union's position was that the listing of management rights is a permissive subject of bargaining. The union filed an Unfair Labor Practice (ULP) claim with the Public Employment Relations Commission (PERC), the state agency which has jurisdiction of such matters. The consequence of the union's argument was that if the parties could not agree in bargaining on what is a management rights clause; there would be no management rights clause in the contract. The hearing examiner who initially held a hearing on the ULP decided in favor of the union. The City appealed this adverse decision to the full Public Employment Relations Commission. The Commission (PERC) reversed the hearing examiner's decision on July 12, 2013.1

I submit that the recent PERC decision serves to validate management's interest in bargaining such a clause and encourages labor leaders, when presenting the union's proposals to the employer, to rethink resistance to bargaining such a clause, going forward.2

Many collective bargaining agreements have detailed management rights clauses. Thus, it is understandable that it comes across to management at the bargaining table as surprising when a labor leader strenuously resists such a clause.3 When a union representative does resist such a clause, employer representatives usually hear one or more of the following arguments:

  1. “We don't trust management to make reasonable decisions”
  2. “We aren't concerned about the current management but what if the current management changes”?
  3. “There is no need for a detailed list of management rights because there haven't been problems that would justify the language being proposed”
  4. “We don't want to waive any of our rights to bargain a management decision to change working conditions; nor do we want to waive the right to bargain over the effects of changes in working conditions that the employer might want to make during the term of the agreement”
  5. “We would prefer to address management's right to take unilateral action on a particular subject in a specific article (e.g. hours of work, safety, crew size, layoffs, discipline, efficiency, etc.) rather than a catch-all list of management rights in one article”
  6. “A listing of management rights is too broadsweeping and could be interpreted as a waiver of the union's right to bargain”4

The authority to make unilateral decisions, often called “management responsibilities” or “management rights” and the degree of decision-making power a public employer retains can determine how efficiently it delivers its services to citizens or “customers”. For example, management might meet demands for greater efficiency by:

  1. Revising staffing patterns to deal with peak activity periods;
  2. Introducing innovations to increase productivity and maintain employee safety
  3. Subcontracting non-essential functions to civilian employees
  4. Assigning non-emergency functions to other employees of the employer
  5. Using few senior employees and more lower-cost personnel for certain tasks;
  6. Using attrition to reduce the number of personnel
  7. Using less equipment over a longer period of time
  8. Consolidating functions, (e.g. fire, police and other public safety functions)

The degree of flexibility management retains in a collective bargaining agreement affects the ability of management to make necessary changes. As resources are limited, management should be able to introduce changes that will increase efficiency, without undue interference from employee organizations. Unfortunately, some agreements prohibit management from taking direct or indirect action that improves customer service but has an effect on bargaining-unit employees unless union representatives agree to the changes. Such approval can mean additional concessions by management, resulting in higher operating costs or further limits on management authority.

Employers may need unilateral power, without the restriction of prior union approval or other concessions, to provide efficient and effective public services. With this in mind, public employers should have the right to exercise its prerogative to negotiate management rights clauses that deter or defeat union challenges to management decisions. These challenges usually arise from grievance and/or arbitration procedures, or a duty to bargain established by legislation.

Arbitrator Goldberg, “Management's Reserved Rights: A Labor View, Management Rights and the Arbitration Process” 118, 122-123 (BNA Incorporated, 1956) once said it well:

The “right to direct” [for example] where it involves wages, hours, or working conditions, is a procedural right. It does not imply some right over and above labor's right. It is a recognition of the fact that somebody must be boss; somebody has to run the plant. People can't be wandering around at loose ends, each deciding what to do next. Management decides what the employee is to do. However, this right to direct or to initiate action does not imply a second-class role for the union. The union has the right to pursue its role of representing the interest of the employee with the same stature accorded it as accorded management. To assure order, there is a clear procedural line drawn: the company directs and the union grieves when it objects. To make this desirable division of function workable, it is essential that arbitrators not give greater weight to the directing force than the objecting force.

Going back about 25 years, there was an on-going debate over whether or not there was a need for management to have an all-inclusive management rights clause. Some management representatives believed that a detailed management rights clause is not necessary to protect the employer's authority. These opinions were based on the “residual rights” doctrine, which provides that management retains all rights except those relinquished specifically in the collective bargaining agreement. The theory was that if certain rights are listed, other rights that are not listed may be undermined.

The overwhelming consensus among management representatives now favors an all- inclusive management rights clause in collective bargaining agreements. This consensus is largely fueled by decisions of the Public Employment Relations Commission (PERC) that give little weight to “short form” management rights clauses, when it comes to actions management may take without first bargaining with the union as to its decision or the effects of its decision.

PERC has ruled that broad (and vague) management rights clauses do not cause a union to forfeit its right to negotiate mandatory bargaining subjects. In City of Seattle, Decision 1667-A (PECB, 1984) the Commission held that, although it is impractical for a collective bargaining agreement to cover every issue, a strong presumption exists that a management rights clause does not affect wages, hours or terms and conditions of employment unless such matters were specifically negotiated or embodied in the existing contract.

A detailed list of management rights (or responsibilities) often strengthens the employer's position in negotiations and arbitration and permits the employer to act unilaterally in specific instances. Under this paradigm, the right to act unilaterally should be delineated clearly in the contract; if not, the employer may have to rely on an arbitrator's interpretation of a particular action as a retained management right, and on decisions regarding whether management acted reasonably by taking the action or on the outcome of interest arbitration.

In 1988, Arbitrator Janet Gaunt decided that it was appropriate that a “long -form” management rights clause should replace a “short form” management rights clause. City of Bellevue, (PERC Case 06811-I-87-00162, 1988). Her rationale was that

Regarding the merits of the City's proposal, the Chair finds the record persuasive that a longer form management rights clause should be added to the contract. Expanded management rights clauses are commonly found in current collective bargaining agreements. The trend towards their incorporation has certainly been accelerated by the developing PERC case law which holds that short form clauses lack the specificity necessary to infer a waiver of statutory bargaining rights. See, e.g., City of Sumner, PD-1839-A (PECB, 1984); City of Kennewick, Decision No. 482-B PECB (1980). This case law may well explain why seven of the selected comparables, i.e. Clark, Everett, Kent, King 439, Pierce, Redmond and Tacoma, enumerate a variety of management rights rather than relying on the short form type of clause that the parties presently have.

A longer form management rights clause is an obvious quid pro quo for expanded rights to grieve that have been adopted in this agreement. While the City's proposal is rather broad on its face, its effect is curtailed by the fact it will not preclude further bargaining regarding any changes that affect wages, hours or working conditions as those statutory bargaining obligations are construed under RCW 41.56.

The Chair has considered the fact that disputes will undoubtedly arise as to whether a change affects "wages, hours or working conditions" and thus is not subject to unilateral action. Even allowing for this, however, the City's proposal should reduce conflict in at least some areas. In that sense it represents an improvement over the status quo. It also affords recognition that within some parameters, the City should be able to respond to changing operational needs and conditions unilaterally. That does not preclude bargaining over such matters upon the contract's expiration, it just gives Department management the latitude to act more expeditiously during the interim. The Chair, therefore, finds that the City's proposal should be adopted with the following amendment to reflect clarification as to those enumerated rights for which a continuing duty to bargain will exist: "The City agrees that a continuing duty to bargain exists as to those enumerated rights that affect wages, hours and working conditions within the meaning of RCW Chapter 41.56."

So, it is o.k. for management to propose to include or maintain a clear listing of management rights in a collective bargaining agreement, as was explained as far back as 1980-81 by Arbitrator John Abernethy.5 It is o.k. to propose that management have the right to make decisions that affect working conditions during the term of the agreement in exchange for something the Union wants. Likewise, it is o.k. for labor to propose to modify the rights of management in exchange for another concession management wants.

The Ninth Circuit decision in NLRB v. Tomco Communications, Inc., 567 F.2d 871 (1978) made clear that management may insist upon a waiver of the right to bargain during the contract term. However, employers should keep in mind that the Tomco case is private sector, not Washington law.

Rights of Employers

State and federal labor laws recognize a management rights clause is a mandatory subject of bargaining, as recently reinforced by the Public Employment Relations Commission (PERC) in City of Bellevue.6 This is primarily because an enumeration of management rights directly impacts wages, hours or working conditions of bargaining unit members. An employer does not refuse to bargain when it insists to impasse on a management rights clause.7 It is important to take the time to write down a list of the most important management rights.

In City of Pasco, both the Union and the employer proposed changes to the management rights clause in the collective bargaining agreement. The management rights clause proposed by the City included:

The right to establish qualification for employment and to employ employees;

To establish the makeup of the workforce

To determine the employer's mission, policies, and all standards of service offered to the public;

To plan, direct, schedule, control, and determine the operation of services to be conducted by employees

To determine the means, methods, and number of personnel needed to carry out operations and services

To approve and schedule all vacations and other employee leaves

To hire and assign or transfer employees

To lay off for insufficient funds; to introduce and use new or improved methods, equipment, or facilities;

To assign work;

To schedule employees;

To take whatever action necessary to carry out the employer's mission uring emergencies; and

To determine the budget.

Because the above items in Pasco and the enumerated rights in City of Bellevue address wages, hours, or working conditions, such a management rights clause is a mandatory subject of bargaining. As such, it is lawful for an employer to propose such a clause and bargain to impasse. This means that, unless interest arbitration is the process for final resolution of labor disputes, the employer may have the right to unilaterally implement its final offer, that may include a management right clause. This will depend on the specific facts and circumstances. Very few employers take this action and a legal impasse is required, defined by the totality of circumstances around bargaining.

A Look at Responsibilities in the Employer-Employee Relationship

Employers and Employees exist for the citizens or customers. A focus on management rights and responsibilities is an important reminder that the employer-employee relationship should not be looked at simply in economic terms. The employer-employee bond is a significant relationship of mutual dependency. Both the employer and the employee have moral obligations and responsibilities to their constituents (the community they serve) arising from this relationship. This does not mean that unions or employees are co-managers.

Responsibilities of Employers

A person's job, like a person's business, is a highly valued possession that profoundly affects the lives of the employee and his or her family. The relationship is filled with moral responsibilities and a great deal is at stake.

In addition to the employer's more obvious obligation to advance and protect the reputation and financial well-being of the company, the employer has a moral obligation to make business decisions in a manner that seeks to advance the success of employees so they can better serve the customers. They need to be successful and obtain satisfaction in fulfilling their job responsibilities.

The employer's obligation includes a duty to treat employees respectfully, pay them fairly and provide good working conditions. An ethical employer does not think of employees only as a means to an end. Employees must be treated as a major stakeholder group. Ethical employers consciously and consistently treat the promotion and protection of the well-being of employees as an important business obligation.

In order to emphasize the importance of the above, I would like to quote an interesting proclamation by Andrew Carnegie (Scottish-American industrialist, businessman, entrepreneur and a major philanthropist), which I feel is appropriate to describe the importance of employees in an organization: “Take away my people, but leave my factories, and soon grass will grow on the factory floors. Take away my factories, but leave my people, and soon we will have a new and better factory.”

Companies should be loyal to workers as well as customers. Just because a management rights clause includes “the right to layoff employee” does not mean that management is free to lay off employees without bargaining the effects of doing so with the union.

Layoffs, plant closings, and other dramatic events of this nature should be handled with care and sensitivity as acts of great moral significance. The use of words such as “down-sizing” or “right-sizing” may make employers feel more justified about the decision to terminate jobs, but it does not change anything from a moral perspective. There are, of course, situations where such actions are justified but they must be implemented in a way that demonstrates genuine concern for employees who will lose their jobs.

A detailed list of management rights parallels ethical management policies and practices. Employees should always be treated with respect. It is the company's obligation to see that individual managers model high moral standards and do not abuse their position or mistreat their subordinates. Any active or passive encouragement of unethical practices are inappropriate. Employees should feel free to raise ethical or other issues without fear of retaliation. A list of management rights does not change this expectation.

Employees are entitled to count on the commitments of the employer especially about core matters such as pay, raises, due process, hours of work, paid leave, etc. Employers who try to give as little as possible to employees, renege on promises, or treat them as if they were simply means to achieve the organization's interests rather than ends in and of themselves fail to meet their moral responsibilities.

Duties of an employer — Short List
  • Pay the employee the agreed amount of salary/wage and benefits
  • Protect and respect employee rights
  • Protect the health and safety of employees by respecting health & safety regulations
  • Provide employees with current and accurate information
  • Provide a reasonable opportunity to have employee grievances looked at
  • Provide employees ample opportunities to develop their career paths
  • Recruit and assign employees work according to their strengths
  • Supply employees with adequate wages and benefits to avoid high turnover rates
  • Support employees when they or family members are sick
  • Share with employees something special that the employer can afford to do
  • Give employees well-earned breaks from their job from time to time

Responsibilities of Employees

Employees also have moral obligations, and they go beyond giving a full day's work for a full day's pay. Loyalty is a two-way street.

Employees have moral duties to the organization, co-workers, and customers. Such moral duties include:

Duties of an employee — Short List
  • Show up for work on time and ready to do the job
  • Take direction from supervision
  • Adhere to reasonable work rules
  • Cooperate with management and other employees
  • Perform the job with competence and deliver the services required
  • Spread the good name of the employer to the citizens or customers
  • Show Company loyalty
  • Provide the best of customer service 8

People of character take into account their moral obligations to their employer. Employers of character do the same by their employees. This means employees are not doing “what they can get away with”. Neither is the employer doing the “minimum” it can do for its employees.

Responsibilities of Unions

Likewise, unions who strive to bring out the best in their members and demonstrate their partnership with management in serving the customers understand management rights and will cooperate and collaborate with management in the proper exercise of employer responsibilities. In the private sector, management negotiators have sometimes relied on the management rights doctrine as the guiding philosophy. In short, the management rights doctrine can be defined as the rule whereby management retains all those rights which it does not negotiate away. Integral to this understanding is the idea that it is management's duty to act and it is the union's duty to challenge if the union feels that management's action is contrary to the negotiated agreement. This does not mean cooperation and collaboration are not part of the employer-employee relationship.

As a practical matter, this understanding of management rights does not mean the union acquires rights to manage and slide in as a “joint manager” because unions are not in reality managers of the company. But, some public sector unions continue to assert the right to codetermine matters of public policies.

PERC's view that “bargaining is a beautiful thing” reinforces union's expectations that most everything that affects employees should be subject to bargaining. These assumptions put a strain on the employer-employee relationship. Moreover, proposals that the employer must first obtain the union's agreement before acting in such areas as discipline, scheduling overtime, layoff, customer service standards, use of temporary and season employees or subcontracting should be avoided. These “mutual agreement” or “veto” clauses are in conflict with management rights.

Since management's rights come from the responsibility of the public employer to carry out its designated public policies and operate efficiently in the interest of customer service and the tax paying public, it is essential that the public employer be considered the “acting” party and the union the “passive” party insofar as the day-to-day relationships of these two parties under a collective bargaining agreement are concerned. It is impossible for any public employer to be run properly if there are two “acting” parties.

I am reminded of William Leiserson's opinion. He was once a member of the NLRB. Leiserson criticized the unsuccessful attempt of the government to have the Federal Office of Production Management during World War II jointly directed by Management Representative Knudsen and the Union Representative Hillman. In his criticism of this model, he said:

...President Roosevelt was asked what would happen if they disagree. He answered they would work together and make joint decisions. This was taken as an indication that the government intended the business of defense production to be a joint co-operative enterprise of employers and workers on an equal partnership basis. … There developed a confused organization and administration... The arrangement had to be discarded...”

In retrospect, it is easy to see the mistake that was made in establishing the double-headed directorship of the Office of Production Management. It was due to inadequate analysis of the job that was to be done and failure to distinguish functions. We do not have to be versed in the philosophy of management to understand that it is not practical to mix the policy-making functions of an organization with the operating functions.”

It does not work and it satisfies no one. It leads to maneuvering and argument. It leads to maneuvering and argument about policy among operating officials whose sole duty should be to carry out promptly and efficiently the operating orders … It turns a production organization into a debating society.”

This is why union leaders should not be in a position to control day-to-day decision-making under a labor agreement. Some managers seem to have forgotten this, willing to “go along” to “get along”. Good communications, cooperation and collaboration are all part of a positive labor-management relationship. On the other hand, when a Union leader makes it his or her mission to throw sand into the machinery of management, this becomes a “lose-lose” proposition.

So, what is the Union's function under a collective bargaining agreement?

During the negotiation of the agreement, union representatives must be recognized as having equal bargaining rights with management except as certain subjects are declared by law to be outside of the permissible scope of bargaining. However, once the agreement is executed, the union representatives' role as negotiators of contractual policy on an equal footing with the management representatives should cease and thereafter they should assume an entirely different role. Their function and focus should be oversight of the interpretation and application of the negotiated agreement to determine whether actions taken by the public employer are contrary to the contractual commitments previously agreed upon by the parties.

If being an “overseer” is the union proper function under the agreement, then the union must have the necessary rights to perform this function. In the private and private sectors, these rights are contained in a properly conceived grievance and arbitration procedure which are included in most collective bargaining agreements. Such a procedure is logically consistent with the management rights approach outlined in this article.

We now have a framework by which management can evaluate union proposals. For example, to preserve the public employer's right to carry out its designated public functions and to efficiently manage its operations in the interests of its “customers”, one critical question should be asked as each union proposal is presented to management at the bargaining table: Does the proposal prevent management from taking necessary actions to implement the public policy goals entrusted to it by law in an efficient manner. If it does, the proposal should be resisted.

A Critique of the Management Clause

How does an employer know if it has negotiated a strong management rights clause? Such a clause usually begins with a provision to this effect:

“It is understood and agreed that the employer retains the right to operate and that all management rights rest with the employer, but that such rights must be exercised consistently with the other provisions of this contract. These rights include but are not limited to the following: ...”

After such a beginning provision, the basic management rights should be listed. The City of Pasco list offers a good starting point.

The Union will most likely either (1) oppose any attempt to add an enumeration of managements rights to a general introductory paragraph or (2) insist upon adding or keeping a broad-sweeping clause that significantly undermines or confuses the meaning of a list of management rights in the first place.

An example of such a clause that the union may support follows: “The above listing of management rights shall not be construed to be a waiver by the Union of any of its rights to compel collective bargaining on matters of “wages, hours and conditions of employment” as set forth in Chapter 41.56 RCW. The whole point of having an enumeration of rights on certain mandatory subjects of bargaining is to be able to make changes during the term of the contract on such subjects without having to go through negotiations which may even involve impasse proceedings such as mediation or interest arbitration.

The inclusion of a non-waiver clause like this raises some important questions:

  1. Does this mean that management does not have the right to exercise any of the list of enumerated rights during the contract term without first bargaining with the Union?
  2. Does this mean that management can exercise any of the listed rights without first bargaining its decision with the Union but that the Union can compel management to bargain the effects?
  3. Does this mean that management can exercise any of the listed rights without first bargaining its decision or the affects with the Union as long as the exercise of the management right is not in conflict with provisions in other articles of the agreement, e.g. hours of work, reduction in force procedures, etc.

The exclusion of the union proposed clause allows the management rights clause to stand on its own and allows management to act accordingly during the term of the agreement without first bargaining with the Union. Once the agreement expires, then the management rights clause is open for negotiations, pending the outcome of negotiations on the terms of the successor agreement. At least the language added by Arbitrator Gaunt in awarding the City of Bellevue management rights clause (a/k/a “Prevailing Rights) supports the proposition that management has the right during the term of the agreement to make management decisions but that the union retains the right to bargain the effects of those decisions that affect wages, hours or working conditions.9

LINKAGES: BIG TICKET ITEMS

What's important next? We will now look at recent developments as to how arbitrators and parties at the bargaining table have dealt with internal equity among employee groups when it comes to medical insurance and the linkage of wages, medical, and pension contributions when evaluating compensation and making compensation comparisons.

The Linkage with Other Employee Groups

As employers evaluate their compensation policies, it continues to be important to address the following questions with regard to medical plans and premium sharing:

  1. Should one bargaining unit have a different medical plan from the majority of other employees of the employer?
  2. Should one bargaining unit have a different premium sharing arrangement from the majority of other employees of the employer?
  3. Should the overall cost for medical insurance for one bargaining unit be different from the overall cost of medical insurance for the majority of other groups of employees of the employer?

In the recent Island County interest arbitration decision, Katrina Boedecker included this statement in her July 26, 2013, opinion:10

The employer makes a compelling argument that at this time in the economy, it should be making the same medical contribution for all of its employees. Acknowledging internal comparisons is appropriate. This approach realizes that shared “suffering” is a realistic way to deal with the recession.

Other awards offer answers to the important issue of medical benefits including the principle of internal equity among employee groups on medical benefits.

In the 2012 case of Pacific County and Teamsters Local 252 (supra), at U.Ex. H, tab 6, at 17-18,11 Jamie L. Siegel quoted Fred Rosenberry, who in turn referred back to a 1982 arbitration case:

Additionally, I am mindful that the employer's other employees receive a significantly lower contribution toward their health and welfare benefits and may receive little to no increase in wages. Arbitrator Fred Rosenberry discussed internal equity with respect to medical insurance in City of Bellevue and IAFF Local 1604, PERC No. 23780-I-11-0563 (Rosenberry, 2011), where the City's non-interest arbitration eligible employees contributed a significantly greater copremium than the firefighters:

Many arbitrators, including this one, find the disparity troublesome and do not desire to see the interest arbitration process become a divisive wedge between employees. Arbitrator Howard S. Block shared his concern and commented in his June 30, 1982, Bellevue decision, stating: “Deviations from a uniform benefit pattern can be disruptive to employee morale. In short, comparison among employee groups of the same employer are no less important than comparisons with other employers.”

I agree. In light of the statutory criteria, concerns for internal equity, and after considering all of the evidence and the parties' arguments, I find the evidence at this time is not sufficiently compelling to revert to a premium increase cost-sharing formula or to otherwise adjust the employer's contribution beyond the employer's proposal.

The Linkage between Wages and Medical Costs

Wages, pension contributions and medical benefits, are the big ticket items in an employer's cost of compensation and are, thus, directly linked to each other. All three components of the compensation package must be taken into account when either is determined. Arbitrator Alan Krebs addresses the linkage between wage and medical costs in his opinion in City of Mukilteo (March 8, 2013)12 . Arbitrator Lankford's also addresses this linkage in his opinion in Kitsap County (February 27, 2013).13 Arbitrator Lankford concluded that costs of wages and insurance are linked together and form the core of the economic package. When wages change, pension costs change, not to mention increases in pension contributions when required by pension trusts and state legislation.

Even though not a “cost of living” index, the Consumer Prices Index (CPI) published by the Bureau of Labor Statistics (BLS) is often applied as a measure of changes in the “cost of living” over time14. Medical costs have increased between 30% and 35% over the last five years, far outstripping trends in the CPI over that period of time.15

Source: www.bls.org and www.awcnet.org; AWC Salary and Benefit Surveys

The Annual Average changes in the CPI over the last five years, using the CPI-U, are as follows -- compared to general wage adjustment trends in cities and counties:

For the foreseeable future, it appears that the above pattern will continue. When the rate of increase in medical cost is from two to 10 times greater than the rate of inflation of other goods and services, it is understandable that employers continue to expect employees to pay a greater share of their medical insurance premium or accept lesser coverage or smaller pay increases when the employer is absorbing a much greater share of medical premium increases than the employee.

Employee patterns of premium sharing are changing with the increased interest in:

  • Wellness incentive programs
  • High Deductible medical plans
  • Self-insured benefits
  • Effects of the Affordable Care Act 17

Several appendices are provided for the reader to use in comparing their recent experience with trends and developments.

  • Appendix A illustrates medical premium sharing trends (in dollars) for the five year period 2008-13, stated in monthly and hourly denominations.
  • Appendix B shows state pension rates for government employers (stated in percentages) for the same period.

What is important when it comes to money is adequate and affordable compensation to recruit and retain quality employees within the labor-market. This applies both to wages but also to hours of work and paid time off. It also applies to contributions to IRS qualified deferred compensation plans. Higher medical costs are requiring smaller wage adjustments. Higher wage and pension costs are resulting in larger employee contributions toward their medical insurance.

The Linkage between Wages and Pension Costs

Pension costs constitute approximately 15% of the cost of employee compensation. Pension costs continue to increase: (1) as wages increase, pension costs increase; (2) as employees get older and actuaries revisit their projections, pension contributions increase. In the last five years, pension costs have increased between 25% and 35% for many employers. This rate far outstrips trends in the CPI over the same five year period.

CPI, medical, pension, and wage Trends for the period 2008-13 are illustrated in the side-by-side table below:

*Note: The above table shows the employer's PERS contribution rates history over the last five years: At the end of 2007, the employer's contribution rate was 6.13%. Then, the rate spiked to 8.31% (7/1/08). Then, the rate dropped to 5.29% (7/1/09) and has increased from there as follows: 5.31% (9/1/09), 7.07% (7/1/11), 7.25% (9/1/11), 7.08% (4/1/12), 7.21% (7/1/12), 9.19% (7/1/13), 9.21% (9/1/13).

The above increases do not include employer contributions to Social Security at a rate of 6.2% to 7.65%. Neither do the above increases include employer contributions to IRS-Qualified deferred compensation plans, the costs of which typically increase as wages increase. Because of the size of State pension contributions (6% to 9%) and FICA contributions (6.2% to 7.65%), it is rare that public employers make deferred compensation plan contributions on top of FICA and PERS or LEOFF contributions. This pattern also applies when there are supplemental pension programs such as the Municipal Employees' Benefit Trust (MEBT) for cities, designed as social security replacement programs.

Because pension contributions are such significant components of compensation, interest Arbitrators have often included the cost of supplemental pension (e.g. deferred compen-sation contributions) in making total cost of compensation comparisons in cases that include wage, hours and benefits issues for uniformed personnel.18 Wages, supplemental pension contributions and medical benefits are then increasingly added together in budgeting and contract bargaining and taken into account when each one is determined, along with the costs associated with adds-to-pay such as longevity pay, education pay, holiday pay, and various premium pay line items.

The Linkage between Wages and the CPI

Some food for thought: Why use a smaller percentage than 100% (e.g. 90%) of the CPI when linking a general wage adjustment to inflation. Some discounting of the CPI is done for the following reasons:

  1. CPI includes medical care and the employer pays most of medical premiums which are rising faster than the CPI, so double counting results when using 100% of the CPI
  2. CPI is based upon a fixed market basket of goods and inflated numbers can result when employees substitute less expensive items for more expensive items as prices increase; also, consumers purchase different goods in different proportions over time
  3. CPI is not a “cost-of-living” index. Consumers buy different things. Employees do not consume all items included in the CPI index (e.g. tobacco) or choose the same entertainment (e.g. go out to movies).
  4. Prices (e.g. housing) may be lower in one area than another area, so the CPI should not be applied uniformly since lower price options are often available. Inflation has less of an impact on an employee who is a homeowner than an employee who is renting.
  5. Market items appear with improvements in technology that employees benefit from; even though the price may have gone up, quality may have gone up as well
  6. Arbitrators have included 90% CPI in arbitration awards on wages (e.g. Tacoma Firefighters IAFF Local 31, 2007; Pacific County and Teamsters Local 252, 2012)
  7. City and Union negotiators have included 90% CPI in collective bargaining agreements (e.g. City of Bellevue and Teamsters Local 763, 2012-14; City of Tukwila and United Steelworkers, 2010-13; Chugach Electric IBEW, 1997; Olympic Memorial Hospital District, Decision 1587, PECB 1983)
  8. Pension costs in some jurisdictions are increasing at greater rate than the CPI
  9. Costs of adds-to-pay that are linked to wages result in multiple wage increases
  10. Costs of double time overtime mitigates inflation, not typically available to employees
  11. Effect of CPI is less on workers making $100,000 per year vs. workers making $60,000 per year vs. workers making $30,000 per year
  12. Employees are sometimes receiving increases in longevity pay, education pay, pay step advancement, vacation increases, bonus or performance pay increases, etc. – in addition to the across-the-board wage increases, such that 100% CPI overcompensates employees.

A Table is provided below to show the different CPI multipliers required to create the same $300 wage increase for different wage earners – when applied to a 1.0% increase in the CPI. For example, it takes 100% of the CPI on a wage of $30,000 to produce a wage increase of $300. For a wage of $100,000, it only takes 30% of the CPI to produce the same wage increase of $300.

Additional treatment is given this subject in articles posted on the Bureau of Labor Statistics website.19

 

APPENDIX A

MEDICAL

Trends: General Employees (excludes uniformed public safety personnel)

Source: Association of Washington Cities (2008-13) ‐ 220 Reporting Cities (Union, Non-Union, Exempt, and Non-Exempt)

*Note: The cost per hour is based on a 40 hour work-week, 2080 hour work year. For the purposes of illustration, the base wage is assumed to be $20.00 per hour in 2008.

Summary: In 2008, a $20.00 per hour wage when added to a $5.90 per hour employer contribution toward the cost of employee medical insurance totals $25.90 per hour. In 2013 (five years later) the total wage + family medical premium paid by the employer was $29.37. This is an increase of $3.47 per hour or 13.4% or an average of 2.7% per year. Based on a 2080 hour work year (40-hour workweek), this is an increase of $7,218 per employee, from $53,872 to $61,090. This does not include the changes in pension costs.

APPENDIX B

PENSION

Effective September 1, 2013, the employer's state pension contribution rates are as follows:

*Employer rates for Plan 3 are the same as for Plan 2

http://www.drs.wa.gov/employer/EmployerHandbook/pdf/CurrentContributionRates.pdf

 

APPENDIX C
EVERETT (1981)
ISSUE V - MANAGEMENT RIGHTS
ARBITRATOR'S OPINION

Everett Police Officers' Association v. City of Everett, PERC Case 03159-I-80-00074, March 5, 1981

ANALYSIS

The present contract contains what is known as a "general" management rights clause as follows:

"Any and all rights concerned with the (sic) management and operation of the Police Department are exclusively that of the City unless otherwise provided by the terms of this agreement. The City has the authority to adopt rules for the operation of the Department and conduct of its employees, provided such rules are not in conflict with the provisions of this agreement or with applicable law."

The City has proposed a larger "specific" clause that lists some 18 areas of management rights. The Association proposed to retain current language.

Arbitrator's Analysis

Expanded management rights clauses as proposed by the City are commonly found in collective bargaining agreements. It is one of the few "management' clauses in labor agreements. The dispute in this case is not whether the collective bargaining agreement should contain a management rights clause -- it does. The dispute is over the form - expanded or shortened. Management has expressed dissatisfaction with the shortened form and preference for the expanded form. Even by the evidence sub-mitted by EPOA, about half of the contracts that EPOA surveyed had one form, and half the other.

Award

The majority of the Panel awards the City's management rights clause.

APPENDIX D
LYNNWOOD (1980)
ISSUE XVIII - MANAGEMENT RIGHTS
ARBITRATOR'S OPINION

Teamster Local 763 v. City of Lynnwood, PERC Case 02566-I-80-00066, July 23, 1980

ANALYSIS

Regarding the Managements Right clause, the Arbitrator agrees with the City that the present provision is a modest one that merely affirms the City's right to perform normal management functions and carry out its governmental responsibilities. More-over, the Union did not identify any past or existing problems arising under the present provision. Furthermore, the grievance procedure allows grievances over the "application" of terms and provisions of the agreement as well as grievances over the "interpretation" and "violation" of the agreement. Thus, the Union already has a vehicle for arbitratory or capricious applications of the Employer's exercise of the rights specified in the Management Rights clause. The language of 18.2 gives management the right to establish work rules, but such work rules must be "reasonable". If the Union feels they are not "reasonable", it has the right to grieve. As to the Union's argument that many terms and conditions of employment are not obvious or conspicuous, the Arbitrator notes that the Union had no problem providing numerous examples of "hidden" benefits.

After careful consideration of all oral and written arguments and evidence, and for the reasons set forth above, the arbitrator awards the City's management rights clause (Article XVIII).

WHAT'S IMPORTANT NOW?

More About Lou Holtz:

Other Lou Holtz Resources are provided, for those readers who may be interested in how the man who has become a world-renown speaker and student of motivation thinks:

Holtz has authored two best-selling books: "The Fighting Spirit," that chronicles Notre Dame's 1988 championship season, and "Winning Every Day," that focuses on 10 strategies that can assist an individual in achieving success in his or her professional and personal life.

 

1. City of Bellevue v. IAFF Local 1604, PERC Case 23828-U-11-6082, Decision 11435-A - PECB, July 12, 2013..

2. The author of this article realizes that the views of management rights clauses vary and that the importance of having a detailed management rights clause in the labor agreement can be controversial. So, any reader who is “from Missouri” when it comes to management rights provisions will need to consider the bias of this writer who represents employers in collective bargaining matters.

3. Similar provisions in collective bargaining agreements that are common which serve as a quid-pro-quo for the management rights clauses include: binding grievance arbitration, discipline or discharge for just cause, and requirements for union membership.

4. This argument has some support in Whatcom County (PERC Decision 7244-B) in (PECB, 2003) and Community Transit (PERC Decision 10647-A) in (PECB, 2011). These cases explain PERC’s view that management rights language in some cases can be so broad that they are unlawful. But, this was not the case in City of Bellevue where PERC agreed that the Bellevue language is much like the Pasco clause.

5. Everett Police Officers’ Association v. City of Everett, PERC Case 03159-I-80-00074, March 5, 1981 (See Appendix C) and Teamster Local 763 v. City of Lynnwood, PERC Case 02566-I-80-00066, July 23, 1980 (See Appendix D).

6. IAFF Local 1604 v. City of Bellevue, PERC Case 23828-U-11-6082, Decision 11435-A - PECB, July 12, 2013.

7. Pasco Police Association v. City of Pasco, 132 Wn.2d 450 (1997), citing NLRB v. Wooster Division Borg-Warner, 356 U.S. 342 (1958); Federal Way School District, Decision 232-A (EDUC, 1977).

8. The IBEW Code of Excellence is probably one of the finest statements I have seen a union make to “bring out the best in its members” and demonstrate to customers that is what they can expect. www.ibew.org

9. Bellevue Language: "The City agrees that a continuing duty to bargain exists as to those enumerated rights that affect wages, hours and working conditions within the meaning of RCW Chapter 41.56."

10. Island County v. Island County Deputy Sheriffs’ Guild, July 26, 2013. Website: www.perc.wa.us.

11. This version is paginated differently from the PERC website version.

12. Perc Case: www.perc.wa.us posted March 8, 2013

13. Perc Case: www.perc.wa.us posted February 27, 2013

14. http://www.bls.gov/cpi/

15. A factor in interest arbitration is changes in the “cost of living” over time. RCW 41.56.465(1)(c).

16. http://www.bls.gov/ro9/cpiseat.pdf: The most recently published CPI-U (June 2012 to June 2013) was reported at 1.4% as released by BLS July 16, 2013.

17. http://www.hhs.gov/opa/affordable-care-act/index.html

18. Research www.perc.wa.gov, interest arbitration decisions, word search: deferred compensation.

19. Click on http://www.bls.gov/cpi/ to review BLS Publications and Research papers related to the CPI.


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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